WASHINGTON - Market participants have been quick to criticize a bill proposed by Rep. John B. Larson, D-Conn., that would tax municipal and other over-the-counter derivatives, saying that the legislation could freeze the derivatives market by creating prohibitively high costs for such contracts.

The four-page bill, introduced July 9, would impose a 0.25% tax on the fair market value of the underlying "property" of the notional amount of a "covered" OTC derivative, which would include any non-exchange-traded option, forward, credit default swap, or similar financial instrument in notes, bonds, or "other evidence of indebtedness," as well as other swaps, commodities, currencies, and stocks.

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