WASHINGTON -- State and local issuers that want to leap into the growing municipal swap market must first face two major state law hurdles: Do they have authority to enter into a swap contract, and would the swap be considered debt under constitutional debt limits and other statutory restrictions?

The importance of having clear authority to participate in swaps was underscored earlier this year when the United Kingdom's House of Lords invalidated billions of dollars of swap agreements in the U.K. by ruling that local governments did not have power to enter into them.

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