senate Bill S2792

2011-2012 Legislative Session

Relates to alternative investment bonds

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Archive: Last Bill Status - In Committee

  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jan 04, 2012 referred to banks
Feb 01, 2011 referred to banks


S2792 - Bill Details

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Law Section:

S2792 - Bill Texts

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Relates to alternative finance investment bonds.

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An act
in relation to alternative finance investment bonds

To direct the chair of the Urban Development Corporation in
conjunction with the chair of the Dormitory Authority, director of
Budget, superintendant of Banking, commissioner of Insurance, and the
commissioner of Tax and Finance to create an investment vehicle known
as an Alternative Finance Investment Bond.

Section 1 sets,forth the legislative findings.

Section 2 defines the Alternative Finance Investment Bond (AFIB) and
directs the chair of the Urban Development Corporation (UDC) to
create the AFIB. This section also requires the UDC, in consultation
with the state Comptroller and Attorney General, to issue regulations
for the Alternative Finance Investment Bond. Finally, the chair of
the UDC must also submit a report within 90 days of passage, on the
potential foreign and domestic market for this investment vehicle.

Section 3 establishes the effective date.


According to a 2008 report by the Partnership for New York (PNY)
titled, Foreign Direct Investment: Bringing the Benefits of
Globalization Back Home, one in twenty jobs in New York City alone is
attributed to the $58 billion in foreign direct investment (FDI)
received in New York City. By comparison, London eclipses New York
City with over $104 billion in foreign direct investment.

New York ranks third among the United States' large states with
regards to FDI, lagging considerably behind Texas and California. The
U.S. Census Bureau reports that for the year 2007 Texas attracted
$119 billion in foreign direct investment, California $110 billion, and
New York
a mere $82 billion. In order to create jobs and increase New York's
competitiveness, more investment and financing options must be
brought to the state.

The way to attract more FDI and new intra-state capital flows is to
create new forms of investment opportunities throughout the state. In
the past decade, nations from the Persian Gulf, South East Asia, and
other emerging markets have experienced tremendous growth. Investors
from these countries are seeking investment opportunities abroad that
comport with their religious beliefs as Muslims, namely a prohibition
on interest. This precludes them from using conventional debt
instruments such as bonds. These investors use sukuk, also referred
to as Alternative Finance Investment Bonds. This financing vehicle
permits assets to be held for the benefit of investors in

certificates issued by an entity. These benefits may include payment
of a return that is economically equivalent to interest and
redemption of the certificates out of the process from the disposal
of the asset.

In a traditional AFIB arrangement, the issuer uses the subscription
proceeds of the bond to acquire the assets, which are then held for
the benefit of the holder of the AFIB. The income earned from the
assets is shared with the bond holder. Upon the maturity of the AFIB,
the assets are sold under a pre-existing arrangement and the proceeds
are returned to the holder of the certificates. The New York Times
reported in late 20 I 0 that the global demand for sukuk has grown
into a $100 billion market in the past decade.

General Electric became the first U.S. company to utilize this vehicle
in 2009 by issuing a $500 million sukuk to finance the leasing of
aircraft and is in the process of issuing another. Nations such as
England, France, South Africa, and Australia are all in the process
of changing their laws to treat these investment vehicles equal to
traditional bonds. In fact, France is expected to issue its first
sukuk in 2011.

In addition to the potential for job growth and development,
permitting the state and private entities to issue Alternative
Finance Investment Bonds would permit communities that do not engage
in interest based transactions, the opportunity to benefit from
capital financing facilitated by the state for the construction of
education and health care facilities as well as increase the market
for those who wish to purchase the State's debt instruments. The use
of AFIBs will permit all communities in New York to take advantage of
state financing and potentially lower the cost of borrowing.

This is a new bill.

There will be no cost to the State of New York, but there will be a
potential for large amounts of new investment capital to be made
available to the State and citizens.


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                    S T A T E   O F   N E W   Y O R K


                       2011-2012 Regular Sessions

                            I N  S E N A T E

                            February 1, 2011

Introduced  by  Sen.  PARKER -- read twice and ordered printed, and when
  printed to be committed to the Committee on Banks

AN ACT in relation to alternative finance investment bonds


  Section  1. Legislative findings and intent. 1.  New York's historical
prosperity has derived from the freedom and  innovative  nature  of  the
state's  capital  markets  and  New  York's roles as a center of foreign
trade and investment, which has helped build the industries  and  create
the jobs that earned the state the nickname of the Empire State.
  2.  The legislature finds that in order to bring more jobs to New York
in  a  global  economy, and to increase the state's competitiveness, the
state must find new sources of capital  investment  to  create  opportu-
nities  throughout  the state. An innovative way to accomplish this goal
would be to create alternate investment instruments that  would  attract
capital  from investors who for personal, moral or religious reasons are
unable to use conventional debt instruments such as bonds due  to  their
inability to purchase securities that generate interest.
  3.  New  York  has the proud heritage of being a model for the rest of
the nation in the areas  of  ethnic,  national,  racial,  and  religious
tolerance and diversity. However, over time large numbers of New Yorkers
have  been  unable to participate in investment opportunities offered by
the state, or in public-private partnerships due to the lack of  diverse
means of long term capital investments. Broadening the state's portfolio
of investment instruments would not only enfranchise large groups of New
Yorkers and lower the costs of state and local borrowing, but would also
aid  in  community  renewal  and revitalization. Creating more inclusive
forms of state financial opportunities would also broaden the streams of
capital available to the state, lowering the cost of financing and  once
again  involving the world's investors in the development of our state's

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.

S. 2792                             2

  4. The legislature therefore declares that expanding New York's  tools
for  economic  development  by creating new forms of alternative invest-
ments would enable it to participate in the multi-billion dollar  market
for  alternative  investment  vehicles  akin to conventional bonds, thus
freeing  up  new  capital for business and job creation. The creation of
these innovative financial instruments will furthermore permit  individ-
uals  and institutions of all faiths to invest in and issue such instru-
ments, redressing historic wrongs and low  participation  rates  in  our
  S  2. (1) Definitions. (a) "Alternative finance investment bond" shall
mean a certificate of  equal  value  representing  undivided  shares  of
ownership  of  tangible assets, usufructs and services or (in the owner-
ship of) the assets of particular projects or special investment  activ-
  (b)  "Alternative  finance  investment  bond  agreement" shall mean an
agreement where:
  (i) the agreement provides for a person ("the bond holder") to  pay  a
sum of money ("the capital") to another ("the bond issuer"),
  (ii)  the agreement identifies assets, or a class of assets, which the
bond issuer will acquire for the purpose of generating income  or  gains
directly or indirectly ("bond assets"),
  (iii)  the agreement specifies a period at the end of which they cease
to have effect ("the bond term"),
  (iv) the bond issuer undertakes under the agreement:
  (A) to make a repayment of the capital ("the redemption  payment")  to
the bond holder during or at the end of the bond term (whether or not in
installments), and
  (B)  to pay to the bond holder other payments on one or more occasions
during or at the end of the bond term ("additional payments"), and
  (v) the amount of the additional payments does not  exceed  an  amount
which would be a reasonable commercial return on a loan of the capital.
  (2)  The chair of the dormitory authority, the director of the budget,
the superintendent of banking, the commissioner of  insurance,  and  the
commissioner  of taxation and finance are hereby authorized and directed
to assist the chair of the New York state urban development  corporation
in creating, within one calendar year of the effective date of this act,
an  investment instrument for the state of New York that will be compli-
ant with the definition of alternative  finance  investment  bonds,  and
regulated  in  a manner consistent with traditional bonds and other debt
  (3) The chair of the New York state urban development  corporation  is
hereby  directed  to consult with the state comptroller and the attorney
general concerning the  regulation  of  alternative  finance  investment
bonds,  and whether such bonds may be issued by New York municipal enti-
ties in addition to any issuances by the state of New  York,  and  shall
provide  the  legislature  with language necessary for the regulation of
such security.
  (4) Within ninety days of the effective date of this act, the chair of
the New York state urban development corporation  shall  report  to  the
governor,  the temporary president of the senate, and the speaker of the
assembly, the minority leader of the senate and minority leader  of  the
assembly concerning the potential domestic and foreign market for alter-
native  finance investment bonds, and how such investment vehicles might
be  used  in  economic  development  generally,  and   specifically   in
distressed census tracts.
  S 3. This act shall take effect immediately.


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