diff --git a/compiler/src/dotty/tools/dotc/ast/untpd.scala b/compiler/src/dotty/tools/dotc/ast/untpd.scala
index e8e3646bd087..b91c7a712f4c 100644
--- a/compiler/src/dotty/tools/dotc/ast/untpd.scala
+++ b/compiler/src/dotty/tools/dotc/ast/untpd.scala
@@ -527,10 +527,14 @@ object untpd extends Trees.Instance[Untyped] with UntypedTreeInfo {
   def makeCapsOf(tp: RefTree)(using Context): Tree =
     TypeApply(Select(scalaDot(nme.caps), nme.capsOf), tp :: Nil)
 
-  def makeCapsBound()(using Context): Tree =
-    makeRetaining(
+  // `type C^` and `[C^]` becomes:
+  // `type C >: CapSet <: CapSet^{cap}` and `[C >: CapSet <: CapSet^{cap}]`
+  def makeCapsBound()(using Context): TypeBoundsTree =
+    TypeBoundsTree(
       Select(scalaDot(nme.caps), tpnme.CapSet),
-      Nil, tpnme.retainsCap)
+      makeRetaining(
+        Select(scalaDot(nme.caps), tpnme.CapSet),
+        Nil, tpnme.retainsCap))
 
   def makeConstructor(tparams: List[TypeDef], vparamss: List[List[ValDef]], rhs: Tree = EmptyTree)(using Context): DefDef =
     DefDef(nme.CONSTRUCTOR, joinParams(tparams, vparamss), TypeTree(), rhs)
diff --git a/compiler/src/dotty/tools/dotc/parsing/Parsers.scala b/compiler/src/dotty/tools/dotc/parsing/Parsers.scala
index 2e441553689c..0ab82e7a0a10 100644
--- a/compiler/src/dotty/tools/dotc/parsing/Parsers.scala
+++ b/compiler/src/dotty/tools/dotc/parsing/Parsers.scala
@@ -2240,7 +2240,7 @@ object Parsers {
       atSpan(in.offset):
         if in.isIdent(nme.UPARROW) && Feature.ccEnabled then
           in.nextToken()
-          TypeBoundsTree(EmptyTree, makeCapsBound())
+          makeCapsBound()
         else
           TypeBoundsTree(bound(SUPERTYPE), bound(SUBTYPE))
 
@@ -4057,8 +4057,11 @@ object Parsers {
               || sourceVersion.isAtLeast(`3.6`) && in.isColon =>
             makeTypeDef(typeAndCtxBounds(tname))
           case _ =>
-            syntaxErrorOrIncomplete(ExpectedTypeBoundOrEquals(in.token))
-            return EmptyTree // return to avoid setting the span to EmptyTree
+            if in.isIdent(nme.UPARROW) && Feature.ccEnabled then
+              makeTypeDef(typeAndCtxBounds(tname))
+            else
+              syntaxErrorOrIncomplete(ExpectedTypeBoundOrEquals(in.token))
+              return EmptyTree // return to avoid setting the span to EmptyTree
         }
       }
     }
diff --git a/tests/neg-custom-args/captures/capset-bound2.scala b/tests/neg-custom-args/captures/capset-bound2.scala
new file mode 100644
index 000000000000..679606f0e43c
--- /dev/null
+++ b/tests/neg-custom-args/captures/capset-bound2.scala
@@ -0,0 +1,13 @@
+import caps.*
+
+class IO
+
+def f[C^](io: IO^{C^}) = ???
+
+def test =
+  f[CapSet](???)
+  f[CapSet^{}](???)
+  f[CapSet^](???)
+  f[Nothing](???) // error
+  f[String](???) // error
+  
\ No newline at end of file
diff --git a/tests/neg-custom-args/captures/capset-members.scala b/tests/neg-custom-args/captures/capset-members.scala
new file mode 100644
index 000000000000..bcc92835b95f
--- /dev/null
+++ b/tests/neg-custom-args/captures/capset-members.scala
@@ -0,0 +1,21 @@
+import caps.*
+
+trait Abstract[X^]:
+  type C >: X <: CapSet^
+  def boom(): Unit^{C^}
+
+class Concrete extends Abstract[CapSet^{}]:
+  type C = CapSet^{}
+  def boom() = ()
+
+class Concrete2 extends Abstract[CapSet^{}]:
+  type C = CapSet^{} & CapSet^{}
+  def boom() = ()
+
+class Concrete3 extends Abstract[CapSet^{}]:
+  type C = CapSet^{} | CapSet^{}
+  def boom() = ()
+
+class Concrete4 extends Abstract[CapSet^{}]:
+  type C = Nothing // error
+  def boom() = ()