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Michel Barnier Benedicte Gravrand, Opalesque Geneva:
On 18th October, the European Union reached agreement on its Short Selling Regulation, which will ban naked CDSs on sovereign debt and allow only the purchase of protection against the default of EU sovereigns for hedging purposes.
Some policy makers believe that speculative debt market players aggravate the eurozone sovereign debt crisis, making it more difficult for the EU to rescue Greece – hence the new ban, which also includes conditions and reporting requirements on the short selling of shares. It will take affect on 1st November 2012 on new contracts.
"It is a very ambitious accord which strengthens financial stability and strengthens the single market for financial services," Michel Barnier, the EU's financial services chief, told a news conference to announce the deal.
A CDS (insurance against default) in which the buyer does not own the underlying debt is referred to as a naked credit default swap, explains Wikipedia. An estimated 80% of the CDS market is made up of naked CDSs. Critics assert that they should be banned, comparing them to buying fire insurance on your neighbour’s house, which creates a huge incentive for arson. Short selling is also viewed as gambling and the CDS market a...................... To view our full article Click here
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