bl<>Emergency Powers to Ban Naked CDS Trading Proposed by EU Agency
June 14 (Bloomberg) -- National regulators may be given “emergency powers” to “temporarily prohibit or restrict” naked credit-default swaps trades, under proposals being considered by the European Union in the wake of the Greek debt crisis.
The measures would be “temporary in nature and subject to coordination” by the European Securities and Markets Authority, the European Commission said in a statement today. The European Parliament is scheduled to vote tomorrow on a separate plan to restrict trading in credit-default swaps.
French President Nicolas Sarkozy and German Chancellor Angela Merkel called on the commission last week to speed up curbs on financial speculation, saying some bets against stocks and government bonds should be banned as markets suffer a resurgence of “strong volatility.” Germany banned some naked short-selling last month.
The commission, 27-nation EU’s executive body, last week promised to accelerate its plans to regulate credit-default swaps, without saying if it would favor a ban on some transactions.
The commission is seeking views on its swaps plan as part of public consultations on possible rules that also include over-the-counter derivatives. Respondents have until July 10 to submit their views on the policy options, the commission said.
Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.
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