AFME warns against European Parliament’s decision to curb short selling of sovereign CDS

09 March 2011

The Association for Financial Markets in Europe claims that European Parliament’s decision to restrict short selling of sovereign credit default swaps significantly increases the borrowing costs for both sovereigns and companies, causing real damage to the economy.

The European Parliament’s decision impairs the ability of companies and pension funds to manage credit risk and will be potentially harmful in managing systemic risk. It will make financial markets less liquid and add uncertainty for European companies looking to hedge risk.

Moreover, the European Commission has found no evidence whatsoever that sovereign CDS have had a significant impact on sovereign debt prices. The increased sovereign CDS activity is largely due to new capital rules, introduced by the European Commission itself, that encourage banks to purchase sovereign CDS to manage risk of swap transactions with sovereign states. AFME strongly urges Member States to resist introducing these measures.

Press release 

© AFME