|
|
Highly speculative financial market transactions in government bonds and credit default swaps (CDS) will soon be contained throughout the EU. The European Parliament endorsed a new EU Regulation on short selling and CDS today. "The Parliament has successfully fought for very strict conditions for short selling to contain destructive speculation. The new transparency rules will help stabilise financial markets", said Markus Ferber MEP who is responsible for the Regulation on short selling and CDS for the EPP Group.
Short selling of uncovered credit default swaps for government bonds will be subject to the strictest criteria. Only if the liquidity in the market for government bonds comes to a standstill will exemptions be possible. Respective applications will have to be endorsed by the European supervisory authority, ESMA. "This means a de-facto ban on the short selling of uncovered CDS on government bonds. This is crucial as the speculative potential currently possible can lead and has lead to the artificial decrease of the value of certain government bonds", said Ferber.
CDS can be used as an insurance against the default of government bonds. However, CDS can also be used to speculate against the value of government bonds. With uncovered CDS, market participants do not possess the financial instruments, they have only borrowed them. "It is only logical that CDS on government bonds are meant for investors who actually have the respective government bonds. All else is pure market speculation that can have incalculable effects, as in the case of Greece, and ought to, therefore, be contained. We need the new provisions to fight the sovereign debt crisis in the Eurozone", said the EPP Group MEP
After the formal consent of the Council and publication in the Official Journal, the new EU rules can enter into force before the end of the year. For the moment, there are either differing or no rules whatsoever on short selling at national level.