EU May Bank Sovereign CDS Naked Shorts

Mar 10 2010 | 11:43am ET

The European Union may ban naked short sales of sovereign debt, it said yesterday.

European Commission President Jose Manuel Barroso told the European Parliament that—despite the findings that there is no evidence credit default swaps were being used to push Greece towards default by German regulators—that new “reflection” is needed on sovereign CDS.

“In the short term, we must achieve the necessary coordination to ensure that member states act in a coordinated fashion, most particularly for ‘naked’ practice,” Barroso said. “In this context, the Commission will examine closely the relevance of banning purely speculative naked sales on credit default swaps of sovereign debt.”

Barroso said the issue of naked shorts on sovereign CDS will be discussed at the next meeting of the G-20.

The EC—which drafted the controversial Alternative Fund Managers directive currently being debated in the European Parliament—plans to talk about measures to cut speculation in sovereign CDS at a March 16 meeting.

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