The EU will impose stricter regulations on the short selling of shares and bonds, banning “naked” credit default swaps on government bonds.
Agreement on the new rules was reached Tuesday between representatives of the European Parliament and EU member states. Proponents say they will make financial markets more stable.
The rules should get the final stamp of approval from the full EP and EU finance ministers within the next few weeks and take effect as of Nov. 1, 2012.
Lawmakers have tried to distinguish between investors using short-sales to hedge potential losses on shares, bonds or other assets and speculators trying to make a quick profit.
Representatives of the hedge fund industry are not happy with the new rules:
"We have previously expressed our concerns about the impact of a ban on uncovered sovereign CDS,” said Andrew Baker, CEO of the hedge fund lobby group, the Alternative Investment Management Association. "It could not only reduce liquidity and increase volatility in debt markets, but also increase government borrowing costs and reduce real economy investments in EU member states."