29 Sep 2011
A new study for the European Parliament has found that a ban on naked credit default swap sales is negative for the functioning of financial markets.
The study was commissioned by the European Parliament from the German-based Centre for European Economic Research. The study was posted on the European Parliament’s web site in late September.
“A ban on naked CDS has detrimental effects on liquidity and the price discovery process of credit risk,” the study concluded. It added about shorting more generally: “Prohibiting uncovered short sales will negatively impact market liquidity and price discovery.”
The European Commission has proposed to harmonise EU regulation around short selling and some aspects of CDS trading. The proposals contain transparency requirements, restrictions on naked short sales, while national regulators as well as the newly created European Securities and Markets Authority (ESMA) are given new powers.
Earlier this week Spain, Italy and France extended bans on the short selling of banks and other financial stocks. The French and Italian bans run until 11 November, while the Spanish prohibition is of indefinite duration. The ban covers over 50 companies.
The study was commissioned by the European Parliament from the German-based Centre for European Economic Research. The study was posted on the European Parliament’s web site in late September.
“A ban on naked CDS has detrimental effects on liquidity and the price discovery process of credit risk,” the study concluded. It added about shorting more generally: “Prohibiting uncovered short sales will negatively impact market liquidity and price discovery.”
The European Commission has proposed to harmonise EU regulation around short selling and some aspects of CDS trading. The proposals contain transparency requirements, restrictions on naked short sales, while national regulators as well as the newly created European Securities and Markets Authority (ESMA) are given new powers.
Earlier this week Spain, Italy and France extended bans on the short selling of banks and other financial stocks. The French and Italian bans run until 11 November, while the Spanish prohibition is of indefinite duration. The ban covers over 50 companies.
