Brussels, 08/03/2011 (Agence Europe) - MEPs want to ban the sale of sovereign credit default swaps that are used solely for speculation. Adopting a report on Monday 7 March by French Green Pascal Canfin, the European Parliament's economic and monetary affairs committee restricted the holding of sovereign CDS to bonds, gilts or securities whose value is closely correlated with sovereign bonds. Investors may hedge against Greece's default risk, for example, by buying CDS-type insurance based on Greek bonds only if he or she already owns Greek bonds or shares in a Greek bank or Greek blue chip company.
In a press release, the rapporteur said that with the vote, the European Parliament had sent a clear signal that it wants to put a stop to speculation using CDS. The report is based on a compromise. Initially Canfin did not foresee the option of investors holding securities closely correlated with bonds of the countries in question and an expert commented that it is clear that this boosts the options. ESMA will be drawing up technical reports on the matter by the end of the year. The Council of Ministers' view on the issue has not yet been decided but the draft legislation will be discussed by the ECOFIN Council on Tuesday 15 March.
Naked short selling. The EP backs the draft legislation unveiled by the European Commission to rein in the naked short selling of securities. If a seller does not already own the security in question, he or she will have to sign an agreement with a third party to isolate and reserve the security so that it can be delivered on the payment date. The MEPs want such agreements to be entered on the same day as the security is sold. If not, or if agreements are made at a later date, the MEPs call for fines to be levied that are high enough to cancel out any profits.
The Conservatives oppose the EPP, S&D, Greens/EFA and GUE/NGL compromise and therefore voted against the draft report. “If we prevent investors from covering their risks they will be less inclined to invest in Europe. This will hit new EU countries and it can add to volatility in already distressed bond markets”, said British Conservative Syed Kamall. (M.B./transl.fl)