“Naked” ban deals further blow to CDS
Christopher Whittall, 04 April 2012
A ban on “naked” sovereign credit defaults swaps trading will be stricter and more far-reaching than market participants had previously thought and could severely damage market liquidity, analysts have warned.
The European Union recently published the final version of new regulation prohibiting participants from using CDS to take outright short positions in sovereigns. The regulation developed in the aftermath of various European politicians blaming sovereign CDS for peripheral bond yields widening during the euro zone crisis, despite a lack of empirical evidence to support these claims.
