Europe To Vote On CDS Legislation

Europe is going to decide whether the region needs more regulation on credit default swaps (CDS), and if it needs to do something about naked CDS short selling soon.

On March 7, the European Parliament's economic affairs committee adopted a bill to ban naked CDS's on sovereign bonds. The purpose of it would be to "curb speculation and improve transparency" in the financial services industry.

There appears to be little way that this actually becomes a law, but clearly something needs to be done. Many have said that naked shorting of CDS makes the market appear as if it's a casino, but EU Commisioner Michel Barnier has suggested that greater transparency and improving the information regulators might need would be better off than banning naked CDS.

Barnier sad that banning it would affect the liquidity of debt markets. If naked CDS was banned, government life would get harder, as they use interest rate swaps to manage their yield curve.