Tuesday, October 18, 2011

EU To Ban Naked CDS on Sovereign Debt

Bloomberg reports:
The European Union reached a deal as part of a short-selling law that will pave the way for an optional ban on naked credit-default swaps on sovereign debt.
This is as near to a no-brainer as it gets. In principal, naked CDS are the financial equivalent of nuclear warheads on ICBM's. It's great if you can buy 'em, but whoever sells to you -- i.e. the big bank with the 20-somethings gunning for bonuses on the trading desks -- has to be bailed out when the SovBonds are inevitably downgraded.

This signals a streak of common sense and resolve that we find a refreshing surprise. It is the single piece of good news we've seen from the EU all summer.


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