EU bans short selling on eurozone government debt

The European Union has banned investors from taking up ‘shorts’ on eurozone government debt, to prevent short selling aggregating price declines.

The European Parliament and EU Council last night approved a set of rule changes, resulting in a permanent but optional ban on naked credit default swaps on sovereign debt, reports Bloomberg.

Under the new rules, traders will be prevented from buying CDS on government bonds unless they are used as a hedge for an existing exposure.

In a statement, EU Financial Services Commissioner Michel Barnier said under the measures investors will have to tell regulators and the market if they have built up significant short positions in a company’s equity.

“These balanced measures will ensure that sovereign CDS are used for the purpose for which they were designed, hedging against the risk of sovereign default, without putting at risk the proper functioning of sovereign debt markets,” said Barnier.

The default swap restrictions could be lifted temporarily for at least a year if the market becomes distorted, The Times reports.


This article was first published on Investment Week

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