MEPs angling for a fight over naked short-selling

THE European Parliament has stepped up the pressure for a ban on short-selling certain sovereign debt derivatives, laying the ground for an explosive battle with member states in the autumn.

Green MEP Pascal Canfin successfully inserted an amendment into legislation yesterday that would ban “naked” short-selling of credit default swaps (CDS) on any European country’s bonds, which would in practice would shut down a large part of the continent’s sovereign CDS market.

Naked short-selling of a derivative is a short in which the trader does not own the underlying asset. Under the strict “hard-locate” definition pushed by Canfin, the ban would apply to most of the current CDS shorts market.

Canfin is unlikely to back down without a fight. Conservative MEP Syed Kamall, who voted against the ban, said: “Even flirting with the idea of a ban is causing danger and uncertainty in sovereign debt markets.”