By Huw Jones
LONDON, March 5 (Reuters) – European governments are exploring ways to curb trade in credit default swaps but may have to settle for requiring greater disclosure rather than banning certain forms of speculation.
France, Germany and Luxembourg say “speculators” — typically code for hedge funds — used CDS contracts to bet on Greece defaulting and send the euro lower.
Faced with such political pressure, the European Commission has called national supervisors, credit rating agencies, hedge funds and investors to meetings in Brussels on Friday to help it decide if European Union action is needed in the CDS market.
The U.S. Justice Department is also investigating if hedge funds might have acted together in betting against the euro.
Credit default swaps are privately-negotiated “insurance” contracts between two parties. Unlike normal insurance, the buyer can go “naked”, not owning what is being insured, a situation regulators say is perverse.