Financial Regulatory Forum

ANALYSIS – EU focus on credit default swaps may not yield bans

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.

EU examines debt speculators amid fears over Greece

BRUSSELS, March 3 (Reuters) – Officials working for European Union financial markets chief Michel Barnier will meet industry experts and supervisors on Friday to discuss debt speculators amid concerns traders are worsening Greece’s borrowing problems.

The meeting comes as political leaders attack hedge funds for speculating on Greek debt — although such trading is legal, the EU is examining curbing it with new rules and has invited the experts to give their opinion.

“We are looking at this issue very closely,” Barnier’s spokeswoman, Chantal Hughes, said. “We have called in experts to discuss.”

SNAP ANALYSIS-Austerity steps to ease, not end Greek crisis

By Andrew Torchia

LONDON, March 3 (Reuters) – Austerity steps announced by Greece on Wednesday may pave the way for European Union government aid, easing fears that Greece could lose its ability to borrow from debt markets at affordable rates.

But market worries about Greece are likely to remain acute for the foreseeable future, and doubts will remain over its ability to hit fiscal targets amid a deep recession.

Confidence in the euro currency and euro zone assets in general will probably not revive fully. Any EU aid to Greece would not resolve big divergences in the performances of euro zone economies, and could create a precedent for the zone’s rich states to bail out the profligate spending of poor ones.