EU short-selling rules will damage investment in Europe
Posted, March 08, 2011 @ 00:00
Strasbourg, 8th March 2011 -- Measures adopted by the European Parliament to crack down on sovereign debt "speculation" and "naked" short-selling will threaten investment in projects across the EU, Syed Kamall, Conservative MEP for London, warned today.
The new rules adopted in the Economic and Monetary Affairs Committee last night would ban Credit Default Swaps (CDS) unless the investor owns the underlying sovereign debt or securities that depend on that country's performance.
The proposals are still subject to negotiations with national governments and at least one vote by the full parliament.
Syed Kamall, Conservative MEP for London, said:
"We should ban naked short selling where the seller has no intention of delivering the bond or share. However, manipulation of share prices is already dealt with in the Market Abuse Directive, but we must be careful not to confuse naked short selling with uncovered sovereign CDS.
"If we prevent investors from covering their risks they will be less inclined to invest in Europe and create new jobs. This will hit new EU countries and it can add to volatility in already distressed bond markets.
"Sovereign CDS are an insurance policy on many different investments, not just on bonds. Many funds investing in infrastructure projects will be wary to invest, thus stifling economic growth. Without CDS, yields will rise, increasing the cost of government borrowing, as a recently leaked paper from the European Commission has shown.
"The proposals are going to make it harder for countries that are already struggling to raise money.
"Once again we are seeing a knee-jerk political reaction from the EU which seems more interested in headline-grabbing than in understanding our bond markets and making them more transparent."