The head of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) came out against a ban on the ‘naked’ selling of sovereign credit default swaps (CDS), on 16 March, despite a pledge by the European Commission to consider it. “We still haven’t got the proof there’s been an excessive amount of speculation on the trade in sovereign CDS,” Sharon Bowles (ALDE, UK) said. “Where are the numbers big enough to sway the market?” She was responding to reports that sovereign CDS - complicated financial derivatives where investors bet on the default of a government on its debt - have been responsible for the crisis that has seen the euro tumble to new lows and Greek borrowing rates soar to twice the German benchmark. The Commission is especially concerned with ‘naked’ selling, where investors do not own the underlying bonds they are betting on.

Commission President José Manuel Barroso said last week that the speculative trade in sovereign CDS had “aggravated” the Greek crisis, but Bowles said there is not enough evidence for the claim. She said the UK’s regulator, the Financial Services Authority, is tracking reports of the trade in Greek government bonds through trade repositories, but has yet to work out whether the trades were speculative.

Bowles made the comments after a meeting with Gary Gensler, chair of the Commodity Futures Trading Commission, the US’ derivatives regulator. The US Congress is looking into draft rules on derivatives - complex finance products based on the value of an underlying asset, such as a stock, bond or a commodity - which were worth around US$600 trillion at the end of last year, according to the Bank for International Settlements. The EU is to bring in its own rules on derivatives by June, aiming to get all privately traded products on to centralised exchanges and clearing houses.