The EU will likely ban so-called “naked” credit default swaps permanently today despite trepidation from states like Italy and Spain, according to the FT.
The FT reports that “broad agreement” has been reached on the deal, though policymakers are still ironing out the details.
This ban would apply only to credit default swaps where the trader purchases insurance without owning the underlying security, placing a “naked” bet on the outcome of a credit event. The final bill will likely include certain exemptions for investors and regulators in the short term.
Spain and Italy have opposed the measure because they feared it would increase their borrowing costs. The UK has opposed the measure on principle, arguing against increased interference in markets.
On the other side, the EU Parliament has long favoured the ban outright. It has accused hedge funds that bet on a Greek default by purchasing CDS of making a rescue more expensive — and thus more difficult.
A press conference on the matter is scheduled for just after 1 PM EST (via Reuters).