By DPA,
Brussels : European Union (EU) and US regulators pledged Monday to act together in regulating speculative trading in credit default swaps (CDS), a tool used by investors to cover themselves against losses.
Authorities on both sides of the Atlantic have launched investigations over the role of CDS trading in connection with Greece’s debt crisis.
Critics say “naked” CDS trading on Greek bonds – essentially buying insurance against default without holding a stake in the bonds themselves – gave traders an incentive to put pressure on Athens’ finances, because they had nothing to lose from it.
The EU’s internal market commissioner, Frenchman Michel Barnier, said action needed to be taken, after meeting in Brussels with the top US futures regulator, the chairman of the Commodity Futures Trading Commission (CFTC) Gary Gensler.
“Regulation of derivatives, including CDS is part of the G20’s mandate, so nobody should be surprised if we now act together and in parallel, taking account of our political specificity and different cultures,” he said.
“We need to regulate this market but we need to do it together,” Gensler agreed, stressing how CDS are part of a a wider over-the-counter derivatives market which is “over 12 times the size of the world economy”.
The exchange seemed to obscure recent frictions between the EU and the US over regulation of hedge funds.
Earlier in March Barnier received a letter from US Treasury Secretary Timothy Geithner warning him that proposals to give EU-based hedge funds a “passport” to move freely within the bloc while denying it to US equivalents would amount to discrimination.
The European Commission shot back, essentially urging the US not to interfere in the EU’s legislative process.
The proposals are due to be discussed Tuesday in Brussels by the EU’s finance ministers, with Britain sharing many of the concerns expressed by the US.
Barnier said he placed “great importance on the quality, the frankness and the regularity of the transatlantic dialogue between Europeans and Americans”, and would travel to the US in May.
“I will meet the US treasury secretary, with whom I had a useful exchange of letters some days ago,” he quipped.