EU lawmakers ban “speculative” derivatives trades

STRASBOURG, France | Mon Mar 7, 2011 8:07pm GMT

STRASBOURG, France (Reuters) – EU lawmakers have approved a ban on some trading in debt insurance derivatives from 2012 to curb what some policymakers say is speculation that deepens the euro-zone debt crisis.

Monday’s vote marks the first milestone in bringing the hotly-disputed measure onto the bloc’s statutes.

The European Parliament’s economic and monetary affairs committee approved by a 34-to-8 vote a draft law from the European Union’s executive European Commission.

The broad, cross-party majority means the assembly is in a strong position to negotiate with EU states, who have joint say on the final version of the measure. EU finance ministers, who have been split over key elements, meet next week.

Green Party lawmaker Pascal Canfin, who is steering the measure through the assembly, said sovereign debt speculation is still causing chaos in the euro zone.

“Banning uncovered credit default swaps (CDS), which allow market players to speculate on sovereign debt of European countries, would be a major step forward,” Canfin said.

Hedge funds and other investors have been accused of using so-called naked CDS to bet on falls in government bond prices.

A naked CDS is where the person buying the CDS does not own the underlying sovereign debt being “insured” against.

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