economics

March 16, 2010

Greece Seeks U.S. Support for Reining In Speculation

Filed under: Uncategorized — ktetaichinh @ 12:06 am
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A U.S. Treasury official said the administration had already called “a robust and comprehensive regulatory regime for over-the-counter derivatives, including interest-rate swaps and currency swaps.” Such a regime “would bring all derivatives markets under regulation for the first time, closing the loopholes that allowed risks to build up without oversight or constraints,” the official said. But that wouldn’t deal with short-selling, another Papandreou concern.

On Monday, German agency BaFin, which oversees financial institutions, said an analysis of market data has found no evidence that credit-default swaps have been used to speculate against Greek national debt.

Even so, there is a push in Europe to limit speculation, though no consensus on how to proceed. Mario Draghi, chairman of the Financial Stability Board, a global regulatory body that handles G-20 initiatives, said there is wariness generally among policy makers about the use of credit-default swaps as a speculative instrument.

In the U.S., while there is also concern about CDS contracts, the administration isn’t calling for a ban at this point. Instead, it wants to move standard credit derivatives to clearing platforms and regulated trading venues.

The Securities and Exchange Commission late last month approved curbs on short selling, in which investors try to profit by borrowing shares and selling them.

During 2008, the SEC instituted an emergency ban on a form of short-selling known as a naked short sale. In a naked short sale, the trader never actually borrows the stock.

—David Crawford, Sarah N. Lynch and Fawn Johnson contributed to this article.

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