Fears surround political CDS regulation

Author: | Published: 12 Mar 2010

It may seem high-level and purely political at the moment, but renewed European focus on regulating the credit default swap (CDS) market could hit financial institutions hard, with London at particular risk.

The latest round of discussions on derivatives regulation has sprung up following the Greek debt crisis, with politicians blaming speculative trading in CDS on the country’s sovereign debt for exacerbating its problems.

When it was just Greece calling for a ban on speculative trading, the plea was easier to ignore. But in the past week France, Germany and, most worryingly, the UK have added their voices to the debate.

The uproar is similar to the backlash against hedge funds that followed the collapses of Bear Stearns and...