CDS naked shorting ban under fire

Author: | Published: 31 Mar 2011

European Parliament's proposed ban on naked short selling of credit default swaps (CDS) may affect the reliability of pricing and could even reduce attractiveness of the product as a whole.

"It's an error. I think it's an overreaction," said Barney Reynolds from Shearman & Sterling in London.

"It seems to me that shorting is a proper and necessary counterbalance for price discovery purposes, and that banning naked shorts is likely to dampen the efficient use of shorts."

He added: "So long as there's proper policing of improper shorting, which is possible under existing regulation, there's no necessity for...