Economic and monetary affairs – 16-03-2010
Credit default swaps (CDS) and how to regulate them took centre stage during the meeting MEPs of the ECON committee had with US Commodities and Futures Trading Commission chairman Gary Gensler on Tuesday. A number of MEPs who took the floor advocated in favour of banning some parts of this trade calling them purely speculative. Mr Gensler on the other hand proposed that the solution should be that of working to limit them.
Kicking off the debate, Mr Gensler presented his views on the broad issue of the derivatives markets. With the value of over the counter derivatives representing twelve times the value of all goods sold globally it was clear that this area needed much stronger transparency and regulation, Mr Gensler said. He proposed that action should be centred on three goals: The regulation of derivatives dealers, increasing transparency through the use of regulated trading platforms, and replacing the over the counter system by central clearing houses.
Specifically for CDS, stronger powers were being developed in the US for market regulators which would provide them with the authority to police this market for manipulation and other abuses. They would also be empowered to limit the level of activity on the CDS markets of specific entities.
MEPs were particularly probing on the issue of CDS. Arlene McCarthy (S&D, UK) asked whether plans were on the table in the US to ban naked trading of CDS. Anni Podimata (S&D, GR) also asked for Mr Gensler’s views on banning naked CDS trades linked to sovereign debt, whereas Wolf Klinz (ALDE, DE) argued that the overall level of CDS derivatives must be reduced drastically since most of it is speculative. Mr Gensler disputed the idea of banning since it will not be easy to know when a hedger is speculating. Transparent trading of CDS and setting of position limits were the solution he argued. Sven Giegold (Greens/EFA, DE) however asked why Mr Gensler was confident of setting quantitative limits but not of banning products since both depended on clearly defining speculation.
Later the same morning a hearing on cross-border crisis management in the financial sector was also held. Members discussed with representatives from the financial industry and think-tanks about the function of a European deposit guarantee fund, the roles of the different levels of financial supervision as well as what triggers to be used for declaring a crisis. This hearing will feed into Elisa Ferreira’s (S&D, PT) report on the same topic which is due to be presented on the 12th April.
