CDS Probe Shows Trading Curb Unnecessary, Hedge Fund Group Says

A group representing hedge funds urged policy makers against imposing “radical curbs” on credit-default swaps after a European Commission report found trading in the instruments didn’t trigger Greece’s financial crisis.

“Given that the commission’s own report has concluded that sovereign CDS trading did not cause the sovereign debt crisis,” the Alternative Investment Management Association hopes “those policy makers who are still advocating radical curbs on the sovereign CDS market will take note,” AIMA Chief Executive Officer Andrew Baker said in a statement today in London.

Baker’s comments addressed a European Commission investigation completed in May that found “no conclusive evidence” CDS trading led to “higher funding costs” for member states. A report disclosing the findings was released today after the Dutch newspaper Het Financieele Dagblad obtained the document through a freedom of information request.

The commission earlier this year proposed limits on so- called naked short-selling of swaps in which market participants bet prices will fall without ever holding the underlying bonds. German Chancellor Angela Merkel banned some naked bets in May amid voter frustration over the European bailout of Greece.

The commission report, which cited Greece, concluded that high debt levels and “the deterioration of budget deficits” caused market developments.

“The results show that there is no evidence of any obvious mispricing in the sovereign bond and CDS markets,” the 48-page document said.

Chantal Hughes, an EU spokeswoman, confirmed the report’s authenticity. “It’s an interim report and clearly shows that there is no conclusive evidence one way or another” as to how credit default swaps affect the bond market, she said.

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net.

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.

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