EU threatens to ban some credit default swaps

European Commission President Jose Manuel Barroso. File photo: AP.

The European Union executive is threatening to ban some credit default swaps in a swipe at speculators who made huge bets against the euro and the chances of Greece not repaying its debt in recent weeks.

European Commission President Jose Manuel Barroso, told the European Parliament on Tuesday that the EU would look at banning “purely speculative naked sales on credit default swaps of sovereign debt.”

Credit default swaps are a form of insurance for buyers to protect them against the risk that a seller or borrower would default.

In naked sales, the buyer does not hold the underlying asset and faces no such risk - but can make a profit on the swap itself.