NEWS

In a commentary piece published by Bloomberg (May 25), Erah Shirvani argues that Germanys ban certain short-selling transactions “is an unwarranted distraction that is based on misinformation and misperception.”

“The ban on naked short-selling of euro-area government and sovereign CDS, as well as shares of large German financial firms, has contributed to financial-market turmoil, affecting the price of credit globally,” Shirvani, chairman of the International Swaps and Derivatives Association. “It also means German companies
will find it harder to hedge economic exposure, or express a view on the creditworthiness of a particular reference entity.

“New York Federal Reserve President William Dudley recently offered these thoughts regarding the positive benefits of short-selling: ‘Asset bubbles occur more frequently when it is difficult to short the asset.’ Speculation may have an important role to play in the functioning of markets, though it doesn’t seem to have been prevalent in sovereign CDS trading.”