EU to propose greater transparency for default swaps on eight banks – EU document

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LONDON (Reuters) – The European Commission will propose greater transparency in the trading of credit default swaps of eight top banks to mirror rules in U.S. markets, a European Union document seen by Reuters showed on Wednesday.

So-called single name credit default swaps have come under regulatory scrutiny after the fall and state-backed rescue of Credit Suisse triggered high volatility on the CDS market for some systemic banks, Deutsche Bank (ETR:DBKGn) in particular, on March 24.

“One of the conclusions on the events of Friday, 24 March, was that single name CDS contracts are opaque and illiquid,” the EU executive body said in a document for a meeting of EU states on Thursday.

This would explain why a single, rather small CDS contract can trigger major moves in the price of both the CDS reference entity’s debt and equity, said the paper which proposes “targeted amendments” to the bloc’s post-trade transparency rules for over-the-counter derivatives.

The Commission said it proposes to re-insert CDS on Santander (BME:SAN), BNP Paribas (OTC:BNPQY), Credit Agricole (OTC:CRARY), Deutsche Bank, ING Bank, Intesa Sanpaolo (OTC:ISNPY), Societe Generale (OTC:SCGLY) and DZ Bank into the scope of derivatives transactions subject to post trade transparency.

Incomplete and asymmetrical reporting of CDS contracts linked to systemically important banks causes insecurity in markets during shocks, the paper said.

“A comparative analysis of the US and European post trade public reporting rules pertaining to single name CDS demonstrates where the problem lies: information asymmetry between two global markets that invariably trade CDS on the same reference entities,” it added.