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EU set to ban 'speculative' sovereign debt trades

May 06 2011 Reuters

LONDON, May 6 (Reuters) - European Union states have given initial backing to a ban on naked selling of sovereign debt, the bloc's presidency said on Friday. Hungary said that under the deal it brokered this week a ban on naked government debt selling could only be lifted temporarily under strict criteria to be worked out later. "The presidency put on the table this proposal addressing concerns about liquidity that seem to be to the satisfaction of countries with these concerns," said Marton Hajdu, a spokesman for the EU presidency. A naked sale is where the asset is not owned or borrowed when sold, in the hope that market prices will have fallen by the time the asset is needed for settlement. EU member state ambassadors will review the compromise next week ahead of a meeting of finance ministers on May 17. "We are very optimistic," Hajdu said. Hedge funds and other investors have been accused of speculating on falls in government bond prices, which exacerbated difficulties

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