ESMA_QA_1955

Status: ✅ Answer Published

Link to ESMA Q&A tool: https://www.esma.europa.eu/publications-data/questions-answers/1955

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Regulatory Context

Regulation : SSR

Level 1 Regulation: Short Selling Regulation (SSR) Regulation (EU) No 236/2012

Level 2 Regulation: No information available

Level 3 Regulation: No information available

Topic: Uncovered short sales

Subject Matter: Uncovered Credit Default Swap - Use of a sovereign CDS position to hedge different risks

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Question

Submission Date: 29 January 2013

Can a sovereign CDS position be used to hedge against the risk not only of default in respect of an exposure but also against the risk of credit spreads widening e.g. by maintaining different durations in static or dynamic hedges to hedge against spread widening risk?

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ESMA Answer

Answer Date: 29-01-2013

[ESMA70-145-408 SSR Q&A, Q&A 11.5] ESMA considers that this would be permissible as long as the sovereign CDS position never became uncovered. Article 19(3) of the DR recognises that the same sovereign CDS position can be used to hedge different risks i.e. when one risk is liquidated another risk could be substituted provided it met the tests.

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This document was automatically extracted from the ESMA EMIR Q&A database.