Wildhawk

CDS Regulation: Just One Simple Rule

Maybe I'm either a tad naive or just ill informed, but how is buying a CDS contract without any insurable interest any different than purchasing a put option on the company's equity without actually owning the equity? No one is seriously going to say we need to ban naked put buying, so why would we ban naked CDS buying? It's simply a way for a third party (whether "interested" or not) to purchase protection on the main elements of the company's capital structure- debt (CDS) and equity (put option). Just as the put option cannot drive a company out of business, neither can a CDS contract.