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Risks and Regulation of“CDS”Naked Short Selling
Author(s): 
Pages: 74-79
Year: Issue:  3
Journal: Journal of Shenzhen University(Humanities & Social Sciences)

Keyword:  credit default swaps (CDS)naked short sellingfinancial derivative instrumentfinancial crisis;
Abstract: Naked short selling as a financial derivative instrument may increase the liquidity risk, credit risks, systematic risks, and even trigger crisis. Empirical studies show CDS (credit default swaps) naked short selling makes the Greek sovereign-debt crisis have expected and self-imposed characteristics. In Greek crisis, European Union forbid CDS naked short selling. In Chinese stock market crash, stock futures naked short selling was completely prohibited. They are both necessary measures taken in the hope that it is not already too late. To root out the negative feedback effects in crisis, we need to curb speculation and interrupt self-feedback mechanism. China should discard “market fundamentalism”, learn from EU experience to be cautious about the innovation of financial instruments, curb speculation, prohibit naked short selling, and at the same time be wary of riskless arbitrage of quasi-municipal bond .
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