EU Agrees to Ban Naked Short Selling Of Credit Default Swaps on Sovereign Debt

BRUSSELS—The European Union finalized new legislation Oct. 18 to regulate short selling on financial markets after European Union member states reluctantly accepted a European Parliament demand to ban naked short selling of credit default swaps on sovereign debt.

The agreement broke a five-month standoff between the Council of Ministers, where EU member state governments are represented, and the European Parliament, which described naked short selling of credit default swaps as the equivalent of someone taking out fire insurance on a neighbor’s house.