Europcar Credit Insurance Debacle Sends Warning to Speculators

A failed attempt to settle debt insurance on a struggling French car-rental company is the latest blow to the $9 trillion market in credit derivatives, but this time the focus is on speculators.

Protection buyers who didn’t hold any of Europcar Mobility Group’s underlying debt were left with nothing, due to a shortage of bonds to settle contracts at the auction on Wednesday.

Flaws in the instruments’ capacity to protect against losses have undermined confidence in the credit derivatives market in recent years. The problem with Europcar, which defaulted on its debt last month, was that bids exceeded available securities, ...