The IMF has released a damning report criticizing the European ban on purchases of naked sovereign CDS (SCDS). It not only questions the fundamental premise that CDS trading contributes to market volatility but asserts that even if it does there are more effective ways to mitigate this. “Whether SCDS markets propagate contagion is difficult to assess since the risks embedded in SCDS cannot be readily isolated from those in the financial system,” the report concludes. “However, SCDS markets do not appear to be more prone to high volatility than other financial markets. While there are some signs that SCDS overshoot their predicted value for vulnerable European countries during periods of stress, there is little evidence overall that such excessive increases in countries’ SCDS spreads cause higher sovereign funding costs.”