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Obama to detail regulation plans for derivative securities

May 13, 2009 | 12:26 pm

The Obama administration is expected today to announce new efforts to regulate the massive market for credit-default swaps and other derivative securities.

Treasury Secretary Timothy F. Geithner plans a press briefing at 1 p.m. PDT.

The administration plans "to detail its initiative to regulate the exotic financial contracts that helped fuel the global [financial] crisis and crippled some of the biggest names on Wall Street, such as American International Group," the Washington Post reports.

From Bloomberg News:

The U.S. Treasury will tell banks to increase transparency in the over-the-counter derivatives market by making prices available on centralized computer platforms, according to people familiar with the plan.

Electronic execution of trades including interest-rate and credit-default swaps would allow users of the financial instruments to get greater price transparency and make processing trades easier. Transactions in the $684 trillion over-the-counter derivatives market are now typically conducted over the phone between banks and customers.

"Anything that will bring transparency to this market will help the market, but the dealers who broker the deals would make less money," said Paul Zubulake, a senior analyst with Boston-based Aite Group. "More transparency for the buy-side is less profit for the sell-side."

Theo Lubke, a senior vice president at the Federal Reserve Bank of New York, said at a derivatives industry conference in China last month that it was "simply unacceptable in today’s environment that the design and structure of the over-the-counter derivatives market can be controlled by a handful of large dealers," according to Bloomberg.

"There is opacity in the OTC market that doesn’t have commensurate public policy benefits," he said. "This is not something that can continue."

-- Tom Petruno