Treasury unveils plan for derivatives oversight

http://www.marketwatch.com/story/treasury-to-unveil-plan-for-derivatives-oversight-2009513143600

Derivatives and other OTC securities must trade through clearinghouses

The vast majority of complex and opaque over-the-counter derivatives must be traded on centralized clearinghouses, the Treasury Department recommended on Wednesday as part of its regulatory reform effort for exotic financial products.

"As part of our comprehensive reform effort, we are laying out a framework for oversight for the derivatives markets," Treasury Secretary Timothy Geithner said.

Derivatives such as credit-default swaps (CDS) and cash-settled-equity swaps are considered to be key contributors to the financial crisis. Problems with credit-default swaps sold by troubled insurer American International Group Inc. led to the $180 billion government bailout of the company. /quotes/comstock/13*!aig/quotes/nls/aig (AIG 1.80, +0.20, +12.50%) , which otherwise may have collapsed and caused collateral damage to the markets.

The proposal seeks to give regulators additional information about the opaque derivatives market so they can identify dangerous trends for the markets early on. It also proposes that all derivatives traders to have greater capital on hand to limit their impact on the broader economy.

...the banks will have to pinkie-swear that they're telling the truth."







(ok, maybe I made that up, but it wouldn't surprise me)