SEC head wants oversight of some derivatives

By Karey Wutkowski and Charles Abbott

WASHINGTON (Reuters) - The head of the SEC staked a claim on Monday to a slice of the huge and largely unregulated over-the-counter derivatives market as debate over reshaping U.S. financial regulation heated up in Congress.

Just days after President Barack Obama presented a sweeping regulatory overhaul plan, Securities and Exchange Commission Chairman Mary Schapiro said she wants her agency to police "securities-related" OTC derivatives.

That would include credit default swaps (CDS), the exotic financial instruments involved in many of last year's financial disasters, including American International Group (AIG.N), according to Schapiro's testimony to a Senate subcommittee.

With a global notional value of $450 trillion (275 trillion pounds), the OTC derivatives market is now largely unregulated. With the exception of certain equity-linked notes, OTC derivatives are bought and sold beyond the view of the government.

In a shadow banking system that exploded in size in recent years, OTC derivatives are traded among a tight network of dealers. In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase (JPM.N), Bank of America (BAC.N), Citigroup (C.N) and Goldman Sachs (GS.N).

Exchange groups such as IntercontinentalExchange (ICE.N) and CME Group Inc (CME.O) also have a big stake in the outcome of the congressional debate over OTC derivatives, which President Barack Obama wants to make more transparent and accountable.

Congress is just starting to pick apart the plan presented by the president on Wednesday for bringing an antiquated U.S. financial oversight system into the 21st century. Months of debate lie ahead in the Senate and House of Representatives.

SEC AND CFTC