Congressional investigators to report on credit derivatives

From Reuters
Thursday, February 1, 2007

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reut...

WASHINGTON -- Investigators for the U.S. Congress on Thursday pledged to issue a report by June 27 on the use of information technology in the credit derivatives market, responding to a request from lawmakers concerned about trade confirmation backlogs and economic stability.

Serious problems with information infrastructure could "trigger financial calamities with repercussions for the whole economy," Michigan Democratic Rep. John Dingell said in a statement.

Dingell, who is chairman of the House Energy and Commerce Committee, and a half-dozen other lawmakers requested the report from the Government Accountability Office.

The credit derivatives market includes contracts such as credit default swaps that are reached between institutions to manage credit risk.

The credit derivatives market grew 52 percent in the first six months of 2006 to $26 trillion, according to the International Swaps and Derivatives Association.

On Wednesday, Britain's Financial Services Authority (FSA) said the volume of outstanding trade confirmations in the equity derivatives markets has grown in the past year, resulting in a significant backlog.

The FSA urged firms to address the problem, while praising the credit derivatives market for largely resolving operational backlogs, which in the past two years drew regulator warnings.

The Federal Reserve Bank of New York said in late September that U.S. credit derivative dealers have doubled the number of trades processed electronically and sharply reduced backlogs.

The New York Fed has held meetings on the matter with major dealers, including Bank of America, Bear Stearns, Citigroup, Deutsche Bank, Goldman Sachs, Merrill Lynch, and others.

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