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At Last, Transparency: Details From CME CEO

Wednesday, 8 Oct 2008 | 6:33 PM ET

In breaking news, the Wall Street Journal reports that the NY Federal Reserve this week will summon all participants in the market for bond insurance. That includes credit default swaps.

Finally, we might be getting a real solution to the issues generated by credit default swaps. Only one day ago CME and Citadel said they are inking a deal to create a platform for trading credit default swaps.

And for the first time since the deal, CME CEO Craig Donohue speaks out about how he plans to restore confidence on Wall Street.

CME Boss On Credit
Discussing the new credit default swap market, with Craig Donohue, CME CEO and the Fast Money crew.

“We’ve been working with the regulatory community to layout what we can do at the CME group,” reveals Donohue.

Currently credit default swaps are traded privately with their opaque nature believed to be at the heart of the Wall Street crisis. Putting them on an exchange, such as the Chicago Mercantile Exchange, should add transparency if only because investors will be able to see how much others are willing to bid.

”We need a higher degree of standardization,” Donohue adds. “Not everything will be standardized but much of it can be… and that will reduce the systemic risk in the markets."

Despite the plan, CME and Citadel may face an uphill struggle. Dealers have been hesitant to support exchange trading in the past because they typically generate more profit from the private nature of the market.

“I have to be honest and tell you that we’ve been trying to offer central counter-party clearing services to over-the-counter market for a couple years,” Donohue adds.

To date CME’s attempts to become the clearinghouse for these securities have not been successful.

But, maybe times are changing.



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Trader disclosure: On Oct.8, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT), (BNI), (MCD): Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (FCX) Call Spread; Najarian Owns (GS) Call Spread; Najarian Owns (MS), Owns (MS) Puts, Is Short (MS) Calls; Najarian Owns (NOK) And Is Short (NOK) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (WB) Calls; Najarian Owns (XLF) Call Spread; Najarian Owns (IWM) Puts; Finerman Owns (GS); Finerman's Firm Owns (MSFT), (NOK), (DEO), (PM), (MO); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (COF), (BBT), (USO)

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