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Market Solution To Market Problem

It appears we’re taking a few steps forward in the move to make the credit default swap market much more transparent.

The Securities and Exchange Commission gave the go-ahead on Tuesday for LCH.Clearnet Ltd to begin operating as a U.S.central counterparty for credit default swaps.

The SEC approved some temporary exemptions that allow LCH to act as a counterparty, a move that should help add transparency to the unregulated multitrillion-dollar credit default swaps market, SEC Chairman Christopher Cox said in a statement.

"These conditional exemptions will allow a central counterparty to be quickly up and running, while protecting investors through regulatory oversight," Cox said.

That move represents a victory for NYSE Euronext , whose London-based derivatives arm Liffe has partnered with LCH.

But rival exchange CME is nipping at their heels.

The Commodities Futures Trading Commission announced Tuesday that Chicago-based CME had certified plans to provide clearing services for certain credit default swap contracts. CME still needs SEC approval.

As you can imagine the Fast Money traders are all positive about the developments. Perhaps Joe Terranova sums it up best. He says, “not only does it help in counter-party risk but it restores confidence to the market.”

For more comments from the traders please watch the video

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Trader disclosure: On Dec. 24 th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Najarian Owns (AMR) And Is Short (AMR) Calls: Najarian Owns (MSFT): Najarian Owns (XHB) Calls: Finerman's Firm Owns (AEO): Finerman's Firm Owns (MSFT) And (MSFT) Put Spreads; Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (BBT), (COF), (USO); Finerman's Firm Owns (ROH) Call Spreads; Karabell Owns (AAPL), (GOOG), (JPM), (CSCO)

Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)

Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.: Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (OFC), (DLR), (EXR), (IGE), (MAC), (DBC), (DBV), (SKT), (UA), (CLB): Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights