Page last updated at 19:53 GMT, Tuesday, 14 July 2009 20:53 UK

US investigates derivative market

AIG flag
Credit default swaps are blamed for bringing down AIG

The US justice department has launched an inquiry into the credit default swaps market, where complex derivatives are traded largely unregulated.

London-based Markit, which supplies information to derivatives traders, said it has been informed of an investigation into credit derivatives.

Last week, US Treasury Secretary Timothy Geithner said he wanted greater regulation of certain derivatives.

Credit default swaps helped to bring down the US insurance giant AIG.

They are effectively bets on whether a company will default on its debt.

"This might be another push by regulators to obtain a clearing house for derivatives. That may be the end game in all of this," said Gary Jenkins at Evolution Securities.

Regulation

So-called over-the-counter derivatives - bought and sold by parties outside exchanges - are seen by many as one of the triggers of the global financial crisis that brought down some of Wall Street's biggest names.

As a direct result, pressure is increasing for more stringent regulation of the market.

Mr Geithner has proposed that all standardised derivative contracts be executed on regulated exchanges or regulated electronic trading platform.

The privately traded global derivatives market is worth about $450 trillion (£276 trillion).



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