Merc gets OK to trade swaps

WASHINGTON - The Securities and Exchange Commission on Friday approved temporary exemptions from agency rules that will allow the Chicago Mercantile Exchange to operate as a central clearinghouse for transactions involving credit default swaps.

It was the third such approval granted by the SEC to a trading firm since December. The moves go toward creating a new system of central clearinghouses for the swaps, complex investments traded globally that have been partly blamed for the financial crisis.

Well-regulated central clearinghouses should help promote stability in the financial markets by reducing the risks from the default or financial distress of a major market player, the SEC says.

The Chicago Mercantile Exchange, the world's largest financial exchange, is part of Chicago-based CME Group Inc., along with the Chicago Board of Trade and the New York Mercantile Exchange. The Chicago Merc, as it is known, joined with Citadel Investment Group LLC, one of the biggest hedge funds, to apply to operate the new clearinghouse.

Traded in a $60 trillion market that is unregulated and secretive, credit default swaps have come under scrutiny by Congress and federal regulators in the wake of the financial and credit crises that have plunged economies around the world into recession.

The swaps are commonly used contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults.