NEW YORK (Reuters) - SEC Chairman Christopher Cox has called on Congress to pass legislation that would make so-called credit default swaps more transparent, including requiring that dealers in over-the-counter swaps publicly report their trades and the trades’ value.

Securities and Exchange Commission Chairman Christopher Cox testifies at the U.S. House Financial Services Committee about financial market regulatory restructuring in Washington July 24, 2008. REUTERS/Larry Downing

Writing in Sunday’s New York Times, Cox noted that the $55 trillion credit defaults market is more than the GNP of all the world’s nations combined, and that credit default swaps “play an important role in the smooth functioning of capital markets.”

But, he said, “our markets function best when they are highly transparent,” while credit default swaps have “operated in the shadows,” with “no public discourse nor any legal requirement for these contracts to be reported to the Securities and Exchange Commission or any other agency.”

Having been bought and sold widely and in many cases anonymously,” trapping large financial institutions “in a web of transactions,” the swaps market has left government regulators with “no way to assess how much risk is in the system.”

“All investors ... are paying a price today for the lack of oversight” of credit default swaps, which Cox describes as being “like insurance contracts on bonds and any other assets that are meant to pay off if those assets default,” he stated.

Noting the market for credit default swaps has doubled in just the past two years alone and that “private counterparty discipline has proven inadequate,” Cox proffers several suggestions:

Congress should pass legislation to increase the swaps’ transparency and give regulators “the power to rein in fraudulent or manipulative trading practices and help everyone better assess the risks involved.”

It should also require dealers to report over-the-counter swaps and their value publicly, he wrote, while the SEC “should be given explicit authority to issue rules against fraudulent, deceptive or manipulative acts and practices in credit default swaps.”

Lastly, he posits that Congress could provide support for federal regulators “to mandate the use of one or more central counterparties -- financially stable clearance and settlement organizations -- and exchange-like trading platforms for the credit-default swaps market.”

The SEC, he said, is “working with the Federal Reserve, the Commodities Futures Trading Commission and industry participants to accomplish these goals on a voluntary basis, using the authority we already have.”

But “we will need to work closely with governments in other major markets,” Cox warns.

He concluded that giving regulators authority “to bring the credit derivatives market into the sunshine” would constitute a “giant step forwarding in protecting our financial system and the well-being of every American.”