The New York Times-20080126-U-S- Said to Be Weighing Public Pricing of Derivatives
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U.S. Said to Be Weighing Public Pricing of Derivatives
Full Text (317 words)United States regulators are considering forcing investment banks to make public markets in some of the more exotic financial instruments that have plunged in value in the last six months, the head of the New York Stock Exchange said Friday.
Duncan L. Niederauer, the chief executive of NYSE Euronext, said the exchange had been approached by officials from both the Securities and Exchange Commission and the Treasury Department about providing a way to disclose both quotes and trades in the derivative instruments, like collateralized debt obligations.
Those instruments are now traded over the counter, and the only market in them is often made by the investment bank that created them. The value of some of them has plummeted as the credit squeeze tightened, angering holders.
One day it is worth 90. The next day it is worth 22, Mr. Niederauer said of some derivatives. People wonder if it really went to 22 overnight.
Catherine R. Kinney, the NYSE Euronext president, added, There is a lot of pressure on the regulators from pension funds to price these.
Mr. Niederauer said the consideration of such a move was at an early stage, and he did not know whether action would be taken. He said the exchange had said it would be willing to arrange to disclose quotes and transactions.
If such quotes were forced, and if trades were required to be reported, it could enable investors to see how similar instruments were trading, providing some sense of value and exposing differences in the valuations by various dealers.
It could also cause embarrassment for banks, particularly if they had not marked down securities they owned to the level at which they were prepared to buy them.
You may not be able to force liquidity, Mr. Niederauer said, but you could force transparency.
[Illustration]PHOTO: Duncan L. Niederauer, chief of NYSE Euronext, in Switzerland. (PHOTOGRAPH BY FABRICE COFFRINI/AGENCE FRANCE-PRESSE -- GETTY IMAGES)