Banks Pledge Fixes for Derivative Market

Dealers in the huge market for credit derivative contracts have committed to reducing 70% of trade confirmation problems by the end of June, the Federal Reserve Bank of New York said Monday.

The new target is part of a plan designed to fix the backlog of trade confirmations, which the New York Fed and other regulators have said adds additional risks to the murky credit derivative market, which grew to about $12 trillion in mid-2005.

The dealers also have committed to the development of a largely electronic marketplace, new processing standards for trades that cannot be confirmed electronically and a new procedure for settling contracts after a “credit event,” such as a default.

Credit derivatives are used by investors, traders and others to hedge risks or bet on market trends. The fast-growing market has worried regulators, who fear that a lack of transparency could lead to a financial blowup.

The major dealers in the agreement include Bank of America Corp., Bear Stearns Cos., Citigroup Inc., Goldman Sachs Group, JPMorgan Chase & Co., Lehman Bros., Merrill Lynch & Co. and Wachovia Corp.