Derivatives

The California Public Employees' Retirement System is considering using derivatives to speculate on declines in the creditworthiness of corporate bond issuers. The pension agency would start with a pilot program in which the derivatives, known as credit-default swaps, would be limited to a small fraction of its $49-billion fixed-income portfolio, according to a report prepared for the agency's investment committee.

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.

Investors who believe that home prices have peaked may have a way to hedge against a decline in residential real estate. The Chicago Mercantile Exchange rolled out a new derivative Monday: futures contracts based on indexes that track house prices. The contracts are designed to let pension-fund managers bet on housing and builders hedge their losses. They may be a tough sell.

Federal Reserve Chairman Ben S. Bernanke said new government rules for energy derivative securities such as futures contracts and for hedge funds were unnecessary, reiterating stances taken by his predecessor, Alan Greenspan. "Additional regulation of energy derivatives is not warranted," Bernanke said in a letter to Sen. Michael D. Crapo (R-Idaho), responding to questions from Crapo. The letter was released Thursday.

Goldman Sachs Group's famously gold-plated bonuses are coming with a little something extra this year: unwanted scrutiny from the government. Just a few weeks after reporting record quarterly profit and a bonus kitty of more than $11 billion, Goldman revealed in a government filing that "various governmental agencies" were looking into how the firm gave out compensation. The company declined to reveal Wednesday which agencies were examining its pay practices and wouldn't provide details.

Fifteen big banks that dominate worldwide trading of derivatives have committed to greater transparency in a $600-trillion market that regulators say needs stricter oversight. The group of banks -- including Bank of America Corp., Citigroup Inc., Deutsche Bank, Goldman Sachs Group Inc. and JPMorgan Chase & Co. -- made the commitment for targets in expanded central clearing systems in a letter to the Federal Reserve Bank of New York. The banks also agreed to report a broader set of data so regulators could more easily monitor clearinghouses' use.

The dark and largely unregulated market of derivatives, which helped trigger the financial crisis, moved closer to federal oversight as a congressional committee voted to impose new rules on the products to try to limit the risk they can pose to the economy. The 43-26 vote by the House Financial Services Committee was a key step for the Obama administration's plan to overhaul Washington's oversight of the financial system while shedding more light on complex investments. Immediately after the vote Thursday, the committee took up the most contentious issue in the regulatory package: creation of the Consumer Financial Protection Agency.