Nov. 14 (Bloomberg) -- U.S. regulators said at least one clearinghouse for the $33 trillion credit-default swap market will be running by year-end after they agreed on a plan to regulate the entities.

CME Group, Intercontinental Exchange Inc. of Atlanta, NYSE Euronext and Eurex have each submitted proposals to run a clearinghouse, a central body that would back trades in the unregulated market. Authorities are now conducting ``detailed'' on-site reviews of risk management functions, the regulators said in a joint statement with the U.S. Treasury today.

The year-end estimate is later than the Federal Reserve had anticipated. Dealers including Goldman Sachs Group Inc. and JPMorgan Chase & Co. said on Oct. 31 that a clearinghouse would be ready by Nov. 30. The New York Fed has been pushing the industry to accelerate its efforts for a clearinghouse since the collapse of Lehman Brothers Holdings Inc. in September. The new forecast may still be too optimistic, said Richard Lindsey, a former SEC official and who previously was head of Bear Stearns Cos.' prime brokerage.

``I would be stunned if anybody would be able to run anything by the end of the year but it's a nice thing to be able to say to the market,'' said Lindsey, who now works as an adviser to hedge funds and institutional investors at New York- based Callcott Group LLC.

Group Agreement

The Fed, Commodity Futures Trading Commission and Securities and Exchange Commission signed memorandum of understanding today that they said will provide consistent oversight of the clearinghouses and the credit-default swap market. The group laid out guidelines they said would provide more public information on potential risks and also lessen the chance of systemic losses.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on the ability of borrowers to repay debt. The contracts are between two parties and don't trade on an exchange, so records of trades aren't public.

They were conceived to protect bondholders against default, and pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrower fail to adhere to its debt agreements.

A clearinghouse would help absorb losses if another dealer failed. Moody's Investors Service estimated Lehman was a party to as much as $6 trillion in trades causing hundreds of millions in losses.

`Vitally Important'

Chicago-based CME, Intercontinental Exchange and NYSE Euronext are vying for control of a global market that could generate as much as $400 million in revenue a year, Keefe Bruyette & Woods analyst Niamh Alexander estimates.

``Bringing transparency to this market is vitally important,'' SEC Chairman Christopher Cox said in a statement today. ``The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis.''

The accord signed by the Fed, the CFTC and the SEC ``establishes a framework for consultation and information sharing'' for the new entities, according to a statement.

No Central Authority

Regulators were driven to sign the accord because there's no central authority for the market, or for the operators of the clearinghouses.

CME is regulated by the CFTC. Intercontinental Exchange has set up its clearing plan as a special purpose banking entity within the state of New York that would be regulated by the Fed. Intercontinental agreed last month to buy Chicago-based Clearing Corp., which is owned by nine major banks. Eurex is part owned by Deutsche Boerse AG.

The agreement between the Fed, the CFTC and the SEC, while not altering their oversight mandates, seeks to ensure consistent rules for clearinghouses that fall under the domain of one or the other. It also would give the SEC better access to market data to police market fraud and manipulation. The SEC hasn't had access to broad market data, hampering its policing ability, Erik Sirri, head of the SEC's trading and markets division, said in an interview last week.

To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net

Last Updated: November 14, 2008 13:59 EST