Dec. 15 (Bloomberg) -- Credit-default swap clearing would become mandatory under legislation slated to be introduced next month by House of Representatives Agriculture Committee Chairman Collin Peterson.

Peterson of Minnesota, the Democratic chairman of the committee, said in an interview today he had Republican support to proceed with a comprehensive bill. The committee oversees the Commodity Futures Trading Commission and the U.S. futures exchanges it regulates.

“Right now my instinct is to move ahead and put a comprehensive bill together,” Peterson said in the interview. “My goal is to try to move this in January in the committee.”

A clearinghouse is part of U.S. efforts to oversee the $31 trillion credit-default swap market after the contracts contributed to the demise of Bear Stearns Cos. and the government takeover of American International Group Inc. Banks, hedge funds and other investors currently negotiate credit-default swaps privately in the over-the-counter market.

“It’s hard for me to understand what useful purpose these things are serving,” Peterson said, referring to CDS contracts. “I’m not out to get Wall Street, but what’s gone on there is jeopardizing the entire global economy.”

Chilton Call

Peterson’s plan echoes a call by CFTC Commissioner Bart Chilton, who said last week that CDS clearing in the U.S. should be required.

A clearinghouse, rather than a single bank, would be the counterparty to trades and help absorb losses should another dealer fail, as Lehman Brothers Holdings Inc. did in September. Funded by its members, a clearinghouse is intended to add stability to markets by becoming the buyer to every seller and the seller to every buyer.

Peterson’s counterpart in Congress, Senate Agriculture Committee Chairman Tom Harkin, a Democrat from Iowa, last month introduced legislation that would force all over-the-counter trades including credit-default swaps to be traded on an exchange and processed by a clearinghouse. OTC trading in derivatives worldwide was about $684 trillion as of June, according to Bank of International Settlements data.

Over-the-counter trades are estimated to be about eight to 10 times as large as what is traded on regulated futures exchanges worldwide. Such trades encompass contracts based on energy, agricultural and financial commodities.

Out in the Open

Peterson said he’s been in touch with Harkin about moving OTC trades in the U.S. to exchanges such as CME Group Inc. or Intercontinental Exchange Inc.

“This OTC market has to come out in the open,” he said. Still, he said there were details to be worked out.

“One of the things we have to figure out is whether we get specific or if we give the regulators more leeway,” he said. Under the Harkin bill, banks and traders would have one year to move their OTC activity onto exchanges.

“We can move faster than that,” Peterson said today. “We can move this stuff on to exchanges in quicker than a year.”

He also opposed changing the larger U.S. financial regulatory framework in the midst of the current recession and credit market freeze. Securities and Exchange Commission Chairman Christopher Cox has suggested merging the SEC and CFTC, for example.

“We’re in the middle of a crisis and the last thing we need is to rearrange deck chairs on the Titanic,” Peterson said. “That’s what we did with Homeland Security when everyone got excited and I think it caused some problems.”

The Republican members on the House Agriculture Committee were prepared for the industry reaction to his proposal, Peterson said.

“I’ve warned them that Wall Street is going to come down on us like a ton of bricks once we move on this,” he said. “They understand that.”

Shares of CME Group fell $4.39, or 2.1 percent, to $205.89 as of 2:11 p.m. in Nasdaq Stock Market trading. Intercontinental Exchange dropped $4.94, or 6.4 percent, to $71.85 in New York Stock Exchange composite trading.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

Last Updated: December 15, 2008 14:15 EST