THE TOP US securities regulator urged Congress yesterday to pass laws to regulate the $58 trillion (€39.5 trillion) credit default swap (CDS) market, which has been blamed for contributing to the financial crisis.

Securities and Exchange Commission chairman Christopher Cox said there is a regulatory hole in supervision of the CDS market and that the potential for unfettered naked short-selling has caused great concern. The swaps are used to hedge against a borrower defaulting on its debt or to speculate on the borrower's credit quality.

Sellers of the contracts have been criticised for not having enough capital to cover potential losses, posing a systemic risk to the broader financial market.

Mr Cox warned the market was ripe for fraud and manipulation.

"I urge you to provide in statute the authority to regulate these products to enhance investor protection and ensure the operation of fair and orderly markets," he told the Senate Banking Committee.

"Neither the SEC nor any regulator has authority over the CDS market, even to require minimal disclosure to the market."

Mr Cox said the SEC was probing broker-dealers and institutional investors with significant trading activity in financial companies and with positions in CDS. - ( Reuters)