In an letter to the Washington Post, SEC Chair Mary Schapiro calls for the need to regulate swaps, some of which you may have heard before as credit default swaps, or CDS. Boiling down what her criticisms of the financial reform legislation, her recommendations come down to:

• All securities-based swaps should be regulated as securities; all commodity-based swaps should be subject to commodities laws.
• Apply TRACE, a public disclosure & tracking system for debt securities, to swaps.
• Use clearinghouses and exchanges in transactions for swaps.

As written, the Senate legislation unnecessarily complicates matters by creating an arbitrary line based on the number of securities in a swap. This would invite users to engineer products to exploit differences in regulation policies. Yes, any regulation is a step in the right direction. But we might be inviting abuse, regulatory gaming and arbitrage if we have one set of rules for trading stocks and options, another for futures, and, say, one for swaps based on nine or fewer securities and yet another for swaps based on 10 or more securities.

That's nice official speak for describing the beyond belief exemptions and loopholes for derivatives in the current Senate as well as House bills.

The column is short, succinct, I suggest reading it.