Geithner Floats Derivatives Exchange

Updated from 5:12 p.m.

The Obama administration released details Wednesday of its plan to regulate derivatives of the kind that contributed to the near collapse of the financial system last year.

Treasury Secretary Timothy Geithner sketched out the administration's plan in a two-page letter to Congressional leaders. Both the House and Senate have already introduced bills to regulate derivatives, but many in Congress have asked the administration to deliver its own plan.

Prime among the proposal's key elements is the creation a central electronic exchange where the instruments would be cleared and traded. The plan also calls for firms that issue and sell the derivatives to maintain enough capital to cover the possibility of default.

As it now stands, derivatives are largely unregulated, and are traded privately, or over-the-counter. The market is closely controlled by the handful of behemoth Wall Street firms that issue and sell these instruments, which include the notorious credit-default swaps that almost took down AIG(AIG).

Using an electronic exchange to clear CDS's and other instruments could stand to benefit already-existing exchanges like CME Group(CME), whose shares jumped Wednesday as news of Geithner's letter spread. The stock closed the session up 6%, or $15.62, at $274.10 on more than double the daily average volume.