Credit default swaps will begin clearing on the

IntercontinentalExchange

(ICE) - Get Report

Monday, but the key players in the murky derivatives market are still firmly in control as it begins to move out of the shadows.

Credit default swaps, or CDS, are insurance against default of debt, which can be bought, sold and traded by anyone. They are currently traded in unregulated, over-the-counter markets, but their role in the economic meltdown has led to a push on

Capitol Hill

and elsewhere for more regulation. IntercontinentalExchange, the Atlanta-based futures exchange, stepped in to begin to fill the void.

IntercontinentalExchange in October became the first regulated exchange to gain

Securities and Exchange Commission

approval to begin clearing CDS, beating out rivals like Chicago's

CME Group

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. To bolster its bid to win the lucrative business, IntercontinentalExchange purchased The Clearing Corp., which was owned by 11 financial institutions that are among the heaviest CDS players.

Thus, the same players that issued the CDS and controlled the market are still very much involved in making up the rules of the game.

The CME Group

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had already created an index of CDS that proved to be unpopular to the gang of 11. CME spokesman Allen Schoenberg couldn't explain why it was unsuccessful, but he did confirm that they were waiting to hear from the SEC.

NYSE Euronext's

(NYX)

NYSE Liffe international derivatives business is clearing CDS in Eurpoe.

Where is the

Federal Reserve

in all this? Deputy Director Patrick Parkinson wrote in November that market manipulation concerns over CDS could be addressed by "clarifying the SEC's authority with respect to CDS."

Last week, the SEC said in its release granting the exemptions that its authority was "limited." So neither the Fed nor the SEC is taking much responsibility for regulating CDS.

IntercontinentalExchange wrote in its exemption request letter that regulations "would create a significant and burdensome dislocation of this market and, of greatest concern, would almost certainly present an extremely significant obstacle to the adoption of clearing for the CDS market."

Allan Grody of Financial Intergroup Advisors, said the system is built upon controlling self-interests.

"They are trying to preserve some semblance of revenue stream," he says, noting the 44-page exemption request from IntercontinentalExchange focuses on the costs of clearing the CDS and not what it costs to do it right.

Taxpayer dollars meanwhile continue to support companies like

AIG

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, which needed to be bailed out in large part because of massive CDS bets gone wrong. Since the market is unregulated, no central authority existed to require AIG to hold enough capital on reserve to back up its CDS trades.

All that has changed is a third ring is being added to the circus with the introduction of a clearing party to the two companies on either side of a CDS trade. But the ring leaders haven't changed.