NEW YORK (

TheStreet

) -- The first step in any recovery program is to admit you have a problem.

SEC

Chairman Mary Schapiro has done that.

Schapiro acknowledged in a Bloomberg interview that regulators don't' know enough about derivatives to conduct an audit, find insider trading and halt manipulation of the market.

That makes it pretty hard to get to the bottom of trading in complex securities like credit default swaps that caused the near-collapse of

AIG

(AIG) - Get Report

.

Derivatives are basically bets and hedges based on some other type of asset such as stocks, bonds, currencies, market indices and even data such as weather statistics or expectations about future events such as interest rate changes. It's even possible to create derivatives of derivatives. It can become a highly leveraged security.

There are plenty of legitimate uses for derivatives but it can and did get out of control. Some say it was derivatives exposure that caused

Citigroup

(C) - Get Report

's near-death experience.

Yes, Mary, we do have a problem.

In fact, it's a $592 trillion problem, based the Bank for International Settlements' calculation of the total notional amount of over-the counter derivatives contracts at the end of December 2008.

While complex and esoteric to most retail investors, the derivatives game is widely played and a major component of the global market now.

Bank of America

(BAC) - Get Report

has an institutional equity derivatives team and is among the top holders of derivatives after

JPMorgan Chase

(JPM) - Get Report

.

Wells Fargo

(WFC) - Get Report

offers them. So does

BB&T

(BBT) - Get Report

.

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

provide transaction processing services for derivatives.

Just about every financial institution is a player in this market.

So all I can say is that it's about freaking time regulators figured out that they needed to govern these things.

--Written by Glenn Hall in New York.

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Glenn Hall is the New York-based Editor in Chief of

TheStreet.com

. Previously, he served as deputy editor and chief innovation officer at

The Orange County Register

and as a news manager at

Bloomberg News

in Frankfurt, Amsterdam and Washington, D.C. As a reporter, he covered business and financial markets, worked in both print and television in the U.S. and Europe, and conducted in-depth investigative coverage at

The Journal-Gazette

in Fort Wayne, Ind. His work also has been published in a variety of newspapers including

The Wall Street Journal

,

The New York Times

and

International Herald Tribune

. Hall received a bachelor's degree in journalism and political science from The Ohio State University and a certificate in project and program management from Boston University.