Big banks could lose a sizable source of revenue, while exchange operators could stand to benefit from the burgeoning efforts to create a public, transparent marketplace for unregulated derivates.

The multitrillion dollar market for credit default swaps is facing intense scrutiny from legislators and regulators over its role in contributing to the current economic crisis. While Senate Agriculture Committee Chairman Tom Harkin (D., Iowa), has threatened to ban the products altogether, it is unclear how much support there would be for such a move. A less radical way of getting control over the market would involve moving trading to exchanges.

That would be a revenue killer for banks like Goldman Sachs ( GS), Morgan Stanley ( MS), JPMorgan Chase ( JPM), Deutsche Bank ( DB), Citigroup ( C), Bank of America ( BAC), UBS ( UBS) and Merrill Lynch ( MER), which are major dealers in this market. They benefit from the lack of price transparency, because it allows them to trade with parties that have less information.

On the other hand, it is a potential bonanza for the exchange industry -- especially IntercontinentalExchange ( ICE) and CME Group ( CME) -- which had been eyeing the CDS market long before it became a priority for Washington. The market is 10 times the size of the U.S. corporate bond market and 40% larger than the open interest on CME futures contracts, according to a recent Credit Suisse report.

While several exchanges, including NYSE Euronext ( NYX) and Nasdaq OMX Group ( NDAQ), may eventually try to get into the game, CME Group and ICE are already off and running. They have partnered up with major market participants and are working with the Federal Reserve to establish central clearing facilities -- a critical back-office function that would provide many of the benefits of exchange trading, such as ensuring the financial soundness of the participants and preventing manipulation.

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