Opaque over-the-counter markets and flawed pricing schemes are at the crux of the financial crisis, according to the chief executive of Nasdaq OMX Group Inc. (NDAQ).

Central counterparty clearing - an area where Nasdaq has ambitious plans to expand in 2009 - is one way to boost transparency and mutualize risk in OTC markets, said Bob Greifeld, CEO of the exchange.

In a speech before the National Press Club Thursday, Greifeld cited Nasdaq's International Derivatives Clearing Group, which clears and settles interest rate swap futures trades, as an example.

"We are now moving to bring these values including transparency, real valuations, and central clearing to the $400 trillion OTC interest rates swaps market - a market six times larger than the credit default swap or CDS market," Greifeld said.

Nasdaq OMX owns an 80% stake in IDCG, which went live last week after securing approval from the Commodity Futures Trading Commission in December.

The platform's focus, interest-rate swap futures, mimic interest rate swaps - private agreements to exchange streams of interest payments on bonds or loans.

Nasdaq, which has additional plans to clear U.S. equities trades, began work on IDCG in March 2008, following the collapse of Bear Stearns Cos.

Other exchanges, such as CME Group Inc. (CME), IntercontinentalExchange Inc. (ICE) and NYSE Euronext (NYX) have developed platforms to clear OTC credit derivatives.

Largely unregulated over-the-counter markets have shouldered much of the blame for the credit crunch and ensuing financial meltdown, and Greifeld shared this view as well.

"Throughout the economy, trillions of dollars in investment instruments were never subject to the rigor of trading on a transparent, well-regulated market," he said, pointing to flawed pricing models and the complex nature of some OTC instruments as distorting valuations.

Greifeld also drew attention to what he called the short-term nature of compensation in the financial sphere, where he said executives were paid for transactions that had yet to fully play out.

He called for a restructuring of the United States' financial regulatory framework, arguing that the SEC has pursued "obscure business issues" while investors fell prey to the likes of Bernard Madoff.

Madoff, who once served as chairman of Nasdaq OMX, allegedly bilked investors out of as much as $50 billion in a long-running fraud.

Greifeld pressed for a regulator with a broader mandate to address systemic risk, and said it was "incomprehensible" that the SEC and CFTC continue to operate separately when financial instruments have blurred the line between markets.

He voiced confidence in President-elect Barack Obama's team as it addresses these issues, particularly plans for a new economic stimulus package.

"This stimulus will serve as the starting gun for what promises to be an uphill, marathon race to reinvigorate the American economy and preserve American leadership in the world," Greifeld said.

He also drew attention to Nasdaq OMX's new Government Relief Index, which will track the performance of companies participating in U.S. financial rescue efforts such as the Troubled Asset Relief Program.

"With this index, taxpayers and investors will be able to measure the performance of companies participating in the government's financial relief plan," he said.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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