The U.S. President’s Working Group on Financial Markets announced a series of initiatives designed to strengthen oversight and the infrastructure of the over-the-counter derivatives market.

Its top priority in the short term is to oversee the successful implementation of central counterparties for credit default swaps, the group said on Friday.

A well-regulated and prudently managed CDS central counterparty can provide immediate benefits to the market by reducing the systemic risk associated with counterparty credit exposures, it says. It also can help facilitate greater market transparency and be a catalyst for a more competitive trading environment that includes exchange trading of CDS.

Several potential central counterparty providers have accelerated their efforts, it notes. The relevant regulatory authorities are assessing these central counterparty proposals by conducting detailed on-site reviews of risk management and other key design elements. After completing the on-site reviews, regulators expect to proceed toward regulatory approvals and/or exemptions expeditiously and anticipate that one or more CDS central counterparties will commence operations before the end of 2008.

Additionally, a memorandum of understanding was agreed regarding CDS central counterparties between the U.S. Federal Reserve, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.

The PWG also announced a broad set of policy objectives to guide efforts to address the challenges associated with OTC derivatives and issued a progress summary to provide an overview of the results of ongoing efforts to strengthen the infrastructure of OTC derivatives markets.

These additional policy objectives include efforts to: improve the transparency and integrity of the credit default swaps market; enhance risk management of OTC derivatives; further strengthen the OTC derivatives market infrastructure; and, strengthen cooperation among regulatory authorities.

The agencies in the PWG will work with other regulators and market participants to achieve these goals over the next several months. Where necessary, they will support legislative change, they said.

Meanwhile, the U.S. Securities and Exchange Commission agreed to a memorandum of understanding with the U.S. Federal Reserve Board and the U.S. Commodity Futures Trading Commission dealing with possible central counterparties for over-the-counter credit default swaps, the regulator announced Friday.

“The SEC has regulatory and supervisory authorities over the clearing agencies that may be established for credit default swaps, and we will use those authorities to strengthen the market infrastructure and to protect investors,” said SEC chairman Christopher Cox in a release.

“The virtually-unregulated over-the-counter market in credit default swaps has played a significant role in the credit crisis, including the now US$167 billion taxpayer rescue of AIG,” Cox added. “Bringing transparency to this market is vitally important.”

In addition to the work the SEC has undertaken to improve the oversight and infrastructure for the OTC CDS market, including the execution of today’s MOU, Cox has urged the Congress to enact legislation that would bring disclosure and transparency to the market.