Currently, banks are subject to strict supervision, but other derivatives dealers are more lightly regulated, if at all.

The Government is also considering direct regulation of both hedge funds and derivatives dealers, which are now largely free of oversight.

With those increased powers, the regulators could then put pressure on the investment banks or derivatives dealers to reduce risk levels.

Swaps typically involve cash payments between a corporation and a derivatives dealer, often a bank.

ISDA has more than 820 members in 57 countries; its membership consists of derivatives dealers, service providers and end users.

Though the product may not be appropriate for all investors, Citibank's terms are unusually good, according to several derivatives dealers.

"Links among derivatives dealers are of essentially the same kind as links in other markets," he said.

Yet derivatives dealers have a financial incentive to press their clients to enter custom-tailored transactions.

It certainly does not help the market, moreover, when the Government accuses a prominent derivatives dealer of fraud and many other customers claim losses.

Similarly it will work to make sure that derivatives dealers clarify whether they are acting as advisers or merely as suppliers.