The roughly $60 trillion market for credit default swaps lacks transparency, is unregulated and creates an environment for market manipulation, Securities and Exchange Commission Chairman Christopher Cox said. The market's size exceeds the gross domestic product of every country in the world combined, he noted.

"It's so important for Congress to act now," Cox said at an SEC conference on disclosure for investors. "There is no longer any excuse for failing to act."

Cox last month urged Congress to enact legislation to regulate the market for credit default swaps, which are complex insurance and derivatives contracts. The legislation should empower the SEC and the Commodity Futures Trading Commission to implement new rules designed to combat fraud in that market, he said.

The swaps played a prominent role in the credit crisis that brought the downfall of Lehman Brothers Holdings Inc., a government rescue plan for giant insurer American International Group Inc., and Merrill Lynch & Co. selling itself to Bank of America Corp.

While little known to most individual investors, credit default swaps are commonly used contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults - a buyer doesn't necessarily have to own a bond to buy the credit default swap that insures it.

Banks and other institutions have used credit default swaps to cover the risk of default in mortgage and other debt securities they hold. Many credit default swaps have sunk in value as the mortgage-backed securities they support have imploded.

The over-the-counter market for the swaps has provided a "significant opportunity" for market manipulation, Cox said Wednesday.

The SEC last month began a sweeping investigation of the market, looking at whether investors used credit default swaps to illegally profit from sharp declines in stocks of financial companies.

A three-week-old SEC ban against short selling in stocks of nearly 1,000 financial companies - betting that the share prices would fall - expires at midnight Wednesday.

Members of a House panel on Tuesday accused AIG, the world's largest insurance company, of opening "a casino in London" when it began dealing in credit default swaps. The Federal Reserve came to AIG's rescue last month with an $85 billion line of credit, and the company already has tapped it for $61 billion.

The sheer volume of credit default swaps sold by AIG, coupled with rising levels of defaulted mortgage and other debt, threatened the company's existence and forced the government to bail it out to avoid a catastrophic collapse. If AIG were to fail, the losses would spread to the companies and investors who bought swaps from it.