UPDATE 1-Lawmaker says Fed should regulate OTC clearinghouse

(Adds further details, background)

By Joanne Morrison

WASHINGTON, July 8 (Reuters) - The Federal Reserve should be the key regulator of a clearinghouse intended for trades in the $62 trillion credit default swaps market, Sen. Charles Schumer said on Tuesday.

In a letter to Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank President Tim Geithner, the Democrat from New York said such a clearinghouse should be chartered as a New York bank.

Doing so would shift regulatory oversight from the Commodity Futures Trading Commission -- which typically regulates clearinghouses used broadly in the U.S. futures markets -- to the Fed.

"In these tumultuous markets, having a strong regulator overseeing this important new financial actor will reassure market participants and restore confidence in the safety and soundness of the United States' financial infrastructure," Schumer wrote.

"The Federal Reserve is the appropriate regulator for this new clearinghouse," he added.

The lawmaker's comments come as a group of the largest credit default swaps dealers, accounting for roughly 90 percent of market activity, has been working with the New York Fed to establish such a clearinghouse.

"A clearinghouse and central counterparty for the OTC derivatives markets is important for ensuring safety and soundness for the major financial institutions involved in these markets, and reducing systemic risk for the markets as a whole," Schumer wrote.