The Journal has an interesting story on an investigation into the credit-default swaps market. New York Attorney General Andrew (Spitzer’s Replacement) Cuomo is looking at brokers to see if they manipulated the market.

I’ll venture a guess that ambitious attorneys general—and reporters!—can find a lot of nasty worms by looking under the CDS rock, though I don’t know about this specific case. Any market that’s totally unregulated with trillions of dollars floating around in it and virtually no disclosure would seem a likely candidate for corruption.

Disclosing information about clients’ identities before a trade is, in some cases, considered unethical by other brokers, traders and regulators. Knowledge that a competitor is trying to amass a position could be used to bargain for better pricing on a trade or to undercut other traders’ positions.

Consider a $500 million position in an index of credit-default-swaps contracts. A move of 0.01 percentage point, or one “basis point,” typically can amount to a $460 gain or loss per $1 million traded. If an index moves 0.20 percentage point — as it can on especially volatile days — a trader’s book could swing by $4.5 million.

Yet the opaque trading environment has made it easier for Wall Street banks to mark up prices charged to outside buyers, which in turn has made CDS trading a huge profit center for the banks. In all, CDS trading amounts to 15% to 25% of top Wall Street firms’ trading revenues, estimates CreditSights analyst David Hendler.

This is one to watch.