WASHINGTON House members are likely to pass legislation tightening federal controls on derivatives unless market participants and regulators come up with their own set of reforms, the head of the General Accounting Office said Friday.

Charles Bowsher, the comptroller general, told reporters that securities dealers and other market participants are doing "a lot of things" to address the concerns raised by the GAO report of last May that recommended stepped-up regulation of derivatives.

Still, he cautioned, "I think you'll see legislation" in the House if members feel the industry is not doing enough to police itself.

The comments came at a conference sponsored by the Securities Industries Association and the Futures Industry Institute.

Market participants are anxious to avoid congressional legislation on derivatives, saying it would hamper the ability of the industry to supply a useful investment service.

House Banking Committee chairman Henry Gonzalez, D-Tex. and Rep. Jim Leach, R-Iowa, the ranking minority member on the panel, have introduced a bill setting standards for derivatives activities of banks, government-sponsored credit agencies, and federal credit unions. However, because Congress is close to adjourning, any such legislation would have to he reintroduced next year.

Securities and Exchange Commission officials and an industry working group headed by E. Gerald Corrigan, former president of the Federal Reserve Bank of New York, are trying to develop voluntary standards for derivatives affiliates. The group is due to deliver its recommendations by Thanksgiving, Bowsher said.

Brandon Becket, head of the market regulation division at the SEC, told reporters that no single solution is likely to emerge for dealing with derivatives given the complexity of the issue and the many agencies involved.

Thomas Russo, managing director for Lehman Brothers, said his firm has spent a large amount of money to upgrade and maintain sophisticated risk management systems. At the same time, industry executives know that any errors could be costly and bring on regulations they don't want to see, he said.

"I think the industry realizes there is more than one shotgun there, and there is more than one holder of it," said Russo.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.