WASHINGTON -- Rep. John Dingell, D-Mich., suggested for the first time yesterday that the SEC and other federal agencies might be able to oversee and regulate derivatives without new legislation.

"I am encouraged by the actions taken to date and planned by our financial regulators to address the significant issues raised by financial derivatives," Dingell said in a written statement issued in response to recent letters from the Securities and Exchange Commission and the Treasury Department.

In recent weeks, several members of Congress have introduced bills that would expand the SEC and other federal agencies' regulatory authority over derivatives. The measures are opposed by agency officials who say they have sufficient authority now.

Rep. Edward Markey, D-Mass., chairman of the House Energy and Commerce subcommittee on telecommunications and finance, .proposed a bill last week that would give the SEC jurisdiction over the derivatives affiliates of securities firms and insurance companies.

But Dingell, the powerful chairman of the full committee, said in his statement yesterday that the need for derivatives legislation "is an issue we will address in the future if necessary."

Dingell had asked the SEC and the Treasury to respond to the derivatives report issued by the General Accounting Office in May that urged Congress to immediately enact legislation to subject the unregulated derivatives affiliates of securities firms and insurance companies to SEC regulation. The report also called for federal regulators to develop comprehensive and consistent standards for derivatives.

Treasury Secretary Lloyd Bentsen, who chairs the interagency Working Group on Financial Markets, which coordinates federal policy on derivatives, told Dingell in a July 18 letter that while the GAO report is a "valuable contribution" to the derivatives debate, the working group "has not identified a need for legislation at this time."

Bentsen said, however, that the working group is still exploring several derivatives issues.

"If we determine that further authority is needed, we will alert Congress, and additional appropriate authority will be requested," he said.

SEC chairman Arthur Levitt told Dingell in a separate letter that while the GAO report "accurately identifies a broad range of goals and objectives for the regulatory community," the SEC is already working with major over-the-counter derivatives dealers to "develop an oversight program" for their derivatives activities.

The goal of the joint effort, Levitt said, is to: allow the SEC to obtain. more derivatives information from securities firms and their affiliates; design sales practice standards for derivative products; and explore whether firms' proprietary risk assessment models can be used to develop capital standards for their derivatives activities.

"We anticipate preliminary results from these efforts in the fall," Levitt said.

The interagency working group, in a 16-page attachment to Bentsen's letter, said that the SEC is working with the Securities Industry Association "to develop minimum standards for business conduct by derivatives dealers.

"The details of such standards have yet to be worked out, and such an initiative may not yet have the support of all unregulated dealers," the group said.

The working group stressed that while there is no way to eliminate the possibility that a derivatives dealer might fail, such an event "is unlikely to place taxpayers at risk."

The group said it is continuing to explore these issues and the need for additional derivatives information from market participants.

Levitt told Dingell that the SEC shares the GAO's concern that regulators need more information about derivative transactions and exposures. The working group, he said, is trying to develop a standardized format for regulators to collect such information. The group is still trying to determine, however, whether this would be cost effective and whether the information could be put into a centralized database or repository.

The working group had two major concerns about issues identified by the GAO report. One was whether federally insured banks should engage in large-scale proprietary trading in derivatives or other financial instruments.

While bank regulators are examining this issue, they "do not perceive the risks associated with proprietary trading, if properly managed, to be inherently greater than those associated with other banking activities," the working group said.

The group was particularly critical of proposals to require banks to confine their proprietary trading activities in separately capitalized affiliates or subsidiaries. Rep. Don Riegle, D-Mich., the chairman of the Senate Banking Committee, included such a proposal in a derivatives bill he introduced on Monday.

But the working group told Dingell that the Treasury and the Federal Reserve Board chairman believe such a proposal would not constructively address the issue and "could increase the risk these activities pose to the financial system."

The group also criticized the GAO's recommendation that the agencies require all major derivatives dealers to have independent audit committees and internal controls reporting.

"The working group believes that it is not appropriate to mandate specific management policies applicable to dealers in derivatives," the group said. "The regulatory goal should be communication and implementation of the most sound risk management practices."

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