WASHINGTON - The House Energy and Commerce Committee is expected to vote on a compromise bill to beef up federal regulation of the government bond market soon after Congress returns from the August recess, a congressional aide said yesterday.
The compromise, unveiled Wednesday evening. modifies legislation offered by Rep. Edward Markey, D-Mass., chairman of the Energy and Commerce Subcommittee on Telecommunications and Finance. Markey's subcommittee passed the original bill in late July.
The compromise caps weeks of negotiations involving officials from the Treasury Department and the Securities and Exchange Commission, and ends a jurisdictional squabble between the two agencies over how to regulate the market. In the process, it drops some of the authority granted to the SEC in the original bill while retaining recordkeeping and other rules for dealers in the market,
Aides said the revised legislation also takes care of concerns raised last year by House Banking Committee Chairman Henry Gonzalez, D-Tex., who opposed extending SEC jurisdiction to bank dealers. The fight between Gonzalez and Markey last year over this issue blocked passage of a government securities bill in the House.
The compromise deletes SEC authority to write record-keeping rules for brokers and dealers. However, firms would still be required to maintain electronic records of their transactions and furnish the information to the commission upon request.
The bill retains a provision requiring dealers with large positions in the market to file reports to the Federal Reserve Bank of New York, subject to Treasury review. In fact, the reporting requirement is strengthened by dropping a requirement for the Treasury to issue a finding that market conditions require the information before collecting it.
The legislation allows the Treasury to collect reports not only from dealers, but also from dealer customers such as institutional investors and hedge funds.
The bill drops a provision giving the SEC standby authority to prescribe rules on internal controls for dealers. The practical effect of the change is to retain SEC authority to write rules for securities firms while granting bank regulatory agencies authority over bank dealers.
At the same time, the bin extends existing SEC anti-fraud authority over regulated dealers in stocks and bonds to the government securities market.
The bill drops the idea of granting the SEC standby authority to disseminate price information to market participants in the event private data services are found inadequate. Instead, the commission would monitor the availability of price information in the market and report annually to Congress.
As previously reported, the bill permanently extends the Treasury's authority to issue capital adequacy and other rules for government securities dealers. That authority lapsed on Oct. 1, 1991.
In addition, the bill would allow the National Association of Securities Dealers to write sales practice rules for dealers while bank regulators would have authority to issue rules for bank dealers in the secondary market.
Originally, the Treasury insisted on having a veto over any sales practice rules, according to the congressional aide. Under the compromise, the SEC is required to consult with the Treasury before approving any rule changes issued by NASD.
Frank Newman, Treasury undersecretary for domestic finance, endorsed the compromise legislation in letters to Markey and Rep. John Dingell, D-Mich., chairman of the Energy and Commerce Committee.
If the House does pass the compromise bill, it will have to be reconciled in conference with a Senate-passed measure that is not as stiff on dealers.