WASHINGTON - Securities and Exchange Commission chairman Arthur Levitt said continued talks with securities firms are needed before the agency can provide a final report to Congress on guidelines for overseeing unregistered over-the-counter derivatives affiliates.

"I believe it is necessary to pursue our discussions with the firms before we can provide a final report to you'" Levitt said in a December 12 letter to outgoing House Energy and Commerce Committee chairman John Dingell, D-Mich.

The lawmaker had requested earlier this year that the SEC report to the committee on voluntary guidelines for the affiliated over-the-counter businesses that have scant government regulation.

"Recent serious events, however, have both delayed our discussions while dramatically underscoring the need to be vigorous in our efforts to develop effective standards as quickly as possible," Levitt said.

Since Dingell first requested the report, Orange County, Calif., was forced into bankruptcy after announcing that its investment pool lost billions of dollars from its derivatives investments. In addition, Republicans won control of both the House and Senate and are about to take control of the committees responsible for overseeing derivatives and other financial products.

The derivatives policy group, which is co-chaired by Gerald Corrigan of Goldman, Sachs & Co., and John Heimann or Merrill Lynch & Co., was established earlier this year to develop an appropriate framework for SEC oversight of over-the-counter derivatives activity.

Levitt, in his most recent letter, said the framework will address four interrelated components including management controls, enhanced risk management reporting, capital, and sales practices.

Levitt said he met with the policy group last month to discuss the proposed approach, adding that the SEC is reviewing the group's efforts and is also working with the Commodity Futures Trading Commission.

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