The derivatives market encompasses a wide variety of products, dealers, and customers - and that leads to fragmented regulation.

Two dealers in two different industries, for example, may face differentregulatory V3

constraints on identical transactions. And an investor may face different constraints on different products that have similar performance characteristics.

Among the biggest derivatives players are Wall Street firms, commercial banks around the glove, insurance companies, mutual funds, corporate treasury departments, and pension funds.

Some of these players face direct oversight from federal or state regulators. In other cases, derivatives themselves are regulated as products, regardless of the industry of the buyer and seller.

Futures and options, for example, are regulated by the Commodities Futures Trading Commission and the Securities and Exchange Commission. Any entity that purchases an option or a future uses one of the regulated exchanges and is subject to margin, antifraud, and other rules.

But interest rate swaps, which are similar in some ways to futures contracts, are not directly regulated.

Futures exchanges sought to have swaps added to the CFTC's domain during a long and drawn out battle over the CFTC's authorizing legislation. When the legislation finally passed in 1992, however, the CFTC was authorized to exempt swaps from direct regulation.

Commercial and investment banks are both regulated directly, but by different federal bodies. Commercial banks must live by the rules set down by the Office of the Comptroller, the Treasury Department, the Federal Reserve Board, and others.

Investment banks are regulated primarily by the SEC and a host of securities laws.

As for insurance companies, they are regulated by state insurance regulators.

Investors are also regulated differently. Corporate treasures, for example, set their own investment policies, although proposed changes of securities laws and accounting standards could force publicly owned companies to disclose more about their derivatives activities. The SEC and the Financial Accounting Standards Board are considering mandating greater disclosure.

The conduct of most pension funds is dictated by the Employee Retirement Income Security Act of 1974.

Mutual funds operate under the Investment Company Act of 1949. State regulators also butt in. Last month, for example, the New York state attorney general pursued one fund for misleading advertisements and sales literature that may have understated the risks of derivatives.

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