WASHINGTON - In a move that appears to kill derivatives legislation for the time being, Rep. John Dingell, D-Mich., warned yesterday that he plans to "exercise great caution and care" before drafting any measure that would restrict the use of derivatives.

Dingell, who chairs the House Energy and Commerce Committee that has jurisdiction over securities, gave the warning in a written statement that was released at telecommunications and finance subcommittee hearing on derivatives.

The statement appeared to be a set-back for Rep. Edward Markey, D-Mass., the chairman of the subcommittee, who wanted Congress to enact legislation this year.

Markey said yesterday that he now thinks it will will be impossible for Congress to act on any derivative legislation for at least two more years.

Dingell disclosed that he had asked a Securities Industry Association committee, the interagency Working Group on Financial Markets, and the Securities and Exchange Commission for their views about a recent General Accounting Office report that calls for legislation to authorize federal regulation of securities firm and insurance company derivatives affiliates.

In separate letters dated May 23, Dingell asked Treasury Secretary Lloyd Bentsen, who chairs the inter-agency working group, and SEC Chairman Arthur Levitt to submit reports on the GAO recommendations within 45 days. The reports should outline what needs to be done both administratively and legislatively to address derivatives concerns. Dingell said in the letters.

He asked the Securities Industry Association committee to submit its proposals on derivatives and to "work with us in crafting workable solutions" to derivatives concerns.

Markey said last week that he and Dingell had agreed that legislation was needed to close gaps in the regulation of derivatives and that he hoped they could draft a bill that could be enacted by Congress this year.

But Dingell is now seeking input from derivatives market participants and federal regulators, who are all adamant that legislation is not needed and that they already have the tools they need to address derivatives concerns.

An aide to Markey tried to put the Dingell letters in a good light after the hearing by insisting that Dingell and Markey have the same goals of seeking input from all parties involved in the derivatives debate.

But Markey acknowledged during the hearing that he felt "a little bit like Charlie Brown with Lucy holding the football" and worried that, by drawing out this debate, Congress will not be in a position to act on derivatives legislation until late 1996.

Levitt had promised Markey during the hearing that, if SEC officials can not get derivatives market participants to work with them to make sure that derivatives concerns are addressed, he will come back to the sub-committee in the fall and seek legislation.

But Markey suggested it would be too late for legislation. Congress typically only deals with securities legislation at the end of even-numbered years, he said. It took Congress more than two years to enact legislation to deal with issues from the stock crash in October 1987 and from the government securities scandal in the summer of 1991, he said.

Two and a half years "is a long time to leave the window open," Markey said, worrying that a derivatives-related crisis could occur in the meantime.

At the hearing both Federal Reserve Board Chairman Alan Green-span and Levitt contended that a new federal regulatory scheme would not make sense for the rapidly evolving derivatives markets because it would not be flexible enough to adjust to changes in the markets.

"We are still in a phase of change that has not stabilized sufficiently for us to get a sense of what appropriate standards would be," Greenspan said.

Rep. Mike Synar, D-Okla., tried unsuccessfully to get Greenspan to predict when the markets would be stable enough to gauge what standards are needed.

Greenspan said the derivatives markets and firms "are heavily regulated by private counterparties who, for self-protection, insist that dealers maintain adequate capital and liquidity."

He worried that if the federal regulators intrude on the market in a heavy-handed way or at an inappropriate time, this will "weaken incentives for private efforts and expose the overall [financial] system to greater risk."

Bank regulators, Greenspan said, are moving away from a "one size fits all regulatory approach" for derivatives markets and are instead emphasizing "supervisory oversight rather than regulation."

Levitt said the derivatives concerns raised by the GAO report can best be addressed with "not legislation, but a careful evaluation of the market and an assessment of the level of cooperation we as regulators are receiving from the industry is designing a sensible regulatory structure."

The SEC, Levitt said, is already "actively pursuing many of the goals identified by the GAO report." He detailed the SEC's efforts to come up with capital, accounting, and disclosure standards that are specifically tailored to derivatives.

The commission plans to publish additional guidance on what disclosures companies should make about their derivatives and risk management activities in their annual reports for 1994, Levitt said.

The commission also "plans to continued to focus on the use of derivatives by mutual funds" and "is considering whether rule-making is necessary to encourage better management controls," he said.

The SEC is paying "special attention" to the use of derivatives by money market funds, Levitt said. "We are concerned that money market funds may be purchasing new kinds of instruments whose market value in certain interest rate environments may be unpredictable and thus threatening to the stability of the funds' price," he said.

The SEC also "will work with dealers and self-regulatory organizations to make sure that securities dealers consider the suitability of their recommendations" to customers, Levitt said.

Levitt said the SEC "can and should do more" to monitor derivatives affiliated. "The time has come for registered broker-dealers and their unregistered affiliates to demonstrate a high level of cooperation with the commission in designing better oversight programs," he said.

Markey got Levitt to concede that the SEC has no way to verify the information it gets from unregulated affiliated and had no regulatory authority over derivatives that are not currently considered to be securities, such as interest rate swaps.

Levitt said, however, that the affiliates have always cooperated with the SEC and have never denied it information.

Levitt, Greenspan, and the sub-committee Republicans at the hearing acknowledged that banks are subject to more federal regulatory oversight than securities firm and insurance company derivatives affiliates, but said this is appropriate since federal deposit insurance is on the line.

There would never be a federal bailout of a securities firm of or insurance company, they said. "One cannot envisage a situation where tax-payer funds would show up," short of a major catastrophe that would be highly unlikely, Greenspan said.

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