WASHINGTON -- Broad legislation aimed at reforming the government securities market was introduced yesterday by two key members of a House panel studying reauthorization of the Government Securities Act of 1986.

The bipartisan bill is aimed at ending the "regulatory isolation" of the government securities marketplace in the wake of the Salomon Brothers scandal, said the two sponsors, Rep. Edward Markey, D-Mass., and Rep. Matthew Rinaldo, R-N.J.

Rep. Markey is chairman of the House Energy and Commerce subcommittee on telecommunications and finance, while Rep. Rinaldo is its ranking minority member.

The measure would extend for five years the Treasury's current rulemaking authority in the government securities arena under the 1986 act. It would authorize the Securities and Exchange Commission to create an electronic audit trail for the government securities market and to identify and receive trade reporting information for large trading customers for purposes of market surveillance.

In addition, it would grant the SEC authority to order further recordkeeping and reporting from government securities brokers or dealers for purposes of market surveillance and the monitoring of price and trading activity.

Under the bill, the SEC could bring fraud charges against violators in the government securities market, including those who use fictitious quotes.

The National Association of Securities Dealers could for the first time write sales practice ruels for its members who handle government securities. Bank regulators also could write such rules for the bank dealers they oversee.

The SEC would have authority to oversee the dissemination of government securities market price and trading information to the public, in consultation with the Fed and the Treasury.

The bill would require the SEC, the Fed, and Treasury to report back to Congress by Oct. 1, 1996, on the effectiveness of price dissemination and any new rules under the law, and the Genral Accounting Office would report back by March 31, 1996, on the overall effectiveness of the SEC regulation of the market.

The Markey bill is broader than two bills introduced earlier this year by Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee's subcommittee on securities.

One bill, S. 1699, which Sen. Dodd introduced following Salomon's disclosures of improper bidding tactics in Treasury auctions, would make it clear that the SEC has authority to bring antifraud charges against participants in the government securities market.

The bill, which cleared the Senate Sept. 25, also would make it illegal for a firm to provide false information in the bidding process for Treasuries or in connection with the primary offering of any government securities.

An earlier bill also introduced by Sen. Dodd, S. 1247, would reauthorize the Government Securities Act of 1986 and give the NASD and bank regulators authority to write sales practice rules for their members. The Treasury could veto rules it thinks hurst market liquidity or stifles competition.

Regulators would be required to monitor private sector efforts on price dissemination, such as the GOVPX inc., and report back to Congress in 18 months about whether additional rules are needed.

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