WASHINGTON — The Securities and Exchange Commission and Commodity Futures Trading Commission have different regulatory approaches, which may pose challenges to harmonizing their rules and dividing up oversight of over-the-counter derivatives, market participants and others said Wednesday at an historic joint-agency hearing.

Industry officials who testified at the hearing generally called for the SEC, which has prescriptive rules for securities, to move toward the CFTC's "principles-based" regulatory approach for futures, under which it would set forth core principles for firms but give them broad discretion in determining how to meet them.

"This more flexible principles-based approach is used extensively by European regulators," William Brodsky, chairman and chief executive officer of the Chicago Board Options Exchange, testified.

The hearing comes just two weeks after the Treasury Department released draft legislation that would comprehensively regulate OTC derivatives by dividing jurisdiction for them between the two agencies. The CFTC would regulate most interest-rate swaps.

At the hearing, Brodsky noted there is no real mechanism in place to resolve jurisdictional disputes between the two agencies and said this has led to long delays in the decision-making process for new products. He suggested the Treasury initially serve as a "tie-breaker" in such disputes, but said it could later be replaced by the President's Working Group on Financial Markets or a financial services oversight council.

The two different regulatory approaches stem in part from the fact that the SEC is focused on markets that provide capital formation, while the CFTC concentrates on markets that primarily transfer risk, according to Craig Donohue, CEO of CME Group Inc., which operates four exchanges.

Former SEC Commissioner Annette Nazareth Congress pushed the CFTC towards a principles-based regulatory approach while nudging the SEC to extend its prescriptive rules-based approach in the wake of the Enron and Worldcom debacles.

The two agencies,she said, differ on how to best protect customers and intermediaries from excessive financial exposure to each other and on the best means to protect customers from the failure of their broker-dealer or futures commission merchant.

This divergence arises because margins serve different functions in the two systems.

In the futures markets, margins guarantee the performance on the futures contract at its termination. In the securities markets, customers must pay the full purchase price of equity securities three days after the trade. One result is securities margins involve larger financial outlays with lower leverage.

Nazareth suggested both agencies focus on a "true portfolio-margining system" that encompasses securities, futures and OTC derivatives.

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