WASHINGTON - The Senate and the House remain at odds over key provisions of legislation to tighten federal regulation of the government securities market, sources familiar with the negotiations said Friday.

The sources said that the Senate agreed in part with a provision in the House-passed bill that would require dealers and other market participants to report to the government when they take a large position in the market, but that it added restrictions limiting the Treasury Department's ability to invoke the rule.

The House bill contains a large-position reporting rule, while the Senate-passed bill does not. The Treasury has backed the House approach to the issue, arguing that it needs the authority to help oversee the market and prevent dealers from manipulating supply of an issue.

The Senate is also said to be insisting on allowing the Treasury to veto any sales practice rules proposed for dealers.

The House bill has no such veto, although it would require federal regulators to consult with the Treasury before issuing any rules. The National Association of Securities Dealers would be authorized to issue rules for securities firms, while bank regulatory agencies would oversee depository institutions.

In addition, sources said the Senate is insisting that the Treasury should have authority to veto any antifraud rules adopted by the Securities and Exchange Commission that could affect government dealers.

The differences over the legislation became known after Senate aides provided a formal response to the House bill, which passed Oct. 5. Congressional aides from both chambers have met to discuss the legislation in hopes of getting an agreement before Congress recesses for Thanksgiving.

The Government Finance Officers Association, in a statement issued Friday, said the group "has serious concerns about Senate conferees' attempts to weaken sales practice provisions in the final bill."

The association said the case for tighter controls has been strengthened by recent reports about abuses in the sale of collateralized mortgage obligations to local governments and public pension funds.

"We now understand from recent news reports around the country that broker-dealers still haven't changed their behavior with regard to state and local government investors and that sales practice abuses persist," said GFOA executive director Jeffrey L. Esser.

The association has consistently sided with the House in arguing against allowing the Treasury to have a veto over sales practice rules.

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