Newspaper article THE JOURNAL RECORD

Movement to Regulate Government Securities Market Gains Momentum

Newspaper article THE JOURNAL RECORD

Movement to Regulate Government Securities Market Gains Momentum

Article excerpt

NEW YORK - The movement to regulate the government securities market, launched after a series of failures by dealers caused multimilli on-dollar losses, has regained momentum.

The U.S. Treasury weighed in this past week with its ideas for bringing the market under federal oversight.

Under the proposed legislation sent to Congress, the Treasury would set out standards that all the players in the vast and sophisticated market would have to meet.

The Treasury legislation, presented to Congress after some delays, came as an alternative to two other proposals formulated in the House and Senate.

""We have been lucky in the time it has taken to get this regulation developed that we have had no more failures,'' said Margry Waxman, Treasury deputy general counsel.

The House approved its version in September. In the Senate, Sen. Alfonse D'Amato, R-N.Y., introduced his own bill last summer.

Now that the Treasury's plan is ready, reconciling the three legislative approaches and enacting regulation is expected to move swiftly. Action is expected early next year.

The government securities market is the most active of any of the securities markets. Each month, financial institutions, local governments and dealers trade roughly $300 billion in government paper.

Even though the market is not familiar to the average investor, collapses can have far-reaching consequences.

The failure of ESM Government Securities Inc. of Fort Lauderdale last March had the widest repercussions.

When ESM ceased operations on March 4, owing $315 million to 24 creditors, it set off a chain reaction that forced Ohio's governnor to temporarily close 71 savings institutions in his state.

The other collapse this year was that of Bevill, Bresler and Schulman of Livingston, N.J., which owed 20 banks and savings institutions more than $200 million.

Publicity about possible problems in the market began back in the spring of 1982 when Drysdale Government Securities in New York defaulted on an estimated $160 million in interest payments on securities borrowed from other firms.

Later that same year, Lombard-Wall Government Securities, another New York firm, filed for protection under Chapter 11 of the bankruptcy code, a move that shields a troubled company from creditors while it attempts to set its finances in order.

Lombard-Wall's 10 largest creditors were owed more than $600 million. A number of state and local governments were affected, including the New York State Dormitory Authority, which was owed about $300 million. …

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