US Agencies Agree - Halfheartedly - on Dealers' Rules

By Easton, Nina | American Banker, June 19, 1985 | Go to article overview

US Agencies Agree - Halfheartedly - on Dealers' Rules


Easton, Nina, American Banker


WASHINGTON -- The Treasury Department, Federal Reserve Board, and the Securities and Exchange Commission have agreed to endorse legislation that would force more than 200 government securities dealers to register with the federal government.

The plan also would grant the Treasury Department the authority to issue -- in consultation with the Fed -- rules governing all government securities dealers, including those 36 primary dealers that already report to the Federal Reserve Bank of New York.

Negotiations among the agencies were prompted by the failures of government securities dealers in recent years that have sent tremors through the financial system. Most recently, the failures of two government securities firms--E.S.M. Government Securities and Bevill, Bresler & Schulman Asset Management Corp. -- resulted in losses of more than $500 million to banks, thrifts, municipalities, and other investors and generated a swirl of concern about fraudulent practices in the industry.

Under the proposal, dealers that are not affiliated with a bank would be inspected by existing voluntary regulatory organizations such as the National Association of Securities Dealers or the stock exchanges. Bank-affiliated dealers would continue to be inspected by federal banking agencies.

In addition, the SEC and bank regulators would be granted clear authority to bar or impose sanctions on dealers that violate federal securities or banking laws.

Only the 36 primary dealers that deal directly with the Treasury are currently regulated -- reporting to the New York Fed -- while an estimated 200 other firms are not subject to any federal oversight.

The compromise hammered out by the three agencies indicates that some top regulators still have reservations about supporting any further regulation of the industry. In the agreement, the agencies do not directly ask Congress to enact legislation, but rather state that their plan is preferable "if Congress concludes that additional legislation is to be enacted."

During the months-long negotiations among the agencies -- which frequently took place at the top levels--it was Fed Chairman Paul A. Volcker who pushed hardest for some sort of regulatory action, according to government sources. SEC Chairman Joh S.R. Shad and Treasury Secretary James Baker, as well as one of his top aides, acting Assistant Secretary John J. Neihenke, were reluctant to further regulate the industry, sources said.

At an SEC meeting on Tuesday, Mr. Shad continued to express concerns about imposing regulation on the government securities market. While he called the compromise agreement "a very responsible approach," he said it still leaves "a lot of uncertainty."

"What is the price of regulation that we don't know?" Mr. Shad asked, adding that regulation could increase the cost of the nation's debt.

"Some people have a great aversion to being subject to our rules and regulations" and could leave the market rather than accept regulation, he argued. …

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US Agencies Agree - Halfheartedly - on Dealers' Rules
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