Federal agencies plan major changes in policing of U.S. securities market


WASHINGTON -- The Treasury will intervene in the government securities market whenever prices are distorted by a shortage of securities, whether as a result of market forces or market manipulation, the three agencies that regulate the market said yesterday.

The new policy for the $2.2 trillion market, in which the government borrows the money for its operations, is the most drastic item in a package of new rules, procedures and legislative changes put together by the Treasury Department, the Securities and Exchange Commission and the Federal Reserve in the wake of the illegal bidding scandal involving Salomon Brothers that was disclosed in August.

The package announced yesterday includes some immediate policy changes, some proposals that will take time to develop and others that will require legislation before they can be implemented.

Following are the main points:

* The auction market will be opened up well beyond the tight-knit group of 38 primary dealers, which included Salomon, that have dominated the market. These rule changes will apparently diminish the primary dealers' role and status, but no one could say immediately by how much.

* An open bidding process, in contrast to the secret bidding done now, would be created for Treasury auctions. This would diminish the opportunities for market manipulation.

* A new surveillance process will coordinate the resources of the three regulatory agencies. Other regulatory initiatives, like the collecting of data and sales practices for traders, are still in dispute or discussion among the three agencies.

* For the first time, the rules for Treasury auctions have been codified.

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