Lawmakers Wrangle Over Rules on Derivatives

WASHINGTON — House and Senate negotiators scrambled on Thursday to reach final agreement on how to regulate derivatives and whether to impose restrictions on the ability of banks to trade for their own benefit.

Although two weeks of efforts by House and Senate conferees to reconcile differences in the financial regulatory bill were scheduled to end on Thursday, by late afternoon the committee members had not even begun detailed debate on two of the most contentious unresolved issues.

Senator Blanche Lincoln of Arkansas, the Democratic chairwoman of the agriculture committee, continued to buck the urgings of party leaders that she abandon her measure requiring federally insured banks to separate their derivatives businesses into a separate subsidiary, backed by their own capital.

That effort has been consistently opposed by Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, who says he believes that it could stand in the way of gathering the 60 votes necessary to get Senate approval for the bill.

The measure also has been opposed by officials of the Obama administration, who say they believe that it could place unnecessary limits on an important part of the financial markets.

For much of the day, House and Senate negotiators talked outside of the committee room about the derivatives provision as well as the so-called Volcker Rule, a measure that would restrict the ability of banks to invest in hedge funds or private equity partnerships or to trade for their own benefit. The measure is named for its most prominent advocate, Paul A. Volcker, the former Federal Reserve chairman.

Earlier Thursday, Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee, pushed numerous minor provisions of the 1,500-page bill toward agreement. Among the provisions approved was one that would give the Securities and Exchange Commission the authority to require stockbrokers to protect their clients’ interest when recommending investments, potentially subjecting brokers to the same fiduciary duty as financial advisers.

The conference committee has set a goal of completing work on the reconciled bill this week, then presenting the final package to the full House and Senate for approval next week. Legislators have said they hope to deliver a bill to President Obama for his approval before Congress leaves town for its Independence Day recess.

Conferees adopted a proposal on Thursday that would require the S.E.C. to complete a study within six months of the bill’s enactment to evaluate the effectiveness of current rules governing those who give financial advice to or sell securities to consumers.

Under current law, financial advisers are required to act in the best interests of their clients, while brokers are held to a looser standard, under which they are required only to consider whether an investment is “suitable” given a client’s time horizon, goals and appetite for risk.

The compromise calls for the S.E.C. to take the results of the study into account when making any rule, but it also gives the commission the authority to impose a fiduciary standard on stock and insurance brokers. The commission may also require brokers to disclose that they are offering only proprietary products and to reveal how much they are being paid for particular products.