Congress to Look Closely at Treasury Sale Process : Securities: The scandal at Salomon Bros. has put pressure on lawmakers to increase regulations.

With the Salomon Bros. scandal clearly in mind, Congress is getting ready to look at the way the government securities market works, and the result seems likely to be stricter rules for the Treasury’s auction of billions of dollars of debt.

Salomon itself, the government’s system for raising money and the role of regulators all will come under the microscope as lawmakers hold at least four hearings in coming weeks.

The House subcommittee on telecommunications and finance will kick off the process Wednesday, with its chairman, Edward Markey, a Massachusetts Democrat, planning to look at several issues.

“What Salomon did. Why they did it. Where were the regulators? And where do we go from here?” he told Reuters.

Salomon has admitted bidding at Treasury auctions on more government securities than regulations allowed and bidding in the names of customers without their knowledge.

Such moves were said to enable Salomon to corner the market and drive up the prices of bonds.

Four top Salomon executives have resigned after the firm admitted that it knew of violations as early as April but failed to disclose them until early August.

The admissions, which have rocked the $2.3-trillion market for Treasury securities, has triggered an investigation by the Securities and Exchange Commission, the Treasury, the Federal Reserve and the Justice Department. Last week, state regulators launched their own investigations.

Salomon has been hurt by the scandal. Its stock has tumbled, the firm has lost several big institutional customers and its debt has been downgraded.

Markey’s panel will hear testimony from Warren E. Buffett, the Nebraska billionaire who is Salomon’s interim chairman, from SEC Chairman Richard Breeden and from top officials of the Fed and the Treasury.

“The two key issues are the integrity of the market and the efficiency of the market,” said Rep. Jim Cooper, a Tennessee Democrat who is a member of the subcommittee. “For years, we’d been assured by some very powerful and famous people that we had no need to worry on either score.”

Later hearings are scheduled by the Senate subcommittee on securities, the House Banking Committee and the House Ways and Means oversight subcommittee.

In addition, staffers from the House Banking Committee are expected to visit the Federal Reserve Bank of New York to get a first-hand look at the auction process.

Experts have charged that the light level of regulation of the sales allowed Salomon to break the rules.

The auctions are based in part on an unwritten honor code, and Salomon’s misdeeds have underlined the shortcomings.

Lawmakers have been exploring several possible responses, some more radical than others. Among the options, according to congressional and staff officials:

* License the “primary dealers” that bid regularly at the auctions and who trade securities directly with the Fed. The dealers now have a less-formal “business” relationship with the New York Fed, which grants primary dealerships.

* Facilitate the means that would allow big institutional investors to send their auction bids directly to the Treasury instead of going through the primary dealers.

* Beef up the ability of regulators to detect wrongdoing, including a requirement that big traders report their trading positions to the government. Also, the SEC could be given more power to regulate the market.

* Formalize the unwritten rules of conduct that now govern the market.

Some have even questioned whether primary dealers are necessary.

But lawmakers are reluctant to do anything drastic that would roil the government securities market--a development that would boost interest rates and raise the costs for the government and the taxpayer.

“There is less margin for error in this investigation and hearing process than any that I can think of,” Cooper said.