US. Regulators Have Plan for Securities Auctions : Policy: The proposal aims to help regulators stop trading abuses and give them better access to data on transactions by dealers.

U.S. market regulators unveiled a plan Wednesday that would flood the government securities markets if anyone tried to corner it, as Salomon Bros. Inc. admitted it did last year.

The idea--a major reversal of government policy--is a key component of a four-month study by the Treasury Department, the Federal Reserve Board and the Securities and Exchange Commission.

The report proposes overhauling the auction system the government uses to raise $1.5 trillion each year to prevent trading abuses and give regulators better access to data on dealer transactions.

The Treasury, in particular, is mulling whether to scrap its current system--in which players pay different prices for the same security--and use a new system in which the bonds would be sold at a uniform price.

Regulators also plan to further sweep away the privileges enjoyed by an exclusive group of bond dealers by loosening the restrictions governing what firms can be “primary dealers” of government securities.

Hundreds more firms, as a result, could gain the now-coveted status of primary dealer.

The study was prompted by Salomon’s admission in August, 1991, that the firm broke Treasury auction bidding rules by submitting bogus bids and buying more notes than allowed.

On one occasion in May, Salomon’s monopoly of Treasury notes sent prices surging and enabled the firm to squeeze big payments out of rival dealers that wanted the securities.

The ensuing scandal forced the resignation of top Salomon executives--including its brash chairman, John Gutfreund--and caused a major crisis at the firm.

Since then, lawmakers on Capitol Hill have been demanding reforms and tougher regulation of the $3.7-trillion government securities market, the biggest in the world.

The study avoids recommendations that would effectively give market regulators an iron fist to prevent future abuses.

Rather, it attempts to impose new safeguards that do not deter investors from bidding for Treasury bills, notes and bonds. Weaker bidding would boost the government’s cost of raising money and hit taxpayers square in the pocketbook.

Flooding the market with bonds would be roughly similar to a concert promoter selling additional tickets just before show time in hopes of squashing the profits of scalpers.

The law already allows the Treasury to reopen auctions, but the department has been reluctant to do so partly from fear that it would prompt investors to bid less aggressively.