In a surprise move, House Republicans backed down Thursday on key provisions of a strongly contested bill to overhaul the nation's securities laws, a day after opposition by Securities and Exchange Commission Chairman Arthur Levitt had threatened to doom the bill.
The so-called Fields bill is meant to modernize securities laws adopted in the 1930s and to relieve Wall Street of unnecessary regulation. The compromise version worked out with Democrats abandons the most controversial elements of the bill.
Gone are provisions that would have eliminated states' rights to regulate brokers and securities, limited stock exchanges' authority to regulate brokerage firms and relieved brokerage firms of some responsibilities to institutional customers.
The House Commerce subcommittee on telecommunications and finance unanimously approved the compromise after a secret marathon negotiating session among staff members the day before. Earlier this week subcommittee Chairman Jack Fields (R-Texas), who sponsored the bill, said he would not back down on those provisions despite strong opposition from consumer groups, state regulators and House Democrats.
Although bipartisan support in the House makes it more likely that the bill will pass, its prospects remain uncertain because no version has been introduced in the Senate. Congressional sources said they believe that now that the bill is less controversial, Senate Banking Committee Chairman Alfonse D'Amato (R-N.Y.) might introduce it. A D'Amato spokesman said late Thursday that he did not know the senator's plans.
Rep. Edward J. Markey (D-Mass.), the ranking Democrat on the House subcommittee and a key figure in negotiating the compromise, said, "At the beginning of this week, few would have thought that we would have reached this point."
Fields denied that he had caved in and said the consensus bill was the result of constructive compromise on both sides.
Levitt, in a letter made public Wednesday, had squarely opposed the original provisions of the bill. In a letter to Fields on Thursday, Levitt lauded the changes, although he stopped short of a formal endorsement.
The watered-down bill would still result in some significant changes. Although it would not do away with state regulation of securities and brokers, it would require the states to agree on uniform standards for regulation. Any state that did not agree would automatically lose its regulatory authority to the federal government.
Some state regulators said this could mean that some states that now have unusually tough standards--such as Florida, which tightly controls licensing of brokers, and Colorado, which has strict rules to fight penny stock fraud--might have to accept a laxer standard. But the states could instead adopt the toughest states' rules.
Neal Sullivan, executive director of the North American Securities Administrators' Assn., the national organization of state regulators, called the compromise a vast improvement over the original version. "The question now is how we structure the uniform application of state law to ensure" that high standards are maintained, he said.
The compromise angered some groups on Wall Street, which had strongly backed a provision in the original bill that would have relieved brokerage firms of the responsibility for making sure that the securities they sell to institutional customers are not unsuitably risky.
Heather L. Ruth, president of the Public Securities Assn., the trade organization for government bond brokerages, said that because suitability rules would be retained, the compromise bill "isn't meaningful securities reform."
The original version of the bill would have sharply limited the federal government's authority to set margin requirements. The compromise would retain the requirements but shift responsibility for setting and enforcing them to the SEC and stock exchanges. The Federal Reserve oversees margin requirements, and Fed Chairman Alan Greenspan has urged Congress to relieve the Fed of this responsibility.
Congressional sources said the compromise was reached because Levitt's opposition to the old version was unexpectedly firm and because Fields proved much more willing to compromise than leading Republican staff aides to his committee, who have been described as ideologically committed to drastic deregulation.