The U.S. Treasury Department’s plan for regulatory reform in the financial industry is drawing cautious support from various corners of the securities sector.

There is notable support for a more principles-based approach to securities regulation, but the derivatives industry insists that must take place before a regulatory merger goes ahead.

The Securities Industry and Financial Markets Association, called the plan “wise”. “Treasury has delivered a thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes,” said SIFMA president and CEO, Tim Ryan.

“Our present regulatory framework was born of Depression era events and is not well suited for today’s environment where billions of dollars race across the globe with the click of a mouse. That fact, teamed with the current market conditions, result in an universal agreement that it is time to modernize and revitalize the current system. Treasury’s three step approach is very wise because it allows time for serious analysis, discussion and important choices,” Ryan added.

Securities and Exchange Commission chairman Christopher Cox also expressed support for the idea of streamlining regulation. “Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility.”

“Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can’t be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today’s regulatory divides,” Cox said. “The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today’s markets.”

However, derivatives regulators are more cautious. Notably, the plan proposes merging the SEC and the Commodity Futures Trading Commission. CFTC commissioner Bart Chilton issued a statement, saying, “What I hear from people is their concern about the subprime crisis and the ripple impact on the economy. Some want to know that their investments are secure, and others want assurance that the securities and derivatives markets are free from fraud, abuse and manipulation. What I don’t hear is a call from the countryside for moving boxes around in Washington, DC or the need for some omnipresent super-regulator.”

“I think most Americans would prefer that government do our jobs, and that means doing everything possible to cauterize the subprime mess before performing major surgery on a regulatory system, parts of which are still very healthy,” Chilton added. “We shouldn’t be about trying to cure what isn’t sick. There is enough on the table, right now, that needs healing.”

In a separate statement, acting chairman of the CFTC, Walt Lukken, noted that the plan endorses its principles-based approach to regulation. “While I am still studying the Blueprint’s many recommendations, I applaud Secretary Paulson and the Treasury Department for their work on this critical undertaking and for recognizing the CFTC model of regulation as an advantageous one,” he said.

“Although the creation of a new unified regulator for securities and futures could bring efficiencies, the tradeoffs of such a significant undertaking should be weighed carefully given these turbulent economic times and the competitive global advantage currently enjoyed by the U.S. futures industry,” Lukken added. He warned that the CFTC’s favourable qualities could be jeopardized by making it part of a bigger bureaucracy. “Any regulatory reform effort must preserve the benefits of the CFTC’s principles-based model and recognize the distinct functions of the futures markets and mission of the CFTC,” he said.

In a refrain that will be familiar to those that have lived through the endless regulatory reform debate in Canada, Lukken insisted that, “Many of the benefits of a unified regulator can be immediately gained through enhanced coordination and information sharing between agencies.”He said that recent agreements to improve cooperation should be given time to work.

“Unless the securities laws are first rationalized with those governing the futures markets, a merger may ironically make the U.S. futures industry less competitive globally and run counter to the explicit goal of this important endeavor. I look forward to working with policymakers to ensure that these issues are properly debated and addressed,” he concluded.

The derivatives exchange, CME Group, added, “… we are gratified that Treasury’s proposal reflects our position that a merger of the CFTC and the SEC requires further study and is not a short-term objective, but rather an intermediate-term goal that should be addressed following further harmonization of the separate and very distinct regulatory frameworks applicable to futures and securities markets.”It also stressed that the SEC’s operations need to be better aligned with those of the CFTC before a merger can be contemplated.

@page_break@NYSE Euronext said it believes the recommendations, “are timely, thoughtful and have great merit.”

The Federal Reserve, which would receive an expanded mandate under the plan, has yet to comment. Nor has the Office of Thrift Supervision, or the Office of the Comptroller of the Currency, which would be merged under Paulson’s plan.