The Commodity Futures Trading Commission and Securities and Exchange Commission on Friday recommended legislation that would expand the U.S. futures regulator's authority over foreign exchanges that offer access to U.S. investors.

The recommendation is among a raft of proposals aimed at broadening the CFTC's authority over financial exchanges, outlined in a report on harmonizing oversight of U.S. derivatives and securities markets.

The Friday report follows a series of September hearings on the topic, and fulfills a request by the Obama administration to identify ways the CFTC and the SEC can eliminate gaps in oversight and work better together.

In the report, the CFTC noted its limited authority over products traded on exchanges located outside the U.S., though these markets are often electronically accessible for U.S.-based traders.

Requesting legislation that would let the CFTC force foreign exchanges to register in the U.S., officials cited concerns that foreign boards of trade may not have "certain rules and protections that the CFTC considers necessary for maintaining the integrity of markets and orderly trading."

Such a provision is included in derivatives reform bills backed by President Barack Obama and Rep. Barney Frank (D-Mass.).

The CFTC remains wary of phenomena like the so-called "London loophole," which critics claim has allowed U.S. traders to circumvent regulations by electronically trading contracts linked to U.S.-based futures products.

The U.S. futures industry, however, has argued against requiring foreign-based exchanges to register with the CFTC.

CME Group Inc. (CME) Executive Chairman Terry Duffy told lawmakers last month that it raises the possibility of foreign countries requiring U.S. exchanges and clearinghouses to register abroad.

Friday's report also saw the CFTC recommend legislation that would expand its power over exchanges' and clearinghouse's risk management practices.

Exchange operators like CME, IntercontinentalExchange Inc. (ICE) and Nasdaq OMX Group Inc. (NDAQ) are looking to clear more over-the-counter derivatives, part of a Washington-backed push to reduce risk in off-exchange markets, and the CFTC said that its current authority is limited in this regard.

The CFTC wants amendments to the Commodity Exchange Act that would give it more time to evaluate rules or products proposed by exchanges, while no longer automatically approving new exchange rules unless they are found to violate the CEA.

Under the recommended amendment, CFTC would more closely examine proposed new rules by exchanges.

Friday's report did include some recommendations that exchanges have pushed for: commitments to speed up the approval process for new products and expanded portfolio margining.

Options exchanges like the Chicago Board Options Exchange have long complained of the SEC's drawn-out approach to approving new options products, compared to the CFTC's relatively fast turnaround.

Regulators on Friday agreed that there must be a timeline for agreement on a new product, giving both agencies a three-month window in which to assert jurisdiction over a product submitted to the other regulator.

The report also supported expanded portfolio margining, which could let brokerage customers combine futures, options and cash equities positions into a single margin account.

Some exchange operators have complained that the lack of comprehensive portfolio margining puts U.S. markets at a disadvantage to other locales that allow the practice.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com