WRAPUP 1-CFTC head urges lawmakers to stand ground on swaps

* House clearing exemption plan could create loopholes

* Senate version of exemption "narrow and explicit"

* Gensler likes Senate version of reporting requirements

* Sees 'very close regulatory structure' in U.S., Europe

* Much work still to be done on US 'flash crash' -Gensler

By Jonathan Spicer and Roberta Rampton

NEW YORK/WASHINGTON, June 3 (Reuters) - A House-Senate panel finalizing financial regulatory reforms this month should implement the Senate version of swaps reporting requirements and the Senate's narrow exemption from clearing rules, the head of the U.S. futures regulator said on Thursday.

As lawmakers head into a conference committee next week to hammer out differences on rules for the $615 trillion over-the-counter derivatives market, they must resist pressure from Wall Street heavyweights to weaken measures that would reduce risk, said Gary Gensler, chairman of the Commodity Futures Trading Commission.

"Make no mistake, there will be some pressing for exemptions, exceptions and loopholes ... that could weaken the legislation, leave risk in the system and strengthen Wall Street's information advantage," Gensler told a conference in New York organized by investment bank Sandler O'Neill.

The reforms under consideration by the House and Senate would require reporting of over-the-counter derivatives trades to regulators, though the Senate bill goes a step further in requiring banks to spin off their swap-tradinig units.

Similar swaps rules are being crafted in Europe, and Gensler added there is a growing global consensus on requiring central clearing for derivatives, higher capital for swaps dealers and more transparency for trading venues.

Addressing the conference luncheon, the Chairman said he is optimistic for "a very close regulatory structure" in the United States and Europe once the regions adopt rules meant to avoid a repeat of the 2007-2009 financial crisis.

WATER DOWN WARNING

To increase transparency in the opaque swaps market and reduce risk from trades blamed for accelerating the crisis, most U.S. swaps will be required to trade on exchanges or other electronic platforms, and clear through clearinghouses. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Take a Look-U.S. Financial Regulation [ID:nN16148428]

Factbox-Naked swaps and other key terms [ID:nN24196675]

Factbox-Key players in financial reform [ID:nN21179273] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Gensler, a former partner at Goldman Sachs (GS.N) who has argued on Capitol Hill for limited exemptions to tough new swaps rules, warned lawmakers that watering down the bill would hurt the public and create havoc for the market.

He stressed the Senate version of exemptions from clearing rules for commercial end-users hedging risk was "narrow and explicit" but warned the House version of the bill could leave a larger loophole from clearing for financial firms.

"Every slice of the financial system that we cut out through an exemption could allow one bank's failure to spread like fire throughout the economy," Gensler said.

Mandatory trading requirements in the reforms will lower costs for swaps users by providing more transparency, he said.

Wall Street firms "have estimated that if the derivatives reform becomes law, they could lose billions in revenue -- billions that their customers could save by getting better pricing on their derivatives transactions," Gensler said.

While the U.S. House-Senate panel is expected to finalize its landmark financial reform this month, the European Union is expected to propose a draft swaps law by July that will focus on mandatory clearing.

The separate processes have raised concerns that global banks could shift trading from the United States to Europe if the rules turn out differently.

Still, Gensler said on Thursday "there seems to be a growing consensus moving forward, particularly between the European Commission and the U.S. regulators."

STILL PROBING 'FLASH CRASH'

Turning elsewhere, the Chairman added there is "a lot of work still to be done" in probing the May 6 "flash crash," which exposed deep flaws in the U.S. marketplace.

The Dow Jones industrial average plunged some 700 points in minutes before sharply rebounding in the crash that rattled investors globally and sparked a series of regulatory changes in the U.S. marketplace.

Gensler said the CFTC and the Securities and Exchange Commission are focusing on links between the futures and cash equities markets and on risk management standards as they search for answers, now nearly a month later. (Reporting by Christopher Doering and Roberta Rampton in Washington, and Jonathan Spicer in New York,)