The Obama administration on Tuesday outlined a sweeping regulatory plan to oversee over-the-counter derivatives that dodges a regulatory turf battle by spreading responsibilities across several federal agencies.

The 115-page draft bill appears to recognize the political quagmire that would likely ensue if the plan tried to cut any regulators out of the picture. Although it would give the bulk of the proposed new powers over derivatives to the Securities and Exchange Commission and the Commodity Futures Trading Commission, it also aims to keep banking regulators in the mix by granting them authority to oversee the banks that deal in derivatives.

The legislation doesn't stray far from what Treasury Secretary Timothy Geithner first outlined in May, but it details for the first time how authority among federal regulators would be divided. In a concession to small market players, the bill has an exemption easing margin requirements for some hedging transactions.

The bill, which was sent to Capitol Hill for consideration, aims to reduce the risks that derivatives may pose "to the financial system and reduce the likelihood they could be used to engage in inappropriate business conduct or to hurt investors," said Michael Barr, the Assistant Secretary of the Treasury for Financial Institutions. It is the last in a series of draft bills the administration has submitted to help avert another financial crisis.

The proposal would require standardized derivative contracts to be processed through clearinghouses, which guarantee trades and help cushion against the blow of a potential default. Off-exchange derivatives are sold both as highly customized products and more standardized contracts that closely mirror products traded on exchanges.

Additionally, the bill also would require standard products be traded on exchanges or regulated electronic execution facilities to help improve price transparency - a move that may irk some in the industry.

As for customized products not suitable for clearing, the Treasury Department said Tuesday those would face higher capital and margin requirements as a way of enticing traders onto exchanges and electronic platforms.

Information about all derivatives, meanwhile, would be reported to a central repository to help regulators police the market.

In addition, major market players and non-bank derivative dealers would be regulated by the CFTC and SEC, while big banks that deal derivatives would continue to be subject primarily to oversight by their current banking regulators.

The Federal Reserve, meanwhile, would not lose its current authority to regulate IntercontinentalExchange's (ICE) ICE Trust - the only operable clearinghouse for credit-default swaps in the U.S. Under the plan, it would simply share that oversight with the other relevant regulators, Barr said.

To avoid the turf wars that have historically dogged the SEC and CFTC, Treasury officials said the bill breaks down the jurisdiction based upon the same principles the agencies have relied on now for well over a decade.

That means the CFTC and SEC would, for instance, each get a slice of the large credit-default swap market.

"The basic line is if a credit-default swap is on a broad-based index, it would be subject to CFTC jurisdiction," Barr said. "If it is on a single-stock or less likely on a narrow-based index, it would be subject to SEC jurisdiction."

The bill would also give the agencies joint rule-making authority to help avoid "regulatory arbitrage" and allow them to help set the terms for when a contract is considered "standard" and therefore able to be cleared and traded.

Additionally, the CFTC and SEC under the Obama plan would get new powers to impose trading limits on certain over-the-counter products that help set market prices - the very power CFTC Chairman Gary Gensler has been asking for in his quest to impose sweeping new position limits on traders who place bets on energy prices.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com