The question, while highly technical, is a central component of the bill and would have wide-ranging consequences for U.S. businesses that use the complex financial instruments to protect themselves from fluctuations in currencies, interest rates and commodity prices.
The dispute came during opening statements at a meeting of roughly 40 House and Senate lawmakers aimed at reconciling differences between new financial rules that passed the House in December and the Senate last month. Lawmakers are using the Senate-passed bill as the base, which treats derivatives far differently from the House version.
The House bill could make it less costly than the Senate version for businesses to hedge risks. The Senate bill, with the support of the White House, would make it harder for such end users of derivatives to avoid being hit by new rules.
House Agriculture Committee Chairman Collin Peterson (D., Minn.) said lawmakers should adopt the House bill, while Senate Agriculture Committee Chairman Blanche Lincoln (D., Ark.) and other Senate Democrats said the Senate measure should be the main plank of the bill.
"End users ... did not cause the financial crisis of 2008," Mr. Peterson said. "A lot of them were the victims of it." He said the Senate language was too complex and confusing.
It wasn't clear how the division would be addressed. Democrats cannot afford to lose votes because of disagreement on substantive issues, given that few Republicans are expected to vote for the measure.
Many business groups worry the bill will drive up companies' costs for managing risks. The National Association of Manufacturers sent a letter to lawmakers on the conference panel Thursday warning that new regulations on derivatives "could be costly and could hinder job creation for manufacturing and other non-financial companies that had nothing to do with the financial crisis."
The bill to overhaul the nation's rules on finance would touch almost every corner of financial markets. It would give the Federal Reserve new powers over large financial companies; create a new consumer-protection division within the central bank to police products such as mortgages and credit cards; toughen scrutiny over derivatives; and give the government new powers to seize and break up failing financial firms.
Democrats are trying to move the bill toward passage quickly, and it could be signed into law in the next few weeks. Senior Republicans acknowledged they probably didn't have the votes to stop the bill.
"We understand the numbers," Sen. Richard Shelby (R., Ala.) said in an interview. "I don't believe that [Republicans] will have much input into the process here."
The latest working draft of the bill is more expansive than the one passed by the Senate. Democrats added multiple restrictions on mortgage lending, swelling the package from nearly 1,500 pages to 1,974 pages.
The new mortgage rules would likely be implemented by the consumer agency. They're based on a bill the House passed in May 2009 with a 300-114 vote, which the Senate didn't take up.
The provisions would require that lenders ensure borrowers can repay mortgages before offering a loan, restrict prepayment penalties and add restrictions to refinanced loans.
They would also ban lenders from steering borrowers toward more expensive loans, and would include new limits on fees brokers could collect for connecting borrowers with loans.
Mr. Shelby called the new mortgage restrictions a "liberal activists' dream come true."
Another, technical change added quietly to the latest draft appears to offer a special concession to Caterpillar Inc.
The provision concerns a financial institution known as an industrial loan company, the only type of bank charter that commercial and retail firms can own. Companies often use them to offer financing for customers. Administration officials worry they form a sphere of banking that falls outside regulators' purview and could be an unseen source of financial instability.
The original Senate bill nixed any ILCs applied for after Nov. 10, 2009. The latest version changes that deadline to Nov. 23, 2009. During that period, Caterpillar applied to obtain deposit insurance for a finance company. The application is still pending. If lawmakers didn't extend the moratorium, Caterpillar's application would likely be voided.
It's unclear which lawmaker pushed for the adjustment, and Caterpillar officials didn't return immediate requests for comment. Caterpillar is a major industrial and equipment manufacturing company based in Peoria, Ill.
At the opening meeting of the conference, Democrats and Republicans sparred repeatedly, suggesting little bipartisan agreement was likely.
Democrats pressed for urgency in passing a final bill, saying scars from the financial crisis couldn't heal until changes were made to regulation. Rep. Barney Frank (D., Mass.), for his part, promised to show "impatience" during the process.
Democrats appeared to be hardening their anti-Wall Street bent and showed little sign of compromise.
Rep. Paul Kanjorski (D., Pa.) and Sen. Tom Harkin (D., Iowa) said the bill should move closer to the Glass-Steagall Act of the 1930s that walled off commercial banks from investment banks.
Republicans said Democrats were rushing the process and alleged the bill could kill jobs, constrict access to credit and make the U.S. less competitive globally. Several Republicans said a flaw in the bill was that it didn't address the government-run mortgage-finance companies Fannie Mae and Freddie Mac.
Mr. Shelby accused Democrats and the White House of holding "a number of private meetings" and said the bill was being "negotiated and compiled behind closed doors."