U.S. securities and futures regulators took their first steps toward resolving long-standing conflicts on how to oversee markets amid warnings not to stifle innovation and competition.

In an effort to meet an Obama administration request to harmonize their rules, the Securities and Exchange Commission and the Commodity Futures Trading Commission met on Wednesday for the first day of historic meetings to hear from exchanges, consumer groups, enforcement officials and other experts.

There are areas where the CFTC and SEC regulate similar products, practices or markets, but do so differently, CFTC Chairman Gary Gensler told a packed room of market experts and lawyers.

There are times when these differences are appropriate, but at other times, they could stifle competition, increase costs or limit investor protection, he said before deferring to SEC Chairman Mary Schapiro, who sat beside him.

Schapiro told the hearing she was confident the two agencies also will be able to work together and said greater coordination would reduce regulatory arbitrage, promote product innovation and rebuilding confidence in U.S. markets.

For the first time since the CFTC was established in 1974, the four futures commissioners and five SEC commissioners convened to hear from market experts and hash out differences.

Commissioners greeted each other warmly and shook hands. But in a sign the regulators have been deeply divided for years, CFTC Commissioner Jill Sommers said the futures and equities markets serve fundamentally different purposes and require different divergent regulatory schemes.

The push to overhaul the regulatory framework has gained momentum in the White House and in Congress following the worst financial crisis in decades that exposed gaping holes in the country's regulatory system.

The White House has urged the agencies to give Congress a report that identifies existing conflicts and makes recommendations on how to resolve them by the end of September. While the request is not binding, Schapiro and Gensler are under pressure to bridge the divide.

Exchanges such as IntercontinentalExchange Inc urged a standard set of rules that would allow the SEC and CFTC to protect market integrity and reduce systemic risk.

ICE senior vice president Johnathan Short said the rules should be flexible enough to adapt to changing market conditions.

The Chicago Board Options Exchange, which had to wait more than three years for a product to be approved by the regulators, said a process was needed to resolve jurisdictional disputes.

This disparity between the two approaches poses severe domestic and international competitive disadvantages to SROs (self-regulatory organizations) and inhibits innovation in the securities markets, said William Brodsky, chairman of the Chicago Board Options Exchange.

The world's largest exchange the Chicago Mercantile Exchange warned against a one-size-fits-all rule for markets.

These significant, intrinsic differences between derivatives and securities markets are likely to be eviscerated by a one-size-fits-all regulatory regime, undermining the value of both markets, said Craig Donohue, head of the Chicago Mercantile Exchange.

Weak regulation of the $450 trillion private derivatives market has been blamed in part for causing the crisis, intensifying demands that they end their turf wars.

At the core of most SEC-CFTC disputes is whether a product is a security or a commodity future. The divide has delayed approval of products, much to the dismay of investors and other market participants. It took regulators more than three years, for example, to resolve options on gold exchange-traded funds.

Regulatory disputes have consumed agency resources and created uncertainty in the marketplace as to how products will be regulated. The CFTC takes a more flexible, principles-based approach to regulating exchanges and clearing organizations. The SEC abides by strict rules to regulate stock exchanges.

The idea of combining the CFTC and SEC has been suggested, but has failed to gain traction amid concern from the respective agencies and opposition in Congress.

(Reporting by Rachelle Younglai and Christopher Doering; Editing by Lisa Shumaker)