House Financial Services Chairman Barney Frank , D-Mass., opened the door Wednesday to revising his draft legislation, which aims to regulate the massive derivatives market, to address concerns that some of the complex products could fall through the cracks.

Several components of the bill “could unintentionally preserve existing regulatory gaps,” Henry Hu, director of the Division of Risk, Strategy and Financial Innovation for the Securities and Exchange Commission (SEC), said in prepared testimony before Frank’s committee.

While calling Frank’s latest draft a “step in the right direction,” Hu said he remains concerned about the way it divides regulatory authority over derivatives between the SEC and the Commodity Futures Trading Commission (CFTC). That would create differences in how each agency regulates what are known as swaps and futures, both considered forms of derivatives, Hu said.

Like other derivatives, swaps and futures can be used to hedge against financial risks, such as increasing fuel costs or interest rates. But they also can be used by financial speculators. Hu said splitting the regulatory responsibility between the SEC and CFTC may tempt market participants to seek out the agency with the least stringent oversight.

Frank told the committee that he agreed with Hu’s assessment and planned to work with regulators to draft language addressing those gaps in the coming days.

“I think there is some room now to tighten up some of what we are doing,” Frank said.

But he added that he has a fine line to walk on regulating derivatives, which now largely escape federal oversight. Making the market unprofitable for financial institutions would have a chilling effect for all of the players involved, Frank said.

Lawmakers are trying to balance the interests of the financial sector and “end-users,” corporations that use derivatives to protect themselves against economic swings.

“We can’t expect financial institutions to be available to help the end-users as a charity,” Frank said. “They need to make a profit, or they will not be available to provide that liquidity which is important.”