“What you're giving up is, in many cases, not your own money; it's your client's money,” said Darrell Duffie, a finance professor at Stanford University who has studied derivatives markets.

Spokesmen for the Fed, FDIC, and Bank of England declined to comment.

“We continue to have serious concerns about efforts to suspend rights that protect customers during U.S. bankruptcy proceedings,” said Nick Simpson, a spokesman for the Managed Funds Association. The Washington-based trade group represents hedge funds.

Late last year, regulators resolved the issue for an estimated 90 percent of the swaps market when they persuaded the International Swaps and Derivatives Association (ISDA) to change its legal documents for transactions directly between banks.

Under that agreement with the industry's main standard-setter for derivatives, lenders will wait as long as 48 hours before pulling collateral from failed lenders and canceling transactions. The delay, if all goes well, would negate the need to terminate contracts because the failed firm would return to health.

In private discussions, including one last month in New York, regulators have urged big money managers to adopt similar policies, said the people who asked not to be named because they weren't authorized to speak publicly.

Rules Coming from Fed and FDIC

While the Fed and FDIC lack direct authority to write rules for hedge funds, the agencies plan to use their power over banks to try to get what they want.

The regulators can insist that any contract with a bank be allowed to stand for some period of time during a failure, and they've said they'll propose a rule in the coming months that affects the entire financial industry.

The Fed and FDIC's efforts are clashing with current bankruptcy law, which allows traders to end deals immediately. Regulators argue that changing contracts for derivatives trades and short-term funding transactions—including repurchase agreements and securities lending—is crucial to resolving insolvent banks.

The goal is preventing a recurrence of what happened after Lehman's 2008 bankruptcy. The bank's clients either rushed to terminate swaps trades or haggled over the value of deals, exacerbating the broader market panic.

“What people talk about with Lehman is how much value Lehman lost because of the absence of a stay,” said David Skeel, a University of Pennsylvania law professor who studies bankruptcy law. A wave of terminations caused a “significant loss of liquidity,” coupled with a spike in collateral demands that helped cripple the firm, he said.

At the New York gathering, regulators made their case again to several dozen lawyers and executives, including representatives for Citadel, D.E. Shaw, Pimco, BlackRock, and other trade groups for banks and funds.

The June 25 meeting irked some money managers, who felt there wasn't enough discussion about whether it made sense for funds to change their policies, two of the people said. Instead, regulators focused on technical issues for revising financial contracts, the people said.

Spokesmen for Citadel, D.E. Shaw, Pimco, and BlackRock declined to comment on the meeting.

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