WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan strongly urged U.S. regulators to overhaul rules on stock-options accounting Friday, saying the current method distorts company earnings and poses risks for the marketplace.

"The seemingly narrow accounting matter of option expensing is, in fact, critically important for the accurate representation of corporate performance," Greenspan told a financial markets conference convened by the Atlanta Federal Reserve Bank in Georgia.

A copy of his remarks was released in Washington.

"I fear that the failure to expense stock option grants has introduced a significant distortion in reported earnings -- and one that has grown with increasing prevalence of this form of compensation," he said.

Greenspan, who has cited the Enron debacle as an example of the problems with the current options accounting system, favors an approach in which companies would record the granting of options as an expense against earnings. Most firms do not do so now.

The Fed chief said it would be riskier to leave the current system in place than to reform it.