The Securities and Exchange Commission has dealt the tiny Commodity Futures Trading Commission a devastating blow by proposing to take over the regulatory authority for the rapidly growing financial instruments futures markets or, alternatively, to assume all of the CFTC's functions.

In a ten-page memorandum to the General Accounting Office which has been obtained by The Washington Post, the SEC citied two primary reasons for the proposals: the surveillance difficulties both agencies encounter under the present setup, and the "potential for manipulative and other adverse effects on the markets" as the futures industry expands into financial and capital-raising systems.

According to the document, the GAO requested the memo for a major audit of the CFTC undertaken as part of the reauthorization review of the three-year old agency. Reauthorization and budget hearings for the CFTC are scheduled for the week of Feb. 21 by four congressional subcommittees.

The beleaguered agency is expected to undergo rigorous scrutiny for its past performance, especially its administrative practices and its difficulities in enforcing federal regulations against widespread fraud in London commodity options sales.

While both critics and friends point to the awsome task the agency faces in regulating the $1 trillion-volume commodity markets, they have been quick to point out in the past that the intrinsic differences between commodity and securities markets require a vastly different regulatory approach.

The SEC memo notes this. "The basic regulatory goals of securities and futures legislation have necessarily been different," the document states . . . the futures markets were not intendent to - and do not - have a capital-raising function similar to the securities markets. They were not intended to be "investment" markets . . ."

The SEC proposal would affect futures trading of Government National Mortgage Association certificates, Treasury bills, Treasury bonds and U.S. government securities. Currently the Chicago Board of Trade and Chicago Mercantile Exchange make such markets. A division of the American Stock Exchange, asked the CFTC on Monday for permission to trade GNMA futures.

SEC General Counsel Harvey Pitt, who signed the document, and Chairman Harold Williams, did nto return a reporter's telephone calls about the memo yesterday.

Other SEC sources, however, said the problems encountered by the CFTC - "no matter what reason, they've had problems" - indicate that they have too many markets under their jurisdiction to do justice to them all.

"We're fearful that without strict surveillance and enforcement, situations like the one in commodity options could develop and the CFTC is just powerless to do anything about it," one official said. "They're new, they don't have 40 years behind them like we do, and they don't have our resources."

CFTC, with an annual budget of $13.1 million and a staff of 454, is responsible for eleven commodity exchanges which trade futures and physicals contracts in scores of items from wheat to orange juice to coffee to Treasury bills. The annual volume of commodity trading in the U.S., including $200 million to $300 million in London commodity options sales, ran well over $1 trillion last year.

In sharp contrast, the SEC has a of more than $50 million to supervise staff of more than 2,000 and a budget the nation's eight stock markets and the over-the-counter and bond markets. The stock markets total less than $200 million annual volume, according to the SEC annual report.

CFTC Vice Chairman John V. Rainbolt II siad late yesterday that he and the four other commissioners had received copies of the memo and the lengthy appendices.

"I do not doubt that the CFTC will vigorously defend its jurisdiction," he said, "And I hope that GAO will not be easily swayed by the SEC memo without an opportunity to discuss its implications with those of us who are familiar with the reasons the CFTC was given exclusive jurisdiction for commodities and financial futures."

Rainbolt, as associate general counsel to the House Agriculture Committee in 1974, drafted much of the enabling legislation for the CFTC.

He added that the SEC's proposal revealed "a late realization that the commodity industry and its regulatory apparatus is potentially far more important than the current sick securities industry," and was a move to get involved in a rapid growth sector.

A former SEC and CFTC officials, Thomas a Russo, who now represents private commodities and financial market interests, said yesterday the SEC proposal "would undoubtedly upset the current market mechanism . . ." He said financial instrument futures - especially Government National Mortgate Association futures - "are not investment vehicles and should not be treated as such. They're risk transfer devices and are desperately needed by the housing industry and others."