INVESTMENT banks issuing listed derivatives and involved in over-the-counter (OTC) derivatives trading will be subject to closer scrutiny, more stringent reporting and disclosure requirement by the Securities and Futures Commission (SFC). Addressing the Legislative Council's Finance Panel on derivative trading yesterday, the SFC said its main concern 'relates to futures exchange-traded products and in equity warrants'. While the exchange-traded products lie within the ambit of the SFC and are covered by both legislation and rules of the exchange, equity warrants and over-the-counter products pose problems for regulators. The requirement for the issue of equity warrants is a basic capital of $1 billion. But the SFC will tighten the rules as part of its efforts to strengthen control over derivatives trading. 'The intention is to refine this into a more satisfactory and comprehensive set of requirements including regular reporting, disclosure of information, reports from independent experts and so on,' the SFC said. Those registered intermediaries engaging in OTC derivatives trading, either as end-users or as position-takers, will also face tougher regulation. The securities watchdog said it was in the process of developing a regulatory framework for OTC derivatives activity. An internal group has been set up to co-ordinate such work. The financial resources rules are also being reviewed with regards to risk involved in trading derivatives. The SFC is also looking into the code of conduct for registered persons. It proposed that rules or guidelines be drawn up to cover issues such as suitability and best advice. The SFC is now undertaking a survey of about 800 registered persons to gauge the nature and scope of OTC derivatives activity. 'Information from the survey will be analysed for follow-up, the SFC said. The SFC, through participation in the International Organisation of Securities Commissions (IOSCO), will help define the scope of reporting derivatives activities to overseas regulators. 'The requirements are expected to be jointly published as internationally agreed guidelines by IOSCO and the Basle Committee later this year,' the SFC said.