SWEEPING changes to securities legislation will be unveiled within two months, closing loopholes which have created a huge, unregulated market in over-the-counter stock options, according to an assistant director of the Securities and Futures Commission. A lawyer warned yesterday that many companies were ignoring the legal problems in the over-the-counter market, which could lead to contracts not being honoured if one party went into liquidation. Promising a ''comprehensive review of legislation'', the SFC's Mr Patrick Conroy said ''market developments have outpaced existing structures''. Among the ''anomalies'', he said, were laws forbidding the trading of options in shares. Options are a more sophisticated version of the familiar covered warrants which allow investors to buy or sell shares at specific prices at some future date. Such options will not be traded publicly until the middle of next year, when the stock exchange is scheduled to launch its stock options exchange and legislation is timetabled to be amended. Mr Conroy was speaking at the Derivatives '93 conference organised by Financial and Business Media Associates, where some speakers testified that trade in these options was growing fast. Mr Robert Whiting, managing director of Peregrine Investment Holdings, said growth was ''enormous'' and companies like his were ''bridging the gap'' between covered warrants and the launch of the exchange's stock options. He declined to give an estimate for the size of the market, saying that because there were no disclosure requirements his estimate could be wrong by 500 per cent. According to Mr Andrew Malcolm, a solicitor with Linklaters and Paine, one of the most common responses to the legal problem is ''just to ignore it''. However, ''if your counter-party gets into difficulty you may get nothing back'', he said. Mr Conroy said other loopholes existed, and cited the PaineWebber Hang Seng Index warrant, launched in January, as an instrument which had been structured to take into account legislation drafted long ago. ''It doesn't mean that we don't want to have these things [new products],'' he said. ''It just means that there will be some sort of regulatory review.'' He said time had been set aside in the Legislative Council to ensure that the bill was debated. He added that one effect of the legislation would be the narrowing of the cumbersome divide between share traders and commodity traders dealing in futures and options, and the associated system of ensuring that information did not leak between the two. The requirements for dealing in the two are different, which Mr Conroy said was ''based on history rather than practical considerations''. He said changes would make it easier to offer clients a range of services. Mr Conroy said the review would also cut the emphasis on where an instrument was traded as a basis for regulation, and make the ways of regulating new instruments more flexible. According to Mr Malcolm, other solutions used by companies trading stock options or other currently disallowed instruments include taking the deal offshore or doing it with banks, which are governed by different legislation. Another was to do away with the cash settlement.