The regulator is proposing to amend the rules because of Chinatrust Commercial Bank’s investment in Mega Financial Holding Co. last year via an offshore derivatives transaction, the Taipei-based, Chinese-language Commercial Times said Friday.

The financial watchdog aims to tighten supervision of “an increasingly complicated risk nature and the complexity of product types in a growing market,” it said in the statement, without mentioning Chinatrust Commercial.

Taipei-based Chinatrust Commercial, Taiwan’s largest credit- card issuer, bought US$390 million worth of notes convertible into Mega shares through its Hong Kong branch without approval from the board of its parent, Chinatrust Financial Holding Co. Chinatrust Financial had regulatory approval to acquire 10 percent of Mega in February 2006 by buying shares in the local market. The convertible note purchase gave Chinatrust a bigger stake in Mega than was allowed by the watchdog.

“Banks will be banned from trading derivatives for mergers and acquisitions, or any illegal purposes, regardless of whether they do this for their own or for clients,” the commission said in its statement Thursday.

Chinatrust Financial completed the disposal of a 3.9 percent stake in Mega, as ordered by the regulator, in June, reducing its holding in Taiwan’s second-largest financial services company by assets to 11.6 percent.

On July 30, Chinatrust said it will sell the remaining stake within four years because it had ruled out Mega as a potential target for a merger or acquisition.

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