LONDON -- Derivatives professionals are glad to have seen the back of 1994, a year in which they were blamed for the collapse of one U.S. county, huge losses by major companies and escalating volatility in world financial markets.


This year, experts fear, the gaze of the world's regulators could turn again to these complex financial instruments -- largely traded futures, options and swaps -- which derive their value from markets like equities, bonds, currencies and commodities.


Often, only a small price is paid for derivatives. That means they can accelerate profits but they may also accentuate losses.


Derivatives have often before found themselves in the glare of adverse publicity. But last year the trouble started after America's central bank, the Federal Reserve, raised interest rates much sooner than many had expected.


"The sharp movement upwards in U.S. interest rates flushed out a lot of people who had been betting the other way," said Andrew Coleman, at Price Waterhouse Capital Markets and Treasury Group in London.


The rate rise hit investors who had gambled it would not come and prompted Procter & Gamble and Gibson Greetings to sue for losses on derivative deals that U.S. commercial bank Bankers Trust had sold them.


As a result Bankers Trust has agreed to scrutiny by the Federal Reserve in one part of its derivatives business.


"The Fed has set the agenda in their agreement with Bankers Trust," Coleman said. "There will probably be a code of conduct for the sales of derivatives (this year). Whether it will be a legal code in the framework of regulations or become custom and practice (remains to be seen)."


Also last year California's Orange County, an affluent part of one of the richest U.S. states, filed for bankruptcy after losses in financial markets. Orange County's losses, put at more than $2 billion, were not solely related to derivatives but its problems hurled the industry into an unwanted glare of publicity after an already turbulent year.


But, while America has seen unprecedented steps to regulate derivatives, supervisors elsewhere may be reluctant to follow suit. Even U.S. regulators last week helped take some of the heat off the market with conciliatory comments about derivatives.


A senior official at the Bank of England saw the risks associated with derivatives as similar to those in other markets. "But it depends what the instruments are being used for," he said.


Those using derivatives can protect themselves against adverse movements in markets, not just punt on their direction.


"One of our challenges is to make sure we have a handle on what banks are doing," the official said.


The Bank of England, like other central banks in the European Union, will spend 1995 putting the groundwork in place to allow new rules for market risk to be implemented in 1996.


The bank plans to let banks use their in-house computer models to measure market risk where allowed under the EU's "capital adequacy" rules and has set up a group which will begin analyzing the models this week.


But market users will receive their share of attention too.


"Problems can occur where people, for whatever reason, end up with a product that is different from what they thought they had, or at least claimed they had," the bank official said.


Coleman thinks some in the industry may have learned their lesson. "On the sell side major banks, in the light of Bankers Trust, may be reviewing what they are doing (and) users may be a lot more cautious about how they use them."


The Bank of England thinks the industry, which often shrouds the instruments it sells to investors in mystery, can help itself.


"There is (a) mystique that the market may find is in its own self-interest to strip away," the Bank official said. "It may be that some of these things which sound very expensive and complicated are in fact rather simple."