UPDATE 1-India's market regulator "keeping close watch" after shares surge-source

Mon May 12, 2014 12:11pm EDT

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By Himank Sharma and Abhishek Vishnoi

MUMBAI May 12 (Reuters) - India's securities regulator is keeping a close watch on markets after shares rallied to record highs on speculation that exit polls would show the opposition Bharatiya Janata Party and its allies winning a majority in the election, a senior official with direct knowledge of the matter told Reuters.

Several traders attributed the gains in Indian shares, which sent the broader NSE index to record highs on Friday and Monday, to leaked results from exit polls.

Throughout the day, traders widely circulated numbers purported to be from media organisations, although nobody could confirm to Reuters their provenance or if they were genuine.

Media organisations were not allowed to release their exit polls until 6.30 p.m. local time (1300 GMT) on Monday after the conclusion of the country's five-week long election.

Four major exit polls forecast a victory for the opposition coalition led by Hindu nationalist Narendra Modi, with results ranging from 261 to 289 parliamentary seats.

Modi's BJP and its allies need to cross the 272-seat mark to secure a majority in the lower house of parliament.

"To ensure market integrity SEBI and exchanges have been keeping a close watch on the market movements and are making necessary enquiries wherever the trades appear to be unusual," a senior official at Securities and Exchange Board of India told Reuters.

The SEBI official was responding to a Reuters inquiry about whether the regulator was looking into the market speculation. He declined to be identified because he was not authorised to talk to the media about SEBI's actions on the matter.

SEBI did not respond to an emailed request for comment.

Indian stock markets have seen previous cases of sudden sharp movements in indexes or company shares ahead of big corporate announcements, raising suspicions about insider trading that have damaged retail investor confidence.

In April, SEBI began a formal investigation into the surge in the stock price of Ranbaxy Laboratories in the run-up to its planned $3.2 billion merger with Sun Pharmaceutical Industries.

"Markets got wind of exit poll results showing a clear majority for BJP-led allies," said Deven Choksey, managing director at K R Choksey Securities.

A spokesman at BSE Ltd, India's oldest exchange, said: "The surveillance department would keep a close watch on unusual things. SEBI remains in touch with surveillance on (a) regular basis."

"We can't comment on this," said a spokeswoman for National Exchange, India's largest exchange. (Additional reporting by Neha Dasgupta; Editing by Rafael Nam)

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