MUMBAI India's market regulator will ask Ranbaxy Laboratories and Sun Pharmaceutical Industries for more information about their planned $3.2 billion merger and seek trading data from stock exchanges after shares in Ranbaxy surged in the run-up to the deal, a senior source at the regulator said on Wednesday.
Ranbaxy shares jumped 24 percent while trading volume tripled in the three sessions ahead of Monday's announcement that Sun Pharma would buy it in what would be the biggest drug sector deal in the Asia-Pacific region this year.
"We have received multiple complaints. We will ask stock exchanges on details of buy and sell trades in both Ranbaxy and Sun shares," said the Securities and Exchange Board of India (SEBI) source, who declined to be identified because he is not authorized to speak with the media on the matter.
The official added that SEBI would also ask for "additional disclosures" from the two drug makers.
Sun's managing director, Dilip Shanghvi, said India's largest drug maker by market value had not received any inquiries from SEBI in an interview with CNBC-TV 18.
"We haven't heard (from the regulator)," Shanghvi said on Wednesday afternoon.
"We also have concern about the run-up in Ranbaxy stock a few days before the transaction was announced, but we hope that nothing comes out of that inquiry."
Spokesmen for SEBI and Ranbaxy declined to comment. The National Stock Exchange of India Ltd and BSE Ltd, India's two biggest exchanges, also declined to comment.
The president of an Indian brokerage association said it would formally ask the regulator to investigate trading in Ranbaxy's shares.
"Because there was such kind of price movement before the deal was announced, we have decided to check with the regulator," Naresh Tejwani, president of the Association of National Exchanges Members of India (ANMI), said on Wednesday.
Indian stock markets have seen previous cases of sudden sharp movements in company shares ahead of big corporate announcements, raising frequent suspicion about insider trading that have damaged retail investor confidence.
For example, last June, Infosys Ltd's shares and option volumes surged before the surprise announcement that founder Narayan Murthy was returning as executive chairman.
The regulator has been accused by some market participants of being slow to investigate suspected insider trading and ill-equipped to fight securities fraud. Its investigations can take years and are often conducted in secrecy.
Like other global regulators, SEBI has often resorted to fines and settlements, which are easier to obtain than criminal indictments.
Its most high profile case so far has been investigating a unit of energy conglomerate Reliance Industries Ltd over a suspected case of insider trading in 2007.
After six years of investigation, SEBI last year fined Reliance 110 million Indian rupees ($1.83 million), saying it had found enough evidence of insider trading. The energy company, which had net profit of 55.1 billion rupees in the October-December quarter, is appealing to SEBI's appellate body.
The regulator is expected to debut new insider trading rules later this year that would require executives to disclose planned trading activity and also require companies to monitor their employees for trading.
Retail investors have been heavy sellers in Indian markets and have redeemed about $5.2 billion from equity funds in India since 2010.
($1 = 60.0975 Indian Rupees)
(Additional reporting by Abhishek Vishnoi; editing by Tony Munroe and Tom Pfeiffer)