Ranbaxy shares surged 24 percent while trading volumes tripled in the three trading sessions before Sun Pharma said it had agreed to buy Ranbaxy for $3.2 billion.

"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, referring to the Securities and Exchange Board of India (SEBI).

"We will write to them by the end of the day to investigate into the matter."

Spokesmen for SEBI and Ranbaxy declined to comment on the ANMI president's statement. Sun Pharma officials weren't immediately available to comment.

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

SEBI has been criticized by market participants for its slow pace in investigating suspected cases of insider trading, which can take years and is often conducted in secrecy.

A senior SEBI official told Reuters this week the regulator "is looking" into the Ranbaxy share moves ahead of the announcement, as part of what he called "routine practice" for sharp share moves ahead of announcements.

The source, who declined to be identified talking about a potential probe, did not elaborate.

India has experienced other sharp share movements ahead of major announcements. For example, in June Infosys Ltd's shares and option volumes surged before the surprise announcement that founder Narayan Murthy was returning as executive chairman.

Yet SEBI is widely perceived to be ill-equipped in countering securities fraud, and like other global regulators, 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 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 also expected 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.

($1 = 60.0975 Indian Rupees)

(Additional reporting by Zeba Siddiqui and Abhishek Vishnoi, Editing by Rafael Nam and Kenneth Maxwell)

By Himank Sharma