SHARES in Eidos, the computer-games company, began to rise almost as soon as the market opened on Monday, March 21. Over the next 36 hours, shares in the company, which created the buxom virtual superheroine Lara Croft, soared nearly 40% in heavy trading.

The reason was that a takeover was about to be launched for Eidos. But it was not until 12.13pm on Tuesday, March 22, that its rival Sci Entertainment tabled a bid.

In the intervening period 50m shares — 20 times the usual volume — had changed hands. For investors in the know it was a highly profitable start to the week. But investors who sold their shares lost out.

The surge in the Eidos share price hardly raised an eyebrow in the City, so common is it for share prices to rise ahead of a bid. According to Paul Marsh, professor of finance at the London Business School, a share price rising ahead of a bid is the norm these days rather than the exception. “On average we see a 2% abnormal return over and above the index ahead of a bid,” he said.

There is no shortage of examples of share prices leaping suspiciously before a bid. Shares in Lastminute.com soared more than 10% in just three hours last month, forcing the former stock-market darling to announce that it was in takeover talks with a rival.

In January, Aggregate Industries’ share price rose 4% after heavy trading the day before Holcim, the Swiss cement company, announced a £1.8 billion bid. Shares in Novar, the building-supplies firm, jumped 4% last year the day before a bid from Melrose.

It has been going on for years, but experts have noticed the problem worsening in the past 24 months. This has led the regulator to suspect that it is not individual wrongdoers they should be targeting, rather major investment banks and hedge funds.

Officials at the Financial Services Authority believe that the landscape has been changed by the extraordinary growth of hedge funds and by proprietary trading at the investment banks, which inject hundreds of millions of pounds into the market each day. As a consequence, insider trading is now institutionalised.

The fact is that it is fairly easy to catch an individual who has profited personally from inside information, but much harder to collar fund managers who invest on the basis of a leak, because the illegal activity is lost among a welter of daily investment decisions.

Hector Sants, managing director of wholesale and institutional markets at the Financial Services Authority (FSA), the City regulator, is under no illusions about the size of the task, but in his first interview since being appointed last year he said he was determined to stamp out institutional market abuse.

Sants, a former Credit Suisse First Boston banker, has some of the City’s most powerful names in his sights.

“We have identified individual misdemeanours — and we continue to pursue those cases — but we are going to target what we call institutional abuse,” he told The Sunday Times.

In recent weeks he has toured City boardrooms warning that the FSA will be proactive in stamping out institutional insider dealing. This is a major shift in strategy.

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