THE Commons Treasury Select Committee is considering an investigation into insider trading amid fears that only a small proportion of perpetrators are caught and punished.

The Conservative MPs Michael Fallon and David Gauke, both members of the parliamentary committee, told The Times that insider dealing could come under investigation in the next parliamentary year.

Mr Gauke, a former City lawyer, said that, despite changes to the law designed to make it easier to bring prosecutions, it remained difficult to prove insider trading. “It’s the type of thing that we’d be interested in,” he said.

Parliamentary interest in the policing of insider dealing follows a study of American deals carried out by Measuredmarkets. This found that shares in nearly half the companies that attracted bids showed abnormal trading patterns in the period before the bid announcement. The research company attributed some of the abnormal trading to insider dealing.

Research carried out by Thomson for The Times showed similar patterns in some of the UK’s most recent takeovers. Rumours about Body Shop being bought by L’Oréal, for example, surfaced two months before the deal was announced.

The Financial Services Authority is currently analysing the share trading patterns around deals carried out last year. Sally Dewar, director of the FSA’s markets division, said that the 2004 analysis showed a “small but statistically significant increase” in price movements that appeared to have been caused by the use of insider information.

This suggested a deterioration in market cleanliness, she said. “Obviously, we would want to see an improvement over time in these figures.” The FSA’s statutory objectives include the prevention of market abuse.

Research released by the FSA in May showed that the movement of share prices ahead of takeover announcements indicated that there was improper buying and selling of stock in 29 per cent of cases.

The same implication was drawn in 22 per cent of cases in which trading statements were released by FTSE 350 companies. The regulator studied the way share prices changed in the period before price-sensitive announcements, then compared the changes to the movement in the market as a whole, as well as the sector.

The Financial Services and Markets Act of 2001 made it possible for the City watchdog to bring civil charges against individuals that use restricted information to make gains or prevent losses on the stock market.

The FSA can set unlimited fines for those found guilty, as well as banning them from working in finance. Before 2001, criminal charges had been the only option available to regulators.

This year the FSA imposed a £750,000 fine on Philippe Jabre, the former managing director of the hedge fund manager GLG Partners, for market abuse over his trading in convertible bonds. It was the biggest fine levied by the watchdog. Other fines have been far smaller, with most set between £1,000 and £15,000.

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