The Abu Dhabi Securities Exchange (ADX) has launched an investigation into what it describes as "unusual" share price movements of Aldar Properties and Sorouh Real Estate before they announced a US$15 billion (Dh55.09bn) merger yesterday.
The share prices of both companies, two of Abu Dhabi's biggest developers, rose exactly the same amount yesterday to close up 7.9 per cent at Dh1.24. After the market closed the companies released a joint statement to announce they were considering a merger.
Both stocks moved up in lockstep again yesterday. Aldar, the developer behind Yas Island and Ferrari World, rose 9.8 per cent to Dh1.34 yesterday morning. Sorouh, the developer behind Sun & Sky Towers, also rose 9.8 per cent to Dh1.34.
"We were very suspicious when we saw the unusual trading movements of both stocks," said Abdullah Salem Al Naimi, the manager of market surveillance and market operations at ADX. "We started back-office investigations [on Sunday morning] since the share price movements became identical."
Calls made to Aldar were not returned. Sorouh declined to comment. Property companies in Abu Dhabi were hit hard by the global financial crisis in 2008, with prices dropping as much as 60 per cent from their peak in some places.
Aldar reported a full-year profit last year following a loss the year before after the developer received more than $10bn in funding and cut 105 jobs last November.
Sorouh has also shed jobs over the past year.
A merger would create a larger entity that would be dominant in the capital and help to reduce overheads and competition for business at the same time.
Fund managers were trying to interpret the meaning of the stock movements on Sunday and yesterday after both companies said they were preparing a study to be put before boards within the next three months.
"It seems the market is interpreting a share of Aldar for every share of Sorouh and a split of 60/40 of the new entity with Aldar taking the bigger chunk," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.
"From the fundamental point of view, these stocks shouldn't increase at the same pace," said Sebastien Henin, a portfolio manager at The National Investor in Abu Dhabi. "Right now we don't know the deal. Maybe Sorouh could be the loser. It has less leverage and will hand over lots of finished units this year. That is not the case for Aldar."
The guidelines for transparency are set by the market regulator, the Emirates Securities and Commodities Authority. In Article 17, it states that stock markets are expected to "monitor listed companies' obligations to make sure disclosure of significant matters and information and financial statements, the publication of the same, and the timing of such publication, and shall ascertain that the same are clear and disclose the facts which they express.
"After having taken the necessary action, the market shall refer the violations of listed companies to the Authority for determination."
There is no suggestion that either Aldar or Sorouh were implicated in any wrongdoing.
On Sunday, the stock market reminded listed companies, brokers and shareholders that anyone with privileged information about a public company or its material affairs - known as insiders - are banned from trading for a specific period before regulatory filings are made.
The market regulator prohibits insider trading from a set date before the release of financial results every quarter.
The purdah period this quarter begins on Saturday and lasts until results are published.