According to sources in the regulatory agency, trading pattern last Friday aroused suspicion. "Short sellers on Friday took extra care of not letting the markets fall by 10 per cent before 1 pm, which would have triggered the circuit filter and resulted in closure for an hour. Today also there were similar trends. It could be a coincidence but it needs to be looked into," said a source.

After 1 pm, the circuit filter is triggered only if the markets fall by 15 per cent. Sources said apart from a few participatory note (PN) issuing FIIs, activities of some stock brokers is also being looked into.

Sebi Chairman C B Bhave could not be reached for comments.

On Friday, Sensex fell 1,100 points or 11 per cent and the fall in share prices was intense in the last couple of hours of the trading sessions on extremely thin volumes. Even today, the markets witnessed a roller coaster ride as Sensex staged a sharp recovery of over 800 points from its days low of 7,697 to close at 8,509.

Market players said short sellers are exploiting the cash settled derivative segment of the markets and bear operators are taking advantage of the situation by forming a cartel.

Stock brokers have mainly blamed the overseas lending of stocks by FIIs as the real reason behind the fall. Even while the finance ministry has informed that FIIs have been asked to cover their short positions through borrowed stocks, FIIs have not entirely covered positions.

Market players are seeking that Sebi probe the developments during October. The Sensex and Nifty have declined by over 35 percent since October 1 and the Indian stock markets have been the worst performer globally during the period.

While Sebi is seeking detailed data from stocks exchanges, its Integrated Market Surveillance System (IIMSS) system is capable of detecting fraudulent trading practices, including violations such as synchronisation / wash sales; market domination, marking the open, marking the close, and stock-option manipulation.

The sophisticated alert engines also helps Sebi to detect insider trading ahead of the public release of price sensitive information regardless of its source and also identify  potential fraud by misrepresentation, including violations such as making public announcements with the intent of moving the price of an instrument either up or down.