U.S. SEC probes trades in 3Com before HP deal

WASHINGTON, USA: U.S. securities regulators are probing a jump in 3Com Corp's shares and call options before a $2.7 billion offer for the network equipment maker was announced, a source familiar with the matter said on Tuesday.

Hewlett-Packard Co announced the deal to buy 3Com after markets closed on November 11, prompting 3Com's shares to soar 35 per cent in after-market trading.

But before the session closed for the day, 3Com stock had jumped 5 per cent and the volume in its call options soared, raising suspicion the news was leaked.

Equity call options convey the right to buy a company's shares at a fixed price within a specified time period.

The source said the U.S. Securities and Exchange Commission is probing any potential misconduct and was looking at both the stock and options trading in 3Com. The source requested anonymity because the probe has not been made public.

During the November 11 trading session, more than 8,000 call options traded - 17 times the recent average daily call volume, according to an option analytics firm Trade Alert.

Trading in options is an attractive venue for investors because of their low cost, leverage and limited risk.

The SEC had no comment.

According to a recent TechCrunch blog, a shareholder had filed a lawsuit against the deal.