NEW DELHI/MUMBAI, March 8 (Reuters) - India's market regulator said on Friday it had halted the settlement of trades related to a steep sell-off in mid-cap shares last month as it investigates potential manipulation.
Indian mid- and small-sized stocks slumped in the last week of February on speculation that so-called pledged shares were being sold off.
Controlling stakeholders of Indian companies often receive loans from financial institutions, pledging their shares as collateral, making these stocks vulnerable to any rumours of liquidations.
"We have stopped the payout," U.K. Sinha, chairman of Securities and Exchange Board of India, told reporters.
Sinha gave no further details, saying that it was too early in the investigation.
India's mid cap shares have been under pressure this year due to concerns about their earnings.
Rumours alone can spark sell-offs that can then trigger actual margin pressures on the pledged shares, creating a self-fulfilling spiral. (Reporting by Manoj Kumar and Rafael Nam Editing by Jeremy Gaunt.)