Possible Inside Trading at Lockheed Probed : Regulation: Pacific Exchange examines options dealings leading up to Martin Marietta merger announcement.

Stock market regulators are examining possible insider trading in Lockheed Corp. stock the days leading up to the announcement of a $10-billion merger with Martin Marietta Corp., officials said Friday.

The Pacific Stock Exchange, which trades options on Lockheed’s common stock, examined “a handful of trades and customers” before the Aug. 30 merger announcement, spokesman Dale Carlson said. He would not discuss further details.

“We did preliminary work and forwarded it to the SEC,” Carlson said. Aerospace Daily, an industry newsletter, reported the investigation in its Friday editions.

The Securities and Exchange Commission neither confirms nor denies the existence of its pending investigations.

“Insider trading” refers to the illegal practice of buying or selling securities based on non-public information--in this case it would have been advance knowledge of the Lockheed-Martin Marietta merger announcement.

Lockheed stock surged the morning after the merger was announced. Investors who had purchased Lockheed stock or stock options beforehand would have profited enormously by selling afterward.

Options give investors the right to buy or sell securities at a specified price at some time in the future. Call options enable investors to bet on the anticipated price rise of securities, and these were the types of options under review.

Regulators are exploring a possible correlation between Lockheed trading and the widening circle of people brought into the merger talks.

There was no significant trading in Lockheed options until Aug. 24, about the time the boards of Lockheed and Martin Marietta, as well as Defense Department officials, were briefed about the merger. Also before the announcement, certain officials at General Electric Co. were contacted about the merger and its possible tax consequences to GE’s 23% stake in Martin Marietta.

By Aug. 30, the price of one class of Lockheed options, the September 65 contract, rose more than elevenfold, said Rep. John Dingell, chairman of a House oversight and investigations subcommittee. Trading volume more than doubled from 30 contracts traded on Aug. 23 to 80 contracts on Aug. 24. Volume skyrocketed the day before the merger, with 348 contracts changing hands, a Dingell staff member said.

The staff member, who spoke on condition of anonymity, said regulators are in the process of identifying the individuals who traded the options and what, if any, relationship they had with the individuals who knew of the deal before the public announcement.

“We have been advised by the SEC of an informal inquiry related to Lockheed call-options trading, and we are cooperating fully,” Lockheed spokesman Paul Haney said.