The Securities and Futures Commission (SFC) has launched an investigation into Friday's sell-off of penny stocks amid suspicions that some brokers colluded to engineer the plunge of the low-priced shares, sources said last night. Several brokers told the Post they had received inquiries from the securities watchdog about trading patterns during the slump. Market sources said a group of brokers met on Thursday night and decided to sell certain penny stocks in a bid to create panic and incite retail investors to follow. Their purpose was to derail controversial plans announced by the stock exchange on Thursday to delist penny-stock companies or force them to consolidate their shares, the sources said. The exchange suspended its proposals on Sunday after the government intervened in the wake of the big sell-off. Under the Securities Ordinance, any individual or group which creates a false or misleading market by trading between themselves is guilty of market manipulation. The exchange had proposed to delist stocks which trade below 50 cents for 30 consecutive days because such low-priced shares are easy to manipulate. Some brokerages specialise in the so-called penny stocks and would stand to lose business if the proposals were adopted. An SFC spokesman declined to confirm whether there was an investigation but said the commission continually monitored trading patterns. 'We will be watching market behaviour very closely. We will check if anyone has been trying to take advantage of the situation to manipulate the shares,' the spokesman said. Sources said the SFC was examining whether any manipulators had tried to use the delisting proposal to create panic selling. News of the investigation came ahead of today's Legco panel meeting to discuss the penny-stocks sell-off. Legislators and brokers welcomed the SFC probe but said the government and regulators should not use it as an excuse to evade blame for the market chaos. Exchange sources said the bourse maintained it had carried out proper consultations on its proposals by informing the SFC and the exchange's listing committee. They also questioned whether Friday's selling was a genuine crash, releasing figures showing only a limited number of shares experienced unusually large falls. According to the exchange figures, there were 386 companies trading at or below the 50-cent delisting threshold as of last Thursday. On Friday, a total of 229 companies fell, but only one - Terabit Access - fell by almost 90 per cent, and only one other fell by 50 per cent. An exchange source said 90 per cent of the losers had fallen by less than 25 per cent. 'One single penny stock had turnover of more than $50 million and the rest had a combined trading volume of about $40 million' the source said. 'This showed there was a small amount of trading to manipulate a few penny stocks to create a panic.' Democratic Party economic affairs spokesman Sin Chung-kai said he supported the SFC's move to investigate possible market manipulation. He said he had also questioned why penny stocks had dropped only on Friday and not on Thursday afternoon straight after the exchange's consultation paper was released. However, Mr Sin said the SFC investigation should not be used to cover-up mistakes of the government, which should have known the delisting plan was too radical. A government source said that according to the current regulatory system, there had been no need to inform government officials of the proposal's details.