Claims of alleged insider trading by senior executives of two State-owned railway vehicle manufacturers planning to merge have caused shares in the companies to fall and cast a shadow on the deal, which is expected to create the world's largest train manufacturer by sales.

Media reports have suggested that more than 20 executives of the two companies — CNR Corp Ltd and CSR Corp Ltd — and their relatives have been found to have bought and sold stocks in each company during the six-month period prior to their trading suspension in October last year before the announcement of the merging plan.

Some legal experts said the merger may be halted if the allegations are proved to be true and prompt regulators to launch an investigation into the matter.

The stock price of CNR dropped on Monday by 5.33 percent while CSR declined 1.36 percent following the reports. The two stocks had surged by the 10-percent daily limit for six consecutive trading days since they resumed trading on Dec 31.

It remained unclear whether the securities regulator had launched an investigation into the share dealings.

The China Securities Regulatory Commission did not respond to China Daily's inquiries on Monday.

Last October's merger plan actually disclosed the stock holdings of the executives and their relatives. It claimed that the executives were unaware of the plan when they engaged in the stock trading, and their various investment decisions were made solely based on the value and prospect of the companies.

The merger document showed that Cui Dianguo, president of the CNR, bought 15,000 shares in CSR at an average of price 5.14 yuan (87 cents) per share and sold 50,000 shares at the price of 5.96 yuan from April to October last year, according to the public information. But the company did not disclose how many shares Cui owned before April.

The largest amount of stocks traded were by Gao Zhi, CNS's vice-president and his relatives. They bought and sold nearly 2 million shares in CSR with total investment exceeding 10 million yuan prior to the trading suspension, according to the information.

Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, said the trading allegations complicate the merger of the two companies, adding that key to determining whether the trades were classified as insider trading depends on how the regulator dictates the formation date of the sensitive information.

"The allegation has attracted public attention and triggered market reaction, which could be viewed as positive progress for China's stock market as it is becoming much more sophisticated and sensitive to potential illegal activities," Dong said, adding that the final result depends on the regulators' investigation.

Rumors of the merger of CNR and CSR first surfaced in August last year when the two companies engaged in a price war to compete on overseas orders. The central authorities then accelerated the completion of the merger plan, according to Chinese media report.

Liu Guohua, a lawyer at Guangdong-based Benben Law Firm, was quoted by the Chinese media as saying it was "unacceptable that the senior executives of the two companies claimed that they did not know the information.

"It was obviously price-boosting news for the companies as the merger will create an industrial giant."

Zhong Nan contributed to this story.