The share price rose 20p to 104p after more than 100,000 shares were traded on 27 November, 10 times more than the average number traded over the previous 10 days.
This forced the Leeds-based housebuilder to release a statement to the City confirming that it was in takeover talks, although it did not name the bidder. Two days later Redrow announced it had made a £29.9m offer that valued Tay shares at 110p each.
Building understands that the stock exchange is concerned that details of the impending deal may have been leaked before the official announcements, prompting the increase in trading.
The stock exchange wrote to directors of Redrow and Country & Metropolitan, another housebuilder that held 26.5% of Tay's shares. It sent a list of parties who had traded in Tay shares shortly before the deal was announced.
Both companies said the names were of private individuals, and the directors could not identify any of them.
Redrow chief executive Paul Pedley confirmed this week that he and the other Redrow directors had co-operated fully.
The integrity of information is of fundamental importance. I totally support what the stock exchange is doing
Paul Pedley, chief executive, Redrow
He said: "The integrity of information to the market is of fundamental importance to every company listed on the London Stock Exchange. I totally support what it is doing."
Williams de Broë, Tay's broker, refused to comment.
The stock exchange refused to confirm or deny that it had launched an investigation. But a spokesperson said it examined sudden share price movements as a matter of course. It would pass its findings to the Financial Services Authority, the government's financial watchdog.
The FSA also refused to comment.
A City source said: "I'm not surprised by the news; it is standard practice for the stock exchange and the FSA to become involved in cases like this. The FSA does not wish to diminish third-party access to financial information but it does want to control it better."
Redrow and Tay had planned to announce the deal on 30 November but were forced to announce it earlier because of the jump in the share price.
Countdown to three days in November20 August 2001
Country & Metropolitan abandons takeover of Tay Homes.
27 November 2001
Heavier than usual trading in Tay pushes share price up 20p to 104p. At 4.19pm Tay confirms that it is in takeover talks but does not say with whom.
28 November 2001
Tay’s share price eases to 102p as another 112,000 are traded.
29 November 2001
At 1.03pm: Redrow announces that it has made a £29.9m takeover offer for Tay, which values Tay shares at 110p each. Another 78,000 shares are traded.
25 January 2002
Redrow’s takeover of Tay is finalised.