The Government Accountability Office (GAO) report indicated that the SEC's computer system does not allow investigative referrals from the major exchanges to be searched easily and efficiently – and is therefore hindering probes into insider trading.

The study on the SEC, whose findings were released this week, was commissioned by Senator Charles E Grassley, following last year's foiled SEC investigation into possible insider trading at the hedge fund Pequot Capital Management.

Booming M&A markets have recently provided increased opportunities for information sharing among bankers, traders, hedge fund managers and private equity executives on Wall Street.

As a result, the report noted that the exchanges' referrals of suspicious trades surged. The number of referrals to the SEC, between 2003 and 2006, shot up from 5 to 190. Of those, 91 percent related to potential insider trading.

But the agency's computer systems don't allow its investigators to electronically search all the referral information, the report said.

Under the current system, information about who is behind a suspicious trade, which can help identify patterns of suspicious activity by firms or individuals, is submitted to the SEC in an attachment that must be opened individually. It is not part of the searchable database, the report said.

This "may limit the SEC's ability to monitor unusual market activity, make decisions about opening investigations and allow management to assess case activities," the report said.

Further, only SEC branch chiefs in the office of market surveillance, a unit of the SEC's enforcement division, have access to this referral data. SEC lawyers working on a case cannot search for the information electronically. Instead, they must ask market surveillance for help or contact the exchanges directly.

In a letter to the GAO, SEC chairman Christopher Cox agreed that a technology upgrade might help its enforcement staff analyze trends, and focus on areas worthy of investigation.

"We will assess the feasibility of the recommended system," he said.