US investigators probe banks on block trades - report

The Securities and Exchange Commission has sent subpoenas to the two investment banks and several hedge funds to find out whether bankers improperly tipped off fund clients before large share sales by companies, the Wall Street Journal reported.

The SEC has asked for trading records and information about investors' communications with bankers, the Journal said. The US Justice Department is investigating the matter, the report added.

Morgan Stanley has been in the investigators sights, the Journal said. Regulators have been studying irregularities with block trades - large share sales by companies at a discount to the market price - since 2019 or earlier. Block trades reached a five-year high of $70bn in 2021, reaping more than $300m in fees for Morgan Stanley. Goldman is also a major player in block trades, the Journal said.

The investigators are checking whether banks alerted hedge fund clients about block trades so that they could short-sell the shares. Declines in the value of company shares in the run-up to the sale of a big block has raised questions about information flows on Wall Street.

Receipt of subpoenas does not mean charges will be brought against the firms or individuals being questioned.