The Securities and Exchange Commission is investigating whether Wall Street banks used their own money to bet in financial markets against municipal bonds that they had sold, the Wall Street Journal reported.
Citing people familiar with the matter, the newspaper reported that the regulator is examining trades of municipal credit default swaps.
The fact finding probe may not result in any formal action, the newspaper reported.
Also, if the firms had used their own money to effectively short sell the municipal bonds, investigators are examining if that activity was properly disclosed to bond buyers, the Journal reported.
Credit default swaps are insurance-like derivatives that provide protection against issuer defaults.
SEC could not be immediately reached for comment by Reuters outside regular U.S. business hours.
© 2016 Thomson/Reuters. All rights reserved.