The New York Department of Financial Services has expanded its investigation into possible manipulation of the U.S. treasury market, according to knowledgeable sources who spoke to the Financial Times this week. The NYDFS sent letters to a number of major banks last month requesting additional information on their involvement in U.S. treasury auctions.

NYDFS Treasury Market

The exact nature of the questionable activities that the regulator is investigating is not clear at this time.

Media sources note the U.S. Department of Justice and representatives of six of the banks known to have received NYDFS letters refused to comment on the story.

Of note, all the banks involved in the now-growing investigation are primary dealers in the $12.5 trillion U.S. treasury market, and work directly with the Federal Reserve in purchasing bonds during the regular auctions.

Details on New York DFS investigation of treasury market manipulation

The NYDFS sent letters to Barclays, Deutsche Bank, Goldman Sachs, Société Générale and other banks in late August requesting detailed information about their operations in regard to Treasury auctions, according to the Financial Times sources.

The letters just asked general questions, and the probe is still in its early stages with no particular bank in the cross hairs, the sources added.

Of note, there are 22 financial institutions that handle orders for US government debt auctions. These firms are called primary dealers and play an important and highly regulated role in the operation of treasury markets.

The primary dealers were sued earlier this summer by the Boston public employees pension fund, which claimed the banks of hurt investors and borrowers through by manipulating treasury auctions.

Keep in mind that not all 22 primary dealers are under the jurisdiction of the NYDFS. The agency only regulates banks that have New York state licenses, which does, however, include a number of European banks.

New York’s DFS had cracked down on Wall Street after the financial crisis under the leadership of “Sheriff” Benjamin Lawsky, who resigned earlier this year. From early indications, it looks like the focus on regulatory enforcement will continue under acting superintendent Anthony Albanese.

The sources note that the U.S. Justice Department is also taking a closer look at possible rigging of Treasury auctions, after regulators collected more than $5.6 billion in penalties from six banks settling claims they manipulated foreign exchange markets.