Andrew Cuomo, the New York attorney-general, is investigating whether traders have been manipulating the largely unregulated credit insurance market as a way to push down the prices of stocks, people briefed on the matter said.

The investigation is looking into “sham” transactions in the $54,000bn market for credit default swaps, a form of insurance against companies defaulting on their debt.

Rising CDS prices can often send stock prices lower because they signal a growing body of investor concern about a company’s creditworthiness.

The attorney-general’s office has sent subpoenas this week to several market data providers requesting records of customers’ trading activity in CDS.

Investors have increasingly used CDS to speculate on the prospects of companies, and the recent sharp rises in the costs of protecting financial company debt against default is being partly blamed for contributing to the current market instability.

The focus on the CDS market is an extension of a broad investigation which was announced late last week by Mr Cuomo into the short selling of shares of Morgan Stanley, Goldman Sachs, Lehman Brothers, AIG and other financial institutions.

Short sellers, who aim to profit from falls in share prices, have come under scrutiny as the financial crisis has unfolded.

Investigators now suspect that investors could have engaged in some “sham” CDS transactions as part of an effort to spread negative rumours about companies and profit from any subsequent declines in the companies’ share prices.

“We believe that [the CDS market] may have been another way to spread potent and virulent false rumours about a company in order to take their stock prices down,” one official who is briefed on the matter said.

The requests for customers’ trading records are aimed at identifying parties that engaged in CDS transactions related to about 25 companies.

Investigators are looking at trades from July 1, but with a particular focus on the past few weeks.

The subpoenas for customer trading information were sent to Markit Group, Depository Trust & Clearing Corporation and Bloomberg. Markit and DTCC declined to comment on Friday.

A Bloomberg spokesperson confirmed that the company had received a subpoena for information but declined to comment further.

The attorney-general’s office has previously sent subpoenas to hedge funds in cities including New York and London for information about short selling activity and CDS contracts.

Some broker-dealers have already provided the data requested.

The Securities and Exchange Commission, the federal markets regulator, is also focusing on CDS as part of its investigation into short selling.