In this photo illustration, a cashier at a Bureau de Change counts out American Dollars on April 17 2007 in London.

The UK markets watchdog has launched a preliminary investigation into the foreign exchange market after receiving complaints alleging that banks traded ahead of customer orders and attempted to manipulate benchmarks.

The Financial Conduct Authority requested information from several banks with large London foreign exchange businesses about their trading, people familiar with the matter said.

The two biggest players in the foreign exchange market, Citigroup and Deutsche Bank, with a combined market share of about 30 per cent, are among the institutions that have been asked for information, people familiar with the matter said. But there has been no suggestion that either institution is a target of the investigation, which was first reported by Bloomberg.

The banks approached by the FCA are currently reviewing their trading records and searching instant messages for words that could point to potential manipulation.

An FCA spokesman confirmed the investigation is at a very early stage, but declined to comment further.

Global regulators are concerned about the integrity of benchmark rates in the wake of the Libor manipulation scandal. Three banks caught up in the Libor scandal paid close to $2.6bn in fines.

The FCA is already looking at allegations that traders manipulated UK natural gas prices, while the European Commission is moving to regulate all rate-setting activities.

Unlike the Libor rate, which is based on daily estimates provided by a panel of banks, the WM/Reuters intraday rates at the heart of the foreign exchange investigation are based on actual trades during specific rate-setting “windows”.

Some traders have alleged that market participants push through trades during these periods, ranging from 60 seconds to two minutes, in order to move the rates in a certain direction.

“This isn’t like Libor where you say oh, the euro-dollar is actually $1.32,” one trader insisted. “The euro-dollar is exactly where you’ve done the trade in a very competitive market.” A foreign exchange banker added that rigging benchmark exchange rates was “pretty much impossible” unless the trader had an exceptionally large order.

WM Group, which is owned by State Street, calculates benchmarks in159 currencies based on data collected by Reuters.

State Street, which has not been contacted by the FCA, welcomed the investigation: “WM Company supports efforts by the industry to determine and address any alleged disruptive behaviour by market participants and we welcome further discussions on these issues and what preventative measures can be adopted,” said a spokeswoman.

Reuters and the banks declined to comment.

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