The US Securities and Exchange Commission is investigating whether big banks have been mishandling securities in the American Depositary Receipt (ADR) market, according to the Wall Street Journal.

The SEC has sent subpoenas to four banks over the issue – BNY Mellon, Citi, Deutsche Bank and JP Morgan - the Journal reported, citing people close to the matter.

A major focus of the SEC inquiry is the "pre-release" of ADRs, where banks issue depositary receipts to investors without first having the underlying shares in their custody.

That means the shares could be sold short without actually having them - a practice known as naked short selling, which is illegal.

The watchdog is also looking at whether such receipts are being used to illegally arbitrage between different tax systems.

The Journal reports that the banks all deny wrongdoing and are fighting the litigation.

ADRs represent shares of foreign companies that are held in custody by US banks.

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