The Securities and Exchange Commission (SEC) is probing whether two of the world's largest custody banks, State Street Corp and Bank of New York Mellon, made proper presentations for pension-fund clients about how their currency trades would be handled and priced. This news was reported by the Wall Street Journal and cited a person familiar with the matter.

The Wall Street Journal disclosed that the probe is evaluating the currency trading activities of the two major banks and whether the banks misrepresented how they intended to carry out the foreign exchange trades.

It is worthwhile to note that foreign exchange has been traditionally a rich source of revenue for banks in the United States, especially the custodial banks, which not only make profit from the purchase of international stocks and bonds for pension funds and other investors, but also on trading dollars into other world currencies.

The State Street revealed in a quarterly filing earlier in May that it was under investigation by the SEC and also revealed that two clients began litigation against it seeking unspecified damages, on behalf of all custodial clients executing foreign exchange transactions through State Street.

Both the banks, State Street Corp and Bank of New York Mellon, were unavailable for comments.