The UK's Financial Services Authority (FSA) has launched a formal investigation into "unusual trading activity" by Citigroup.
"This investigation may lead to formal disciplinary proceedings," the UK financial markets watchdog said.
The FSA's focus will be on trades in the European government bond and derivatives markets by the US group.
Enquiries were made after a series of controversial deals worth 11bn euros (£7.4bn; $13.6bn) were made on 2 August.
The FSA was spurred into action by rival banks which accused Citigroup of dumping large chunks of government debt onto the market, thereby breaking a "gentlemen's agreement" aimed at keeping the markets stable.
Some of its competitors feel that the US financial house took advantage of other banks' obligation to respond to trading initiatives made on electronic platforms.
According to sources quoted by Reuters, Citigroup made 30m euros in profits from the sale of 100 European government bonds in 11 markets via 13 different platforms.
The FSA said its key aims include maintaining efficient, orderly and clean financial markets.
"In the view of the FSA, achievement of that aim requires large players in financial markets [must] have regard to the likely consequences of their trading strategies in the market concerned," the FSA said.
"This is quite separate from whether or not specific FSA Principles or Rules have been infringed."
Consequently, it seems Citigroup could receive a slap on the wrist, even though its actions may have been both legal and technically correct.