Regulators are conducting investigations into the trade in Morgan Stanley, Goldman, and other Wall Street firms

People familiar with the matter said Morgan Stanley was the focus of the investigation early on. Issuance of subpoenas does not mean that charges will be brought against any of the companies or individuals whose activities are being examined.

People familiar with the matter said regulators had been looking into irregularities related to pooled deals since at least 2019, when the Securities and Exchange Commission requested records from several large banks.

Investigators are looking at whether bankers improperly informed preferred customers of sales before they were publicly disclosed and whether funds benefited from the information – for example by shorting the shares in question. (In short selling, the investor sells borrowed shares in the hope of repurchasing them at a lower price later and getting the difference in his pocket.)

Stocks of companies selling shares often drop due to oversupply hitting the market — and they do so frequently in the hours before a big block sale, a phenomenon that has long called into question on Wall Street.

Some of the funds that received subpoenas that act as “liquidity providers” to Wall Street firms, according to some people, stand ready to buy large amounts of stock or other securities, including those with few interested buyers.

The rules governing when and how Wall Street firms can tell customers about upcoming bundle deals are vague. Lawyers say that in some cases, there are questions about whether disclosing or acting upon certain information is improper or illegal.

Bundle deals are big business on Wall Street getting bigger. Nearly $70 billion of it was in the United States in 2021, the highest level in five years, according to Dealogic. Dealogic data showed that Morgan Stanley was the most active bank last year, driving more than a quarter of deals by value and earning more than $300 million in fees. Goldman is also a big player in this field.

Bundling deals happen when a company or a large shareholder wants to sell a lot of stock at once. Unloading them in small drops can take weeks and may lower the price, so banks are required to bid on the entire block. They usually bid at a discount to the market price.

The winning banks then offer the shares to clients at a small premium over the agreed price, in the hope of making a profit. Banks take the risk of the stock dropping sharply before they can do so.

In recent years, block trading has boomed due to record volumes of initial public offerings and other deals such as secondary offerings or follow-up offerings, as stock markets have soared. Block deals often occur when closing periods prevent insiders from selling for a period after the IPO has expired. Companies are also beginning to switch to blocking deals because they are more efficient and can affect the share price less than a traditional follow-up bid.

—Liz Hoffman, Corey Dribush, and Corinne Ramey contributed to this article.

write to Susan Pulliam at susan.pulliam@wsj.com and Juliet Chung at juliet.chung@wsj.com