By Jonathan Davies

City watchdog, the Financial Conduct Authority (FCA), is understood to be investigating hedge funds over the sale of government Royal Bank of Scotland (RBS) shares.

On Tuesday, the government sold £2.1 billion worth of RBS shares.

According to a report by the Independent, some hedge funds caught wind of the government's plans to start selling RBS shares and deliberately shorted some stocks in order to gain a profit, costing the taxpayer 'millions'.

Shorting stocks is a technique that involves borrowing a stock whilst believing it will fall in value. The Independent claims that analysis of RBS' share trading suggests a number of shares were shorted between RBS announcing its latest financial results last Thursday, and the government selling the shares on Tuesday.

RBS shares fell 8% during that period.

The Financial Conduct Authority said that such a case would fall under its jurisdiction, but it operates a policy of not commenting on individual cases.