Shares in Monex, Japan's second-largest online brokerage in terms of customer accounts, fell 8 percent on the report, cutting the value of Citigroup's stake to 14.1 billion yen ($144 million).
Citigroup, which has received $45 billion of U.S. taxpayer funded capital injections since October, appears to have already sounded out several financial institutions on the Monex stake, the Yomiuri reported.
Yoshito Shimoyama, a spokesman at Nikko Citi Holdings Inc, Citigroup's holding company in Japan, declined to comment.
Citigroup is also trying to sell Nikko Cordial, a bricks-and-mortar retail broker with 109 branches across Japan.
Japan's top three banks -- Mitsubishi UFJ Financial Group <8306.T>, Mizuho Financial Group <8411.T> and Sumitomo Mitsui Financial Group Inc <8316.T> -- have shown an interest in buying Nikko Cordial, sources have told Reuters.
The three banks may also jump at the chance to buy a stake in Monex, but would likely make it a first step toward seeking majority control, said Azuma Ohno, a brokerage industry analyst at Credit Suisse Securities.
Mitsubishi UFJ owns a 51 percent stake in kabu.com Securities Co <8703.T>, the fifth-largest among Japan's six major online brokers.
If it thinks Monex is cheap, it might be interested in buying to expand its current operations, Ohno said.
Neither Sumitomo Mitsui nor Mizuho have an online brokerage unit, and buying a stake in Monex would allow them to make a full-fledged entry into the market.
But the potential sale of the Monex stake comes as Japan's online brokers struggle to maintain profitability with the benchmark Nikkei average <.N225> hovering near a 26-year low.
Net income at Monex Group, formed in 2004 through a merger of Monex Inc and Nikko Beans, fell 88 percent to 687 million yen in the nine months through December from a year earlier.
Monex had 891,257 accounts as of December, the second highest in Japan after SBI Securities, a wholly-owned unit of SBI Holdings <8473.T> that had 1.82 million accounts, according to a report by JPMorgan Securities.
Other major domestic online brokerages include Rakuten Securities -- the securities arm of online shopping mall operator Rakuten Inc <4755.Q> -- Matsui Securities <8628.T> and Joinvest Securities, the online unit of Nomura Holdings <8604.T>.
Shares in Monex fell to 22,850 yen, underperforming a 2.8 percent fall in the benchmark Nikkei average <.N225>.
Monex Group's second biggest shareholder is Ohki Matsumoto, the company's president, who holds an 11 percent stake. Sony Corp <6758.T> is next with a 5 percent stake.
(Reporting by Junko Fujita, Nathan Layne and Sachi Izumi; Editing by Edwina Gibbs)