By Olivia Oran

(Reuters) - An Italian prosecutor has proposed that Morgan Stanley pay 2.9 billion euros ($3.2 billion) to settle derivative transactions, the bank said on Wednesday in a securities filing.

The proposed claim argues that at least some of the derivative transactions were "improper," as was their termination, Morgan Stanley said in a 10-Q filing with the U.S. Securities and Exchange Commission.

The derivative transactions originated between 1995 and 2005 and were terminated in December 2011 and January 2012, according to the filing. Morgan Stanley received the proposed claim on July 11 from the public prosecutor for Court of Accounts for the Republic of Italy.

"We believe that this proposed claim is groundless and we will defend ourselves vigorously," a Morgan Stanley spokesman said.

Beginning in 2010, several Italian regions sought compensation for allegedly being misled by banks in swap deals that were intended to relieve their debt burdens.

In Milan, Depfa Bank, Deutsche Bank AG <DBKGn.DE>, JPMorgan Chase & Co <JPM.N> and UBS AG <UBSG.S> were fined $1.2 million each in 2012 on fraud charges in the sale of derivatives contracts. An appeals court in 2014 overturned the convictions.

Italy's Lazio region also sued 11 banks, claiming $109 million in compensation for alleged hidden costs in derivatives.

In 2008, the Italian government banned the use of derivatives by Italian municipalities.

(Reporting by Olivia Oran in New York; editing by Grant McCool and David Gregorio)