China stock market closed down by more than 5% after several major brokerage companies announced they were under investigation.
The Shanghai Composite index ended the day 5.5% lower at 3,436.3 points – marking its biggest drop since August.
On November 26, it was announced that China’s securities regulator was investigating the country’s largest brokerage, CITIC Securities.
CITIC Securities is being probed over the possible breaking of market rules.
Rival brokerage Guosen Securities is also being investigated, and shares in both CITIC and Guosen fell by 10%, the maximum allowed in one day.
Chen Xingyu, an analyst at Phillip Securities, told the AFP news agency: “The biggest reason for such a sudden drop today is because of regulator’s investigation of the top brokers. It has triggered a broader sell-off.”
Analysts said there was little information on the specific reasons for the probes other than violations of securities regulations.
Reuters reported that the Chinese regulator was urging brokerages to stop financing investors’ stock purchases through swaps in an attempt to curb leveraged trading.
A crackdown on leveraged and margin trading has been underway since the Chinese market’s dramatic plunge over the summer.
Market sentiment was already wavering ahead of a new batch of initial public offerings set to make their debut next week.
More negative economic data on the Chinese economy also did little to boost investors’ confidence, with government figures showing that industrial profits in October fell 4.6% from a year ago.
The fifth consecutive decline in profits earned by Chinese industrial companies added more fuel to concerns over a slowdown in the world’s second-largest economy.