Shanghai, November 27

Three of China’s biggest brokerages are being probed by the market regulator for suspected ‘rule violations’ as a crackdown on the financial sector intensified, it emerged today as the country’s stock markets slumped.

Haitong Securities, China’s second biggest brokerage by assets, and eighth-ranked Guosen Securities — whose president hanged himself weeks ago — both confirmed that they were being probed by the market regulator China Securities Regulatory Commission (CSRC). Neither gave details of the investigation.

Their announcements came shortly after the country’s largest broker, Citic Securities, said late Thursday it was the subject of an inquiry. Several of its executives have previously been put under investigation for insider trading, the official Xinhua reported.

The investigations are the latest step in a national crackdown on price manipulation, short selling and insider trading in the financial sector following a stock rout that wiped trillions of dollars off the country’s market capitalisations.

After soaring 150 per cent in one year in a debt-fuelled bubble, the Shanghai and Shenzhen bourses went into a tailspin in June that extended into August, tumbling nearly 40 per cent despite massive intervention by the authorities.

Officials have since taken unprecedented efforts to stem the market rout, including investigating short-selling and banning big shareholders from

selling, that saw Shanghai rise by almost a quarter from its lows.

But new investigations saw Chinese exchanges move sharply lower today, with the benchmark Shanghai Composite Index closing down 5.48 per cent and the country’s second market Shenzhen slumping 6.09 per cent. “The biggest reason for such a sudden drop today is because of regulators’ investigations of the top brokers,” Chen Xingyu, Phillip Securities analyst, told AFP.

“It has triggered a broader sell-off. CSRC’s investigation suggests the firms could be in some serious trouble.”

In a statement to the Shanghai exchange, Haitong said it ‘will actively assist the investigation and release any progress in a timely manner’, adding it was ‘operating normally’.

Guosen’s President Chen Hongqiao hanged himself last month after authorities prevented him from leaving the country.