After news announced brokerage investigation

The news that several major brokerage firms were under investigation jerked China’s main share index into a spin, resulting in a 5% decline at trading closure.

The Shanghai Composite index took its biggest hit since August falling at the end of the day 5.5% lower at 3,436.3 points.

The announcement mid-week that China’s securities regulator was investigating the country’s largest brokerage, Citic Securities over the alleged market rules violations put the market in a frenzy.

The fact that rival brokerage Guosen Securities was also said to be under investigation did not bode well with the market.

Shares in both Citic and Guosen plunged by the maximum 10%, permitted in one market day.

Moreover, trading in China Haitong Securities shares was halted and later in the day the firm also confirmed it was under investigation.

Chen Xingyu, an analyst at Phillip Securities, reportedly 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.”

In the meantime, analysts have posited the view that other than violations of securities regulations there is not much else that can be said about the reasons for the latest investigations.

At the same time, there are press reports alluding to brokerages being fore warned by regulators to stop financing investors’ stock purchases through swaps in an attempt to curb leveraged trading.

The Chinese government has sought to clamp down leveraged and margin trading ever since the Chinese market was placed in a tail spin earlier this year.

Readers Bureau

Edited by Jesus Chan

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