China stocks plunge on broker investigations

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Chinese shares dropped sharply Friday as authorities probed two large brokerage companies.

The Shanghai Composite Index ended 5.5 per cent down on 3,436.3 points, and the Shenzhen Component Index closed 6.3 per cent lower at 11,961.7 points, the sharpest fall since the rout that led to summer’s low of August 17.

The brokers CITIC Securities and Guosen Securities, both under investigation, saw their own shares fall by the maximum 10 per cent before trading was stopped.

The China Securities Regulatory Commission on Thursday notified CITIC that it was to be investigated for allegedly violating regulations on how to run securities firms, financial news agency Bloomberg reported, citing the company.

Guosen also said it was being probed for similar allegations, the report said.

Authorities earlier announced procedures agaist CITIC chief Cheng Boming and six other of the company’s high-ranking executives, according to Xinhua.

Beijing says financial services corporations share responsibility for the stock market tumble that saw the Shanghai index lose around a third of its value over a matter of weeks this summer.

The growth prior to the crash was fuelled by private investors buying equity on credit. Critics say the government is looking for a scapegoat for the market’s correction.

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