On November 27, Chinese stock indices closed down as authorities imposed stricter control over the stock exchange. Currently, the regulator is conducting an investigation into suspected violations made by large Chinese brokers. Besides, the authorities have placed some restrictions on leveraged transactions.
As a result, the Shanghai Composite Index closed down by 5.5% on Friday, November 27, thus logging the highest daily loss since August 18. CSI 300 dropped by 5.5% as well.
In the course of the investigation, China’s largest stock broker CITIC Securities Co stated that it is ready to cooperate with authorities over securities rules violation. Guosen, the third largest broker in China by asset volume, said that it is also being probed by the regulator.
Investors are awaiting new accusations against other brokers in the process of fighting against violations in the Chinese stock market. Market participants are concerned which companies the authorities will target next. CITIC and Guosen were only notified of the investigation, but what violations they allegedly committed is not disclosed. Amid such ambiguity, some investors simply close their positions.
Investors were also surprised by the news that the Chinese securities regulator urged investment companies to stop financing clients’ purchases of shares through OTC swap contracts. The government implements new measures for reducing the volume of leveraged financial transactions.
Chinese authorities’ increased scrutiny over the stock market irregularities followed summer manipulations when Shanghai Composite plunged by over 40%.
