Chinese shares slump 5% as regulators probe brokers

China’s main stock market index fell more than 5% on Friday after two securities firms said they are under investigation for possible misconduct.

The Shanghai Composite Index on Friday fell 5.2 percent before recovering slightly.

Mainland investors were taken aback by news that China’s securities regulator had urged brokerages to cease financing clients’ stocks purchases through over-the-counter swap contracts, the government’s latest step to reduce leverage.

With Shanghai slumping more than six percent at one point, the sharp losses brought back painful memories of the panic-driven sell-off that struck China’s equities markets in the summer, wiping trillions of dollars off valuations.

The Shanghai benchmark’s losses worsen throughout the day, falling as much as 6.1% in the afternoon session, as buying momentum increased.

Chinese authorities have been discussing the need to punish CITIC Securities for its role in the summer stock market selloff, a source said last week. After the stock market slump began in mid-June, Beijing launched a massive and unprecedented rescue effort and began cracking down on insider trading and short-selling, which it said were partly to blame for volatility.

“The biggest reason for such a sudden drop today is because of regulators’ investigations of the top brokers”, Phillip Securities analyst Chen Xingyu told AFP. A third brokerage, Haitong Securities, issued a similar announcement after trading in its shares was suspended Friday morning.

The firm’s shares had earlier declined 3.8 percent in Hong Kong.

A bigger-than-expected plunge in profits at China’s industrial giants and a probe into brokerages sent shares in Shanghai tumbling Thursday, while more weak Japanese data dealt another blow to Tokyo’s economic growth plan.

Regulators also have said they are looking for signs of irregularities in the industry.

In September, the police ministry announced executives of Citic, including its general manager, Cheng Boming, were suspected of insider trading and leaking sensitive information.

Meanwhile Australia’s S&P/ASX 200 and South Korea’s Kospi were down 0.16% and 0.08% respectively.

“The government wants to foster a stock market that can support the real economy, not one that allows speculative investors to profit from derivatives products”, Guotai Junan’s analyst Zhang Xin, said, according to the Journal. Russian President Vladimir Putin has said his nation is ready to cooperate with the U.S.-led coalition fighting the Islamic State group, while criticizing the USA, saying it should have prevented its coalition ally Turkey from making such a move.