China 'Black Monday' Crisis: Government Probes Major Brokerage Firms Following Market Meltdown

Five of China’s top brokerage firms are under investigation following the steepest slump in the domestic stock market in decades. At least three of the companies have issued statements confirming they are currently being probed by China Securities Regulatory Commission for “failure to review and verify the identity of clients in accordance with rules,” Financial Times reported Wednesday.

In a separate investigation, eight people with Citic Securities, a leading investment bank in China, are being probed for illegal trading, though the organization said it had not yet received details on the investigation. “We are in the process of gathering more information on this matter,” the company said, Financial Times reported.

The investigations come after China this week saw its stock market take its most severe dive in two decades. The stock index has dropped more than 40 percent since June, reversing a year of gains in the country with the world’s second-largest economy, which has generally prided itself on growth. On Wednesday, China's stock index dropped another 1.2 percent, after declines of 8.5 percent Monday and 7.6 percent Tuesday.

Analysts, governments and businesspeople worldwide have closely watched global markets amid fears that the devaluation of the Chinese yuan and the meltdown in the country's stock market could have a domino effect throughout the world. Experts in some countries have suggested tweaking financial and export policy, focusing in on other sectors, given the skepticism now surrounding China’s market projections.

Chinese authorities have in the past used investigations into major firms to help stabilize markets. But with the current crisis, some speculated it might be a move to bolster investor confidence, the New York Times reported.

The People’s Bank of China slashed interest rates Tuesday for a second time in the past two months. In June, the country enacted a number of measures meant to stop short selling and market manipulating amid a decline in stock prices. The country’s financial regulatory committee also barred brokers from opening new margin trading accounts for several months as they investigated high-risk lending.