Chinese shares sank more than 5% today in their biggest drop since this summer's rout.
The big falls after Reuters reported the stock regulator had widened its probe on brokerages to include the country's fourth-biggest securities firm.
The sharp drop highlights the volatility of China's markets ahead of an expected decision by the International Monetary Fund on Monday on whether to include the yuan currency in its global reserve basket.
China Haitong Securities is under investigation by the China Securities Regulatory Commission (CSRC), two people with direct knowledge of the matter told Reuters.
This follows similar probes into two other domestic brokers.
Little has emerged as to the specific reasons for the probes, but an analyst at Cinda Securities said the regulator could be trying to get a better grip on leveraged trading after a near full-blown market crash a few months ago.
"We think the purpose of the probes is to bring all businesses related to stock financing to the table so that regulators can have a clear picture of the leverage situation," he said, adding it is likely an extension of an ongoing clean-up in illegal margin trading.
Markets had already been jittery after sources said yesterday the regulator is urging brokerages to cease financing clients' stocks purchases through swaps and other over-the-counter contracts, a move aimed a curbing leveraged trading. Haitong is being investigated for alleged violations of securities regulations.
The CSRC probes come on the heels of investigations into CITIC Securities and Guosen Securities, two of Haitong's bigger rivals.
Market sentiment had also been fragile as investors braced for a fresh batch of initial public offerings that will kick off next week, and are cautious ahead of a possible US rate increases next month.
After the stock market slump began in middle of 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.
Haitong, along with Guotai Junan Securities, is also being probed by anti-corruption investigators, the official Xinhua news agency reported earlier this week.
In September, Haitong was fined 86 million yuan ($13.5m) by the regulator for breaching securities rules.
In August, state media reported that a CSRC official and four senior executives from CITIC Securities had confessed to insider dealing.
