Chinese stocks dive most in 7 years

An investor checks stock index in a localbrokerage firm, at Nantong city, Jiangsu province, Jan 19, 2015. [Xu Congjun/Asianewsphoto]

Chinese stocks sank the most since 2008 on Monday, led by securities companies, as regulators took measures to punish non-compliant margin trading activities.

The benchmark Shanghai Composite Index plummeted 7.7 percent and closed at 3,116.35 on Monday. CITIC Securities and Haitong Securities slumped by daily limit of 10 percent.

The nation's top two biggest brokerages, along with Guotai Junan Securities, were suspended from lending money and stocks to new clients for three months, the China Securities Regulatory Commission announced on its microblog Weibo on Friday after the market closed.

Nine other securities companies were also punished in this round of investigation for offenses including allowing unqualified investors to open margin trading accounts.

Financial sector crashes

Financial sector crashed on Monday, as the majority of securities and banking stocks lost by the daily limit, including Huatai Securities, Sealand Securities, Bank of China, Communication Bank, Minsheng Bank, Huaxia Bank, CITIC Bank, Ping An Bank and Industrial Bank.

"The announcement has made the market concerned," said Hong Hao, strategist at Bocom International Holdings, said in a note on Monday, adding that margin trading has contributed more than 30 percent of total turnover in Shanghai at its recent peak.

The balance of credit borrowed for securities trading soared to 1.08 trillion yuan ($174 billion) as of Jan 13 from about 400 billion yuan at the end of June, according to Bloomberg.

Moody's maintains a stable outlook on China's banking system, said the rating agency in its latest report on Monday.