Shanghai's stock market plunged on Monday after authorities cracked down on risky lending practices. Photo by American Spirit/Shutterstock

SHANGHAI, Jan. 19 (UPI) -- China's stock market took its worst plunge in six years Monday after authorities penalized the country's three biggest securities brokerages for risky lending practices.

The Shanghai Composite dropped nearly 8 percent at the close as investors reacted to the ruling, which restricts the brokers -- Citic Securities, Haitong Securities and Guotai Junan Securities -- from opening new margin trading accounts for three months.


The China Securities Regulatory Commission (CSRC) banned the brokers for margin trading, or investing with borrowed money, because it is considered risky. Analysts say the penalties are just the beginning of the government's move to curb credit-financed trading, which is being blamed for damaging the country's economy.

"Regulators are concerned that shares have run too hard, too fast," Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong, told Bloomberg. "They want a measured increase in the stock market. After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard."

Despite the plunge, European investors remained positive ahead of the European Central Bank meeting later this week.