China arrested high-profile Chinese investor Xu Xiang along with an executive from a Hong Kong-owned fund for irregular futures trades involving hundreds of millions of dollars, according to the country's Xinhua news agency.
The first arrests were carried out after a non-mainland fund caught up in a crackdown on risky trading.
The Ministry of Public Security said that the investigation was still ongoing and aimed at enlisting foreign authorities to net overseas suspects, the news agency reported, citing a ministry statement on Sunday.
Chinese authorities accused the executives of “malicious” trading in stock futures for stoking share volatility that slided bourses over 40 percent since June.
Investigations carried out into market manipulation have so far netted journalists, senior executives in brokerages and securities regulators. The general manager of Jiangsu-based Yishidun, Gao Yan and senior executive Liang Ze were arrested for allegedly buying and selling futures higher than market standards and illegally made more than 2 billion yuan ($316 million), said the news agency.
Yishidun, founded in 2012, is a firm jointly invested by two Hong Kong-based companies set up by foreign nationals Georgy Zarya and Anton Murashov.
The firm allegedly used software in an attempt to stock 31 futures contracts in one second, said the news agency, adding that it made a net profit of over 500 million yuan from the beginning of June to early July.
"The company's trade activities deteriorated the fluctuations in daily trade prices.. And affected then market trade prices and normal trade orders," said the statement, according to the news agency.
In a separate investigation, Xu Xiang, general manager of Shanghai-based company Zexi Investment and others at the company were detained over suspected insider trading and illegally obtaining inside information about the stock market, the news agency said, citing the Ministry of Public Security.
Zexi Investment could not be reached for comment.
Due to the slide in stocks since June, Chinese regulators restricted automated trading in commodities futures and tightened other rules.
Chinese regulators demanded foreign and Chinese-owned brokerages in Hong Kong and Singapore deliver stock trading records. They even asked some local fund managers to explain trading strategies every two weeks.
Hundreds of foreign hedge funds and traders working in a regulatory grey area in China have found legal ways of betting on China stocks and derivatives without passing formal investment channels to avoid using strategies such as short-selling.
Chinese regulators are against "coordinated stock dumping" as well as automated, algorithm-driven trading although high frequency trading is not illegal in China.
In August, the Chinese markets regulator froze a trading account belonging to a unit of the US group, Citadel Securities, over "spoofing," a misleading practice which involves placing and then cancelling orders in an attempt to distort prices.