But China`s crackdown on financial markets in the wake of a stock slump in the summer continued as anti-corruption investigators opened probes into two of China`s largest brokerages and censured four insurance executives.

In further news to rattle the nerves of executives working in financial markets, China`s asset management association said it had failed to contact 12 domestic hedge fund companies. They were unreachable by phone, email and messaging, the Asset Management Association of China (AMAC) said in a rare notice.

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After a summer rout wipe around 40 percent off mainland stocks markets, the benchmark Shanghai Composite Index .SSEC has recovered by about 20 percent from its late August low.

That helped explain why the China Securities Regulatory Commission (CSRC) felt confident to lift the ban on brokerages from adopting net selling positions in proprietary trading.

Three sources with direct knowledge of the matter said the CSRC had told the brokerages the requirement had been canceled as it also noted the equity market had slowly begun to stabilize.

"In some ways it`s a positive factor – it shows that the CSRC has concluded that the market has basically returned to normal," said Du Changchun, an analyst at Northeast Securities in Shanghai.

The lifting of the ban provides an opportunity to sell off some loss making positions, but Du suggested there would be no rush to sell given the market was rising.

"I`m not too worried about big selling under current conditions," Du said.

The measure restricting how brokerages trade was originally put in place in July as authorities scrambled with a flurry of measures to stop the stock market slump from turning into a full-blown crash.

Regulators also announced on Nov. 6 that initial public offerings, which were halted in early July, would resume after Nov. 20. On Monday, 10 Chinese firms applied for approval to raise more than 3 billion yuan through mainland listings.

China`s CSI300 index .CSI300 of the largest listed stocks in Shanghai and Shenzhen markets closed little changed on Tuesday, while the Shanghai Composite edged 0.2 percent higher.

Although markets have steadied since late August following a series of measures by authorities that critics say have stymied trade, Beijing has pushed on with a crackdown on trading irregularities that were partly blamed for the share market rout.

Guotai Junan International Holdings Ltd (1788.HK), a Hong Kong subsidiary of China`s state-owned Guotai Junan Securities (601211.SS), said on Monday it had been unable to reach its chairman since last week.

Although it was unclear what was behind Yim Fung`s disappearance, the news added to concerns about the crackdown, with authorities investigating executives at several high-profile brokerages.

On Tuesday, the Xinhua news agency cited a government paper to report that investigators in Shanghai had started a probe into Guotai Junan Securities and Haitong Securities (600837.SS).

The Central Commission for Discipline Inspection said four executives at state-owned People`s Insurance Company of China (PICC), one of the country`s largest insurers, had been punished for a wide range of misdemeanors, including using trade union money to fund shopping sprees.

The notice from China`s asset management association that it had failed to contact 12 funds will heighten anxieties over the fall out from China`s widening corruption crackdown and its investigation into alleged market irregularities.

The address given on the website of one of the funds - Zhongtou Haurong - is currently leased to another firm, building management officials said. They couldn`t provide details about Zhongtou Huarong and it wasn`t possible to contact the fund manager.

Assets under management at funds grew more than 100 percent in 2014, but many funds lost heavily in the market slump between June and August.

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