Hundsun's financial investment platform HOMS enables financial firms and online lenders to provide trading facilities to their clients, according to Bloomberg News.
The China Securities Regulatory Commission (CSRC) said late Monday that it had organised law enforcement authorities to inspect Hundsun for "clues" on securities rule violations, according to a statement, which gave no details.
Alibaba affiliate Ant Financial -- a financial services provider focussed on serving small companies -- holds a 20 percent stake in Hundsun, which like Alibaba is based in the eastern city of Hangzhou.
Media reports said HOMS was a factor behind recent volatility in China's stock market. The company on Monday denied those allegations in a statement to the Shanghai stock exchange, where it is listed.
The 150 percent run-up in China's benchmark Shanghai index, which was followed by a 30 percent fall in three weeks, was partly blamed on margin trading, through which investors borrow money to trade stocks.
Alibaba founder Jack Ma on Monday denied he was behind the recent market plunge.
"I'm shocked to hear that Hangzhou is the base camp for the 'stock market disaster' and Jack Ma collapsed China's equity market," he said on his microblog, adding: "People keep mentioning you when it's not your business".
Ant Financial declined to comment.
On Tuesday, Hundsun stock was up by its 10 percent daily limit in afternoon trading, despite the issue.