The crackdown targets both new and existing businesses, but for some brokerages whose clients have borrowed massively in the grey market, the deadline can be pushed back to the end of October, the newspaper said, citing unnamed sources.

Margin loans are money investors borrow to buy stocks, and regulators have warned that any such loans extended in the unregulated grey market, outside the brokerage system, are illegal.

China's securities association estimated in June that there were about 1 trillion yuan (102.65 billion pounds) worth of grey market margin loans extended via the industry's three mainstream stock trading systems.

While unregulated margin business is seen as a risk to the financial system, the clampdown could choke off a source of liquidity to markets still struggling to stand on its feet.

(Reporting by Samuel Shen and John Ruwitch; Editing by Shri Navaratnam)