New measures taken by the regulatory authorities to curb illegal trading in the stock market have triggered [Businesses Registration] a collapse in the off-market margin financing chain, industry sources said on Monday.

According to a statement issued by the China Securities Regulatory Commission, brokerages have been urged to take more effective steps to enforce the regulations that require the use of real names and national ID numbers.

The moves are aimed at checking instances whereby an individual investor or entity uses multiple accounts registered under false names and ID numbers to rack up or bring down stock prices.

The development has come as a rude shock for people like Tony Zhou, the founder of a wealth management company in Wenzhou, Zhejiang province, which operates a peer-to-peer margin lending platform that offers funds with stocks as collateral.

"We are in no way to blame for the stock market manipulation, especially those associated with margin financing, which has now been suspended," said Zhou, whose platform stopped funding stock index futures leveraging from Monday.

The regulator's action follows reports that margin lending platforms such as Zhou's have been short selling index futures on a massive scale, triggering a highly leveraged bull run and a free fall in the stock market.

Margin financing companies extend funds to individuals and enterprises, often up to five times what they have as capital, to carry out leverage deals in stock index futures, a step that yields enormous profits.

The so-called malicious short selling was defined by the CSRC as cross-market manipulation, including manipulating the spot and the futures market of stocks to gain profits.

"We don't have such power or large amount of funds to make a profit from short sales in the index futures market or to instigate a crash in the benchmark stock index," said Zhou. To cope with the new rules, Zhou and his team are making quick changes to their products.

"We are planning to tap clients in the fund market and take a break from stock index futures," said Zhou, who thought it could be a necessary lesson for reform of online financing services.

The recent turmoil in the stock market has made retail investors jittery and sell huge blocks of shares that slashed the benchmark stock index by 30 percent from the mid-June peak.

Zhang Shunxiang, a sales manager at a securities company in Wenzhou, said: "Most of the individual investors who failed to get out of the market before the plunge are desperate and want to buy more for bottom fishing, so as to minimize losses."

Zhang added that the margin financing channel would still exist, but not be available for the general public. Instead, it will be a sort of grey market, he said.

However, [Hong Kong Company Registration Guide]several capital market experts believe that the stock index will see a slow rebound in the third quarter, if the margin financing activities are controlled.

Wang Jianhui, an analyst with Capital Securities, said: "Restricting margin lending for leverage will help bolster market sentiment and the index will see healthy movements during the next three months."