The news was released quietly on Saturday by state-run media company Xinhua News Agency, and first reported by International Adviser’s Asia-based sister publication Fund Selector Asia.
Xiao received widespread criticism for failing to forecast and better handle the Chinese stock market crash in the summer of 2015.
Between mid-June and late August China’s bourses saw stocks plunge by 40%, with more than $5trn (£3.5trn, €4.5trn) wiped off the country’s exchanges.
China’s “circuit breaker” mechanism, which automatically halted trading if stocks on the country’s main markets fell by 7%, was championed by Xiao.
“This shows Beijing is sending a signal that they are not sticking to a textbook, but will fix the major problem on the stock markets as soon as possible.”
The circuit breakers were designed to protect investors and calm the market, but had the opposite effect when triggered in January 2016, creating additional selling pressure on the days following the breaks.
Four days after the mechanism was introduced, senior officials suspended its use.
Sending a signal
Appointed in March 2013, Xiao was expected to preside over the CSRC until the end of 2018.
Rumours have reportedly been circulating for weeks that he would be replaced.
The timing of the announcement, however, came as a bit of a surprise, according to independent financial commentator Brett McGonegal.
The former chief executive of Reorient Group told the South China Morning Post (SCMP) that most people had expected an appointment after next month’s meeting of the National People’s Congress.
“This shows Beijing is sending a signal that they are not sticking to a textbook, but will fix the major problem on the stock markets as soon as possible,” McGonegal said.
The change follows swiftly on the heels of two Ponzi schemes shut down by the Chinese regulator as it appears to be cracking down on fraudulent investment schemes.
Hundreds of thousands of Chinese mainland investors lost their money to the two schemes; which saw peer-to-peer (P2P) lending company Ezubao defrauding 900,000 investors of more than £7.6bn; and property-backed asset management firm Xin Qi closing its doors last week after defaulting on payment to $291m to two thousand investors.
Investor sentiment rises
The appointment announcement buoyed the spirits of mainland investors, with the Shangai benchmark index at a one-month high on Monday, reports SCMP.
The positive sentiment spilled over to Hong Kong, bolstering its benchmark Hang Seng Index, despite index heavyweight HSBC posting disappointing annual results.