BEIJING (Reuters) - The embattled head of China’s securities regulator, Xiao Gang, widely blamed by investors for mishandling a recent crisis that wiped over $5 trillion off the value of the Shanghai and Shenzhen stock markets, has offered to resign, sources said.

China Securities Regulatory Commission Chairman Xiao Gang addresses the Asian Financial Forum in Hong Kong in this January 19, 2015 file picture. REUTERS/Bobby Yip/Files

The China Securities Regulatory Commission (CSRC) denied Xiao had offered to resign. “This information does not conform to the facts,” it said via Weibo, a popular microblogging site.

Xiao, 57, tendered his resignation as CSRC chairman last week after his brainchild - a “circuit breaker” mechanism to limit market losses - was blamed for exacerbating a sharp sell-off, a source with ties to the leadership and a financial industry source told Reuters. The “circuit breaker” was deactivated on Jan. 7, just three days after its introduction.

“The (Communist Party) central (leadership) is extremely unhappy with Xiao Gang. It is certain he will change jobs,” the source close to the leadership said.

“Xiao Gang handed in his resignation last week,” said the financial industry source. Both sources requested anonymity because they were not authorized to speak to the media.

It was not known if Xiao’s resignation offer had been accepted by the central government. His term does not formally expire until end-2018.

MARKET MELTDOWN

In a speech on Saturday, Xiao, a former chairman of Bank of China Ltd, said the stock market rout highlighted the problems facing the CSRC’s regulatory mechanisms. “The abnormal stock market volatility has revealed an immature market, inexperienced investors, an imperfect trading system and inappropriate supervision mechanisms,” he said.

The abrupt suspension of the “circuit breaker” followed an unprecedented flurry of moves by the CSRC last year - including halting short selling and banning share sales by major shareholders - in a bid to stabilize markets after major indexes plunged more than 40 percent in the summer.

After rebounding by around 25 percent late last year, stock markets have tumbled again this month, dropping into bear market territory - usually a reference to a market’s 20 percent slide from its last cyclical peak. This has rekindled concerns that policymakers are fumbling as China heads towards its slowest annual growth in a quarter of a century.

China is expected to report its weakest quarterly economic growth in nearly seven years on Tuesday, putting policymakers under more pressure to take bolder steps.

SHORT-LISTED

The party’s Organisation Department, or personnel ministry, has short-listed three candidates to succeed Xiao, the sources said.

Xiang Junbo, who turns 59 this month and is chairman of the China Insurance Regulatory Commission (CIRC), is the leading candidate, they said. The CIRC declined immediate comment.

Another candidate is Huang Qifan, 63, mayor of the southwestern metropolis of Chongqing, who is also tipped to become secretary-general of the State Council, or cabinet, and may concurrently serve as CSRC chairman, the sources said.

If confirmed as cabinet secretary-general, Premier Li Keqiang’s right-hand man, Huang would have to tackle a stalling economy and market turbulence as well as oversee the entire spectrum of portfolios: from industry to agriculture, energy, the environment, state planning and technology, according to a Reuters report last week.

The identity of the third short-listed candidate is not known.

“The Organisation Department has sounded out all three candidates and completed background checks,” said the source with leadership ties.

Xiao, Xiang and Huang could not be reached for comment.

Following the Reuters report that Xiao offered to resign, some Chinese investors took to Weibo, with one saying: “This is expected, but also unexpected. Whoever takes over will face a tough job in cleaning up the mess.”

“Stock investors shouldn’t celebrate yet,” said another. “Whether a movie is good or bad depends on the director behind the scenes. Xiao Gang is just an actor ...”

The benchmark Shanghai Composite Index, the share market most closely watched by Chinese investors, last week fell below the lows seen during last year’s crash, closing on Friday at 2,900 points - its weakest close since December 2014.

The index rose 0.4 percent on Monday.