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O’Malia Departs CFTC to Join ISDA as CEO

Scott O’Malia is leaving the Commodity Futures Trading Commission (CFTC) to become CEO of the International Swaps and Derivatives Association (ISDA).

He sent a letter to US President Barack Obama on Monday announcing his resignation from the Commission, effective 8 August.

In the letter, he says that while he has been honoured to work for the CFTC and found being a Commissioner professionally fulfilling, he believes that it is time for him “to pursue other opportunities”.

Yesterday, Wednesday 23 July, ISDA announced that O’Malia had been appointed as both the CEO and a director of the association, starting on 18 August.

O’Malia will succeed Robert Pickel at ISDA. It was announced that Pickel would be stepping down as CEO in April after nearly 17 years with industry group (Squawkbox, 20 April).

Discussions are currently ongoing as to whether O’Malia will be based in ISDA’s offices in New York or remain in Washington.

“It’s an exciting time to work for this organisation that has such an important role as the standard bearer of the industry in terms of implementing standards and codes of conduct,” said O’Malia in a press briefing on Wednesday.

“I will continue to focus my attention on technology and the importance of it. ISDA has the right resources for it and the expertise to help standardise the data, making it more useable and available to regulators.”

O’Malia added that he will also focus on the global capital and margin rules and their implications for the financial market, harmonising exchange rules globally and the issue of recognising clearing houses in different jurisdictions.

When questioned by Profit & Loss on whether he will be able to have a more positive impact on the swaps market in his new role, O’Malia said he believes he can work with ISDA and it’s more than 800 members to explain the rule making at the Commission and the objectives behind the rules.

He added that doing this could help create a more efficient and consistent market structure.

O’Malia also revealed on the call that since he decided to join ISDA he has recused himself from all matters before the Commission that deal with ISDA directly or its members, and that he has now fully excused himself from voting until he leaves his current position.

According to the pledge that he took when he joined the CFTC, he cannot represent ISDA in any issue involving the Commission for two years after leaving.

The switch from such a high profile position regulating the swaps market to heading up an association that lobbies on behalf of that segment of the financial industry has attracted criticism from some corners of the market.

“CFTC Commissioner O’Malia’s spin through the revolving door is a record setter: his self-promotion resignation letter was sent 21 July and the announcement of Mr O’Malia joining ISDA, a leading derivatives industry group, as CEO was made just two days later, on 23 July, eight days before he even leaves the CFTC. This is why Americans are so disgusted with so many high ranking government officials and believe that Washington is in cahoots with Wall Street,” says Dennis Kelleher, president and CEO of Better Markets, a non-profit organisation that "promotes the public interest in financial reform" in the domestic and global capital and commodity markets. 

“Rather than protecting the public interest, they look like they are working for the industry in their government positions and then cashing in, getting what looks like an after-the-fact payoff from industry for services rendered while working in government,” Kelleher adds.

ISDA has often opposed the CFTC’s rulemaking and has taken to the courts to challenge the regulator (Squawkbox, 9 December 2013).

At the briefing O’Malia said in response to these claims: “Anytime anyone leaves government service to take another job they’re criticised in this revolving door. It seems to go with the territory.”

He added that the decision to join ISDA as its new CEO “wasn’t very difficult”.

He was often seen as a dissenting voice within the Commission, although O’Malia was quick to tell P&L that despite dissenting on some rules he supported roughly 80% of the draft and final rules proposed.

“He dissented but with rationale behind it and always wanted to support rules so that he could be a part of implementing them. He was not a constant ‘no’ vote,” explains one Washington lawyer.

But with O’Malia gone some are concerned that there will be a lack of an effective opposition in the CFTC.

“As the lone Republican in the CFTC, Chris [Giancarlo] is the only one who can really provide that balance now,” says one New York-based legal expert.

They add that this is unlikely to slow the pace of regulatory progress though, because even after O’Malia’s replacement is appointed, the Democrats would still have the majority.

Christopher Giancarlo, Sharon Bowen and Massad are all new to the CFTC, meaning that once O’Malia leaves Mark Wetjen will be the only Commissioner with any experience working at the regulator.

“I don’t think that the Commission will be hampered,” O’Malia says. “Keep in mind that although the chairman and the Commissioners are changing, we also have a very deep and talented staff pool that know the ins and outs of the regulations.”

However, when P&L referred O’Malia to former CFTC Commissioner Bart Chilton’s comments at the end of last year on key staff members leaving the CFTC, he did concede that it is difficult for the regulator to keep hold of its staff.

“We are experiencing a high attrition rate, people are finding new opportunities and there’s strong demand for compliance staff. I’ve lost a lot of experienced and talented staff. They worked hard, they’re tired from the rule-making process and they want to try new opportunities,” he adds.

Despite this, the new chairman, Massad, will largely decide the regulatory schedule and therefore O’Malia’s departure is unlikely to slow the pace of new regulations being formed.

“One big question which I haven’t really seen addressed yet is what’s going to happen to the very successful TAC [Technology Advisory Committee] that O’Malia chaired,” says the Washington lawyer.

The TAC was a popular committee, with one source saying that whichever Commissioner takes it on has “very big shoes to fill”.

Profit & Loss

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