CFTC’s O’Malia Resigns to Head Derivatives Industry Lobby

Scott O’Malia, a Republican who used his post at the U.S. Commodity Futures Trading Commission to criticize some agency efforts to rein in the $700 trillion global swaps market, is leaving to helm the industry’s top lobbying group which has sought to curb government rules.

O’Malia, 46, will step down as a commissioner to become chief executive officer of the International Swaps and Derivatives Association, which has opposed CFTC efforts to set limits on speculation in commodity markets and joined a lawsuit against the reach of U.S. rules in overseas markets. O’Malia is leaving the CFTC on Aug. 8 and will join ISDA 10 days later, the association said today in a statement.

“It is in everybody’s interest that these rules work well,” he told reporters on a phone call. “I think people now completely understand -- are in the mode of complying with the regulations and making sure they are workable.”

The ISDA post is one of the top paid industry advocacy jobs. Robert Pickel, who is stepping down as the group’s chief, made about $1.8 million in 2012, according to public records.

O’Malia’s move comes as the CFTC transitions to a new slate of commissioners and shifts from writing to enforcing rules put in place under the 2010 Dodd-Frank Act. ISDA represents the world’s largest swaps-market participants, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG. The association has overseen industry legal contracts for decades, including in the years before the financial crisis when those markets were largely unregulated.

Agency Expansion

On July 21, O’Malia announced that he would resign from the CFTC after more than four years. In that time, the agency expanded its oversight to interest-rate, credit-default and other swaps under Dodd-Frank. The agency was set up originally to regulate futures markets used by agricultural and industrial companies to hedge risks.

“O’Malia’s spin through the revolving door is a record setter for influence peddling,” Dennis Kelleher, president and CEO of Better Markets, a group advocating stricter government regulation in financial markets, said in a statement today. “This is why Americans are so disgusted with so many high government officials and believe that Washington is in cahoots with Wall Street.”

Steven Adamske, the CFTC’s spokesman, declined to comment on the announcement.

While it is unusual for a sitting commissioner to quit to run the leading lobbying group for the industry he regulates, high-level officials often join law firms or corporations that want to capitalize on their government expertise.

Ethics Rules

Federal ethics rules will bar O’Malia for two years from trying to influence, communicate or appear before the CFTC seeking official action. The restrictions also include a ban on representing an organization before the CFTC or any other federal office on particular matters including enforcement proceedings if a person substantially participated in them during government service.

“Since being approached by ISDA, I have recused myself from all matters before the commission which deal with ISDA directly or its members,” O’Malia said. “I will comply fully with both the spirit and letter of the law.”

O’Malia was a frequent critic of the CFTC’s rulemaking process under former chairman Gary Gensler, arguing often that the agency was sidestepping procedural responsibilities to assess the costs and benefits of regulations.

Market Fragmented

In recent speeches, O’Malia has criticized the agency’s policies and a lack of international coordination that has fragmented the global market. He also has called for a reassessment of the impact of the rules on agricultural firms and manufacturers that use swaps to hedge risks.

ISDA joined a lawsuit that in 2012 successfully overturned the CFTC’s efforts to limit speculation in oil, natural gas and other commodities. The association has also joined two other industry lobby groups in a lawsuit to curb the reach of CFTC rules on swap-trading overseas.

The lawsuit is SIFMA v. U.S. CFTC, 13-cv-1916, U.S. District Court, District of Columbia (Washington).

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