FLASH FRIDAY: Regulator Moves to Industry

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet.

In the latest financial-regulator-to-financial-industry career move, former Commodity Futures Trading Commission Chairman Heath Tarbert has joined Citadel Securities as chief legal officer.  

The media did its thing as far as presenting the context rather than just reporting the hire as a plain-vanilla personnel move. For example, the Financial Times noted Tarbert signed on to Citadel Securities just 27 days after leaving the CFTC, and he is the latest in a “long list” of former U.S. regulators who have joined the electronic market maker. “The move has reawakened accusations of a so-called revolving door from public service to private work,” the salmon-colored broadsheet reported. 

A revolving door does indeed exist. But what’s sometimes overlooked is that the door revolves in both directions. 

Brett Redfearn recently joined Coinbase as its head of capital markets after serving as head of the SEC’s Division of Trading and Markets for three years and three months. He joined the SEC after more than 20 years in capital markets, including very senior positions in electronic trading and market structure at Wall Street titan J.P. Morgan.  

Another example is Gary Gensler, currently the SEC Chair in-waiting, and formerly head of the CFTC. Gensler spent 18 years at Goldman Sachs before switching to a government job.

Market participants often say the best regulators are those who know the business and have real-world capital markets experience, as opposed to having just a legal or academic background. So presumably, regulators like Redfearn and Gensler know their stuff, and career moves from industry to a regulatory agency should be encouraged.

Doesn’t the same cross-pollination benefit apply in moves in the other direction? Tarbert presumably will help Citadel Securities navigate CFTC regulations. And there’s not anything inherently nefarious involved, as the media sometimes implies — Tarbert’s ex-colleagues at the CFTC should be just as keen to regulate their old colleague’s new firm as they were when Tarbert was on staff. Perhaps even more so, knowing that there will be extra scrutiny.

When in 2010 Elizabeth King moved from her position as associate director for trading & markets at the SEC, to become global head of government & regulatory affairs at Getco and KCG, there were similar insinuations of something untoward taking place, and calls to restrict the regulator-to-industry career path. But in almost four years at Getco and KCG, and then in the subsequent six years as general counsel of the New York Stock Exchange, there has been no evidence of anything other than a former regulator handling her job well. 

Perhaps it will be the same for Tarbert.