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HFT circus hires new act (not a lion tamer)

The FT last week reported the latest turn of the regulator’s revolving door. Flamboyant outgone CFTC Commissioner Bart Chilton has been retained in an advisory capacity by the Modern Markets Initiative (MMI)[1], a hitherto obscure lobbying group for HFT funds[2]. In his role as regulator, Mr Chilton famously called HFTs “cheetahs”; this was not merely a case of homophonic wit, he went on to say that the industry is a “problem predator issue much larger than ever imagined”, reminding him of “World’s Scariest Animal Attacks”- a popular beast eats man TV show. Even Mr Chilton recognises that his native state of Indiana is a long way from Damascus, alluding to those who “might think that my work with HFTs is incongruous…I never said they should be out of markets. I’ve always said that they provide some benefits.” Perhaps, privately this may have been the case, however “publicly” seems to equate to July 2014, when Mr Chilton wrote that “speedy electronic trading is deeply entrenched in modern financial markets and investors’ orders aren’t being filled without them.” When CNBC asked him last week, whether he would continue to refer to HFTs as “cheetahs”, Mr Chilton replied, “Probably not as much.”

Mr Chilton joins ex-Commissioner colleagues Jill Sommers and Scott O’Malia, who have both departed for “green(backi)er” pastures; it would be churlish to censure his good fortune in securing continuing employment. While they are all barred from lobbying the CFTC directly for a year and have pledged never to make a complete volte-face on policy they were instrumental in drafting, Chilton says “there are flavours within that”. There is a good case to be made for increased dialogue between regulators and all market participants, and it is an unfortunate consequence that the tsunami of financial regulation has markedly increased the price of compliance lifeguards[3]. However, recent research has provided some support for the suspicion that regulators’ enforcement actions may be tempered by future employment prospects, and the less intuitive hypothesis that regulators may over-complicate legislation purely in order to promote such prospects. Both are unpalatable, until regulators pay salaries commensurate with the calibre of personnel required, this permutation of the “golden rule” will persist and the revolving door will keep spinning.



[1] Via DLA Piper. Mr Chilton joined them in April

[2] MMI was set up by Tower Research Capital LLC, Hudson River Trading LLC, Global Trading Systems LLC in New York and Quantlab Financial LLC in Houston.

[3] Although including increased CF10\CF11 responsibilities, salary for heads of compliance has increased by over 50% from pre-crisis levels.

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