OPINION: Are Ex-Regulators the New Rainmakers?

Terry Flanagan

Last week, Reuters reported that the U.S. Securities and Exchange Commission has been seeking information on the operations of 10 of the largest U.S. trading firms, including Allston Trading. Today, Allston said it appointed Jill Sommers, former commissioner at the Commodity Futures Trading Commission, to its board of managers.

It’s a stretch, to say the least, to view the two news items as cause-and-effect. It’s not like Allston saw its name in the (digital) paper last week, then went out and hastily signed on an ex-regulator.

But on a bigger-picture level, it is reasonable to conclude that there is a connection. Trading firms have been under intense scrutiny — some would say assault — for the better part of the past half-decade, since the smoke cleared from the global financial crisis. The heat has been turned up this year, as high-frequency trading and dark pools have made the news, and not in a good way. So it’s only logical that institutional market participants and market operators would covet ex-regulators for their knowledge, experience, and credibility.

Allston is hardly singular in hiring someone with street cred in Washington. In one high-profile example, IntercontinentalExchange hired former SEC staffer Elizabeth King from KCG earlier this year. Prop-trading firms generally aren’t keen on being in the news, so it’s probable that there have been other hires from regulatory agencies, we just haven’t heard about them.

Hiring Sommers seems like a savvy move for Allston. In a release, CEO Raj Mahajan said the addition will “help guide our strategy and navigate the evolving regulatory landscape.”

The new hire should also boost confidence in the firm, as ceteris paribus, one could reasonably expect a firm with a former regulator on board to be less likely to run afoul of regulators than a firm without a former regulator. So perhaps Allston will see more order flow, which begs the question: in a difficult market, are ex-regulators the new rainmakers?

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