Yes, it's another glaring case of "revolving door" cronyism between Wall Street and the SEC: on Wednesday, the Securities and Exchange Commission announced it had hired Brett Redfearn, a JPMorgan banker, to head the agency's Division of Trading and Markets, arguably the most important group within the SEC, one which oversees U.S. stock markets and brokerages. Redfearn, who is currently head of market structure at JPM, would fill a slot that has been vacant since January when the previous head of Trading & Markets, Stephen Luparello left the SEC... and three months later joined Citadel as General Counsel, which as a reminder is one of the biggest HFT operators and retail orderflow frontrunners in the world, is responsible for one-fifth of all trading on the $26 trillion US stock market and lists Ben Bernanke as its advisor.
The regulator's Division of Trading and Markets group plays a key role in dealing with some of the most pressing matters facing the agency, including overseeing the construction of a massive trade database being built to help U.S. regulators police the stock market and keep tabs on high frequency traders, as well as writing rules for exchanges and dark pools.
To simplify: a JPMorgan guy is coming in to fill the most important regulatory position at the SEC, one that looks at market structure - and fairness - and which until recently was filled by a guy who now works at Citadel as its new general counsel. A revolving door, if there ever was one...
To be sure, that this is another glaring example of regulatory capture, is painfully obvious. Only this time there may be a twist.
While SEC Chairman Jay Clayton has signaled a willingness to change market-structure rules that some critics argue are antiquated, he’s provided few details on his approach. Clayton, a former deals lawyer whose career wasn’t focused on market-structure issues, has prioritized bolstering initial public offerings according to Bloomberg. As a result, Redfearn - the former head of market structure at America's biggest bank - will likely have significant sway at the agency because of his expertise.
As Bloomberg reports, Redfearn has been at JPMorgan for more than nine years. Earlier this year he expanded his role, moving from running equity market structure strategy to overseeing global market structure for all asset classes. Where it gets interesting, is that in the past, Redfearn has advocated for a regulatory overhaul of markets, and in April, he said Regulation NMS - a landmark SEC rule approved in 2005 that accelerated a shift to electronic trading in the U.S. stock market, and which allowed the uncontrolled, explosive proliferation of HFT algos - is “overdue for reform.”
This, as Bloomberg writes, may set up a clash with not only stock exchanges, who are among the most influential - and "generous" - voices in Washington around financial regulation, but also the just as powerful HFT lobby. Also notable - Redfearn has emerged as a critic of the increasingly costly fees that U.S. stock exchanges charge traders who want access to vital data on prices. Of course, those fees only make sense in a world in which some traders, those with millions to burn, with to receive trade data ahead of everyone else, whether by laser, microwave or fiber optic. Which would suggest that Redfearn's criticism is ultimately aimed at not only the current multi-tiered nature of the market, but at high frequency traders as well.
“We have a fundamental tension in our system of self-regulation that needs to be addressed,” Redfearn said in April. The tension, he argued, comes from the fact that stock exchanges, once public utilities, have over time become publicly traded companies themselves. Which, ironically, is absolutely correct, and if the now former-JPM executive wishes to indeed engage with the practices he finds as unfair, that could well mean the end of the HFT dominance in capital markets.
As for what JPM gets out of it, well that remains to be seen...