Ted Kaufman - United States Senator for Delaware

Kaufman Statement on Getco Hire of SEC Staffer with Knowledge of "Flash Crash" and High Frequency Trading

June 11, 2010

WASHINGTON, DC – Senator Ted Kaufman (D-DE) issued the following statement after learning that electronic trading firm Getco LLC has hired Elizabeth King – an associate director of the Securities and Exchange Commission’s (SEC) division of trading and markets during the Commission’s ongoing review of market structure and high frequency trading issues — as a member of its regulatory affairs team.

Kaufman said:  “This is another example of regulatory capture at its worst.  It is one thing for Wall Street firms to hire SEC staff for their general knowledge and expertise.  It is quite another, however, when the leading high frequency trading firm, Getco, reaches into the SEC’s Division of Trading and Markets and hires a senior official who presumably has been close to, or perhaps substantially involved in, a major ongoing Commission review of a broad range of market structure and high frequency trading issues in the equity markets -- a review that should lead to additional rulemakings that will have a direct bearing on Getco’s trading strategies.
 
“Indeed, Getco is hiring Ms. King shortly after the May 6 ‘flash crash’ and the extraordinary efforts by the SEC – presumably with Ms. King’s involvement – to understand how high frequency trading may have contributed to unusual trading activity in the equity markets on that day.  According to the SEC/CFTC preliminary report, ‘staff also intends to pursue a joint study to examine the linkages between correlated assets in the equities (single stocks, mutual funds and ETFs), options and futures markets. The study could partly focus on examining cross-market linkages by analyzing trading in stock index products such as equity index futures, ETFs, equity index options, and equity index OTC derivatives using, to the extent practicable, market data, special call information, and order book data.’  These include areas for which Ms. King had official responsibility at the SEC.

 “As for representing Getco before the Commission, Ms. King is subject to a one-year ‘cooling off’ period. Regardless, Ms. King, from the day she is hired, will be able to inform Getco of her knowledge of the current views of every Commissioner and fellow staffers with whom she worked as to the meaning of the May 6 flash crash and the possible direction of future studies and rulemakings involving high frequency trading, thereby richly informing Getco’s future regulatory and business strategies.
 
“In addition to a ‘cooling off’ period before senior officials can appear before the Commission, Congress or the SEC should consider banning senior officials from taking jobs from those companies affected by rulemakings on which the senior official was substantially involved during the one year prior to their departure.”

 

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