U.S. swaps regulator O'Malia in rapid move to lobby group

(Adds detail from conference call)

By Douwe Miedema

WASHINGTON, July 23 (Reuters) - A top official will leave the U.S. Commodity Futures Trading Commission to become the head of a banking group 10 days later in a spin through the revolving regulator-to-lobby-group door that is striking even by Washington standards.

Scott O'Malia announced on Monday he would leave the CFTC (Taiwan OTC: 1586.TWO - news) on Aug. 8. The International Swaps and Derivatives Association said on Wednesday that he would become the trade group's next chief executive on Aug. 18.

The CFTC has played a crucial role in curtailing Wall Street risk-taking since the financial crisis. O'Malia is a Republican commissioner who often voted against tough reforms during his four and a half years at the agency.

Career moves between regulators and those they regulate are common in Washington, but the speed of it and ISDA's high profile made the move stand out. ISDA is fighting the CFTC in court over how its swaps trading rules will apply overseas.

Government rules will largely prohibit O'Malia from working on CFTC matters for a period of two years, but the announcement of the appointment while in government office sparked criticism of a possible conflict of interest.

"The rules are very weak in prohibiting what we call behind-the-scenes lobbying," said Michael Smallberg, an investigator for the Project On Government Oversight watchdog.

"Even if he isn't the one personally making the call to his former colleagues, he can provide pretty invaluable insights about how to frame an argument, how to be the most effective in lobbying on the potential rules," Smallberg said.

O'Malia is likely to be in for a big pay raise. His predecessor at ISDA, Bob Pickel, was paid $1.8 million in 2012, according to a tax filing. O'Malia's current salary at the CFTC is $155,500, the agency said.

New York-based ISDA is a global lobby group for non-listed derivatives, counting the world's largest investment banks among its members. It has frequently fought regulatory efforts to reform the market after the financial crisis.

It is one of three banking groups that sued the CFTC in December, hoping to beat back tough trading guidelines for U.S. companies doing business overseas, which they fear could hurt markets and cut profits.

The two sides are set to face each other in a first hearing in a federal court in Washington next week.

The speed of O'Malia's move is not unprecedented. In 2011, David Stevens was heavily criticized for agreeing to take the top job at the Mortgage Bankers Association, before he had officially left his post as a commissioner at the Federal Housing Administration.

COOLING OFF

A Republican appointee of President Barack Obama, a Democrat, O'Malia was an outspoken critic of the rule-making process mandated by the 2010 Dodd-Frank financial reform law, which he said had been rushed, confused and lacked transparency.

He is subject to a two-year cooling-off period, during which he may not talk to the CFTC on behalf of any other person, the CFTC said, part of an ethics pledge for administration officials introduced by Obama.

The law prohibits him from representing anyone to the CFTC for life in such matters as enforcement or registrations and from lobbying on policy matters he was involved in for two years.

"I did sign the pledge when I joined this administration and will abide by it," O'Malia told journalists on a conference call on Wednesday. "ISDA already has a very competent government affairs team ... and I will have plenty to work on in other matters outside of the CFTC."

A staffer for Republican Senator Mitch McConnell - now the Senate minority leader - from 1992 to 2001, O'Malia focused on energy policy during much of his career.

At the CFTC, he chaired the Technology Advisory Committee, which drives the agency's efforts to better cope with the vast amount of data it has to handle.

O'Malia said he would continue in that vein, and that ISDA could play an invaluable role in improving the quality of data provided by market operators, which have in the past fought each other over data formats.

He said he would look closely at new rules that require buyers and sellers to put up more collateral for certain types of swaps that are too complicated to be routed through clearing houses, making them far more costly.

The industry has been complaining that the CFTC's rules have caused derivative markets to fracture, with European and U.S. banks doing business only in their respective regions, another focus for O'Malia, he said. (Additional reporting by Michelle Price in Hong Kong; Editing by Karey Van Hall and Howard Goller)