Sideways: The ties between Wall Street, regulators and White House
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Sideways: The ties between Wall Street, regulators and White House

If the Securities and Exchange Commission (SEC) does decide to weigh in on the issue of whether or not Blackstone’s trading in Hovnanian debt and default swaps constitutes market manipulation, it will revive questions about SEC chairman Jay Clayton’s ties to Goldman Sachs.

In Clayton’s private-sector career as a lawyer at Sullivan & Cromwell he worked extensively for Goldman, including a role advising the firm when it received a $5 billion investment from Warren Buffett that proved to be a crucial vote of confidence in it during the 2008 credit crisis.

Jay Clayton, SEC

Clayton’s wife Gretchen Butler Clayton also worked for Goldman Sachs as a wealth adviser, although she announced her resignation from the bank after he was nominated by president Donald Trump last year to serve as head of the securities industry regulator. A move by the SEC to join fellow regulator the Commodity Futures Trading Commission (CFTC) in examining potential market manipulation could help the interests of Goldman, which is believed to be a net seller of default swap protection on Hovnanian.

The CFTC surprised derivatives industry representatives recently when it issued a public statement about its concern over manufactured credit default swap events in reaction to the Hovnanian trades.

The CFTC chairman Christopher Giancarlo is another lawyer with ties to the financial sector, where he served as an executive for interdealer brokerage GFI. His indication at the recent International Swaps and Derivatives Association (Isda) annual general meeting that regulation for swap execution facilities will be eased later this year was no great surprise from a Trump appointee with a market background, but it did underscore the links between regulators and their charges.