James Newsome, the top U.S. futures regulator who oversaw a high-profile investigation into bogus energy trading, said Friday he would resign to head the New York Mercantile Exchange (search), the world's largest energy futures market.
Newsome, the chairman of the Commodity Futures Trading Commission (search), will leave his post on July 23 and become president of NYMEX on Aug. 2, the exchange said.
He would be the first CFTC chairman to leave and immediately head an exchange regulated by the agency.
Newsome, a Republican, has served on the commission since August 1998 and has been chairman since January 2001.
Newsome walks into a controversy between NYMEX and its arch-rival, Atlanta-based IntercontinentalExchange (search), known as ICE, over allegations that ICE improperly uses NYMEX prices to settle its contracts.
NYMEX has long sought a merger with ICE, which bought NYMEX's London counterpart, the International Petroleum Exchange, in 2001.
Newsome will also have to weigh an unsolicited $980 million offer from Boston buyout firm Parthenon Capital for a majority stake in NYMEX equity holdings.
Government rules prevent Newsome from taking part for a year in NYMEX's business decisions that will come before the CFTC, an exchange spokeswoman said.
As CFTC chairman, Newsome oversaw an investigation into fake trades reporting by several large U.S. energy trading companies. Earlier this year, six energy trading firms agreed to pay a combined $50 million to settle CFTC charges.
The CFTC is also still investigating a spike in natural gas futures prices and possible gas market manipulation during late 2003 on the NYMEX.
Newsome was a strong backer of the Commodity Futures Modernization Act passed by Congress in 2000, which set the stage for a deregulation boom in energy trading by excluding firms like Enron Corp. from CFTC oversight.
"During his tenure, the futures business has reached unprecedented volume levels and the commission has become highly regarded by both industry leaders and policy makers in Washington," NYMEX Chairman Mitchell Steinhause said in a statement.
Rumors had circulated for weeks that Newsome was being courted by NYMEX to replace its president, J. Robert Collins Jr., whose contract expired June 30 and was not renewed.
Traders said they were not surprised that the CFTC's top regulator would leave the government to join the industry.
"Of course Newsome took the job," said one Texas-based trader. "He's probably getting five times his salary at the CFTC. That's why people work in government."
NYMEX is expected to pay Newsome around $1 million, according to one industry source. That would be much higher than his present government pay of about $145,600 a year.
An exchange spokeswoman would not comment on Newsome's pay, but Collins had a yearly salary of $1.2 million when he left.
An acting CFTC chairman will be chosen from among the two remaining commissioners, Republicans Walter Lukken and Sharon Brown-Hruska, a CFTC official said. The agency normally has five members, but two seats are open.
President Bush must nominate a new chairman, who has to be confirmed by the U.S. Senate.