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CHICAGO (Reuters) - Gerald Putnam, who seized on Wall Street rule changes more than a decade ago to turn a start-up trading network into a $3 billion public company, is once again angling to profit from a massive market overhaul.
"I do believe there is a very similar opportunity," Putnam told Reuters in his first interview since becoming chief executive last month at Chicago-based TruMarx Data Partners, which operates an energy swaps trading platform.
Putnam, 52, who is also one of TruMarx's biggest investors, thinks the start-up will benefit from new U.S. rules that will force much of the vast over-the-counter derivatives market onto transparent trading venues.
But he said proposed rules for swaps trading venues, aimed at safeguarding the financial system against future crises, could stifle markets.
"If you try to be too prescriptive and have too many micro-details in the early going, you deny yourself and the market the opportunity to see what could happen," said Putnam, whose last full-time job was as co-chief operating officer of the New York Stock Exchange in 2007.
Several dealers and traders sounded the same warning in comments earlier this week on the Commodity Futures Trading Commission's proposed rules for so-called swap execution facilities, one of the most hotly contested areas of the Dodd-Frank financial reform law.
The Securities and Exchange Commission has also proposed rules for SEFs that allow for more flexibility.
"The right thing for the market, again coming from the perspective of someone who has been through this, is that the CFTC and the SEC set some guard rails and guidelines on the very idea of a creation of a SEF ... and let's see what happens," Putnam said. "Let's see who shows up."
Putnam co-founded Archipelago Holdings Inc in 1997, just as the SEC was rewriting rules that sparked competition among trading venues, upended the way stocks are traded in the United States, and spawned similar changes in Europe and elsewhere.
Archipelago, which began as a so-called qualified electronic communication network, or ECN, and other such venues put the NYSE under tremendous pressure to embrace electronic trading and to bulk up with acquisitions.
Archipelago, or Arca, was the first U.S. securities market to sell shares to the public. It was bought by the New York Stock Exchange in 2006 for nearly $3 billion. After leaving NYSE in 2007, Putnam spent his time investing in and serving on the boards of a series of startups.
The CFTC's proposed rules would require swaps trading venues to seek quotes from at least five market participants, and expose orders to the marketplace for 15 seconds, an eternity given today's sub-second trading platforms.
Those rules would tie traders' hands and make it hard for new trading venues to get traction, Putnam said.
"If this rule had been in place in 1997, Archipelago and other new ECNs would have never launched," he said. "We would have never been able to overcome the financial hurdles to get the business off the ground."
TruMarx handles customized energy contracts that will not be subject to mandated trading or clearing under Dodd-Frank. Trumarx investors include James Newsome, a former top futures regulator who ran the New York Mercantile Exchange before its $8 billion sale to CME Group Inc (CME.O), and Mark Fisher, a major Nymex energy trader.
Putnam says he will aim to be a swaps trading venue under the new rules, handling more standardized contracts alongside the highly customized ones that TruMarx specializes in -- so long as regulators do not kill the market before it gets started.
"I have been through massive rule change, massive market structure changes, and I have a perspective on what it takes for someone small to enter into that world," he said. "I respectfully shared that point of view with the CFTC commissioners.
Reporting by Ann Saphir; editing by John Wallace