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HEARING TO REVIEW IMPLEMENTATION OF 

PROVISIONS OF THE DODD-FRANK WALL 

STREET REFORM AND CONSUMER

PROTECTION ACT RELATING TO POSITION 

LIMITS

HEARING

BEFORE THE

SUBCOMMITTEE ON 

GENERAL FARM COMMODITIES 

AND RISK MANAGEMENT

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

DECEMBER 15, 2010

Serial No. 111–60

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

TIMOTHY J. WALZ, Minnesota 

STEVE KAGEN, Wisconsin 

KURT SCHRADER, Oregon 

DEBORAH L. HALVORSON, Illinois 

KATHLEEN A. DAHLKEMPER, 

Pennsylvania 

BOBBY BRIGHT, Alabama 

BETSY MARKEY, Colorado 

FRANK KRATOVIL, JR., Maryland 

MARK H. SCHAUER, Michigan 

LARRY KISSELL, North Carolina 

JOHN A. BOCCIERI, Ohio 

SCOTT MURPHY, New York 

WILLIAM L. OWENS, New York 

EARL POMEROY, North Dakota 

TRAVIS W. CHILDERS, Mississippi 

WALT MINNICK, Idaho 

FRANK D. LUCAS, Oklahoma, Ranking 

Minority Member 

BOB GOODLATTE, Virginia 

JERRY MORAN, Kansas 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

DAVID P. ROE, Tennessee 

BLAINE LUETKEMEYER, Missouri 

GLENN THOMPSON, Pennsylvania 

BILL CASSIDY, Louisiana 

CYNTHIA M. LUMMIS, Wyoming 

THOMAS J. ROONEY, Florida 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

LIZ FRIEDLANDER, Communications Director 

NICOLE SCOTT, Minority Staff Director 

SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT

LEONARD L. BOSWELL, Iowa, Chairman 

JIM MARSHALL, Georgia 

BRAD ELLSWORTH, Indiana 

TIMOTHY J. WALZ, Minnesota 

KURT SCHRADER, Oregon 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

BETSY MARKEY, Colorado 

LARRY KISSELL, North Carolina 

DEBORAH L. HALVORSON, Illinois 

EARL POMEROY, North Dakota 

TRAVIS W. CHILDERS, Mississippi 

JERRY MORAN, Kansas, Ranking Minority 

Member 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

STEVE KING, Iowa 

K. MICHAEL CONAWAY, Texas 

BLAINE LUETKEMEYER, Missouri 

THOMAS J. ROONEY, Florida 

ALETA BOTTS, Subcommittee Staff Director

(II) 

(III)

C O N T E N T S 

Page 

Boswell, Hon. Leonard L., a Representative in Congress from Iowa, opening 

statement .............................................................................................................. 1

Prepared statement .......................................................................................... 3

Lucas, Hon. Frank D., a Representative in Congress from Oklahoma, opening 

statement .............................................................................................................. 8

Moran, Hon. Jerry, a Representative in Congress from Kansas, opening statement ...................................................................................................................... 4

Prepared statement .......................................................................................... 6

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, opening statement ........................................................................................................ 7

Prepared statement .......................................................................................... 8

WITNESSES

Gensler, Hon. Gary, Chairman, Commodity Futures Trading Commission, 

Washington, D.C. ................................................................................................. 9

Prepared statement .......................................................................................... 11

Chilton, Hon. Bart, Commissioner, Commodity Futures Trading Commission, 

Washington, D.C. ................................................................................................. 14

Prepared statement .......................................................................................... 16

Collura, James M., Vice President for Government Affairs, New England 

Fuel Institute; Founding Member and Spokesman, Commodity Markets 

Oversight Coalition, Washington, D.C. .............................................................. 35

Prepared statement .......................................................................................... 37

Duffy, Terrance A., Executive Chairman, CME Group Inc., Chicago, IL ........... 42

Prepared statement .......................................................................................... 43

Newman, Joel G., President and CEO, American Feed Industry Association, 

Arlington, VA ........................................................................................................ 47

Prepared statement .......................................................................................... 49

Sprecher, Jeffrey C., Chairman and CEO, IntercontinentalExchange, Inc., 

Atlanta, GA ........................................................................................................... 53

Prepared statement .......................................................................................... 54

Jones, Robert, Senior Vice President, ABN AMRO Clearing Chicago LLC; 

Member, Risk Management Committee, National Grain and Feed Association, Chicago, IL ................................................................................................... 56

Prepared statement .......................................................................................... 57

(1)

HEARING TO REVIEW IMPLEMENTATION OF 

PROVISIONS OF THE DODD-FRANK WALL 

STREET REFORM AND CONSUMER

PROTECTION ACT RELATING TO POSITION 

LIMITS 

WEDNESDAY, DECEMBER 15, 2010

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND

RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

1300, Longworth House Office Building, Hon. Leonard L. Boswell 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives Boswell, Schrader, Kissell, Peterson (ex officio), Marshall, Murphy, Moran, Johnson, Conaway, 

Luetkemeyer, Lucas (ex officio), and Neugebauer. 

Staff present: Aleta Botts, Liz Friedlander, John Konya, Clark 

Ogilvie, Rebekah Solem, Tamara Hinton, Kevin Kramp, Josh 

Mathis, Jamie Mitchell, and Sangina Wright. 

OPENING STATEMENT OF HON. LEONARD L. BOSWELL, A 

REPRESENTATIVE IN CONGRESS FROM IOWA 

The CHAIRMAN. The hearing of the Subcommittee on General 

Farm Commodities and Risk Management to review implementation of provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to position limits will come to order. 

I would like to thank everybody for joining us today as we review 

where we are at on the implementation provisions of the DoddFrank regulatory reform law relating to position limits. 

This hearing is very timely, as just recently the CEO of 

Sanderson Farms said it was delaying forward purchase of feed 

until the CFTC had issued position limit rules, and that he doesn’t 

like to buy grain when ‘‘index funds own 25–30 percent of the 

crop.’’ So I wouldn’t say that is why we are here today. I would like 

to review where we are at on this. 

I see that Chairman Peterson has joined us and I would like to 

take a moment, if I could, and divert from the hearing and recognize the outstanding work and dedication of Chairman Collin Peterson for leading this Committee through some of the most challenging times that the agriculture community has faced since the 

farm crisis of the 1980s. Specifically, he has championed the bringing of oversight and transparency to the derivatives market to proVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
2

tect end-users. And if everyone will indulge me, I would like to 

take a moment and thank Chairman Peterson. Thank you, Collin 

Peterson. 

We have Members who will be leaving us for different reasons, 

and we are going to give them a sad farewell as we work through 

this process today. And I am sure I will have an opportunity to recognize Mr. Moran, as he is going on to his new endeavors, and all 

the rest to their new endeavors. 

I might just at this moment add that my very special assistant, 

Alexis Taylor, from east Iowa, is going to be leaving our office and 

going over to the Senate. She is going to be the legislative assistant 

for Senator Baucus. So we congratulate her on her, I guess we 

could say, promotion. She will be very involved there for the next 

farm bill and that is good. We wish her well. 

Congress required the establishment of enforcement of position 

limits to ensure that no single entity holds too much power over 

the marketplace. Position limits are essential to the function of effective and efficient markets, and to inject confidence in the markets by providing reliable and transparent price signals. 

Some will argue that the very existence of position limits operates contrary to the principles underlying a free market; however, 

limits ensure that speculative positions are not in control of a contract, enhance a market, and make price signals a more accurate 

representation of the true market price. 

There is a strong need to ensure that the market is not being 

manipulated by a few players, and we are closely watching the 

pace of rulemaking on the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, especially the rule relating to position 

limits. 

I think that all of us on the Subcommittee would agree that the 

Commission must take the time to get this right. However the 

Commission also must move quickly to ensure the individuals that 

use the markets for bona fide hedging purposes have the confidence 

that these markets are fair markets. Confidence by hedgers in 

these markets is critical, to say nothing of the importance of the 

confidence by the Congress in the Commission’s ability to implement all the regulations required by the Act. 

Back in March, this Subcommittee held a hearing on rulemaking 

pertaining to the implementation of Commodity Exchange Act provisions contained in the 2008 Farm Bill. At the time, the rule on 

provision limits was pending for several energy contracts. That rule 

was withdrawn after the Dodd-Frank Act made further changes. I 

understand this issue is on tap for discussion at tomorrow’s Commission meeting. So I hope that our hearing today will provide 

some valuable input into the forum along with a chance to review 

what the Commission’s plans are on this topic. 

I am looking forward to hearing today from Chairman Gensler 

who has used his leadership on the Commission to be a powerful 

advocate for limits, and to ensure the Commission is on a speedy 

though challenging path towards full implementation of the law. 

I am also pleased to welcome Commissioner Chilton to the Committee. Mr. Chilton has expressed concerns about the pace of the 

regulatory process, and we look forward to discussing these concerns in more detail. 

3

Additional reactions from the witnesses on the second panel on 

the pace of the rulemaking and the content of regulations on position limits will be important to assessing the needs to move this 

issue along in the Commission’s priority list. 

Before I turn to my good friend and future Senator from Kansas, 

Jerry Moran, for an opening statement, Jerry, I just want to thank 

you for the knowledge and support in working together. You have 

been a good colleague on this, and I appreciate the service you have 

given to us here on the House Agriculture Committee and we look 

forward to having a friend over there in the Senate. We wish you 

Godspeed in your work over there and much success. 

[The prepared statement of Mr. Boswell follows:]

PREPARED STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN

CONGRESS FROM IOWA

I would like to thank everyone for joining us here today as we review the state 

of the implementation provisions of the Dodd-Frank regulatory reform law relating 

to position limits. This hearing is very timely as just yesterday, the CEO of 

Sanderson Farms said it was delaying forward purchases of feed until the CFTC 

had issued position limit rules and that he doesn’t like to buy grain when ‘‘index 

funds own 25–30% of the crop.’’ 

I would especially like to thank our witnesses. The Committee looks forward to 

hearing your valuable insight. 

I would like to take a moment and divert from the hearing and recognize the outstanding work and dedication of Chairman Colin Peterson for leading the Agriculture Committee through some of the most challenging times the agriculture community has faced since the farm crisis of the 1980’s. Specifically he has championed 

bringing oversight and transparency to the derivatives markets to protect end-users. 

If everyone would indulge me to please take a moment and thank Chairman Peterson. 

Thank you for that indulgence. Congress required the establishment and enforcement of position limits to ensure that no single entity holds too much power over 

the marketplace. Position limits are essential to the function of effective and efficient markets and to inject confidence in the markets by providing reliable and 

transparent price signals. Some argue that the very existence of position limits operates contrary to the principles underlying a free market. However, limits that ensure that speculative positions are not in control of a contract enhance the market 

and make price signals a more accurate representation of the true market price. 

There is a strong need to ensure that a market is not being manipulated by a 

few players, and I am closely watching the pace of rulemaking on the Dodd-Frank 

Wall Street Reform and Consumer Protection Act, especially the rules relating to 

position limits. I think that all of us on this Subcommittee would agree that the 

Commission must take the time to get this right. However, the Commission also 

must move quickly to ensure that individuals that use these markets for bona fide

hedging purposes have the confidence that these markets are fair markets. Confidence by hedgers in these markets is critical, to say nothing of the importance of 

the confidence by the Congress in the Commission’s ability to implement all of the 

regulations required by the Act. 

Back in March, this Subcommittee held a hearing on rulemaking pertaining to the 

implementation of Commodity Exchange Act provisions contained in the 2008 Farm 

Bill. At the time a rule on position limits was pending for several energy contracts. 

That rule was withdrawn after the Dodd-Frank Act made further changes. 

I understand that this issue is on tap for discussion at tomorrow’s Commission 

meeting, so I hope that our hearing today will provide valuable input into that 

forum along with a chance to preview what the Commission’s plans are on this 

topic. 

I am looking forward to hearing today from Chairman Gensler, who has used his 

leadership of the Commission to be a powerful advocate for limits and to ensure that 

the Commission is on a speedy, though challenging, path toward full implementation of the law. I am also pleased to welcome Commissioner Chilton to the Subcommittee. Mr. Chilton has expressed concerns about the pace of the regulatory 

process, and I look forward to discussing these concerns in more detail. Additionally, 

reactions from the witnesses on the second panel on the pace of the rulemaking and 

4

the content of the regulations on position limits will be important to assessing the 

need to move this issue along in the Commission’s priority list. 

Before I turn to my good friend and future Senator from Kansas, Jerry Moran 

for an opening statement I would like to thank him for his knowledge and constant 

support of agriculture in the House.

The CHAIRMAN. And at this time, I would like to recognize Mr. 

Moran for whatever you would like to say. 

OPENING STATEMENT OF HON. JERRY MORAN, A 

REPRESENTATIVE IN CONGRESS FROM KANSAS 

Mr. MORAN. Mr. Chairman, thank you very much. I appreciate 

the friendship that you and I have encountered now for a long time 

in the House of Representatives, and I appreciate the leadership 

that you provide on this Subcommittee and our full House Agriculture Committee. The House Agriculture Committee has really 

been my home during my time as a Member of the House of Representatives, and this is a significant part of what I enjoy the most 

about serving in Congress. 

In regard to today’s hearing, Mr. Chairman, I certainly believe 

that Congressional oversight is a good thing. And while I will not 

be here in the new year to chair this Subcommittee, I believe that 

my successor, and the incoming full Committee Chairman, Mr. 

Lucas, will readily exercise the House Agriculture Committee’s 

oversight authority over the Commodity Futures Trading Commission. 

In regard to the topic of position limits under the Dodd-Frank 

Act, however, I believe it is premature to hold an oversight hearing, because the CFTC has yet to release a proposed rule. Thus we 

are left to hold a hearing based on hearsay, a few exchanges between CFTC’s Commissioners during a hearing on another issue, 

and a speech and an opinion editorial released to the press by 

Commissioner Chilton. Having said that, I am concerned about 

where the Commission’s position on position limits discussion is 

going. 

First, I would like to note that early on in the legislative process, 

both I as Ranking Member, and the Ranking Member, Mr. Lucas, 

of the full Committee, and other Members of the House Agriculture 

Committee, introduced amendments to place limits on the authority of the CFTC to impose position limits. During that debate, we 

were clear that the commodity futures market needed greater 

transparency, and we were in favor of creating mandatory reporting requirements. We were hesitant, however, to give the CFTC 

broader powers to impose position limits until we had adequate information about the over-the-counter markets. We felt that Congress needed to know who was trading on the OTC market, the size 

of the OTC market, and whether the OTC market was or was not 

having an adverse effect on exchange-traded markets before bestowing greater position limit authority on the Commission. 

Unfortunately, those amendments did not pass, and we now have 

a situation where a regulator may be contemplating imposing position limits without having access to the information necessary to 

determine the appropriate position limits, or to enforce such position limits once they are set. 

Despite what some believe is a mandate for the Commission to 

set position limits within a definite period of time, the Dodd-Frank 

5

legislation actually qualifies CFTC’s position limit authority. Section 737 of the Dodd-Frank Act amends the Commodity Exchange 

Act so that section 4a(a)(2)(A) states: ‘‘The Commission shall by 

rule . . . establish limits on the amount of positions as appropriate . . . .’’

The Act then states in subparagraph (B) for exempt commodities, 

the limit required under subparagraph (A) shall be established 

within 180 days after the date of enactment of this paragraph. 

When subparagraphs (A) and (B) are read in conjunction, the Act 

states that when position limits are required under subparagraph 

(A), the Commission shall set elements within 180 days under 

paragraph (B). Subparagraph (A) says the position limit rule 

should be only prescribed when appropriate. Therefore, the 180 day 

timetable is only triggered if position limits are appropriate. 

In regard to the word appropriate, the Commission has three distinct problems. First, the Commission has never made an affirmative finding that position limits are appropriate to curtail excessive 

speculation. In fact, to date the only reports issued by the Commission or its staff failed to identify a connection between market 

trends and excessive speculation. This is not to say that there is 

no connection, but it does say the Commission does not have 

enough information to draw an affirmative conclusion. 

The second and third issues related to the appropriateness of position limits are related to adequacy of information about OTC 

markets. On December 8, 2010, the Commission published a proposed rule on Swap data record-keeping and reporting requirements. This proposed rule is open for comment until February 7, 

2011, and the rule is not expected to be final and effective until 

summer at the earliest. 

Furthermore, the Commission has yet to issue a proposed rulemaking about Swap data repositories. Until a Swap data repository 

is set up and running, it is difficult to see how it would be appropriate for the Commission to set position limits. Without additional 

information about trades in the OTC market, the Commission 

could neither have enough information to adequately determine the 

appropriate position limits, or have the information necessary to 

enforce position limits, assuming the appropriate formula could be 

determined without full access to OTC market information. 

In conclusion, I would again caution that my remarks are based 

on hearsay and not on an actual proposed rule. It is hard to be critical of something that does not yet exist. I hope that Chairman 

Gensler in his testimony today will inform the Subcommittee that 

the Commission is aware of the challenges surrounding the current 

imposition of position limits, and that the Commission hearing tomorrow will not consider enacting position limits before adequate 

information is obtained. 

I would also caution the Chairman and the other Commissioners, 

however, that if the Commission moves forward with a proposed 

position limit rule before information from the OTC markets are 

made available, they should be prepared for more hearings on this 

topic next year. 

Mr. Chairman, that is a longer opening statement than my 

usual, which suggests I am leaving the House of Representatives 

for someplace else. But I am grateful for the opportunity to express 

6

my opinion today. I am delighted to be with you, and I thank you, 

Mr. Chairman, for recognizing me, and I look forward to our continued close working relationship. 

[The prepared statement of Mr. Moran follows:]

PREPARED STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS

FROM KANSAS

Thank you, Mr. Chairman. I believe Congressional oversight is a good thing. 

While I will not be here to chair this Subcommittee next year, I believe my successor, and the incoming full Committee Chairman, Mr. Lucas, will readily exercise 

the House Agriculture Committee’s oversight authority over the Commodity Futures 

Trading Commission (CFTC). 

In regard to the topic of position limits under the Dodd-Frank Act, however, I believe it is premature to hold an oversight hearing because the CFTC has yet to release a proposed rule. Thus, we are left to hold a hearing based on hearsay, a few 

exchanges between CFTC Commissioners during a hearing on another issue, and a 

speech and opinion editorial released to the press by Commissioner Chilton. Having 

said that, I am concerned about where the Commission’s position limit discussion 

is going. 

First, I would note that early on in the legislative process, both myself, Ranking 

Member Lucas, and other Members of the Agriculture Committee introduced 

amendments to place limits on the authority of the CFTC to impose position limits. 

During that debate, we were clear that the commodity futures markets needed 

greater transparency and we were in favor of creating mandatory reporting requirements. We were hesitant, however, to give CFTC broader powers to impose position 

limits until we had adequate information about the over-the-counter (OTC) markets. 

We felt the Congress needed to know who was trading in the OTC market, the size 

of the OTC market, and whether the OTC market was or was not having an adverse 

affect on exchange-traded markets before bestowing greater position limit authority 

on the Commission. Unfortunately, those amendments did not pass, and we now 

have a situation where a regulator may be contemplating imposing position limits 

without having access to the information necessary to determine the appropriate position limits or to enforce such position limits once they are set. 

Despite what some believe is a mandate for the Commission to set position limits 

within a definite time period, the Dodd-Frank legislation actually qualifies CFTC’s 

position limit authority. Section 737 of the Dodd-Frank Act amends the Commodity 

Exchange Act (CEA) so that Section 4a(a)(2)(A) states: ‘‘the Commission shall by 

rule . . . establish limits on the amount of positions, as appropriate . . . .’’ The Act 

then states in subparagraph (B): ‘‘For exempt commodities, the limits required 

under subparagraph (A) shall be established within 180 days after the date of the 

enactment of this paragraph.’’ When subparagraphs (A) and (B) are read in conjunction, the Act states that when position limits are required under subparagraph (A), 

the Commission shall set the limits within 180 days under subparagraph (B). Subparagraph (A) says position limit rules should only be prescribed when ‘‘appropriate.’’ Therefore, the 180-day timetable is only triggered if position limits are appropriate. 

In regard to the word ‘‘appropriate,’’ the Commission has three distinct problems. 

First, the Commission has never made an affirmative finding that position limits 

are appropriate to curtail excessive speculation. In fact, to date, the only reports 

issued by the Commission or its staff fail to identify a connection between market 

trends and excessive speculation. This is not to say that there is no connection, but 

it does say the Commission does not have enough information to draw an affirmative conclusion. 

The second and third issues related to the appropriateness of position limits are 

related to adequacy of information about the OTC markets. On December 8, 2010, 

the Commission published a proposed rule on ‘‘Swap Data Recordkeeping and Reporting Requirements.’’ This proposed rule is open for comment until February 7, 

2011, and the rule is not expected to be final and effective until this coming summer 

at the earliest. Furthermore, the Commission has yet to issue a proposed rulemaking about swap data repositories. Until a swap data repository is up and running, it is difficult to see how it would be appropriate for the Commission to set 

position limits. Without additional information about trades in the OTC market, the 

Commission could neither have enough information to adequately determine the appropriation position limit or have the information necessary to enforce position limits, assuming an appropriate formula could be determined without full access to 

OTC market information. 

7

To conclude, I would again caution that my remarks are based on hearsay and 

not an actual proposed rule. It is hard to be critical of something that does not yet 

exist. I hope that Chairman Gensler, in his testimony today, will inform the Subcommittee that the Commission is aware of the challenges surrounding the current 

imposition of position limits and at the Commission’s hearing tomorrow, he will not 

consider enacting position limits before adequate information is known. I would caution the Chairman and other Commissioners, however, that if the Commission 

moves forward with a proposed position limit rule before information from the OTC 

markets are made available, they should be prepared for more hearings on this topic 

next year. 

Again, thank you for recognizing me Mr. Chairman and I look forward to the testimony of today’s witnesses.

The CHAIRMAN. Well, thank you very much. I appreciate that, 

and we do wish you well and we are happy to have you with us 

today. 

At this time, I would like to recognize Mr. Peterson for any comments he might like to make. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

Mr. PETERSON. Thank you, Mr. Chairman, Ranking Member, and 

good morning everybody. Thank you, for holding this hearing 

today. The Subcommittee and this Committee started looking into 

excessive speculation in the derivatives market more than 2 years 

ago before the evidence of the financial crisis actually started to appear. 

We passed bipartisan legislation to bring greater transparency 

and accountability to the derivatives market, and many of the 

Committee-passed provisions were included in the Wall Street Reform and Consumer Protection Act which was signed into law this 

past summer. 

There are many important provisions within this law, but the 

one we are addressing today is the speculative position limits. The 

law sets a deadline of January 17, 2011, for the CFTC to announce 

the proposed rule for this provision, but recently many have expressed concerns about the CFTC meeting this deadline. 

While the CFTC has held seven open meetings to write rules for 

the law’s many provisions, most recently on December 9th, speculative position limits have not yet been addressed, and this leaves little time for the Commission to address this issue. It is important 

that the CFTC remain on track and implement the Wall Street Reform and Consumer Protection Act in a timely manner and as Congress intended. 

I understand that there is another meeting being held tomorrow 

and that the position limits will be addressed at this time. I think 

that is good news. But I question whether this could have happened earlier. 

I want to welcome Chairman Gensler and Commissioner Chilton 

to the Committee today. We appreciate the good working relationship that we have had and look forward to working with you as we 

go forward. As I say, we have worked closely together and hope 

that we could help you in implementing this law. So I look forward 

to hearing your testimony, along with the rest of today’s witnesses, 

and again thank the chair for his leadership on this issue. 

[The prepared statement of Mr. Peterson follows:]

8

PREPARED STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN

CONGRESS FROM MINNESOTA

Good morning, and thank you Mr. Boswell for holding today’s hearing of the Subcommittee on General Farm Commodities and Risk Management. 

This Committee started looking into excessive speculation in the derivatives market more than 2 years ago, before evidence of the financial crisis started to appear. 

We passed bipartisan legislation to bring greater transparency and accountability 

to the derivatives market and many of the Committee-passed provisions were included in the Wall Street Reform and Consumer Protection Act which was signed 

into law this past summer. 

There are many important provisions within this law, but the one we are addressing today is speculative position limits. The law sets a deadline of January 17, 2011 

for the CFTC to announce the proposed rule for this provision, but recently many 

have expressed concerns about the CFTC meeting this deadline. 

While the CFTC has held seven open meetings to write rules for the law’s many 

provisions, most recently on December 9, speculative position limits have not yet 

been addressed. This leaves little time for the Commission to address this issue. 

It is important that the CFTC remain on track and implement the Wall Street 

Reform and Consumer Protection Act in a timely manner and as Congress intended. 

I understand there is another meeting being held tomorrow and that speculative position limits will be addressed at this time. This is good news, but I question whether this could have happened earlier. 

I want to welcome Chairman Gensler and Commissioner Chilton to the Committee today. We have worked closely over the last few years and I look forward 

to continuing this relationship as you move ahead with implementing this law. I 

look forward to hearing your testimony, along with the rest of today’s witnesses and 

again thank the Chair for holding this hearing.

The CHAIRMAN. Thank you, Mr. Peterson. 

I would like to recognize Mr. Lucas for any comments he would 

like to make. 

OPENING STATEMENT OF HON. FRANK D. LUCAS, A 

REPRESENTATIVE IN CONGRESS FROM OKLAHOMA 

Mr. LUCAS. Thank you, Mr. Chairman, for calling this hearing 

today. I am not sure that I should call this the last in a long series 

of hearings this Committee has had on the regulation of derivatives 

in this Congress, or, perhaps better described, as the first in a long 

series of intensive oversight hearings I promise this Committee will 

engage in through the next several months. One thing I am sure 

of, and I have to echo the comments of my colleague, our good 

friend from Kansas, who is going to the other side of the building—

I didn’t say to the other side of the world—he will be missed indeed 

in this body. 

I can’t use that other phrase, Jerry, I am sorry, I just can’t say 

that word that some people now describe you within the public in 

the future, but your efforts on behalf of Kansas agriculture and 

this Committee have been and are much appreciated. 

One of the many legislative battles that you and I fought was the 

integrity of our domestic futures markets. We have long been focused on making sure the markets provide our farmers, ranchers, 

and commercial end-users the ability to manage their risk and discover market-driven prices. Those efforts and the efforts of everyone on this Committee resulted in legislation that ultimately became Title VII of the Dodd-Frank Act. 

Although there are so many issues and authorities contained in 

Title VII, the imposition of position limits probably received the 

most attention by this Committee. The imposition of position limits 

in various forms and fashions played huge parts in my and Mr. Peterson’s legislative initiatives, and Mr. Goodlatte’s before that. We 

9

have always known the balance between liquid vibrant markets 

and transparent price discovery markets were, and are, imperative. 

In the end, the position limits regime in the Dodd-Frank isn’t 

what I would have written, but it is a cautious approach that provides the Commission with the appropriate discretion to address 

what I believe is a political problem and not necessarily a problem 

driven by artificial volatility or distorted supply and demand. 

The Dodd-Frank Act committed a new level of authority and discretion to use that authority to the Commodity Futures Trading 

Commission. I have heard from several of the regulated community, and have seen myself, how consumed the Commission and the 

staff is with implementation. 

I do not envy you in the least. It is a huge task, perhaps too big 

to be done in the timelines provided. As this fragile economy attempts to get back on its feet, we ought not to be throwing regulatory hurdles in its way, costing even more jobs and higher prices. 

I fear that is what will happen if the most sweeping reform of the 

nation’s derivative markets is done hastily and without all due deliberation. I am not pressing for a perfect rule, but we have to have 

a good rule. I stand willing to consider easing of statutory deadlines to ensure rules don’t end up further distorting markets and 

costing American jobs. 

I certainly look forward to hearing from our witnesses today, and 

I am prepared for that informed decision as they work their way 

through the implementation of position limits. And I would note, 

if the Chairman indulges me for one moment, this may well be the 

last hearing where my first Agriculture Committee Chairman continues to look down over our shoulder, Mr. de la Garza, in the way 

pictures are handled. I look forward to having Mr. Goodlatte looking over my shoulder, and having what will inevitably be the awesome portrait of Mr. Peterson to admire at the other end of the 

room. Such is the nature of the way these bodies move forward. 

Again, Mr. Chairman, thank you for calling this hearing. 

The CHAIRMAN. Thank you very much. 

The CHAIRMAN. We would like to request that the other Members 

submit their opening statements for the record so the witnesses 

may begin their testimony and ensure there is ample time for questions. 

I would like to welcome our first panel which, of course, is the 

Honorable Gary Gensler, Chairman of the Commodity Futures 

Trading Commission and the Honorable Bart Chilton, Commissioner of the Commodity Futures Trading Commission. 

Chairman Gensler, welcome. Please begin when you are ready. 

STATEMENT OF HON. GARY GENSLER, CHAIRMAN,

COMMODITY FUTURES TRADING COMMISSION,

WASHINGTON, D.C. 

Mr. GENSLER. Good afternoon. Thank you, Chairman Boswell, 

Chairman Peterson, Ranking Member Moran, Ranking Member of 

the full Committee, Congressman Lucas. I thank you for inviting 

me here to testify on behalf of the CFTC and I am pleased to be 

testifying along with Commissioner Chilton. Commissioner Chilton 

has been a real advocate that the markets that CFTC oversees 

work for all Americans, and he has been a leader in ensuring that 

10

we reestablish position limits in the energy and metals market and 

that they be extended to the swaps markets. 

Before I mention things on position limits, just let me update you 

on our work on implementing Dodd-Frank. We have been consulting extensively with fellow regulators and the public. I think 

the CFTC staff and I have met now—we keep a running count internally—over 300 times with fellow regulators. That would be 60 

times a month with the SEC, the Federal Reserve and other regulators. We also are soliciting broad public input. We have had 7 

days of public roundtables, usually with the SEC joining us. Additionally, many individuals of course want to come in and see us. 

We post these on our website to have transparency, and as of Monday there have been 460 such meetings from the public coming in 

to talk to us about these things. 

Thus far the Commission has moved forward with 30 proposals, 

and including some final rules and interim final rules and advance 

notices, the total count is 37 that we have published. 

We look forward to comments from the public. No doubt we will 

get tens of thousands of comments as we sort through this and we 

look forward to that. 

We have our eighth public meeting tomorrow where we plan to 

have two additional meetings in January in other key areas. 

With regard to position limits, the Dodd-Frank Act did expand 

the scope of the Commission’s mandate to set position limits to include swaps, and I anticipate that we will consider staff recommendations tomorrow. These will include recommendations to 

include agricultural, energy and metals commodities. 

I also anticipate the staff’s recommendation will be for position 

limits both for the spot month—this is when contracts are moving 

into delivery—as well as single months and all-months-combined. 

That is what Congress had asked us to look at, all three. We have 

asked staff to try to do this within one rule. 

The spot month limits are currently set are set in markets for 

energy, metals, and agriculture. We will be taking a look at 28 individual contracts. I think there are currently set in 26 of these 

contracts. 

In terms of the single month and all-months-combined limits, we 

currently have contract limits for most agriculture, and the staff 

will have some recommendations with regard to energy and metals 

as well. 

It is only with the implementation and passage of the DoddFrank Act, though, that the Commission has broad authority to collect information on the swaps market, as many Members have indicated. To this date we have really had very limited authority to collect data on the swaps market. 

We approved a rule in October on position reporting for physical 

commodity swaps that would allow us for the first time to collect 

data, more detailed data, on the swaps market. The comment period for that closed early December. Staff is currently looking 

through all those comments before we can finalize a rule on swaps 

data collection. This is different than the swaps data repository we 

actually put out. You might be—sometimes people call it large 

trader reporting, but we did put that rule out, as I say. 

11

1 Commissioner Bart Chilton did not participate in the approval of this testimony. 

Before I close, I just want to thank everybody here for your support on resources. I know that the House of Representatives did 

pass a continuing resolution. The Senate still is going to be taking 

up resources. The President’s request of $261 million of resources 

for this fiscal year is very important. We think an estimate will be 

300 to 400 new applicants, swap dealers, swap execution facilities, 

data repositories and the like that will be knocking on our doors, 

probably come next summer, for us to move forward. We estimate 

overall we will probably need about 400 more people. We are currently at about 680 people. 

With that, I look forward to your questions. I also look forward 

to your oversight. I think it is a very important part of our American system. It is also a good way that we can get these rules done 

and look forward to your advice and counsel. 

[The prepared statement of Mr. Gensler follows:]

PREPARED STATEMENT OF HON. GARY GENSLER, CHAIRMAN, COMMODITY FUTURES

TRADING COMMISSION, WASHINGTON, D.C. 

Good afternoon, Chairman Boswell, Ranking Member Moran and Members of the 

Subcommittee. I thank you for inviting me to today’s hearing on behalf of the Commodity Futures Trading Commission (CFTC).1 I am pleased to testify alongside my 

fellow Commissioner, Bart Chilton. 

Implementing the Dodd-Frank Act 

Before I discuss the CFTC’s rule-writing process with regard to position limits, 

I will update the Subcommittee on the CFTC’s implementation of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act is very detailed, addressing all of the key policy issues regarding regulation of the swaps marketplace. This Subcommittee’s work on the Act should be commended. The Act reduces risk while promoting transparency in the swaps markets. 

To implement the Dodd-Frank Act, we have organized our effort around 31 teams 

who have been actively at work. Two principles are guiding us throughout the rulewriting process. First is the statute itself. We intend to comply with the statute’s 

provisions and Congressional intent to lower risk and bring transparency to these 

markets. 

Second, we are consulting extensively with both other regulators and the broader 

public. We are working very closely with the SEC, the Federal Reserve, other prudential regulators and international regulators. To date, we have had more than 304 

meetings with other regulators at the staff or Chairman’s level. 

We also are soliciting broad public input into the rules. This began the day the 

President signed the Dodd-Frank Act when we listed the rule-writing teams and set 

up mailboxes for the public to submit their views directly. 

We also have organized seven public roundtables to hear on particular subjects. 

Last week we held a joint roundtable with the SEC and prudential regulators on 

issues related to capital and margin requirements for swaps. Additionally, many individuals have asked for meetings with the CFTC to discuss swaps regulation. As 

of Monday morning, we have had more than 466 such meetings. Just as Congress 

brought transparency to the swaps markets, the CFTC has added additional transparency to our rule-writing efforts. We are now posting on our website a list of all 

of our meetings, as well as the participants, issues discussed and all materials given 

to us. 

We are in the process of publishing proposed rules, using open Commission meetings for this purpose. So far, we have had seven public meetings. We have another 

meeting scheduled tomorrow during which the Commission will consider rules related to position limits, swap execution facilities, derivatives clearing organizations 

and business conduct standards. 

Thus far the Commission has approved 30 proposed rules, one final rule, two interim final rules and four advanced notices of proposed rulemaking. That does not 

include the four proposed rulemakings that the Commission will consider tomorrow. 

The Dodd-Frank Act requires the CFTC and the SEC to write rules generally 

within 360 days after the date of enactment. This means we have 213 days left for 

12

the majority of the rulemakings. In the case of position limit mandates, Congress 

had directed a more ambitious schedule. 

Position Limits Rulemaking 

Legislative and Regulatory History 

Since 1936, the Commodity Exchange Act has prescribed position limits to protect 

against the burdens of excessive speculation, including those caused by large concentrated positions. Between the CFTC and the futures exchanges, there are currently position limits in the spot month on physical delivery contracts in the agricultural, energy and metals markets. There also are position limits in a number of financial contracts. In addition to these spot month limits, between federally-set position limits and those set by exchanges, there also are a number of agricultural contracts that have single-month and all-months-combined position limits. The exchanges had set all-months-combined limits in energy markets until 2001 and in 

metals markets earlier, after which the limits were replaced with position accountability regimes. 

The debate on the position limits provisions included in the Dodd-Frank Act 

began with actions taken by the House Agriculture Committee in the summer of 

2008. According to the Committee report, the Agriculture Committee and this Subcommittee held six hearings with 44 witnesses on issues related to position limits. 

The House later passed H.R. 6604 in September 2008. 

The CFTC itself held three public meetings in the summer of July 2009 to gather 

further input from the public and Members of Congress regarding position limits for 

energy markets. In January 2010, the Commission published a proposed rule to set 

position limits on four energy contracts. In response to the proposal, the CFTC received more than 8,200 comments from the public. The CFTC announced the withdrawal of that proposal in August with plans to re-propose pursuant to the DoddFrank requirements. To be properly informed during the current rule-writing process, the Commission and staff are reviewing the comments received in response to 

the January rulemaking. The CFTC is scheduled to consider a new position limits 

rulemaking tomorrow. 

In March 2010, the Commission held an additional public meeting to consider the 

appropriateness of position limits in the metals markets. The public’s views from 

that meeting and the comments that were later submitted also will be helpful as 

the Commission considers a proposed rulemaking on position limits in the metals 

markets. 

The CFTC does not set or regulate prices. Rather, the Commission is directed to 

ensure that commodity markets are fair and orderly. The January position limits 

proposal was intended to meet Congress’s mandate and to promote market integrity. 

The CFTC is directed by statute to act in this regard to protect the American public. 

When the CFTC set position limits in the past, the agency sought to ensure that 

the markets were made up of a broad group of market participants with a diversity 

of views. At the core of our obligations is promoting market integrity, which the 

agency has historically interpreted to include ensuring markets do not become too 

concentrated. 

Position limits help to protect the markets both in times of clear skies and when 

there is a storm on the horizon. In 1981, the Commission said that ‘‘the capacity 

of any contract market to absorb the establishment and liquidation of large speculative positions in an orderly manner is related to the relative size of such positions, 

i.e., the capacity of the market is not unlimited.’’

Dodd-Frank Requirements 

The Dodd-Frank Act requires the CFTC to set position limits for the following 

classes of contracts:

• futures;

• options on futures; and

• swaps that are economically equivalent to such futures or options.

The Dodd-Frank Act also directs the Commission to set aggregate position limits 

for the following:

• contracts listed for trading on designated contract markets,

• contracts traded on a foreign board of trade providing persons in the U.S. with 

direct access that settle against the price of one or more contracts traded on 

a futures exchange or swap execution facility; and

• any other swap contracts that perform or affect a significant price discovery 

function with respect to regulated entities.

13

The Act requires that the CFTC set the first set of position limits within 180 days 

of enactment for exempt commodities and within 270 days for agricultural commodities. The Commission has some additional flexibility with respect to the timing of 

the rulemaking for the aggregate limits. 

The Commodity Exchange Act exempts positions that are held as bona fide hedges 

from position limits. The Dodd-Frank Act provided further detail on the types of positions that fall in that category. End users and other persons with physical holdings in the energy and metals markets will not be limited in the amount or size 

of their positions that are entered into to hedge their physical purchases, holdings 

or sales. 

In establishing the limits for energy and agricultural commodities, the CFTC is 

required to set spot-month, single month and all-months-combined position limits to 

achieve the following goals:

1. diminish, eliminate or prevent excessive speculation;

2. deter and prevent market manipulation, squeezes and corners;

3. ensure sufficient market liquidity for bona fide hedgers; and

4. ensure that the price discovery function of the underlying market is not disrupted. 

Data Requirements 

The Commission is working to meet each of the deadlines included in the DoddFrank Act. Setting position limits in the swaps markets poses a unique challenge 

because of the market’s opacity. Prior to the Dodd-Frank Act, the Commission had 

only limited authority to obtain data regarding the swaps market. The Dodd-Frank 

Act includes essential provisions to bring transparency in the markets to both regulators and the public. At this point, however, the Commission does not have the 

same comprehensive data for the swaps markets, including economically equivalent 

swaps, as it has for the futures markets. The Commission also currently has limited 

access to data on linked contracts traded on FBOTs through direct access by U.S. 

participants. The Commission has collected some data from swaps dealers since 

2008, using special call authority to do so. However, additional data is required on 

the swaps markets to determine the size of the overall market in particular commodities, as well as the nature of the positions in this market. In particular, the 

Commission lacks data that would identify the extent to which positions are held 

for hedging or speculative purposes. 

On October 19, the Commission approved a proposed rulemaking on large trader 

reporting for physical commodity swaps. The proposal would require position reports 

on economically equivalent swaps from clearing organizations, their members and 

swap dealers. This would enable the CFTC to receive such data until swap data repositories are in operation and capable of fulfilling the Commission’s need for this 

information. The comment period on the proposed rulemaking closed on December 

2. 

In addition, large trader reporting will allow the Commission to gather data that 

could be used to determine appropriate position limits. The rule builds on the Commission’s ongoing special call for data from swap dealers. 

Options for Position Limits Rulemakings 

CFTC staff is considering options to phase in implementation of the position limits rules as the agency obtains the necessary data regarding the swaps market. Staff 

is examining whether certain elements of the rule for which the Commission has 

substantial data can proceed on a more expedited timeframe, while leaving those 

aspects of the rule that depend upon additional data for later implementation. Staff 

is considering whether it would be possible to implement spot month limits sooner 

than the single-month or all-months-combined limits. 

The Commission could consider proposing single-month and all-months-combined 

position limits based on the open interest for futures, options and economically 

equivalent swaps. This is similar to the approach taken in the rulemaking that the 

Commission proposed in January. Open interest is currently used to establish position limits in the futures markets. Staff is reviewing an option that use data regarding open interest in the swaps markets to set hard aggregate limits. This approach 

would allow the Commission to hear from the public on the appropriate methodology 

for setting position limits while also allowing the Commission to collect additional 

swaps data through the large trader reporting regime. The actual hard limits would 

be applied when sufficient data becomes available. 

Currently, spot month limits for physically-settled futures contracts are generally 

set as some percentage of deliverable supply to prevent someone with a large position from cornering or squeezing the market as contracts move to expiration. In conVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
14

trast, single-month and all-months-combined position limits have historically been 

set as a function of the overall size of the markets to guard against the burdens 

of excessive speculation. 

Resources 

Before I close, I will briefly address the resource needs of the CFTC. The futures 

marketplace that the CFTC oversees is approximately $40 trillion in notional 

amount. The swaps market that the Dodd-Frank Act tasks the CFTC with regulating has a far larger notional amount as well as more complexity. Based upon figures compiled by the Office of the Comptroller of the Currency, the largest 25 bank 

holding companies currently have $277 trillion notional amount of swaps. 

The CFTC’s current funding is far less than what is required to properly fulfill 

our significantly expanded role. The CFTC requires additional resources to enhance 

its surveillance program, prevent market disruptions similar to those experienced 

on May 6 and implement the Dodd-Frank Act. 

The President requested $261 million for the CFTC in his Fiscal Year 2011 budget. This included $216 million and 745 full-time employees for pre-Dodd-Frank authorities and $45 million to provide 1⁄2 of the staff estimated at that time needed 

to implement Dodd-Frank. The House of Representatives matched the President’s 

request in the continuing resolution it passed last week. We are currently operating 

under a continuing resolution that provides funding at an annualized level of $169 

million. To fully implement the Dodd-Frank reforms, the Commission will require 

approximately 400 additional staff over the level needed to fulfill our pre-DoddFrank mission. 

I again thank you for inviting me to testify today. I look forward to your questions.

The CHAIRMAN. Thank you very much. 

We will go ahead and hear the comments from Commissioner 

Chilton, and then we will have questions. 

STATEMENT OF HON. BART CHILTON, COMMISSIONER,

COMMODITY FUTURES TRADING COMMISSION,

WASHINGTON, D.C. 

Mr. CHILTON. Thanks, Mr. Chairman and thanks also to——

The CHAIRMAN. Let me interrupt you just for a second. A little 

oversight. We have Mr. Neugebauer with us today. He is very welcome, but I am supposed to get unanimous consent that it is okay 

for him to be here. The chair thinks it is okay for him to be here. 

No objections? 

Thank you for coming. 

Mr. CHILTON. Thank you, Mr. Chairman. I can say I just want 

to thank and congratulate Senator-elect Moran. It has been a 

pleasure working with you over the years, sir, and I look forward 

to continuing that. I look forward to the scrutiny we will get from 

Chairman Lucas in the future. 

I did want to say a special thanks to Chairman Peterson. You 

guys passed back in 2008 legislation dealing with speculation. You 

may have passed it twice in a bipartisan way. I know you brought 

it up on the floor twice in 2008. So I appreciate your foresight and 

your oversight of this agency over the years. 

I also want to thank my friend, Chairman Gensler, for being so 

helpful. His expertise of the markets and of finance has really 

helped us. The other Commissioners are pretty much folks that 

came from here, came from the Hill and we have ag backgrounds 

and we have some other backgrounds, too, but having Chairman 

Gensler there has made us better Commissioners and a better 

Commission. So I thank him. 

15

If you look back at just the last 10 years, the futures industry 

around the world has increased three-fold. Yet in the U.S. it increased five-fold. 

So a lot was going on. Between 2005 and 2008, we saw roughly $200 billion of speculative money, index money, hedge funds, pension funds; $200 billion came into these markets. Now, that happened to coincide with this commodity bubble. Wheat is around 

$71⁄2–$8 now. It was at $24 then. Gasoline is—crude is like $87, 

$90 now. It went up to $147.27 in June 2008. As we all know and 

your constituents told you, they had concerns because gasoline was 

over $4. 

Whether or not that increase in the speculative interest, that $200 billion, caused that bubble is a point that obviously can be debated. Some people say, move along folks, nothing here. Some people say it drove the prices. I come out sort of in the middle and 

say that—agree with MIT and Oxford and Rice and Princeton and 

even Lincoln University in Missouri. They all say that it had some 

impact. So, how much you can debate. 

The increase in speculative limits since that time, if it was a concern in 2008 with the amount of speculation in the market, if it 

was a concern when Congress passed the law in July, it is even 

more of a concern now. 

Now, before I give you some new statistics, don’t get me wrong: 

We don’t have speculators, we don’t have a market. They are critical. Full stop. We have to have them. But if you look at what is 

going on between June of 2008 and where we are today or where 

we were in October, we see more speculative positions in the futures markets than at any time in history, $149 billion. That is an 

increase in the energy complex of 47 percent since 2008, an increase in the metals complex of 20 percent, and an increase in the 

agriculture complex by 18 percent. So there has been this large influx. 

Now, the Chairman talked about all the rules and a number of 

Members have talked about the rules. There has been a flurry of 

activity. We have been going gangbusters. And the staff at the 

CFTC has been real inspirational. We all sort of talk about it every 

time we meet. 

At the same time, by and large, while these rules have been sort 

of trains that are on time, position limits have sort of derailed. And 

the reason is exactly what Congressman Moran alluded to, whether 

or not we have this data on swaps in order to meet the deadline 

of January. And there are a couple of points; first, I am not sure 

we do have the authority to delay. 

And this as appropriate language, Congressman Moran, I appreciate your point but to say that as appropriate is expansive enough 

of a definition to render the provision moot and meaningless, I 

think begs the question a little bit. I think we are required to implement it. I see no authority for us to delay, no legal authority. 

I asked the attorneys why we would delay. 

Second, I think it is needed now more than ever, because of those 

statistics I just cited to you. And third, there are ways that we can 

do this. There are things that we can do as Chairman-elect Lucas 

said in a deliberate fashion, not ad hoc and not hasty, sir, that we 

can do to start doing what Congress set as our goals in January. 

16

It may not be the full Committee but there are things that we can 

do now. I agree we don’t want something hasty. We don’t want to 

mess up markets. There are ways to go about this. 

So far what we have been talking about is how we just go ahead 

and wait, and we are talking about a delay, we are talking about 

not getting this data until next September or October. So I am just 

trying to do what Congress told us to do. You can have different 

interpretations. I have mine, and I am trying to do the best, I don’t 

think we are—as I said, we are going to have a meeting tomorrow, 

we are not quite back on the track, but we can get there. Thank 

you Mr. Chairman. 

[The prepared statement of Mr. Chilton follows:]

PREPARED STATEMENT OF HON. BART CHILTON, COMMISSIONER, COMMODITY

FUTURES TRADING COMMISSION, WASHINGTON, D.C. 

Mr. Chairman, Ranking Member Moran, Members of the Subcommittee, thank 

you for the opportunity to be with you today. 

In the last decade, we saw the U.S. futures industry grow five-fold when the rest 

of the world grew three-fold. In several years we saw over $200 billion come into 

regulated U.S. futures markets. This new money was primarily from speculators, 

much of which was held by speculators I call ‘‘massive passives,’’ those with a 

known, fairly price-insensitive trading strategy. Then, in 2008, we saw a huge commodity bubble. Wheat was at $24. Today it is around $8. Crude oil spiked to $147.27 

and gas was at $4 per gallon. Then the economy and commodity prices all fell off 

a cliff. Did the new speculators, including the massive passives, contribute to that 

price volatility-volatility that had farmers and ranchers, small and large agribusinesses and other businesses alike all paying higher prices than they should? 

Researchers at Oxford, MIT, Princeton and Rice all say speculative interests had 

an impact on prices. Some have said the speculators drove prices. In fairness, some 

on the other side of the issue say there was no impact whatsoever. My take is somewhere in the middle. Speculators didn’t drive prices, but they tagged along and 

helped to push them to levels, high and then low, that we would not have seen without them. 

Futures prices should, by and large, be based upon the fundamentals of supply 

and demand. We saw delinked commodity prices in 2008, and some of us are concerned that we see that taking place this year. 

Congress passed the Wall Street Reform and Consumer Protection Act in July. 

With more than 40 rules to be promulgated by our agency, Congress gave us expedited implementation dates for only nine regulations. For example, speculative position limits for energy and metals are to be implemented within 180 days and for 

the agricultural complex within 270 days. 

As someone who has been calling for these limits, and who appreciates the work 

of the Committee in this regard since 2008, the early implementation deadline is 

important. Large and small agribusinesses and other commercial businesses rely 

upon these markets to hedge their risks. They are having an increasingly difficult 

time doing so, in part I believe, because of large position concentrations of speculators. Don’t get me wrong, without speculators there isn’t a market. We need them. 

We want them. Too much concentration, however, can be problematic and has the 

possibility of contorting markets. 

Now today, we see even larger speculative positions than in 2008. In total, there 

is $149 billion in speculative money in these markets, representing an increase 

since June of 2008 of 47% in the energy complex, where we have seen a single trader with positions as high as 20%. In the metals markets, we’ve witnessed an increase in speculative contracts of 20% and one silver trader with roughly 40% of the 

market earlier this year. In the agricultural complex, speculative interests grew by 

18% since June of 2008. All of this makes the implementation of position limits as 

Congress mandated important. 

Some have suggested, however, that we not implement the limits on time because 

we don’t have all the swaps data we need. There is a point there. Congress didn’t 

require that we promulgate the swaps data rule until next July, so how do we come 

up with a reasonable limit, particularly an aggregate limit, without that data? 

While this is a worthy point, there are ways to address it. I’d be pleased to explain 

several options. 

17

Some, however, inside and outside the agency have suggested we simply find a 

way around the law’s implementation deadline. They suggest, for example, that we 

‘‘implement’’ the position limit rule, but not make it ‘‘effective’’ until sometime much 

later. First, we have no such legal authority to do so. Second, that is exactly the 

type of dancing on the head of a legal pin Washington-speak that folks in the country are all too tired of—and they should be. 

We shouldn’t be about getting around the law. We should be about working to do 

what we were instructed to do, to protect markets and help consumers. Congress 

passed the new law. We must implement it in a thoughtful manner. End of story 

in my book. 

Thank you for the opportunity to be with you. I’d be pleased to try to answer any 

questions.

The CHAIRMAN. Well thank you. 

I thank both of you. I think the main purpose of what we are 

doing here today is to get daylight on what the process is, how it 

is going, and for us to understand better as we talk to our constituents who are out there and trying to fulfill our obligation. 

A couple of questions and we will right go right down the line. 

But first, Mr. Peterson, do you have any questions? 

Mr. Lucas? 

Mr. Gensler, what impact, since we are talking what you just 

said, would a delay in the January energy and metals position limit 

rule have on the agricultural commodities rule expected in April? 

Mr. GENSLER. Mr. Chairman, I anticipate staff will make a recommendation tomorrow on all agricultural energy and metals position limits and anticipate that it would be both for the spot month, 

and for—if I can just call it the all-months-combined limits. And I 

am hopeful that we will have the support tomorrow to publish that 

rule, get comments, and then, consider those comments under the 

Administrative Procedures Act and put out a final rule as soon as 

we can sort through all these comments. 

I note we received 8,200 comments on the proposal for energy 

limits—reestablishing energy position limits in January of this 

year. We put that proposed rule out for a 90 day public comment 

period at that time. I think staff tomorrow will be recommending 

a 60 day public comment period. But with 8,000 comments that 

came in on that topic earlier, this is a very important topic and the 

public is going to weigh in. And we look forward to that. 

The CHAIRMAN. I understand. So are you saying that you kind 

of expect to be on schedule for the agricultural commodities in 

April? 

Mr. GENSLER. We are going to do everything we can. It is certainly our goal. But I am being open here about the arithmetic. I 

think that there are parts of this, the spot limit proposal, that we 

will be able to implement earlier, but on the ‘‘all-months-combined’’ 

limit proposal that there is a very real data issue with it. 

In January of this year, the proposal that we put out was a formula, and if we finalized, would have been applied to data in January 2011. And while we won’t be proposing exactly the same thing 

tomorrow, it was staff’s recommendation earlier this year, it will be 

staff’s recommendation tomorrow, that any formula ultimately be 

applied to the overall size of the market. This is an important component. And as I said earlier, we have just closed the comment period on a rule on collecting data. We look to move expeditiously to 

finalize that data collection rule, but data is an important component to this. 

18

The CHAIRMAN. Thank you. Commissioner Chilton do you have 

any comment? 

Mr. CHILTON. No. Other than the Chairman is right. If you do 

the math under sort of what the thinking is, I can’t talk about the 

specific proposals yet, but none of them allay my concern that we 

are going to do this, as instructed by Congress. It may be the best 

we can get a certain number of votes for the Commission. But 

again, Mr. Chairman, there are things we can do today like implement some things in January that won’t cause any consternation— 

that may not be, let’s say, the full Kahuna—that won’t have problems like Congressman Moran suggested. I think we should do 

that. 

I mean if Congress is concerned about excessive speculation, 

there are certainly ways that we could set a price point; that is, 

a level at which we have heightened regulatory oversight and do 

what we call a special call. Where we go out and ask for swaps 

data and then we see where the positions are netted. And if they 

are, if these traders are actually above the certain position point, 

and if they are, use all of our authorities, our emergency authorities, our trading authorities, and work with the exchanges, ICE, 

and CME to get them down. I am not saying necessarily get them 

off those exchanges; I am saying to get their net position down that 

may be in swaps, may be in options, may be in futures. 

I think there are things we can do and we can do them on time. 

It may not be as expansive as we would like, but I hope we move 

forward on that. 

The CHAIRMAN. Thank you very much. The chair recognizes Mr. 

Moran. 

Mr. MORAN. Mr. Chairman, thank you. 

Chairman Gensler, do you agree with Commissioner Chilton in 

regard to the lack of flexibility in these time constraints that he indicates are imposed by Congress? My understanding was that your 

General Counsel at a hearing, Commission hearing in October, indicated that you do have flexibility in regard to that 180 day limitation. 

Mr. GENSLER. I think that you observe correctly that I had asked 

the General Counsel, Dan Berkovitz, as to the phased implementation schedule in essence with regard to position limits. Subsequently, he told me that the Administrative Procedures Act and 

case law specifically allow an agency reasonable leeway. 

The Commodities Exchange Act clearly permits the Commission 

to adopt position limits in phases, such as proposing a formula 

now—and I note that is what we did this past January as well—

a formula now and impose the actual numerical limits once we 

have more data. This would be on the all-months-combined. What 

he was asked specifically, because I asked him the question, was 

could we do that? Could we propose a formula and finalize that formula but then have the formula apply to data as it comes in, 

maybe a number of months later? 

Mr. MORAN. A number of months later. Mr. Chairman, do you 

anticipate at what point in time you would have sufficient data to 

reach the conclusions that you are perhaps being asked to reach 

now? 

19

Mr. GENSLER. Well, it is also dependent upon the good work of 

the staff and this Commission, the CFTC, in finalizing a rule on 

data collection which, fortunately, we already have out there. I 

think if we finalize that rule and are able to collect data, it is somewhere in the time frame that Commissioner Chilton talked about. 

We don’t have any difference on that time frame. 

Mr. MORAN. Has there yet been a—one of the conversations we 

have had in this Committee for a long time is about the connection 

between excessive speculation and price fluctuations. Is there—

there is—make sure I understand this to be true—I’ll ask it this 

way: Has the CFTC or its staff completed a report that found excessive speculation caused an unwarranted or unreasonable price 

fluctuation in commodity markets? 

Mr. GENSLER. If I can broaden the question a little bit. 

Mr. MORAN. You may. I have broadened questions for number 

two and three as well. 

Mr. GENSLER. I am sure. I don’t think that the Commodity Exchange Act or Congress has said that the CFTC is an agency to 

regulate prices. What we have as our mission is to ensure fair and 

orderly markets, that the price discovery function is transparent, 

and that there is an integrity of the markets, and that the position 

limit regime that has been in place since the 1930s is to ensure 

that there is a diversity of points of view. It doesn’t limit hedgers, 

it limits the number of contracts a speculator can hold, and speculators and hedgers, importantly, must meet in a marketplace, but 

that there may be burdens that come from excessive speculation. 

I will use an extreme case: If somebody had half a market, for 

instance, and then they were to liquidate that position it would be 

a burden on the market. Maybe if it is only ten percent of the market, to liquidate that market, it would be a burden. So, over the 

decades what we did is we put in place limits in the agricultural 

markets. There were limits through the exchanges in the metals 

and energy markets in the 1980s and 1990s. In fact energy markets had limits all the way through the summer of 2001, for these 

all-months-combined. And it was to prevent, prospectively as much 

as anything, the burdens that may come from large positions and 

the concentration of those positions in a marketplace. 

Mr. MORAN. Let me broaden my question by asking a similar 

question but with a different conclusion. Has the CFTC or its staff 

completed a report that found excessive speculation positions in 

commodity futures markets were leading to market manipulation? 

Which I think is the direction you were telling me is more important; that you are there to regulate market manipulation. 

Mr. GENSLER. There are two components in the Act. There is manipulation, or if I can broaden that a little bit, corners and squeezes. But, Congress also said, not only in the 1930s but I think also 

in the Dodd-Frank Act, has reconfirmed that we shall set position 

limits to do something that is not just limited to protect against 

manipulation; it is also to diminish or prevent any burdens that 

may come from excessive speculation. 

So they are not identical. And any burdens that may come from 

excessive speculation may be actually far before somebody corners 

or squeezes or manipulates a market. Manipulation also includes 

20

intent. So I am just trying to highlight. And it is part of our challenge that they overlap, but they are somewhat distinct. 

Mr. MORAN. I have run out of time, but my question was: Have 

you found, has the CFTC or its staff found evidence of either of 

these things happening? 

Mr. GENSLER. There are certainly cases that we have brought on 

manipulation. We bring an active caseload of manipulation. So I 

could have answered your question yes, but I was trying to distinguish it because I was trying to be more fair to your question. 

Mr. MORAN. I appreciate your fairness. And Commissioner 

Chilton, I had questions for you. I have run out of time. I do appreciate the way you testify. I understand what you are telling me. 

And I am very grateful for the words that you use. Thank you. 

The CHAIRMAN. Thank you. Mr. Marshall. 

Mr. MARSHALL. Thank you, Mr. Chairman. 

I want to associate myself with the remarks of Mr. Moran to 

open the hearing. I found myself, largely, completely in agreement 

with him. And to me at least, the answer to the questions that Mr. 

Moran just posed, has staff concluded based upon what evidence 

staff has been able to gather that these, as Mr. Chilton refers to 

them, massive passives have skewed the market? I think the answer is no, staff has not done that. Certainly staff has not issued 

a report saying that massive passives have skewed the market. 

All of our efforts thus far, for years now, for 2 or 3 years now, 

have been focused on these massive passives, the influence of index 

funds, and whether or not these index funds are skewing prices too 

high. 

I think that from your testimony, Mr. Chairman, that it is quite 

clear the CFTC has gone the extra yard in so many different respects to try to comply with these deadlines. My conclusion is that 

the deadlines are simply too aggressive, that we simply weren’t 

reasonable in trying to pick these periods of time. You all don’t 

have daily reports of large traders in the swaps market. There is 

all kinds of information that you would like to have to further the 

analysis of the impact of the massive passives, since that seems to 

be a focus here on the market. Nobody wants to screw up these 

markets by prematurely taking positions or literally imposing position limits across the market and causing problems in any number 

of respects, diminishing liquidity, enhancing the problems, if there 

are such problems, caused by the massive passives, driving people 

overseas. I understand the Financial Services Authority hasn’t indicated at all it is going to move forward with position limits that 

mirror ours. There are just lots of different things. 

And I completely agree with Mr. Moran’s observation that the as 

appropriate qualification that we intentionally stuck in there gives 

you the discretion to go ahead and wait until it is appropriate. It 

seems to me you wait until you are convinced that there is a problem, and then you have come up with a solution to that particular 

problem that isn’t going to unnecessarily burden the rest of the 

market. 

Mr. Chilton, with regard to massive passives, Dodd-Frank, after 

we wrestled with this an awful lot, gave additional discretion to the 

Commission to distinguish among classes of traders in imposing poVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
21

sition limits, and also gave additional discretion to the Commission 

with regard to exemptions. 

I kind of understand that you all are thinking about we are going 

to distinguish bona fide hedgers and then call everybody else speculators. But within that everybody else class of speculators, there 

are the massive passives and then there are a bunch of other people. There are traditional large market traders that take both 

sides. There are market makers, folks like that. 

Have you given any thought, Mr. Chilton, to using your new authority to distinguish among classes of traders within that class of 

speculators to distinguish these different groups of traders and impose different position limits or exemptions from position limits on 

those different classes of traders? 

Mr. GENSLER. You raise a very good point. And Congress did give 

us authority to distinguish between non-bona fide hedgers. I think 

what staff will be recommending tomorrow is a more general approach that doesn’t point, necessarily, at distinguishing between 

bona fide hedgers. 

Mr. MORAN. Mr. Chairman, I apologize for interrupting. We have 

5 minutes here. Maybe there will be an extra round of questions. 

Again, if you all are going to start issuing additional proposals, 

one, I don’t think you ought to be attempting to stick by these 

timelines when you don’t have all the information you would like 

to have in order to give really, really good, narrowly focused solutions to or at least determine first whether there is a real problem 

here, and then the narrowly focused solution. I don’t see how you 

can just generalize this and lump everybody in——

Mr. GENSLER. I was just—I am agreeing with you on timelines. 

I think that what we are contemplating, what I believe staff will 

be recommending is some formula to apply to data, as has been 

earlier discussed. I took your question as to be whether we would 

be proposing a specific lower limit or something on one class of 

party. So, when I said ‘‘more general,’’ I meant there is not a lower 

limit on one group. 

Mr. MARSHALL. Have you given some consideration to that? 

Mr. GENSLER. I would say there has been a lot of discussion, and 

we look forward to public comment on whatever we put out, and 

also with regard to this question and other questions. I don’t know 

if, Commissioner Chilton, you want to——

Mr. CHILTON. There shouldn’t be any exemptions from commercial. People that have an underlying interest in the physical commodity, whether or not it is a Swift or Cargill or just a normal 

farmer or independent petroleum producer, they should have exemptions. Other than that, there shouldn’t be exemptions. Whether 

or not there should be different levels, you might be right, sir. It 

may be more appropriate to have a little more granular view of it, 

because—and we can address this if you look at what their net position is. It is one thing if people have a large position, but the 

added benefit of what we are going to be doing in the future is we 

are going to be looking at this swaps data to find out where they 

really are. 

So we can’t just base things on whether or not they have a percentage on ICE or a percentage on CME, you have to look at where 

22

they are net, and we will be able to do that with this new rule, I 

think. 

Mr. MARSHALL. I will wait until the second round to continue. 

The CHAIRMAN. Thank you. Mr. Johnson, please. You are on. 

Mr. JOHNSON. Back in the heartland, a lot of people believe, 

rightly or wrongly, that prices don’t always reflect supply and demand. I think you have expressed that too. 

I have a question and then kind of an unrelated comment. 

In your judgment, either witness’s judgment, do you think the 

level of prices that ag commodities are at today is a result of the 

supply and demand factors and/or speculation? And how would you 

allot each in terms of what impact you think those respective forces 

are having in our market prices? 

Mr. CHILTON. Congressman, by and large they are a factor of the 

fundamentals, but I couldn’t—and I am not an economist. Neil 

Cavuto tried to get me to say, well, how much is speculators and 

how much is price demand, and I wasn’t going there. I am not an 

economist and it would be irresponsible. 

But to go to this thing about we need to document, we need to 

do this before we impose. The purpose of the Commodity Exchange 

Act says that we are to prevent and deter fraud, abuse, and manipulation. So all of a sudden we have been given, for people who don’t 

want the regulation, this new hurdle to say, well, you have to prove 

beyond a shadow of a doubt that this equals that. These are very 

complicated markets, and it is not always easy to put things together like that. 

So to protect consumers, to ensure the folks in your districts are 

using these vehicles, like they want to, for adequate risk mitigation, that is why these limits are important to put in place thoughtfully. 

I get letters every day, Congressman. I have one right here from 

Dunkin’ Donuts we received last night. They are concerned about 

speculation. Swift says they are thinking about getting out of the 

market in part because of speculation. Delta Airlines wrote the 

other day. These are real concerns about people, the hedgers who 

are in these markets that are concerned they can’t use them. 

Look, nobody is talking about going crazy on this. We just want 

to—I just want to do what Congress intended and try to do it in 

a reasonable fashion; doesn’t make anything crazy, just do what we 

are told. 

Mr. JOHNSON. I guess my comment would be this. As we all 

know—and I’ll try to say that knowledge is power, terminology in 

some ways is power. And I would only surmise that certainly the 

average Member of Congress, and probably the average Member of 

this Committee—I can only speak for myself—has maybe a general 

understanding but only a general understanding about first, terminology; and second, the mechanism by which all this works. 

I think your being here today, Chairman, calling this hearing is 

important. But I also think it is important to have a mechanism, 

have a mechanism by which the public and the Members of Congress frankly can understand very, very complex and very difficult 

concepts. I don’t have the answer. But, it is a legitimate question, 

and it is something that I think is real important. 

23

I deal with constituents back home, and I am probably speaking 

for everybody in this room, we have constituents who come to us 

every day; almost all of us represent rural areas. ‘‘Speculators are 

doing this, and the Commission is inadequate,’’ if they even know 

the Commission exists, and I think having an ability for those people to understand, the public to understand and us to understand 

is really important. 

The CHAIRMAN. Thank you very much. Mr. Schrader. 

Mr. SCHRADER. Thank you Mr. Chairman. Following up on the 

line of questions so far, it seems like we are getting hung up on 

terminology, terminology that has a pejorative context to it like 

speculation. I would assume that in the 20th century the Commission’s primary rule is to root out actual fraud, fraudulent actors 

that were doing things on purpose. 

I guess I have to ask the question given the 21st century where 

you have these hyper-computer trades and massive investments 

and things flowing unbeknownst, with no mal-intention necessarily 

intended but mal—bad results coming out of it. I think no one 

could, while we may disagree about whether or not they are actually speculators causing this problem in 2008, everybody agrees 

there was a huge distortion in the market. I guess the question for 

both of you from me would be: Is it the CFTC’s responsibility to 

protect American consumers, American farmers, American industries, by dealing with any distortion of the market, regardless of 

whether it was intentional or not? 

Mr. GENSLER. I think the answer is yes. Speculators and hedgers 

meet in the marketplace, and farmers and ranchers and producers 

need those speculators in the marketplace so that you can have an 

assured price at the end of the harvest, for instance. But at the 

same time, this Commission was set up and its predecessors were 

set up to make sure that everybody can see the market, that is 

what is called transparency, and that it is free of fraud and abuses. 

The Commission has to ensure that the market is orderly and everybody has equal access, for instance, in a place that everybody 

can see it, everybody can access it, and it is free of manipulation 

and these other things. 

Mr. SCHRADER. Mr. Chilton. 

Mr. CHILTON. Thanks Congressman. That is a great question. It 

is insightful. 

First of all, I want to say what I said in my testimony. Speculators aren’t bad. You need them. You don’t have markets without 

them. The concern that some of us had is just the concentration of 

them, so much that they can influence prices one way or the other, 

and you don’t get to what Mr. Johnson talked about: adequate price 

discovery. But on these fast trading—they call them high frequency 

traders—they played a role in the flash crash. They didn’t instigate 

it, but they played a role because they were arbitraging between 

the futures market and the securities markets for a while. 

These trades are—talk about being complicated, Congressman, 

these trades go on, they trade thousands of contracts in a nanosecond. And their whole idea, different from how these markets 

have been set up sort of when they were in the open pits, they are 

trying to scoop up market dollars, these little pennies, in nanoseconds. They are trying to skim off the top. 

24

Now, they do provide some liquidity to the markets, but that liquidity may be liquidity with other traders. And I am just concerned that we don’t want this to become a gambling venue. You 

want it for the original purpose of the markets, for these commercial ags and other businesses to be able to hedge their risks. 

So I am very concerned about it, these high-frequency traders, 

Congressman. I think we should be doing some sort of due diligence, maybe putting their programs, their algorithmic programs, 

into one of the exchange’s testing environments, make sure they 

are not going to go haywire. 

I think we should also as part of disruptive trading practice authority, the Chairman and I worked on a lot, have some responsibility. If they help to cause another flash crash, they should be held 

accountable. 

If you look at the law right now, we don’t have enough teeth in 

it. We are doing that as a result of the Dodd-Frank law, and we 

are going to put some more meat on the bones, and that is one area 

that I think we need to do. 

Mr. SCHRADER. Thank you. I guess last is just a request. I would 

appreciate information, for me and maybe the Committee, regarding areas in the swap arena that you do feel you have adequate 

data for and rulemaking timelines as well as the timeline for rulemaking with—that you may want to phase in, given the lack of 

data that you have referred to, in some of the other areas. 

Mr. CHILTON. The Chairman probably wants to comment further, 

and I know you only have a little bit of time. While everybody says 

we to need to get all this data that Mr. Marshall and people talked 

about, ‘‘Let’s get it all, let’s not make a haphazard decision,’’ I 

agree. The spot month we could do right now even in the swaps 

area. This is the currently unregulated area. This is the one that 

you have given us the authority to look at. 

And the reason we can set that limit now is because you base 

the limit on the deliverable supply of whatever the commodity is. 

So you don’t need to see all-months. You don’t need to see the aggregate. We could do the spot month right now, which would in 

part get us to where Congress instructed us to go. The Chairman 

wanted to add? 

Mr. GENSLER. I concur. I think we have more flexibility. We have 

asked staff to make a recommendation where we could phase in 

and do something in what is called the spot month. Again, we have 

these limits—this is just when somebody is about to deliver the 

corn or wheat or oil into a contract. We have these limits in energy, 

metals and agriculture. I shouldn’t say we. The exchanges and we 

have them. I think those could be phased in sooner than the allmonths limit. 

The CHAIRMAN. Thank you. Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. Gentlemen, thanks for 

being here. 

Not beating the lack of data dead horse to even further pulverize 

it, but if you go ahead and move forward without the data, as may 

be the indication that is here, how quickly will you know you have 

gotten it wrong? Are there things that you will watch for to say 

that we have driven speculators off that side of the deal and that 

burdens on hedgers have increased? 

25

I am assuming by burdens, Mr. Gensler, that you mean increased costs of transactions and other things, that you might expound on a burden a little bit. But how quickly will you know that 

you have done some harm, rather than just trying to ease into this 

thing without disrupting it and creating—going crazy, as Mr. 

Chilton said? What are your matrix or your benchmarks to say this 

one was too far? 

Mr. GENSLER. Well, it is my hope and, again, we haven’t had the 

Commission meeting that we will have tomorrow yet, but it is my 

hope that we will propose something and hear from the public that 

would allow us some time to get the data on these all-months-combined. So I may be disclosing my bias here, but it is a challenge. 

There is a 180 day and 270 day statutory date. Commissioner 

Chilton and I read that the same way. 

Mr. CONAWAY. Excuse me. With respect to that, do you feel you 

have any responsibility, due to your fiduciary job, to tell Congress 

that those dates aren’t good, that those were set arbitrarily and capriciously by Congress, and that once we looked at the level of 

work and the number of lawyers and the level of commitment, that 

the five of you have actually to read it and go through it and understand what you are doing to the markets? Do you have any kind 

of responsibility to say those dates aren’t good? 

Mr. GENSLER. Well, I think I am saying here today—and I thank 

the Chairman for having this oversight hearing—is that we are 

going to take up a rule tomorrow. It is a staff recommendation. We 

will see where my fellow Commissioners are. I don’t want to prejudge that. 

But if we were to propose something tomorrow, it would have a 

healthy comment period from the public and that will, by its very 

nature, pass the January date. So I am telling Congress that, no, 

we will not finalize this by that statutory date. 

Mr. CONAWAY. This may be a broader body of work. You have the 

full Dodd-Frank piece of legislation, not just these limits and what 

we were talking about this morning, but you have a broader body 

of work. Have you looked at that and laid out the timelines and 

just say, yes, we can get all this done responsibly in that time 

frame? 

Mr. GENSLER. I think we have the goal to get it done and we can 

get it done. And I will say, I think that Congress laid out the 360 

days. So by completing our work by July 15 of next year it will help 

lower regulatory uncertainty, and that is a very important thing. 

And, of course, we also had a crisis in 2008. And that was a very 

real crisis. 

Mr. CONAWAY. Speaking of the crisis, I have a short amount of 

time. I take that that you are fine with these dates. Mr. Chilton, 

you mentioned that some time frame in the run-up to the bubble 

in 2008 that there was $200 billion in new money in the system. 

How much of that money has fled the system? What are the levels 

today versus then? 

Mr. CHILTON. I can’t give you that, sir. 

Mr. CONAWAY. My question, I guess the idea would be that if 

that money stayed in the market, as I suspect it did, and prices 

have fluctuated, we are way off the $147 on oil, as an example. And 

so I guess I am hard-pressed to see that that was—that money did 

26

have somebody on other side, and if there wasn’t anybody on the 

other side, it raised the price to get somebody else in on the other 

side. I get that. But I want to make sure that we are not fighting 

the last war, and that is necessary because there are other comments that you have not—staff has not documented where all these 

bad things have happened, except on some isolated instances. But 

if you could get that number to us at some point in time. 

Mr. CHILTON. It is actually—we know that a lot of money went 

out. And it went—I mean, look, as the Chairman said, we are not 

price setters. We are supposed to be commodity blind, although I 

have a little bit of penchant for the ags, and price neutral. We are 

not price setters. And I also get concerned when oil is $150 but——

Mr. CONAWAY. It hadn’t been $150 except for about an hour and 

a half. 

Mr. CHILTON. About 1.727 days, but it stayed high for a lot of 

people, Congressman, in the countryside, a lot of businesses went 

out. So we lost a lot of that speculative money, though. You are absolutely correct. Some it left the market and prices went all the 

way down, I believe in December, to like $35 a barrel. So this can 

go up, up, and down. 

To answer, by the way, one of your earlier questions, I continue 

to say we need to err on the high side at first so that we don’t do 

any damage. Because I agree with you; we don’t want to make any 

issues here that contort markets or do something bad. Some things 

are working well. 

Mr. CONAWAY. Do you have triggers or matrixes that you will 

watch. 

Mr. CHILTON. We are very good at watching these markets, at 

watching liquidity. We don’t want to drive speculation away. We 

don’t want to drive it until we get to regulate the OTC market. We 

don’t went to send it there. We don’t want to send it overseas. So 

we have to do this in a responsible fashion, and we can do it, sir. 

Mr. CONAWAY. I yield back. 

The CHAIRMAN. Thank you. 

Mr. Kissell. 

Mr. KISSELL. Thank you, Mr. Chairman, and I welcome our witnesses today. 

If you would allow me a moment of reflection here, this is—I am 

finishing up my first term in Congress, and the first hearing that 

I came to in Agriculture was about derivatives and speculation, 

and the witnesses we had that day were split. Some of them pretty 

much making the case that nothing went wrong, that the market 

worked because investors didn’t lose any money and there was no, 

figuratively, train wreck at the end of the process like we saw with 

the banking system, financial system there. 

And when I finally got a chance to ask the question—it was more 

of a statement than a question. And I pointed out to them that 

while investors may have not lost money per se, that the effects 

upon the American public were quite substantive in terms of how 

we had to deal with individuals and businesses and farmers, ranchers, everybody, how we had to deal with to whatever degree speculation caused these increases in prices. 

So I don’t so much today have a question as I just want to remind the witnesses and appreciate their responsibility here of the 

27

very intricate task of trying to make sure this process which is so 

important moves forward, but also a reminder that, as Mr. 

Schrader said, that the American public in general so largely depends upon this process working without creating the speculation 

and artificial price increases, so forth and so on. 

With that said, I am going to yield my time, Mr. Chairman, to 

Mr. Marshall. 

Mr. MARSHALL. Thank you, Mr. Kissell. 

Just sort of following up where I was when I stopped, you clearly 

have the statutory authority not to move forward unless it is appropriate to do so. That is why that language was stuck in there. 

And that if you move forward without understanding precisely 

what the problem is, then it seems to me that you are not moving 

forward appropriately. And if your staff hasn’t identified what the 

problem is, then how do you actually come up with a regulation to 

solve that problem. You don’t even know what it is. It is sort of too 

broad a brush. 

But back to this classes of traders. We intentionally stuck that 

language in there to give you the discretion to distinguish among 

the speculators and, if you chose to do so, I don’t know whether 

there is a massive passive problem here. I just don’t have the expertise. And there are, as Mr. Kissell points out, people on both 

sides of that. 

So I leave it to you and your staff and your economists and whatnot to figure it out. But if it is massive passive that is the problem, 

then the solution should focus specifically on that, and one-size-fitsall position limits don’t do that. And you just use ratios. 

Assume you have 20 traders in the market, five of them are passive. You put a position limit in that is designed to maintain their 

percentage at no more than 25 percent. And then let us say a 

whole bunch of additional passives show up. Let us say 20 additional passives show up. Now I have 40 traders in the market and 

60 percent of it is passive money. 

So you really do need to at least consider distinguishing among 

the classes of traders if you conclude that that is a problem. 

I associate myself with the questioning of Mr. Conaway in many 

different respects, and he has observed there is a fiduciary duty 

here. 

And I guess a final question. Let us assume that you impose position limits and that there is a large market demand out there 

that is now sort of stymied. It doesn’t have an opportunity to just 

come into these markets because you are aggregate. You are across 

all of the markets. Where does that money go? How do people who 

want to take a position in commodities to do whatever, hedge or 

because they want that in their portfolio or whatnot and they can’t 

do it in these vehicles, where do they go? Do they go to Europe? 

Do they start hoarding commodities? I mean, what do they do? 

Mr. GENSLER. If I can address the last point, because this has 

been raised with us. 

If somebody wants to come into the market and hedge, if they 

are a bona fide hedger these limits won’t affect them. If they are 

coming into the market, they are not a hedger, and they are of normal size in these markets, these numbers won’t affect them either. 

The numbers that we currently have in the markets or even that 

28

we proposed in January, would have only touched a handful of 

traders in the energy markets, the largest speculators. 

So it is truly just a very small group of people who are very large 

in the marketplace. 

To answer your question, traditionally, they went to the over-thecounter market, but Congress has said bring that in. But potentially that could move on to contracts that were similar but not 

identical, or they would possibly move overseas. And we are very 

conscious of that, and we are looking at that. 

Mr. MARSHALL. If they go elsewhere using those two devices—

they go overseas or they go into contracts that are similar but not 

identical—doesn’t both of those things have the same effect on the 

market as far as pricing is concerned? 

Mr. GENSLER. It may. It may. 

So that is part of why this, whatever we put out, is going to be 

a proposal. We really want the public comment to weigh in. I think 

that is a good process and a constructive process. Congress has directed us certainly to look at this and expand what we currently 

have in agriculture products to the over-the-counter markets, and 

we are contemplating to also do it in the energy and metals. 

Mr. MARSHALL. Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

It was interesting, Mr. Chilton. I appreciated your remarks. You 

said that MIT and Princeton and even Lincoln University of Missouri were involved in discussing some of the pros and cons of this. 

And I happen to be an alumnus of Lincoln University. So it is nice 

to see my little alma mater in the same stature as MIT and Princeton and those guys. So I appreciate your comment. 

I noticed yesterday in The Wall Street Journal an article with regards to our discussion this morning with regards to how we are 

proceeding and the speed we need to be proceeding at with regards 

to coming up with rules, and I think that is basically what this 

hearing is about today. 

And one of the comments that was made in there is that there 

is enough data already accumulated, that you can go ahead and 

make some of these rulings and not have to continue to research 

or come up with more data or more surveying. And this morning 

it seems like the comments have been coming from both of you gentlemen with regards to we need more data, we need more time. 

Can you allay that concern of this article here? Are they out in left 

field? Or where are we at in this? 

Mr. GENSLER. I think there are many roles that Congress has 

asked us to do, but position limits is a particular challenge because 

it really is related to the size of the market. If you are going to 

limit something, if Congress is saying to limit something, you can 

pick whatever the percent is, it relates to the size of the market. 

Most of the other rules are about reporting, about how a trading 

facility will work, how transparency works. I think that we have 

enough knowledge to go forward to lower the risk of clearinghouses. 

Many of the rules don’t have this same challenge. I think the position limit rule, to be quite direct with you, has a unique set of 

29

challenges because it is about the size of the market, the size of 

the crowd, and the interaction between hedgers and speculators. 

Mr. LUETKEMEYER. So what you are saying is you have a lot of 

data on most of the things you need to be working on, but some 

of the issues, especially with regards to position limits, you need 

some more results yet to be able to come up with anything. 

Mr. GENSLER. I think that is true to part of the position limits. 

I agree with Commissioner Chilton. I think on the spot month limits related to deliverable supply and how we have traditionally 

done that and the exchanges have, we could possibly move in a 

more timely way. 

Mr. LUETKEMEYER. What is the impact with the lack of a rule? 

If we keep putting this off or we delay, what is the impact on the 

markets? What is the impact that we can expect for our farmers 

and our commodity folks? 

Mr. CHILTON. Even those who say that speculators aren’t having 

an impact would like to have the rule in place to some extent because then it would take the argument away that they are having 

an impact, if you get me. 

Mr. LUETKEMEYER. Certainty is always nice, and that is the key 

to any kind of market. In today’s world, they are debating the extension of tax law right now, and a certain uncertainty is a big part 

of that rule. 

I’m sorry. Go ahead. 

Mr. CHILTON. Congressman, we have seen in the crude market 

and the natural gas marketplace 20 percent. We have seen concentration by one trader. We have seen what I consider excessive 

speculation. This would be on the short side in the silver market. 

There are issues that I think, as the Chairman said, are the largest 

of the large that we need to be concerned about. We can do that 

right now through this thing that I talked about earlier looking at 

a certain level which we say that deserves escalated scrutiny that 

we can do this thing called a special call. 

That is, we say, Chairman Boswell, you are over, say, ten percent 

of ICE or NYMEX. And then I say I want to know your other positions. You provide them to me, your swaps positions that we don’t 

have the aggregate data on yet. Once we get that information, I see 

if you are above that level still. Because even though you might be 

above this position point, your swaps may show that you are below. 

But you also could say your swaps say you are way high. And then 

we would use our authority, work with the exchange, ICE, or CME 

to get down to an appropriate level. 

That would deal with the largest of the large traders, the folks 

that people, your constituents, write you about and the folks that 

we look at every week in our surveillance meetings and say these 

are a concern for us. We can do that today. We don’t need additional data. It wouldn’t be hasty. And, as the Chairman and I 

agree, we could do the spot month right now. 

Mr. LUETKEMEYER. I see as my time runs out here I just want 

to make one comment. And, Mr. Chilton, you made this earlier, 

that the intent is to protect the markets for their original purpose. 

And I sincerely hope that you continue to use that as your guiding 

thought in all of your deliberations. Because, to me, that is why we 

are here today, is to protect these markets for the original intent 

30

of the farmers and original commodity folks to be able to use these 

things, to use them to enhance their businesses and their ability 

to do business. It is not a speculative forum that we are worried 

about here. It is the original folks who use these things to manage 

their businesses. 

So that would be my only comment and my only concern and my 

wish to you. 

Thank you. And, Mr. Chairman, I yield back. 

Mr. GENSLER. If I might say, that does guide us. I really do think 

that does guide us. 

The CHAIRMAN. Mr. Murphy has joined us. He is not a Member 

of the Subcommittee but, by unanimous consent, we will recognize 

him at this time. 

Mr. MURPHY. No questions. 

The CHAIRMAN. Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. Thank you for 

holding this hearing. 

I think that the part of the Dodd-Frank that called for a finding—the question is the Exchange really—you all really haven’t 

done anything in the sense of coming up with a specific finding. 

And so when you send the rule out, you are going to send a rule 

out that says we just think there needs to be limits out there. We 

don’t have any finding that those limits are needed. 

Am I understanding that correctly? 

Mr. CHILTON. Certainly Congress told us to put the limits in. We 

had the authority actually before this, but we didn’t have support 

to do this. So we were instructed in the Dodd-Frank bill to put limits in. 

And the original purpose in the Commodity Exchange Act doesn’t 

say that you have to jump some hurdle that proves beyond a shadow of a doubt in a court of law that speculators moved gas prices 

ten percent. The law says that we are to prevent and deter fraud, 

abuse, and manipulation; and so that is sort of the guiding onus 

that I look at, sir. 

Mr. NEUGEBAUER. That is one of the things that we may have 

a disagreement on. I don’t necessarily know whether Congress told 

you to impose limits. 

Mr. CHILTON. Section 737. 

Mr. NEUGEBAUER. If you look at it, it says, as the Commission 

finds as necessary to diminish, eliminate, or prevent such burden. 

In other words, in what you have told this Committee today you 

don’t have data that says that there are abuses or excessive speculation going on. I think the intent of Dodd-Frank was, if you find 

it, address it certainly. I agree with the gentleman from Missouri. 

The job for government is transparency and integrity. 

But what we haven’t heard today—and several of the people on 

the panel have asked this question. We haven’t heard you say we 

have identified where there is excessive speculation going on that 

could manipulate the pricing in the marketplace. 

Mr. CHILTON. Congressman, perhaps Congress should have put 

a finding in before we did it, but they didn’t. 

Mr. NEUGEBAUER. I know the story, and I agree with that. But 

since we didn’t, we kicked the ball to you and we said you should 

go out and address that issue and conduct an economic analysis 

31

and to look at that and make sure. And if you find that, then you 

should take action. And we would want you to take action. 

I think what you hear today is everybody agrees that we want 

integrity and transparency in the marketplace. What we also don’t 

want is you all setting prices. I have heard you say, Mr. Chilton, 

it wasn’t your job to set prices, but I will tell you by manipulating 

or by changing some of these limits, you could be in fact affecting 

prices. You may have the undesired result. 

The question is, what is oil worth? I don’t know. It may be worth 

$300 a barrel. It may be worth $50 a barrel. But we need to let 

the markets decide that. 

I want to go back to the spot month, because there is so much 

to cover here. Since price discovery, most people would agree, happens either in the cash months or the spot month, then what would 

be the need, then, for having position limits in the outer months. 

Mr. CHILTON. Well, in the spot month, there already are position 

limits. But the outer months, it was the question that Mr. Marshall 

actually alluded to when he talked about the massive passives. 

They have a different trading strategy, Congressman, these massive passives. And what they do is they are not—they don’t really 

care what the price of oil or wheat is in the next day or so—I mean, 

they care, but they are not in it for a day or week. They are in it 

for the long term. They are saying, for example, crude oil is going 

to be worth more in 2 years. 

What happens when you get these large massive passives who 

have a trading strategy, it is markedly different than what they 

have been in these markets traditionally. They are fairly price insensitive because they’ve got a long view of it. So they just roll 

their positions when the contract expiration comes up, and every 

other trader knows they are going to do it. And these massive 

passives can have 30, 40, 50 percent of the market. I think Congressman Marshall’s question about whether or not you should 

have a limit there is a great question. I haven’t figured out how 

you do it, quite frankly, sir, but it is an important area to look at. 

Mr. NEUGEBAUER. Last question here. So—Mr. Gensler, so if—

one of the things in the bill it says that you can do as appropriate. 

I think that was, again, Congress trying to make sure that we 

weren’t being too prescriptive. 

So in many positions—I mean, could the finding—if we finally 

went out there and looked into and analyzed what was going on, 

could one of the findings be that or the appropriate limit is zero 

or unlimited? What is appropriate? 

Mr. GENSLER. I supported proposing position limits in January of 

this year, and I will be supporting what I believe staff will be recommending tomorrow. I still have to see it. It is changing a little 

this afternoon. 

Because I do think in all-months-combined, as we have done in 

the agricultural markets for decades, as we did with the exchanges 

in the energy and metal markets in the 1980s and 1990s, that it 

ensures that there is a diversity of speculators in the market. One 

can debate how many, and I think that is a very important debate. 

But, I think that the integrity of the market and the price, how 

people come together, you need to have a diversity of points of view 

32

in the marketplace, not one or two or three large traders on the 

speculators’ side dominating the marketplace. 

I wanted to try to answer both of your questions together. 

The CHAIRMAN. Thank you. 

Mr. Peterson. 

Mr. PETERSON. Thank you, Mr. Chairman. I waited until the end 

here because I want to head in a little bit different direction and 

ask you a couple of questions you may not want to answer. 

This story that was in the New York Times on Sunday, I assume 

you have read that? 

Mr. GENSLER. Yes. 

Mr. PETERSON. And this has been brought up to me by a number 

of Members. That has created a fair amount of interest on the Hill 

here. So I want to know what your view is on a couple of things. 

This issue of the—trying to put these on the electronic market 

and thereby reducing the spreads. I think that is some of what you 

are trying to do through this whole process, that the more we can 

get this information out, the better the market will work and the 

end-users will have a more fair place in the marketplace. I think 

that is kind of where you are at. 

Mr. GENSLER. I think it is where Congress was. I think transparency helps tens of thousands of end-users. Some of it is through 

real-time reporting after the transaction, but some of it also comes 

on the smaller trades, not the big blocks, even before the transactions. 

Mr. PETERSON. So this issue about the Citadel that is trying to 

set up this electronic trading that would give you real time or before the transaction reporting, if that was implemented, would reduce the spreads. 

Mr. GENSLER. I think it brings greater competition, and the 

American system works best when there is more competition. 

Mr. PETERSON. So that gets to the issue of what actually went 

on here. Apparently getting to the governance of these clearinghouses, which became an issue somewhat in the conference committee and with the Lynch amendment and so forth. 

So it appears to me that these big guys are trying to keep this 

very profitable part of their business to themselves. Am I wrong 

about that? 

Mr. GENSLER. I think it is also part of the American way to try 

to maximize profits. And they have shareholders, and so, I respect 

that. 

Mr. PETERSON. And so you don’t disagree with some of the characterizations in this article—that night we made the deal the last 

night on the derivatives, that set off a flurry of lobbying that went 

on from like midnight to 5 o’clock in the morning trying to undo 

what we had done. So I mean, generally, you can figure out what 

is going on by following the money. Obviously, we hit a nerve because we created—there must have been 250 bank lobbyists running around there trying to undo things. 

Mr. GENSLER. They are still visiting us. 

Mr. PETERSON. So this is something you are looking into, I assume, in the process of this whole implementation of the DoddFrank Act? 

33

Mr. GENSLER. We anticipate tomorrow taking up four proposed 

rules including this position limit rule. But there are two others 

that are very important. 

With regard to clearing—again, these are proposals. But with regard to clearing, it will be our last set and that will include something called participant eligibility and ensuring that futures commission merchants could get in. That New York Times article highlighted that, currently, the clearinghouses are closed clubs. They 

are very exclusive, not inclusive. And they say it is because it is 

risk management. 

We are also taking up these electronic facilities or, technically, 

they are called swap execution facilities. 

Mr. PETERSON. Is there a significant difference between making 

this available in real time or right before the trade as opposed to 

making it available 30 seconds after the trade? 

Mr. GENSLER. Here is what is so important. If a party wants to 

make a bid or an offer—this is absolutely bipartisan—if somebody 

wants to make a bid or an offer, they should be allowed to do it. 

And, right now, that is very difficult in this marketplace. You have 

to be invited in, basically. 

I think what Congress said was swap execution facilities. The 

words you used was ‘‘multiple participants have to have the ability 

to execute or trade with multiple participants.’’ And to do that then 

somebody should have the ability to make a bid and broadcast it. 

And that is a very important part of being a swap execution facility. That anybody who wants to make a bid on the market can 

make a make a bid on the market. Obviously, they have to have 

the resources to stand behind their trades. 

Mr. PETERSON. So where is that in the—when will the final decision be made on that? Do you know? When will you actually get 

that finalized? 

Mr. GENSLER. We are taking up that proposal tomorrow. 

I think what Congress did was historic. It is very important. It 

will bring transparency and competition to the market so that endusers will benefit. I think it will narrow spreads over time. And 

then we will put that proposal out, if the Commission supports it 

tomorrow, usually, for 60 day comment. 

Mr. PETERSON. And then it will go to final rule? 

Mr. GENSLER. Based upon public comment, by next July and 

have certain implementation dates as well. Give us some time for 

implementation. 

Mr. PETERSON. So it should happen this year sometime yet? 

Mr. GENSLER. You are referring to the year just about to begin? 

Mr. PETERSON. I mean next year. 

Mr. GENSLER. Yes. 

Mr. PETERSON. And that will get at some of the criticisms that 

were in this article if we get this done. 

Mr. GENSLER. I think there were three main criticisms in that 

article, all interlaced: Governance. We have published the governance rule on October 1. It was put out for public comment. We received 150 good, solid comments. We are trying to finalize that 

early next year. It goes to clearinghouses and the eligibility for all 

valid futures commission merchants to be part of those clearinghouses. We are going to try to propose something on that tomorVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
34

row. And, I think, the article went to the openness and competition 

in trading venues; and we are going to try to do that proposal tomorrow. 

I think that end-users and agricultural interests and energy interests will benefit greatly if more competition and more transparency are brought onto these markets. And I believe that markets work best when you have competition and transparency, and 

I think that is what Congress told us to do. 

Mr. PETERSON. There is no question that is what most of us 

wanted. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

That completes our first round. I know that Mr. Marshall has another question. Anybody else have further questions? 

Mr. Marshall. 

Mr. MARSHALL. Mr. Chilton, you mentioned that one reason to go 

ahead and impose position limits now is that it would remove pressure, the silver lining in this cloud that is hanging over the industry. It is hard for me to believe that it relieves pressure if you impose position limits that just don’t do anything, or do too much, 

and somehow screw the markets up. So, the pressure remains, particularly if all of this phenomena is being driven by underlying 

market forces. 

Congress for a reason did not make findings that there must be 

position limits in all of these different contracts. It is because we 

intentionally wanted the CFTC to have the discretion to make that 

decision. It seems to me you all have not made that decision except 

in sort of a broad sense, and to suggest that you need to move forward and actually impose position limits because Congress has 

mandated that ignores the as appropriate language, the as necessary language and ignores what we actually intended. 

We didn’t know what to do. We don’t have the expertise. We deferred to you to make the decision ultimately what sort of position 

limits should be imposed. 

And a final thing just to clarify what I said about ratios. When 

I gave those numbers earlier I was talking about assuming that all 

of the bona fide hedgers as now defined are in there and in the 

market. If you just look at the balance of the speculators, the ratio 

between the speculators winds up being fairly critical if you have 

concluded that massive passive money is a problem. I don’t know 

whether it is. It may be good, for all I know. 

But if you conclude that, you are going to have to set different 

position limits; and that is why we stuck that language in the statute, to give you the discretion to do that within that class of speculators. 

Thank you, Mr. Chairman, for your indulgence. 

The CHAIRMAN. Anybody else have any further questions? 

Seeing none, thank you very much for your time and sharing 

with us and put a little daylight on the process. We appreciate it. 

Mr. GENSLER. Thank you. And happy holidays if I don’t see you 

until after the first of the year. 

The CHAIRMAN. Thank you and the same to you. 

The first panel will be excused, and we will call the second panel 

to the table as soon as possible. 

35

We would like to welcome our second panel to the table. Thank 

you for your patience for waiting, and we are happy to have you 

here. 

We have with us today Mr. Jim Collura, Vice President for Government Affairs of the New England Fuel Institute; Mr. Terrence 

Duffy, Executive Chairman of the CME Group of Chicago; Mr. Joel 

Newman, President and Chief Executive Officer, American Feed Industry Association; Mr. Jeffrey Sprecher, Chairman and Chief Executive Officer of IntercontinentalExchange out of Atlanta; and Mr. 

Robert Jones, Senior Vice President, ANB AMRO Clearing Chicago 

LLC, on behalf of the National Grain and Feed Association. 

Mr. Collura, please begin when you are ready. 

STATEMENT OF JAMES M. COLLURA, VICE PRESIDENT FOR 

GOVERNMENT AFFAIRS, NEW ENGLAND FUEL INSTITUTE; 

FOUNDING MEMBER AND SPOKESMAN, COMMODITY

MARKETS OVERSIGHT COALITION, WASHINGTON, D.C. 

Mr. COLLURA. Chairman Boswell, Ranking Member Moran, and 

Members of the Committee, thank you for the opportunity to testify 

on the importance of speculative limits for commodity dependent 

businesses and consumers. 

I currently serve as the Vice President of the New England Fuel 

Institute, which represents more than 1,200 mostly small, family 

owned and operated home heating companies. 

In 2007, in response to what was perceived as unpredictable and 

volatile commodities futures markets, and out of concern over possible excessive speculation in these markets, we partnered with the 

Petroleum Marketers Association of America and other business 

and consumer groups to form the Commodity Markets Oversight 

Coalition, or CMOC. I am delivering testimony today on behalf of 

this coalition, and I have submitted a list of supporting groups for 

the record. 

CMOC is comprised of an array of commodity dependent bushiness and industries, as well as faith-based organizations and 

groups representing average American consumers. We favor policies that promote stability and confidence in the commodity markets and that preserve the interests of bona fide hedgers and consumers. Our coalition endorsed title VII of the Dodd-Frank Act, 

which includes the most substantial reforms of the derivative markets in more than a decade. 

Members of this Committee, under the leadership of Chairmen 

Peterson and Boswell, and Ranking Members Lucas and Moran are 

to be commended for their years of hard work that resulted in the 

passage and enactment of this monumental piece of legislation. 

The Dodd-Frank Act includes various regulatory initiatives necessary for market transparency and to prevent fraud and manipulation and excessive speculation, including a requirement the 

CFTC establish speculative position limits for regulated and currently unregulated markets. The law requires that the CFTC establish position limits for energy commodities by January 17, 2011. 

However, we are disappointed that the Commission has recently 

come under pressure to delay the imposition of these limits by the 

deadline as required by law. Our coalition opposes any such delay. 

36

Some argue that the CFTC has not had enough time to thoroughly vet and consider the potential effects of such limits. However, the Committee should note that the Dodd-Frank Act does not 

provide the CFTC with the authority to establish limits. It actually 

expands existing authority. 

The Commodity Exchange Act of 1936 requires the CFTC to set 

position limits in order to prevent a single market participant from 

controlling price movements. The law sought to prevent undue burdens on interstate commerce resulting from excessive speculation 

and, as a consequence, cause sudden or unreasonable price fluctuations or unwarranted changes in the prices of commodities. 

However, the U.S. exchanges have abandoned hard energy speculation limits in favor of softer accountability limits. Under the leadership of Chairman Gensler, the CFTC in 2009 acknowledged that 

accountability limits were insufficient to prevent traders from taking controlling positions. Many traders were violating them with 

little or no action by the exchange. 

The CFTC held a round of hearings in the summer of 2009 and 

introduced a proposal in January. In the 4 months between January and April of 2010, the CFTC received well over 8,000 comments 

on the proposed rule, the vast majority urging strong and meaningful limits in speculation. During that time, some argued against 

the CFTC’s proposed action out of fear that it would drive market 

activity from regulated exchanges under so-called dark markets; 

those that reported little or no data or were subject to little or no 

oversight. The CFTC should not act, they argued, until it was 

granted authority over the OTC and foreign markets and could implement limits across the board. 

The CFTC under the Dodd-Frank Act enjoys this authority. Once 

fully implemented, the Act will bring dark OTC markets to light 

by requiring exchange trading or clearing. It requires that foreign 

boards of trade that seek U.S. access first prove that they are subject to comparable oversight and regulation, including the imposition of position limits. 

In addition, many overseas regulators are drawing up their own 

plans to impose speculation limits. If the CFTC were to delay implementation of these limits here in the United States, the impetus 

for regulatory reform in other jurisdictions overseas could be jeopardized. 

The CFTC must act. Excessive speculation is real and it hurts. 

When prices surge to unjustifiable levels, consumers are left with 

higher food, gasoline, and home heating costs. Vital U.S. businesses, including manufacturers, airlines, truckers, and other 

transporters are hurt as well. Even still, some continue to believe 

that speculation can never be a bad thing. Despite ample evidence 

that excessive speculation has been destructive to commodity markets, some continue to doubt, question, or outright deny that speculation was ever or could ever be excessive. 

Make no mistake, we believe in open, transparent, and competitive markets and that new regulation must not excessively burden 

market participants or unnecessarily impede market liquidity. 

Speculators provide the market with this liquidity. But excessive 

speculation drives commodity prices to levels unjustified by market 

forces and results in price bubbles that harm commodity hedgers 

37

1The Petroleum Marketers Association of America is a national federation of 47 state and regional trade associations representing over 8,000 independent petroleum marketing companies, 

including convenience store/gas stations, gasoline and diesel fuel retailers and suppliers, and 

home heating oil dealers. 2The coalition, when formed in August of 2007, was referred to as the ‘‘Energy Markets Oversight Coalition,’’ but was changed to the ‘‘Commodity Markets Oversight Coalition’’ to reflect its 

members’ interests in reforming derivative trading in a broad range of commodities, including 

agricultural and energy commodities. 3Pub. L. 111–203. 

and users in the broader economy, as we saw in dramatic fashion 

with the commodity bubbles in 2007 and 2008. 

Establishing and imposing timely and meaningful limits will 

send a signal of confidence and stability, and help create more 

transparent, orderly, and functional commodities markets. 

Thank you again for the opportunity to testify. I look forward to 

any questions you might have. 

[The prepared statement of Mr. Collura follows:]

PREPARED STATEMENT OF JAMES M. COLLURA, VICE PRESIDENT FOR GOVERNMENT

AFFAIRS, NEW ENGLAND FUEL INSTITUTE; FOUNDING MEMBER AND SPOKESMAN, 

COMMODITY MARKETS OVERSIGHT COALITION, WASHINGTON, D.C. 

Honorable Chairman Boswell, Ranking Member Moran and Members of the Committee; thank you for the opportunity to testify before you today on the importance 

of position limits for commodity dependent businesses and consumers, and the 

broader economy and market stability. 

I currently serve as Vice President of New England Fuel Institute (or ‘‘NEFI’’), 

a not-for-profit home energy trade association that represents more than 1,200 

mostly small, family owned- and operated-businesses. In 2007, in response to what 

was perceived as increasingly unpredictable and volatile commodities futures markets, and out of concern over possible excessive speculation in these markets, NEFI 

partnered with the Petroleum Marketers Association of America (or ‘‘PMAA’’) to 

form the Commodity Markets Oversight Coalition.1 I am delivering testimony today 

as a spokesman for this coalition. 

The Commodity Markets Oversight Coalition (or ‘‘CMOC’’) is an informal coalition 

whose participating members represent an array of business interests, including 

commodity producers, processors, distributors, retailers, commercial and industrial 

end-users, as well as groups representing average American consumers. The CMOC 

advocates in favor of government policies that promote stability and confidence in 

the commodity markets and that preserve the interests of bona fide hedgers, consumers and the broader economy.2

On July 21, 2010, President Barack Obama signed into law the Dodd-Frank Wall 

Street Reform and Consumer Protection Act.3 Title VII of the Dodd-Frank Act, 

which was endorsed by members of the CMOC, included the most substantial new 

regulations of the U.S. derivatives markets in more than a decade. Members of this 

Committee, under the leadership of Chairman Peterson, Chairman Boswell and 

Ranking Members Lucas and Moran, are to be commended for their years of hard 

work that resulted in the passage and enactment of this monumental piece of legislation. 

Obtaining the consensus necessary to assemble and retain support for Title VII 

of the Dodd-Frank Act was certainly no easy task. Many proposed reforms of the 

U.S. derivatives markets were met with great skepticism, if not outright opposition, 

from various special interests. Many market participants and stakeholders, from 

small businesses, farmers and energy end-users to massive Wall Street banks and 

trading houses, got involved in the debate. 

Despite efforts by opponents to misrepresent or create doubt about many of the 

derivatives reforms in the bill, Congress included various regulatory initiatives necessary for market transparency and accountability and to prevent fraud, manipulation and excessive speculation. But rather than taking a detailed and proscriptive 

approach to the most controversial provisions, the Congress ceded much discretion 

to financial regulators such as the Commodity Futures Trading Commission (or 

‘‘CFTC’’). One clear example of this delegation of Congressional authority is the 

38

4 Ibid, § 737. 5The Commodity Futures Modernization Act of 2000 (Pub. L. 106–554) created a new classification for commodities to be exempt from many trading rules under the Commodity Exchange 

Act, called ‘‘exempt commodities,’’ which includes any commodity other than an excluded or agricultural commodity. 6Statement by CFTC Chairman Gary Gensler, Public Meeting on Establishing Position Limits, CFTC Headquarters, Washington, D.C., January 14, 2010. 7 Excessive Speculation in the Natural Gas Market, Senate Permanent Subcommittee for Investigations Staff Report, June 25, 2007. 

law’s directive to CFTC to establish speculative position limits for regulated and 

currently unregulated markets such as over-the-counter swaps markets.4

The Dodd-Frank Act requires that these limits be established ‘‘in the spot month, 

in each other month, and in the aggregate across all months’’ and provides the 

CFTC with discretion in defining exemptions for bona fide hedgers. The new law 

requires that the CFTC establish speculative position limits for what are defined by 

statute as currently ‘‘exempt commodities,’’ such as energy and metals, within 180 

days of enactment, and for agricultural commodities within 270 days of enactment.5

We commend CFTC Commissioner Gary Gensler and his fellow Commissioners for 

their commitment to timely enactment and enforcement of new regulatory initiatives under this Act and for engaging stakeholders in a thoughtful and transparent 

rulemaking process. Tomorrow, the CFTC will hold the eighth in a series of public 

meetings on the implementation of the Dodd-Frank Act. Tomorrow’s meeting will 

include discussion and review of proposed rulemakings for position limits. Despite 

this transparent and inclusive process, the Commission has recently come under 

pressure to delay the formulation and imposition of position limits by the deadline 

required by law. Our coalition opposes any such delay. 

1. Imposition of Position Limits Is Not a New Idea 

The Dodd-Frank Act does not provide the CFTC with the authority to establish 

speculative position limits; it actually expands existing authority under the Commodity Exchange Act of 1936. Section 4(a) of that Act required the CFTC to set limits on market positions that traders can take in any commodity in order to prevent 

a single market participant from controlling price movements. The goal was to prevent an ‘‘undue burden on interstate commerce’’ that would result from excessive 

speculation and, as a consequence, cause ‘‘sudden or unreasonable fluctuations or 

unwarranted changes in the price’’ of commodities. 

Like the Dodd-Frank Act, the 1936 statue was enacted following a time of crisis 

for the economy, a catastrophic upheaval in U.S. financial markets, volatility and 

uncertainty in commodity futures markets and a debate over prudent regulation to 

remedy these problems and their causes. Farmers, arguing that speculation can indeed become excessive and manipulative, and therefore distort fundamentals and 

the price discovery function of futures markets, fought hard for position limits authority and won the day. 

In 1936, Federal regulators acted quickly to impose position limits on agricultural 

markets that resulted in sixty years of relatively reliable and orderly commodities 

futures markets for agricultural, and eventually, energy commodities. However, in 

the 1990s the commodity markets began to change dramatically as a result of digitalization, globalization and the Internet. Traditional open-outcry exchanges on LaSalle Street in Chicago and Wall Street in New York found themselves in competition with new electronic and off-shore trading platforms. In an effort to remain competitive in energy commodity futures, options and swaps, many exchanges abandoned hard speculation limits in favor of softer ‘‘accountability limits.’’ 

Shortly after his confirmation as CFTC Chairman, Gary Gensler acknowledged 

that accountability limits have time and time again proved insufficient in preventing traders from taking large positions in violation of these limits and with relative inaction by the exchange. In fact, the CFTC found that in the 12 months between July 2008 and June 2009, individual month accountability limits were exceeded for crude oil, gasoline, heating oil and natural gas by 69 different traders. Some 

traders even exceeded limits every day during the trading period.6

There are well documented cases in which individual traders violated accountability limits and their actions had major consequences for market hedgers and consumers. This includes the $6 billion collapse of Amaranth Advisors in 2006, one of 

the largest hedge fund collapses in U.S. history. A Senate Permanent Subcommittee 

on Investigations report in June 2007 found that ‘‘Amaranth controlled 40 percent 

of all outstanding contracts on NYMEX for natural gas in the winter season (October 2006 through March 2007), including as much as 75 percent of the outstanding 

contracts to deliver natural gas in November, 2006.’’ 7

39

8 Held on July 28 and 29, and August 5, 2010. (www.cftc.gov/PressRoom/Events/Events2009/

index.htm) 9 Notice of Proposed Rulemaking for Federal Speculative Position Limits for Referenced Energy Contracts and Associated Regulations, Commodity Futures Trading Commission, 75 FR 

4143, Washington, D.C., January 26, 2010. 

Amaranth occasionally held five or more times the ‘‘accountability limit’’ for natural gas, and according to the report, the NYMEX failed to take immediate action 

and in many instances where traders violated limits, never took any action. When 

the NYMEX finally ordered Amaranth to draw down its position, they simply moved 

their holdings onto an off-shore exchange where the CFTC and the U.S. exchanges 

had access to little or no data. But the size of the Amaranth position relative to the 

market eventually came back to haunt it, when in September, 2006 its position collapsed. 

The record surge in natural gas prices at the height of the Amaranth position and 

the subsequent collapse demonstrated that without hard position limits one trader 

alone can move these markets. This event led many industries to recognize the 

problems associated with exempting energy commodities from position limits and 

catalyzed the establishment of our coalition in August of 2007. It also proved that 

‘‘too big to fail’’ exists in the commodities derivative markets and that commodity 

speculation can be at times excessive. It also exposed in dramatic fashion the inadequacies of so-called ‘‘accountability limits’’ and lack of oversight and transparency 

in the commodity markets. More frightening still was evidence that a growing majority of trading was now occurring on so-called ‘‘dark markets,’’ or markets that reported little or no data and were subject to little or no oversight and regulation. 

As policy makers deliberated on appropriate reforms, the market continued to deteriorate for end-users. The following year, energy prices surged to unjustified levels. In the summer of 2008, and despite declining demand and historically high inventories, crude oil topped $147 per barrel. Consumers faced unprecedented gasoline 

and home heating costs. Food prices similarly surged to record levels. As food became unaffordable and aide declined, riots broke out in at least 30 food important 

dependent countries. Manufactures, airlines, truckers and other transporters saw 

fuel prices surge, which caused inflation in the cost of goods and services for every 

American. But like almost every speculative bubble, this one eventually burst, leaving many farmers, manufacturers and other end-users stuck with unaffordable commodity pricing contracts. 

Shortly after his confirmation as CFTC Chairman last year, Gary Gensler acknowledged the need for immediate action to restore confidence and stability. The 

Commission began drafting proposed rules to address trading loopholes and exemptions, and to establish position limits for energy and metals. The Commission held 

a round of hearings in the summer of 2009 to solicit input from commodity hedgers, 

speculators, consumers and academics. Several members of this coalition delivered 

testimony before the Commission at this time.8

In January 2010, the CFTC proposed a rule for the establishment of speculative 

position limits for energy contracts, modeled largely after existing position limits 

that existed for agricultural commodities.9 During the comment period ending April 

26, 2010, the CFTC received an unprecedented number of submissions, well more 

than 8,000 in all, the vast majority of which indicated support for strong and meaningful limits on speculation. Several CMOC member groups were among those comments, and many expressed reservations at the relatively ‘‘high bar’’ formul# recommended by the Commission. 

Understandably, several Commissioners expressed reservations about establishing 

limits that could be considered too aggressive in light of the Commissions lack of 

authority over certain trading environments. At least two Commissioners feared in 

April that position limits would drive trade to ‘‘dark’’ over-the-counter and off-shore 

environments. The CFTC repeatedly called on Congress to give it authority over 

these markets, so that broad and uniform limits could be placed on all speculative 

positions and in all markets. On July 21, 2010, the agency got its wish when the 

Dodd-Frank Act became law. 

The CFTC has enjoyed 75 years of authority to establish speculation limits in 

commodity markets. After nearly 2 years of debate and passage of the most sweeping reforms in the history of the U.S. derivative markets, they now have the authority to establish said limits across the board to all traders and in all markets. We 

see little merit to the argument that the CFTC has not sufficiently considered the 

imposition of such limits. We are discouraged that, despite ample evidence of excessive speculation in commodities markets that some continue to doubt, question or 

outright deny that speculation was ever and could ever be excessive. 

40

10Wallace, John and Steve Orlofsky, ‘‘ICE, CME More Optimistic on CFTC Position Limits,’’ 

Reuters News Service, December 8, 2010. 11Pub. L. 111–203, § 738 and § 737(a)(4). 12 Harding, Robin with Tom Braithwaite and Francesco Guerrera, ‘‘Europe’s banks tapped 

Fed,’’ Financial Times, December 2, 2010. 13General Comments to the CFTC on the Implementation of Title VII of the Dodd-Frank Act,

Commodity Markets Oversight Coalition, November 1, 2010, p. 6. 

2. Hard Speculation Limits Will Not Disrupt Markets 

Many CMOC participating groups represent vital commodity-dependent industries 

that have a steadfast belief in open, transparent and competitive markets. We believe that any new rules and regulations must be well reasoned, justified and not 

excessively burden market participants, or unnecessarily impede market liquidity. 

Speculators provide the market with this liquidity, but excessive speculation drives 

commodity prices to levels not justified by the market forces of supply and demand, 

results in pricing bubbles that harm commodity hedgers, end-users and the broader 

economy. 

We also believe that the commodity derivatives markets, when they were first established more than 150 years ago, did not have as their primary constituents Wall 

Street speculators and investors looking to make a fast buck, nor was the CFTC established by Congress to serve such constituents to the detriment of hedgers and 

consumers. Commodity exchanges were established to provide legitimate commercial businesses and end-users with a means to hedge risks associated with commodity prices. 

When unrestrained speculation is allowed to dominate markets and their hedging 

and price discovery functions, as we have clearly seen, it violates the Commodity 

Exchange Act’s prohibitions on such activity. The CMOC rejects the contention of 

some in the financial services industry that limits to prohibit excessive speculation 

could be more disruptive to our markets more than excessive speculation itself. 

Last week, the IntercontinentalExchange (ICE), the Chicago Mercantile Exchange 

(CME) and the New York Mercantile Exchange (NYMEX) denied that timely imposition of limits would disrupt markets. Reuters reported on December 8th that the 

‘‘top U.S. futures exchanges expressed confidence that a revised plan to clamp down 

on commodities market speculation will not unduly burden the market’’ if it uses 

the previous (January, 2010) proposed rule as a starting point.10 We believe the earlier proposed rule was insufficient to address ‘‘the burdens of excessive speculation’’ 

due to its very high limits. However, it is a starting point and because the CFTC 

now has authority to apply limits to previously exempt markets and participants, 

our coalition would be supportive of lower limits. 

Some argue that establishing limits expeditiously in order to meet what they consider to be negotiable or arbitrary deadlines under the Dodd-Frank Act will drive 

market activity off-shore to trading environments that are free from such limits (as 

we saw earlier with the Amaranth case). This argument is a red herring, as the 

Dodd-Frank Act anticipates this response and establishes new registration requirements for foreign boards of trade (FBOTs) that seek to allow access from within the 

U.S., provided they meet a list of comparable regulatory criteria, including the imposition of speculative position limits.11 The stated intent of the Congress was to prevent limits imposed by the CFTC to ‘‘cause price discovery in the commodity to shift 

to trading on the foreign board of trade.’’ 

In addition, regulators in Europe and elsewhere are currently in the process of 

drawing up their own plans to impose speculative position limits in addition to the 

many other transparency requirements and other regulatory initiatives prescribed 

by the Dodd-Frank Act. If the CFTC were to fail to apply aggregate position limits 

to implement the Dodd-Frank Act, the impetus for regulatory reform in other jurisdictions could be jeopardized. As we learn of the extraordinary measures that he 

Federal Reserve Bank took to provide European banks with hundreds of billions of 

dollars of loans on extremely favorable terms,12 we are reminded of the high cost 

of relying completely on financial industry self-regulation. Weak position limits or 

a return to position accountability would provide industry with de facto self-regulation. 

On November 1, 2010, our coalition submitted preliminary comments regarding 

the implementation of various regulatory initiatives under the Dodd-Frank Act. We 

announced then our opposition to any delay in the formulation and imposition of 

speculative position limits. We also suggested that additional stability and restraint 

on speculation could be achieved were the CFTC to develop limits specifically for 

index funds and to distinguish them as separate and distinct from more traditional 

speculators.13 These so-called ‘‘passive investors’’ and their rolling contracts in energy and food commodities places commodities in a perpetual state of contango, 

41

where out-month futures prices are perpetually higher than spot prices. Such an investment strategy ignores market fundamentals and distorts the price discovery nature of the markets. These large funds have transformed commodities markets from 

a means to hedge fluctuating prices into a new asset class for pure financial accumulation. 

We also agree with a recent suggestion by CFTC Commissioner Bart Chilton that 

separate limits might also be considered for high-frequency trading (HFT) or socalled ‘‘computer algorithm-based trading’’ or ‘‘algo-trading’’ in commodity markets. 

Today, HFT accounts for 1⁄3 of all trading activity in U.S. futures markets and it 

is growing fast. Futures regulators and the Congress need to address this trend, especially in light of the ‘‘flash crashes’’ that have been witnessed in the securities 

markets, for which HFT has been considered at least partly responsible (including 

the 1000 point plunge in the Dow on May 6, 2010). Such ‘‘flash crashes’’ in the commodity trading markets could have devastating consequences for U.S. businesses 

and consumers. 

3. Limits Will Restore Confidence in Commodity Markets 

Establishing and imposing timely and meaningful speculative position limits as 

required by the Dodd-Frank Act will send a signal of confidence and stability to all 

market participants that end-users will again be able to rely on transparent, orderly 

and functional commodity markets. Continued inaction is not an option. Our coalition and the businesses and consumers we represent rely upon the CFTC to do their 

best to protect against fraud, manipulation and excessive speculation and to ensure 

a fair, transparent and accountable marketplace. Decisive action will be a strong 

and long overdue step in the protection of market integrity and the stability of the 

broader economy. 

As the 111th Congress comes to a close, we commend it—and especially the 

Chairs and Members of the Agriculture, Banking and Financial Services Committees—for the hard work, political courage and leadership that made derivatives reform possible. Generations of Americans will be forever grateful for what you’ve 

done. But now this legislative legacy is in the hands of regulators. We trust that 

they will implement and enforce new authority, and that the new Congress will continue to provide them with the political support and financial resources necessary 

to do so. 

Thank you again for the opportunity to testify. We would be pleased to answer 

any questions that you might have. 

ATTACHMENT

Groups Supporting Testimony 

ActionAid USA 

Air Transport Association 

California Black Farmers and Agriculturalists Association 

Colorado/Wyoming Petroleum Marketers Association 

Columban Center for Advocacy & Outreach 

Consumer Federation of America 

Consumer Watchdog 

Florida Petroleum Marketers Association 

Food & Water Watch 

Fuel Merchants Association of New Jersey 

Gasoline & Automotive Service Dealers of America Inc. 

Illinois Petroleum Marketers & Convenience Store Association 

Independent Connecticut Petroleum Association 

Louisiana Oil Marketers & Convenience Store Association 

Massachusetts Oilheat Council 

Maine Energy Marketers Association 

Maryknoll Office for Global Concerns 

Michigan Petroleum Association/Michigan Association of Convenience Stores 

Montana Petroleum Marketers & Convenience Store Association 

National Association of Oilheating Service Managers 

National Association of Truckstop Operators 

National Farmers Union 

Nebraska Petroleum Marketers & Convenience Store Association 

New England Fuel Institute 

New Mexico Petroleum Marketers Association 

New Rules for Global Finance 

New York Oil Heating Association 

North Dakota Petroleum Marketers Association 

42

Oil Heat Institute of Long Island 

Oil Heat Council of New Hampshire 

Oil Heat Institute of Rhode Island 

The Organization for Competitive Markets 

Petroleum Marketers Association of America 

Petroleum Marketers & Convenience Store Association Kansas 

Petroleum Marketers & Convenience Stores of Iowa 

Propane Gas Association of New England 

Public Citizen 

R–CALF—USA 

South Dakota Petroleum & Propane Marketers Association 

United Egg Producers 

Utah Petroleum Marketers & Retailers Association 

Vermont Fuel Dealers Association 

West Virginia Oil Marketers and Grocers Association 

Western Peanut Growers 

Western Petroleum Marketers Association

The CHAIRMAN. Thank you. 

Mr. Duffy. 

STATEMENT OF TERRANCE A. DUFFY, EXECUTIVE CHAIRMAN, 

CME GROUP INC., CHICAGO, IL 

Mr. DUFFY. Chairman Boswell, Ranking Member Moran, and 

Members of the Subcommittee, thank you for inviting us to testify 

regarding the implementation of Dodd-Frank’s provisions relating 

to position limits. 

I am going to focus on the requirements of Dodd-Frank and then 

briefly discuss this theory that speculators are distorting futures 

markets. 

Dodd-Frank requires the Commission to make a finding that position limits are necessary to diminish, eliminate, or prevent burdensome excessive speculation before imposing such limits. The 

CFTC is not permitted to act on the basis of assumptions or political demands. Core principle 5, section 5 of the CEA also demonstrates that position limits are not required in every case since 

it permits exchanges to adopt accountability levels as an alternative to rigid position limits. 

Dodd-Frank also requires that CFTC wait to impose limits on futures exchanges until it can simultaneously impose limits on economically equivalent swaps. The purpose of this provision is to prevent a flight of trading from regulated exchanges with no limits to 

unregulated markets with limits. 

Given these requirements, it is clear that the CFTC lacks sufficient data to impose limits on swaps and therefore may not act 

against futures. The Commodity Exchange Act allows limits to be 

imposed only on excessive speculation, not speculation generally. 

This is a clear recognition that futures markets cannot operate 

without the participation of speculators. 

Arbitrary position limits distort markets, increase cost to hedgers, and increase cost to consumers. Position limits are unnecessary 

unless burdensome excessive speculation is present or is likely. 

Academic literature and all the studies produced by the CFTC’s 

economists demonstrate that position limits in futures trading are 

not the means to deal with real supply-demand issues. 

It is my firm belief that efforts to focus on position limits rather 

than the underlying issues are certain to divert attention from the 

real problems and do more harm than good. Worse yet, position 

43

limits in derivatives markets that preclude investors from seeking 

economic exposure to particular asset classes drive those investors 

to speculate in physical commodities. This, in turn, has a significant and often detrimental impact on the flow of commodities in 

commercial channels. 

We have already seen the beginnings of such distortions in the 

metals and energy markets in anticipation of the imposition of limits on derivatives. This is not a development that any of us should 

favor but one that is an unfortunate result of position limits based 

on bad economics. 

CME Group is not opposed to position limits and other similar 

measures if used correctly. For example, we employ limits on most 

of our physically delivered contracts. However, we use limits and 

accountability levels, as permitted by the Core Principles, to mitigate potential congestion during delivery periods and to help us respond in advance to any effort to manipulate our markets. 

CME Group believes that the core purpose that should govern 

Federal and exchange-set position limits, to the extent such limits 

are necessary and appropriate, should be to reduce the threat of 

price manipulation and other disruptions to the integrity of prices. 

Such activity destroys public confidence in the integrity of our markets and harms the acknowledged public interest in legitimate 

price discovery. 

CME Group appreciates the opportunity to offer the foregoing 

comments regarding the implementation of Dodd-Frank provisions 

for position limits on certain contracts involving exempt and agricultural commodities. We hope that the views expressed today are 

helpful, and we look forward to answering any questions the Committee will have. 

[The prepared statement of Mr. Duffy follows:]

PREPARED STATEMENT OF TERRANCE A. DUFFY, EXECUTIVE CHAIRMAN, CME GROUP

INC., CHICAGO, IL 

I am Terrence A. Duffy, executive Chairman of CME Group Inc. Thank you, 

Chairman Boswell, and Ranking Member Moran for inviting us to testify today. You 

asked us to discuss the implementation of provisions of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act relating to position limits. 

CME Group is the world’s largest and most diverse derivatives marketplace. We 

are the parent of four separate regulated exchanges, including Chicago Mercantile 

Exchange Inc. (‘‘CME’’), the Board of Trade of the City of Chicago, Inc. (‘‘CBOT’’), 

the New York Mercantile Exchange, Inc. (‘‘NYMEX’’) and the Commodity Exchange, 

Inc. (‘‘COMEX’’) (collectively, the ‘‘CME Group Exchanges’’). The CME Group Exchanges offer the widest range of benchmark products available across all major 

asset classes, including futures and options on futures based on interest rates, equity indexes, foreign exchange, energy, metals, agricultural commodities, and alternative investment products. 

CME Clearing, a division of CME, is one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives contracts 

through CME ClearPort®. Using the CME ClearPort® service, eligible participants 

can execute an OTC swap transaction, which is transformed into a futures or options contract that is subject to the full range of Commodity Futures Trading Commission (the ‘‘Commission’’ or ‘‘CFTC’’) and exchange-based regulation and reporting. The CME ClearPort® service mitigates counterparty credit risks, provides 

transparency to OTC transactions and enables the use of the exchange’s market surveillance monitoring tools. 

The CME Group Exchanges serve the hedging, risk management and trading 

needs of our global customer base by facilitating transactions through the CME 

44

Globex® electronic trading platform, our open outcry trading facilities in New York 

and Chicago, as well as through privately negotiated CME ClearPort® transactions. 

The theory that speculators in futures markets cause unwarranted price volatility 

and excessively high and/or low prices is not new; Congress has dealt with that notion since the late 1800s. The Commodity Exchange Act (‘‘CEA’’), however, does not 

limit speculation, but only ‘‘excessive speculation.’’ This is an implicit recognition 

that futures markets cannot operate without the participation of speculators. 

The so-called ‘‘speculators,’’ such as index funds and swap dealers, who are the 

focus of recent intense criticism, are not engaged in traditional speculative activity, 

i.e., trying to beat the market. Rather, swap dealers use futures markets to facilitate 

the hedging of more complex and specific risks accepted in connection with swap 

transactions with commercial customers and others. Denying or limiting their access 

to the futures markets will simply impede hedging activity by commercial market 

participants. Index funds aggregate the buying and selling decisions of many thousands of investors, most of whom are doing what they have been taught for decades 

to do: diversifying their investment portfolios and hedging inflation risks to their investment returns in order to maximize their retirement savings and their individual 

wealth. 

Position limits are not a costless palliative. Position limits, when improperly calibrated and administered, can easily distort markets, increase the costs to hedgers 

and effectively increase costs to consumers. Unfortunately, many demands for speculative limitations assume that severe limits on speculation will bring prices to 

some favored level. On the contrary, position limits on futures contracts will not and 

do not control cash market prices. There is a complete disconnect between the implied promise to drive prices down or up, whichever the most vocal constituency desires, and the ability of position limits to deliver on that promise. 

Introduction 

We disagree with those who contend, in contravention of the clear academic evidence and of the clear intent of Congress, as expressed in Dodd-Frank Wall Street 

Reform and Consumer Protection Act (P.L. 111–203, July 21,2010) (‘‘DFA’’ or ‘‘DoddFrank’’), that speculative positions must be limited in order to eliminate price volatility and/or high prices or low prices for essential commodities. 

Some of the proponents for limits are well intentioned, but have no credible evidence to support their claims. Some contend for example that strict limits on silver 

futures will allow the price of silver to go up to levels that they think is appropriate. 

Other proponents of strict position limits contend that limits on oil positions will 

cause the price of gasoline to fall to levels that are ‘‘better’’ for the economy or their 

constituents. The Wall Street Journal reported on December 8, 2010, that:

‘‘[T]he latest data also show an increase in speculation doesn’t necessarily bring 

with it an increase in prices. Natural gas, for example, is down 21% this year 

despite a surge in speculative bets. In opposite circumstances with sugar, prices 

rallied despite a withdrawal of speculative bets.’’ The WALL STREET JOURNAL—

Investors Pile Into Commodities, Carolyn Cui and Susan Pulliam.

All of the serious academic literature, including all of the studies produced by the 

CFTC’s economists demonstrate that position limits in futures trading are not the 

means to deal with real supply and demand issues that are prevalent in markets 

for many physical commodities. It is my firm belief that efforts to focus on position 

limits rather than the underlying economic issues are certain to divert attention 

from the real supply and demand dynamics and do more harm than good. Worse 

yet, position limits in derivative markets that preclude investors from seeking economic exposure to particular asset classes drives those investors to speculate in 

physical commodities, which has a significant and often detrimental impact on the 

flow of commodities in commercial channels. We have already seen the beginnings 

of such distortions in metals and energy markets in anticipation of the imposition 

of limits on derivatives. This is not a development that anyone should favor, but 

one that is the logical result of even the threat of position limits based on bad economics. 

CME group is not opposed to position limits and other similar measures in all circumstances; we employ limits in most of our physically delivered contracts. However, we use limits and accountability levels, as contemplated by the Congressionally-approved Core Principles for Designated Contract Markets, to mitigate potential 

congestion during delivery periods and to help us identify and respond in advance 

to any threat to manipulate our markets. CME Group believes that the core purpose 

that should govern Federal and exchange-set position limits, to the extent such limits are necessary and appropriate, should be to reduce the threat of price manipulation and other disruptions to the integrity of prices. Such activity destroys public 

45

confidence in the integrity of our markets and harms the acknowledged public interest in legitimate price discovery. 

CME Group is therefore vigilant in seeking to deter and prevent price manipulation or other illegitimate distortions of market prices. Speculation, however, is not 

manipulation, nor is it an abusive practice. As CME Group observed in its response 

to the Commission’s January 2010 energy position limits proposal, speculation is essential to the orderly functioning of futures markets—it provides market liquidity 

which promotes more effective commodity price discovery and allows for the efficient 

transfer of price risk. See CME Group Comments, 10–002 Comment CL–02714, at 

2 (Apr. 26, 2010) (‘‘CME Comments’’). The Commission’s responsibility and challenge is not to restrict speculation per se, but to act when necessary to prevent ‘‘excessive speculation’’ from burdening interstate commerce through what the Commodity Exchange Act (‘‘CEA’’) calls ‘‘unreasonable’’ and ‘‘unwarranted’’ fluctuations 

in the price of a commodity. To this end, Congress has granted to the Commission 

the authority to impose speculative position limits under Section 4a of the CEA, as 

amended by DFA. 

CME Group understands the extensive demands being made on the Commission’s 

limited resources. However, the Commission must gather critical data regarding 

swap markets and individual traders’ swap positions. Without a thorough understanding of such data, the Commission runs the risk of inappropriately setting position limits. CME Group appreciates the great challenge this presents to the Commission. 

I. Statutorily Required Basis for Imposing Position Limits 

Section 4a(a)(1) provides in pertinent part:

‘‘For the purpose of diminishing, eliminating, or preventing such burden [of unwarranted or unreasonable price fluctuations resulting from excessive speculation], the Commission shall . . . fix such limits on the amount of trading which 

may be done or positions which may be held . . . as the Commission finds are 

necessary to diminish, eliminate, or prevent such burden.’’ (emphasis added)

By its terms, DFA requires the Commission to make a finding that position limits 

‘‘are necessary to diminish, eliminate, or prevent’’ burdensome excessive speculation 

before imposing such limits. Dan Berkovitz, CFTC General Counsel, confirmed that 

Section 4a(a)(1) sets forth a conditional mandate during the CFTC’s July 2009 hearings on energy position limits. In response to Chairman Gensler’s question, ‘‘What 

does the word ‘shall’ mean in 4a?,’’ Berkovitz replied, ‘‘If the Commission finds that 

position limits are necessary to prevent, diminish, or eliminate such burdens, then 

there is a directive that it shall establish position limits.’’ Transcript of July 28, 

2009 CFTC Hearing on Energy Position Limits at 35–36 (emphasis added). The 

above quoted language from Section 4a(a)(1) was not deleted or in any way altered 

by DFA. New CEA subsection (a)(2) (‘‘Establishment of Limitations’’) even reaffirms 

that any position limits must be established ‘‘[i]n accordance with the standards set 

forth in paragraph 1 of this subsection,’’ which include the requisite ‘‘necessary’’ 

finding. Core Principle 5, Section 5(d)(2)(5) of the CEA as amended by DFA, also 

recognizes that ‘‘accountability levels’’ are an alternative to rigid position limits:

(5) POSITION LIMITATIONS OR ACCOUNTABILITY.—

(A) IN GENERAL.—To reduce the potential threat of market manipulation or 

congestion (especially during trading in the delivery month), the board of 

trade shall adopt for each contract of the board of trade, as is necessary 

and appropriate, position limitations or position accountability for speculators. (emphasis supplied)

Moreover, the Commission must publish the statutorily required finding and the 

information in support thereof in any notice of proposed rulemaking to comply with 

the Administrative Procedure Act (‘‘APA’’). The APA requires that the notice of a 

proposed rule include ‘‘sufficient detail on its content and basis in law and evidence 

to allow for meaningful and informed comment.’’ See, e.g., Am. Med. Ass’n v. Reno,

57 F.3d 1129, 1132 (D.C. Cir. 1995). Absent a finding with supporting evidence that 

position limits are ‘‘necessary,’’ this APA requirement cannot be met because the 

public will not know the Commission’s specific reasoning for the essential finding 

that triggers its proposed rulemaking. 

DFA indicates that such limits would be ‘‘unnecessary’’ where burdensome excessive speculation does not exist or is unlikely to occur in the future. CME Group’s 

comment letter on the Commission’s energy position limits proposal discussed at 

length the absence of any credible empirical evidence of the existence of burdensome 

excessive speculation or its likely future occurrence. See CME Comments at 17–24. 

The weight of empirically sound analysis and research demonstrates that moveVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
46

ments in commodity prices are attributable to fundamental market conditions rather than speculative trading. CFTC studies, for example, have found that supply and 

demand factors were largely responsible for the 2008 rise in oil prices and that, far 

from harming the market, speculators serve as an important source of liquidity for 

other participants. See, e.g., CFTC Interagency Task Force on Commodity Markets, 

Interim Report on Crude Oil at 3–4 (July 22, 2008); Michael Haigh et al., Market 

Growth, Trader Participation and Pricing in Energy Futures Markets (Feb. 7, 2007), 

available at http://web.uvic.ca/econ/research/seminars/robe.pdf. Like CFTC staff, 

the Government Accountability Office (‘‘GAO’’) has not identified a causal relationship between speculation in the futures market and changes in commodity prices. 

See GAO, GAO–09–285R, Issues Involving the Use of the Futures Markets to Invest 

in Commodity Indexes at 5 (Jan. 30, 2009). The conclusions of these governmental 

studies and reports are consistent with those of academic and private sector economists. See, e.g., Paul Krugman, The Oil Nonbubble, N.Y. TIMES, May 12, 2008, 

http://www.nytimes.com/2008/05/12/opinion/12krugman.html (‘‘[T]he rise in oil 

prices isn’t the result of runaway speculation; it’s the result of . . . the growing difficulty of finding oil and the rapid growth of emerging economies like China.’’). 

To the extent there are any legitimate concerns with the potential for excessive 

speculation to cause unwarranted or unreasonable price fluctuations, CME Group 

believes that futures exchanges effectively address such concerns through their existing market surveillance programs. CME Group provided a detailed account of the 

futures exchanges’ capabilities in its April 26, 2010 comments filed with the CFTC. 

See CME Comments at 8–12. Briefly stated, the exchanges independently have the 

ability to establish position limits as warranted by the characteristics of their traded 

contracts, and to employ position accountability provisions as appropriate given particular market constructs and market conditions. This flexible regulation is a much 

more appropriate and effective means of addressing potentially manipulative or disruptive positions than are blunt position limits that fail to account for variability 

in specific contract months, market conditions, and market participation. Insofar as 

the existing exchange programs are and have been proven to be effective, CME 

Group believes the Commission would lack the statutory basis for establishing new 

Federal position limits on certain contracts involving exempt and agricultural commodities. 

II. Mechanics of Imposing Position Limits 

Assuming the Commission is able to find that position limits ‘‘are necessary to diminish, eliminate, or prevent’’ burdensome excessive speculation, CME Group offers 

the following views on how to impose those limits: 

A. The Imposition of Limits Should be Deferred Until the Commission Can Properly 

Determine and Ensure Compliance with Appropriate Limits 

Dodd-Frank sets forth several seemingly inconsistent timing requirements for the 

exercise of the Commission’s position limit authority. New CEA § 4a(a)(2)(B) directs 

the Commission to impose limits for certain contracts, within 180 days for exempt 

commodities and within 270 days for agricultural commodities, respectively, of 

Dodd-Frank’s enactment. Meanwhile, new CEA § 4a(5)(A) requires that limits for 

swaps that are economically equivalent to futures and options be established simultaneously with the limits under Section 4a(a)(2)(B). The statute, however, also vests 

the Commission with discretion to establish limits ‘‘as appropriate,’’ thereby indicating that the Commission is not bound by the aforementioned dates. CME Group 

believes that DFA requires the Commission to defer imposing limits until doing so 

would be ‘‘appropriate’’—that is, when it has the data needed to accurately set and 

enforce those limits and when it is in a position to impose limits simultaneously on 

futures (and options on futures) and swaps. 

B. Position Limits Should Be Set with Due Regard for Legislative Objectives and 

Considerations 

Under Dodd-Frank, the Commission is required to take into account several factors when setting position limits. New CEA § 4a(a)(3) provides that, to the maximum extent practicable, the Commission should use its discretion to establish limits to: (i) diminish, eliminate, or prevent ‘‘excessive speculation’’; (ii) deter and prevent market manipulation, squeezes, and corners; (iii) ensure sufficient market liquidity for bona fide hedgers; and (iv) ensure that the price discovery function of 

the underlying market is not disrupted. Additionally, new CEA § 4a(a)(2)(C) states 

that the Commission must act to avoid shifting the price discovery function to 

FBOTs in establishing limits. In mandating these considerations, Congress recognized that limiting trading positions has the potential to reduce liquidity and adversely affect the hedging and price discovery functions of U.S. commodity markets. 

The Commission is obliged to give due weight to each consideration in setting any 

47

position limits and may not focus solely on imposing limits to diminish, eliminate, 

or prevent ‘‘excessive speculation.’’

C. The Commission’s Exemptive Authority Should Be Interpreted Broadly To Accommodate All Non-Speculative Positions 

New CEA § 4a(a)(7) gives the Commission authority to exempt from any position 

limit rule, with or without conditions, ‘‘any person or class of persons, any swap or 

class of swaps, any contract of sale for future delivery or class of such contracts, 

any option or class of options, or any transaction or class of transactions.’’ Under 

this provision, the Commission’s statutory power to exempt any person or class of 

person from position limits is greater than it has ever been before. 

CME Group believes that DFA authorizes the Commission to use its broad new 

exemption authority under § 4a(a)(7) to grant exemptions to market participants 

who use futures, options, or swaps when economically appropriate to the reduction 

of the risks they face in their enterprises. Although it is impossible to enumerate 

the breadth of exemptions that should be permitted in order to ensure that entities 

are able to effectively manage exposure that is highly correlated to fluctuations in 

the price of exempt and agricultural commodities, an application for exemption 

should be judged on its merits in terms of the specific risks to be hedged, the relevant price relationships, the proposed position sizes, and the operational procedures for establishing and lifting the hedge. 

If the Commission were to narrowly construe its § 4a(a)(7) exemptive authority to 

exclude non-speculative trading activity, then market participants could be forced 

to either actually speculate on those price risks (i.e., not establish any positions to 

mitigate the risk), and potentially increase costs to consumers, or hedge their risks 

through transactions that lie outside the CFTC’s position limit authority. Either 

strategy would undermine the Commission’s mission to promote liquidity and protect the price discovery function of its regulated markets. The Commission should 

thus broadly interpret its exemptive powers and grant exemptions to market participants who are not seeking to establish positions in the futures market for speculative purposes but rather to serve their legitimate commercial and financial hedging 

needs. 

III. Conclusion 

CME Group appreciates the opportunity to offer the foregoing comments respecting the implementation of DFA’s provisions respecting position limits on certain contracts involving exempt and agricultural commodities. We hope that the views expressed herein prove to be helpful and we are available to answer any questions 

the Committee may have.

The CHAIRMAN. Thank you. 

Mr. Newman. 

STATEMENT OF JOEL G. NEWMAN, PRESIDENT AND CEO, 

AMERICAN FEED INDUSTRY ASSOCIATION, ARLINGTON, VA 

Mr. NEWMAN. Chairman Boswell, Ranking Member Moran, and 

Members, thank you for the opportunity to testify before you today. 

The American Feed Industry Association is the largest organization devoted exclusively to represent the business, legislative, and 

regulatory interests of the U.S. animal feed industry and its suppliers. AFIA applauds this Subcommittee, its Members, and the 

full Committee for calling today’s hearing. 

AFIA members manufacture more than 70 percent of the animal 

feed in the United States, which amounts to over 160 million tons 

annually. Feed also represents roughly 70 percent of the cost of 

producing meat, milk, and eggs. With the majority of our industry 

input supplies priced directly on, or in reference to, regulated commodity markets, we depend significantly on an efficient and wellfunctioning futures market for both price discovery and also risk 

management. 

Agricultural commodity markets were established to provide an 

efficient price discovery mechanism and a hedging risk management tool for producers and end-users. While this system encourVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00051 Fmt 6633 Sfmt 6601 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
48

ages and requires speculative participants to provide liquidity, the 

significant increase of financial investors, as well as the special exemptions from speculative position limits that have been granted 

over time to Wall Street banks and others who are not end-users, 

has distorted the function of these markets. 

The agriculture commodity markets functioned effectively for 

over 60 years after the 1936 Commodity Exchange Act first implemented speculative position limits. However, this changed in 2000 

when Congress codified earlier CFTC regulatory actions granting 

Wall Street banks and other financial institutions an exemption 

from speculative position limits for hedging over-the-counter swaps 

and index transactions. While there are several factors that have 

led to increased volatility and price swings in agricultural commodities, excess speculation by index funds is certainly one of these factors. 

As you are aware, the size and influence of these large financial 

players was never contemplated during the development of the 

original Commodity Exchange Act. Most of the index speculators 

tend to hold their positions rather than sell. This allows them to 

create artificial demands through their long-only positions and in 

essence really are bets on higher prices. 

The magnitude of this scenario is clear in the numbers. In 2003, index speculator investment in 25 physical commodities was $13 

billion. In 2008, these investments jumped to $260 billion, an 1,800 

percent increase in 5 years. In 2010, these investments remain at 

$265 billion, with three index funds representing 94 percent of that 

amount and one fund representing 52 percent of those investments. 

Earlier this year, we applauded the work by Congress to include 

provisions in the Act that would authorize CFTC to set reportable 

position limits on commodity contracts, as well as for aggregate 

and exchange-specific position limits. 

Within this process, AFIA members support the following items: 

First, speculative position limits that enhance market performance 

and the appropriate narrowing of cash and futures market values 

as they near contract delivery period; the retention and equal application of the existing speculative position limits for agricultural 

commodities; retaining the current bona fide hedge definition 

which is in place; the removal of speculative position limit exemptions for financial institutions and other nontraditional participants 

in agricultural commodity markets. 

While CFTC now has this authority, without removing these exemptions the speculative position limits will have a much more 

limited effect when they are put in place. 

Given the strong relationship between crude oil and corn futures 

markets brought on by the dramatic and rapid expansion of the 

ethanol industry, establishing and enforcing energy speculative position limits is also important to secure the reliability of the entire 

agricultural commodity complex. 

We support effective speculative position limits that work for 

both the bona fide hedger and the speculator. However, there is 

rarely a perfect solution to complex issues and waiting for a perfect 

solution before setting speculative position limits or taking other 

actions will only delay that much-needed transparency and controls 

required in these commodity markets. Therefore, we support impleVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00052 Fmt 6633 Sfmt 6601 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
49

mentation of interim limits where data is available and which can 

also be adjusted by CFTC with further data to confirm and support 

those changes. 

I would be remiss if I didn’t express AFIA’s appreciation to 

Chairman Gensler, Commissioner Chilton, and the other CFTC 

Commissioners for their extensive outreach during this entire process. 

Thank you for inviting me to participate in today’s hearing. AFIA 

and its members stand ready to assist you in these efforts. I look 

forward to any questions. 

[The prepared statement of Mr. Newman follows:]

PREPARED STATEMENT OF JOEL G. NEWMAN, PRESIDENT AND CEO, AMERICAN FEED

INDUSTRY ASSOCIATION, ARLINGTON, VA 

Chairman Boswell, Ranking Member Moran and Members, thank you for the opportunity to testify before General Farm Commodities and Risk Management Subcommittee as you review implementation of provisions of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act of 2010 relating to speculation limits. 

I am Joel Newman, President and Chief Executive Officer of the American Feed 

Industry Association (AFIA), based in Arlington, Virginia. AFIA is the world’s largest organization devoted exclusively to representing the business, legislative and 

regulatory interests of the U.S. animal feed industry and its suppliers. 

Founded in 1909, AFIA is also the recognized leader on international industry developments with more than 500 domestic and international members, as well as 

nearly 40 state, regional and national association members. Our members are livestock feed and pet food manufacturers, integrators, pharmaceutical companies, ingredient suppliers, equipment manufacturers and companies that provide support 

services to the industry. 

AFIA members manufacture more than 70% of the animal feed in the U.S., which 

amounts to over 160 million tons annually. Because feed represents roughly 70% of 

the cost of producing meat, milk and eggs, AFIA members are major contributors 

to food safety, nutrition and the environment, playing a critical role in the production of healthy, wholesome meat, poultry, milk, fish, eggs and pets. 

AFIA is a member of the Commodity Markets Oversight Coalition, which was 

formed in 2007, and is a broad coalition of organizations committed to protecting 

the interests of bona fide hedgers and derivatives end-users. We thank the Subcommittee for including Jim Collura in this hearing to speak on behalf of CMOC. 

His leadership has been invaluable to the Coalition. 

Your review of implementation of the Dodd-Frank Act by the Commodity Futures 

Trading Commission (CFTC) is both timely and appreciated by the men and women 

of the feed industry. As I have stated, feed represents approximately 70% of the onfarm cost of raising livestock and poultry. With the majority of our industry’s input 

supplies priced directly on or in reference to regulated commodity markets, we depend significantly on an efficient and well-functioning futures market for both price 

discovery and risk management. 

Agriculture commodity markets were established to provide an efficient price discovery mechanism and a hedging/risk management tool for producers and end-users. 

While this system encourages and requires speculative participants to provide liquidity, the significant increase of financial investors, permitted by special exemption from speculative position limits, has distorted the function of these markets. 

Speculators are an important part of the commodity markets—without them there 

is no market. The agriculture commodity markets functioned effectively for 64 years 

after the 1936 Commodity Exchange Act first implemented speculative position limits. With these limits in place, the process of physical commodity customers using 

the futures markets as a price discovery and risk mitigation tool were able to rely 

on traditional speculator participation to provide a clear buyer/seller relationship 

and market liquidity. 

However, this changed in 2000, when Congress codified earlier CFTC regulatory 

actions granting Wall Street banks an exemption from speculative position limits for 

hedging over-the-counter swaps and index transactions. While there are several factors that have lead to increased volatility and price swings of agriculture commodities, excessive speculation by index funds is certainly one of these factors. As CFTC 

has recognized, speculator participation in these markets without position limits 

does have an impact on prices. 

50

These banks, which represent institutional investors, used the guise of ‘‘hedging’’ 

their invested capital to take advantage of the exemption. But in fact, their initial 

investments were speculative and were not hedging future needs or commitments 

for the underlying commodities. AFIA strongly supported ending this exemption, 

and we were very pleased when Congress took steps to address our concerns. 

Over the past few years, as the volatility and instability in the stock and financial 

markets exploded, speculative activity in the agricultural commodity futures markets grew substantially. In some crop contracts, there were times when the daily 

speculator trading volume was nearly equal to, or in the case of wheat, was more 

than the entire U.S. annual production volume of these same crops. This not only 

added to extreme price volatility as bona fide hedgers scrambled to mitigate their 

risks, but in many cases it pushed end-users out of the market. In at least one situation, this speculator activity pushed an organization into bankruptcy when the impact of margin calls caused by the extreme price run-ups drained the company’s liquidity to unsustainable levels. 

As you are aware, from the Committee’s analysis, when considering reforms for 

the futures markets and products, the size and influence of these very large financial players was never contemplated during development of the original Commodity 

Exchange Act (CEA). The recent dramatic increases in nearly all physical commodities values actually increased speculator demand, with the net result of commodity 

prices reaching unrealistic levels relative to true demand. Most of the index speculators tended to hold their positions rather than sell, which exacerbated the situation by producing artificially high demand accompanied by higher prices that negatively impacted nearly all end-users of the physical commodities. 

The magnitude of this scenario is clear in the numbers: In 2003, index speculator investment in 25 physical commodities was $13 billion; in 2008, these investments 

jumped to $260 billion—an 1,800% increase. In 2010, these investments remain at 

$180 billion, with three index funds representing 92% of these investments and one 

fund representing 61% of these investments. (Illustration 2) 

As a result, the feed industry was forced to pay higher prices for grains and other 

inputs, which were passed along to livestock, dairy and poultry producers and feed 

costs soared. Farmers, although receiving substantially higher prices for their commodities, were also hit by soaring costs for fertilizer and fuel, as similar speculator 

activities artificially further drove up oil prices. 

Simply put, agriculture, from farm to retail, had to deal with extreme price volatility on a number of fronts without the effective support of our primary risk mitigation tool—the futures markets—because those markets were severely compromised 

by Wall Street banks ability to avoid speculative position limits and invest substantial levels of monies in the physical commodity markets. This not only allowed them 

to avoid the volatility of the dust storm on Wall Street, it provided them a significant return on those speculative ‘‘hedges’’ because of their ability to influence the 

escalation of market prices by creating artificial demand. 

Earlier this year, we applauded the work by Congress to include provisions in the 

Act that would authorize the CFTC to set position limits on commodity contracts, 

as well as for aggregate and exchange specific position limits. Also, when commenting on CFTC’s proposed position limits for energy contracts in March of this 

year, AFIA encouraged the Commission to consider such actions for other hard commodities to similarly protect agricultural commodities from the very large financial 

speculators that were masquerading as hedgers, parking their resources in physical 

commodity markets to ride out the extreme volatility then present in the stock and 

financial markets. 

By including clear authority for the CFTC to set a variety of reportable position 

limits, Congress took a solid and welcomed step toward our mutual goal of ensuring 

these commodity markets and products effectively serve their primary role of providing bona fide commercial hedgers reliable tools to manage their economic risks. 

With the expanded authority in place relative to speculation limits, AFIA is anxiously waiting for the CFTC to finalize its regulations and to put speculative limits 

into effect. We know this will take time and are hopeful the combination of the various categories of speculation position limits, combined with full implementation of 

the Act’s other provisions, such as enhanced transparency and expanded regulation 

of nearly all derivatives, will assure bona fide hedgers of the viability of their futures-based risk management strategies. 

I would be remiss if I did not extend AFIA’s appreciation to Chairman Gary 

Gensler and his fellow CFTC Commissioners for their openness and diligence in addressing our concerns, particularly during the time Congress was developing its 

package of reforms. Through frequent meetings, they provided frank and candid 

overviews of their established authorities. When Congress was deliberating its reform legislation, the CFTC team also provided regular updates on progress toward 

51

the reform goals we and others were supporting. Just as important, they helped us 

understand how certain provisions in the Act addressed our concerns while approaching them in a different manner than we had proposed. Importantly, the 

CFTC has been aggressive in its outreach over the past few months as it works to 

implement the Act. 

Like most supporters of reform in the futures industry, particularly as it relates 

to the topic of this hearing, AFIA would very much like to have speculation position 

limits set and in place today, as well the additional regulatory and transparency 

provisions. But we need the CFTC to ensure that when it sets limits, they also are 

ready to monitor and report trading activity, and ready to ensure compliance with 

and enforcement of the new law. It is critical for all bona fide end-users to know 

we are on a level playing field with speculators and each other. 

Modern production agriculture is complex. The linkages between producers, endusers and uses of physical commodities are constantly evolving. The feed industry, 

for example, is still adjusting to the dramatic and rapid expansion of ethanol and 

other bioenergy industries. The intersection of corn, soybeans and other oilseeds for 

feed, food and energy—not mention other industrial uses for these crops—is our new 

reality, one that poses additional competition and risk management challenges for 

each of our respective industry sectors. This has also had the effect of linking corn 

futures to crude oil futures, adding further volatility to the entire commodity complex. 

We are confident the CFTC is prudently moving as efficiently as it can to implement the speculative limits and other provisions of the Dodd-Frank Act under its 

existing and new authorities while making sure it clearly and fully understands the 

complexities of the derivatives markets. While being patient with the rulemaking 

process does produce certain levels of stress, we remain confident in and appreciative of the CFTC’s efforts to date, and hope to remain so. 

This brings me back to the beginning of my testimony. AFIA again applauds the 

Subcommittee, its Members and the full Committee for calling today’s hearing to 

check in on the CFTC’s progress on speculation limits. Your individual and collective interest in making sure progress toward implementation is both steady and correct does a great deal to reduce stress levels among AFIA’s members. 

I urge you to consider additional hearings on the Commission’s progress toward 

implementing all provisions of the Act. Thank you for inviting me to participate in 

today’s hearing. AFIA and its members stand ready to assist you in these efforts. 

I look forward to answering any questions you may have.

52

ATTACHMENT

Illustration 1

Illustration 2


11160001 11160002
53

Mr. MARSHALL [presiding.] Thank you, Mr. Newman. 

Mr. Sprecher. 

STATEMENT OF JEFFREY C. SPRECHER, CHAIRMAN AND CEO, 

INTERCONTINENTALEXCHANGE, INC., ATLANTA, GA 

Mr. SPRECHER. Thank you, Chairman Boswell, Chairman Peterson, Ranking Member Moran. 

I am Jeff Sprecher. I am the Chairman and Chief Executive Officer of IntercontinentalExchange, which is known in our industry as 

ICE; and I am grateful for the opportunity to provide comments on 

the position limit rulemaking that is pending before the Commodity Futures Trading Commission. 

ICE has supported setting aggregate position limits across trading venues if administered in a fair and nondiscriminatory manner. 

In summary, ICE’s position on this subject has been very clear. 

We believe that the CFTC should set aggregate position limits in 

economically equivalent markets; to avoid negatively impacting liquidity that is relied upon by commercial end-users to hedge their 

risk, aggregate position limits should be set at levels taking into 

account the volumes of both the existing futures markets and the 

broader over-the-counter markets; and financially and physically 

settled contracts should be treated differently at their expiration in 

a revised position limit regime. 

There have been exhaustive hearings by Congress and the Commission over the last several years, and they have concluded that 

economically equivalent contracts traded on separate exchanges operate as an aggregate market. Therefore, ICE agrees with Congress 

and believes that the Commission is the appropriate neutral authority to set and administer aggregate position limits for U.S. energy futures and for significant price discovery contracts. Only the 

Commission is in a position to view a market participant’s positions 

across all venues and to administer aggregate position limits in an 

objective manner. 

However, we also believe that the position limit rulemaking 

should focus on implementing the core requirements of DoddFrank, and that is namely setting aggregate position limits across 

markets, and they should avoid the consideration of experimental 

rules, such as rules that would set concentration limits for each 

and every exchange and every swap execution facility. 

In setting aggregate limits, the Commission should take into account trading data from both futures markets and the broader 

over-the-counter swaps market. Failing to take into account accurate data from each of these markets risks setting aggregate position limits at levels that could negatively impact liquidity that is 

actually relied upon by the commercial users to effectively hedge 

their price risk. This would certainly be an unintended consequence, and it would be inconsistent with the goals of DoddFrank. 

Finally, in setting position limits in the expiration or the spot 

month, the Commission should treat financially and physically settled contracts differently as market participants use financial and 

physical contracts differently for different purposes. The Commission already recognizes there is a distinction between financial and 

physically settled contracts. These rules promote contract converVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00057 Fmt 6633 Sfmt 6601 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
54

1 Excessive Speculation in the Natural Gas Markets, Staff Report, Senate Permanent Subcommittee on Investigations (June 2007), pgs. 36–38. http://hsgac.senate.gov/public/lfiles/

REPORTExcessiveSpeculationintheNaturalGasMarket.pdf.

gence and they eliminate the need for significant numbers of hedge 

exemptions that exist in the energy futures markets today. 

In conclusion, we are a strong proponent of open, competitive derivatives markets and of appropriate regulatory oversight; and, to 

that end, we are pleased to work with Congress to find solutions 

that promote the best marketplaces possible. 

Mr. Chairman, I would like to thank you for the opportunity to 

share our views with you here today. 

[The prepared statement of Mr. Sprecher follows:]

PREPARED STATEMENT OF JEFFREY C. SPRECHER, CHAIRMAN AND CEO, 

INTERCONTINENTALEXCHANGE, INC., ATLANTA, GA 

Introduction 

Chairman Boswell, Ranking Member Moran, I am Jeffrey C. Sprecher, Chairman 

and Chief Executive Officer of IntercontinentalExchange, Inc., or ‘‘ICE.’’ We are 

grateful for the opportunity to provide comments on the position limit rulemaking 

pending before the Commodity Futures Trading Commission (Commission). 

As background, ICE was established in 2000 as an over-the-counter (OTC) marketplace with the goal of providing transparency and a level playing field for the 

previously opaque, fragmented energy market. Since that time, ICE has grown significantly through organic growth fostered by product, technology and clearing innovation, and by acquisition of futures exchanges that have broadened its product offerings and risk management services. Today, ICE operates a leading global marketplace for futures and OTC derivatives across a variety of product classes, including 

agricultural and energy commodities, foreign exchange and equity indexes. Commercial market participants rely on our products to hedge and manage risk and investors in these markets provide necessary liquidity. 

ICE believes proper regulation is essential for ensuring that market participants—as well as the broader public—have confidence in the price formation process 

that takes place in our markets. This assurance of integrity lies at the heart of the 

futures exchange model. The U.S. energy futures markets, governed by the Commission’s comprehensive-but-flexible regulatory structure, have permitted commercial 

and professional market users to hedge future price risk in an efficient and costeffective manner. 

Position Limits 

The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Commission new authority to set aggregate position limits on both energy futures and 

swaps and to have those position limits apply across competing exchanges and trading venues. This authority was granted by Congress because economically equivalent contracts may vary only where they are listed for trading, or in how they are 

settled, and have repeatedly been shown to trade as a single market up until the 

final days of trading.1

ICE supports aggregate position limits across trading venues if administered by 

the Commission in a fair, non-discriminatory manner. In summary, ICE’s position 

on this subject is clear:

(1) Different sized position limits for different exchanges, or so-called ‘‘concentration limits’’, were considered and rejected by Congress, and should not 

form a part of the Commission’s proposed rules because they are conceptually 

inconsistent with the ‘‘single market’’ theory and anti-competitively favor larger 

exchanges; and

(2) To avoid negatively impacting liquidity that is relied upon by commercial 

end-users to hedge their risk, aggregate position limits should be set at levels 

taking into account both existing futures volumes and the broader OTC markets.

The Dodd-Frank Act gives the Commission 180 days to implement the position 

limit provisions for energy. ICE believes that the position limit rulemaking would 

be easier and less costly to implement if the Commission focused its rulemaking on 

implementing the core requirements of Dodd-Frank, namely aggregate position limVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00058 Fmt 6633 Sfmt 6621 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
55

2 H.R. 4173, Section 3155. 

3Testimony of Dr. James Newsome, Chief Executive Officer, New York Mercantile Exchange, 

before the Subcommittee on General Farm Commodities and Risk Management, United States 

House of Representatives (September 26, 2007). 4See, supra note 1. 5Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 723(3). 

its across markets—and avoids consideration of experimental rules and such as single-exchange concentration limits that have already been rejected by Congress. 

Concentration Limits for Single Exchanges Were Rejected by Congress and 

Are Redundant and Anti-Competitive 

In the Commission’s previous position limit rulemaking, which was withdrawn in 

anticipation of the passage of Dodd-Frank, the Commission proposed an aggregate 

position limit regime across markets, but with separate ‘‘concentration limits’’ for individual exchanges and trading venues. The concentration limit would be set at 30% 

of the given exchange or venue’s open interest for all months, and 20% of open interest in any single month, with each percentage based on the exchange’s open interest 

in the previous year. The Commission’s rationale for the concentration limit was to 

prevent concentrated positions from causing abrupt price movements and distortions 

in a market, and to ‘‘fragment’’ the market to allow multiple traders to step in 

where a smaller number of traders may have existed previously. The theory rested 

upon the unproven assumption that large traders are crowding out smaller participants. 

ICE disagrees with setting exchange specific concentration limits in any new rulemaking as they ignore the premise that economically equivalent contracts operate 

as a single aggregate market, were expressly rejected by Congress in drafting DoddFrank; and may have significant anti-competitive implications.2 Exhaustive hearings by Congress and the Commission over the last several years have concluded 

that economically equivalent contracts traded on two separate exchanges operate as 

a single aggregate market. In testimony before this Subcommittee in September 

2007, Dr. James Newsome, former Commission Chairman and then President of 

NYMEX, stated ‘‘the two competing trading venues [ICE and NYMEX] are now 

tightly linked and highly interactive and in essence are simply two components of 

a broader derivatives market.’’ 3 This is because participants arbitrage between economically equivalent markets, causing prices to converge. As this Subcommittee is 

well aware, the one market concept was the impetus for provisions in the farm bill 

which mandate regulation of swaps determined to be Significant Price Discovery 

Contracts in an equivalent manner as futures. Thus, the idea of imposing concentration limits on an ‘‘individual exchange’’ basis is unnecessary given the aggregate 

limit, which will serve the same purpose. 

Importantly, Congress expressly rejected a concentration limit in Dodd-Frank 

when it dropped language in the Section 738 of the Act in the House version of the 

legislation 4 requiring foreign boards of trade to set position limits based upon ‘‘relative’’ market size. In addition, having market specific concentration limits appears 

inconsistent with other parts of Dodd-Frank, which contemplates multiple competing Swap Execution Facilities with open access to central clearing houses where 

swap positions would be traded into on one SEF and out of on another SEF.5 It is 

not apparent how this could be accomplished with SEF-specific concentration limits 

based upon open interest at an open-access clearinghouse used by multiple platforms. 

Finally, a single exchange concentration limit is anti-competitive. The Commodity 

Exchange Act mandates that the Commission ‘‘regulate the futures markets by the 

least anti-competitive means available.’’ By design, a concentration position limit 

will impose smaller, or stricter, concentration limits in smaller markets. A smaller 

market with fewer market participants has its open interest concentrated in these 

market participants. Thus, applying a concentration limit for an individual exchange will inhibit competition by impeding liquidity, given that smaller markets 

are concentrated. This would effectively lock in the market share of existing exchanges. A nascent exchange with such restrictions would likely face insurmountable odds in establishing a market and competing with incumbents. In addition, 

large market participants will effectively be prevented from leaving one market for 

another that offers a competitive advantage due to its inability to carry a similar 

sized position on the second market due to the ‘‘concentration limit.’’ This would 

substantially curtail innovation and the choice that exists in today’s markets. Slowly, over time, the dominant market will continue to gain market share, as liquidity 

attracts liquidity. In the end, concentration limits may create the opposite of what 

56

the Commission intends: a diverse, highly competitive market for execution of derivatives. 

Position Limits Across Futures and OTC Markets Should Be Set to Avoid 

Negatively Impacting Liquidity Available to Commercial Users of the 

Markets and Should Be Based Upon Data of Each Market 

In setting aggregate position limits across futures and OTC markets, the Commission should act only after taking into account trading data from both the futures 

markets and the broader OTC swaps markets. Failing to take into account accurate 

data from each market risks setting aggregate position limits at artificially low levels that could negatively impact the liquidity relied upon by commercial users to efficiently hedge their price risk. Dodd-Frank requires the Commission for the first 

time to regulate previously un-regulated OTC markets that have themselves been 

used by segments of the commercial market to hedge risk. Should the Commission 

not take into account the size of this market in setting speculative position limits 

in the now-combined market, liquidity could be adversely impacted with commercial 

end-users paying wider spreads to hedge their price risk. This would certainly be 

an unintended consequence and inconsistent with Dodd-Frank’s broader goals. 

Conclusion 

ICE is a strong proponent of open and competitive derivatives markets, and of appropriate regulatory oversight of those markets. As an operator of global futures and 

OTC markets, and as a publicly-held company, we understand the essential role of 

trust and confidence in our markets. To that end, we are pleased to work with Congress to address the challenges presented by derivatives markets, and we will continue to work cooperatively for solutions that promote the best marketplace possible. 

Mr. Chairman, thank you for the opportunity to share our views with you. I am 

happy to answer any questions you may have.

The CHAIRMAN [presiding.] We thank you. 

Mr. Jones. 

STATEMENT OF ROBERT JONES, SENIOR VICE PRESIDENT, 

ABN AMRO CLEARING CHICAGO LLC; MEMBER, RISK

MANAGEMENT COMMITTEE, NATIONAL GRAIN AND FEED

ASSOCIATION, CHICAGO, IL 

Mr. JONES. Good morning, Mr. Chairman, Members of the Subcommittee. I am Robert Jones, Senior Vice President of ABN 

AMRO Clearing in Chicago, a futures commission merchant. I 

serve on the Risk Management Committee of the National Grain 

and Feed Association, and I am here today to represent the views 

of the National Grain and Feed Association. We appreciate the opportunity to discuss position limits for enumerated agricultural 

commodities. Federal position limits are already in place for those 

commodities, and we believe they are at appropriate levels. 

Generally, we have found that the Commission understands the 

impacts of its actions on commercial businesses and is responsive 

to our concerns. However, the deadlines that have been set in the 

law are very challenging. 

For our industry, the price discovery occurs primarily in the futures market, so it’s extremely important that we get these rules 

right. Given the choice, we would prefer to go a little slower and 

make sure we get it right, rather than rush rules through to meet 

a deadline and find out later about unforeseen consequences. 

To provide some context for this, I would like you to think back 

to 2008. Agricultural futures prices escalated rapidly, resulting in 

a disconnect of cash and futures values, otherwise known as convergence. Basis levels for producers, essentially the difference between the cash and the futures, widened dramatically. The situation increased risk for grain purchasers and hedgers and caused 

extreme financial stress due to massive margining requirements. 

57

At the same time, marketing opportunities for producers were 

limited. We believe that the expanded participation by nontraditional participants like index funds and pension funds played a role 

in the 2008 spike—not the only factor but a factor. 

Today, conditions exist that could lead to a repeat of that situation. If another investment-fueled futures spike occurs, grain buyers may be forced to limit their purchases from U.S. agricultural 

producers as occurred in 2008. Certainly buyers would be forced to 

consider tighter limits on forward contract purchases, and at the 

very time many producers would like to take advantage of those favorable prices. 

The NGFA believes that it would be imprudent for the CFTC to 

change current speculative position limits for the enumerated agricultural commodities. 

In particular, we have a strong reservation about an approach 

that would create a combined position limit for over-the-counter instruments and futures based on open interest levels. 

The majority of the risk management activity for the enumerated 

ag commodities involves futures traded on exchanges. The practical 

impact of a combined OTC and futures position limit likely would 

mean limits ratcheting steeply upward for futures. We fear the result would be a sort of perpetual motion machine leading to investment in enumerated ag commodities in ever-greater amounts and 

even wider basis swings occurring. 

In addition, the commodity exchanges, notably the Chicago Board 

of Trade and the Kansas City Board of Trade, have worked diligently to reestablish convergence in their wheat contracts. Getting 

it wrong on position limits could undo progress that the exchanges 

are making toward enhancing the performance of their contracts. 

Proper functioning of futures markets for traditional commercial 

users and producers should be the CFTC’s overriding consideration 

in establishing position limits. A reliable relationship between cash 

and futures must be maintained. 

Convergence matters, not just sometimes, but consistently and 

predictably. The National Grain and Feed Association does not 

favor excluding investment capital from agricultural futures markets, as we believe it does provide liquidity to our markets. However, we believe that the CFTC must establish reasonable limits on 

an investment in the enumerated ag commodities so these relatively small markets are not overwhelmed by investment demand. 

Ignoring the unique characteristics of these markets could have 

highly undesirable consequences for agricultural producers and 

their traditional hedgers who use these markets for price discovery 

and risk management. 

Thank you, Mr. Chairman, for the opportunity to present 

NGFA’s views today. And we will be happy to respond to any questions. 

[The prepared statement of Mr. Jones follows:]

PREPARED STATEMENT OF ROBERT JONES, SENIOR VICE PRESIDENT, ABN AMRO 

CLEARING CHICAGO LLC; MEMBER, RISK MANAGEMENT COMMITTEE, NATIONAL

GRAIN AND FEED ASSOCIATION, CHICAGO, IL 

Good morning, Mr. Chairman and Members of the Subcommittee. I am Robert 

Jones, Senior Vice President of ABN AMRO Clearing Chicago LLC, a futures commission brokerage in Chicago. I serve on the Risk Management Committee of the 

58

National Grain and Feed Association (NGFA) and I am here today to represent the 

views of the NGFA. 

The National Grain and Feed Association is the national nonprofit trade association that represents more than 1,000 companies that operate an estimated 7,000 facilities nationwide in the grain, feed and processing industry. Member firms range 

from quite small to very large, both privately owned and cooperative, and handle 

or process in excess of 70% of all U.S. grains and oilseeds annually. Companies include grain elevators, feed mills, flour mills, oilseed processors, biofuels producers/

co-product merchandisers, futures commission merchants and brokers, and related 

commercial businesses. 

A common thread for NGFA-member firms is that they rely heavily on efficient 

futures markets to provide price discovery and risk management for their commercial businesses. In particular, consistent and predictable convergence of cash and futures values is of primary importance to the NGFA. Establishing appropriate speculative position limits for the futures contracts utilized by these traditional commercial hedgers is critically important to maintaining the viability of futures contracts 

for risk management purposes. It also is essential in enabling our member companies to make forward contracting and other risk management tools available to 

farmer-customers. 

We are especially glad for the opportunity this morning to discuss position limits 

for the enumerated agricultural commodities—that is, wheat, corn, soybeans, livestock and cotton. As you know, Federal position limits already are in place for those 

commodities. We believe those limits are at appropriate levels and that the process 

for establishing those limits has worked well. However, the Dodd-Frank Act requires that the CFTC now establish speculative position limits for all commodities, 

including agricultural commodities. 

In the past, the NGFA generally had been supportive of occasional requests by 

futures exchanges to increase speculative position limits. However, futures price volatility in recent years and vastly increased participation by nontraditional participants has altered the situation and, at times, threatened the viability of exchangetraded futures for commercial grain hedgers. The rapid escalation of agricultural futures prices during 2008, and a resulting disconnect of cash and futures values, dramatically increased risks for grain purchasers/hedgers and caused extreme financial 

stress due to massive margining requirements. We believe that dramatically expanded participation in agricultural futures by nontraditional participants like 

index funds and pension funds played a role in the 2008 spike—not the only factor, 

but a significant one. 

Today, conditions exist that could lead to a repeat of those conditions. With investment capital now seeking enhanced returns and many advisers recommending 

commodities as an investment vehicle, it appears the stage could be set for another 

investment-fueled spike in futures prices—an increase we fear will be largely unrelated to market fundamentals and could again result in extreme financial stress. If 

this happens, grain buyers may be forced to limit their purchases from U.S. agricultural producers, as occurred in 2008. Certainly, buyers would be forced to consider 

tighter limits on forward contract purchases, at the very time that many producers 

would like to take advantage of favorable prices. 

Many Members of Congress have heard from producers about wider basis levels 

in recent years—that is, the difference between cash bids and futures values on-exchange. We believe strongly that artificially inflated futures values, due in part to 

participation of nontraditional investors, have led to a disconnect between cash and 

futures. The commodity exchanges, notably the Chicago Board of Trade and the 

Kansas City Board of Trade, have worked diligently to address the disconnect and 

to re-establish convergence in their wheat contracts. Getting it wrong on position 

limits could undo progress the exchanges are making toward enhancing performance 

of their contracts. 

For these reasons, the NGFA believes it would be imprudent for the CFTC to 

change current speculative position limits for the enumerated agricultural commodities. In particular, we have strong reservations about an approach that would create a combined position limit for over-the-counter instruments and futures based on 

open interest levels. The logic for not linking speculative position limits to open interest levels is as follows. 

The majority of risk management activity involving the enumerated ag commodities utilizes futures traded on-exchange. The practical impact of a combined OTC 

and futures position limit likely would mean limits effectively ratcheting steeply upward for futures—attracting greater investment and boosting open interest levels—

which would trigger increased position limits—leading to yet greater participation 

levels and increased open interest—and triggering even higher position limits—and 

so on. We fear the result would be a sort of perpetual motion machine leading specVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00062 Fmt 6633 Sfmt 6621 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
59

ulative investment capital to invest in enumerated ag commodities in ever-greater 

amounts, exacerbating artificially inflated futures values and leading us back to 

even wider basis swings. 

Instead, the NGFA strongly urges the CFTC to use proper functioning of futures 

markets for traditional commercial users and producers as the overriding consideration in establishing position limits. That means that a reliable relationship between cash and futures must be maintained. Convergence Matters! Not just 

sometimes, but consistently and predictably. 

We also urge the CFTC to be vigilant in reviewing corporate linkage issues 

through which investment firms or other nontraditional participants may technically comply with position limits through separate entities, while coordinating positions that would circumvent the intent of the rule. This would seem to us consistent with the Commission’s intentions to monitor account ownership and control 

to help ensure compliance. 

Mr. Chairman, all these points lead back to one very important message: enumerated agricultural futures contracts must function effectively for traditional commercial hedgers and their farmer-customers. The NGFA does not favor excluding investment capital from agricultural futures markets. In fact, we believe that a desire to 

invest in our industry is a good thing. It forecasts growth and economic opportunity 

for U.S. agriculture and agribusiness. 

However, we believe Congress and the CFTC must act prudently to establish reasonable limits on investment in the enumerated ag commodities and help ensure 

that those relatively small markets are not overwhelmed by investment demand. Ignoring the unique characteristics of the enumerated agricultural commodities when 

setting position limits could have highly undesirable consequences for U.S. agricultural producers and the traditional hedgers who use these markets for price discovery and risk management. 

Thank you, Mr. Chairman, for the opportunity to present the NGFA’s views. I 

would be happy to respond to any questions.

The CHAIRMAN. Thank you. 

I thank the whole panel. We have votes coming up in about 15 

or so minutes, we are told. We are not going to limit the discussion 

to take place here, let’s, just to expedite a little bit, I will go right 

to Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. Just a quick question. 

I’m obviously particularly proud to have two of my fellow Illinoisans here, Mr. Jones and Mr. Duffy. I would ask you, it seems 

as though at least the Commission is of a mind that if we hurry 

to regulate our domestic exchanges, our European counterparts will 

follow. 

It is my judgment, and I may be wrong and I am inquiring as 

to you specifically, as to whether you think that is the correct process; or whether you think, in fact, that that course would put our 

markets, CME and otherwise, at a competitive disadvantage. And 

do you think if we do put the cart before the horse, in my judgment, that the Europeans will impose similar position limits, or do 

you think they will simply lag back and take advantage of our premature action? 

Mr. DUFFY. Well, I thank Congressman Johnson for the question 

because it is very interesting. I met with the gentleman from 

France. His name escapes me, but he is the head of the European 

Commission on this. And I asked him, when he told me along with 

Chairman Gensler when he came to visit us at the exchange, that 

they were in lockstep with the United States. I asked him when 

they passed Dodd-Frank in the U.K., and they said they did not 

pass Dodd-Frank. I asked them when they had other provisions put 

in place such as in the United States, and they had no such provisions, not even anything on the table. 

60

They are making a lot of rhetoric, in my opinion. As it relates 

to regulatory reforming with the U.S., I do not see that to be the 

reality. The U.K., especially in London, is very dominated by the 

financial services industry. I think they will say many things to get 

a competitive advantage over the United States, and it would be 

a shame if that was allowed to happen. I am not talking my own 

book here, I am talking the United States’ book here. We want to 

keep this business in the U.S. We want to be the central place to 

discover price. And I assure you that our friends over in Europe 

would love to have the business that the United States has today. 

So I personally don’t believe that they are going to follow suit 

with the United States in laws. They may do certain things, but 

not to the extent that we have done in this country. 

Mr. JOHNSON. I appreciate it. To my fellow Members that remain 

on the panel and everybody here, Merry Christmas and Happy 

Holidays to all of you. 

Mr. DUFFY. Merry Christmas, sir. 

The CHAIRMAN. Thank you. Mr. Peterson. 

Mr. PETERSON. Thank you, Mr. Chairman. 

Mr. Duffy, this article that I referenced earlier, as I understand 

it, I guess you didn’t respond, or I don’t know if they called you or 

not about this article. 

Mr. DUFFY. No, they did not. 

Mr. PETERSON. But you were offering the Citadel service. And is 

it true that you couldn’t get—they couldn’t get people to sign up? 

Mr. DUFFY. We had an offering with Citadel Investment Company roughly a year, year and a half ago, to bring to the market 

trading of credit default swaps initiative, and we did not receive 

any traction on that initiative with Citadel Investment firm for a 

whole host of reasons. We have had a lot of businesses that we invest in and we try, some work some don’t, no different from our 

products. We test products, hundreds of them, and maybe one can 

be successful out of hundreds or thousands, so this is another venture that did not succeed. 

Mr. PETERSON. You agree with the characterization that the reason it didn’t is that these so-called secret committee of nine bankers froze it out? 

Mr. DUFFY. I don’t know of any facts to support that, sir, to be 

honest with you. I would not know that. But I would suggest that 

the clearinghouse at the CME Group is an open clearinghouse. I 

think Chairman Gensler referred to some of the barriers to entry 

to the clearinghouses in the United States. We don’t have the barriers to entry into our clearinghouse that he was referring to. So 

there is not a multi-billion-dollar commitment into clearing at CME 

Group’s products today. So there are risk-management issues in 

these OTC products. I am not saying that is not important. But in 

today’s business that CME Group does, we don’t have the barriers 

to entry that Chairman Gensler might have characterized incorrectly. 

Mr. PETERSON. Did the risk committee change? Do you have a 

risk committee? 

Mr. DUFFY. We do have a risk committee, sir. 

Mr. PETERSON. Has the makeup of that changed? 

61

Mr. DUFFY. The makeup of our risk committee can change 

throughout time. Obviously, we have certain members that come 

and go, but we have a composition of people that have interest in 

the marketplace that is reflective of the marketplace, and we think 

that is the best thing for all the users. 

Mr. PETERSON. You would not agree that this risk committee is 

dominated by these so-called secret committee——

Mr. DUFFY. I didn’t give that much credit, to be honest with you, 

sir. I don’t believe that. I think the markets are much bigger than 

that. I don’t think there is any collusion going along. Risk committees, there is way to much at stake for that to be going on, whether 

it is not a CME Group or any other institution. 

Mr. PETERSON. Mr. Sprecher, you have a risk committee, too. Is 

it made up of big guys or more broad than that? 

Mr. SPRECHER. Yes. We own five regulated clearinghouses, but 

one of them is specific for credit default swaps. The members of 

that clearinghouse are the 14 largest global banks. And each of 

those banks has a representative on the risk committee. That risk 

committee is overseen by an independent Chairman, and the issues 

that are discussed in our committee are risk issues, so I can’t speak 

to these. What the article suggested were Wednesday meetings 

downtown or other things. 

Mr. PETERSON. You are not aware of those? 

Mr. SPRECHER. I am not aware of those. 

Mr. PETERSON. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Mr. Conaway. 

Mr. CONAWAY. Thank you Mr. Chairman. Gentlemen, welcome. 

Given that the state of play is at the CFTC, and not in Congress 

right now, what are you coming to Congress here to ask us? Are 

you coming to ask us to do anything with respect to the rulemaking 

that is going on, that the Congress actually needs to act, or are you 

wanting us to continue to watch what is happening at the CFTC? 

Anybody ask you to do something specific? 

Mr. NEWMAN. I think as we identified in the positions for the 

American Feed Industry Association, we appreciate your continued 

oversight and watching the process, and ensuring that it does go 

forward and gets the results that everyone intended. 

Right now we see our role as working more directly with CFTC 

in the comment process to make sure that our interests and so 

forth are taken into account in that process. 

Mr. CONAWAY. Speaking of that question, have all of your organizations and your individual members had the appropriate level of 

access to the rulemaking process? 

Mr. SPRECHER. Yes, we have. 

Mr. NEWMAN. We have had very good cooperation and outreach 

to not only clarify what is being considered, but also to be able to 

have the input into the process. 

Mr. CONAWAY. Mr. Collura, are you guys being considered? 

Mr. COLLURA. Yes. We have had adequate access to the Commission, the rulemaking process; and actually as a coalition, we submitted comments, preliminary comments to CFTC on November 1. 

Some of those suggestions we have made regarding the position 

of its rulemaking were actually kind of thrown around a little bit 

62

in discussion in a previous panel. One of those points made, Congressman Marshall, was very well taken about the importance for 

a lot of energy and agricultural groups in our coalition that are 

concerned about index speculation. I think that, I hope that tomorrow the proposed rulemaking will attempt to address that situation 

and, maybe like Commissioner Chilton said, find a way to somewhat segregate the various forms of speculation that occurred in 

the markets and address them as appropriate. And if not, we will 

be certain to——

Mr. CONAWAY. Help me with that. What type of various forms of 

speculation? You said various forms of speculation. What—help me 

understand what a form of speculation is. 

Mr. COLLURA. I am speaking of traditional speculation such as 

hedges and futures investors——

Mr. CONAWAY. So it is not the form of speculating——

Mr. COLLURA. Right, versus the index funds which have a different investment strategy when it comes to commodity investments. 

Mr. CONAWAY. You used a phrase which I thought was interesting. You said that basically the speculation—and you said it as 

a pejorative—are bets on higher prices. Is there a different reason 

to speculate than higher prices? 

Is that the side of the deal that is buy low, sell high? 

Mr. COLLURA. I am sorry, I am not sure I understand the question. 

Mr. CONAWAY. You used a phrase as a pejorative that the speculators were betting on higher prices. And I was struck by that as 

to—I am not aware of a speculator——

Mr. COLLURA. My comment was in respect to the earlier comments that Congressman Marshall had raised about index speculation. These folks take passive rolling positions in commodities and 

can create almost a perpetual situation of entangling a market, 

where outside of spot months——

Mr. CONAWAY. Are there speculators that you would agree should 

be in the market? 

Mr. COLLURA. I agree speculators, in general, should be in the 

market. Speculation, in general, is a good and healthy thing. It provides liquidity and provides risk management and, as was being 

discussed, risk management and risk mitigation. 

Mr. CONAWAY. The comments about, you, your members, are 

they willing to accept higher prices for transaction costs as a result 

of limiting the number of speculators in a market? Is that a—does 

that have any—I will ask Mr. Duffy and Mr. Sprecher. You both 

mentioned higher transaction costs. 

Are those—is that one of the burdens that we talk about if we 

mess this market up? And can you measure those higher transaction costs? 

Mr. DUFFY. I think you can, sir. Prior to going into management 

at CME in 2002, I spent 25 years of my career actually trading 

these products and providing liquidity for all different types of 

products. And I know when there are fewer participants in a marketplace the bid offer widens significantly. And I don’t care if you 

are trading government securities or you are trading pork bellies. 

It will widen significantly with less participants. 

63

So the answer to your question is absolutely yes, and I have seen 

it for many, many years, firsthand, whether it is electronically or 

in the pit form. 

And if I could just clarify one other point, sir, while I have the 

microphone, on these index funds. These index funds, just so we 

are all clear on this, they do not come to expiration of the market. 

We have all decided, or we have had a lot of discussion, that the 

price discovery function happens during delivery period of the marketplace. Index funds have long gone from the delivery period of 

any marketplace and have gone to the next month. So they are not 

affecting the price discovery of any one particular product. 

And also when you look at who takes or makes delivery of these 

products, there are less than several hundred contracts on a delivery period every cycle when millions of contracts are being traded. 

So it is a very small percentage of delivery that is being done, and 

the index funds have long moved out of the marketplace. 

I apologize for answering two questions at once. 

Mr. CONAWAY. That is okay. I yield back, Mr. Chairman. 

The CHAIRMAN. Mr. Marshall. 

Mr. MARSHALL. Thank you, Mr. Chairman. I guess it is the influx 

of the index fund money that some say would push prices higher, 

and then that you would reach some sort of stable state where they 

are getting out and they are not affecting price the way you describe. 

Mr. Duffy? 

Mr. DUFFY. They would actually be selling the nearby contract, 

sir. So they would be putting pressure on the price discovery contract month, if they are index funds that are long. There are also 

index funds that are short, too. 

Mr. MARSHALL. Right; once you get to that stable state. 

Mr. DUFFY. Correct. 

Mr. MARSHALL. And it may, again, I don’t know, I just don’t 

think that we here in this Committee or in Congress are competent 

to judge this. That is why we defer to the CFTC and specifically 

told the CFTC, ‘‘Don’t do it if it is not appropriate to do it. Figure 

out whether or not you have a problem and then tailor the solution 

to that specific problem.’’

But we did hear this testimony that maybe the influx of commodities money into the market could pull—force prices to go up for a 

period of time and then there would be a stable state that you have 

described where they are just rolling and they are not really affecting price. 

Mr. DUFFY. I assure you, anytime there is an influx of money 

into any particular product, whether it is a security of IBM stock, 

CME stock, or ICE stock, or a barrel of crude oil, you could have 

a short-term impact on price all the time. You can do that at the 

grocery store, you can do it at the gas pump, you can do it anywhere. But normally the market will come back into fundamentals 

right away. 

Our point is these people are not affecting the price when it 

comes into what is the delivery period. 

Mr. MARSHALL. The CFTC used its special call authority to gather large trader data, and it has been gathering large trader data, 

since late 2007; first, quarterly, and now it is doing it more freVerDate 0ct 09 2002 13:56 Feb 09, 2011 Jkt 041481 PO 00000 Frm 00067 Fmt 6633 Sfmt 6601 I:\DOCS\111-60\63105.TXT AGR1 PsN: BRIAN
64

quently, maybe monthly. Eventually the objective here is to get it 

daily, and I guess that is going to occur late in 2011. 

Are any of you aware of any studies—we have already talked 

about the CFTC itself looking at the large trader data to determine 

whether or not it has had an impact upon price—whether or not 

the trading by these massive passive index funds, what have you, 

whether they have had an impact on price? Are any of you aware 

of a study done by anybody—Lincoln, Princeton, you name it, 

doesn’t matter who it is—taking that data, which is probably the 

best thing to be looking at, trying to figure out whether or not 

index fund trading has had an inappropriate impact? Anybody 

looking at that data who has come up with, yes, here is the problem and specifically here is what happened? Anybody? 

Mr. DUFFY. We have looked at the data and we have seen no evidence to support that index funds are doing what you suggested. 

So we have looked at all the academic data and others coming out, 

and even CFTC’s economist, and their data, their reports, and have 

seen nothing to support that speculators are influencing the price 

of products. 

Mr. COLLURA. I believe that we might have some data and some 

information, which I can’t cite offhand but I can certainly get the 

Committee in the future. 

Mr. MARSHALL. That would be great, and share it with the CFTC 

as well. If the Committee has heard one message here, and it is 

fairly consistent on both sides of the aisle, is that we don’t think 

the CFTC needs to move forward. They are not mandated to move 

forward by Congress to impose position limits if they don’t know 

there is a problem. 

So if you can help them identify the problem, because internally 

they are really struggling with this. You have some Commissioners 

who say, ‘‘Oh, yes, there is a problem.’’ But they are not able to 

describe it. And the staff is saying, ‘‘We can’t figure out what that 

problem is so we don’t know what solution to suggest.’’

Mr. Jones, you said that your group was really troubled by imposing position limits across all markets, so not just in the exchanges but in the OTC market swaps world generally. And because it was good, and I have your language here: The practical impact of a combined OTC and futures position limit likely would 

mean limits effectively ratcheting steeply upward for futures. 

When you say the limits would ratchet up, what you mean by 

that is your members would have position limits that were gradually pushed down so that they really weren’t able to take as much 

advantage of the exchange as in the past? 

Mr. JONES. I would say all or at least most of our members 

would fall into the qualified hedger category. What we are referring 

to there is, as I said early on, the majority of and particularly in 

the enumerated commodities of corn, soybeans, wheat, the majority 

of the trading that goes on, the price discovery occurs on the exchange and most of it is hedged. And so, unlike the energy markets, which I am no expert in, but there is a much larger OTC portion of that that occurs. So if we were combined with the OTC, it 

actually would create a much larger position limit that specs could 

have if they combined the two than what exists right now, if it 

were to flow into the futures market. 

65

Mr. MARSHALL. The trouble I am having is seeing what effect 

that has on your ability to actually hedge. 

Mr. JONES. Well, then that would follow what we said before if 

you were to get into this investment-fueled higher-price scenario, 

like we had in 2008, because you had this excessive amount of investment money that had come into the market. 

Mr. MARSHALL. You are suggesting that the imposition of aggregate position limits would encourage additional investment market——

Mr. JONES. I would say would allow it, not encourage it. 

Mr. MARSHALL. It is currently allowed without limit. 

Mr. JONES. Not in the enumerated ags like corn, soybeans, our 

markets. 

Mr. MARSHALL. You don’t have an OTC, comparable contracts 

OTC with regard to those? 

Mr. JONES. The exchange just recently—and I refer to Mr. Duffy 

from the CME—but it is not as mature, not the developed market 

that the futures, at this point in time——

Mr. MARSHALL. So you are worried that doing this would encourage that kind of phenomena? 

Mr. JONES. At this point in time. We are not saying it shouldn’t 

happen. We are just saying we shouldn’t rush to do that without 

the CFTC. We have had ongoing discussion with CFTC and found 

them responsive to our needs. But we just don’t think that they 

have to rush to make those things in our contract at this time. 

Mr. MARSHALL. Thank you for your indulgence, Mr. Chairman. 

I appreciate all of your testimony. 

The CHAIRMAN. Thank you. 

Mr. Murphy. 

Mr. MURPHY. I wanted to return to something the Chairman was 

asking about, and ask Mr. Duffy and Mr. Sprecher if they would 

comment a little more. When we went through the Dodd-Frank 

process, we were very worried about making sure we found the 

right balance, that our clearinghouses were out there allowing 

things to be cleared that could be, but that we didn’t put regulatory 

pressure on you to take products that you couldn’t price and therefore we would create additional risk. 

This New York Times article was a little troubling because it was 

talking about secrets in a way that I think is a little theatrical, but 

there is a fundamental underlying issue that I am curious about 

how you guys approach this? You need people that are clearinghouse members to be solid enough that if there is a problem they 

can help solve that with capital calls and other things; but at the 

same time, it seems like there is a possibility that people could set 

those limits so high that only a handful of people can participate, 

and you do create an anti-competitive marketplace, how do you 

guys approach finding that balance? 

Mr. Duffy, you talked about being open, but I don’t know what 

that means. And that balance seems like it is a critical one to find, 

that we get the competition we are looking for without creating additional risk. 

Mr. DUFFY. I am happy to refer to Mr. Sprecher to begin with, 

since he was mentioned in the article and we weren’t. So I am 

happy to——

66

Mr. MURPHY. It is an issue for both of you. 

Mr. SPRECHER. Let me steal the microphone away from Mr. 

Duffy. 

I think specifically with credit default swaps, as you may know, 

we stepped forward at a moment in time when the market had collapsed and people were calling to remove the toxic assets off the 

books of the banks and built a clearinghouse to do that. And that 

is why we have 14 large bank members. And the only solution that 

we could come up with on how to deal with a failed bank is to force 

the other 13 members to accept a forced allocation of the failed positions amongst them that my company would administer. 

We want to open that clearinghouse up, but we have to recognize 

that, particularly in the case of some of these complicated derivatives, the new members coming in have to be in a position to be 

able to accept an allocation of these derivatives, and then they 

have to be able to do something with them in a marketplace. And 

we do intend to open that up and we are working on regimes to 

get there. And certainly Dodd-Frank is an impetus to speed up that 

implementation. 

I think the New York Times article was unfair in that it took the 

construction of that clearinghouse out of the context in which it 

was built. 

Mr. MURPHY. Do you have the same kind of issues with the other 

regulated clearinghouses? 

Mr. SPRECHER. Not necessarily. As the products get more liquid 

and more transparent and more exchange traded, it is much easier 

for a member to come in and accept the defaulting position and 

then liquidate it in a transparent market. 

As you specifically know because of your expertise, the credit default swap market is an incredibly illiquid and complicated market, 

and there aren’t many people that have the domain knowledge to 

do that right now. 

Mr. DUFFY. If I could just support what Mr. Sprecher said, on 

our list of products, obviously we don’t have the requirements that 

we would potentially have if we were to go in and do the OTC 

clearing because it is a different product. It is not illiquid, but it 

doesn’t have the liquidity in participation of a list of derivatives 

market has today. 

So in order to risk manage that properly so we don’t have the 

system implode, you need to have capital requirements that make 

sense. You need to set margin requirements that are different than 

listed traditional futures. So we have to do different types of risk 

management as it relates to over-the-counter swaps-type clearing. 

So I would concur with my colleague, Mr. Sprecher. 

Mr. MURPHY. Let me just comment. I think from my discussions 

with our colleagues, there was wide support for trying to open up 

these markets to the degree possible. What you are hearing from 

us, and you will continue to hear from us over the years, is that 

desire for you to, in a prudent fashion, because clearinghouses obviously need to be prudent, but to continue to try to make them open 

and accessible so we have more competition and more transparency. I think that is really a big underlying piece of what we 

were all working on through the course of Dodd-Frank, and so I 

will leave you with that as something to keep in mind. 

67

The CHAIRMAN. Gentlemen, thank you very much for your spending this time with us. We appreciate it. And in recognition of the 

fact, we are looking forward for his good work, Mr. Conaway will 

be calling the next meeting of this Subcommittee, whenever that is 

going to be, so I would like to offer him any closing remarks he 

would like to make. 

Mr. CONAWAY. Thank you, Mr. Chairman. I hope it is not speculating on something that has not actually happened yet. Chairmanelect Lucas will make that final decision. I hope to be, I have expressed an interest in chairing this Subcommittee. 

I was heartened today when we had all five of you at least nod 

your heads that the CFTC’s processes are open to you, that you get 

input into them as you are trying to on both sides of the issue, get 

your positions in front of the Commission. And if the baseball analogy works, if the umpire is getting screamed at by both benches, 

then there must be something okay going on behind home plate. 

So I was heartened that you both said that CFTC’s processes are 

working, that you have access to as they move along in that. So 

with that, Mr. Chairman, I yield back. 

The CHAIRMAN. Thank you very much. And we do appreciate 

your coming. Our purpose today was to try to shed a little daylight 

on what is going on at this moment, the importance it is to our 

economy and all that goes on in the different markets. 

I think it has been a good day. We have learned and got the insight of the Chairman and all the Commissioners and some of the 

needs that you have. And we want to invite you to continue to be 

in contact with us, and I am sure you will. So with that, I thank 

you again. I wish you a great holiday and we look forward to seeing 

you, if not before, at least next year. Thank you so much. 

Under the rules of the Committee, the record of today’s hearing 

will remain open for 10 calendar days to receive additional materials and supplementary written response from a witness to any 

questions posed by a Member. 

The hearing of the Subcommittee on General Farm Commodities 

and Risk Management is adjourned. 

[Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]

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