Commodity Futures Trading Commission 

Office of External Affairs 

Three Lafayette Centre 

 1155 21st Street, NW 

Washington, DC 20581 

 202.418.5080 

Testimony 

Oral Testimony of Walter L. Lukken, Acting Chairman, 

Commodity Futures Trading Commission Before the United 

States Senate 

Subcommittee on Financial Services and General Government 

Committee on Appropriations 

May 7, 2008 

Thank you, Mr. Chairman and Members of the Subcommittee. I am pleased to be here 

to testify before you on behalf of the Commodity Futures Trading Commission (CFTC). 

The CFTC is the agency charged with overseeing and regulating the U.S. commodity 

futures and options markets. These markets play a critical role in the U.S. economy by 

providing important risk management tools for market participants. The futures markets 

also serve to discover prices that accurately reflect supply, demand, and other 

economic factors. 

These are extraordinary times for our markets with commodity futures prices at 

unprecedented levels. In the last three months, the agricultural staples of wheat, corn, 

soybeans, rice and oats have hit all-time highs. We have also witnessed record prices 

in crude oil, gasoline and other related energy products. Broadly speaking, the falling 

dollar, strong demand from the emerging world economies, global political unrest, 

detrimental weather and ethanol mandates have driven up commodity futures prices 

across-the-board. 

On top of these trends, the emergence of the sub-prime crisis last summer led investors 

to increasingly seek portfolio exposure in commodity futures. As the federal regulator of 

these products, the CFTC is closely monitoring these growing markets to ensure they 

are working properly for farmers, investors, and consumers. To date, CFTC staff 

analysis indicates that the current higher futures prices generally are not a result of 

manipulative forces. That said, we continue to probe, investigate and gather 

information from the entire marketplace – and welcome outside analysis and 

perspectives – so that we can ensure that we have an accurate and full view.
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For example, the agency convened an industry agriculture forum two weeks ago to 

have a full public airing of views as to the driving forces in these markets. The comment 

period for that event ends today and we hope to announce in the near future agency 

initiatives to address the concerns we heard at the forum. The CFTC also recently 

announced the creation of an Energy Markets Advisory Committee and scheduled its 

first meeting for June 10th to review the functioning of the energy markets. 

Despite this tumultuous time in our markets, the agency continues to make 

advancements on important policy initiatives. Last fall, the Commission delivered an 

extensive Report to Congress recommending additional authorities for the agency in 

overseeing exempt energy trading. Through bipartisan efforts, these recommendations 

became a part of the CFTC’s reauthorization legislation, which is contained in the Farm 

Bill conference report. The enactment of that legislation will improve oversight of the 

energy markets with the addition of new authorities at the agency. The President’s 

FY09 budget does not take into account these new powers. 

Evolution of the Markets 

The U.S. futures and options markets of today bear little resemblance to the industry of 

1976—the Commission’s first year of operation—in terms of complexity, globalization, 

volume, and economic importance. Yet, staff resources and operating funds over time 

have not kept pace. 

Figure 1 shows the growth in trading volume on U.S. futures exchanges from 1996 to 

present. Trading volume has increased six-fold during the last decade, while at the 

same time, Commission staffing levels have fallen to 447 full-time employees. That’s 

50 fewer staff today than the agency had 30 years ago. 

Figure 2 lists the many different components of the futures industry. As you can see 

from the chart, the growth in these categories from 1976 to present is stunning. For 

instance, total contract volume has increased more than 8,000 percent in thirty years 

compared to CFTC staffing and overhead expenses, which have decreased 12 percent 

and 5 percent respectively. 

FY09 Budget

On behalf of the entire Commission, I would like to express my appreciation for the 

support provided to the CFTC in the FY08 budget. The $111 million appropriated by 

Congress for the current calendar year is already being put to good use to address 

critical needs in two major areas – personnel and technology. That focus will continue 

with the FY09 budget.

The Commission employs highly-trained individuals who work within three program 

divisions – Market Oversight, Clearing and Intermediary Oversight, and Enforcement. 

The Division of Market Oversight ensures that the markets are operating efficiently and 

free from manipulation and fraud. The Commission’s staff economists utilize the 

Commission’s large trader reporting system and one of the Commission’s main 

technology systems, the Integrated Surveillance System (ISS), to detect and deter 

market manipulation. As you can see in Figure 3, the current atmosphere of rising 
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futures prices across a wide range of products makes these anti-manipulation efforts all 

the more important. 

The Division of Clearing and Intermediary Oversight ensures the financial integrity of the 

futures industry as a whole. The amount of funds handled by clearing houses has 

increased significantly of late. During this time, all exchanges have experienced record 

settlements, including one day in January 2008 in which the Chicago Mercantile 

Exchange cleared and settled more than $12 billion worth of transactions—nearly six 

times its normal load. Despite these spikes in cash flow, the clearing system has 

worked well. 

When a manipulation or fraud occurs in the marketplace, it is the job of the Enforcement 

Division to prosecute the offenders. Since the collapse of Enron, CFTC has brought 39 

cases involving energy markets and charged 64 entities or persons with manipulation, 

attempted manipulation, and false price reporting. The collective civil monetary 

penalties levied in these energy market enforcement actions exceed $444 million. 

Unfortunately, these programs have felt the effects of turnover at the agency. The 

Commission lost 58 experienced employees in FY06, 49 in FY07 and 15 to date in 

FY08. Replenishing these losses is critical if this agency is to continue to meet its 

responsibilities in overseeing the futures markets.

The FY09 President’s Budget request, as seen in Figure 5, is for an appropriation of 

$130 million and 475 full time staff, an increase of approximately $18.7 million and 10 

staff over the FY08 appropriation.

Key changes in the FY09 Budget are: 

• $3.2 million to provide for increased compensation and benefit costs for 

current employees; 

• $1.9 million to provide for salary and expenses of 10 additional full-time 

employees. This increase – although modest – will allow us to build on 

current key hiring efforts. 

• $13.6 million to provide for increased operating costs for technology 

modernization, office space, and all other services. 

In FY09, the requested increased funding will continue to target technology upgrades 

and staffing increases. It would permit the Commission to improve existing critical 

technology systems, such as ISS and eLaw. The funds requested would also permit 

continued development of the new Trade Surveillance System (TSS). Soon, with these 

investments, we will have the capability to more quickly monitor and analyze a trader’s 

intraday trading activity. 

In conclusion, I am very proud of the agency and our highly-skilled staff. Everyday, they 

carry out the agency’s mission of protecting the public and market users from 

manipulation, fraud, and abusive practices. If the futures markets fail to work properly, 

all Americans are impacted. Accordingly, it is critical that the CFTC have sufficient 

resources to hire and maintain skilled talent, as well as provide a steady stream of 
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technology investment commensurate with the agency’s expanding and evolving global 

mission. 

Thank you for the opportunity to appear before you today on behalf of the CFTC. I 

would be happy to answer any questions you may have.