Commodity Futures Trading Commission 

Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 

Testimony 

Written Testimony of 

Reuben Jeffery III, Chairman 

Commodity Futures Trading Commission 

Before the United States House of Representatives 

Subcommittee on Agriculture, Rural Development, Food and Drug Administration, 

and Related Agencies 

Committee on Appropriations 

May 22, 2007

I am pleased to submit testimony on behalf of the Commodity Futures Trading Commission, and I 

appreciate the opportunity to address issues related to the Commission’s 2008 Budget request. 

I would like to review the impact of the commodity futures and options industry on the everyday lives of 

Americans, the mission and program responsibilities of the agency and, finally, our Fiscal Year 2008 

congressional justification for the $116 million funding level requested by the Administration. This 

proposed funding level will enable the Commission to address its two major needs – staff increases and 

technology investment. 

During the past 10 years, as can be seen in Figure 1, trading volume on U.S. futures exchanges has 

quintupled. Today, in a single day of trading, our markets will move more than $5 trillion. The industry 

has grown from largely agricultural product hedging to a broad array of complex instruments related to 

both physical commodities and financial instruments. Trading volume, measured by numbers of 

contracts traded, has more than tripled in just the past six years. At the same time, the Commission’s 

staffing ceiling has fallen to 458 full-time employees. This compares with the 497 FTEs 30 years ago in 

1976 – the Commission’s first year of operation. Commission employees work hard, work smart, and 

use technology effectively, but given the complexity of the markets we oversee, they are stretched. 
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541 553 560 567 546 514 521 497 517 491 493 458 475

0

500

1000

1500

2000

2500

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3500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Est.

2008

Est.

In the last decade, trading volume has quintupled while 

staffing levels have decreased in recent years.

Figure 1: Growth of Volume of Contracts Traded and FTEs 

 

Mission of the Agency 

 

While the daily business of the CFTC can appear from the outside looking in to be somewhat obscure 

and highly technical in nature, the mission of the agency is very clear: 1.) to protect the public and 

market users from manipulation, fraud, and abusive practices and 2.) to promote open, competitive and 

financially sound markets for commodity futures and options. This is important because the futures 

markets are used in the price discovery process affecting the price of a bushel of wheat, the cost of a 

gallon of gas, and the interest rate on a student loan. If the futures markets fail to work properly all 

consumers are impacted. 

 

Congress created the CFTC in 1974 as an independent agency with the mandate to regulate commodity 

futures and option markets in the United States. The Commission’s mandate has been periodically 

renewed since then. In December 2000, Congress reauthorized the Commission through FY 2005 with 

passage of the Commodity Futures Modernization Act of 2000 (CFMA). 

 

Commission Structure

The CFTC is the sole federal regulator responsible for overseeing the futures markets by encouraging 

competitiveness and efficiency, ensuring market integrity, and protecting market participants against 

manipulation, abusive trading practices and fraud. Through effective oversight, the CFTC enables the 
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commodity futures and options markets better to serve their vital function in the nation’s economy – 

providing an effective marketplace for price discovery and risk management. 

To achieve its statutory mandate, the Commission employs a well-trained and dedicated staff who work 

within three major programs – Market Oversight, Clearing and Intermediary Oversight, and 

Enforcement. 

Market Oversight

Market Oversight ensures that the futures markets are operating efficiently and without manipulation 

and fraud. One workload indicator is the number of actively traded contracts trading on U.S. exchanges. 

As can be seen in Figure 2, this number has more than quintupled in the last decade, with particularly 

significant growth seen in the last five years, or since the passage of the CFMA. Prior to 2000, the 

number of contract types traded was relatively stable at a level of around 250. By next year in FY 2008, 

the number of actively traded contracts is anticipated to climb to nearly 1,600, a record high. There is 

every indication that this significant growth in new and novel products will continue. 

199

258 286 251 266 250 278

538

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Est.

2008

Est.

Fiscal Year

The number of actively traded contracts on U.S. exchanges

has more than quintupled in the last decade. The number

is expected to grow to almost 1,600 contracts by FY 2008.

Figure 2: CFTC Actively Traded Contracts 

The CFTC must maintain a sufficient level of specialized expertise to review and analyze a very diverse 

group of instruments and products to ensure that they are not susceptible to manipulation. The types of 

new products run the gamut from traditional commodity areas, such as new agricultural and energy 

futures, to novel financial derivatives based on credit risk, weather-related occurrences and effects, 

pollution allowances, real estate, and instruments having characteristics of both securities and 

commodities. Our analysts employ various methods to ensure an understanding of how the markets are 

functioning to develop a flexible, effective regulatory response to market conditions. 
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Clearing and Intermediary Oversight

Clearing and intermediary oversight ensures the financial integrity of all transactions on the markets that 

we regulate. The work of the staff is to ensure that the intermediaries managing these funds are properly 

registered, perform appropriate recordkeeping, have adequate capital, employ fair sales practices, and 

fully protect the funds their customers invest. The principal clearing operations are associated with the 

major commodity exchanges in New York, Chicago and Kansas City. Intermediaries overseen by the 

CFTC include some 200 futures commission merchants, the ranks of which include banks and brokerdealers with specialized futures operations, as well as stand-alone futures trading houses. 

 

In Figure 3, one can observe that the amount of customer funds held by futures commission merchants 

has quadrupled over the past decade – meaning more and more Americans are trading in futures markets 

directly or indirectly through their participation in pension funds, mutual funds, and other institutions. 

$33.0

$38.7

$47.5

$54.1 $56.7 $59.7

$64.3

$75.6

$94.5

$116.7

$138.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

The amount of customer funds held at futures commission

merchants has more than quadrupled in the last decade.

Figure 3: Customer Funds in FCM Accounts 

Enforcement

 

The CFTC prides itself on its vigorous enforcement operation. Through strong enforcement, CFTC 

polices the markets – going after unscrupulous firms and individuals both on and off-exchange. 

Manipulation, fraud and other violations of the Commodity Exchange Act undermine the integrity of the 

markets and the confidence of market participants. 
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Figure 4 presents the results of the Commission’s recent enforcement activity in the foreign currency 

and energy areas respectively. In the foreign currency or FOREX area, 96 cases involving 362 entities 

or persons were filed with more than $468 million in civil monetary penalties levied and $257 million 

in restitution awarded. Since the collapse of Enron, CFTC has brought 35 cases involving energy 

markets and charged 55 entities or persons with manipulation, attempted manipulation, and/or false 

price reporting. The collective civil monetary penalties levied exceed $303 million in these matters. 

Actions Taken Since Passage of the CFMA in December 

2000

Foreign Currency 

Markets1

Number of Cases Filed or Enforcement Actions 96 

Number of Entities/Persons Charged 362 

Number of Dollars in Penalties Assessed 

F Civil Monetary Penalties $468,135,562 

F Restitution $257,147,676 

Actions Taken Since Enron Bankruptcy in December 2001 Energy Markets

Number of Cases Filed or Enforcement Actions 35 

Number of Entities/Persons Charged 55 

Number of Dollars in Penalties Assessed 

F Civil Monetary Penalties $303,073,500 

Figure 4: Spotlight on Energy and Foreign Currency Markets

With the demand for enforcement resources exceeding capacity, CFTC must make hard choices every 

day on how to prioritize our investigative and litigation efforts. 

Mission Support

 

The three major Commission programs are complemented by other offices, including our Office of the 

Chief Economist, Office of the General Counsel, Office of International Affairs and Office of 

Proceedings. The Commission’s Executive Direction is comprised of the Chairman’s and 

Commissioners’ offices providing agency direction, and stewardship over CFTC’s human capital, 

financial management, and information technology resources. 

The Commission is headquartered in Washington, D.C., and maintains regional offices in Chicago, New 

York, and Kansas City. In recent years, budgetary considerations led to decisions to close the Los 

Angeles and Minneapolis offices. 

 

1

 Since passage of CFMA in December 2000. 
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When looking at the increased volume of activity across all areas of the CFTC mission, and the scope of 

the industry change since 2000, the resulting increase in specialized workload is demonstrable. 

Accordingly, it is critical that the CFTC have sufficient resources to hire and maintain requisite skilled 

talent, as well as provide a steady stream of technology investment commensurate with the agency’s 

expanding and evolving mission. 

FY 2008 President’s Budget Request

 

We are grateful for the Administration’s recognition of the need for increased funding for our agency. 

The FY 2008 President’s Budget request, as seen in Figure 5, is for an appropriation of $116 million 

and 475 staff-years, an increase of approximately $18 million and 17 staff-years over the FY 2007 

continuing resolution appropriation of $98 million which supports a level of 458 staff-years. 

Figure 5: FY 2008 Budget Request Provides for Current Services and 17 Additional FTEs 

Compared to the FY 2007 continuing resolution appropriation, key changes in the FY 2008 Budget are: 

• $2.8 million to provide for increased compensation and benefit costs for a staff of 458 

FTEs; 
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• $3.0 million to provide for salary and expenses of 17 additional full-time equivalent staffyears; 

• $12.2 million to provide for increased operating costs for information technology 

modernization, lease of office space, and all other services. 

 

This funding increase provides the Commission with the financial wherewithal to hire additional staff 

and to invest in technology. In staffing, the CFTC must compete for talent not only with the private 

sector, but also with the SEC and other federal financial regulators. Four years ago, the Congress 

improved our ability to compete, granting the CFTC comparable pay authority with other financial 

agencies (so called “pay parity” with the FIRREA agencies). For this authorization to level the 

compensation “playing field,” all of us are deeply grateful. However, the Agency has not yet been fully 

appropriated to the level of comparable FIRREA agencies. 

Second only to our human capital, technology is the single most effective tool in assisting those 

professionals who oversee the markets. Budgetary constraints have required the Commission over 

several years to put new systems development initiatives and hardware and software purchases on hold, 

as indicated in Figure 6. 

 

Technology Investment as a Percentage of the CFTC Annual Appropriation

6

7

8

9

10

11

FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

Percentage

Figure 6: Technology Investment 

CFTC analysts rely primarily on two proprietary computer systems for visibility into the markets. One 

gives us the ability to see who is trading in the markets and who is building leverage in the market or 

becoming a large trader – thus developing a position that may influence market conditions. The second 

allows us to pull in all transactional data from regulated exchanges to identify trading patterns that might 

be indicative of inappropriate or manipulative trading practices. These two major systems are unique in 

their ability to provide transparency into cross-market trading activity across all futures markets under 

the Commission’s jurisdiction. Their importance to ensuring market integrity cannot be overstated. 

The Commission respectfully requests the proposed funding increase for mission-critical investments in 

people and technology in order to keep up with the dynamic commodity futures and options industry. 

While relatively small in dollar terms, this funding increment is necessary to ensure that CFTC 

continues to be able to fulfill its statutory mandate. 
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All of us at the CFTC take great pride in our work. I can assure you that we are working diligently and 

efficiently to fulfill the important responsibilities with which the Congress and the American public have 

entrusted to us.