Commodity Futures Trading Commission 

Office of External Affairs

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 1155 21st Street, NW 

Washington, DC 20581 

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Statement 

Opening Statement of 

Acting CFTC Chairman Walter Lukken 

Before the Subcommittee on Oversight and Investigations 

Committee on Energy and Commerce 

United States House of Representatives 

December 12, 2007 

 

Thank you, Mr. Chairman and Members of the Subcommittee. On behalf of the Commodity

Futures Trading Commission, I appreciate the opportunity to appear before you today. 

The CFTC’s mission is broadly two-fold: to protect the public and market users from 

manipulation, fraud, and abusive trading practices; and to promote open, competitive and 

financially sound markets for commodity futures and options. 

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

commodity futures and option markets in the United States. With the passage of the

Commodity Futures Modernization Act (CFMA) in 2000, the CFTC became the only U.S. 

federal financial regulator that operates under a principles-based regulatory approach. 

A principles-based system requires markets to meet certain public outcomes in conducting their 

business operations. For example, registered futures exchanges, also known as designated 

contract markets or DCMs, must comply with a set of core principles in order to uphold their

good standing as a regulated exchange —ranging from maintaining adequate financial 

safeguards to conducting market surveillance. As technology and market conditions change, 

exchanges may discover more effective ways to meet a mandated principle in their selfregulatory responsibilities. 

The CFTC’s regulatory approach is complemented with a strong enforcement program. Realtime enforcement is essential to effective market regulation in order to punish and deter abusive

activity in our markets. I call this prudential regulation with a bite, and our enforcement record

reflects this bookends approach. During the past five years, the Commission has filed a total of 

295 enforcement actions and obtained more than $1.8 billion in total monetary sanctions 

including restitution, disgorgement, and civil monetary penalties. 
Protecting the energy markets is vital to our national interest because of the direct impact of 

energy prices on consumers and the economy in general. In the energy sector, over the last five 

years, the Commission filed 39 enforcement actions, charging 64 companies and individuals with 

manipulation, attempted manipulation and/or false reporting. To date, these actions have

resulted in civil monetary penalties of more than $434 million. Most recently, the CFTC and 

Department of Justice obtained a record settlement of $303 million with British Petroleum for 

manipulating the propane gas market. Indeed, we maintain a zero tolerance policy toward

anyone who attempts to manipulate or disrupt prices in the energy markets. 

On this front, I would also note our continued positive working relationship with FERC on many 

enforcement matters. The CFTC and FERC share the common goal of ensuring that the energy 

markets remain free from manipulation. 

Since the CFTC and FERC entered into the 2005 Memorandum of Understanding on information 

sharing, our agencies have had a collaborative relationship. I am committed to continuing to 

develop this cooperation given the inter-relationship between the futures and physical energy 

markets. As the MOU recognizes, Congress provided the CFTC exclusive jurisdiction over the 

futures markets. The policies that support this jurisdictional grant by Congress are as important 

today as when they were enacted nearly 35 years ago. Exclusive jurisdiction of futures trading 

ensures that the futures markets, where many commodities also have a separate cash market 

regulator, will not face inconsistent and redundant regulation and the uncertainty of differing 

legal standards. 

But this does not mean that FERC and CFTC’s respective enforcement authorities cannot exist in 

complement of each other, as evidenced by the solid working relationship we share with other 

federal and state enforcement authorities. I am committed to striking this balance with FERC. 

Already, our staffs have met to discuss possible ideas that would further coordinate our missions. 

I am hopeful that these efforts will help to align the implementation of our mandates going

forward. 

I would also like to touch on a recent CFTC proposal specifically aimed to address a regulatory 

concern regarding exempt commercial markets or ECMs. Congress created the ECM category in 

2000 to allow commercial participants to trade energy and certain other products in a lightertouch regulatory environment. This spurred innovation and competition as the ECM platform 

provided a valuable, low-cost “on-ramp” to launch new ideas for contract design and trading 

methodologies. 

However, the success of this type of trading facility has also led policymakers to re-examine

whether the regulatory requirements for these exchanges remain adequate. In September, the 

CFTC conducted an extensive hearing on ECMs and found that certain ECM energy contracts 

were performing as virtual substitutes for regulated futures contracts and may be serving

significant price discovery roles. The Commission concluded that changes to our statute were 

necessary in order to detect and prevent manipulation involving ECM futures contracts that serve

a significant price discovery function. 

To that end, the Commission recommended legislative changes in a report delivered to Congress

that would require 1) large trader position reporting on significant price discovery contracts on

ECMs; 2) position limits or accountability levels for these contracts; 3) self-regulatory 

responsibilities for the ECM; and 4) CFTC emergency authority over these contracts. This 

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proposal, crafted in full consultation with the other members of the President’s Working Group, 

has the support of the entire Commission. I am pleased to report that both the House and Senate 

Agriculture Committees are actively considering these recommendations as those Committees

move forward on the CFTC’s reauthorization. 

With these important changes, I believe the CFTC’s principles-based regulatory approach, in 

combination with its real-time enforcement arm, will continue to be effective in policing our

markets and allowing this industry to continue on its upward path of growth. Since our laws

were modernized in 2000, volume on the U.S. futures exchanges has increased 448 percent, 

capturing a larger segment of the world’s futures trading market share. This year, the volume on 

U.S. futures markets is expected to reach a record of nearly 3.3 billion contracts traded. I am 

confident that the CFTC’s approach of strong yet tailored regulation is critical to sustaining the 

growth of this vital sector of the U.S. economy. 

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