Commodity Futures Trading Commission

Office of External Affairs 

Three Lafayette Centre 

 1155 21st Street, NW

 Washington, DC 20581

 202.418.5080 

Testimony 

Written Testimony of 

Reuben Jeffery III, Chairman 

Commodity Futures Trading Commission 

Before the United States Senate 

Subcommittee on Financial Services and General Government 

Committee on Appropriations

March 9, 2007

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, and I appreciate the 

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

Today I would like to discuss 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 dollars. 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, Commission staffing levels have 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. 
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 hasquintupled 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. 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). 

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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 commodity futures markets better to serve their vital function in 

the nation’s economy – providing an effective marketplace for price discovery and risk 

management. 

To achieve these goals, 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 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, the 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. 

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199

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251 266 250 278

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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

hasmore than quintupled in the last decade. The number

is expected to grow to almost 1,600 contractsby 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 economically viable and 

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.

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 

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merchants, the ranks of which include banks and broker-dealers 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 investing 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 fundsheld at futurescommission

merchants hasmore 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 undermine the integrity of the 

market and the confidence of market participants. 

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 markets, 93 

cases involving 354 entities or persons were filed with over $292 million in sanctions levied and 

$182 million in restitution. Since the collapse of Enron, CFTC brought 35 cases involving energy

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

false price reporting. The collective civil monetary sanctions levied exceed $302 million in these 

matters. 

Figure 4: Spotlight on Foreign Currency and Energy 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 the

decision to close the Los Angeles and Minneapolis offices. 

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. 

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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; 

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

equivalent staff-years; 

• $12.1 million to provide for increased operating costs for information technology 

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

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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 FIRREA). 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 traditional 

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. 

This concludes my formal testimony. 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. 

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