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 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. 

Background and Current Market Events 

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 risk management tools that producers, distributors, and commercial users of 

commodities use to protect themselves from unpredictable price changes. The futures 

markets also play a price discovery role as participants in related cash and over-thecounter markets look to futures markets to discover prices that accurately reflect 

information on supply, demand, and other factors. 

As you are well aware, 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. Both macroeconomic factors as well as micro fundamentals for specific markets are at play in these 

prices. Broadly speaking, the falling dollar, strong demand from the emerging world 

economies, Mideast 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 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 are generally not a result of manipulative 
CFTC PAGE 2 OF 12 

forces. That said, we continue to 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. 

For example, the agency recently convened an agriculture forum two weeks ago in 

which we brought together a diverse group of market participants to have a full airing of 

views and opinions 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 named the public members of 

the Committee just last week. Our first meeting is scheduled for June 10th to look at 

issues related to the energy markets and the CFTC’s role in these markets under the 

Commodity Exchange Act. I am confident that these public forums will benefit our 

ability to make informed decisions as we strive to improve our oversight of these 

important markets. 

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

advancements on several important policy initiatives. Last September, the Commission 

held a public hearing on the regulation of exempt markets, resulting in an extensive 

Report to Congress recommending additional authorities for the agency in overseeing 

this type of trading. Through bipartisan efforts, these recommendations became a part 

of the CFTC’s reauthorization legislation, which is contained in the Farm Bill conference 

report now being debated. The enactment of that legislation will mean increased 

responsibilities for the agency – and accordingly, will mean a need for additional CFTC 

staff to carry out the new authorities. The President’s FY09 budget for the $130 million 

funding level does not take into account the new authorities included in the Farm Bill. 

The legislation would also raise penalties for market manipulation violations and close a 

legal loophole that has developed due to adverse court decisions that are hindering the 

CFTC’s efforts to combat retail off-exchange foreign currency fraud. 

The CFTC has also worked to strengthen its relationship with the Securities and 

Exchange Commission (SEC) over the last year, given our shared responsibilities over 

certain products that affect the regulatory interests of both agencies. In March, our 

respective agencies entered into a memorandum of understanding (MOU) that will help 

the agencies share information as well as coordinate our review of novel derivative 

products that have attributes of both securities and futures. Two Chicago exchanges, 

the Chicago Board Options Exchange and OneChicago, are the first beneficiaries of this 

new framework as both seek to list for trading derivative products based on gold ETF 

products. 

Last year was busy on the enforcement front as well with the agency assessing record 

penalties against those seeking to manipulate the markets and defraud the public, 

culminating in the CFTC and Department of Justice reaching a record settlement 

against British Petroleum for manipulating the propane market. I am confident that the 

CFTC’s dedicated staff will continue this productive effort in the coming year. 

Evolution of the Markets 

Congress created the CFTC in 1974 as an independent agency. The CFTC’s primary 

mission under our governing statute, the Commodity Exchange Act, is to ensure that the 
commodity futures and options markets operate in an open and competitive manner, 

free of price distortions. In December 2000, Congress reauthorized the Commission 

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

landmark legislation established a flexible, principles-based regulatory regime. Today, 

the CFTC is the only U.S. principles-based financial regulator. This flexible approach 

has allowed the regulated futures industry to flourish. The same flexibility also allows 

alert and responsive oversight by the CFTC to fulfill the agency’s mission. 

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

1976 in terms of complexity, globalization, volume, and economic importance – and 

these differences will continue in FY 2009. Yet, staff resources and operating funds 

over time have not kept pace. 

For example, 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 in 1976 – the 

Commission’s first year of operation. 

Figure 1: Growth in Volume of Futures & Option Contracts Traded & FTEs 

CFTC PAGE 3 OF 12 

553 560 567 546 514 521 497 517 491 493 437 465 475

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Est.

2009

Est.
CFTC PAGE 4 OF 12 

Figure 2 lists the many different components of the futures industry, including the 

number of contracts traded, the volume of trading, the number of futures industry 

participants, the number of exchanges and other trading facilities, and the overall 

notional value of these markets. 
CFTC PAGE 5 OF 12 

Indicator 1976 2007 Percent Change 

CFTC Staff 497 437 -12%

Overhead Expenses 

as a % of Budget 

34% 29% -5%

Total Contract Volume 37 M 3.085B +8,238%

Types of Contracts Traded 66 1,365 +1,968%

Commodity Trading Advisors 447 2,601 +482%

Commodity Pool Operators 544 1,416 +160%

Floor Brokers 2,591 8,038 +210%

Associated Persons (Sales 

Persons) 

25,579 53,844 +110%

CFTC-Regulated Exchanges 10 12 +20%

CFTC- Registered Clearing 

Organizations 

0 11 NA

Exempt Boards of Trade 0 9 NA

Exempt Commercial Markets 0 20 NA

Notional Value of Contracts 

Traded (Per Day) 

$4B $4.78T 

(est.)

 119,400%

Customer Funds in FCM 

Accounts 

$577M $155B 26,763%

Figure 2: Indicators of Industry Growth

As you can see from the chart, the growth in these categories from 1976 to present is 

stunning – with percentage increases in the triple, quadruple and quintuple digits. For 

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

Contrast that with the CFTC staffing and overhead expenses over time, which have 

decreased -12% and -5% respectively. Looking at the growth in all sectors, it’s clear 

that CFTC is doing a lot more with a lot less. 
CFTC PAGE 6 OF 12 

FY08 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 was the first substantial increase for the 

Commission in recent years and is already being put to good use. It is important to 

explain how the CFTC is using the FY08 funding to address critical needs in two major 

areas – experienced professionals and a modern technology infrastructure – because 

the FY09 funding will build on that foundation.

Additional Staff Hires 

The Commission is implementing an intensive hiring program for the first time since 

October 2005. This program seeks to fill the loss of experienced, long-time 

Commission employees, as well as address new skill sets required by the rapidly 

evolving industry we regulate. The Commission employs highly-trained, expert staff 

who works within three major program divisions – Market Oversight, Clearing and 

Intermediary Oversight, and Enforcement. These divisions are complemented and 

supported by the Offices of the Executive Director, General Counsel, Chief Economist, 

International Affairs, and External Affairs. 

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

without manipulation and fraud. One of the keys to Market Oversight is market 

surveillance. 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 and disruption. As 

you can see in Figure 3, the current atmosphere of rising futures prices across a wide 

range of products makes these anti-manipulation efforts all the more important. 
Recent Changes in Commodity Futures Prices

-25%

0%

25%

50%

75%

100%

Mar07Apr07May07Jun07Jul07Aug07Sep07Oct07Nov07Dec07Jan08Feb08Mar08Apr08

NYMEX WTI

Crude Oil

COMEX

GOLD

ICE COTTON 

CME CORN

ICE DOLLAR

INDEX

% price change of nearby futures contract

since Mar.19, 2007 (one year of data)

Figure 3: Recent Commodity Price Changes by Percent Change 

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

futures industry as a whole. Futures and options trading on U.S. contract markets 

increased by approximately 27% in 2007 over the prior year and remains at consistently 

high levels. Not only has the volume of trading increased and the futures prices of 

some commodities increased to record levels, the amount of funds handled by the 

clearing houses has increased as well. In this regard, all exchanges have experienced 

record settlements during this time period, including one day in January 2008 in which 

the Chicago Mercantile Exchange cleared and settled more than $12 billion of 

transactions—nearly six times its normal load. Despite these spikes in cash flow, the 

clearing system has worked extraordinarily well. Nevertheless, with the rising need for 

risk management by businesses and the rising importance of futures markets to the 

nation’s economy, the Commission’s financial integrity programs must be continually 

strengthened. A key component of the Commission’s financial integrity program is the 

required segregation of all customer funds from those funds of Futures Commission 

Merchants (FCM). As shown in Figure 4, the level of required segregated customer 

funds has more than doubled since the end of 2000. 

CFTC PAGE 7 OF 12 
$0

$50

$100

$150

Billion

2000 2002 2004 2006

Total Section 4d Segregated Funds Required

to be held by FCMs December 31, 2000 

through December 31, 2007

Figure 4: Segregated Funds Required

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

Division to gather information, build a case and prosecute the offenders. In the foreign 

currency or FOREX markets, the CFTC has filed 98 cases involving 374 entities or 

persons with more than $562 million in civil monetary penalties levied and more than 

$453 million in restitution awarded. Since the collapse of Enron, CFTC has brought 39 

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

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

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

As our financial markets become more complex, global and interwoven, the 

Commission is increasingly called upon to co-ordinate and co-operate with other 

agencies domestically and world wide. Internationally, these activities involve the 

Commission’s participation in multilateral bodies, such as the International Organization 

of Securities Commissions (IOSCO), as we strive to raise global regulatory standards. 

This is complemented with specific bilateral information sharing arrangements with 

other nations as we try to coordinate our enforcement and oversight efforts. 

Domestically, the Commission staff works with several Federal and state agencies, 

including USDA, FERC and DOJ, to harmonize our mutual regulatory efforts. The 

Commission recently signed an MOU with the SEC to further co-ordinate our efforts, 

given the additional convergence of the futures and equities markets. In addition, our 

agency has an information sharing MOU with FERC to enhance cooperation in the 

policing of the energy markets. 

All of these important responsibilities and priorities require qualified personnel in their 

execution. Unfortunately, recent turnover at the agency has been significant. 

Throughout the agency and its divisions, the Commission lost 58 experienced 

employees in FY 2006, 49 in FY 2007 and 15 to date in FY 2008. The Commission 

CFTC PAGE 8 OF 12 
CFTC PAGE 9 OF 12 

currently has 447 full-time employees onboard and with the recent increased funding, 

we are actively recruiting toward a target of 465 FTEs for FY 2008. Such personnel 

additions are critical if this agency is to continue to meet its responsibilities in 

overseeing the futures markets. 

Technology Investments 

The other focus of the FY08 budget allocation is technology. The CFTC primarily uses 

technology in the surveillance of the markets and the monitoring of the financial integrity 

of the clearing organizations and firms. The Commission’s FY 2008 appropriation 

enables the agency to undertake a long-delayed modernization of capital investments in 

Information Technology (IT) software and hardware, such as computers, servers, 

routers, switches and other critical communications components. The modernization of 

our surveillance systems will pay off with enhanced transparency and detection tools for 

the oversight of our markets. 

The CFTC receives and analyzes millions of data points everyday that come in from the 

exchanges and firms, which allow us to monitor the marketplace. Once aggregate 

position levels are determined, CFTC staff not only monitors daily positions of all large 

traders, but also has the ability to analyze the minute-by-minute trades of these market 

participants, including hedge funds and other speculators, during times when there is a 

heightened risk of manipulation. To do this job, the CFTC’s market surveillance staff 

uses its ISS system to organize and group the information into meaningful categories. 

With the exponential growth of these global electronic markets, the CFTC must continue 

to devote significant portions of its budget to technology in order to stay on top of this 

sector. This year the agency will increase its technology budget by almost 37% with the 

hope of almost doubling the overall technology budget by FY 2009. These resources 

will be primarily used to enhance the agency’s surveillance tools—making these 

programs faster, more functional and better able to detect wrongful activities across 

markets and jurisdictional borders. 

Clearly, technology and personnel investments are keys to the agency’s success and 

the FY 2009 budget builds on the foundation that has been enhanced this year. I am 

grateful for the Administration’s and Appropriators’ recognition of the need for increased 

funding for our agency in these two key areas. 

FY09 Budget 

The FY 2009 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 FY 2008 appropriation. 
Figure 5: FY 2009 Budget Request Provides for an increase of $18.7 million and 

additional 10 FTEs

Compared to the FY 2008 appropriation, key changes in the FY 2009 Budget are: 

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

staff of 465 full time employees; 

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

employees. This portion of the budget also includes $200,000 to establish 

a student loan program that is designed to help with retention and 

recruitment of young, qualified professionals. The agency has not had the 

resources in previous years to be able to support this program and we’re 

pleased to have this program planned for in our budget. 

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

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

CFTC PAGE 10 OF 12
CFTC PAGE 11 OF 12 

This funding increase provides the Commission with the financial wherewithal to build 

on the FY08 investments by continuing to hire additional staff and make critical 

investments in technology. 

Additional Staff Hires 

For FY 2009 the Commission is requesting ten additional positions. This increase – 

although modest compared to industry growth – will allow us to build on the hiring we 

are undertaking as a result of the FY 2008 appropriation. The ten positions requested 

for FY 2009 are spread throughout the Commission because our needs cut across all of 

our responsibilities. For example, in the Division of Market Oversight, we will allocate 

an additional surveillance economist to focus principally on the complex issues and 

changing practices in the energy cash and derivatives market. In the Division of 

Clearing and Intermediary Oversight, we will allocate two additional staff to enhance the 

expanding financial and risk surveillance functions. In the Enforcement program, two 

additional staff will focus mainly on allegations of manipulation, trade practice violations, 

and false reporting, but the additional staff will also enhance our ability to address a 

wide range of violations of Federal commodities law. One additional staff is planned for 

the Office of the Chief Economist to conduct market research and analysis 

commensurate with the growth in new types of exchanges, new trading execution 

methods, and the role of speculators in our markets. For the Office of Proceedings, we 

are requesting one addition position to fill the long vacant directorship. For the Office of 

General Counsel, we are seeking one additional position to replace a loss in expertise 

among senior staff in areas such as bankruptcy and anti-trust law. Finally, in the Office 

of Information Technology, we are requesting two additional positions to enhance inhouse expertise to assist the major program Divisions in monitoring, auditing, and 

investigating increasingly sophisticated technologically driven markets. 

Technology Investments 

In FY 2009, additional funding would permit the Commission to upgrade 

telecommunications systems and to expand and improve existing critical systems, such 

as the Integrated Surveillance System and eLaw. Also in FY 2009, funds requested 

would permit continued development of the new Trade Surveillance System (TSS), 

which will be used for trade practice surveillance on all exchanges, including new and 

emerging electronic exchanges. TSS will use state-of-the-art, commercially available 

software to enhance both intra-exchange and inter-exchange trade practice 

surveillance. We can now obtain and analyze the trading activity of our large traders in 

a mere fraction of the time it used to take – minutes instead of days. Soon, with these 

investments, we will have the capability to monitor and analyze even more quickly and 

efficiently a trader’s intraday trading activity. 

The Commission’s ability to fulfill its mission depends on the collection, analysis, 

communication and presentation of information in forms useful to Commission 

employees, the regulated industry, other Federal, state, and international agencies, the 

Congress, and the American public. The resources allocated in FY 2008 and FY 2009 

to Information Technology will permit a secure modern information technology 

infrastructure and the development of a Document Management System to modernize, 

centralize and automate the management of the Commission’s information resources. 
CFTC PAGE 12 OF 12 

These comprehensive enhancements will enable the Commission to serve these 

stakeholders effectively. 

The FY09 budget, if approved, will largely enable completion of the CFTC’s technology 

modernization initiative—barring unforeseen industry developments or new statutory 

requirements. The Commission is making a concerted effort to use commercial best 

practices in developing and maintaining its IT systems and ensuring that our IT staff is 

focused on increasing efficiency and controlling costs. 

All of the technology improvements have one commonality; they help increase the 

availability of one of our most critical resources – time. That is, technology allows our 

growing staff to become more productive by spending additional time on qualitative 

analysis rather than quantitative processing and compilation. 

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 and promoting open, competitive and financially sound markets. 

If the futures markets fail to work properly, all Americans are impacted. 

When looking at the increased volume of activity across all areas of the CFTC mission 

and the scope of the industry changes, the resulting increase in specialized workload is 

demonstrable. Accordingly, it is critical that the CFTC have sufficient resources to hire 

and maintain skilled talent, as well as provide a steady stream of 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.