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COMMITTEE ON APPROPRIATIONS

CLARENCE CANNON, Missouri, Chairman GEORGE H. MAHON, Texas

JOHN TABER, New York HARRY R. SHEPPARD, California

BEN F. JENSEN, Iowa ALBERT THOMAS, Texas

H. CARL ANDERSEN, Minnesota MICHAEL J. KIRWAN, Ohio

WALT HORAN, Washington JAMIE L. WHITTEN, Mississippi

IVOR D. FENTON, Pennsylvania GEORGE W. ANDREWS, Alabama

GERALD R. FORD, JR., Michigan JOHN J. ROONEY, New York

HAROLD C. OSTERTAG, New York J. VAUGHAN GARY, Virginia

FRANK T. BOW, Ohio JOHN E. FOGARTY, Rhode Island

CHARLES RAPER JONAS, North Carolina ROBERT L. F. SIKES, Florida

MELVIN R. LAIRD, Wisconsin OTTO E, PASSMAN, Louisiana

ELFORD A. CEDERBERG, Michigan LOUIS C. RABAUT, Michigan

GLENARD P. LIPSCOMB, California SIDNEY R. YATES, Nlinois

JOHN J. RHODES, Arizona FRED MARSHALL, Minnesota

JOHN R. PILLION, New York JOHN J. RILEY, South Carolina

PHIL WEAVER, Nebraska JOE L. EVINS, Tennessee

WILLIAM E. MINSHALL, Ohio JOHN F. SHELLEY, California

ROBERT H. MICHEL, Minois EDWARD P. BOLAND, Massachusetts SILVIO O. CONTE, Massachusetts DON MAGNUSON, Washington

WILLIAM H. MILLIKEN, JR., Pennsylvania WILLIAM H. NATCHER, Kentucky

EARL WILSON, Indiana
DANIEL J. FLOOD, Pennsylvania
WINFIELD K. DENTON, Indiana
TOM STEED, Oklahoma
HUGH Q. ALEXANDER, North Carolina
ALFRED E, SANTANGELO, New York
JOSEPH M. MONTOYA, New Mexico
GEORGE E. SHIPLEY, Illinois
JOHN M. SLACK, JR., West Virginia
DALE ALFORD, Arkansas

KENNETH SPRANKLE, Clerk and Staff Director

Mr. WHITTEN. Gentlemen, we come now to the Commodity Exchange Authority, which is under Mr. John P. Duncan, Jr., Assistant Secretary. I presume it will be justified here by the Administrator, Mr. Caldwell." Mr. Caldwell, we are glad to see you again.

JUSTIFICATION OF THE ESTIMATE Pages 171 and 173 through 181 of the justifications will be included in the record at this point. (The justification follows:)

PURPOSE STATEMENT The Commodity Exchange Authority administers the Commodity Exchange Act of September 21, 1922, as amended.

The major objectives of the act are: to prevent commodity price manipulation and market corners; prevent dissemination of false and misleading crop and market information affecting commodity prices; protect hedgers and other users of the commodity futures markets against cheating, fraud, and manipulative practices; insure the benefits of membership privileges on contract markets to cooperative associations of producers; insure trust-fund treatment of margin moneys and equities of hedgers and other traders and prevent the misuse of such funds by brokers; and provide information to the public regarding trading operations and contract markets.

The basic act, originally designated as the Grain Futures Act, conferred limited authority with respect to futures trading in grains only. By amendment of June 15, 1936, its short-title designation was changed to "Commodity Exchange Act," and its regulatory provisions strengthened and extended to cotton, millfeeds, butter, eggs, potatoes, and rice. By amendment of April 7, 1938, wool tops were added to the commodities subject to the act; fats and oils, cottonseed, cottonseed meal, peanuts, soybeans, and soybean meal were added by the act of October 9, 1940; wool was added by enactment of Public Law 690 of August 28, 1954; and onions were added by enactment of Public Law 174 of July 26, 1955. Public Law 85-839, approved August 28, 1958, prohibited futures trading in onions effective September 27, 1958.

These functions carried out under the act are performed through a Washington office and five field offices, located in Chicago, Kansas City, Minneapolis, New Orleans, and New York. On November 30, 1960, the Commodity Exchange Authority had 123 full-time employees, 38 of whom were stationed in Washington, D.C., and 85 in the field offices. Appropriation: Estimated available, 1961.

$990,000 Budget estimate, 1962--

1,007,000 Salaries and expenses Appropriation Act, 1961.

$940, 000 Proposed supplemental, 1961 for pay act costs..

50,000 Base for 1962_

990, 000 Budget estimate, 1962-

1, 007, 000 Increase (to provide full pay act costs not provided in 1961 appropriation).

+17,000

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1 Represents obligations. Applied costs for 1960 are $885,948. The difference of $2,497 represents primarily, the excess of printed material ordered over that used in 1960.

INCREASE

(1) The increase of $17,000 for 1962 is to provide funds for pay act costs

partly absorbed in 1961 Need for increase. The enforcement program of marketwide position surveys was delayed in 1960 because of the difficulty in recruiting qualified personnel for positions which became vacant during the year. These positions require personnel with educational background in economics, or accounting and investigatory procedures, and the personnel must undergo intensive training in fatures trading practices to be qualified for this work. At the beginning of the 1961 fiscal year there were seven vacancies in these hard-to-fill technical positions and four vacancies in lower grade clerical positions. Six of the technical position vacancies have now been filled and aggressive efforts are being made to fill the remaining five vacancies. With the saving resulting from the delay in filling technical and clerical positions in 1961 the agency is absorbing $15,000 of the pay act costs for 1961. However, in 1962 these positions must all be filled, which will make it impossible to absorb any part of the pay act costs for the 1962 fiscal year. In addition, pay act costs in 1962 will be approximately $2,000 higher than in 1961 since in 1962 the increased pay rates will be effective for the entire year whereas in fiscal year 1961 the increase did not become effective until July 10.

It is necessary to fill these positions in order to conduct essential marketwide position surveys required in the enforcement program. Effective trading supervision requires a regular schedule of such marketwide surveys in leading commodities from year to year. These surveys assist in safeguarding the structure of prices reflected from leading futures markets, which affect the operations of farmers, merchandisers, and consumers. The surveys give a complete picture of the types of traders, whether speculators or hedgers, and the size and market impact of their futures positions. They provide basic information for subsequent enforcement actions, decisions, and reports. Present trends in trading activity and market patterns indicate that these surveys must be more fully developed in 1962 and subsequent years than was possible in 1960 and in 1961.

Plan of work. Due to more active trading in eggs and potatoes and increased market utilization of corn futures contracts, these commodities have the highest priority for marketwide surveys to be made in 1961. Surveys of futures trading in these three commodities are all that can be made in 1961, pending the filling of existing vacancies and the training of personnel in this work. Increased trading activity in a number of commodities and the changes in market patterns which are expected by 1962 will further increase the need for marketwide surveys. The surveys which are planned for the 1962 fiscal year will cover wheat, soybeans, rye, oats, and, again, eggs and potatoes.

The increase of $17,000 is needed in 1962 to perform the additional work necessary to conduct these surveys and obtain information essential for the protection of the public interest in these markets.

STATUS OF PROGRAM

‘Objective and functions

The major objectives of the Commodity Exchange Authority, in the enforcement of the Commodity Exchange Act, are to maintain fair and competitive pricing in the commodity futures markets, by preventing manipulation and other abusive trading practices. Enforcement of the act, requiring supervision over 16 commodity exchanges designated as contract markets, is a continuous process involving the following functions:

1. Market designation, broker registration, and prevention of misuse of cus

tomers' funds.-(a) Designation of commodity exchanges as contract markets;

(b) annual registration of futures commission merchants and floor brokers; and (c) analysis of financial statements and periodic audit and examination of books

and records of futures commission merchants to maintain segregation require

ments for protection of customers’ funds. 2. Supervision of futures trading.— (a) Audit, tabulation, and review of reports required from futures commission merchants and large traders; (b) surveillance and analysis of futures trading operations including periodic marketwide surveys of traders' positions; (c) establishment, enforcement, and review of speculative limits; (d) review of market news and letters; (e) maintenance of a quotation and ticker service; (f) analysis of cash commodity transactions; (g) observation of floor trading and cooperative work with exchange control com

mittees; (h) preparation and publication of futures trading statistics and special **

reports on futures market development.

3. Investigation and control of trade practices.— (a) Investigation of com- to

plaints and alleged and apparent violations; (b) trade practice investigations; (c) investigation of delivery practices; (d) preparation and presentation of evidence of violations in administrative hearings and judicial proceedings; and (e) continuing review of exchange rules and regulations.

Current activities

The market regulatory work of the Commodity Exchange Authority in the year ended June 30, 1960, continued to apply to 16 commodity exchanges designated as contract markets. These include the Chicago Board of Trade, Kansas City Board of Trade, Minneapolis Grain Exchange, Memphis Board of Trade Clearing Association, New York and New Orleans Cotton Exchanges, and the New York and Chicago Mercantile Exchanges.

The agency supervised futures trading in 19 commodities during the year. The total trading volume increased 4.2 percent over the previous year to 7,445,000

transactions, with an estimated value of $26.4 billion. The largest number of ,

futures transactions was in soybeans, followed by wheat, eggs, corn, and potatoes. Total activity in the grain futures markets amounted to 11.2 billion bushels, an increase of 6.7 percent over the previous year. The increased volume was due primarily to the year's recordbreaking activity in soybean futures. Volume of trading decreased in some commodities, mainly cotton and wheat, but the decreases were more than offset by the record-size futures markets #. soybeans, wool, and potatoes and the year's large trading volume in egg utures. Price manipulation continued to require vigorous action and three major manipulation cases were successfully completed during the year.

Other disciplinary proceedings resulted in sanctions being imposed for mis

using commodity customers' funds and for failing to maintain proper records. Selected ea'amples of recent progress

1. Manipulation cases successfully concluded.—The agency's activity against

price manipulation resulted in sanctions against three firms and six individuals during the year.

After lengthy proceedings, charges that onion futures and cash onion prices were manipulated in 1956 were sustained and sanctions imposed upon the respondents.

Time-consuming investigations of trading in the March and May 1959 wheat

futures on the Chicago Board of Trade resulted in proceedings charging manipulation of prices and deception of commodity customers in connection with their orders and the imposition of sanctions for these offenses. In proceedings charging egg price manipulation in the November 1958 egg future, those charged with manipulation were successfully prosecuted.

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