hearings were subsequently held to inquire into the events in the Reports Processing. Over 1 million reports of large trader positions and trades were collected and processed to provide essential data for CFTC's market surveillance program. In addition, more than 650,000 reports were checked for compliance with Commission speculative limits. In April 1980, the Commission adopted a new rule to facilitate obtaining reports and other surveillance data from foreign traders. This new rule designates the domestic futures commission merchant the agent of its foreign customers for the purpose of receiving Commission communications. Market Statistics Published. The following statistical reports were tabulated and published during fiscal year 1980: Extremely hot and dry weather during critical growing seasons for grain, soybeans and cotton during the summer of 1980 caused substantial reductions in the size of those crops. Unusually small crops also occurred domestically for potatoes and for sugar on the international market. These production shortfalls create the potential for short deliverable supplies in the futures market, particularly at the end of the marketing year for these commodities. Consequently, CFTC surveillance economists will be particularly watchful for situations in which futures contracts in these commodities may become susceptible to manipulation due to unusually small deliverable supplies. The number of active contracts is expected to increase to about 85 during fiscal year 1981. This increased number of contracts in diverse new commodity areas combined with anticipated increases in trading volume is expected to result in a twenty percent increase in the number of large trader reports processed unless additional steps are taken to reduce the volume of reports that must be filed. Plan of Work The Commission plans to conduct daily market surveillance and reports processing activities in fiscal year 1982 as follows: - Daily surveillance activities will be increased to cover - The reports processing staff will handle over 1.2 million reports from traders and brokers and will prepare about 14,500 permanent record tables of futures trading data. About 1,300 reports of futures market status will be published. MARKET ANALYSIS Surveillance experience has demonstrated that market disruptions, such as manipulation or congestion, can result from inadequately specified contract terms and conditions, e.g., contracts which do not provide for adequate deliverable supplies. The objective of the Market Analysis subprogram is prevention of disorderly markets through a careful economic review of contract terms and conditions. This occurs in conjunction with proposed rule changes which are submitted by the exchanges, applications for new contract market designations, and through other periodic reviews of the terms and conditions of existing contracts. Increase An increase of $75,000 is requested for this subprogram to maintain the Commission's ability to conduct adequate economic reviews of contract terms. The requested amount provides for 2.0 additional staff years and the anticipated increase in price level in fiscal year 1982. Authorization for additional positions is not requested. The increase is necessary in view of the increasing number of actively traded contracts and the increasing number of applications for new contracts in diverse Total request for 1982: $639,000. areas. Past Accomplishments Review of Existing Contracts. Economic reviews of 35 separate submissions for proposed contract changes were completed in FY 1980 and many others were in progress at the end of the year. Some of the more important contract revisions reviewed were the addition of a Greeley, Colorado delivery point for the Chicago Mercantile Exchange and MidAmerica Commodity Exchange live cattle contracts, revised quality standards and discounts for the Chicago Mercantile Exchange and MidAmerica Commodity Exchange live cattle contracts, and revised grading standards for the Chicago Mercantile Exchange feeder cattle contract. In addition, the staff completed a review of extensive changes to the New York Mercantile round white-potato contract which included the addition of two new states for delivery, and revised grading standards for delivery replacements. Reviews of major changes to the New York Mercantile Exchange platinum contract and the Chicago Board of Trade plywood contract were also under way at the end of the year. Other commodities for which rule change reviews were undertaken or completed included foreign currencies, 90-day U.S. Treasury Bills, frozen pork bellies, iced broilers, soybeans, fuel oil, sugar, coffee, boneless beef and silver. Several of the reviews conducted by the staff resulted in requests to the exchanges for further information, clarification or further revisions. Review of New Contracts. At the end of the year, the economic review of fourteen new contract market designations had been completed and nine of these applications were approved by the Commission. These nine were Minneapolis Grain Exchange sunflower seeds; New York Futures Exchange 90-day U.S. Treasury Bills, 20-year U.S. Treasury Bonds, Japanese Yen, Duetsche Mark, Swiss Franc, British Pound, Canadian dollar; and the Comex 20-year U.S. Treasury Note. Two other applications for which the economic review was completed in fiscal year 1979 were also approved by the Commission in early fiscal 1980. These were the Comex GNMA contract and the ACE 20-year U.S. Treasury Bond. Current Activities The economic analysis of about 40 rule changes is projected. Completion of the economic review of about 10 new contract market designations is projected, including contracts for agricultural commodities, natural resource commodities and for financial instruments. In addition, the analysis staff will undertake or complete the analysis of several existing contracts. Plan of Work The current growth of the number of futures contracts is expected to continue into 1982. About 15 reviews of new contract proposals are planned in 1982. In addition, about 6 existing contracts are to be reviewed and about 40 rule change reviews are expected. RESEARCH AND EDUCATION STATUS OF PROGRAM The Research and Education Program supports the mission of the CFTC in ensuring the economic utility and competition of the markets and in expanding the level of public knowledge. Resource Changes To enable the Commission to enhance its economic research capability for the development of information necessary for effective futures trading regulation, the CFTC is requesting an increase of $26,000. The requested dollar amount provides for the anticipated increase in price level in fiscal year 1982, using the economic assumptions provided by OMB. Authorization for additional positions is not requested. The total request for 1982, excluding the allocation for executive direction and centralized support: $801,000. The research subprogram has distinct short-term and longer-term objectives. In the short-run the program provides the Commission and CFTC staff with immediate and intermediate analyses and support which are necessary to carry out daily activities such as rulemaking, exchange rule review, market surveillance, litigation and policy development. The long-term objectives of the research program are (1) to improve the general understanding of the economic role and impact of trading instruments regulated by the Commission and (2) to augment the Commission's ability to assess the overall economic impact of its regulatory policies. Increase To continue to enhance the Commission's economic research capability, an increase of $19,000 is requested for this subprogram. The requested amount provides for the anticipated increase in price level in fiscal year 1982. Authorization for additional positions is not requested. Total request for 1982: $610,000. Past Accomplishments During fiscal year 1980, the research staff completed projects or made progress in several areas. A second survey of interest-rate futures markets was published in December 1979. This study, which used survey data as of March 30, 1979, included information on all traders holding gross positions of five or more contracts in Treasury bills, Treasury bonds, GNMA mortgage-backed certificates and commercial paper. The survey data provided information on traders' occupations, geographical locations and position sizes. During fiscal year 1980 the Commission directed the staff to review (1) speculative position limits policy and (2) the public interest and economic criteria for initial and continuing futures contract designation. The latter part of this review also included the related issues of dormant and inactive contracts. The staff presented its initial proposals concerning these issues early in the second half of fiscal year 1980. Since then the staff has been developing a set of proposed rules on these topics which the Commission will consider for publication in fiscal year 1981. The staff developed for Commission consideration a proposal which would require the exchanges to collect and furnish to the Commission large trader position information which the Commission currently collects from futures commission merchants and foreign brokers. As stated in the Federal Register, this proposal would allow the Commission to enhance its oversight role in the area of market surveillance. Other rule changes were also proposed to allow the Commission to continue with its long-term goal for eventual elimination of individual reports from large traders (series '03 reports). In addition, research staff analyzed the events surrounding the rise and fall of silver futures prices during the first half of the fiscal year. Following the Congressional mandate for the Commission to lead an interagency study of the silver market, the staff expanded the scope of its analysis, and under the direction of the Executive Director, began a joint study with Treasury, the Federal Reserve Board, and the Securities and Exchange Commission. Review and support activities included: (1) an analysis of the economic aspects of regulations for dealer options and leverage transactions, (2) assistance in enforcement actions concerning alleged fraud, manipulation, and offering of illegal, off-exchange instruments, (3) analysis of economic issues raised by proposals to trade futures contracts based on stock indices, including the relationship between options and futures based on the same underlying commodity or asset, (4) development and refinement of cash and futures markets data bases, and (5) development of proposed regulations concerning foreign traders in U.S. markets. Current Activities During fiscal year 1981, the research unit plans to continue, initiate or complete the following activities: - Review public comments on proposed rules concerning the |