metric tons of grains and soybeans. Although the President intended to institute shortly thereafter a number of measures to minimize the impact of the embargo on the domestic marketplace, those actions were not immediately known. The Commission met in emergency session on Sunday, January 6, 1980, to review the situation. After holding extensive discussions with the Department of Agriculture, market users and exchange officials, the Commission determined that a market emergency existed with respect to the futures markets for grains, soybeans and soybean products. Accordingly, the Commission ordered a two day suspension of trading in futures contracts in those commodities on four exchanges. This action was taken to maintain orderly trading in those markets and to provide a reasonable period for the impact of the President's action and the details of the expected remedial governmental action to become disseminated and assessed by the marketplace. Silver. During late 1979 and the first few weeks of 1980, precious metals prices rose at unprecedented rates on world markets and reached record high levels. Subsequently, the prices of these commodities declined substantially, reaching lows in March. Silver was particularly prominent during this period because its price was more volatile than those of other precious metals and because there were some unusually large position concentrations in the silver futures markets. In the late fall of 1979, some of these traders began to take delivery of large quantities of silver through the futures market. Since the combined positions of these traders in all futures delivery months was large relative to immediately available silver supplies, the Commission and the affected exchanges became increasingly concerned about the situation. The initial reaction of the exchanges was to increase margins substantially. The Commission's surveillance staff concentrated its efforts on seeking to identify all major positions in the silver futures markets and to determine what relationships, if any, existed among these traders. Special Commission calls were issued to a number of accounts. One such call to a Swiss bank resulted in a Commission administrative complaint when the bank refused to identify its customers. As silver prices continued to rise, the Commission and the exchanges considered the need for additional action to prevent a manipulation or unwarranted market disruption. Ultimately both the Chicago Board of Trade and the Commodity Exchange Inc., adopted speculative position limits. After silver prices continued to rise rapidly, on January 21 and 22, 1980, Comex, followed by the CBOT, took additional emergency action by limiting trading in silver futures to liquidation only. Subsequent to these exchange actions, silver prices began to decline. The price declines in silver, however, were accentuated after mid-March as some traders who had previously been buyers of major quantities of silver began to sell their holdings into an already declining market. This drop in silver price strained the financial position of a few brokerage firms and attracted considerable attention to the silver futures market. A number of Congressional 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. economic review was completed in fiscal year 1979 were also approved by Two other applications for which the the Commission in early fiscal 1980. and the ACE 20-year U.S. Treasury Bond. These were the Comex GNMA contract 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. the analysis staff will undertake or complete the analysis of several In addition, 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, |