Another continuing project is the annual registration of floor brokers on the exchanges, and commodity brokerage firms engaged as futures commission merchants. About 500 futures commission merchants with approximately 2,000 principal and branch offices, and about 700 floor brokers are registered each year. AUDIT AND MARKET ANALYSIS The agency regularly audits the books and records of futures commission merchants, making about 600 audits annually to protect com. modity customers' funds and prevent cheating and fraud in commodity transactions. It also has programs and procedures for maintaining continuous surveillance of trading, making analyses of market conditions, and enforcing "speculative limits" in grains, cotton, soybeans, and eggs. Investigations of trading and brokerage operations are conducted to detect price manipulation and other abusive trading practices. REPORTING SYSTEM The CEA keeps watch on trading through a system of required daily reports from exchange clearing members, futures commission merchants, and large traders. Maintaining the flow of these reports is basic for the effective supervision of trading. The agency receives, processes, and analyzes more than a half million reports annually. By means of these reports and other procedures it is possible to keep watch on the operations of large traders and get basic facts and figures necessary for the analysis of commodity market conditions. The required reports from the trade also provide data for the agency's daily, monthly, and annual statistical reports on futures trading, and for its special reports pertaining to particular commodities and markets. MARKETWIDE SURVEYS Special market surveys and reports are made of futures trading in particular commodities and markets. A market analysis and report of this type is usually based on a special survey of the positions of all traders in the market on a given date, as well as data from the brokerand-trader reporting system and a wide range of other information. Such a survey and report was made on the soybean futures market in the 1959-60 marketing season, and on the futures market for Maine potatoes in the early part of the 1960-61 marketing season. Still another such report has just been prepared dealing with the complicated factors involved in the makeup of the egg futures market. These marketwide surveys and reports give the agency information needed for its regulatory program. At the same time, they provide information on the composition and utilization of the market to those engaged in the production and marketing of the commodity. MANIPULATION OF PRICES Dealing with price manipulation is a major test of the agency's enforcement work. In this field increased emphasis has been placed upon preventive measures. There are, of course, situations in which price manipulation develops too rapidly for preventive measures to be taken. In such cases the only effective procedure is for the agency to take vigorous action against the persons responsible for the manipulation. There are, however, instances in which it is possible to foresee the danger of price manipulation sufficiently in advance to take effective steps for its prevention. In such cases the agency feels that it is much more desirable to stop manipulation before it occurs than to take action against the manipulator after the damage has been done. Preventive measures of this type may be taken when the agency observes a large buildup of futures positions, a small deliverable supply concentrated in strong hands, or other factors which appear to invite manipulation. These measures usually involve contacts with large traders or with officials and business conduct committees of the exchanges. To the extent that the agency can avert price manipulation in some situations, it can expedite investigation and prosecution of violations that cannot be prevented. ADMINISTRATIVE PROCEEDINGS In the 1960 fiscal year administrative proceedings were concluded on complaints involving price manipulation in wheat, eggs, and onions. These proceedings were all concluded in the Government's favor, and sanctions were imposed on three firms and a number of individual respondents charged with violating the law. The decisions in all other administrative proceedings completed in the 1960 fiscal year and since then, have also resulted in the imposition of sanctions. Cases recently completed or now in process include complaints against brokers charged with improper handling of customers' funds, trading against customers, bucketing customers' orders, cheating and defrauding customers, and making false reports and keeping false records. The only recent case carried into Federal court was concluded when the U.S. Circuit Court in Chicago denied the appeal of a large speculator found guilty of violating speculative limits and failing to file reports. REGULATORY WORKLOAD The regulatory workload carried by the agency was heavy in the 1960 fiscal year and has grown heavier in the current fiscal year. A record volume of futures trading in soybeans has flooded the Chicago grain market at a time when there is a large volume of trading also in wheat, corn, and oats. In January this year, total trading in Chicago grain futures was more than 2,100 million bushels, the largest monthly total since July 1933. The total open contracts, which reflect hedging utilization and longer term speculation, have recently exceeded 450 million bushels, an alltime record. The big volume of business has strained market machinery, and increased the regulatory job of maintaining an uninterrupted flow of essential broker-and-trader reports, keeping check on the acceler ated turnover of accounts, enforcing speculative limits, and investi gating traders' complaints. The larger size markets and the increased regulatory workload have not been confined to the past few months, nor to the Chicago market. The commodities in which average levels of open contracts increased in the 1960 fiscal year, and again in the first 8 months of the current fiscal year, include corn, oats, soybeans, soybean oil, and soybean meal mainly at Chicago and cottonseed oil, wool, and potatoes mainly at New York. Another important regulated commodity with a large futures market in the 1960 fiscal year, and again this year, is shell eggs. In addition, the futures market for frozen eggs is becoming a more important factor in egg marketing and has required increased regu latory attention by the CEA. REALINEMENT OF AGENCY FUNCTIONS To make more effective use of its existing personnel, the CEA over the past year has carefully reexamined its organization and operations. The agency has regrouped the functions in its Washington office, and in its five field offices, in order to increase efficiency. The licensing and auditing activities were consolidated into & single activity and the review and maintenance of contract market rules and regulations was transferred to the investigations activity. This permits a more efficient and logical flow of work. Also, the agency made a number of changes in the areas served by the field offices so that the existing personnel could cover most effec tively all the many commodities and markets in which futures trading is currently being regulated. BUDGET REQUEST, 1962 The budget estimate for enforcement of the Commodity Exchange Act for the fiscal year 1962 is $1,007,000 or $17,000 more than the amount estimated to be available for the current fiscal year 1961. This small increase will provide funds to meet the Pay Act costs that were partly absorbed in 1961, thus making possible a continuation of market position surveys in such commodities as soybeans, wheat, and potatoes. These surveys contribute to a strengthened regulatory program essential to the protection of the public interest. Details of this estimate are presented on pages 173 and 174 of volume II of the explanatory notes. My associates and I will be glad to give you more detailed information on the budget estimate or to answer any questions you may have concerning the Commodity Exchange Authority. Mr. WHITTEN. Mr. Caldwell, we thank you for your statement. The justifications have been placed in the record, I think they tell the story in such detail that I do not know of anything further to ask you. I think this is one activity that does a splendid job. It is much more important than the number of personnel and the cost might indicate. I just want to commend you for not only a good job, but a fine job in presenting all the details to the committee which will appear in the record. Mr. CALDWELL. Thank you, Mr. Chairman. FLUCTUATION OF PRICES Mr. SANTANGELO. Mr. Caldwell, in connection with the sales on the commodity exchange, do you find a wide range between the selling price and the price that is pledged? Mr. CALDWELL. I am sorry, I didn't understand the question, sir. Mr. SANTANGELO. In other words, what is the area of fluctuation of the price? Mr. CALDWELL. Well, depending on the commodity, some commodity prices fluctuate quite a bit; others are fairly stable. Cotton prices, for example, in the past few years, have been fairly level. But prices of soybeans, eggs, soybean meal, soybean oil, cottonseed oil, vary widely. Since early January the price of soybeans has risen from $2.40 a bushel to about $3.35. Mr. SANTANGELO. The value of futures trading supervised by the Commodity Exchange Authority far exceeds that which is supervised by the Securities Exchange Commission; is that not true? Mr. CALDWELL. That used to be true, but there has been a boom in stock trading in the last few years and the securities business is now larger than the business on commodity markets. Mr. SANTANGELO. Is there any tax on the exchanges supervised by the Commodity Exchange programs? Mr. CALDWELL. No, sir; no tax. There are, however, registration fees for futures commission merchants, and for floor brokers. Mr. SANTANGELO. There is no charge for the sale or purchase of any commodity? Mr. CALDWELL. No, sir. Mr. SANTANGELO. I have no further questions, Mr. Chairman. Mr. ANDERSEN. Mr. Chairman, these folks have done a good job through the years. I have no questions. Mr. WHITTEN. Thank you. We do appreciate your appearance. Mr. CALDWELL. Thank you very much, Mr. Chairman. WEDNESDAY, APRIL 19, 1961. FOREIGN AGRICULTURAL SERVICE WITNESSES JOHN P. DUNCAN, JR., ASSISTANT SECRETARY OF AGRICULTURE ROBERT C. TETRO, ADMINISTRATOR, FAS RAYMOND A. IOANES, DEPUTY ADMINISTRATOR, FAS GUSTAVE BURMEISTER, ASSISTANT ADMINISTRATOR, FAS W. A. MINOR, ASSISTANT ADMINISTRATOR, FAS PATRICK M. O'LEARY, ASSISTANT ADMINISTRATOR, FAS G. E. TICHENOR, ASSISTANT ADMINISTRATOR, FAS THOMAS E. MORROW, DIRECTOR, BUDGET AND FINANCE DIVISION, FAS NATHAN M. KOFFSKY, ADMINISTRATOR, ECONOMIC RESEARCH SERVICE CHARLES L. GRANT, DIRECTOR OF FINANCE AND BUDGET OFFICER, USDA |