deliverable supply of silver in Comex licensed depositories: (1) was to a great extent controlled by the Hunt Group and Foreign Investors; and (2) was not likely to increase As a materially during the first six months of 1980. result of those concerns and the fact that the Hunt Group and Foreign Investors maintained substantial existing positions in the silver market the Board determined to impose position limits on the beneficial owners of silver futures contracts. The Silver Committee had determined that any action as dramatic and as potentially far-reaching as the imposition of position limits should be accomplished by the entire Board, not just four members thereof. Essentially, the position limit rule limited holders to 2,000 contracts in all maturities and to 500 contracts in the current and next succeeding month. For approximately two weeks, members of the Board observed activities in the silver market with the position limit rule in place and became increasingly concerned about the following events which seemed to be taking place: (1) new accounts were being opened in corporate and other names which might be related to presently existing positions in the silver market as a potential method of abusing and circumventing the position limit rule; (2) large positions in the marketplace were not being liquidated or moved forward; (3) the presence of large interests in the market seemed to be discouraging hedgers and other specul from participating in the market; (4) acquisition of silver through the London silver market and deliveries made on Comex of physical silver in December 1979 reflected a continuing desire of the Hunt Group, Foreign Investors and others to obtain supplies of silver potentially in excess of those available through Comex licensed depositories. After considering all of the foregoing, on January 21, 1980 the Comex Board ordered that trading in all silver futures contracts only be permitted for liquidation and that no new positions be acquired except by short sellers whose principal purpose was to effect delivery of silver upon maturity of their contracts (as an obvious method of bringing more silver into Comex licensed depositories). In the ten days following the imposition of the liquidation only order the Board of Governors met four times to continually review the impact of the liquidation only order and the necessity and desirability of continuing that order, and to carve out certain exemptions considered neces. ary to enable the market to function. The liquidation only order was lifted in February 1980 and limited new trading as permitted. Silver contracts during the entire period liquidated in an orderly fashion. During February and March the Comex Compliance Department investigated potential violations of the Comex position limit rule and initiated disciplinary proceedings against a number of its member firms. On March 26, 1980 and March 28, 1980 the Board met to consider issues that were arising as a result of the large margin calls that were being made daily by Comex Clearing Association. Even though all Association margin calls had been timely satisfied, several clearing members were concerned that their customers would experience problems in satisfying their margin calls in a rapidly declining market. Because the value of a silver contract by that time had declined to $75,000 from a one-time high, in early 1980, of approximately $250,000, the Board concluded that customer original margin requirements could be reduced thus freeing up additional funds for use in the payment of daily variation margin. (It should be noted that original margin requirements for proprietary accounts of clearing members are established by the Association while original margin requirements for customers of clearing members are established by the Exchange). During that week the Board also considered and rejected the idea of closing the silver market. IV. Chronology of Events at Comex from September 1979 The following is a chronological description of all Board and Committee meetings and certain staff activities that related to silver during the period from September 1979 through March 1980. The hundreds of telephone calls and informal meetings involving members of the Exchange, members of the staff and counsel and representatives of the CFTC are not described herein. for the first time of the existence not only of the Hunt Group position, but of the existence of large positions of an apparently separate and distinct group of investors ("Foreign Investors"). The minutes of that meeting reflect: "The Chairman requested the Staff of the Exchange to carefully evaluate the situation developing in December silver, and to report back to the Board as soon as possible with respect thereto." At that meeting the Board took the first of a number of steps to attempt to insure the financial integrity of the marketplace and to insure that the December 1979 silver futures contract would liquidate in an orderly fashion. Original margin requirements were increased from $2,000 per contract to $3,000 per contract and the maximum permissible daily price fluctuation for silver, which had not been changed since 1974, was increased from $.20 to $.40 per ounce. In order to make the increase in daily price fluctuation effective immediately, the Board amended its Silver Rule 5 (the rule governing maximum permissible daily price fluctuations) as a temporary emergency rule pursuant to Reg. $1.41(f) under the Commodity Exchange Act, as amended (the "Act") (for purposes of this statement, any other Comex Rules adopted in the same fashion are referred to as "Temporary Emergency Rules"). The Board also discussed taking other steps in the silver market including the adoption of an expanded price limit rule (which would automatically increase maximum permissible daily price fluctuations upon the occurrence of certain events) and the possibility of terminating the Comex limit book procedure for allocation of bids and offers in markets that are not actively trading because they are either limit up or limit down. The Board also determined to reconvene on September 6, 1979 to further explore the situation. 2. September 6, 1979 The Board considered and rejected a proposal to further expand maximum permissible daily price fluctuations in silver. The Board then considered the effect of the Comex "limit book" procedure on silver trading. The following is an extract from the Board minutes on that subject: "It was noted that as a result of the maintenance of a limit book and the time-consuming process of preparing that book and allocating trades therefrom, delays were being experienced in trading, particularly in the spot month. It was also noted that extensive delays were being experienced generally in the preparation of a limit book." The Board then terminated the Comex "limit book" procedure as a Temporary Emergency Rule. The Board also took its second margin step within 48 hours by increasing original margin requirements for silver contracts to $5,000. The Board also adopted an expanding daily price fluctuation rule which would permit limits to expand to up to 200% of customary daily price fluctuations upon the occurrence of |