Dr. BRIMMER. No, sir, we did not attempt to go beyond the identities at that time. We subsequently got depositions from either those investors or their representatives, and those helped us to identify somewhat more closely the types of individuals, but I cannot share with this committee the list of individual names. Senator STEWART. You don't have the list of individual names? Or are you just saying you can't share it with this committee? Dr. BRIMMER. I do not have it.

Senator STEWART. Were any other banking institutions involved, other than the Swiss bank, in participating in the market about the same time?

Dr. BRIMMER. Well, Senator, we were looking at four or five large accounts.

Senator STEWART. Did they enter the market at about the same time?

Dr. BRIMMER. Well, on September 4, 1979, the board was advised for the first time of this second group of substantial investors. Senator STEWART. Is that second to the Hunts?

Dr. BRIMMER. Second to the Hunts. The Hunts had been there all along.

Through the control committee, we were monitoring the activities of the Hunts, and we were fully aware of the size and changing composition of their positions.

Senator STEWART. Now, is that all of their accounts? And also, this IMIC-is that the name of that?

Dr. BRIMMER. Yes, these were all of the accounts.

Senator STEWART. Were you aware of any connection between the Hunts and the South American?

Dr. BRIMMER. No, we were not, and one of the purposes of the depositions was to identify such connections if they existed.

Senator STEWART. Are you aware that at one point there was a large amount-I don't know about when it was-but a large amount of silver that was sold by Mr. Niehaus, I believe, to, I think it was Bunker Hunt, and there was a $40 million line of credit or loan made in connection with that purchase; were you aware of that?

Dr. BRIMMER. No, my committee was not aware of it at that time.

PARTICIPATION BY FOREIGNERS

Mr. WILMOUTH. If I may, in response to your original question with respect to participation by foreigners at the Chicago Board of Trade, we really only had a couple of instances, and we were very specific with the Hunts in asking them if they had any specific connection to any other foreign interest that might be trading silver at the Board of Trade. And the only one they named to us was the IMIC one, the relationship that you were talking about. I also think we should point out, to be fully responsive to your question about why did we take these actions-one of the reasons we took the actions was the changed delivery expectations of the Hunts and others, but particularly the Hunts. They began to use the futures market as a delivery mechanism to get silver in addition to going to the cash markets. That was a little different than what normally happens.

Senator STEWART. Were the other participants in the market doing that?

Mr. WILMOUTH. Some of them were, but not that many of them, really. But we began to see that that was a potential problem with deliverable supply not possibly being enough to meet the expectations of those who wanted to take delivery.

Senator STEWART. Did this have any effect on price in your opinion, the participation by these new investors and the Hunts? Mr. BERENDT. It could have had an impact.

Senator STEWART. Did the price go up or down after they got in the market?

Mr. BERENDT. Well, the increased concern in the size of the positions and the congestion in the market certainly could have had an impact.

Senator STEWART. Did it go up or down after they got involved in the market?

Mr. BERENDT. The price continued to rise.

If I could, for just a moment, elaborate on one or two of the questions that you asked. With regard to the identity of the participants in the Swiss bank account and their positions, the exchange has on several occasions inquired as to the identify of the holders of positions within that account, and has been informed that under the secrecy laws of Switzerland, that the bank is precluded from giving us that information.

Additionally, you asked about the transactions between the Hunts and Mr. Niehaus, and whether we aware of it. That transaction occurred some time early in 1980, I believe during January. The activities of the special silver committee that Dr. Brimmer chaired were activities that occurred prior to December 31, 1979. At that time, we were not able to determine that there was a relationship between Mr. Niehaus and Mr. Hunt. In particular in response to a direct question, we were told there was no relationship, at least during the fall of 1979.

What transpired subsequent to that time clearly changes that situation.

Senator STEWART. Mr. Chairman, I've got some other questions, but I think my time has expired.

The CHAIRMAN. Did you want to respond, Dr. Yeutter?

Dr. YEUTTER. I was just going to give a quick response to your earlier question about gold. I thought you might like to have, for the record, just an indication of how we adjusted our gold margins during this period, simply to reflect how the system functions. Back in September, as gold prices began to rise, we made our first margin adjustment on initial margin, speculative margins. At that time they were $1,200. They were raised to $3,000 in September. In early January, the $3,000 was raised to $5,000, and then on January 18th they peaked at $9,000. About the same time as silver prices peaked.

They have since been reduced in recent months to where they're now back to $4,000.

Senator STEWART. My only point was, Mr. Chairman, you asked the question about how this particular situation occurred and how the market responded. And it was indicated that this was a re

sponse on the part of participants in the market to inflationary pressures that existed in the total economy.

But there were some unusual steps that were taken in silver, and I think there was also something unusual taking place there as compared to what took place in other markets, and that the board responded, or these exchanges responded to that. That is the only point I was attempting to make.

The CHAIRMAN. Senator Kassebaum.

Senator KASSEBAUM. Thank you, Mr. Chairman.

I am basically sympathetic with the expressed interest that you state, that exchanges can best set their own margin requirements. But I am concerned that loans totaling over $1.1 billion had to be extended to the Hunts in order to protect a large section and area of the financial markets.

And I think, Mr. Wilmouth, you stated that there were no banks that had been hurt in this particular endeavor. But what would have happened if there had not been a concerted effort, involving the Federal Reserve as well, to step in and put together a package?

Mr. WILMOUTH. I think perhaps my answers are somewhat tinged, Senator, by the fact that I spent 25 years in the commercial banking business. I was president of the 13th largest bank in this country, and I spent 25 years at the First National Bank of Chicago in the capacity of executive vice president and director of that organization.

And it is my firm opinion that if this package had not been put together, I still believe that the banks would not have suffered any material losses whatsoever. That is the point I'm trying to make. They would have had the silver behind their loans. They had a number of ounces of silver from the Hunts, for example, that they could have used and could have disposed of. The market got down to about $10.85. I think it has been up to $14 or $15, back down to $11, up to $13, and back and forth. And I think they could have liquidated the silver, so that, in the long run, admittedly, it would have been a workout-type situation, such as banks are very familiar with.

But I still do not believe that they would have suffered any material losses. And I think that question probably-and I am going on my ex-banking background of 28 years-is properly addressed to the banking panel later on, but that is a personal opinion that I would express.

Senator KASSEBAUM. There has been talk-and your feeling that certainly margins shouldn't be controlled and determined—and I guess I would like to ask you, regarding margins or positions, which is more important to prevent overspeculation?

CONTROL EXCESSIVE SPECULATION

Mr. WILMOUTH. If we had to make a direct choice between the two, I think that position limits are probably a better tool to control excessive speculation if, in fact, there is excessive speculation-again, a tool that should be used very carefully.

Senator KASSEBAUM. Do you feel the Hunts were allowed to gain and assume too large a position in the market?

Mr. WILMOUTH. No, I don't. I don't have the exact figures in front of me, but if my memory serves me correctly, in late 1975 and

early 1976, at the Chicago Board of Trade, the Hunts had significantly larger positions in futures contracts in silver than they had at any time in 1979 and 1980.

Senator KASSEBAUM. You know, we've been talking quite a bit about silver, but it is interesting, it seems to me, and I suppose largely because I'm a little more familiar with the grain trade, that we are talking about two very different commodities. And do we need to meet them in different ways? One is certainly precious metal, and the other is a replenishable commodity.

And I would like to address this question to Mr. Vernon: Do you feel that perhaps we would need to consider differences in the commodities, and that-is silver too susceptible to speculation? Has this occurred, to this extent, in the grain trade?

Mr. VERNON. Well, in the first place, there is really no direct effect of silver on grain.

Senator KASSEBAUM. I didn't mean that.

Mr. VERNON. Second, we think all futures, as similar systems or mechanisms, should be treated the same in principle as far as regulation.

But if you are talking about a specific level of speculative or position limits or margins, it would be very difficult to have one figure apply to all the commodity markets. But, basically, we believe the same regulatory system should apply to all futures contracts, because it is a similar function, and the same firms, in part, are involved, the same major wirehouses or FCM's and so forth are involved. So we think the same regulatory scheme should apply throughout.

Mr. WILMOUTH. If I may respond, also, to that for just a moment, we are the world's largest grain futures exchange, and I would like to make two points.

First of all, the regulation of futures trading, whether it is accomplished by margins for position limits, or what have you, is the policing of a function and not a product. I think, if I remember correctly, in my remarks I made the point that economists really don't care, when you're talking about using the futures market, whether you're talking about GNMA's or silver, or wheat for that matter. What you are trying to protect is a value.

That is why there is very little delivery in most of our commodities. So I would strongly feel that there is no difference in terms of what the products are, as long as there is sufficient price volatility and sufficient volume. Then, theoretically, you could have a futures contract on anything, provided there are enough commercial participants who want to get involved in hedging risks. That is why we went from 125 or 128 years in the grain business to financial futures. That is why the Mercantile Exchange went into currencies.

Dr. YEUTTER. If I may just add to that, Senator Kassebaum, the rules of the game have to be the same. It simply is not feasible and practical to operate with one set of rules in one area and another set of rules in the other area. That would grossly distort the trading process, and people would simply shift their operations from one bed to the other in accordance with the diversity of rules. So the basic rules, or the basic law of the Commodity Futures Trading Commission and the basic rules of the exchanges have to

be the same for all commodities. The differentiation comes in the application of those rules, and that should clearly vary, depending upon the commodity and the situation.

For example, I just recited what we did in margins in gold. Now, at the same time Comex and the Chicago Board of Trade were increasing margins in silver. There was no need for us to get involved in position limits in that case, because we did not have any kind of a problem of concentration in positions in gold; whereas there was a problem of concentration in silver, and so they went the additional step of position limits.

So it's necessary, in carrying out one's regulatory functions, to make those kinds of adjustments, depending upon the circumstances. But the basic rules ought to be comparable.

Senator KASSEBAUM. Thank you.

The CHAIRMAN. The hour is getting late. We have two other panels to appear.

I'm going to be as brief as I can, and I have a number of questions I would appreciate it if you gentlemen could answer for the record when you correct your remarks in writing.

The CHAIRMAN. I would like to ask a couple of questions in the remaining moments.

Mr. Berendt, you made a strong defense of self-regulation by futures exchanges. You claim no self-interest on the part of members of the board and the actions taken in silvers futures margins or position limits in September.

Of course, as you know, the Hunts claim otherwise. They claim that insiders manipulated the exchanges. Two days ago we received some information that was requested from the CFTC. It is incomplete at this time. We will be getting the rest of it soon. What data we have shows the position of 9 of the 23 directors or their firms of the Comex Board in silver futures contracts.

Let me share with you, for several dates in September:

NET SHORT POSITIONS OF MEMBERS OF COMEX BOARD OR THEIR INTERESTS 1

1

The CHAIRMAN. These are incredibly large short positions, especially as the price of silver was rising. Clearly, positions of this size held by members of the Comex Board or their firms, contracts representing 50 to 75 million ounces of silver, worth over $1 billion, gives the appearance of very substantial self-interest by the very people who are making the decisions as to margins and position limits.