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93

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99

103

111

115

Harold Williams, Chairman, Securities and Exchange Commission-Contin-

ued

Adopt margin requirements..

Prepared statement

A. The commission's response to the March silver trading crisis.

B. The statutory framework for regulating futures trading

C. Margin regulation.

Prepared statement before the Subcommittee on Commerce, Consumer,

and Monetary Affairs of the House of Representatives Committee on

Government Operations, May 14, 1980

Prepared statement before the Subcommittee on Agricultural Research

and General Legislation of the Senate Committee on Agriculture, Nu-

trition and Forestry, May 2, 1980.....

Letter to James M. Stone, re: Application of the Kansas City Board of

Trade for contract market designation in a future based upon the value

line stock market average

Subsequent information received regard the Securities Investor Protec-

tion Corporation......

Robert L. Martin, Commissioner, CFTC.

Present level of margins set too low.

Silver market bubble.

Prepared statement

James M. Stone, Chairman, Commodity Futures Trading Commission; Read

P. Dunn, Jr., Commissioner, CFTC; David G. Gartner, Commissioner,

CFTC.

Invitation to trouble

Restrict speculative lending

Prepared statement.

Panel discussion:

Hole in the regulatory net.

Statutory problems

CFTC stepchild among regulatory agencies.

Disparity and discrimination

Tax trading.

Possible collapse of major broker-dealer.

Controls on off-budget credit programs...

Extension of credit ..

Availability of information.

Restructured loan to stabilize situation.

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146

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251

FRIDAY, MAY 30, 1980

WITNESSES

Lee H. Berendt, President, Commodity Exchange, Inc........

Prepared statement

Statement of Commodity Exchange, Inc.......

Legislative history of continuing Congressional refusal to grant

margin authority over futures contracts to any Federal agency.

Rationale for Congress' determination to grant exclusive jurisdiction

over regulation of commodity futures trading to the CFTC........

Chronology of activities relating to the silver market from September

1979 through March 1980:

A. Introduction..

B. Statement of Commodity Exchange, Inc.:

I. Scope of statement

II. General Description of Comex Silver Market..

III. Summary of events and highlights.

IV. Chronology of events at Comex from September 1979

through March 1980 relating to silver futures....

V. Activities of audit staff at Comex from September 1979

through March 1980 ..

C. Exhibits of Commodity Exchange, Inc.:

1. List of members of Board of Governors of Commodity Ex-

change, Inc.

2. Expanded daily price limit rule....

3. Questionnaire sent to clearing members

4. Questionnaire sent to depositories

5. Original position limit rule...........

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337

338

339

340

341

342

Lee H. Berendt, President, Commodity Exchange, Inc-Continued

Chronology of activities relating to the silver market from September

1979 through March 1980—Continued

C. Exhibits of Commodity Exchange, Inc. - Continued

6. Liquidation trading order and exemptions .....

7. Position limit rule as amended ..

8. Comex response to CFTC inquiry

9. Daily Comex settlement prices for spot silver

D. Statement of Comex Clearing Association, Inc.:

I. Scope of statement.

II. Role of clearing association

III. Self-regulatory approach.

IV. Chronology

E. Attachments of Comex Clearing Association, Inc.:

1. Attachment A-Original margin rates for silver effective on

and after September 10, 1979 ....

2. Attachment B-Original margin rates for silver effective on

and after September 21, 1979 ..

3. Attachment C-Resolutions of board implementing Comex

original margin rule Q..

4. Attachment D-Informating sharing agreement between Asso-

ciation and Comex

5. Attachment E-Original margin rates for silver effective on

and after January 7, 1980....

6. Attachment F-Extract from minutes of Board meeting of

January 27, 1980.

7. Attachment G-List of officers and directors of Comex Clear-

ing Association, Inc..........

8. Attachment H-List of clearing members....

Andrew F. Brimmer, former Public Governor of Commodity Exchange, Inc

Caution against a rush to judgment....

Letter to Senator Stewart regarding foreign banking institutions

Robert K. Wilmouth, president, Chicago Board of Trade

Exchange emergency powers

Prepared statement

Detailed statement.

Introduction

Summary

Part I.--Financial and precious metals futures and the role of

speculation.........

1. The role of financial and precious metals futures....

2. The role of speculation in futures markets....

Part II.-Futures "margins”.

3. The nature of futures "margins”

4. Policy goals and economic analysis of futures margins

5. Margins at the Chicago Board of Trade

6. Analysis of S. 2704 .....

Part III. --Recent events in silver

7. The silver and gold markets: An economic analysis.

8. Performance of the Chicago Silver Futures Market.

9. Self-regulatory activities of the Chicago Board of Trade in

the Chicago Silver Futures Market

Part IV.-Futures regulation

10. CFTC jurisdiction .....

11. CFTC powers to protect the market.

12. Self-regulation and the public interest.

Clayton Yeutter, president, Chicago Mercantile Exchange.

Dynamism of the industry.

Pyramiding ..

Prepared statement:

The economic purpose of futures markets.

The role of the speculator.

S. 2704 ......

Summary of comments on S. 2704

Conclusion.

W. N. Vernon III, Kansas City Board of Trade.

Benefits of futures trading

Prepared statement

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347

351

365

369

372

381

381

391

404

404

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431

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465

465

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510

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536

549

558

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Page

Panel discussion:

Margin setting

Possible conflict of interest...

Federal Reserve's inexperience

Cash price for silver...

Cause for actions taken by COMEX

Participation by foreigners....

Control excessive speculation..

Makeup of the COMEX board

Interlocking directorships......

Richard L. Thomas, president, First National Bank of Chicago.

Elvis L. Mason, chairman of the board, First National Bank in Dallas

Credit facility for Placid Oil.......

James O. Boisi, vice chairman of the board, Morgan Guaranty Trust Co..

Forward contracts and futures contracts

Broker relationships

Potential damage..

Loans to finance commodities, futures...

No new line of credit

Loans to Placid Oil...

Voluntary credit restraint program

Howard Stotler, chairman of the board, Futures Industry Association, accom-

panied by Leo Melamed, director.

Speculative element..

Prepared statment

Article from the Congressional Record “Margins on Futures Contracts"

Prepared statement of Leo Melamed

Rodger D. Shay, Public Securities Association......

Prepared statement:

S. 2704...

Regulatory considerations relating to margin requirements.

Conclusion .....

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630

632

633

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APPENDIX

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702

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639

ADDITIONAL STATEMENTS AND Data SUPPLIED FOR THE RECORD

Christopher M. Hinchey, attorney at law

Commodity Futures Trading Commission..

Coughlin & Marutzky, attorneys at law.

Letter from general counsel, Securities of Exchange Commission enclosing

two "troubling advertisements,

Copy of complaint and notice of hearing pursuant to sections 6(b), 6(c) and

8a(3) of the Commodity Exchange Act..

Federal Deposit Insurance Corporation, response to Senator Proxmire's re-

quest seeking information on loans made by State nonmember banks to

Nelson Hunt

George E. Brankey, attorney at law.

Brian T. Walsh

Handy & Harman, “Highlights of the Silver Market 1979".

Silver in the United States....

The New York market..

Price definition.....

Silver futures.....

Industrial consumption

Imports and exports.

Legislative developments

Review of other markets..

United Kingdom

West Germany.

France...

Canada

Mexico.

Japan..

India

Summary of world stocks.

The outlook .....

Statistical tables

Minneapolis Grain Exchange

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710

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712

712

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714

714

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720

Page Mortgage Bankers Association of America .......

720 Scott D. Dial, past silver specialist for Clayton Brokerage Co. Inc.

723 Silver Users Association: Statement of May 2, 1980

726 Statement of May 22, 1980

728 Statement of June 5, 1980

728 Newsletter of Jan. 11, 1980

735 Newsletter of May 8, 1980

737 The Mortgage Corporation.

739 Andrew G. E. Racz, security analyst ...........

742 (See also committee print, Senate Committee on Banking, Housing and Urban Affairs, “Information Related to Futures Contracts in Financial Instruments, Parts I and II-Including Positions of Exchange Directors in Silver and Gold Futures.")