to metals market investors in Washington D.C. on Tuesday the 23rd
about "value regulations", position limits and manipulation within
silver markets, CFTC Commissioner Bart Chilton preemptively deflected
criticism by announcing a new endeavor that he's "trying to get
underway at the CFTC": an Office of Consumer Affairs that "would be
responsible for ensuring that folks who contact the agency get
feels our frustration ... but what actions have been initiated?
" I've mentioned this to the
Chairman and met with our Chief Operations Officer and there appears
to be support for such an effort. "
'met with' and 'there appears to be' ... so, nothing but
talk. Why didn't he just say 'one night last week when we were
figuring out how to split the check, I said something of it and
" I am hopeful that in the
not-too-distant-future, we will have such an Office that can, in
significant part, be dedicated to responding to folks who communicate
with the agency. "
he's hopeful that a few million bucks might-maybe-could be budgeted to
implement a call center (in Mumbai?), somewhere in the
non-quantifiable future. Now that sounds like real change I can
get behind ! By the way: when did enforcement and funding become a
chicken and egg question ?
cites a speech from October '07, entitled "Cop on the Beat", and
states that he personally responded to over 400 email comments about
possible manipulation within silver markets. The Commish just wants us
to know that he has "talked about the rampant Ponzimonium that is
going on in the wake of the Madoff scandal" and believes it
"[un]acceptable that, as an agency, it took over eight months to
develop a unified response to public comments on the silver issue."
feels our pain and wants to show us the money (just as soon as he gets
some to work with).
" the first enforcement
investigation of the silver markets since CFTC began looking at the
Hunt Brothers activity in 1979. Some have incorrectly
suggested that there have been four such investigations, all turning up
nothing and that this would be another do-nothing effort. That is
inaccurate. Let me reiterate: this is the first agency silver
investigation since the Hunt brothers case. "
" While I can't give you specific
details of the examination, I can say that we are making significant
progress and that is has been a valuable endeavor .... We have
looked at the silver market like we never have before and I think there
is a window of success that has been opened for understanding about what
has been going on and why. "
I am not suggesting that there are not problems, as you will see, we
need to remember that simple concentration of positions is not, in and
of itself, per se manipulation .... There has been some back
and forth recently about whether an individual trader holds 20 or 40
percent of a given market ...."
support position limits for the metals complex, as I do for all
commodities of finite supply - like the soft agriculture
commodities (coffee, cocoa, sugar, etc.). I think we should
propose a rule on metals position limits now and move forward as swiftly
as possible. "
35 years, there has been only one successful prosecution for manipulation.
So if you ask me if the manipulation standard in the law is working,
I'd have to say no. "
need to have a law that provides us with the professional
grade regulatory tools to do our job and put folks in
jail who try to rig and contort these markets. "
if we as regulators look at the markets that we are sworn to
oversee, there are myriad other areas that are related that could
have an impact on the regulated futures and options markets that we do
not see. "
we have a long way to go. We need many things, including these
value regulations: position limits for commodities of finite supply; a
change to our law that will allow us to detect, deter, and prosecute
activity that negatively affects the ability of markets to reflect true
economic prices of commodities; and the ability to oversee the
OTC markets .... We need to be more like the police
department and less like the fire department. We need to deter and
prevent things from happening, rather than merely responding. "
light of how Martha was made a Scarlet-letter public example of by a
regulatory agency lacking sufficient funding, manpower and expertise ...
this thinly-veiled humour is directed squarely at those
thinking of tainting their U-5's.
" I also think appropriate
regulation that leads to open, competitive free markets is - as Martha
Stewart would say - a good thing. "
someone proof this stuff for tongue-in-cheek between the line
line-item "jokes" ?
heart of the speech lies lays within ever-amorphous
"value regulations", which the Commish defines as "the rules to go by
while you 'keep your eyes on the prize.'" Should a CFTC Commissioner
speak to manipulation, position limits and "the prize" within the same
breath? Isn't "the
prize", within the context of almost any commodity convo,
trademarked by Dan Yergin
task in developing such rules is to strike a reasonable balance between
necessary restrictions, rights and desires. In the case of financial
market regulation, there is a need to evaluate these value regulations
in light of numerous, and sometimes competing, interests: ensuring the
free flow of information and market utility, promoting the ability for
businesses to compete domestically and internationally, and - most
importantly - protecting consumers and markets from fraud, abuse, and
yes ... manipulation. "
regulatory agencies such as the CFTC debate the merits of position
limits over the next few weeks, the issue will likely bubble up to the
surface for a moment while the US Dollar breaks out to the upside and
targets 84. And though imposing restrictions upon 'evil speculators'
seems like a great idea, its practical application is a wee bit tricky.
starters, how do you:
 determine an appropriate
number of contracts to be specific threshold;
classify traders within a single firm for the sake of position pooling
(and don't even think about subsidiary crossings, the CTFC hasn't); or,
distinguish between dedicated net-neutral hedging activities and
explicit speculation ?
arbitrary position limits are haphazardly instituted, an actual
discussion of working framework needs to take place. And though it is
highly unlikely to amount to much more than screaming into the wind, in
a few days we will speak to position limits in much greater detail.
interim, the Commish' latest speech, which hints at a 'large' silver
investigation coming to a head, follows a handful of recent gold/ silver
manipulation links presented below as a 'quick' primer into silver
market short-sided chicanery.
think of it ... why haven't recently
amended SEC / DOJ witness immunity rules been further BALCO'd-up
and retroactively extended to Martin Armstrong, who spoke directly to
ten-figure silver market manipulation and might be able to name a few
names ? Outside of legality, probably because he would speak
directly to ten-figure silver market manipulation and be able to name a
few names. Maybe Marty could be placed into some kind of witness
protection program, say maximum security prison, maybe the hole ?
Check and check. Hmmm, might be on to something here (were
Buffett's name not involved).
AND EXCHANGE COMMISSION
Statement Concerning Cooperation by Individuals in its
Investigations and Related Enforcement Actions
Securities and Exchange Commission.
202.12 Policy statement concerning cooperation by individuals in its
investigations and related enforcement actions.
by individuals and entities in the Commission’s investigations and
related enforcement actions can contribute significantly to the
success of the agency’s mission. Cooperation can enhance the
Commission’s ability to detect violations of the federal securities
laws, increase the effectiveness and efficiency of the Commission’s
investigations, and provide important evidence for the Commission’s
enforcement actions. There is a wide spectrum of tools available to
the Commission and its staff for facilitating and rewarding
cooperation by individuals, ranging from taking no enforcement action
to pursuing reduced charges and sanctions in connection with
enforcement actions. As with any cooperation program, there exists
some tension between the objectives of holding individuals fully
accountable for their misconduct and providing incentives for
individuals to cooperate with law enforcement authorities. This policy
statement sets forth the analytical framework employed by the
Commission and its staff for resolving this tension in a manner that
ensures that potential cooperation arrangements maximize the
Commission’s law enforcement interests. Although the
evaluation of cooperation requires a case-by-case analysis of the
specific circumstances presented, as described in greater detail below,
the Commission’s general approach is to determine whether, how much,
and in what manner to credit cooperation by individuals by evaluating
four considerations: the assistance provided by the cooperating
individual in the Commission’s investigation or related enforcement
actions (“Investigation”); the importance of the underlying matter in
which the individual cooperated; the societal interest in ensuring
that the cooperating individual is held accountable for his or her
misconduct; and the appropriateness of cooperation credit based upon
the profile of the cooperating individual. In the end, the goal of the
Commission’s analysis is to protect the investing public by
determining whether the public interest in facilitating and rewarding
an individual’s cooperation in order to advance the Commission’s law
enforcement interests justifies the credit awarded to the individual
for his or her cooperation.
Thank you for taking the time to join
in today. There has been an on-going dialogue with most of you who are
participating in this session today, and I thank you for the
conversation. What you have said, in brief, is that you are concerned
about possible manipulation of the silver and gold markets. As someone
who worked on Capitol Hill where we responded to thousands of
constituents every week, I took it as part of my job to reply to
folks. I continue to do that in my position as a Commissioner. This
conference call today is part of my continuing efforts to respond to
your concerns. And it’s my firm belief that not only is responding to
you my responsibility, it’s also a great benefit. Some of the best
thoughts and ideas come from folks communicating with government. Your
contribution to the public and to this process—trying to ensure that
these metals markets are free and fair and that they are devoid of
fraud, abuse, and manipulation—is commendable.
of Consumer Affairs
Before we get into specifics, let me talk
about a new endeavor that I’m trying to get underway at the CFTC. As
part of an effort to better respond to the current issue, as well as
numerous other concerns facing the American public, I believe that an
office at the CFTC staffed by people dedicated solely to consumers
would be a sure-footed step in the right direction. This new office,
among other things, would be responsible for ensuring that folks who
contact the agency get responses. The frustration that some of you
have felt—and legitimately so—is one of the primary reasons that I am
promoting this effort.
I’ve mentioned this to the Chairman and met
with our Chief Operations Officer and there appears to be support for
such an effort. I am hopeful that in the not-too-distant future, we
will have such an Office that can, in significant part, be dedicated to
responding to folks who communicate with the agency.
I’m excited by this idea, because I want the
entire Commission to be able to benefit as I have from your input.
While I have gained from these conversations and been educated by many
of you, I don’t think that the CFTC as an entity, for the most part,
has had a useful, effective communication portal for a direct
relationship with the public.
One small example: I gave a speech
entitled “Cop on the Beat” in October of 2007, which resulted in my
responding to over 400 email comments about possible manipulative
activity in the silver markets. I treated thoughtful comments
seriously, and took the time to respond promptly. In contrast, I don’t
think it’s acceptable that, as an agency, it took over eight months to
develop a unified response to public comments on the silver issue (and,
unfortunately, many thought when the agency finally did speak, it
wasn’t very helpful). I think that an Office of Consumer Affairs,
which would focus and coordinate these kinds of comments and answers to
the public, would help avoid this kind
In addition, a consumer affairs section would
help address the misperception held by some that we are an unresponsive
government agency. That characterization certainly does not at all
represent the dedicated CFTC staffers who work hard every day. But
without the basic logistical mechanism to respond to folks, the public
doesn’t necessarily see that. That needs to change. We need to be
responsive public servants, and we need to do a much better job of
communicating with people, in addition to providing proactive outreach
to aid and alert people to scams and fraud that are out there.
We also need to be doing our part to promote
financial literacy. For example, I have talked about the rampant
Ponzimonium that is going on in the wake of the Madoff scandal. These
scams and others are taking place all over the nation—all over the
world in fact. They often take advantage of elderly folks and other
vulnerable people with good hearts and limited incomes. We should be
alerting the public about these scams, and a consumer affairs office
would be a great place to consolidate and disseminate this information.
I’m going to continue listening to you and
responding to you, because that’s my job. More than that, I’m going to
work toward an institutional change at the Commission to make the agency as a whole more
responsive to you as well.
After receiving and responding to emails about
metals market manipulation and having asked our staff to look at the
examples many of you sent to me, I asked (as did Commissioner Dunn) for
an enforcement investigation into the silver markets. Then-Acting
Chairman Lukken agreed, and an investigation began. For the record,
this is the first enforcement investigation of the silver markets since
CFTC began looking at the Hunt Brothers activity in 1979. Some have
incorrectly suggested that there have been four such investigations,
all turning up nothing and that this would be another do-nothing
effort. That is inaccurate. Let me reiterate: this is the first
agency silver investigation since the Hunt brothers case.
In my opinion, the current investigation, if
it were simple, would be concluded. While I can’t give you
specific details of the examination, I can say that we are making
significant progress and that it has been a valuable endeavor. We have
taken testimony from dozens of witnesses and reviewed tens of
thousands of documents. While I am hopeful that we will be able
to share some of the results of the investigation soon, I am also
aware that above all we need to get it right and ensure that we are
moving forward in a thoughtful manner. We have looked at the
silver market like we have never before and I think there is a window
of success that has been opened for understanding about what has been
going on and why. I cannot say more than that, but have every
confidence in the folks who are working on this investigation.
For my conservative friends, and I have many,
they have often claimed that business should be allowed to thrive
without any government intervention. Let the free markets roll, they
say. Well, we tried that over the last decade or so, and boy we all
really were rolled. The banks were deregulated. They were allowed to
offer high-wire mortgages, and then traders began exchanging credit
default swaps that helped propel the economic collapse of American
International Group, Bear Stearns, Lehman Brothers, and others everyone
thought were “too big to fail.” The markets were deregulated and
left, in many ways, to an unfettered free market. It has not worked
out so well.
I know “regulation,” as a word and a concept,
is not very popular to some, but there are many valuable regulations
that we live by each day. Speed limits are a pretty good thing and
save lives. I use the nutrition and product information on food
products— required by USDA and FDA regulations—every day. I also think
appropriate regulation that leads to open, competitive free markets
is—as Martha Stewart would say—a good thing.
I’m not talking about an overzealous set of
rules, but rather, I’m focused on thoughtful, tailored guidelines:
what I call “value regulations.” These value regulations are important
to consumers, to markets, and to our economy. Value regulations are
rules that reflect the desire on the part of citizens to place
significance and importance on a commonly-held objective; they are the
rules to go by while you “keep your eyes on the prize.”
The task in developing such rules is to strike
a reasonable balance between necessary restrictions, rights and
desires. In the case of financial market regulation, there is a need
to evaluate these value regulations in light of numerous, and sometimes
competing, interests: ensuring the free flow of information and
market utility, promoting the ability for businesses to compete
domestically and internationally, and—most importantly—protecting
consumers and markets from fraud, abuse, and yes . . . manipulation.
So, with that need for a sense of
balance in mind, let us talk about three of these value regulations.
First, many of you and others have complained
there is a “crime in progress” because a few traders hold large
percentages of the silver and the gold markets. Well, hold on a
second. While I am not suggesting that there are not problems, as you
will see, we need to remember that simple concentration of positions is
not, in and of itself, per se manipulation. In fact, there is no
statutory or regulatory hard limit on the amount of positions, other
than in the expiration month. Let me repeat that: there is not a current
limit during most of the trading period.
There has been some back and forth
recently about whether an individual trader holds 20 or 40 percent of a
given market. Either level is too high in my opinion, but the bottom
line is that there is currently no limit during the majority of the
trading period. An individual trader could have 60
percent—more than a majority—of a market and not be in violation of the
law or our regulations. Frankly, it is enough to give attentive regulators night terrors. That is precisely why we need a value
regulation here, to impose suitable position limits on metals to
avoid concentration that could possibly lead to manipulation or
attempted manipulation. That is the topic of the Thursday hearing.
For the record, it’s been my position
that we should have included metals in the proposal that is currently
out for comment on energy position limits. Frankly, there was not enough support for that at the
time, and there may not be even today. I support position limits for the metals complex, as I
do for all commodities of finite supply—like the
soft agriculture commodities (coffee, cocoa, sugar, etc.). I think
we should propose a rule on metals position limits now
and move forward as swiftly as possible. We need to get this type of value
regulation in place for these markets, to ensure that exchange-trading
of metals accurately reflects the true economic prices of these
Second, many say that there is clear
“manipulation” in metals and that we at the CFTC should merely “stop
it.” Well, in order for the agency to prove manipulation in court we
have to demonstrate, among other things, that there was a specific
intent to manipulate the market. That means we have to show some sort
of proof—be it an e-mail or voice recording, etc. That makes
manipulation exceedingly hard to establish. I understand that when the
man in the street talks about “manipulation,” he’s not talking about
the legal definition of manipulation under the Commodity Exchange
Act—he just wants the CFTC to step in and stop it, whatever it is.
But under our Act, the violation of manipulation is a terribly hard
legal hurdle to jump. In fact, in 35 years, there has been only
one successful prosecution for manipulation. So if you ask me if the
manipulation standard in the law is working, I’d have to say no.
That is why I have called for Congress to amend our statute to give us
the tools we need to deter, detect, and prosecute behavior that harms
the pricing functionality of markets. We need a value regulation
here. I believe that, through a change in our statute, Congress can
make it easier to prove the types of scheming that we see going on in
the markets that causes uneconomic pricing of commodities. We need to have a law that provides us with
the professional grade regulatory tools to do our job and put folks in
jail who try to rig and contort these markets.
Over-The-Counter (OTC) Markets
Third, even if we as regulators look at the
markets that we are sworn to oversee, there are myriad other areas that
are related that could have an impact on the regulated futures and
options markets that we do not see. That is why it is so important that
Congress pass financial regulatory reform that provides the CFTC with
oversight of the OTC markets—another value regulation that would be
developed by a change in the law. These OTC markets can negatively
impact commodity prices—both on and off regulated exchanges. I am not
suggesting any specific fraud or manipulation here, only that the OTC
markets—dark markets if you will—can provide a shield to appropriate
oversight. That needs to change. If we have learned anything from the
recent financial fiasco, it should be that we need to have a enhanced
handle on what is going on and not allow things to slip below regulators’
Look, we have a long way to go. We
need many things, including these value regulations: position limits
for commodities of finite supply; a change to our law that will allow
us to detect, deter, and prosecute activity that negatively affects the
ability of the markets to reflect true economic prices of commodities;
and the ability to oversee the OTC markets. These should all be part of our
effort to grow and adjust to a changing financial system, to be more
adaptive and to be able to look around the corner and be nimble and
quick. We need to be more like the police
department and less like the fire department. We need to deter and
prevent things from happening, rather than merely responding.
These are critical issues. We start on
Thursday on position limits in metals. That is a good and needed step. However, we
need to do more and we need to do better.