[Senate Hearing 110-183]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-183
 
                          NOMINATIONS HEARING:
                      JILL E. SOMMERS, OF KANSAS,
                     AND BARTHOLOMEW H. CHILTON OF
                    DELAWARE TO BE COMMISSIONERS OF
                THE COMMODITY FUTURES TRADING COMMISSION

=======================================================================


                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                               __________

                             JUNE 27, 2007

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov




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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            SAXBY CHAMBLISS, Georgia
KENT CONRAD, North Dakota            RICHARD G. LUGAR, Indiana
MAX BAUCUS, Montana                  THAD COCHRAN, Mississippi
BLANCHE L. LINCOLN, Arkansas         MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan         PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska         LINDSEY GRAHAM, South Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
SHERROD BROWN, Ohio                  MICHEAL D. CRAPO, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa

                Mark Halverson, Majority Staff Director

                    Jessica L. Williams, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                Vernie Hubert, Minority General Counsel

                                  (ii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Nominations Hearing: Jill E. Sommers, of Kansas, and Bartholomew 
  H. Chilton of Delaware to be Commissioners of the Commodity 
  Futures Trading Commission.....................................     1

                              ----------                              

                        Wednesday, June 27, 2007
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee 
  on Agriculture, Nutrition, and Forestry........................     1
Chambliss, Hon. Saxby, a U.S. Senator from Georgia...............     2

                                Panel I

Chilton, Bartholomew H., of Delaware, to be a Commissioner of the 
  Commodity Futures Trading Commission...........................     6
Sommers, Jill E., of Kansas, to be a Commissioner of the 
  Commodity Futures Trading Commission...........................     4
                              ----------                              

                                APPENDIX

Prepared Statements:
    Chilton, Bartholomew H.......................................    20
    Sommers, Jill E..............................................    22
Document(s) Submitted for the Record:
    Committee questionnaire and Office of Government Ethics 
      Executive Branch Personnel Public Financial Disclosure 
      Report filed by Bartholomew H. Chilton.....................    26
    Committee questionnaire and Office of Government Ethics 
      Executive Branch Personnel Public Financial Disclosure 
      Report filed by Jill E. Sommers............................    46
Question(s) and Answer(s):
Chilton, Bartholomew H.:
    Written response to questions from Hon. Tom Harkin...........    62
Sommers, Jill E.:
    Written response to questions from Hon. Tom Harkin...........    64



                          NOMINATIONS HEARING:



                      JILL E. SOMMERS, OF KANSAS,



                     AND BARTHOLOMEW H. CHILTON OF



                    DELAWARE TO BE COMMISSIONERS OF



                THE COMMODITY FUTURES TRADING COMMISSION

                              ----------                              


                        Wednesday June 27, 2007

                              United States Senate,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 2:06 p.m., in 
Room SR-328a, Russell Senate Office Building, Hon. Tom Harkin, 
Chairman of the Committee, presiding.
    Present or submitting a statement: Senators Harkin, 
Chambliss, Lugar, Roberts, Coleman, and Thune.

    STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    Chairman Harkin. The Senate Agriculture Committee will come 
to order.
    This afternoon I am pleased to welcome to our Committee 
this afternoon two nominees to the Commodity Futures Trading 
Commission. Jill Sommers is nominated for the remainder of the 
term expiring April 13th, 2009, and I will defer to Senator 
Roberts for the purpose of an introduction.
    Bart Chilton is nominated for the remainder of the term 
expiring April 13th, 2008. Both of these nominees have had 
extensive experience here on the hill. As I said, I will defer 
to Senator Roberts on Ms. Sommers. I will say Mr. Chilton has 
most recently worked for Senator Tom Daschle, who was a very 
valuable member of this Committee. Mr. Chilton also served in 
important positions at the Department of Agriculture, the Farm 
Credit Administration, and the National Farmers Union.
    The Commodity Futures Trading Commission has critical 
regulatory responsibility to protect and ensure the integrity 
and fairness and transparency of our Nation's futures options 
and derivatives markets. These markets are highly competitive, 
they are innovative and rapidly changing. They are vital to the 
functioning of our economy, yet it is likewise vital that they 
are properly regulated.
    The CFTC has a critical responsibility to protect 
customers, market integrity and the public while also promoting 
efficient and internationally competitive futures and 
derivatives markets. With good reason there has been a great 
deal of interest in restoring fuller CFTC authority to monitor 
and take appropriate regulatory action in energy derivatives 
markets, as well as in urging CFTC to utilize its existing 
authority to the maximum extent.
    I do give the CFTC credit for filing energy-related 
complaints against more than 50 firms and collecting some $300 
million in penalties in recent years. However, it is essential 
that the CFTC erase any doubts about its aggressiveness in 
pursuing energy-related violations and that Congress restore to 
CFTC the authority that it needs over energy derivatives 
markets.
    So I look forward to hearing the nominee's statements and 
answers to our questions.
    I will now turn to Senator Chambliss for an opening 
statement.

 STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA

    Senator Chambliss. Thank you very much, Mr. Chairman, and I 
applaud you for holding this very important confirmation 
hearing today.
    Currently the Commodity Futures Trading Commission is 
severely hampered by vacancies on the Commission. This 
Committee is tasked with filling these positions to ensure that 
the Commission is able to function appropriately.
    Just last week Reuben Jeffrey was confirmed to be Under 
Secretary of state. His departure from the CFTC, where he was 
serving as Chairman, leaves the Commission to operate with only 
two sitting Commissioners.
    Let me say, Mr. Chairman, I have only been in the Senate 
for four years, the House for eight years before that. But 
Reuben Jeffrey really did an outstanding job. He committed 
himself to really learning the industry and making sure that 
from a regulatory standpoint the futures trading industry did 
what it was supposed to do. He will be missed, but we certainly 
look forward to filling that vacancy, as well as the other one.
    While both Commissioner Walt Lukken and Mike Dunn are quite 
capable, the Commission is designed to operate as a five 
person. And moving forward the pending nominations before the 
Committee today is imperative to ensure functionality of the 
CFTC.
    The two nominees before us today are certain no strangers 
to the United States Senate. Jill Sommers spent over four of 
her career years serving Senate Majority Leader Bob Dole in 
various capacities and Bart Chilton was a senior advisor to 
Senate Majority Leader Tom Daschle. Both these nominees bring 
varied skills to the job that will complement those of 
Commissioners Lukken and Dunn.
    I have known Jill for many years and I believe that her 
experience both in Government and within the industry will be 
very valuable to the CFTC operation.
    Mr. Chilton spent much of his career working on behalf of 
our farmers and ranchers and I believe this experience will 
enable him to bring an important producer perspective to the 
regulation of agriculture commodities traded on futures 
markets.
    The Commission will be well served if both of these 
nominees are confirmed by the Senate.
    Again, Mr. Chairman, thank you for holding this hearing. I 
am hopeful these nominations will move through the Committee 
and the full Senate in an expeditious manner.
    Chairman Harkin. Thank you very much, Senator Chambliss.
    Now I have two housekeeping things and then I will yield to 
Senator Roberts for introduction. That is why did I did not go 
on about you, Ms. Sommers, because I was going to yield to him 
on that.
    But two housekeeping things that we do for all nominees, 
would both of you please raise your right hand.
    Do you swear that the testimony you are about to present is 
the truth, the whole truth, and nothing but the truth?
    Ms. Sommers. I do.
    Mr. Chilton. I do.
    Chairman Harkin. Secondly, do you agree that if confirmed, 
you will appear before any duly constituted committee of 
Congress, if asked?
    Ms. Sommers. Yes, sir.
    Mr. Chilton. Yes.
    Chairman Harkin. Thank you very much.
    Now I would yield to the distinguished Senator from Kansas 
for the purposes of an introduction.
    Senator Roberts. Mr. Chairman, thank you very much. It is 
an honor and a privilege to introduce to you someone who has 
already been introduced by my good friend, Saxby Chambliss. I 
want to associate myself with his remarks. With only two people 
on the CFTC and a five-member CFTC, these appointments are 
very, very crucial and I hope we can expedite this just as soon 
as possible.
    It is a privilege to introduce and convey my strongest 
possible support for the nomination of Jill Sommers to the 
CFTC. As has been said, she is a native Kansan. She is a 
graduate of a school that I think is not too far from 
Manhattan, Kansas and Kansas State University. I think they 
call it the University of Kansas, a very proud graduate, I 
might add.
    I understand her parents, John and Joyce, are here from 
Fort Scott, Kansas. If they could raise their hand, that would 
be appreciated.
    Fort Scott is a great, great community, Mr. Chairman, has a 
very rich history in Kansas. We call it a real gem in Kansas. 
So she has had a proud heritage and growing up in small-town 
America but a great small town.
    She is very well qualified for this position, having served 
on the staff of Senator Bob Dole, as anybody in public service 
in Kansas has served on the staff of Bob Dole from one time or 
another, whether or not we were on the staff or not. As a 
matter of fact, I am still a staff member for Bob Dole, but 
then that is another whole story.
    At any rate, she has worked in several positions in the 
futures industry so she has the background and the 
understanding necessary to address the very difficult issues 
she will face as a commissioner.
    More importantly, being from Kansas, she truly understands 
agriculture and the significant role that the CFTC plays in 
regulating our agriculture markets. I am convinced she is more 
than up to the task. I am very proud to support her nomination 
as a fellow Kansan.
    And I thank you, Mr. Chairman, for the privilege.
    Chairman Harkin. Thank you very much, Senator Roberts.
    Now we will turn first to Ms. Sommers and then second to 
Mr. Chilton. Your statements will be made a part of the record 
in their entirety and if you could summarize those in several 
minutes, I would appreciate it very much.
    Ms. Sommers, welcome, and welcome your family members here 
and your husband, also. Mike. You did not introduce him. I will 
introduce him. Her husband, Mike, is here too.
    Ms. Sommers, please go ahead.

 STATEMENT OF JILL E. SOMMERS, OF KANSAS, TO BE A COMMISSIONER 
          OF THE COMMODITY FUTURES TRADING COMMISSION

    Ms. Sommers. Thank you, Chairman Harkin. And certainly 
thank you to Senator Chambliss and Senator Roberts for those 
kind words, and members of the Agriculture Committee.
    I am honored to sit before you today as a nominee to be a 
Commissioner at the Commodity Futures Trading Commission. It is 
a true honor and privilege for me to be nominated by the 
President for this distinguished position.
    I would like to thank my husband, Mike, who is here, and my 
parents, who are here with me today. We have three small 
children who we decided not to bring with us this morning to a 
Senate hearing.
    I started working on Capitol Hill more than 15 years ago 
for Senator Bob Dole as an intern from the University of 
Kansas. And I worked for him in various capacities for almost 
five years. From Senator Dole I learned the importance of a 
fair and reasonable decision-making process.
    I grew up in a small town in Southeast Kansas. My parents 
still reside there. And they own hardware store in our farming 
community, as they have for over 38 years. My parents taught me 
the value of hard work and integrity. If confirmed as a 
Commissioner, I will bring all of the values of my Kansas roots 
with me to the Commission.
    During my career, I have also had the opportunity to work 
in the futures industry. It is a fascinating world which is 
constantly changing and innovating. For example, when I started 
working for the Chicago Mercantile Exchange in 1998, its 
electronic platform was used for overnight or after hours 
trading and the electronic volume was less than 15 percent of 
their total volume. Today millions of contracts a day are 
traded electronically on the CME with a system that trades 
virtually 24 hours.
    Fortunately, when Congress was tasked with reauthorizing 
the CFTC in 2000, they saw an industry that was quickly 
evolving and they created a framework to give the CFTC the 
appropriate regulatory tools to keep pace with the development 
in these markets. The Commodity Futures Modernization Act, and 
my work on it, fundamentally shaped my view of how the 
Government can and should interact with these markets. The CFMA 
unleashed the power of the free market on the futures industry 
without sacrificing a rigorous enforcement structure at the 
CFTC.
    The CFTC does an outstanding job of encouraging market 
growth and innovation while ensuring the integrity of the 
marketplace and protecting market users. The agency has taken 
their mission very seriously and they pursue aggressive action 
against wrongdoers in the markets.
    My regulatory philosophy rests on some of the basic 
principles Congress stressed during the CFMA, fair and flexible 
supervision while providing strong and independent oversight.
    Congress got it right in CFMA. It did it through 
encouraging competitiveness and ensuring legal certainty. 
Congress, in its wisdom, understood the truth that American 
entrepreneurs and traders are the best in the world if given 
the opportunity to succeed.
    Whether you are a farmer trading wheat in Kansas City or a 
trader in Chicago buying Treasury bonds, the CFTC regulates 
each market with the proper level of oversight. Every one of 
these contracts traded on each futures and options exchange in 
the United States plays an important role and every market 
participant deserves to have confidence in the integrity and 
efficiency of those markets.
    I understand that there are some challenging issues facing 
the Commission, but as a mother of three small children I know 
how to handle a challenge. I look forward to the opportunity to 
work on the numerous significant matters on the Commission 
agenda today and in the future.
    If confirmed by this Committee and the United States 
Senate, I will work hard to ensure that the CFTC continues its 
role of encouraging efficient, transparent and financially 
sound futures and options markets while protecting the public 
from fraud, manipulation, and abusive practices.
    Thank you for the opportunity to appear before you today. I 
look forward to answering any questions you may have.
    [The prepared statement of Ms. Sommers can be found on page 
22 in the appendix.]
    Chairman Harkin. Thank you very much, Ms. Sommers.
    Now we will turn to Mr. Chilton. I also know that Mr. 
Chilton's wife, Sherry, is here with us. We welcome you to the 
hearing.
    Again, Mr. Chilton is no stranger to many of us here. He 
has a long history of working both in the House and the Senate 
and on all matters of agriculture, worked for Dan Glickman when 
he was down there as Secretary of Agriculture, he had a lot of 
dealings with him at that time. And then came up here and was 
staff member to Senator Daschle during the writing of the 2002 
Farm Bill and was very instrumental in that. And since then, he 
has worked for the Farm Credit Administration and also the 
National Farmers Union.
    So a long history of being involved in all matters 
agriculture and those attendant thereto. So we welcome you, Mr. 
Chilton. Your statement will be made a part of the record in 
its entirety and if you could summarize it in several minutes, 
I would appreciate that.

   STATEMENT OF BARTHOLOMEW H. CHILTON, OF DELAWARE, TO BE A 
    COMMISSIONER OF THE COMMODITY FUTURES TRADING COMMISSION

    Mr. Chilton. Thank you, Mr. Chairman.
    And I do have a couple of letters, one from Senator Daschle 
and one from Secretary Glickman, that I would like to be part 
of the record if that is appropriate.
    Chairman Harkin. Yes, I just have the one from Senator 
Daschle and one from former Secretary Glickman. They will be 
made a part of the record.
    Mr. Chilton. Thank you, sir. And thank you, Senator 
Chambliss. And thank you, members of the committee, for taking 
the time to be here. I know your schedules are busy.
    I also want to thank specifically Senator Harkin for his 
many personal and professional kindnesses over the years. I 
have learned a lot from him and will always remember working 
with him on the 2002 Farm Bill. I very much appreciate it, sir.
    I also want to thank Senator Reid for recommending me to 
the President. And I want to thank President Bush for 
nominating me for this important position.
    Last, I would like to thank my friend, Tom Buis, for being 
here. And of course, my best friend in life, my wife Sherry, 
who you recognized, and also is a former Senate staffer. She 
worked here for 10 years for Senator Simon and for Senator 
Kohl.
    I came to Capitol Hill in 1985, and a couple of years after 
that I was asked to work with Congresswoman Jill Long, who 
Senator Lugar, of course, knows and Senator Harkin and others. 
She was a freshman and she asked me to do agriculture work. So 
I said yes. And within a couple of weeks we had passed an 
amendment to require that exchanges get CFTC approval before 
they took certain emergency actions. It was a very 
controversial amendment and the exchanges quickly dispatched 
dark-suited lobbyists with cell phones the size of shoe boxes 
to defeat the Long amendment. And they did a really good job.
    By the time we got to the full Committee and the opening 
statements were done, it was apparent that the Long amendment 
was cooked. So all day I went to work with the staff of then-
Congressman Roberts and then-Congressman Glickman and tried to 
resolve it.
    Chairman de la Garza would lean down and look at the intern 
desk, which is where they put--Jill Long an additional member 
of the Committee. He would look over the dais and say, ``Is the 
Long amendment ready yet?'' And of course, it never was. Not 
until the eleventh hour, when we finally got the compromise 
passed.
    The Chairman was just about to gavel the markup to a close. 
And Jill who, as you all know, is very gracious, did sort of a 
Columbo moment and said, ``One more thing, sir. I would like to 
thank the members for their patience and let them know that 
this was my first amendment passed in the Agriculture 
Committee.''
    Chairman de la Garza said, ``And let it be the last. This 
meeting is adjourned.''
    [Laughter.]
    Mr. Chilton. Well, I have learned a lot since that time, 
both as Chairman Harkin said, 10 years in the House, six years 
in the Clinton Administration, the Executive Branch, four years 
on the Senate side and then a year at a financial regulator. I 
hope to bring those sorts of experiences about how to pass laws 
and not pass laws, how to promulgate regulations, how to 
implement them, how to enforce them to the CFTC, should I be 
confirmed.
    But a lot has changed in the futures industry since that 
time, too. We have moved from the pit trading to electronic 
trading. In fact, about 50 percent of trades are now done 
electronically on many of the exchanges. We have seen numerous 
innovations in different contracts. They have gone from about 
200 different contracts to well over 1,500 contracts. And 
amazingly, in a single day, a single day, over $4 trillion 
changes hands in the U.S. futures industry. Just amazing.
    Who would have thought 20 years ago that we would be 
trading, Tom, carbon sequestration credits or weather futures 
based upon heating and cooling days. It is just amazing.
    That said, agriculture remains a really important part of 
the futures industry. It is less than it was at the beginning, 
of course, and less that was in the 1970s. It is about 7 
percent of the total portfolio right now. But it still remains 
very important for not only risk management but for price 
discovery, for farmers, ranchers, merchandisers, suppliers, 
everybody in the agriculture chain.
    With regard to global markets, we have seen global futures 
exchanges pop up all across the world and the volume increase. 
And many of these exchanges we have U.S. investors involved, 
and they have different regulatory regimes at all of these 
exchanges. So to the extent that it is possible, we need to try 
and harmonize these various regulatory regimes to ensure that 
U.S. investors' funds are protected.
    So in summary, Mr. Chairman, I would like to use my 
experience I have gained at the CFTC to try and encourage and 
promote open competitive, effective and efficient markets. And 
as Ms. Sommers said, to do that in a way that they are 
resistant as possible to fraud, abuse and manipulation.
    My final caveat, sir, is as a former Senate staffer, I will 
say that I will only do that, I will only do that given the 
specific authority of this Committee and the entire Congress.
    I would be pleased to try to answer any questions.
    [The prepared statement of Mr. Chilton can be found on page 
20 in the appendix.]
    Chairman Harkin. Thank you both very much for excellent 
statements. And we will enter a round of questions.
    First, for both of our nominees, in 2000, the Commodity 
Futures Modernization Act inserted into the Commodity Exchange 
Act new provisions which exempted from CFTC oversight 
agreements, contracts, and transactions in energy and metals 
traded on an electronic exchange between large traders. This 
exemption is often referred to as the ``Enron loophole'' since 
it was inserted into the law at the request of the Enron 
Corporation and others.
    Would you support legislation to eliminate the Enron 
loophole and make electronic exchanges that trade energy 
commodities subject to the same statutory requirements as 
regulated exchanges that trade energy commodities in order to 
prevent price manipulation and excessive speculation?
    Mr. Chilton?
    Mr. Chilton. Thanks for the question, Senator.
    There was this report earlier, that Senator Coleman's 
Committee did, and it's very troubling. I have not read the 
report but I have read the news reports of it. And it is 
essentially leading down that road. I think it is definitely 
something we need to look at carefully.
    Currently, the CFTC's jurisdiction only deals with these 
regulated markets. And the only way that they can get into 
these other markets, these over-the-counter markets, is if 
somebody is trading on one of the regulated exchanges they can 
ask for all of their holdings, their cash, and any other 
positions they might have over-the-counter.
    So I think the first thing you would want to do is have 
more transparency and learn what exactly the extent of that is. 
I have learned over the years that you have got to be careful 
about a quick legislative fix. I would be concerned that if we 
do something that is too prescriptive, we might ultimately 
drive people away from our markets, drive them overseas.
    That said, this report is very troubling, or at least the 
news accounts of it are, and I think we need more information 
to see if that is something that we should move forward on.
    Again, this is totally in the purview of Congress. The CFTC 
does not currently have that authority, as you correctly 
stated. So as a regulator, should I be confirmed, I will do 
whatever Congress tells me to do.
    Chairman Harkin. Ms. Sommers, same question.
    Ms. Sommers. Thank you, Senator Harkin.
    I guess, first of all, I would start out by saying that I 
think the Enron situation was a result of bad business 
practices that would not be condoned or promoted by a U.S. 
regulatory agency, and certainly there is no excuse for what 
happened there.
    I also would join Mr. Chilton in saying that if Congress 
deems it necessary for the CFTC to have the authority to 
regulate these markets, as a Commissioner at the Agency, I 
would be a rigorous enforcer of those regulations. I think that 
we need to be careful and have a fair and balanced approach 
when you are regulating these markets.
    But if it comes to protecting the users in markets from 
fraud and abuse, I think that is absolute something that the 
Commission needs to do.
    Chairman Harkin. Let me follow that up then with both of 
you. Ms. Sommers, since NYMEX is regulated by ICE is none, and 
since trading on one affects the other, what kind of sense is 
there that we would regulate one and not the other? Why would 
we regulate one and not the other, is my question? Do you have 
any basis of support from a regulatory standpoint of why it 
would be advisable to continue to regulate one but not the 
other?
    Do I need to rephrase the question?
    Ms. Sommers. No, I understand your question.
    I guess I would say that those exchanges, the ICE futures 
exchange, it is my understanding, is a regulated entity by the 
FSA in London. The products that they offer, which are over-
the-counter derivatives, are of course not regulated because, 
as you put it, it was in the Commodity Futures Modernization 
Act that those products would not be regulated.
    Chairman Harkin. I am just saying from a regulatory 
standpoint is there any reason why one should be under CFTC 
regulation and the other not, is what I am trying to--is there 
any reason regulatory-wise why that should be?
    Ms. Sommers. I think they are different products. The 
derivatives contracts could be different than what is traded on 
a standardized contract on a regulated futures exchange.
    Chairman Harkin. Both of them trade energy commodities.
    Ms. Sommers. Yes, sir.
    Chairman Harkin. But what is related by CFTC and one is 
not. Mr. Chilton, do you see any regulatory reason why there 
should be one regulated and one not?
    Mr. Chilton. it seems odd to me, sir. But again, I think if 
you did it, you would want to be prudent in how you would do 
something like that. In Congress' wisdom they excluded these 
things. And so you might want to look at the history as to why 
that was done.
    But I think it is a good question and it is, like I say, 
before you just say let's do it and make a legislative fix and 
let's just put it in an extension of CFMA. I think you want to 
be careful about how you do that. You certainly do not want to 
drive people away from--I mean, the commodities industry is 
important to our economy and we do not want to scare people off 
and have them go overseas.
    But by the same token, I think your question is a really 
good one and I cannot give you a good reason regulatorily why 
it could not be implemented, certainly.
    I would put one caveat in there, sir, the CFTC has lost 
about 60 employees since 1976. The SEC has about 3,600 folks. 
So if you are going to do any regulatory change, I mean they 
are already a strapped agency. And I have not been down there 
long enough to be a shill for them. But I have been there long 
enough to understand these sorts of numbers, losing 60 people 
since 1976. They have only 536 folks down there. So if you ever 
expand their authorities in any regard, it seems to me you are 
going to have to work with the appropriators and make sure the 
resources are there, also.
    Chairman Harkin. Thank you. My time has run out. I 
recognize Senator Chambliss.
    Senator Chambliss. Let me follow on that a little bit, Mr. 
Chilton. Mr. Greenspan, former Chairman of the Federal Reserve, 
has spoken of the benefits of derivatives markets and 
specifically says that ``Derivatives market lessen the 
vulnerability of individual financial institutions to shocks 
from underlying risk factors.''
    He also has said that ``Derivatives markets have increased 
the resilience of the entire financial system.''
    Do you agree that the use of derivatives has improved the 
flexibility and stability of the financial system?
    Mr. Chilton. Yes, sir.
    Senator Chambliss. It has been awhile since I have looked 
at this but as I remember there was an issue relative to the 
validity of swaps and derivatives if they came under regulatory 
scrutiny. And I concur with you that we had better be careful 
before we ever think about doing that, particularly, as you 
say, with a limited number of employees that are able to do the 
scrutiny.
    Ms. Sommers, you have held several positions within the 
industry regulated by the CFTC. Would you please share with 
this Committee the roles you assumed in these capacities and 
how these experiences have prepared you to serve as a 
Commissioner?
    Ms. Sommers. Thank you, Senator.
    I started my career in the industry with a regulated 
exchange, the Chicago Mercantile Exchange, and was able to 
learn the business from a designated contract and self-
regulatory organization's point of view.
    I also had the opportunity to work for the International 
Swaps and Derivatives Association, an association that 
represents many of the investment banks that are participants 
and users of the marketplace and have an, I think, unique 
perspective because in many of the cases I have a sometimes 
opposite point of view that my background gives me from working 
with those two organizations.
    I view my experience as a benefit to the Commission, not an 
impediment to my independence or my independent judgment as a 
Commissioner.
    I view the mission of the agency very seriously to protect 
market users and to protect open and competitive markets.
    Senator Chambliss. You have, in your capacity being in the 
industry, obviously you have been employed in different aspects 
of it. And now as a Commissioner you may be on the other side 
of some of those entities that you have worked for and you will 
be regulating those particular entities. Are you telling the 
Committee today that you are willing to put aside any feelings 
you have from an employer/employee relationship and you are 
willing to be independent in looking at each of these agencies 
and whatever issues relative to them may come before the 
Commission?
    Ms. Sommers. Absolutely, Senator.
    Senator Chambliss. Mr. Chilton, as you know, in 2000 we 
passed the CFMA. And now we are looking, as we did last year, 
we are looking again at the reauthorization of the CFMA. I 
think it has been generally agreed in the industry that there 
has been significant growth and innovation that was allowed by 
the CFMA.
    As we look at free authorizing the CFMA, do you have any 
thoughts or comments or suggestions of anyway that you think we 
can improve it? In other words, we have had some people on this 
Committee who have advocated a one-line extension of the CFMA. 
And then we have others who want to go into more details about 
it. Do you have any comments relative to that? And then Jill, I 
will ask you the same question.
    Mr. Chilton. Thanks for the question, Senator. You are 
correct, it has been a resounding success. I think those who 
helped take part in it should be proud of it.
    I think the Senate bill that was passed last time was a 
good piece of legislation and I think if you move down that 
road you will be fine. A one line extension would be all right 
but I think it does not take care of some of the things that 
the Senate was interested in doing, dealing with the Forex 
issue with regard to the Zelener loophole and potentially 
clarifying some of the fraud statutes in the law.
    But other than that, sir, the Senate bill did those things 
and I think the Senate bill did a good job.
    Senator Chambliss. Ms. Sommers?
    Ms. Sommers. Senator, I certainly agree with the Bart on 
that answer, going through the Senate bill. I know that the 
CFTC was particularly interested in making sure that their 
fraud authority was clarified under Forex issues and 
additionally making sure that those markets, the integrity of 
those markets are protected is what their mission is. So I know 
that would be helpful to the Commission.
    Senator Chambliss. To both of you, let me say your 
willingness to commit yourself to continued public service is 
admirable. We appreciate it very much and we look forward to 
your confirmation and your service on the Commission. Thank 
you.
    Chairman Harkin. Thank you, Senator Chambliss. Senator 
Lugar.
    Senator Lugar. Thank you very much, Mr. Chairman, for 
calling this hearing.
    I would just reminisce for a moment that at the time that I 
was fortunate enough to come onto the Committee in early 1977, 
the table seemed to stretch all the way down from one end to 
the other. On one side was my dear friend, Pat Leahy. I was on 
the other side. And we were so remote from the Chairman, Herman 
Talmadge, and Jim Eastland who would smoke up here. And they 
would be caught in a cloud of smoke and suddenly the meeting 
was over, the meeting had been decided.
    But one day they made a concession to the juniors at the 
end. This Commodity Futures Trading Corporation Act had been 
passed and no one paid much attention to it and some felt there 
should be oversight. And so we were assigned to that.
    Of course, we took our duties very seriously, perhaps too 
seriously for our seniors on the whole business. But it has led 
me to a Senate lifetime of very deep interest in what you are 
doing.
    When the Chairman got into today the energy question, this 
is an area that has either plagued or bedeviled the Committee 
and the Commission for a long time. It was not by chance that 
energy was exempted even in the last go round, nor in some 
before. There were very strong senators and other interests who 
simply felt that it was inappropriate and they did not want the 
regulation.
    The Enron business brought things to the fore and I think, 
Bart, that you are correct that before you rush into this you 
need to think about what you are doing.
    But I would hope that the Commission and the Congress would 
take seriously the problems that continually arise and not just 
simply in Enron but difficulties that are more current that you 
reference today.
    I am grateful that you, Mr. Chilton, have a good Hoosier 
background out of Purdue. This is reassuring. And I see behind 
you the President of the National Farmers union who likewise 
claims Hoosier roots and was recently on my farm for a period 
of Earth Day celebrations with the Chicago Climate Exchange. So 
we are grateful to be reunited here today.
    I have no further comment except to plea that we be 
courageous enough to step up to the energy questions. They are 
going to become bigger and bigger. We had one period in which 
our Committee had extensive hearings with Alan Greenspan and 
others about derivatives. It was the time of the Capital 
Management fiasco and the whole banking system in the country 
was in jeopardy. We have never quite come to grips with all the 
indications of that, even given reassurances at the highest 
levels.
    The two of you both have experience in this and you can 
make such a difference, not only in public life but in this 
specific agency.
    I thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator longer. Senator 
Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    On Monday, the Permanent Subcommittee on Investigations, of 
which I am the ranking member, held a hearing and released a 
report entitled Excessive Speculation in the Natural Gas 
Market. This was a bipartisan report. Chairman Levin and my 
staff examined the trading of a single hedge fund, which was 
Amaranth, LLC and revealed serious problems in the current 
regulation of our natural gas markets.
    I am deeply concerned about the integrity of the energy 
markets and what appears to me a large gap in our regulatory 
structure.
    What we saw in this investigation was in August, last 
August, NYMEX became concerned that Amaranth's holdings in 
natural gas positions had become too large and NYMEX ordered to 
reduce their NYMEX holdings. About one point in time Amaranth 
held about 100,000 contracts on the ICE and NYMEX, 75 percent 
of all outstanding future contracts to deliver natural gas on 
in November on NYMEX. It is pretty overwhelming. So Amaranth 
gets told by NYMEX to reduce its holding. They had no choice 
but to comply.
    But rather than reduce its overall exposure in the natural 
gas market, they simply shifted its natural gas positions and 
holdings to unregulated OTC exchange where positions and limits 
and accountability limits do not apply.
    So of course, the concern is if traders can avoid 
regulation by simply shifting their large positions to 
unregulated OTC markets, which is what you have with ICE, then 
the CFTC's ability to monitor and prevent excessive speculation 
and price manipulation is undermined.
    I do notice that the CFTC has now proposed traders report 
details from exempt markets, which I think is certainly a step 
in the right direction.
    I would note that our report revealed that Amaranth's 
activities, these were not victimless crimes. Ultimately this 
was $2 billion in natural gas holdings, an $8 billion portfolio 
wiped out. But consumers were impacted. The price of natural 
gas shot up by speculation, so it was the consumer who really 
was hurt by this.
    The question is how to move forward.
    Mr. Chilton, I appreciate your reflection that there are--
what are the unintended consequences? The question was asked 
why should we not regulate both? I actually think we should get 
rid of the Enron loophole. But let us be aware that we could do 
NYMEX and ICE, but then you folks can shift to other markets, 
can shift to the London market. There is a lot of bilateral 
stuff that is not electronically recorded.
    So I just think we have to be very, very aware that if we 
want--and I appreciate Senator Chambliss comments. Speculation, 
it provides liquidity in the market which helps consumers. This 
is not about protecting gamblers, speculators being gamblers, 
but it is about having liquidity in markets that consumers 
benefit. We benefit if you can buy lower in August or September 
for what may be a very cold winter in Minnesota and Iowa in 
January.
    So that is the concern that we have.
    In my short time, just two questions. One, there was a lot 
of support expressed for Congress giving CFTC authority to 
expand its regulatory reach and they called for regulation of 
the OTC exchange.
    One, do you believe that--two things. One, there is--and I 
appreciate your issue about the cost of enforcement. We have to 
really--when you give the CFTC this authority, we better make 
sure they have the ability to handle that. I would be 
interested in both your perspectives and on whether if we would 
extend it just to those two, would that increase transparency 
enough? Should we be looking beyond ICE? And if so, where do we 
draw the line? Mr. Chilton and then Ms. Sommers?
    Mr. Chilton. I do not have a great answer for you, Senator, 
but you are absolutely right. If you go to the bilateral 
exchanges, those are just done over the phone. Those are 
totally in the dark. Those are removed.
    So if we are thinking well, let us go require something at 
ICE, maybe that would work for a little bit if you were not too 
prescriptive and people did not leave the market and go other 
places. But they might just shift to some place that you will 
never see.
    So these are sort of vexing questions and it is interesting 
hearing Senator Lugar talk about how people dealt with this 
through years and years. But it seems to me that energy is not 
just important right now with the high cost of fuel, but it is 
going to be more and more important.
    And the number of products that are going to come online. 
Again, we talked about carbon sequestration. You have wind. 
There are an enormous amount of products that are going to come 
online. So we need to take this very seriously and I thank you 
for your interest in it.
    I wish I had a more detailed answer for you, sir.
    Senator Coleman. I look forward to you reading the report 
and we will have a further discussion.
    Ms. Sommers?
    Ms. Sommers. Thank you, Senator.
    I also understand your concerns in this area. And I agree 
with you that this is an issue that is important to the 
Commission and important to Congress and something that we need 
to look at closely in the future.
    I just will note something that Senator Harkin noted in his 
remarks. The CFTC's Enforcement Division does a great job in 
enforcing the Act and the regulations in the Act and the 
authorities that they have. And they have, in the last five 
years, opened more cases than in the history of the agency. So 
they a strong record.
    Senator Coleman. Mr. Chairman, would you allow me one 
further question? Again, we spent a lot of time in this hearing 
and it is a good opportunity, it is very, very timely, if 
Senator Thune would permit.
    There was rather blistering criticism of the CFTC in that, 
in particular Professor Michael Greenberger, University 
Maryland Law School. He said you have vacancies coming up. It 
is traditional that anybody who supports the industry gets 
passed on on the Senate floor by a voice vote with no 
discussion. He said but are there going to be industrial 
consumers represented? Are there going to be regular consumers 
who are represented? Are they going to be academics?
    If you represent--and I am not exact quotes, but taking 
parts of his testimony. If you represent the consumer, you get 
stopped. If you are helping the banks, you sail through.
    Ms. Sommers in particular, you come from a background where 
you have been involved in the swaps and futures industry. Is 
that a detriment? Can you effectively represent consumers if 
you have worked with the industry? How would you respond to 
that?
    Ms. Sommers. Senator, I think that I can say from my 
experience, I have worked with the CFTC for over 15 years. I 
think you look at the structure that they have at the agency. 
They have advisory committees.
    And if you look at the participants in those advisory 
committees, there are users, there are producers, there are 
producer groups. Everybody is represented at the table. When 
the agency looks at difficult issues that are affecting the 
industry, they are hearing from everyone.
    I think they do a good job in their role of protecting the 
consumers.
    Senator Coleman. Mr. Chilton, do we have to do something in 
terms of the structure of the CFTC to ensure that the consumers 
voice is heard and reflected upon?
    Mr. Chilton. Not that I know of, sir. It seems to me that 
there is an open process. There is an open regulatory process 
like there is in any Federal agency that goes on.
    I did read those comments in the press report and it sort 
of troubled me, not in particular about myself. I will say that 
the two Commissioners that are there right now, both 
Commissioner Dunn and Commissioner Lukken, both former staffers 
of this Committee by the way, they are in nobody's pocket. I 
have worked with them for years and I have tried to get them to 
do things and they do not want to have anything of it.
    So I hope to be independent when I get there and I am sure 
Mr. Sommers does also.
    Senator Coleman. Thank you. I thank both witnesses and 
nominees and I think the Chair.
    Chairman Harkin. Senator Coleman, I appreciate that 
question on consumers because I was going to ask that same 
thing myself.
    Senator Thune.
    Senator Thune. Thank you, Mr. Chairman. And thank you, Ms. 
Sommers and Mr. Chilton, for putting yourselves forward for 
public service. The CFTC is obviously an important agency and 
plays a critical role in maintaining transparency and 
competitive and economically sound futures and options markets.
    It is the watchdog, the enforcer of laws that govern our 
markets. Accordingly, the members of the Commission need to 
provide objective and independent judgment and analysis that 
protects the American public and investors from fraud in the 
financial marketplace.
    I think it is important that these positions be filled. The 
CFTC is, I think, handicapped by some of these long-standing 
vacancies and without a full Commission has limited ability to 
carry out its mandated mission to protect consumers from fraud 
and abuse. So I hope that this Committee can move quickly to 
get these positions, to get you all confirmed and in there so 
you can go to work.
    Just a couple of questions if I might. Has excessive 
speculation contributed to volatility in the futures market? 
And if so, what does the CFTC need from Congress in terms of 
more authority to address the issue? There is a view out there, 
widely held I think, at least in some quarters, that there is a 
lot of speculation that in some ways contributes to the 
volatility.
    I am curious to get your take on that and what Congress 
might be able to do to address that? Either of you or of you.
    Mr. Chilton. Mr. Chairman and Mr. Thune, it is an issue 
but, as Senator Coleman said, it is a double-edged sword. You 
need enough speculation in the market that you provide 
liquidity, which provides capital, which provides enough so 
people can hedge. So it is sort of a vexing question. But 
Congress actually did something sort of interesting. 
Manipulation is actually listed in the statute as against the 
law. You cannot do it.
    On speculation, sir, it is really regulatory--there is a 
rulemaking process. So over three decades it stayed like that. 
It may be because--I don't know. It may be because it is so 
difficult to define. What is too much?
    I think the CFTC has done a pretty good job over the years. 
But that does not mean that there are not issues like the one 
that Senator Coleman talked about that we need to look at that 
really were not around years and years ago.
    I hope that answers your question.
    Senator Thune. Ms. Sommers, do you want to respond to that?
    Ms. Sommers. Sure. Senator Thune, I think when you look at 
the position limits in markets, that is something that the 
exchanges, which are self-regulatory organizations, all have 
excellent market surveillance programs. And the exchanges 
themselves have a great deal to lose if their market integrity 
is ever called into question.
    They are protecting their name and their markets from 
abusive practices and they are looking at these position limits 
and looking at the traders in the market. And they set those 
limits to where they know that it is going to create a liquid 
market without sacrificing the integrity of their markets.
    Senator Thune. It is probably a fine line to try and 
determine the difference between speculation and manipulation, 
speculation being the legitimate part of the marketplace 
working. But I did want to ask that question.
    What is your view on the relationship between the SEC and 
the CFTC? Do those roles overlap? And if so, do you think that 
can be addressed to ensure that there is efficiency if there is 
not overlap in the way the agencies function?
    Mr. Chilton. Thanks, Senator, for the question.
    You know, they are similar in some regards but they have 
different mandates and different laws. I read some of the news 
reports this morning that you probably have that somebody at 
the SEC was talking about potentially merging. I do not know 
that you ever get cost efficiencies when you do that. There 
are, for example, subject matter experts at the CFTC. They are 
looking at these individual products, some of those that I 
mentioned in my opening statement, weather futures, et cetera. 
It is sort of a different function than the SEC has.
    Tony Blair tried this and did actually merge agencies over 
there. And as far as I can tell, there is no cost savings. So I 
think you have to be wary of it as you move forward.
    Chairman Harkin. Ms. Sommers.
    Ms. Sommers. Thank you, Senator.
    I think that when Congress created the SEC and then later 
the CFTC, had they known what the evolution of these markets 
would look like now, they could probably look back and say 
maybe we should have done this differently. But the products 
now, a lot of times, are definitionally blurred. And it is a 
difficult question.
    But the CFTC has enormous differences from the SEC and they 
are experts in what they do over there regulating the 
derivatives industry. And I do think, as Bart said, I am not 
sure that it is something that would create the efficiencies 
that we see from the outside.
    Senator Thune. One last question if I might, Mr. Chairman. 
Mr. Chilton, in your testimony you mentioned the need to 
harmonize market regulations with foreign regulatory bodies. 
What steps does the CFTC need to take to achieve that goal?
    Mr. Chilton. Well specifically, people do not have the 
same--not all exchanges have the same sort of standards we do. 
For example, capital requirements on margins, et cetera. They 
do not have the same--some of them have record-keeping but they 
do not have regulation.
    So when I talk about harmonizing, I am really not talking, 
Senator, about reducing our standards. I am talking about 
trying to ensure a harmonized regulatory regime worldwide that 
protects U.S. investors who want to put their money in overseas 
exchanges.
    Senator Thune. Mr. Chairman, thank you. And again, thanks 
to our nominees and we look forward to working with you. 
Hopefully we will get you confirmed quickly. Thank you.
    Chairman Harkin. Thank you, Senator Thune.
    I just wanted to read this on the report that came out here 
that Senator Coleman was talking about. It was a very good 
report but I would just read one sentence. It said ``To 
continue the present situation, in which the CFTC does not 
police two of the three major markets trading U.S. energy 
futures is to turn a blind eye to an increasingly large segment 
of these markets, thereby impairing the ability to detect, 
prevent, and prosecute market manipulation and fraud. The 
United States needs to put the cop back on the beat in all of 
those key energy markets.''
    Well, you are the cop and we need to figure out how we can 
get you back on that beat.
    One last thing on speculation. I continue to hear from ag 
producers and now I am hearing from ethanol people about the 
fact that a couple of years ago the CFTC raised the speculative 
limits on positions held in agriculture futures contracts. Now 
there may be arguments on both sides, but I am hearing more and 
more from ethanol producers and others that this has really put 
them at a great disadvantage.
    So I am just wondering if I could ask would you be willing, 
if you are obviously confirmed, would you commit to taking an 
independent look at this issue? And would you be willing to re-
examine the action taken in raising the speculative limits if 
the facts and circumstances support taking another look at this 
issue?
    Ms. Sommers. Absolutely.
    Mr. Chilton. Yes, sir.
    Chairman Harkin. Do you have any other elaboration on that 
at all?
    Mr. Chilton. Well, I mean, there is only certain 
commodities that--and Ms. Sommers may be able to help me out on 
it. But there are only, I think, nine commodities where actual 
limits are not set by the exchanges themselves. I think what 
you want to be careful about, sir, is you do not want the 
Federal Government to be the price setter for these things. By 
setting limits, you may have some impact on that. That gets 
into a scary area.
    So I think you want to be careful but it is absolutely 
something that I would be pleased to look at and would like to 
look at.
    Ms. Sommers. Yes, Senator, I do agree that I would be happy 
to look at any specific issue. But I do think that in some of 
the cases in commodities, those position limits are set by the 
exchanges themselves and they are given to the CFTC as an 
internal rule change for the exchange. The exchanges have their 
own market surveillance programs and, as I said in response to 
Senator Thune, they have a lot to lose if they lose the 
integrity of their markets. When they change position limits in 
a contract, it is because of the way that contract is trading.
    They have the on the ground expertise, I guess is what I am 
saying. And so we would want to work closely with the exchanges 
to make sure that their own internal rule changes are not 
something that are adversely affecting the customers in that 
market.
    Chairman Harkin. Very good. Senator Lugar.
    Senator Lugar. Mr. Chairman, I just want to follow through 
on a comment that you just made. In some of the ag newsletters 
that I read each day, the comment is made again and again that 
we are in a new period of time in terms of trading, perhaps due 
to ethanol or the energy business entering into it, in which 
analysts say in the old days we used to look at weather, the 
amount of planting of various crops, some fundamental things 
with regard to the feeding of livestock, even the export 
markets disappearance that way.
    But now you have a virtual revolution in terms of 
expectations on markets, as well as with farmers and other 
producers, in which this phenomenon really has not been 
surveyed because it is still maybe a revolution underway, this 
particular year being a good case in point, with the price of 
corn being roughly $1.50 a bushel more. That is a huge change 
in a single year of time.
    I just wonder, Mr. Chairman, whether this is not something 
that we are asking the regulators to regulate, although clearly 
some of the anxiety with regard to the swings day by day that 
come from all of this do bring some anxieties. And that is a 
part of a speculation and the price setting.
    But it may be at some point an oversight hearing by the 
Committee in which we sort of examine this remarkable year in 
which we are now involved. Maybe we have to have some of our 
own benchmarks to see how it all works out, might be helpful. 
So that we do not overregulate. But then if some changes are 
needed in your regulations or in basic legislation, we are in a 
better position.
    Because I sense, perhaps as you do as very careful students 
of the market, that this is a very exciting time to be trading. 
But at the same time maybe so exciting that sometimes things 
may come off the track where deliberate harm occurs in various 
markets.
    So this is just my own speculative comment, that this might 
be worthy of our study at some stage just to get a fix on it so 
that we are all better informed and from our own prejudices do 
not rush off in some direction.
    Chairman Harkin. Thank you very much, Senator Lugar. That 
is a good suggestion. I just hope we can maybe get through the 
Farm Bill first and then we can take a look at that at that 
point in time.
    [Laughter.]
    Chairman Harkin. I have a feeling we are going to have a 
long fall here so there are a lot of oversight things we can 
look at at that time.
    If there are no other questions, I would just say that--and 
I hope staff and Senator, I hope you do not think this is 
unreasonable but I will propose this, that all questions for 
the record submitted to these nominees be submitted prior to 
six o'clock this evening. That way we can get them to the 
nominees and they will have tomorrow to respond to those 
questions. If that works then possibly we can get the nominees 
discharged from the Committee even before the week is out, if 
that is okay.
    Senator Lugar. I have no objection. I do not know if any of 
the staff representing other senators have any objection.
    Chairman Harkin. We had a pretty good turnout here today so 
I am not certain if anybody has any more questions. But if they 
do, get them to my staff, get them here prior to six o'clock 
and we will get them to the nominees and we will ask you to 
respond as rapidly as possible. The more rapidly you respond, 
the sooner we can get you discharged from the Committee.
    If there are no other questions then, again I thank both 
our nominees. I join with my fellow Senators in thanking you 
for your long service and public service here on the Hill and 
other places and thank you for your willingness to serve on the 
CFTC. Hopefully, we can move this expeditiously.
    With that, the Senate Committee will stand adjourned.
    [Whereupon, at 3:01 p.m., the Committee was adjourned.]
      
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