[Senate Hearing 110-580]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-580
 
                        NOMINATIONS HEARING FOR
                  COMMODITY FUTURES TRADING COMMISSION

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION


                               __________

                              JUNE 4, 2008

                               __________

                       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 Chief Counsel

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Nominations Hearing for Commodity Futures Trading Commission.....     1

                              ----------                              

                        Wednesday, June 4, 2008
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from the State of Iowa..........     1
Chambliss, Hon. Saxby, a U.S. Senator from the State of Georgia..     2
Domenici, Hon. Pete, a U.S. Senator from the State of New Mexico.     3
Lugar, Hon. Richard G., a U.S. Senator from the State of Indiana.     2
Stabenow, Hon. Debbie, a U.S. Senator from the State of Michigan.     5

                                Panel I

Lukken, Walter, of Indiana, Nominee to be Chairman of the 
  Commodity Futures Trading Commission...........................     6
Chilton, Bartholomew H., of Delaware, Nominee to be a 
  Commissioner of the Commodity Futures Trading Commission for a 
  term expiring April 13, 2013...................................     8
O'Malia, Scott, of Michigan, Nominee to be a Commissioner of the 
  Commodity Futures Trading Commission for a term expiring April 
  13, 2012.......................................................    10
                              ----------                              

                                APPENDIX

Prepared Statements:
    Harkin, Hon. Tom.............................................    22
    Chambliss, Hon. Saxby........................................    25
    Cochran, Hon. Thad...........................................    27
    Grassley, Hon. Charles E.....................................    30
    McConnell, Hon. Mitch........................................    32
    Thune, Hon. John.............................................    37
    Chilton, Bartholomew H.......................................    40
    Lukken, Walter...............................................    42
    O'Malia, Scott...............................................    45
Document(s) Submitted for the Record:
Chilton, Bartholomew H.:
    Committee questionnaire and Office of Government Ethics 
      Executive Branch Personnel Public Financial Disclosure 
      Report.....................................................    48
Lukken, Walter:
    Committee questionnaire and Office of Government Ethics 
      Executive Branch Personnel Public Financial Disclosure 
      Report.....................................................    66
O'Malia, Scott:
    Committee questionnaire and Office of Government Ethics 
      Executive Branch Personnel Public Financial Disclosure 
      Report.....................................................    81
Question and Answer:
Harkin, Hon. Tom:
    Written questions for Walter Lukken, Bartholomew H. Chilton 
      and Scott O'Malia..........................................   114
Crapo, Hon. Mike:
    Written questions for Walter Lukken, Bartholomew H. Chilton 
      and Scott O'Malia..........................................   115
Grassley, Hon. Charles E.:
    Written questions for Walter Lukken, Bartholomew H. Chilton 
      and Scott O'Malia..........................................   116
Roberts, Hon. Pat:
    Written questions for Walter Lukken, Bartholomew H. Chilton 
      and Scott O'Malia..........................................   118
Thune, Hon. John:
    Written questions for Walter Lukken, Bartholomew H. Chilton 
      and Scott O'Malia..........................................   120
Chilton, Bartholomew H.:
    Written response to questions from Hon. Tom Harkin...........   121
    Written response to questions from Hon. Pat Roberts..........   121
    Written response to questions from Hon. Mike Crapo...........   122
    Written response to questions from Hon. John Thune...........   123
    Written response to questions from Hon. Charles E. Grassley..   124
Lukken, Walter:
    Written response to questions from Hon. Tom Harkin...........   126
    Written response to questions from Hon. Pat Roberts..........   127
    Written response to questions from Hon. Mike Crapo...........   128
    Written response to questions from Hon. John Thune...........   129
    Written response to questions from Hon. Charles E. Grassley..   130
O'Malia, Scott:
    Written response to questions from Hon. Tom Harkin...........   138
    Written response to questions from Hon. Pat Roberts..........   138
    Written response to questions from Hon. Mike Crapo...........   139
    Written response to questions from Hon. John Thune...........   139
    Written response to questions from Hon. Charles E. Grassley..   140



                        NOMINATIONS HEARING FOR
                  COMMODITY FUTURES TRADING COMMISSION

                              ----------                              


                        Wednesday, June 4, 2008

                                       U.S. Senate,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                                     Washington, DC
    The committee met, pursuant to notice, at 11:03 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Tom Harkin, 
Chairman of the committee, presiding.
    Present or submitting a statement: Senators Harkin, 
Lincoln, Stabenow, Chambliss, Lugar, Roberts, Thune, and 
Grassley.

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

    Chairman Harkin. The Senate Committee on Agriculture, 
Nutrition and Forestry will come to order.
    Today, the committee is meeting to consider three 
nominations to the Commodity Futures Trading Commission. I will 
just have a brief opening statement and I would yield to two 
Senators for purposes of introduction.
    The Commodity Futures Trading Commission has critical 
regulatory responsibility to protect and ensure the integrity, 
fairness, and transparency of our nation's futures, options, 
and derivatives markets. These markets are vital price 
discovery and risk management functions. These markets that 
originated with the agricultural commodities have grown and 
expanded to cover a broad array of both physical and financial 
commodities. They now serve vital price discovery and risk 
management functions that affect the prices that consumers pay 
for everything from a loaf of bread to gasoline to copper 
plumbing. They are vital to the functioning of our economy. It 
is essential 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.
    The farm bill that was enacted last month includes 
important additional authority regarding the exempt commercial 
markets. The new authority requires the CFTC to monitor ECM 
trading of oil, natural gas, and other commodities for 
contracts that perform significant price discovery functions. 
Last week, the CFTC announced energy market initiatives to 
expand international surveillance of crude oil trading and to 
increase transparency of trading in the U.S. markets. These are 
important initiatives that this committee will follow closely 
over the coming weeks and months. Faced with record high 
gasoline and diesel prices, every American has a direct 
interest in the integrity of those markets.
    Just yesterday, the CFTC announced agricultural market 
initiatives to review the role of indexed trading and 
speculators in agricultural commodities, to improve market 
transparency, and to take steps to ensure that farmers had the 
tools they need to manage the price risk in times of these 
volatile markets.
    Over the last year, crop prices have risen dramatically, 
but producers have not always been able to take advantage of 
the higher prices because their local grain elevators have not 
been able to offer forward contracts. The CFTC intends to 
coordinate with the agricultural lending community to better 
understand the role of financing in managing price risk.
    I look forward to hearing the nominees' statements and 
answers to our questions. I will now yield to our Ranking 
Member, Senator Chambliss, for any statement that he may have.

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

    Senator Chambliss. Well, thank you very much, Mr. Chairman. 
Because I know we are in a rush to move through this, hopefully 
before the vote, I am going to submit my opening statement to 
the record and just say that I am very pleased that these three 
gentlemen are before us today to fill out the contingent of the 
Commodity Futures Trading Commission.
    Commissioners Lukken and Chilton are very familiar to this 
committee, having testified before us as well as been a part of 
this committee, so we are glad to have you two gentlemen where 
you are. We thank you for your public service.
    Mr. O'Malia is also very familiar to many of us on the 
Hill, as we will hear from Senator Domenici, and I think will 
be a great asset to the Commission, so I look forward to his 
testimony today and to completing this and, as I say, moving 
this to the floor and filling out the Commission.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Saxby Chambliss can be 
found on page 25 in the appendix.]
    Chairman Harkin. Thank you, Senator Chambliss.
    Now what I would like to do is yield first to Senator Lugar 
for the purpose of an introduction, then I will yield and turn 
to Senator Domenici, also for the purpose of an introduction, 
because I know he has to leave, and then we will hear from our 
nominees. Senator Lugar.

  STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR FROM THE 
                        STATE OF INDIANA

    Senator Lugar. Thank you, Mr. Chairman. I thank you for 
holding this important hearing to hear three well-qualified 
persons, Walt Lukken, the Chairman, Bart Chilton and Scott 
O'Malia as Commissioners of the CFTC.
    I am especially pleased to welcome back Walt, as he is a 
former member of my staff and I believe he is remarkably 
qualified to serve as the CFTC's Chairman. During the summer of 
1990, only 18 years ago, Walt was an intern in my office and 
later spent nearly a decade working on our personal staff and 
as a staff member of this committee. In that capacity, he 
played an instrumental role in moving a number of important 
legislative measures through the committee process, including 
the Commodity Futures Modernization Act of 2000. Perhaps most 
memorable to me, Walt's talents as an active runner greatly 
enhanced our office team in the three mile ACLI Challenge, as 
well as interoffice running competitions.
    He has served as a Commissioner of the CFTC since 2002, 
being twice confirmed by this committee and passed unanimously 
by the Senate. In this role, he has been an active and engaged 
member and continually sought ways to improve government 
oversight. He has been acting Chairman since June 2007 and is 
well positioned to provide critical leadership to our economic 
markets today.
    As we are all aware, commodity prices across the board, 
including corn and oil, have seen large and in some cases rapid 
increases. The current crisis has developed from a complex web 
of factors. Expanding affluence in the emerging economy, such 
as China and India, has improved diets for hundreds of millions 
of people and led to increased global demand for food. 
Simultaneously, the highest oil prices on record have driven up 
food costs all along the line in the farm-to-market chain. The 
surge in oil prices has increased transportation, packaging, 
and fertilizer costs, provided the impetus for developing 
alternative fuels, such as ethanol. We have experienced 
droughts in some food exporting countries, expanded trade 
barriers, a weakening of the U.S. dollar and market destroying 
subsidies. And others have pointed to excessive market 
speculation or even active market manipulation to explain high 
wheat prices or crude oil trading above $120 a barrel.
    The CFTC has undertaken a number of actions to investigate 
the core factors fueling these increases, including the recent 
announcement of greater energy market oversight and 
transparency measures. I believe it is critically important 
that these efforts be continued and we look forward to the 
testimony in today's hearing. I am also interested in hearing 
from today's nominees about the adequacy of authority given to 
the CFTC by Congress and the level of funding needed to 
maintain appropriate oversight of these markets.
    I thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Lugar.
    Now I turn to our colleague, though not a member of this 
committee immediately, I know Senator Domenici has always 
worked very closely with us on a lot of agricultural matters 
and we welcome him here today, my good friend, Senator 
Domenici.

STATEMENT OF HON. PETE DOMENICI, A U.S. SENATOR FROM THE STATE 
                         OF NEW MEXICO

    Senator Domenici. Thank you very much, Mr. Chairman and 
Senator Chambliss and fellow Senators. It is a pleasure to be 
with you. I am pleased to be here to introduce and recommend 
Scott O'Malia for appointment as Commissioner of the Commodity 
Futures Trading Commission.
    Let me take a moment to recognize Scott's family for being 
here with us today, including his parents, who drove all the 
way from Scott's home State of Michigan, if they would please 
stand, and his wife and their children. Thank you.
    [Applause.]
    Senator Domenici. I always feel when they think that much 
of their son, it is probably a pretty important son, so I 
recognize him on that count alone.
    But seriously, he has had a very diverse experience in both 
public and private portions of the energy sector that will 
enable him, in my opinion, to bring new and innovative ideas to 
the market oversight work of the CFTC. I think we all are 
confounded and perplexed by what is going on in the energy 
field in terms of prices and wondering whether speculation, 
inordinate, improper speculation is contributing to it. I think 
his experience will help him help fellow Commissioners do a 
better job in the area that we are being asked about as 
Senators all the time.
    I have worked with Scott over the past several years on a 
variety of national energy-related issues, including energy and 
water appropriations, national energy policy, funding and 
support for the nation's nuclear weapons stockpile, and nuclear 
nonproliferation activities. I have always been impressed with 
his ability to bring a fresh perspective and superior problem 
solving. He brings those skills to whatever issues are at hand. 
His outstanding public service combined with his private energy 
market experience make him an exceptional candidate to head to 
CFTC and I hope you will approve him readily for this important 
post.
    I might say that I think you are aware that this is my last 
year serving with you. My term expires in January, and I think 
you might expect that if I were still going to be here another 
term, who knows. Scott O'Malia might not be here. I don't know 
that, but I am just speculating.
    [Laughter.]
    Senator Domenici. But in any event, he is going to do a 
formidable job for you all and it is my pleasure to be with 
you. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you very much, Senator Domenici, and 
again, I will have more to say on the floor about your service 
to our country, but I wouldn't let the moment pass without 
thanking you for all you have done for New Mexico, but also for 
America, for all of your time here. Of course, your wife does a 
lot of good too, in the health care field and I have worked 
with her on a wide variety of health care matters for so many 
years. Thanks for being here.
    Senator Domenici. Thank you very much.
    Chairman Harkin. Thanks, Pete.
    I know that Senator Stabenow also wanted to be recognized 
for purposes of introduction.
    Senator Stabenow. I do.
    Chairman Harkin. I just might say, we have an 11:45 vote. I 
would like to get our candidates through so we can get them 
through in a hurry, and so I am going to ask people to dispense 
with a lot of opening statements, but for purposes of 
introduction, I would recognize the Senator.

  STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM THE 
                       STATE OF MICHIGAN

    Senator Stabenow. Thank you, Mr. Chairman. I just want to 
add words to what Senator Domenici already indicated and 
welcome all of our nominees, but particularly Scott O'Malia, 
who hails from a great family in Michigan, Williamston, 
Michigan. I have known his mom and dad, John and Beverly, 
longer than I have known Scott, I think, actually, and we have 
worked together for many, many years. It is great to have you 
here, John and Bev and the whole family.
    I have to say that what is most momentous about my support 
for Scott today is that he went to the University of Michigan 
and I went to rival Michigan State University and I am still 
supporting Scott for this.
    [Laughter.]
    Senator Stabenow. But we are very proud of you and welcome.
    Chairman Harkin. Does anyone else have a statement for 
purposes of introduction?
    [No response.]
    Chairman Harkin. Thank you all very much. We have all of 
your statements, I say to all of our nominees this morning. A 
couple of things that I have to dispense with here that are 
required. Would you all please stand and raise your right hand, 
please.
    Do you swear or affirm that the testimony you are about to 
provide is the truth, the whole truth, and nothing but the 
truth, so help you, God?
    Mr. Lukken. I do.
    Mr. Chilton. I do.
    Mr. O'Malia. I do.
    Chairman Harkin. Thank you. Please be seated. Another 
mandatory question. Do each of you agree that if confirmed, you 
will appear before any duly constituted committee of Congress 
if asked to appear? Mr. Lukken.
    Mr. Lukken. Yes.
    Chairman Harkin. Mr. Chilton.
    Mr. Chilton. I do.
    Chairman Harkin. Mr. O'Malia.
    Mr. O'Malia. I do.
    Chairman Harkin. Thank you very much. The last housekeeping 
thing that I have here is that would each of you make sure that 
we have the proper spellings and the names of your family 
members who are here that were introduced?
    We will start first with Mr. Lukken, who is nominated to 
fill the position of the Chairman of CFTC. A lot of us know 
Walt from his service up here for a long time. Again, if I 
could ask each of you maybe just 5 minutes or so, maybe, and 
then we will have some time for questions and interchange. If 
that would be all right, I would sure appreciate that. We will 
go with Mr. Lukken, then Mr. Chilton, then Mr. O'Malia.
    Mr. Lukken, welcome back to the committee.

STATEMENT OF WALTER LUKKEN, OF INDIANA, NOMINEE TO BE CHAIRMAN 
          OF THE COMMODITY FUTURES TRADING COMMISSION

    Mr. Lukken. Thank you, Chairman Harkin, Senator Chambliss, 
and other members. I appreciate the kind remarks of my former 
boss and mentor, Richard Lugar. I am always thinking about him 
whenever making informed decisions in the government. He is 
somebody that I admire every day, so I appreciate your 
thoughtful remarks.
    I do also want to introduce my wife, Dana, and my sister-
in-law, Diana, and my mother-in-law, Denise, who are here. They 
are from Louisiana, so there is no Senator here from Louisiana, 
but----
    [Applause.]
    Mr. Lukken. I also want to make sure to recognize my fellow 
colleagues from the CFTC, Commissioners Mike Dunn and Jill 
Sommers, who are here in attendance, so thank you very much.
    Since I first appeared before you as a nominee in 2002, the 
futures markets have changed dramatically, both in size and 
complexity, experiencing fivefold growth in both volume and 
products traded. Once member-owned and dominated by open-outcry 
trading, today exchanges are technology-driven corporations 
that primarily trade electronically 24 hours a day, all around 
the globe. Add to these significant changes the subprime 
crisis, record commodity prices across the board, and the large 
influx of financial funds into futures, and it is clear that 
these are extraordinary times in our markets.
    Needless to say, the past year has presented challenges for 
regulators but also opportunities for advancements in 
oversight. In the time since I became Chairman nearly 1 year 
ago, the agency has amassed a solid record of accomplishment, 
tackling some of these difficult issues.
    In my second month in this role, the Commission announced 
its intention to address the mounting regulatory concerns 
surrounding exempt markets that trade over-the-counter energy 
products. The Commission held a public hearing and worked with 
your committee to develop legislation providing our agency with 
additional abilities to oversee exempt commercial markets. 
These authorities were part of the Farm Bill enacted last month 
and the CFTC has begun implementing these important measures 
into law.
    Critically important, the Farm Bill also contained the rest 
of the CFTC's reauthorization, which had lapsed in 2005. Beyond 
the energy measures, the bill authorized the agency through 
2013, clarified the agency's fraud authority over retail 
foreign currency transactions, and doubled the agency's penalty 
authorities for manipulation. I applaud the leadership of this 
committee for moving this important piece of legislation.
    Another major breakthrough this year was the CFTC's 
agreement with the Securities and Exchange Commission that 
established a regulatory framework for coordinating our 
respective public missions. In March, Chairman Cox and I signed 
a Memorandum of Understanding that will help the agencies share 
information as well as coordinate a review of novel derivative 
products. Yesterday, our agency announced the first products to 
be approved using this new regulatory framework with the 
listing of gold ETF products on both OneChicago, a CFTC-
regulated exchange, and CBOE, an SEC-regulated exchange. This 
shows that when regulators work together, markets can benefit 
without compromising the public interest.
    During my service, the Commission has been busy on the 
enforcement front, as well. Aggressive enforcement must 
accompany strong regulatory policies to effectively police the 
futures markets for manipulation and fraud. The CFTC's Division 
of Enforcement had another productive year, highlighted by the 
record settlement with British Petroleum for manipulating the 
propane market, the announced action against Amaranth hedge 
fund for attempting to manipulate the natural gas market, and 
the Marathon Oil case for attempted manipulation of the crude 
oil market. The CFTC may be a relatively small Federal agency, 
but we maintain a zero tolerance policy toward anyone who 
attempts to disrupt these important markets.
    Recent concerns with the functioning of the agricultural 
futures markets led the Commission to convene a public hearing 
on April 22 at our Washington, D.C. headquarters. Yesterday, 
the Commission announced several initiatives derived from its 
Agricultural Roundtable, including the public disclosure of an 
ongoing cotton investigation surrounding the March price run-up 
in this commodity, the review of whether index traders are 
being properly classified for regulatory and reporting 
purposes, the official withdrawal of two proposals regarding 
increasing speculative participation in our markets, the 
development of additional risk management products for 
producers, including ag trade options and cleared agricultural 
swaps.
    This comes on the heels of last week's announcement of our 
national crude oil investigation and several other energy 
initiatives, including a new agreement with the U.K. Financial 
Services Authority to expand the data received from 
institutions trading crude oil products across borders.
    The CFTC also announced that it will use its authorities to 
receive more detailed data from the energy markets from 
participants that are in indexed trading coming from these 
markets and to make sure that this indexed trading is properly 
classified.
    If it sounds busy, it is, especially given that the 
agency's staffing levels are near record low numbers. Since the 
CFTC opened its doors 33 years ago, the volume on futures 
exchanges has grown 8,000 percent while the CFTC staffing 
numbers have decreased 12 percent. Mr. Chairman, this is a 
small agency doing an extraordinary job under difficult 
circumstances. I am fortunate to work every day with a group of 
dedicated and skilled individuals at the CFTC. Without a doubt, 
these are some of the hardest-working people and most 
productive individuals that I know.
    Should this committee and the Senate vote to confirm me as 
Chairman, I pledge to serve to the best of my abilities as this 
agency's steward and to work with my Commission colleagues as 
we strive to ensure that these markets are meeting their price 
discovery and risk management roles free from manipulation and 
market abuse. Thank you very much.
    [The prepared statement of Mr. Lukken can be found on page 
42 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Lukken. We will 
go through all the candidates and then we will open it up for 
questions.
    I will introduce Mr. Chilton myself, since I have known 
Bart Chilton for a long time. Mr. Chilton has a long record 
here on the Hill, 10 years in the House for various members of 
the House Agriculture Committee with whom we have worked 
closely: Congressman Pomeroy and Congresswoman Long and 
Congressman Jim Jobs, Congressman Terry Bruce. For 5 years, Mr. 
Chilton worked at the Department of Agriculture under the 
Clinton administration, and, of course, worked for Majority 
Leader and Minority Leader, both Tom Daschle, for a long time 
here. A lot of us know him also as the Vice President for 
Government Affairs for the National Farmers Union.
    Mr. Chilton, I know, has been very much involved with 
family farmers, hands-on people, farmers throughout the country 
for as long as I have known him, and that has been 20-some 
years. So it is again a privilege to welcome you back, Mr. 
Chilton, to the committee, and please--as I said for all of 
you, your statement will be made a part of the record and 
please proceed.

STATEMENT OF BARTHOLOMEW H. CHILTON, OF DELAWARE, NOMINEE TO BE 
A COMMISSIONER OF THE COMMODITY FUTURES TRADING COMMISSION FOR 
                 A TERM EXPIRING APRIL 13, 2013

    Mr. Chilton. Thank you, Mr. Chairman. That is really nice 
of you to introduce me like that and I appreciate it, and thank 
you, Senator Chambliss and all the members of the committee. It 
is a pleasure to be with you.
    I won't read my statement and I will try to be as brief as 
possible and keep us on schedule. I thought maybe since I was 
here like 9 months ago, I might just give you a quick react to 
what I am seeing at the CFTC, and I will try not to repeat 
anything that Walt has said.
    The staff is great. They have this super institutional 
memory. They have issue area expertise that I think is probably 
not found in many places. They really are a good group of 
folks. We have even got a fellow, Charlie Rickey, who used to 
work in the basement of USDA before we were the CFTC. But on 
surveillance and oversight and litigation and enforcement, they 
work hard every day, as Mr. Lukken said.
    On enforcement, for example, at any one time, we are 
investigating between 750 and 1,000 individuals or companies 
for violations of the Commodity Exchange Act as the Acting 
Chairman said, the industry that we regulate today is 
dramatically different than it was at its inception or even 
five years ago. I won't go into all the details, but the Act 
that you all passed, the last reauthorization, it is really 
different than anything else in government. It is not the old 
sort of stovepipe government that is bureaucratic. We are able 
to move things and approve things quickly, and that has allowed 
the industry to be nimble and quick and to take competitive 
advantage of really good ideas, and helped foster the economic 
engine of our democracy.
    So I congratulate you for that Act and thank you, as the 
Acting Chairman did, for what you have done on the Enron 
loophole and fixing FOREX.
    I do believe there are new challenges and that we must look 
at things in a completely different way, for many of the reason 
the Acting Chairman addressed--increased volume, increased 
number of traders, and two other areas. One, technology. People 
are moving to electronic trading and it is critcal that the 
CFTC keeps up. That is why our appropriations are so important, 
not just from the human capital side, but on the technology 
front, because software and the tools we use to stay a step 
ahead are not things we can just run down to Circuit City and 
buy. It takes a long time to implement these new technologies 
and requires considerable foresight on behalf of appropriators 
in Congress.
    The final thing is globalization. These are markets that 
are operating twenty-four-seven-three-sixty-five. Somebody is 
trading all the time. For us not to realize that we must work 
with our fellow regulators around the world would be a big 
mistake, and we are doing that and trying to get better 
information for them.
    With regard to what is going on in the markets now, we are 
seeing an entirely new paradigm and we must look at our 
regulatory approach in a fresh way. The standard operating 
procedure no longer should apply and transparency is probably 
the first antidote for ill markets. Whether or not you take 
that a step further, whether you deal with margins, whether you 
reclassify people, those are all things that I would urge 
caution and encourage us to gather the requisite information 
and make sure that our cure isn't worse than the disease.
    But the absolute first thing, is to get information, from 
our foreign counterparts, that we drill down on that data and 
these markets, and then do our best to ensure that we are 
ensuring price discovery, guarding against fraud, abuse, and 
manipulation, and we are ensuring that these markets are 
viable, efficient and effective risk markets for hedgers, 
farmers and ranchers and grain elevators and the other hedgers, 
the commercials. It also needs to be fair for speculators, 
because, look, they are the other side of a vast amount of 
trades. You don't have a hedge if you don't have somebody on 
the other side of it and speculators are critical to making 
markets work. We need to make sure it is working for everybody.
    Most importantly, Senators, it is critical that we ensure 
that these markets operate because it affects the price that 
people pay for about everything they buy. It is important for 
the American consumers. And if you continue to entrust me with 
that responsibility, I will work hard to be the type of 
regulator that tax-payers deserve. Thank you.
    [The prepared statement of Mr. Chilton can be found on page 
40 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Chilton.
    Now we turn to Mr. O'Malia, welcome to the committee. 
Please proceed.

   STATEMENT OF SCOTT O'MALIA, OF MICHIGAN, NOMINEE TO BE A 
COMMISSIONER OF THE COMMODITY FUTURES TRADING COMMISSION FOR A 
                  TERM EXPIRING APRIL 13, 2012

    Mr. O'Malia. Thank you, Chairman Harkin, Ranking Member 
Chambliss, and members of the committee. I am grateful for the 
opportunity to appear before you as the President's nominee to 
serve as Commissioner on the Commodity Futures Trading 
Commission. I appreciate the committee holding this nominating 
hearing and I would like to thank Senator Domenici for his 
support, as well as the support of Senator Stabenow, being a 
Michigan resident.
    Before I begin, I want to introduce my family, which 
Senator Domenici did. I am honored to have my wife, Marissa. 
Mr. Chairman, she attended Palmer College of Chiropractic in 
Davenport, Iowa, practices here today. She is the best 
chiropractor in town. I also am joined by my three daughters, 
Kelsey, Claire, and Macey. I would also like to thank my 
parents, John and Bev O'Malia, for driving down from Michigan 
to join me today. Growing up on a small farm in Michigan, my 
parents taught me the value of hard work and persistence. I 
would not have the opportunity today if it were not for the 
support of my wonderful family.
    After graduating from the University of Michigan in 1990, I 
came to Washington and found my first job with the Public 
Securities Association, a trade association serving Wall Street 
and Main Street banks with interest in bonds and municipal 
finance. I was then offered a position with Senator McConnell's 
office, where I worked for 9 years on a wide variety of energy 
issues, including legislation fighting for lower and more 
transparent electricity rates for Kentucky residents.
    My experience continued when I went to work for the private 
sector for 2 years with Mirant, an Atlanta-based independent 
energy company. It was during this period that I learned first-
hand the devastating impacts a flawed market design can have on 
consumers and markets. The Enron debacle opened my eyes to very 
serious consequences of poorly designed markets and inadequate 
oversight.
    As investors in the credit rating agencies lost confidence 
in the sector, it forced the industry to reevaluate its own 
risk management controls. During this time, I worked to help 
establish the Committee of Chief Risk Officers. This is an 
organization developed by the industry to support best 
practices and put an end to the manipulative trading deployed 
by Enron and others.
    While these developments of new standards were a necessary 
exercise to restore discipline in the trading sector, I 
strongly believe that regulators are critical to ensuring that 
markets operate in a fair and transparent manner. To achieve 
this, regulators must be provided with the appropriate 
authority and tools to respond to the constant evolution in 
market behavior and products. To this end, I compliment the 
committee for its work in passing new authorities in the Farm 
Bill for the CFTC to expand its authority over certain 
contracts trading on exempt commercial markets.
    In 2003, Senator Domenici offered me a job as a 
professional staffer on the Energy and Natural Resources 
Committee handling oil, natural gas, and coal markets as well 
as the futures market. In developing the 2000 energy bill, I 
worked extensively with the Senate Agriculture staff to ensure 
this committee's jurisdiction over the futures markets were 
maintained. In 2004, I became the Clerk of the Energy and Water 
Development Subcommittee on Appropriations, with funding 
responsibilities for the Department of Energy and Federal 
Energy Regulatory Commission, among others. For the past 4 
years, I have worked in a bipartisan fashion to facilitate the 
deployment of advanced energy technology to reduce our reliance 
on foreign energy sources.
    Drawing on my extensive energy background, I believe I can 
make a significant contribution to the market oversight 
responsibilities of the Commission. If confirmed, I will work 
to ensure the CFTC uses all of its legal authorities to 
guarantee markets operate in a fair and completely transparent 
manner. These markets must continue to serve as a price 
discovery and risk management tool for all participants. It is 
also imperative that the Commission continues to stand firm 
against abusive trading practices, including fraud and 
manipulation.
    I will work with the other Commissioners and the 
experienced staff to implement new legal authorities Congress 
has provided the Commission as part of the 2008 farm bill. I 
will also support the cooperative enforcement agreements with 
other Federal agencies to guarantee that these agencies treat 
companies fairly and consistently protect consumers.
    In closing, I would like to thank the committee for holding 
this hearing and considering my nomination. It would be an 
honor and a privilege for me to serve the American people in 
this capacity. That concludes my statement.
    [The prepared statement of Mr. O'Malia can be found on page 
45 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. O'Malia. We will 
just start a round of questions. I just have a couple that I 
wanted to proffer here and then we will take questions from 
other. We have that vote at 11:45.
    Mr. Lukken, I was in the House when the CFTC was created, 
in 1974, and so I followed it very closely during all my tenure 
on the Agriculture Committee in the House and then here in the 
Senate as a member, and now Chairman of the Agriculture 
Committee. And, you are right--the amount of work you have to 
do has increased substantially. You have five members of the 
Commission. That number was established in law when the CFTC 
was established in 1974, however I am not certain how many 
staff you have there. Perhaps you could enlighten me on that.
    Let me ask you this. With this tremendous new 
responsibility you have and with worldwide markets, it is so 
different than what it was in 1975. Do we need more members of 
this Commission to parcel out the workload, and how about 
staff? I know you said the staff was down 12 percent. Twelve 
percent from where, I don't know. But could you tell me, do we 
need more staff? How many staff do you have and do we need 
more?
    Mr. Lukken. We have roughly 450 staff members today. That 
is an historic low number for us.
    Chairman Harkin. How much was it, say, 20 years ago?
    Mr. Lukken. We were at our high in the mid-500's. I think 
when we opened the doors, we were around 500 as an agency over 
30 years ago. So yes, we certainly need more bodies at the 
agency. We have been able to get more productive as a result of 
technology. This is an information-driven industry, and so we 
are able to collect the data efficiently with new technology, 
but still we need skilled personnel in order to sift through 
this data and make informed, qualitative decisions.
    So we have a $112 million budget this year. We have asked 
and the President has provided a $130 million appropriation 
request to Congress this year. We hope to get that. But that is 
the minimum. We could use more. And so as Congress considers 
resources, we certainly will be willing to talk about 
additional funds for the CFTC.
    Chairman Harkin. How about Commissioners? Do you need more 
than five?
    Mr. Lukken. Five, I think, has worked well for us. I mean, 
it gives a good diversity of views. You want to make sure that 
you have different thoughts coming at a process, but not too 
large that you end up--it makes it difficult to make decisions. 
As Bart said, we get to be a nimble organization. So you want 
to try to find that balance. I think five has worked well, but 
it is something worth considering.
    Chairman Harkin. OK. I am just wondering because of this 
tremendous caseload, workload that you have.
    Mr. Lukken. Yes, absolutely.
    Chairman Harkin. Let me ask maybe both of you--Mr. Chilton, 
you touched on the idea of speculation and what is happening 
there. Market prices for energy and agricultural commodities 
have reached record levels. We keep hearing about speculation. 
Someone said the other day, I don't know whether it is true or 
not, that about 30 percent of the price of a barrel of oil can 
be allocated to just speculation. I don't know if that is true 
or not, but I have heard this number bandied about.
    And I am concerned about a parallel with Enron, not 
perfect, but some might say that there is a bubble of some 
degree in commodities, energy, even some financial derivatives. 
I asked you, Mr. Chilton, about this. How do we know that the 
positions taken in the markets could not unwind very, very 
rapidly with big consequences? How much assurance can you give 
us and the American people that we are not facing another Enron 
surprise in either commodities, energy, derivatives? Can you 
give us any assurance on that? I address these questions to ask 
both Mr. Lukken and Mr. Chilton.
    Mr. Chilton. I can't, Mr. Chairman. I can't tell you 
exactly what the reason for the large price move is. As you 
know, the concern is there are speculators moving into the 
market and the quick answer is, from a lot of folks, is that 
they are long in the market and staying long. Whether or not 
that has an impact, we simply don't know. They are not in the 
spot month, but that doesn't mean that they couldn't be having 
some important impact on the market when they exit the spot 
month and immediately re-enter the market. A lot of times, 
these are passive investors that they are not trading on inside 
information, which this industry uses. They are sort of 
followers more than anything else and have made commodities 
markets an asset class to diversify their portfolio. They are 
about 30 percent of some of these markets and it may be a 
contradiction in terms to say that anybody who is 30 percent of 
any market is passive.
    I firmly believe it deserves a closer look, as I said in my 
statement and a careful examination. It is something--we have 
to look at it differently than we have before, Mr. Chairman. We 
need to beat up this data and slice and dice it and figure out 
what it means and maybe categorize commercials differently, 
maybe figure out if there is any undue influence so that we are 
avoiding any fraud, abuse, and manipulation. With gas near $4, 
it just is a crime for us not to be doing everything we can, 
and I think we are headed down that road now, sir.
    Chairman Harkin. Mr. Lukken, any thoughts on this, could 
some of these things unwind; could we be in for another Enron 
surprise in some of these other areas?
    Mr. Lukken. I think this is the basis of our announcement 
last week. We understand there is a large influx of financial 
money coming into the commodity markets. We want to get a 
better understanding of it. So the first step is to ask for the 
data, to ask for better, clearer, more detailed data on what is 
coming in. So that is what we did last week and we are going to 
review how those financial traders are being treated from a 
regulatory point of view as an agency.
    Traditionally, our systems are in place to prevent 
manipulation, somebody who is intentionally going in to move 
the markets. It is an illegal act. I think what is being talked 
about more is the amount of money coming into the commodity 
markets may be overwhelming the structure of the markets. So 
that is something we are trying to get our arms around and 
something that we announced last week.
    Right now, there is not a clear smoking gun as far as index 
traders. As Bart said, they are never in the spot month where 
delivery occurs so it is not affecting the physical commodity. 
There are some commodities, such as live cattle and lean hogs, 
that have a very large percentage of index trading. They are 
down negatively for the year. And so we are looking to find a 
clearer picture of what is going on in this area and we will 
continue to look at it.
    Chairman Harkin. Mr. O'Malia, I didn't mean to exclude you, 
but since you have just come on, any thoughts on this subject 
of speculation and whether or not we could be facing a bubble 
that might unwind?
    Mr. O'Malia. Well, one of the things my father taught me in 
doing my math homework was go with what you know. We do know 
that billions of dollars have come into the commodity markets 
as outperforming equities and we have seen this activity. The 
CFTC is obviously taking steps to increase the disclosure and 
transparency, looking at index traders, swap dealers in both 
agriculture and energy markets. I think what Commissioner 
Chilton said was right. We need to look at this data, turn it 
inside out, and make sure we know exactly who is doing what in 
the markets, what the nature of their investments are, and 
where they are going with them.
    Chairman Harkin. Do you all have the ability to do that, 
and would you make that information available publicly and to 
this committee?
    Mr. Chilton. We do. I should let the Acting Chairman 
respond, but I will take this opportunity to tell you that we 
have got 448 people right now. At the height in 1992, we had 
592. So we are down 150 folks. Now, the ordinary budget process 
that we go through--ordinary, I say, you know, you submit 
something to OMB--we asked for $150 million. I am totally off-
script now, but we got what was a $130 request. I think we 
could use that $150 million plus the good work that you did on 
closing the Enron loophole, that is going to be another $6 
million. So we could use upwards of $155, $156, $157 million to 
ensure that we can do this stuff. As I said earlier, these are 
extraordinary times and I think it requires an extraordinary 
budget, sir.
    Mr. Lukken. We will absolutely share that information. We 
have confidentiality issues at the agency, to make sure we are 
not disclosing trader positions, but that is something we want 
to, in an aggregate form, inform the public and this committee.
    Chairman Harkin. I am going to turn to our Ranking Member 
now, but I just want you to know that I hear it a lot. There is 
a lot of unease about some of these markets, the derivatives 
and some of the energy positions out there. There is just a lot 
of anxiety about it right now. Thank you very much.
    Senator Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman.
    Gentlemen, I want to turn for just a minute to a hearing 
that was held in the Commerce Committee yesterday. I think 
there has been some press that has been out today giving 
attention to some statements that were made in there, 
particularly statements by a Professor Greenberger relative to 
the markets of today and the oversight by CFTC. Now, I don't 
know this Professor Greenberger, but I hope he does a better 
job of preparing himself to teach his law class than he did for 
appearing before the Commerce Committee yesterday because he 
misstated the facts as I know the facts to be, because I was 
involved, as was Senator Harkin, in the negotiations relative 
to the provisions that we added in the Farm Bill concerning 
additional oversight responsibilities and authorities granted 
to the CFTC, and I know that Commissioner Chilton, you as well 
as Commissioner Lukken were very much involved in these. These 
negotiations on this issue started, in fact, 3 years ago when I 
was the Chairman and we were looking to reauthorize the CEA and 
they have been ongoing since that time.
    So for this guy to walk into the Commerce Committee 
yesterday and to say that this committee as well as Senators 
Feinstein and Levin and Snowe, as well as PWG were shills for 
ICE is totally outrageous and it is appalling to me that 
somebody would make a statement like that in a public hearing 
when they simply know not from which they speak.
    Mr. Lukken, let me just direct it to you. You were 
integrally involved in these negotiations. ICE, as I recall, 
was not--as a matter of fact, I know they weren't happy. ICE 
happens to be a constituent of mine. When the PWG made their 
recommendations, they were very upset about the recommendation 
and it took an extensive amount of negotiating between the 
CFTC, between PWG, and all of the members of the industry--this 
was not solely discussions with ICE--before appropriate 
language was achieved, and I would like to give you the 
opportunity to respond to the comments that were made by this 
gentleman yesterday.
    Mr. Lukken. Well, this did go through a full transparent 
airing of the public when we came to this issue. It started 
last summer. Several committees in Congress held hearings on 
these issues. Obviously, there was concern about the amount of 
oversight happening on these types of exempt commercial 
markets. We worked closely with this committee as well as 
Senators Feinstein and Levin to develop a proposal. Our agency, 
in fact, held a public hearing, as public as you get. All 
comers could have come and talked and given us their views, and 
we heard from a variety of people from all sides talking about 
exempt commercial markets.
    From that, we developed legislative recommendations for 
Congress. They were brought to this committee. This committee 
passed this as part of the Farm Bill after debate and amendment 
on the floor. The House marked this up in their committee, as 
well, the House Agriculture Committee. And so there was a lot 
of work, bipartisan work, in getting this done. As the Senator 
mentioned, the PWG as well as the Commission, Democrats and 
Republicans on the Commission, approved these recommendations 
coming up to Congress.
    So no, there was plenty of transparency in the process and 
I hope that there is an ability of the CFTC to implement these 
provisions before they are thrown out. We are in the process of 
trying to implement these to ensure that we have closed these 
loopholes that they are talking about for exempt commercial 
markets. So I hope there is some patience with the public.
    Senator Chambliss. Well, I have no doubt, but what with the 
additional tools that you are going to be able to do an even 
better job than what you have been doing relative to that 
oversight and I have such great respect for Senators Levin and 
Feinstein and Snowe. They did a terrific job of helping 
negotiate a very fair position. And again, I would just say 
that anybody who thinks otherwise or makes a public statement 
ought to apologize to those individuals.
    One other statement that this gentleman made yesterday, 
Bart, was relative to the Acting Chairman. I happen to think 
that Acting Chairman Lukken is doing a terrific job on a very 
difficult situation of volatile markets, rising prices, and we 
sought to give you more tools because that is what the Acting 
Chairman and the members of the Commission, including you, said 
we needed. I would just simply like to throw out to you, when 
he was asked the question of whether or not Acting Chairman 
Lukken was part of the problem or part of the solution, he said 
he is part of the problem. He was considered a Republican 
nominee. You are considered a Democratic nominee. Give me your 
thoughts on that for the record, please.
    Mr. Chilton. Well, this man is not part of the problem, I 
can assure you, Senator. He is a dedicated public servant who 
has worked hard on Capitol Hill and in government.
    I do just want to take maybe 15 seconds and say I think 
there is an important issue that was raised in the hearing, 
though, and that deals with what I talked about in my statement 
and that is transparency, and particularly when we look at 
overseas contracts. If you look at the WTI contract on ICE in 
London, it is a look-alike contract for the NYMEX market, and 
there is only a certain amount of oil, and so we should look at 
what the positions are there, and as I have talked about, beat 
up this data and more transparency is important.
    We have entered into an agreement with the Acting 
Chairman's leadership with the Financial Service Authority in 
the U.K. to get this information on a daily basis, particularly 
in the back months. We were getting it on a daily basis in the 
spot month. But now we will be able to look back and see if 
there is anything going on over there. They don't have position 
limits there in the U.K. on this look-alike contract.
    So the question, Senator, would be whether or not, if you 
had large positions on both contracts, whether or not that 
could potentially manipulate the market, even for a temporary 
amount of time, and that is one of the things that we are going 
to be looking into very intricately.
    Senator Chambliss. Is there any information that you have 
requested from the FSA in the United Kingdom relative to these 
contracts that they have not given you?
    Mr. Chilton. Maybe Chairman Lukken would like to----
    Mr. Lukken. Absolutely not. We talk to them frequently, our 
surveillance staff and their surveillance staff. And again, 
these are not physically delivered contracts. These are cash 
settled off of the NYMEX, so they are not moving around 
physical crude oil, so I think that is important. They are 
giving us, as Bart said, daily information now and they are now 
committed to putting it in a format that will seamlessly come 
into our surveillance systems. They have agreed to notify us 
when they exceed accountability limits on the NYMEX, notify us 
using a red flag system that when something goes over an 
accountability limit on one of our exchanges, they are willing 
to let us know about that. And we are seeing it all. It is all 
transparent to us.
    Rather than sort of turning off these markets with the fear 
that they could go underground or to less-regulated areas, it 
would be better, I think, to engage these regulators. These are 
global markets and we are world leaders here. We should engage 
these regulators overseas and make sure that we are seeing the 
entirety of the marketplace.
    Senator Chambliss. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    The list I have here is Senators Lugar, Stabenow, Roberts, 
Lincoln, Thune, and Grassley. Senator Lugar.
    Senator Lugar. Thank you very much, Mr. Chairman. I just 
want to follow up the questioning of Senator Chambliss.
    As all of you will recall, in the 2000 negotiations of the 
reauthorization of CFTC, there was very strong opposition from 
the energy interests to a regulation by CFTC. As a matter of 
fact, I can remember the difficulties with the Banking 
Committee, for one, and others who felt that they had a say in 
all of this, and so as a result, we came out of that particular 
period with a degree of openness and with the markets that some 
felt led to the Enron problem or at least it became possible 
because of lack of regulation.
    Now, I compliment the Chairman and Senator Chambliss in the 
recent years, and it hasn't all happened in this particular 
year, for attempting to close the gap, to give the CFTC 
authority. But as you pointed out today, there needs to be 
authority with regard to other markets, whether it is the U.K. 
or so forth, and this degree of cooperation.
    What I suppose I really want to know, and you have answered 
this in a way but maybe not to my satisfaction, if you had the 
transparency that you are talking about, and hopefully you do, 
and let us say the U.K. people or others agree that 
transparency is required in terms of world economy, even at 
that point, are there the analytical skills or the regulatory 
skills or the information given this 24/7 situation that Mr. 
Chilton is talking about to spot what is going on?
    The reason I suggest this is a very small number of people, 
and you are 400-and-some, plus this small budget is taking a 
look at a problem that could have worldwide implications in 
terms of catastrophe in our economy. Many pessimists would say 
that the oil bubble, just to take that one, leaving aside corn 
or beans or what have you, but just the oil bubble, if it burst 
and you have a drop of tens of dollars suddenly, is going to 
knock the socks off of whatever recovery our economy has right 
now, quite apart from the Western European situation, which is 
equally weak.
    So this has huge implications, what we are talking about 
today. People may not understand what the CFTC does, but people 
should because this is perhaps the way in which the world can 
be alerted and policymakers, whether it be the Federal Reserve 
Board or the President or the Treasury in our country, make 
some policy judgments. So what is the state-of-the-art in 
spotting a bubble if you have full transparency and cooperation 
at this point.
    Mr. Lukken. This is something that we think about. As I 
said, our systems have traditionally been in place to spot and 
to take action on intentional manipulation. This is the Hunt 
silver crisis back in the late 1970's type of environment, 
where somebody tries to corner or squeeze a market, and we 
could see through their positions on a futures market the fact 
that they are holding--they are trying to hold the position as 
well as hold the commodity in the cash market.
    I think what is being discussed now is not that type of 
intentional manipulation but just the fact that a lot of money 
is flowing into these markets, potentially creating a bubble. 
We don't have regulatory tools to spot that sort of a 
situation. We look at supply and demand data. There are 
obviously strong fundamentals in this area.
    We are asking for better information. That is what last 
week's and yesterday's announcements were intended to get, is 
this better information on the amount of funds flowing into 
these markets, and it is certainly worthy of discussion with 
the President's Working Group about what all this means. Are 
there ways that we can control and manage the types of monies 
that are coming into these markets, develop practices for those 
that are entering the marketplace? So there is not an easy 
answer here, but it is something we are trying to get our arms 
around.
    Senator Lugar. Just a sub-question of this. Do you have as 
a part of your staffs or others you work with people involved 
in foreign policy or security policy? Taking the oil business, 
frequently it is suggested maybe 90 percent-plus of oil now is 
governed by governments, by state agencies who may have 
political agendas, not economic agendas. What if a Hugo Chavez 
decides to give oil to people in the United States or the 
Caribbean or so forth while less is being produced in his own 
country? We would say, well, this is ridiculous. Here you have 
less production and you are giving it away. Well, not 
ridiculous from his standpoint with a political agenda rather 
than an economic one.
    I wonder to what extent this influences the way that you 
look at this situation. You are trained economists and people 
and it is transparent, but the motives of some of these other 
countries are sometimes not really very hidden and I just 
wonder whether this is a factor that you are looking at.
    Mr. Chilton. If I might, you know, that one of the things 
that I have expressed a real concern about and this is a 
concern in general in the financial services areas, and that is 
sovereign wealth funds. And I am not casting any aspersions on 
any individual nation, but Saudi Arabia has a $900 billion 
sovereign wealth fund. Now, these things are not very 
transparent and they are not supposed to be operated on 
geopolitical bases. They are supposed to be just sort of an 
investment tool. But this is something that people are looking 
at, and whether or not those are having any sort of impact on 
our markets, we don't know, but that is an area, Senator, that 
I think we need to be looking at in addition to the other areas 
that you mentioned earlier.
    Senator Lugar. Thank you.
    Mr. Lukken. Well, it is definitely something, if I might 
chime in, too, that the President's Working Group and the 
Treasury Department are looking into developing best practices 
for sovereign wealth funds, that when they enter the commercial 
markets, that they should act like commercials with full 
transparency and abiding by the rules of the free market 
society. So that is something, I think, the Treasury Department 
is looking into, and we are also following, from a surveillance 
point of view, how many sovereign wealth funds are in our 
markets. They are very low numbers. They are not heavily 
involved in futures trading at the moment, but it is something 
we are keeping a close eye on.
    Senator Lugar. Thanks.
    Chairman Harkin. Thank you, Senator Lugar.
    Do you have any follow-up questions at all? We have a roll 
call vote on right now and I am sorry that other Senators 
didn't get a chance to ask questions. I will keep the record 
open for a while for questions to be submitted to you in 
writing, if you could respond.
    Well, that was quick. Senator Lincoln, before we all go to 
vote here.
    Senator Lincoln. Thank you, Mr. Chairman, and thanks to 
Senator Chambliss, as well, and we want to thank all of you all 
for being here today. I think you all certainly know, and I 
think many of us are learning more and more, the CFTC's role in 
regulating the commodities futures market, and it has come 
under such increased scrutiny as so many of our commodity 
prices have surged to record levels, whether it is oil, corn, 
wheat, or cotton, which you all brought the case before.
    Your average American consumer is paying more. Having just 
done a tour throughout my State covering the majority of my 
State, I was amazed. Without a doubt, gas prices were the very 
top issue, the war in Iraq, but food prices were incredibly 
important to working families, and seeing that and feeling 
helpless in terms of what they can do about that. So looking at 
our food pantries, knowing that they are at record highs. I 
just got a letter, a solicitation in the mail commenting that 
they were serving 30 to 35 percent more this month this year 
than they did the same month last year.
    So it is a critical issue for our families and our working 
families out there. For our producers, the cost of inputs from 
diesel to fertilizers have soared. We are in an unusual time 
and it is going to be critical for us to maintain our 
competitiveness.
    Globally, higher food prices have threatened to certainly 
cause severe food shortages in countries. They have sparked 
riots. We have seen that happen and we don't want it to happen 
here.
    Ultimately, you all are the cop on the beat and we 
appreciate that. You are a cop on the beat for us as well as 
these global markets and it is a role there to prevent fraud, 
the manipulation, the excessive speculation in futures markets, 
and we want to make sure that you have the tools to do that, so 
we applaud you for the steps that you have recently announced 
to deal with that greater transparency which Bart mentioned and 
the oversight to our agriculture and energy futures markets.
    As Chair of the subcommittee that has oversight over CFTC, 
I really do look forward to working with all three of you in 
the future. I think there is much to be done, and as you 
mentioned, you probably do need more bodies to be able to do 
that, but also to ensure that what we are doing is going to 
meet the needs of the 21st century and that we are looking 
forward as opposed to backwards in the needs that we have.
    Mr. Chairman, just two quick questions. One is to what 
extent do you think that the low dollar has an effect on crude 
oil, and the other is what do you think your biggest challenge 
is, and I think you have pretty much covered that second one, 
many of you have, but if there is anything else you would like 
to add to it, I would like to hear it.
    Mr. Lukken. I will just quickly mention that the dollar is 
obviously a factor on crude oil prices and other commodities 
across the board. Our staff, just plotting the dollar's rise 
against crude oil and the Euro, there is as much as a 25 
percent difference. So we think somewhere in that range. That 
is a back-of-the-envelope-type calculation, but certainly the 
dollar is having a big impact on commodities across the board.
    And obviously the big challenge is just the size, enormity, 
and speed of these markets that are happening before our eyes. 
These are global markets. We have to be engaged with global 
regulators. They are technology-driven markets. We have to get 
better technology so we are able to see this. And it is going 
to require more resources, as you mentioned. So these are all 
things that we will be working with your committee to try to 
implement over the coming year.
    Mr. Chilton. What he said.
    [Laughter.]
    Mr. O'Malia. I will agree.
    [Laughter.]
    Senator Lincoln. Well, that was easy and it gets us to our 
vote. Thanks to all of you and we look forward to working with 
you.
    Chairman Harkin. Thank you very much, Senator Lincoln.
    I will just announce that Senators will have until 6 p.m. 
today, for the staff who are here, to submit questions for the 
nominees, and for the benefit of other Senators, it is my 
intention to ask for unanimous consent on the floor to 
discharge the committee of these nominees, to bring our 
nominees to the floor as quickly as we can.
    I thank all of you for all of your service, the 
Commissioners who are here, Mr. Dunn, Ms. Sommers, Mr. Lukken 
and Mr. Chilton, and welcome our new member, Mr. O'Malia, to 
the Commission. I look forward to working with you in the 
future.
    Thank you very much, and the committee will stand adjourned 
subject to the call of the Chair.
    [Whereupon, at 12:02 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                              June 4, 2008



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                              June 4, 2008



      
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                         QUESTIONS AND ANSWERS

                              June 4, 2008



      
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