[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2013

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS
                             SECOND SESSION
                                ________
     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES
                    JACK KINGSTON, Georgia, Chairman
 TOM LATHAM, Iowa                   SAM FARR, California
 JO ANN EMERSON, Missouri           ROSA L. DeLAURO, Connecticut
 ROBERT B. ADERHOLT, Alabama        SANFORD D. BISHOP, Jr., Georgia
 CYNTHIA M. LUMMIS, Wyoming         MARCY KAPTUR, Ohio              
 ALAN NUNNELEE, Mississippi         
 TOM GRAVES, Georgia                

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mr. Dicks, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
       Martin Delgado, Tom O'Brien, Betsy Bina, and Andrew Cooper,
                            Staff Assistants
                                ________
                                 PART 9
                                                                   Page
 Commodity Futures Trading Commission.............................    1
 Farm Credit Administration.......................................  399

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
 PART 9--AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION,

              AND RELATED AGENCIES APPROPRIATIONS FOR 2013
                                                                      ?

   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2013

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS
                             SECOND SESSION
                                ________
     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES
                    JACK KINGSTON, Georgia, Chairman
 TOM LATHAM, Iowa                   SAM FARR, California
 JO ANN EMERSON, Missouri           ROSA L. DeLAURO, Connecticut
 ROBERT B. ADERHOLT, Alabama        SANFORD D. BISHOP, Jr., Georgia
 CYNTHIA M. LUMMIS, Wyoming         MARCY KAPTUR, Ohio              
 ALAN NUNNELEE, Mississippi         
 TOM GRAVES, Georgia                

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mr. Dicks, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
       Martin Delgado, Tom O'Brien, Betsy Bina, and Andrew Cooper,
                            Staff Assistants
                                ________
                                 PART 9
                                                                   Page
 Commodity Futures Trading Commission.............................    1
 Farm Credit Administration.......................................  399

                                   S

                                ________

         Printed for the use of the Committee on Appropriations

                     U.S. GOVERNMENT PRINTING OFFICE
 75-803                     WASHINGTON : 2012

                                  COMMITTEE ON APPROPRIATIONS

                    HAROLD ROGERS, Kentucky, Chairman

 C. W. BILL YOUNG, Florida \1\      NORMAN D. DICKS, Washington
 JERRY LEWIS, California \1\        MARCY KAPTUR, Ohio
 FRANK R. WOLF, Virginia            PETER J. VISCLOSKY, Indiana
 JACK KINGSTON, Georgia             NITA M. LOWEY, New York
 RODNEY P. FRELINGHUYSEN, New JerseyJOSE E. SERRANO, New York
 TOM LATHAM, Iowa                   ROSA L. DeLAURO, Connecticut
 ROBERT B. ADERHOLT, Alabama        JAMES P. MORAN, Virginia
 JO ANN EMERSON, Missouri           JOHN W. OLVER, Massachusetts
 KAY GRANGER, Texas                 ED PASTOR, Arizona
 MICHAEL K. SIMPSON, Idaho          DAVID E. PRICE, North Carolina
 JOHN ABNEY CULBERSON, Texas        MAURICE D. HINCHEY, New York
 ANDER CRENSHAW, Florida            LUCILLE ROYBAL-ALLARD, California
 DENNY REHBERG, Montana             SAM FARR, California
 JOHN R. CARTER, Texas              JESSE L. JACKSON, Jr., Illinois
 RODNEY ALEXANDER, Louisiana        CHAKA FATTAH, Pennsylvania
 KEN CALVERT, California            STEVEN R. ROTHMAN, New Jersey
 JO BONNER, Alabama                 SANFORD D. BISHOP, Jr., Georgia
 STEVEN C. LaTOURETTE, Ohio         BARBARA LEE, California
 TOM COLE, Oklahoma                 ADAM B. SCHIFF, California
 JEFF FLAKE, Arizona                MICHAEL M. HONDA, California
 MARIO DIAZ-BALART, Florida         BETTY McCOLLUM, Minnesota          
 CHARLES W. DENT, Pennsylvania      
 STEVE AUSTRIA, Ohio                
 CYNTHIA M. LUMMIS, Wyoming         
 TOM GRAVES, Georgia                
 KEVIN YODER, Kansas                
 STEVE WOMACK, Arkansas             
 ALAN NUNNELEE, Mississippi         
   
 ----------
 1}}Chairman Emeritus    
                                    

               William B. Inglee, Clerk and Staff Director

                                  (ii)


   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2013

                              ----------                              

                                          Thursday, March 22, 2012.

                  COMMODITY FUTURES TRADING COMMISSION

                                WITNESS

GARY GENSLER, CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION
    Mr. Kingston. The committee will come to order. We have 
today the last of 11 hearings that this subcommittee has had 
this year. They have been good productive hearings. And what we 
are going to do, because of vote schedules and pressures, and 
members having other hearings, is ask our witness to dispense 
with the reading of his statement. I look forward to a good 
discussion with you on is this an expansion of the NFL or are 
we doing some fuzzy numbers. We actually have, I think, a 
little bit of a conversation that we need to have about that. 
But I think in the interest of time and the fact that Mr. Farr 
and I are already here, we would probably like to go into Q&A, 
so with that, Mr. Farr.
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    Mr. Farr. Thank you very much, Mr. Chairman. I think yes, 
because of time we will need to use all the time in Q&A, but I 
just want to say that I am deeply impressed that people like 
Chairman Gensler will come and work for the Federal Government. 
With his background on Wall Street and so on, an ability to 
have a cop on the beat looking for abuses, fraud, and gimmicks 
is absolutely essential. I think we have one of the best and I 
would just thank you for your public service.
    [The information follows:]

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    Mr. Kingston. And Chairman Gensler, we will go ahead and 
yield to you. I do have concerns that while the number of 
transactions--we are looking at this thing a little bit 
differently, and we will get into that, but let me yield to you 
for your opening statement.

                           Opening Statement

    Mr. Gensler. I thank you and will keep it brief. I think 
the CFTC is a good investment to the American public, to all 
the constituents, because anybody in your district--a farmer, a 
rancher, a producer, a commercial company--relies on these 
markets to lock in a price and lower risk and then focus on 
what they do best, invest in America and create jobs: 94 
percent of job creation in America, 94 percent of private 
sector jobs, is in those end users in your districts across 
America.
    CFTC has been asked through the Dodd-Frank Act to expand 
oversight not just to the futures market but to the swaps 
market and, yes, in my prepared testimony I analogized to the 
NFL; if they were to take on 8 times the number of games, 
because that is what we are being asked to do, to take on this 
$300 trillion market. But even if it is not 8 times the number 
of games, I think the stark reality is we will have twice the 
number of intermediaries in the market, meaning we used to have 
about 130 futures commission merchants, and now we will pick up 
somewhere in that same vicinity of swap dealers. We will 
probably have triple the number of trading platforms and 
clearinghouses. We currently oversee 32 of them, we estimate 
that will grow to 100.
    So whether it is 8 times the number of games that we have 
to spread the same number of referees over, or 2 to 3 times, 
because there will literally be at least 3 times the number of 
fields of play and twice the number of big entities that we 
have to regulate in this market. And it is critical to have the 
funding. We have only asked for 50 percent more, and I know it 
might appear bold, but the extra $100 million is critical to 
protect the American public and make these markets transparent 
and work for your constituents. So I thank you.
    Mr. Kingston. Thank you, Mr. Chairman.
    [The information follows:]

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                              MARKET SIZE

    Mr. Kingston. And let me start off with this because there 
has been--I know you have seen some articles, looking at one 
recently that really challenged this. And one of the statements 
was the swaps markets see roughly 2- to 4,000 transactions per 
day, but it is a nominal amount where you are claiming that it 
is 8 times larger than the market and that is what people are--
I guess we are getting some pushback on your testimony.
    In terms of the NFL, the CFTC does not regulate the paper 
value of abstract financial instruments, but the participants 
and the entities that make the marketplace work, the number of 
registrants has actually grown by about 5 percent since 2000, 
from 62,000 total to 65,000. And so I think one of our major 
differences right now is that yes, you have some electronic--a 
lot larger numbers, but you are still only looking at those 
that grow from 62,000 to 65,000.
    Another part of this that I wanted to mention is that 
during the Dodd-Frank testimony you said there were 15 to 20 
dealers globally who made up 99 percent of the swaps markets, 
but now you are talking about registering 150 of them, and that 
is a lot more money just to get 3 percent of the market. So 
with that, let me ask you to respond.
    Mr. Gensler. Well, the market is--and these are global 
markets--the worldwide market in swaps is over $700 trillion 
and it is estimated that a little--about half of that, or $300 
trillion more is here. We didn't create that figure, that is a 
real figure. That is what the real risk is: 8 times larger than 
the futures marketplace.
    It is correct that it is fewer transactions than 8 times 
the transactions. People usually enter into these transactions 
in big bulk, but it is truly 8 times the size.

                              REGISTRANTS

    In terms of the number of registrants, the 65,000 that the 
chairman refers to includes something called ``associated 
persons,'' I can't remember the figure, 58- or 59,000 
associated persons, these are salespeople that somehow anywhere 
in this great country of ours sell a futures product.
    But where the rubber hits the road is we currently have 32 
trading platforms, from the Chicago Mercantile Exchange and 
Intercontinental Exchange--32 trading platforms and 
clearinghouses--that we estimate will grow at least double, and 
our estimates are that it might be to triple that--the 
clearinghouses, the swap execution facilities and foreign 
boards of trade.
    Secondly, we currently oversee 123 futures commission 
merchants and we estimate that somewhere between 100 and 150 
swap dealers will register.
    To the last part of your question--looking just simply at 
how many dealers are members of the largest clearinghouse--in 
London--it is a little over 60. Because of the law as passed 
there is something called the pushout. Many of those 60 have 
told us they will register maybe two different legal entities, 
two legal entities in a large bank and so forth. And so that is 
why we think we will end up with between 100 and 150.
    Mr. Kingston. But when you have that many that register, 
you still have the active--the volume of it are going to be in 
the 15 to 20, and a lot of the ones who register will be semi-
inactive, registering for whatever legal reasons they need to, 
correct? And they are not going to have that much of a 
workload, it is going to be----
    Mr. Gensler. I think we share a view that we will triage 
for amongst the largest, and in our prepared remarks we have 
amongst the 14 largest, it would be our hope that we could be 
spending more time with them, which is sometimes called the G-
14. We have also leveraged off the National Futures Association 
that they will do the registration and do the frontline 
examinations. We will rely on them as a self-regulatory 
organization for the dealers. So I think on the trading 
platforms we are the front line.
    Mr. Kingston. And that is one thing with the SROs that we 
think you may be underutilizing because they are doing a lot of 
this work already, and I don't know how much duplication that 
you need to have in it from some of the stuff that they are 
doing, because I don't think any of them have caused any 
problems from the financial meltdown or whatever. Their methods 
have proven to be sound.
    Mr. Gensler. I think what we are saying is yes, we will 
rely on the SROs somewhat. They are planning on additional 
funds to their budgets. They have estimated between $35- and 
$45 million at the NFA to register these 100 to 150 swap 
dealers. But we need to oversee the NFA and also be there to 
answer very important questions from all of these registrants 
about these rules.
    Mr. Kingston. But they are not people that--you don't have 
to necessarily breathe down your neck. They want the same thing 
you want is what I am saying. It is not like okay, these are 
potentially bad guys, these are potentially more partners and 
cooperative.
    Mr. Gensler. Oh, they are most definitely partners and 
cooperative, and they are very good at the NFA. I share that 
view. But ultimately what we are trying to do is have enough 
staff and technology in place to protect your constituents in 
your district and throughout this country of ours, because this 
is a vast market that has a lot of risk. And it was part of the 
financial crisis. I don't think we can get away from that.
    Mr. Kingston. I am out of time and look forward to more 
rounds. Mr. Farr.

                        INCREASED RESPONSIBILITY

    Mr. Farr. Thank you very much, Mr. Chairman. Thank you for 
this hearing. Thank you, Mr. Chairman, for being here and, 
again, for your public service.
    We have had a lot of comments by staff and others, but what 
really impressed me is looking at this letter signed by 96, I 
think, different entities calling themselves the Americans for 
Financial Reform, and they sent it to every Member of Congress, 
and essentially pointing out that what we did in Dodd-Frank 
law, which is the law of the land, is that we increased your 
responsibility exponentially. And what they are urging is full 
funding of the $308 million and essentially pointing out that 
the President's request for $308 million is minuscule in 
comparison to the $340 trillion in notational value of markets 
that are supervised by the CFTC. The CFTC is only 10 percent 
larger than its peak size in the 1990s. But futures markets 
alone have grown fivefold since that time.
    So with this incredible new responsibility I think the 
argument here is well, maybe we should think huge increase, but 
we have written a tough law that needs to be monitored. And I 
tell folks at home when they ask me all about this thing, I say 
it is like setting a speed limit and then not having any cops. 
We have got to have the regulators in place. And so I would 
hope that we can come up with full funding.
    Our committee hasn't gotten our allocation, so we have no 
idea how much we are going to have to cut from the President's 
budget, but it is not always across-the-board cuts, some 
programs get added, some get cut. The bottom line is our budget 
of the House, at least under Republican control, has been a lot 
less than the President's.
    So I think my real only question is, had we fully funded 
you last year to what you asked for, could some of the crisis 
in the oil crisis or other kind of crisis been avoided? It 
mentioned here the crisis that went on with MF Global. What is 
your feeling, had Congress given you what you asked for in the 
first instance?
    Mr. Gensler. I think, and I appreciate this committee's 
work with us that helped us get even the $3 million increase, 
but I think if we had gotten more of an increase, particularly 
with 2-year money as you have been helpful with us, one, we 
could have helped grow the agency, train the staff to be ready 
because we will finish the rule writing some time this year. 
Congress asked us to do it in a year, it looks like it will 
take us about 2 years, but we have completed over 29--29 final 
rules.
    And so additional staff would help us be ready for what is 
going to be truly a monumental task of registering nearly 200 
new entities. Now, we will use the NFA where we can, but we are 
going to have to actually be ready to consider market 
participants' registration. We will have to be ready to examine 
these folks.
    If we are able to get the funding for 2013, not everybody 
is going to come on board the very first day. We will have to 
work through and get the best people and hire them. So I fear 
that many market participants will have to queue up and not be 
able to get their registrations through. And the American 
public will not have the confidence in this market.
    So back to the football analogy, I think part of the reason 
you have referees on the field is so the fans can have 
confidence in the integrity of the game. It is not just so the 
players don't get injured, which is critical, but it is also 
that the public can have confidence in the field of play. And I 
think that is where the analogy is.
    Mr. Farr. Well, oftentimes when you want to get like a law, 
and you can't do anything about changing the law and you don't 
have the votes, then you try to stall the implementation of the 
law. You kick it and squeeze it and trim it, the idea not 
giving you enough referees to have, as you say, the fans trust 
the game. I think your testimony points out that you really do 
need the staff and the technology to implement this new law, 
which I think is a very beneficial law for our country.
    My time has expired. I will yield back.
    Mr. Kingston. Thank you. Mr. Graves.

                                FUNDING

    Mr. Graves. Thank you, Mr. Chairman. Thanks for being with 
us, Mr. Chairman.
    Mr. Gensler. Thank you.
    Mr. Graves. I know you are aware, just as we are in 
appropriations with the difficult challenges we face as a 
Nation, and it has got to be tough from your perspective. I 
know there are a lot of games, a lot of players, or whatever 
the analogy we want to use, but the fact is there is only so 
much, so many dollars or so many fans that continue paying to 
come to the game that seems to be oversold oftentimes. And we 
are as a committee facing some of the greatest challenges: How 
do we bring our Federal Government to a balanced budget 
environment? And certainly seeing a big increase like this is 
difficult.
    I have three children at home, 9, 12, 13 years old, and 
elementary school, middle school, and they don't know about all 
this stuff, but one day it is going to hit them. And they are 
going to be the ones, along with the children all across this 
country, that are burdened with the debt that we have as a 
Nation. It is really hard for me to go back home to them. I 
spoke to a fifth grade class a couple weeks ago and explained 
to them how a chairman can come before us and request 50 
percent more in spending for whatever reason. It is really, 
really difficult to explain that.
    How would you, if you were standing before that class or 
before my children or the children of the Ninth Congressional 
District of Georgia, how could you stand before them and say, 
you know, I know we are going off the cliff and I helped push 
the accelerator down just a little bit more? How do you share 
that with them and reassure them that their future is okay, 
that it will be an opportunistic, prosperous future for them?
    Mr. Gensler. I too have three children just a few years 
older, three daughters, so I know how it must be. How I explain 
it to them is that this market that Congress has asked us to 
oversee helped cause a crisis. And millions of Americans are 
out of work, and you know about aunt so-and-so that is out of 
work and so forth, so we go through the actual people we know 
out of work and who have lost their homes, which is true in my 
family as any other. I might have been fortunate to be on Wall 
Street, that doesn't mean all my relatives and everybody had 
that payday, so to speak.
    And so this investment, this investment of $100 million in 
the context of a multitrillion-dollar Federal budget, in the 
context of 8 million people having lost their jobs, is a good 
investment. I say it is absolutely a hard sell in Congress. I 
admit that.
    Mr. Graves. You would share with your children that wise 
financial advice is that you borrow more to save yourself from 
the fiscal insolvency you have today.
    Mr. Gensler. I think in a targeted way, I am just talking 
about the CFTC because I think, Congressman, you and I probably 
share the view that we need to get this Federal deficit down 
and not borrow from the future that our children and 
grandchildren will have to face with that. But I think this 
$100 million extra is just a reality that this vast market grew 
up unregulated, this thing called the swaps marketplace, and we 
need to have some effective oversight to that market.
    I think it lowers cost to so many of the companies in your 
district. If they get a little bit of the--see, right now an 
unregulated market tips the advantage to----
    Mr. Graves. I hate to interrupt, but we hear this all the 
time. For every dollar you give us, we save somebody $7 or we 
create $7 of economic development. If that is the case, why 
don't we just tax everybody 100 percent, and put it all out 
there in Federal Government spending? We would all be much more 
prosperous. Is that the example or the model?
    Mr. Gensler. No, no, no. Here the example is more, whether 
it is referees on a football field or whether it is police in 
your cities in Georgia, that you want at least a funded police 
force in those cities so people feel safe at night to walk the 
streets and why we have traffic lights as well. So I am not 
suggesting anything more that that.
    Mr. Graves. I understand. And I hate to be pushing this so 
much. It is just I am going to have a hard time looking at my 
children saying, well, the swap market has grown so much and 
therefore we have got to invest 100 million more dollars, but 
it will be okay because I am sure some other department head 
will come before us and say, hey, I found 100 million we can 
save, plus more. That is yet to be the case. Everybody has come 
before us saying we need more, we need more, and we need more. 
It is just not there.
    Mr. Gensler. I understand.
    Mr. Graves. Mr. Chairman, thank you. I do have some other 
questions later relevant to the market.
    Mr. Kingston. Thank you. Ms. Kaptur.

                               MF GLOBAL

    Ms. Kaptur. Thank you, Mr. Chairman. Welcome, Chairman 
Gensler. I have a little difficulty with the amount of money 
being requested in this budget. When I look at the size of the 
market that you state in your testimony you wish to regulate 
and oversee, 37 trillion notional, and then 300 trillion in the 
swaps market. I would be very interested in your commenting a 
little bit later on what we could actually--where we could 
place a fee to raise the money to pay for the staff that you 
need. But my questions go to the CTFC itself.
    Why didn't your Commission monitor the segregated accounts 
and transfer them to another FCM prior to MF Global's 
bankruptcy? So the first question is a ``why'' question.
    And the second one in this first round is a ``who'' 
question. Who at the CFTC is responsible for initiating the 
enforcement actions?
    On the first question, why didn't the CFTC monitor the 
segregated accounts and transfer them to another FCM prior to 
MF Global's bankruptcy? According to the information I have, 
there were warning signs well in advance of MF Global's 
bankruptcy, the largest really in our country, I think ever, 
that your Commission utterly failed in its responsibilities.
    Throughout 2011, John Corzine had a large position that his 
board questioned and his risk manager expressed concerns about 
that. There were also public and obvious warning signs in the 
weeks prior to the bankruptcy, three of them. MF Global was 
downgraded, and that would lead to calls for more margins. It 
lost its primary dealer status, and FINRA asked it to reserve 
more capital. It was obvious that they were strapped for cash, 
and yet the CFTC let things fester and put account holders and 
customers at risk.
    This has the appearance to those from the outside that the 
Commission was buying time for Mr. Corzine and his company.
    So my question is, why didn't you monitor the segregated 
accounts and transfer them to another entity prior to their 
bankruptcy? Who at the Commission is responsible for initiating 
enforcement actions? And why haven't you initiated enforcement 
actions against MF Global's directors and executives? It would 
seem to me, based on testimony even by Jill Sommers, that the 
transfer of funds from customers' segregated accounts is a 
violation of your own rules.
    Mr. Gensler. I am glad you referenced Commissioner Sommers, 
because I just want to say as this matter turned to an 
enforcement matter that could involve John Corzine and so 
forth, though the lawyers said I didn't need to, I am not 
participating in the enforcement matter just because he and I 
had worked at the same firm 14 years ago.
    But if I could answer in a broader general----
    Ms. Kaptur. Who is then responsible, Mr. Chairman, for 
initiating the enforcement action?
    Mr. Gensler. Generally speaking, enforcement actions come 
up to the Commission from the Division of Enforcement, this 170 
or so people, and that we are requesting today to grow a bit. 
They bring things up to the five-member Commission. Right now 
the five-member Commissioner, Commissioner Sommers is taking, 
is the lead commissioner on this matter.
    Ms. Kaptur. But you are chairman of the Commission, 
correct?
    Mr. Gensler. That is correct.
    Ms. Kaptur. Under normal circumstances you would have 
initiated it, would you not have?
    Mr. Gensler. Well, procedurally, they are initiated by the 
Division of Enforcement. The Division of Enforcement recommends 
various actions to the Commission. Although in this enforcement 
matter the general counsel said there was not a reason to not 
participate--it had been 14 years since I worked with Mr. 
Corzine--I thought it was best not to be a distraction, not to 
participate in a matter where John Corzine might be part of 
that situation. But as a more general matter----
    Ms. Kaptur. Are you saying, then, the Commission has 
initiated enforcement actions against MF Global's directors and 
executives?
    Mr. Gensler. I am not participating in it, so I could read 
in the press, just as you would in the press, but I believe as 
a matter of public record that that is correct.
    Ms. Kaptur. And the main question: Why didn't the 
Commission monitor the segregated accounts and transfer them to 
another FCM prior to MF Global's bankruptcy?
    Mr. Gensler. Again, I am not participating in the matter, 
but if I could talk about Futures Commission Merchants, there 
are about 120 of these. Our regulatory system, as the chairman 
noted, relies on self-regulatory organizations, either the 
Chicago Mercantile Exchange or National Futures Association, to 
be the frontline regulators of these 120 or so Futures 
Commission Merchants. And the mechanisms that we were talking 
about just moments ago would be used for swap dealers as well.
    Then what we do is we also, then, with sufficient staff, 
monitor these self-regulatory organizations for cause, and then 
also go into the individual entities.

                         SIPA BANKRUPTCY ACTION

    Ms. Kaptur. May I ask why did the CFTC allow SIPA to take 
charge of MF Global's bankruptcy, given that almost 99 percent 
of MF Global's accounts were commodity accounts? And as I 
understand it, this was a chapter 11 bankruptcy instead of a 
chapter 7. Chapter 11 bankruptcy allows assets to be 
transferred to MF subsidiaries and creditors. This action 
seemed to favor the creditors instead of commodities traders, 
especially farms and ranchers, and had the result of protecting 
MF Global's creditors, especially the large banks. Who are the 
people within the CFTC that were responsible for this decision?
    Mr. Gensler. Again, if I can talk about generally how the 
law works, because I am not involved in the specific 
enforcement matter and bankruptcy, but generally speaking if 
somebody is both a Futures Commission Merchant and registered 
at the SEC as a broker-dealer, many of the Futures Commission 
Merchants, or dozens of them, are both. As a broker-dealer they 
come under SIPA laws. And if there is one customer account in 
the securities area, that takes precedent. And that is how I 
understand the law to be.
    So there are protections in bankruptcy, in SIPA, that also 
refer to the Commodities and Exchange Act and directly refer to 
the Commodities and Exchange Act, but these dual registrants--
and this would be true and has been true, if you looked at the 
Lehman bankruptcy, for instance, would be another example that 
that was the case.
    Ms. Kaptur. In closing on this first round let me just say, 
Mr. Chairman, that given the CFTC's recent nonperformance, 
actually serving the interest of bank creditors of MF Global 
and not protecting the interest of MF Global's customers nor 
the public interest, as a member of this committee I might ask 
why your Commission should be allowed to continue as a 
regulator? And as we move forward in terms of taking taxpayer 
money to try to expand what is occurring at the Commission, I 
don't agree with the premise that the reason that the 
regulation of MF Global did not occur was because you didn't 
have enough money. I think there were real problems inside, and 
I am very, very reluctant to whitewash what happened in the 
Commission over recent history. I just wanted to place that on 
the record in the first round, and I thank you.
    Mr. Kingston. I thank the gentlewoman. Ms. DeLauro.

                       CURBING SPECULATION IN OIL

    Ms. DeLauro. Thank you, Mr. Chairman, and thank you. I 
apologize for dashing in and out, but there are many hearings.
    For the second year in a row, Mr. Chairman, you have come 
before this committee, you have requested an increase in your 
budget to $308 million to be able to carry out the CFTC's 
expanded mission of regulating $300 trillion in swaps and 
derivatives markets and the 37 trillion commodity futures 
market.
    Last year Congress only provided you with $205 million, 
which according to your testimony has limited your ability to 
properly oversee the swaps market and curb speculation and 
manipulation.
    Last year, the majority on this committee would have cut 
your budget even further, by 44 percent, to $172 million. 
Again, just yesterday, the majority on the House Budget 
Committee defeated an amendment that would have provided the 
CFTC with funding to curb excessive speculation and 
manipulation in the oil markets.
    This is disappointing. After last year's testimony from 
Exxon CEO Rex Tillerson said that any price for crude oil over 
$70 is speculation. A recent report from Goldman Sachs 
estimated that excessive speculation of the oil markets as 56 
cents to the price of a gallon of gas.
    We are all consumed with the issue of the price of gas. It 
is now on average nationwide about $3.88 a gallon. In my 
district it is $4 or more at the moment. And so that if we are 
concerned about the price of gas, and the issue not being the 
question of supply, one would think that we would want to move 
in a direction of trying to find out what in fact is actually 
happening in the markets with regard to speculation.
    But if we do not for a second year in a row provide you 
with the resources to complete your congressionally mandated 
expanded mission, how will you be restricted from curbing 
speculation and manipulation in the oil and gas markets?
    Mr. Gensler. I thank you, Congresswoman. Though we are not 
a price-setting agency, we are given tools to make sure that 
these markets are not only transparent but they are free of 
fraud and manipulation, and no one party in the market has a 
concentrated position. We do that through position limits.
    These tools will be harder to use if we don't have the 
funding. And I know that we have a lively exchange about the 
size of these markets, but the swaps market dwarf the futures 
markets. And so we would have to spread our enforcement staff 
thinner than we already do. The 170 people there are only 
slightly bigger than we were in 2002, maybe 10 percent bigger, 
and the markets are more complex.
    So rising energy prices are just yet a reminder, though we 
are not a price-setting agency, it is a reminder that you want 
to have an effective cop on the beat to police these markets 
for fraud and manipulation.

                          EMERGENCY AUTHORITY

    Ms. DeLauro. Let me just follow up. As I understand it, 
CFTC, under the Commodity Exchange Act, has emergency authority 
to restore orderly trading, to set temporary emergency and 
margin levels to fixed market position limits when market 
manipulations affect a commodity, or another major market 
disturbance prevents the market from accurately reflecting the 
forces of supply and demand.
    Since 1976 the authority has been used four times, 1976 for 
potato, 1977 for coffee, 1979 for wheat, and in 1980 for grain. 
Will you consider using the CFTC's authority on an emergency 
authority to set margins and position limits to curb excessive 
speculation in the oil markets?
    Mr. Gensler. I think we are tasked with always using our 
authorities to make sure that these markets are orderly and 
that they work for the benefit of all those people that are 
hedging a risk or who are using the markets to price a 
commodity. The four examples that you mentioned were pretty 
specific, three of them in the potato, cocoa, and wheat markets 
were actual or threatened manipulations, and the fourth was 
actually when this government imposed the grain embargo. That I 
am old enough to remember. So they were very targeted 
situations, but the Commission will always use whatever 
authority is available to us.
    Ms. DeLauro. Well, further--I want to try to get one more 
in, and I have to go back and I don't want to disrupt my 
colleagues.
    Mr. Kingston. The gentlewoman is recognized for 1 more 
minute. Will that handle it?
    Ms. DeLauro. That is fine. But I would hope, given what 
people are saying with regard to the speculation and you have 
the authority to do something about this, the price is $3.88, 
$4 in most places.
    Mr. Farr. $4.60.
    Ms. DeLauro. $4.60, okay. Then I think we need to look at--
you need to examine your need to impose that authority that you 
do have. Don't wait for us, because you won't get it back. You 
know, you have got the authority, you need to act on it.

                               USER FEES

    User fees. The President's budget request for CFTC included 
the collection of user fees to offset the cost of 
appropriation. This brings CFTC into line with all other 
Federal financial regulators--SEC, FDIC, you know the litany. I 
have introduced legislation to authorize the collection of user 
fees to offset the costs of CFTC appropriations in a manner 
similar to the SEC. With any user fees there is always a 
concern that they will discourage trade and harm market 
participations.
    Do you think a small user fee would impose any real burden 
on market participants? Do you support the collection of user 
fees to provide the CFTC with a sustainable long-term funding 
source?
    Mr. Gensler. I support anything this committee and the 
authorizers would like to do to help us get funding.
    Ms. DeLauro. Is that a yes?
    Mr. Gensler. Well, the President actually put it in his 
budget as well. So I support working with this committee and 
other committees of Congress.
    Ms. DeLauro. Is it a burden on the market participants in 
your view?
    Mr. Gensler. We as an agency, $300 million would be $1 for 
every million dollars in the U.S. swap market, so it would be a 
limited----
    Ms. DeLauro. Limited.
    Mr. Gensler. Yeah.
    Ms. DeLauro. Thank you. Thank you, Mr. Chairman.
    Mr. Kingston. Ms. Emerson.

                            POSITION LIMITS

    Mrs. Emerson. Thank you, welcome. Sorry I am late, we are 
all kind of stretched thin these days.
    Just to follow up what Rosa said with regard to 
speculation, I think there is some legislation out there that 
is being sponsored by Bernie Sanders in the Senate and Maurice 
Hinchey and some other Members here in the House that actually 
would more or less force you all to embrace position limits 
with regard to futures markets, et cetera. What do you think 
about that idea?
    Mr. Gensler. Well, I have supported position limits. I 
think they are very helpful for the integrity of the markets. 
We are not a price-setting agency, but I think it ensures that 
no one party has a concentrated position, speculators. The 
markets are give or take in the oil markets, about 15 percent 
producers and merchants, about 80 to 85 percent financial 
actors and other speculators. So really what position limits do 
is--amongst that 85 percent--no one party can have too large a 
position. They meet and they disagree in a marketplace, and 
that is where a price gets set. So I have supported that, very 
much so.
    Mrs. Emerson. Can you do it without--can you set those 
types of position limits without us doing legislation?
    Mr. Gensler. We finalized position limits in October. There 
were two further things that have to happen. One was we have to 
finalize a joint rule with the SEC on further defining the word 
``swap.'' I think most of us know what the word ``swap'' 
means--but--my daughters don't--so we are working actively with 
the SEC to finalize that rule this spring.
    Mrs. Emerson. Okay, I will follow up with Mary Shapiro 
since she comes under my subcommittee. So thank you very much.
    Mr. Gensler. She is terrific and we are working very well 
together, but it is just a lot to do.

                        SWAPS AND SWAPS DEALERS

    Mrs. Emerson. And I wanted to ask you about some hedging 
and swaps issues, so I can't even get into the joint rulemaking 
piece, but we will do some questions for the record.
    Have you all actually, though, defined ``swap dealer'' 
before you have a formal definition of ``swap''?
    Mr. Gensler. Absolutely. There are two rules. We are closer 
to finalizing the swap dealer definition. It is in front of all 
10 commissioners, and actually has been since late December. We 
are prepared to vote on it at the CFTC.
    Mrs. Emerson. But I am just curious how we can define a 
swap dealer before we can define what a swap is. Because 
doesn't it beg the question, couldn't there be other people who 
are swap dealers but you don't pull them in? It wouldn't be 
pulled in until after you have defined ``swap.''
    Mr. Gensler. You are absolutely correct, Congresswoman. We 
put them both out as proposals and actually, before that, 
something called an advance notice of proposed rulemaking and 
we had roundtables together. Neither would be effective until 
the other is finished. So they both need to be finished.
    Mrs. Emerson. I mean because it is kind of strange.
    Mr. Gensler. We are together on this one.

                           HEDGING V. DEALING

    Mrs. Emerson. So I have a big ag district. Ag is the number 
one industry in Missouri. So a lot of our producers and a lot 
of our energy companies actually practice hedging to mitigate 
commercial risk. So do you think you are going to constitute 
hedging as swap dealing?
    Mr. Gensler. No.
    Mrs. Emerson. No, you do not. Okay. Is there any area in 
which you might have hedging be some kind of swap dealing? Not 
at all?
    Mr. Gensler. Swap dealing, Congress said, is commonly known 
as a swap dealer making markets or dealing as a regular 
business. And we have gotten excellent comments from the market 
to try to narrow a little bit more this making markets. And I 
think to me, if I can say it, making a markets means routinely 
holding yourself out to accommodate somebody else who might be 
hedging, but it is not about----
    Mrs. Emerson. I understand the difference.
    Mr. Gensler. I think that by tightening up and clarifying 
this making markets concept in the final rule, by tightening up 
the regular business definition, by speaking--a lot of 
commenters asked us to speak--to the hedging issue--and also by 
raising something called the de minimis level will give, I 
think a lot of comfort to the tens of thousands dependent on 
these markets. After all these markets have to work for the 
farmers and ranchers and producers and commercial companies in 
all your districts. That is what this is about.
    Mrs. Emerson. Yes. Because, for example, one of our larger 
utility companies that serves part of my State and 
congressional district tells me that they will have to spend 
more than--probably 7 to 9 times more on collateral for swaps 
if they weren't exempt in whatever new rule you all come up 
with. And so that is concerning. But even more concerning to me 
is that I assume much of the cost that they bury is going to 
get passed on to the consumers, and that is just one more 
expense that far exceeds what they are able to pay.
    Mr. Gensler. This may be where I have a difference with 
what the folks on Wall Street are saying, but this is a 
business that makes them a lot of money. But if you bring 
transparency to the marketplace, all those farmers and ranchers 
and producers get a benefit. So I think again, the funding of 
this agency and these rules are about shifting some of that 
information advantage from Wall Street to all of the farmers 
and ranchers and commercial interests in your districts. It may 
well be that the pricing is even better. Of course, we have to 
make sure those end users don't get caught up in the swap 
dealer definition, and I am committed to that.

                       COMPLETION OF RULEMAKINGS

    Mrs. Emerson. I look forward to working with you further as 
you guys develop, get these rules finalized.
    Speaking of which, when do you think the 10 rules--or 20, 
is it, that you--10 that you are collectively working on with 
SEC? Are you going to be done by the fall, do you think?
    Mr. Gensler. Oh, absolutely. In terms of the two joint 
rulemakings that are most center of your question. The entity 
definition rule we have had in front of the 10 commissioners 
now for over 2 months, almost 3 months. I think--we are ready 
to vote at the CFTC. And the product definition rule, we sent 
all the language from the CFTC to the SEC. They have a larger 
task, they have more rules and more things to do. So it is just 
capacity issues.
    We are working hopefully to get that in front of our fellow 
commissioners in the next couple of weeks or few weeks, and 
then try to schedule a vote between the two Commissions.
    Mrs. Emerson. Thank you very much. Thanks, Mr. Chairman.

                           HEDGING V. DEALING

    Mr. Kingston. Thank you. Mr. Chairman, I want to continue 
on that, because where I think there is to me a lot of common 
ground, and I have talked to our Senate counterparts about 
this, is in making sure that commercial hedgers do not get 
caught up in the definition of swap dealer or major swap 
dealers. And I know that there are some energy companies that 
do commercial hedging and trading and the de minimis rule comes 
in to try to make the firewall. But would you walk us through 
that so we can send a signal to the markets that we understand 
the distinction?
    Mr. Gensler. Well, I think the distinction is with regard 
to market making. If someone is entering into a hedge for their 
oil or their farm product, that is not making a market, 
particularly if they are going to take delivery of the oil and 
so forth. There are others that actually hold themselves out on 
a routine basis where they are accommodating others who were in 
essence knocking on their door and calling them up and saying, 
can you help me hedge something?
    And I look, sir, to the International Swap and Derivatives 
Association web site. They have over 800 members of that 
association. Then they have another category called primary 
member, self selected. In their bylaws they say they are market 
making and not hedging, that is roughly what they say. If one 
looks at the 200 members there, there are some very large 
integrated oil companies. I doubt the energy company that 
Congresswoman Emerson referred to is in that list, I can't 
imagine.
    Mrs. Emerson. It is a utility.
    Mr. Gensler. It is a utility. I can't imagine. But there 
are some, because they do so much they are basically similar to 
the Wall Street shops, that they are accommodating demand on a 
routine basis, many times a day, accommodating somebody else's 
risk management, and it is a regular business. They actually 
make money by providing liquidity, and this is an important 
test.
    Over at the SEC they have a distinction between traders and 
dealers, and one of their distinctions is are you dealing to 
make money by providing liquidity? It is another sort of aspect 
of this. I think that the end users in your district or in all 
of these, probably, districts, we don't have somebody from New 
York, but they are not in a regular business, making markets on 
a routine basis, with a goal to make money from providing 
liquidity.
    Mr. Kingston. The de minimus threshold that is $100 
million?
    Mr. Gensler. Correct.
    Mr. Kingston. Are you going to change that?
    Mr. Gensler. Up.
    Mr. Kingston. Two billion?
    Mr. Gensler. There are 10 commissioners.
    Mr. Kingston. What would be the range though in your 
meeting with your commissioners? It goes from 100 million. 
Could it go up to 2 billion, 3 billion, or is it 1 billion? 
Where do you think your range is in these discussions? I am 
asking you to speculate.
    Mr. Gensler. Do you have a cop on the beat watching me? I 
think the press reports have suggested we might be considering 
something in the 2 to 3 billion range, and I think the press 
reports are good reports.
    Mr. Kingston. Will it only apply to trading activities? Do 
you feel good about that and not commercial hedging activities? 
We are beating this around, but I think that is where our 
biggest concern is.
    Mr. Gensler. Chairman, I think it will, because even the de 
minimis only applies to those dealing activities. So if over on 
the side, somebody is entering into a trade and its purpose is 
not dealing, it is not a dealing trade, it is really just to do 
what Congress wanted us to do.
    Mr. Kingston. So major swap participants and swap dealers 
would be in a different category from commercial hedging?
    Mr. Gensler. I think as a result of what we end up doing, 
yes. I think they already are by Congress.
    Mr. Kingston. Okay. Let me yield to Mr. Farr here. I have 
20 seconds. Mrs. Emerson I wanted to kind of continue on that. 
Do you have any other questions on that?
    Mrs. Emerson. No. I had another question on MF Global but 
Marcy handled most of that.
    Mr. Kingston. Mr. Farr.
    Mr. Farr. Do you need to finish?
    Mr. Kingston. I think we are okay on that.

                           PRIORITY SPENDING

    Mr. Farr. I want to first comment on my colleague from 
Georgia, yeah. What you tell your children, I don't think you 
teach them borrowing is bad as long as you have a plan to pay 
it back. And I think that we borrow all the time for mortgages 
and for buying a car and for putting our kids through college. 
It doesn't freak us out because we have a plan that we work out 
in that borrowing.
    And what freaks us out at the Federal level is we borrow 
without a plan for paying it back by lowering taxes and not 
having the revenue to come in to be able to pay the bills, and 
that is what I think the big debate here in Congress is all 
about.
    Regardless of our internal debate about the deficit of the 
United States, we have got to have the first responders. Nobody 
argues about the need to have a fire department or police 
department in local government. It is a question of size and 
priority. And it seems to me you are the first responder for a 
new law that came out because of an incredible financial crisis 
where we didn't have the cops on the beat to do anything about 
it. That was the complaint: Why didn't you stop this? Because 
there was no law, there was nothing, they didn't do anything 
illegal. And now that we have created the law, we have got to 
have those cops. And if we are looking for things to cut, I 
would point it out, if you go to Google and look at the cost of 
an F-22, it is $200 million a plane, half of what you need to 
do your job. So I could tell my children that we can get by 
with one less F-22 if we can adequately regulate our markets.
    I also want to follow up with several questions that Rosa 
asked on Bernie Sanders' question. There was an article here by 
Amy Harder on the Bernie Sanders bill in the Senate and some 
dialog he had with you. His bill imposes a 14-day deadline for 
the Commission to implement rules to stop speculation on oil 
and gas prices, and pointing out the supply now is greater than 
it was 3 years ago, and the demand for oil in the U.S., 
according to NPR radio this morning, is the lowest it has been 
since April 1997--speaking of cops on the beat. Excuse me.
    And we had legislation that passed this House back in 2008 
where we had 170 Republicans vote for that bill. And I am not 
sure that we got a good response on, you have the authority to 
implement the rules to stop this gas speculation but haven't 
used them for what reason?

                            OIL SPECULATION

    Mr. Gensler. Well, hedgers and speculators meet in the 
marketplace. They have since the 1930s when we were created and 
they will continue after this because hedgers need speculators, 
they need someone else in the marketplace to take a risk. A 
wheat farmer needs somebody on the other side to lock in that 
price at harvest time.
    What we have is the authority to limit the size of any one 
speculator so there is a diversity of views and no 
concentration in that marketplace. We finalized those views 
this past October. We do because Congress specifically told us 
we shall. It was not a discretionary rulemaking, but a 
mandatory rulemaking with the SEC to finalize, further define 
the word ``swap.'' That was critical because some transactions 
in the agriculture market, some transactions in the oil market 
are what is known as ``forwards'' and they are not swaps. We 
want to make sure we get that boundary correct because we 
didn't want to limit forwards. I think Congress was right to 
say we have to further define these terms.

                           FORWARD CONTRACTS

    Mrs. Emerson [presiding]. Will you yield just a second? 
Will you describe what a ``forward'' is specifically?
    Mr. Gensler. I am sorry. Now, Madam Chair. A forward is 
when somebody buys wheat or oil for forward delivery and they 
have an intention to actually take the delivery of that 
product. That is called a forward, and it is not regulated in 
this law, and hasn't been regulated under the CEN since the 
1930s. A swap is something that is financially settled and you 
are really talking about differences of money.
    Mrs. Emerson. If you don't mind just for a second, because 
a lot of our producers will forward contract, whether it is 
hogs or whether it is for their corn. And sometimes you win and 
sometimes you lose, because if in fact corn prices are lower at 
the time of delivery, you still get the higher price if you 
forward-contracted it. But on the other hand, sometimes you 
forward-contract and the price is way up, and you still get 
paid the lower price. So I understand, I just wanted you to 
explain it.

                            POSITION LIMITS

    Mr. Farr. What I wanted to know was the answer to the 
question. The question was: You have the authority, why haven't 
you used it? Because the Bernie Sanders bill would require you 
to do that in 14 days.
    Mr. Gensler. Well with all respect, I think that we have 
used the authority that Congress has granted us to set position 
limits. We put a lot of effort into it, we put it out to public 
comment twice. We got I think 17,000 comments the second time, 
and 8,000 the first time.
    I am very proud of the hardworking dedicated staff of the 
CFTC. So I think we have done that. But yes, we need to do 
something else. Very specifically, Congress said that we could 
only set limits on the futures market when we set limits on the 
swaps market. We have to do these aggregate and we are supposed 
to do them at the same time.
    Mr. Farr. If the rules were in place today would the oil 
prices be what they are?
    Mr. Gensler. I think if the rules were in place, we would 
have greater integrity in the markets. We are not a price-
setting agency. I think we have done a lot of very good things 
to make sure that the markets are more transparent.
    Mr. Farr. And if there was more integrity it would affect 
the price?
    Mr. Gensler. I think that what you have in these 
marketplaces with more integrity is you have more confidence in 
that price-setting mechanism. Again, we are not the price-
setters. There may be some that wish we could bring down the 
price of gas and maybe raise the price of, sometimes, wheat. 
That is not our mission. That is not what Congress has asked us 
to do. It is to make sure the markets are free of manipulation, 
that no one has sort of an outsized concentrated position, and 
that they are transparent and that the markets work in an 
orderly way.
    Mr. Farr. I think we are all up for election and this is 
going to be a major election issue. And the question will be: 
Can we trust our regulatory powers to do the things they are 
doing? And it is going to come back to you. I think the point 
is, yes, transparency is always the best thing to do, because 
then if you suspect that there is wrongdoing, at least the 
evidence, the facts are there. But I think we are going to have 
to have a stronger response to this also, that if indeed you 
believe transparency is effective, it has some effect on market 
price----
    Mr. Gensler. I do, sir. I think the transparency, I think 
having it well-funded--I am coming back to this again, sir, but 
a well-funded agency, to be a cop on the beat, and to make sure 
we have effective limits on any individual speculator is the 
right regime and it is putting that whole package together. 
Would I have liked to finish all these rules earlier? Congress 
only gave us a year to finish this, and here we are in the 
second year. These are very complex matters, we have gotten 
nearly 30,000 comments, and we have taken about 1,400 public 
meetings, and done a bunch of roundtables. That is to get the 
rules right, balanced, and also have them be sustained in the 
courts. The position limit rule is now subject to a court 
challenge from industry associations. So it is a bit of a 
balancing act as well as we move forward.
    Mrs. Emerson. Ms. Kaptur.

                                RECUSAL

    Ms. Kaptur. Thank you, Madam Chair, very much. I hope this 
is not our only hearing with the CFTC. I know Chairman Kingston 
is not here right now, but I have to say I am a little bit 
concerned that several of the questions that I asked could not 
be answered by Mr. Gensler because he had worked for Goldman 
Sachs and had worked with Mr. Corzine.
    And I want these questions answered. And we need to bring 
the proper people over from CFTC in order to do that. I wish to 
place that on the record. I wish also to--yes, ma'am--I also 
wish to place on the record several papers, including inserts, 
along with Mr. Gensler's resume.
    And I just have to say that with the largest bankruptcy in 
American history under way, the fact that your testimony 
doesn't mention it is astounding to me. And how CFTC failed to 
regulate and protect commodities traders and the public 
interest is not even addressed in the testimony is shocking. 
And this is a very important hearing.
    And what happened at CFTC? Who had enforcement authority 
and didn't use it? What went wrong? We really need to know.
    And Madam Chair, you understand these markets, all the 
people that lost money and are losing money, I think we have a 
tremendous public responsibility here. And if Chairman Gensler 
can't answer the questions, we ought to get somebody from over 
there who can, because he essentially recused himself this 
morning and he can't answer the questions. And I would like to 
have answers to my questions.
    So I would just plead for consideration on the part of the 
chair, and perhaps we could have follow-up hearings on this 
extraordinarily important Commission, what it didn't do, what 
it needs to do, and how we find the money to properly regulate.
    My final question to Mr. Gensler would be from what you 
know of these multitrillion-dollar global markets, where would 
you place a fee in order to bring in revenue to the Treasury to 
pay for the kind of regulation that is necessary in this 
industry?

                               USER FEES

    Mr. Gensler. I would look forward to working with this 
committee and others, but I think it would be on both the 
swaps--this $300 trillion swaps market, not just on the traded 
futures market. I think you would have to make it so it is 
spread across the whole markets in some--so it is the smallest 
per transaction or something, if that is what this committee 
and Congress wanted to do.
    Ms. Kaptur. Thank you, Madam Chair.
    Mrs. Emerson. Thank you. Mr. Graves.

                             NATIONAL DEBT

    Mr. Graves. Thank you, Madam Chair. I asked a question to 
Mr. Farr's comments about having a plan to pay back the debt. I 
think he is absolutely right, and he has had plenty of 
opportunities to show that. So I imagine he would be like many 
of us and say, you know what, there is no plan right now, and 
so we can't accept this large increase or ask. In fact, we 
should be supporting plans that direct us towards a balanced 
budget, unlike the President who has no plan to do that. In 
fact, with all the tax increases, it never balances in the 
future.
    Mr. Farr. Would the gentleman yield?
    Mr. Graves. No, sir, in just a second. We had a plan last 
year--cut, cap, and balance--which the Republicans put forward. 
That was a bold proposal to bring government back within its 
parameters it should be in, but I don't think Mr. Farr 
supported that either.
    So there have been some good proposals and plans to pay 
down this debt, but unfortunately we are in our fourth year of 
trillion-dollar deficits. There has been no plan to lead us out 
of that, and this only adds to that. And so I will yield to the 
gentleman for a second and then I do have a question.
    Mr. Farr. Every year, regardless of party, the President 
has to submit to Congress a plan to balance the budget, and he 
has done that in his proposed budget to us, so there is a plan.

                            OIL SPECULATION

    Mr. Graves. He is required by law to propose a budget. His 
does not balance in perpetuity, and I will remind the gentleman 
that the Senate voted 97 to zero against his proposal.
    Mr. Chairman, I guess a couple of members of this committee 
submitted a letter along with I guess 68 other Members, asking 
about speculation, and was that responsible for high gas 
prices, and asking you to impose strict position limits as a 
solution. They cited a lot of things, including--I am going to 
read--it was Exxon Mobil saying that speculation had driven up 
the cost of a barrel of oil as much as 40 percent. Another 
independent study said Americans would be paying $600 in 
expenditures, the average family, an additional $600 a year 
when it relates to gasoline. And I think you even commented 
huge inflows of speculative money create a self-fulfilling 
prophecy.
    Have you responded to their letter that was from, I guess, 
a few weeks ago; and what would your response be to the 
speculative market?
    Mr. Gensler. Still drafting a specific response. But let me 
say these markets are made up of hedgers, producers and 
merchants meeting financial actors and speculators, and the 
statistics in the oil market and natural gas markets are about, 
give or take, 15 percent producer merchants and 85 percent of 
the others. And the corn and wheat markets are about 30 
percent, 70 percent.
    I think our agency is helping ensure that those producers 
and merchants, whatever portion they are of the market, get the 
benefit of a market that is free of manipulation, it is 
transparent; and, yes, that we finish up the job and have some 
limits on any one individual speculator just so there is 
diversity out there in that marketplace.
    We do not set the pricing of this commodity nor interest 
rates for other commodities. And I think it is critical that we 
get the job done also so that the end users have confidence in 
the marketplace; that they feel that when they enter that 
marketplace, they are entering into a marketplace that is fair 
and orderly.
    Mr. Graves. So is it your position that speculation has 
driven up the cost of oil, or is it the fact that we don't have 
an energy plan, or there is a political environment across the 
world? Is it speculation solely, or is it other? Or is it not 
speculation at all?
    Mr. Gensler. I think it is a fact of our markets, whether 
it is the interest rate, oil, or the price of any commodity, 
that when speculators are part of a market--and that is not a 
bad word, by the way, it is just that they are part of a 
market--they affect the price.
    I couldn't tell you on any given day whether they raise the 
interest rates or lower the interest rates because there is so 
much happening in a marketplace. Our critical job is to make 
sure that they don't have an outside influence, any one of 
them, they are not manipulating that market, and it is 
transparent. I know that is sometimes disappointing to some 
that may want us to influence a price, but that is not what our 
job is.
    Mr. Graves. So regardless of oil, corn, soybeans, if the 
market sees that at some point in the future supply is not 
going to meet demand, it is likely to up go today? And it is 
not a manipulation of the marketplace, it is just a forecasting 
of what they think supply and demand are going to be?
    Mr. Gensler. Speculators can speculate on anything. It can 
be even sunspots, right?
    Mr. Graves. It is hard to regulate that, right?
    Mr. Gensler. And we are not trying to, sir. We are trying 
to have enough funding so that we can make sure that we root 
out manipulation in the markets, that no one has an outside 
concentrated position, and we have accomplished a lot. This 
year, starting in October of this year, all the transactions in 
the swaps market will have to be publicly reported. People will 
see the pricing and the volume.
    Mr. Kingston [presiding]. The gentleman's time has expired.
    We have about 3 minutes to vote. It is Mr. Farr's turn when 
we get back. So the committee will suspend until votes are over 
which should be in about 20 minutes.
    [Recess.]

                            OTC MARKET SIZE

    Mr. Kingston. We will go ahead and resume. I certainly 
appreciate your patience.
    I want to ask about the notional value versus market value 
versus gross market value, and reference the Bank of 
International Settlement statistics that say that the notional 
value of swaps is $600 trillion, but they also state that the 
gross market value of the swaps is $20 trillion. A big 
difference. And I need you to walk me through the difference 
and why you use those--you know, the higher number in terms of 
what you are up against, because the notional value is more of 
a paper entry than a real value.
    Mr. Gensler. You are absolutely right. Just doing apples to 
apples, the futures marketplace, using the gross notional range 
is between 35 and 40 trillion, depending upon which month you 
are in. But it is in that range. So the Bank of International 
Settlement's actually newest figures are $708 trillion 
worldwide.
    Mr. Kingston. For notional?
    Mr. Gensler. For notional, that is correct. But the U.S. 
portion of that is thought to be about half of that. That is 
why I just used the $300 trillion, which is a little less than 
half of that 708. You are absolutely right, if you net it down 
to a market value--and there are a lot of contracts that go 
back and forth and there is netting between those--there is a 
lower figure. I think you referenced $20 trillion in the swaps 
area. But also then in the futures area, you can net that down 
as well. I don't have that statistic. We would have to come 
back and help you on that. You could also net down. So it is 
just to be comparable, and apples to apples.
    Mr. Kingston. Well, the reason why it is important is 
because in terms of the real workload versus how it might look 
from a notional standpoint, one of the things last year, I am 
vaguely remembering your staff, you testified that your staff 
was adequate to implement--excuse me, to pass the new rules in 
front of you, but implementation would be difficult with that 
current staff level, and I am thinking it was 37 FTEs. I am not 
100 percent sure. But that as we look at what you do need for 
implementation, using the notional value, there has been 
criticism. And there also has been support of your position, 
too. But I am trying to figure out, okay, what really is real 
and what really is transactional.
    Mr. Gensler. I think that is a very good question.
    I think what is very real is--if I can focus on two areas--
we currently oversee 32 trading venues and clearinghouses, 16 
of each, from the Chicago Mercantile Exchange, the Kansas City 
Board of Trade and elsewhere, 16 of each. We estimate that that 
32 will grow to approximately 100. Why is that? We think that 
there will be some more clearinghouses, a handful, four or five 
more, and some more specific designated contract markets. But, 
in addition, there are three new categories--swap execution 
facilities. We estimate 20 to 30 of these. There have already 
been 16 or 17 that have contacted us. For an estimate of swap 
data repositories there are already four that have sought to 
register, and two more are actually in the works, so that would 
be six more. Then there is this other category called foreign 
boards of trade where we estimate there will be 28, if I recall 
the number.
    Now we might be off a bit, sir, but this 32 of trading 
venues and clearinghouses, we think will triple. But if we are 
off, maybe it is double to triple.
    And then the other category that we talked about earlier--
the Futures Commission Merchants--that are overseen by the 
self-regulatory organizations, we currently have 123 Futures 
Commission Merchants. We think that we will have swap dealers 
in a similar order of magnitude, somewhere between 100 and 150. 
I think we have at least a doubling of these major financial 
institutions, and maybe a doubling to a tripling of the trading 
platforms and clearinghouses. That is the challenge for us.
    Mr. Kingston. Of those SEFs and SDRs, how many of those are 
sort of up-and-running entities, to the degree that you are 
familiar with the players and it is not completely a new 
invention?
    Mr. Gensler. Well, in terms of swap data repositories, they 
are all new within the last 6 or 12 months. The DTCC though 
has, of course, been around doing other things. And on the swap 
execution facilities, three to five of them we already regulate 
for something else, like CME or Intercontinental Exchange--
ICE--but there are many that we have currently no regulatory 
relationship with. The swap execution facilities, whether it is 
Bloomberg or Tradeweb or Icap, or many others, those are really 
going to be new to us.
    Mr. Kingston. Because CME or ICE or the DTCC, they have a 
track record of some nature, and that would be the model, 
correct? Or is this such a new animal that we are in 
unchartered waters?
    Mr. Gensler. I think it is somewhere in the middle. I mean, 
they are trading venues so there is some familiarity. But it 
really is--did you say animal?
    Mr. Kingston. Yes.
    Mr. Gensler. All right, so new animal. So we have to 
finalize the rules. And to register them, I frankly don't know 
how we are going to do this because every registration has to 
come to the Commission for these trading platforms. We have to 
do it in a 180-day period. So I think starting later this year, 
we will have a flood of these registrations in front of us to 
consider.
    Mr. Kingston. Mr. Farr.

                 IMPLEMENTATION OF ENERGY MARKET RULES

    Mr. Farr. Thank you, Mr. Chairman.
    In light of the discussion we had earlier regarding the 
energy markets, I wondered if you could tell us what actions 
you have taken related to implementation of regulations 
regarding energy markets?
    Mr. Gensler. I thank you for that question.
    I am going to put it in three categories. One is expanding 
the scope of oversight. Two is strengthening the integrity of 
the market. And three is transparency, which of course will 
relate to the other two.
    But in terms of expanding the scope, we really worked--and 
Congress, you all were as much a part of this, if not more than 
we were--to close loopholes. There was something called the 
London loophole. That was our oversight of markets that were 
outside of this country but trading with the U.S. customer. The 
largest trading platform in oil is both in New York, NYMEX; but 
also in London, something called ICE Futures London. We have 
closed the London loophole. They have to register as foreign 
boards of trade and be under our jurisdiction.
    There is something called the Enron loophole, you might 
recall debate about this. Well, the farm bill helped close that 
in 2008, but the Dodd-Frank helped completely close that.
    Closing the broader loophole--what I will call the swaps 
loophole--was bringing oversight to the swaps market--whether 
it is 300 trillion notional or 20 trillion of risk. We are not 
yet all of the way to closing. We have completed 29 rules but 
we have about 20 to go.
    In terms of market integrity, it was very critical to 
broaden our anti-manipulation authority. We really had a hard 
standard to meet. Congress helped us broaden our anti-
manipulation authority and close a gap. We finalized those 
rules last year, and we can now go after reckless behavior, 
fraud-based manipulation, in the energy swaps market as well as 
in the futures market.
    Also to enhance market integrity's position limits, we 
completed them in October; but as we have discussed, we need to 
complete some other rules to get them in effect. And that is 
really critical to the integrity of the market.
    And then if I can close on transparency, we have already 
completed rules that in the energy swaps market we are going to 
have starting this fall, in October, all of the transactions 
will be reported publicly. There will be some time delay to 
protect the anonymity of the transactions, but they will be all 
reported, the price and volume in these markets. There is still 
more to do, and there are some other features to what we have 
done. Nevertheless, that gives you a sense of some of the 
things that we have completed.

                                FUNDING

    Mr. Farr. And if you didn't get the funding that was asked 
for in the President's budget--you talked about you need to 
complete some rules on this market integrity--what impact would 
it have?
    Mr. Gensler. Well, I think it has a number of effects. One 
is we don't have as many people to do surveillance, and even 
the technology to support surveillance. The Chairman has worked 
so hard to get us technology money. So we have to take this 
wealth of data in and actually look at it and review it, and we 
want to use technology to do that best. So we wouldn't be able 
to actually oversee the markets.
    And if I can stretch the football analogy once more--and we 
can go to basketball where there are three referees--but if we 
only have one referee a game, rather than three in basketball 
or seven in football, there are going to be more injuries on 
the field. And I would say there probably would be mayhem on 
the field, and we don't want injuries and mayhem in the energy 
futures and swaps marketplace. We want everybody that wants to 
hedge risk--legitimate hedgers, commercial end user--to have 
confidence in the marketplace, and that the price in that 
marketplace is set in a fair and orderly way.
    Mr. Farr. What would it take? Do we need to statutorily 
create these fees? Or do you have the authority in the law to 
create the fees that were discussed earlier?
    Mr. Gensler. That would be a matter of Congress to take up 
and consider.
    Mr. Farr. Because it seems to me that you have laid out the 
case of the necessity for this funding level. We don't have the 
luxury, at least I don't have the luxury, and neither does the 
chairman because he gets given a number, which is probably 
going to be lower than the President's ask, I think it is going 
to be like last year all over again, and then we make the best 
of it. And the Senate, has the Senate finished this segment of 
their budget yet?
    Mr. Kingston. I think they had a hearing yesterday, right?
    Mr. Gensler. Yes. I was honored to testify yesterday, but I 
was the first in that subcommittee to testify.
    Mr. Farr. So we will have to reconcile the two, the 
differences between the House and Senate versions, and 
hopefully they come as close as possible to the President's 
request. But if they don't, we ought to know. As I said, it is 
election year for us. This year, I think there is going to be 
more, particularly with the oil crisis, there is going to be 
more focus and debate as to what your role is. And obviously, 
if we haven't given you enough resources to do it, we have to 
hold ourselves accountable for that, too.
    Mr. Gensler. And I know that this is a bold request. But I 
think, if I might say, it is not as bold as thinking about the 
millions of Americans that are still out of work, because the 
swaps marketplace had an effect on the calamitous situation in 
2008, where American taxpayers had to foot the bill on so much 
they really shouldn't have had to foot the bill on, and that is 
Wall Street.
    Mr. Farr. So if we spend this money, this big amount you 
are asking for, we are going to put all of those people back to 
work?

                         VALUE OF TRANSPARENCY

    Mr. Gensler. Well, I can't say that. But I do think that 
these markets will work more for the American public and the 
farmers and ranchers and merchants and commercial end users in 
your districts; better for them because they will actually get 
a better look and see transparent markets.
    Market transparency shifts some information advantage from 
Wall Street to those commercial end users. When they can lock 
in a price, when they can manage their risk, then they are far 
better able to focus on job creation and the economy.
    Mr. Farr. Well, it is very interesting. What we always 
argue is that in order to have a competitive marketplace, you 
have to have a level playing field. A level playing field means 
that everybody has access to the same information, rules and 
regulations, and then makes the best of it.
    It seems to me you are making that same argument. Once we 
have the transparency, the rules and regulations, and a level 
playing field, if history is any indicator, it ought to be 
better for the areas that you are regulating. I mean, there 
ought to be more certainty, if that is a word to use in swaps 
and speculative market, but it seems to me that we have 
professionalized, in a business sense, that business. Before, 
to now, it has been unregulated.
    Mr. Gensler. That is correct. It has been unregulated. 
Looking back now, knowing what we know, I think we ought to 
have brought this oversight earlier. But the challenge in this 
great challenge is to find $100 million more when you are 
trying to cut, trim, and control the budget everywhere you can. 
And I deeply respect that I am asking for something that is 
very difficult.
    Mr. Farr. A smaller F-22. If we just build half the plane, 
a smaller plane, like smaller cars, we can save $100 million, 
and that is your cost.
    Mr. Gensler. Yes, I am not about to suggest where to find 
it.

                            OIL SPECULATION

    Mr. Kingston. Mr. Chairman, I do want to continue on that 
line because I know on March 5, a number of Members of Congress 
sent a letter to you about oil speculators. They referenced a 
June 2011 hearing with Rex Tillerson, the CEO of Exxon, who 
said that 40 percent of the price of oil is because of 
speculation. They also referenced that the St. Louis Federal 
Reserve recommended that the CFTC do more to stop speculators 
from driving up the price of oil, and said it contributed to 
about 15 percent of the price. Now there is concern about if 
you have higher position limits by energy companies, it is just 
going to be passed on to consumers. You have those statements, 
and then you have the concern that higher position limits will 
just be passed on to consumers.
    And then also the CFTC chaired the Interagency Task Force 
on Commodity Markets in July of 2008 and said that the analysis 
to date does not support the position that speculative activity 
has driven up changes in the oil prices. And then the 
International Energy Agency released a report in 2008 saying 
that there is little evidence that large investment flows into 
the futures markets are causing an imbalance in supply and 
demand, therefore contributing to higher oil prices.
    Then President Obama reinstituted the Oil and Gas Price 
Fraud Working Group, in which CFTC is a member, in 2010, and 
that did not produce any positive statement on it that there 
was a problem.
    And then you had the CFTC commissioner who retired in 2011, 
Michael Dunn, who says that the CFTC staff has been unable to 
find any reliable economic analysis to support the contention 
that excessive speculation is affecting the markets we 
regulate.
    Now, here is where I am heading to ask the question in a 
balanced way. You have people with authority, serious people on 
both sides, coming up with two different conclusions. So I 
wanted to invite you to respond to that, because I think 
Members of Congress are jumping on everything from tapping into 
the Strategic Petroleum Reserve to drilling in Alaska to saying 
we need to double-down on wind power, whatever. So speculators 
are just one more discussion item. So the floor is yours.

                          ROLE OF SPECULATION

    Mr. Gensler. Mr. Chairman, I think you have framed it as 
best as I have heard it. And I really mean that.
    These markets, the energy futures markets, have producers 
and merchants meeting financial actors and speculators in the 
market, and that has been true for decades. And it is true in 
the corn and wheat markets and interest rate markets. In the 
energy markets, it is about 15 percent, give or take, versus 85 
percent, give or take. We publish these figures every Friday. 
They are on our Web site.
    We are not a price-setting agency, but I do think it is 
inarguable that speculators have a role in the setting of 
prices of energy, of natural gas, of corn, wheat. When they are 
70 to 85 percent of the markets, it is a little hard to argue 
that they don't have a role in that.
    The studies, as you say, are somewhat split. When we went 
forward on position limits, commenters sent in about 50 
different studies. And along with the St. Louis Fed and others 
that you mentioned, about half were on one side, that they said 
speculators either raised the price or raised volatility or 
something; and about, give or take, half were on the other 
side, as you mentioned. I could give you a list of all of the 
studies on one side and the other.
    We went forward on position limits, and I believe that they 
help the integrity of the marketplace, assuring that no one 
speculator has a concentrated position. In essence, it is 
spread out amongst these speculators, so that no one person can 
kind of press their point of view one way or the other more 
than another. Again, we are not a price-setting agency, even 
though some would wish us to be.
    Coupled with my answer to Congressman Farr that we bring 
transparency to the markets, we now have stronger anti-
manipulation authority in the markets, I think that is what we 
can best assure the American public. Of course we need to be 
well funded as well.
    Mr. Kingston. Not to try to lead you, but if Iran jacks 
around on the Strait of Hormuz, it would appear to me that that 
is what we are seeing at the gas pump right now more than 
speculators. Would you say yea or nay?
    Mr. Gensler. I would say at any given time, both hedgers 
and speculators look to news like that. So in the energy 
markets, whether it is the actual supply and demand sitting in 
Oklahoma, or news about the possibility of a default in Greece, 
or economic news coming out on any given Friday from the 
Department of Commerce, or yes, issues of Iran, all of these 
are taken into a marketplace. Our role is to make sure that 
everybody can compete in that marketplace and have the 
protection against manipulation and so forth.
    Mr. Kingston. Let me invite Mr. Farr to jump in, if you 
want. Let me understand this. China gets oil from the Sudan, 
and there are some issues, some glitch that they have stopped 
that pipeline, so then China has to go elsewhere to get oil. 
And so there is a market disruption. Speculators go out and bet 
one way or the other, and then does that become a frenzy in 
itself? You have real events, and then you have speculators who 
speculate on the speculation or the rumor of the rumor, does 
that drive up the price? Or does that stabilize the price?
    Somebody told me, and I have not found the source on this, 
but that the high-frequency trading--a different issue--but 
that that was one of the suggested reforms in terms of market 
stabilization when it was first allowed or started.
    So sometimes speculation, you know, you have people who bet 
on horses all different ways. It might not necessarily make the 
horse run faster, it just means that somebody on the sideline 
is cashing in. So that is my question. I am not saying it is a 
direct question. It is open-ended.
    Mr. Gensler. I don't spend much time at the track.
    Mr. Kingston. Yeah, you are too busy with NFL analogies.
    Mr. Gensler. I know, but I am going to try because Pimlico 
race track is in Baltimore.
    Mr. Farr. The race track analogy would be a disadvantage if 
the horse then gets drugged. You would be the cop to make sure 
that didn't happen.
    Mr. Gensler. Yes.
    Mr. Farr. You don't know who is going to win the race or 
how much they are going to bet, but at least the game is played 
fairly.
    Mr. Gensler. Yes. I think to both of your questions it is 
critical--because you are absolutely right--sir, hedgers and 
speculators are both looking at economic news. They are looking 
at their supply-and-demand factors, and speculators are 
speculating on speculators; that is correct. That is why it is 
so critical for the 15 percent of the market that is producers 
and merchants, and more importantly, that the 300 million 
Americans that are relying on these markets and are buying gas 
at the pump and buying their food--because corn and wheat 
markets are as critical--that they know that there is a 
marketplace that is really free of fraud and manipulation. It 
is orderly. There is, yes, an effective cop on the beat. I 
think that builds confidence in the marketplace.
    If people don't have confidence, whether they don't have 
confidence in the NFL, or don't have confidence that the horse 
wasn't drugged at the track, they are less likely to feel that 
they even want to participate in the marketplace. We have to 
ensure that the utility companies and the energy companies have 
confidence in these markets as well.
    Mr. Kingston. Sam, I know I am out of time.

                           ROLE OF REGULATION

    Mr. Farr. I just want to say it is interesting, this whole 
issue. The argument of a lot of my friends is let the industry 
regulate themselves. And I have a copy of a note here that was 
given to me that the argument should be made that the 
government role is unnecessary, burdensome, and the financial 
crisis of 2008 highlighted how this argument just doesn't hold 
water.
    But there was a study done by KPMG, a major consulting 
firm, about corporate integrity, published around the time of 
the collapse. A survey was taken across the board of a segment 
of industries, and its findings reinforced the role of 
government as watchdog. The study found that 74 percent of the 
employees had personally witnessed or had firsthand knowledge 
of wrongdoing during the previous 12 months, and nearly half of 
all employees said that misconduct was serious and would cause 
significant loss of public trust if discovered. This number was 
highest in the banking and financial sector, with 60 percent 
reporting serious wrongdoing.
    So it seems to me that people know that there is wrongdoing 
out there, and our job here in Congress was to figure out how 
to stop that, to regulate it. And now the question is how do 
we--what is the critical mass of rules and regulations and 
employees that you need to do that? And that is what your 
question is.
    But it is very interesting because this committee is the Ag 
Committee, and we don't think that these are the kinds of 
issues that we would be talking about. And I don't think many 
of us, I am certainly not very knowledgeable about this 
industry, if I can call it that, but in my district we had a 
breakout of E. coli, and what happened is the government asked 
everybody who grew spinach, everybody who had spinach on the 
shelves, everything, to pull it out. And industry volunteered 
to do it. What happened is we couldn't get spinach eaten again. 
It took over a year to get recovery. And I don't even think we 
are back to where we were prior to the E. coli breakout.
    What was interesting is that the industry--and at this time 
the government wasn't even figuring out what to do--but 
industry came in and said, please regulate us. They were way 
ahead in California. So I think there are times when industry 
sees the problem and jumps forward and says, my God, we need to 
be regulated, and others, who have been playing the game 
without the rules, who don't want to be regulated. And this is 
where Congress gets caught in this battle right now, between 
people saying oh, no, let them regulate themselves.
    This committee, at least, head of the Food and Drug 
Administration, would never suggest that we just ought to let 
the pharmaceutical companies regulate themselves. We would 
never suggest that we not ought to have meat inspection and 
poultry inspection and so on. It is a much more esoteric issue. 
But, indeed, I am a believer that when government is really 
good and professional and does things well, that you have a 
much fairer system for people. And the markets ought to 
survive.
    Frankly, and I guess this is your question, don't you think 
that there will be more confidence in the market through 
government's, what you are doing in carrying out the law and 
creating a regulatory format, than allowing it to continue 
unregulated?
    Mr. Gensler. I do. I think one of the great innovations in 
this Nation is that we have regulated markets. It was the 1930s 
when President Roosevelt came to Congress and asked for 
regulators to oversee both the commodities and securities 
markets, and I think that is part of our great economic success 
these last 70 or 80 years.
    Innovation in markets will be promoted if there are 
transparent markets, if people feel they are getting fair and 
orderly markets. All of the commercial end users and their 
customers behind them in the agriculture markets and the energy 
markets and the interest rate markets will benefit from this 
transparency, I believe.
    I think that is what the core of this part of Dodd-Frank 
was about. It is why we will keep debating probably for several 
years the funding levels. But I think it is why this agency 
will need, whether it is 50 percent more to deal with twice to 
three times the number of registrants, is why we are here. It 
is to make sure that people have confidence in these markets 
and can use them.

                       INTERNATIONAL JURISDICTION

    Mr. Kingston. I think one of the concerns that we have, 
kind of getting back to Mr. Graves' questions earlier in terms 
of the budget, it is my understanding that a U.S. clearinghouse 
has never failed. And I may be wrong about that, but I 
understand that. And I know that the SROs are doing a lot of 
this work, and that the National Futures Associations registers 
new entities. And so I think to the degree you have confidence 
in that system and there is some oversight, then we might not 
need a duplication of efforts, and I think that is part, but I 
actually had a different question.
    As part of Dodd-Frank, CFTC is required to regulate any 
overseas activities of U.S. companies, and it states that there 
must be a direct and significant connection with activities 
that affect U.S. commerce. But we don't know what the 
definition of that is. What is the litmus test as to what 
affects U.S. commerce? Many, many companies now are 
international, and if you are going to regulate their overseas 
offices, it would be useful to know at what point that they 
have a direct or significant connection with commerce in the 
U.S., because I would think that would be a pretty high 
threshold.
    Mr. Gensler. Congress provided the CFTC with that provision 
which is now called 2(i) of our statute, and we anticipate 
seeking public comment on the application of that section. What 
does it mean to have, as you said, direct and significant 
effect on the commerce or activity of the United States?
    Beyond that we also hope to seek public comment on is where 
should we recognize foreign regulatory regimes? Particularly 
for a swap dealer that might be active in the U.S. and have 
enough activity, well above a de minimis level, but have enough 
activity here in the U.S., where and when might we rely on some 
foreign regulatory regime and what might be called substituted 
compliance? We have a lot on our agenda. We haven't gotten this 
out to public comment yet, but we plan to do so in the spring.
    Mr. Kingston. And I don't know if this is a fair example, 
but it was actually AIG London products that caused AIG's 
problems. And so I would assume in the future, a situation like 
this, you would know that they could have significant impact on 
the U.S. market. But had AIG or some other future company have 
a lesser office, I think that what we really need is some 
threshold so that people know, okay, here is where you cross 
the line and become significant.
    The other part we hear a lot from the markets about is 
okay, there may be oversight from the Fed, the CFTC, the OCC, 
and then an appropriate foreign regulator. And one of the 
things that Ms. DeLauro always talks about in food safety is 
equivalency. If you have a foreign regulatory agency, making 
sure that their food safety standards are up to U.S. standards, 
it would appear to me that in cases like that, you may not need 
what could potentially be overlap.
    Mr. Gensler. Right. You are absolutely right that AIG, 
headquartered in both Connecticut and London, that cost the 
U.S. taxpayers most of $180 billion, $600 for each American--
Mr. Graves, if he is married, that would be $3,000 for a family 
of five. AIG was run out of London.
    We have to make sure we cover those things that will have a 
direct and significant effect on U.S. activities and commerce. 
But I do believe that, just as you mentioned about equivalence, 
we are going to seek some public comment on where could we have 
an equivalence or substituted compliance around these 
transparency initiatives, around these various responsibilities 
of the dealers.
    Mr. Kingston. But right now, there is no definition as to 
when it becomes significant or has a direct effect?
    Mr. Gensler. That is what we are going to put out to public 
comment.

                           FOREIGN REGULATORS

    Mr. Kingston. Another thing, I know that the G-20 kind of 
signed off on let's all jump in the water at the same time. And 
yet one of the criticisms is that CFTC got ahead of the G-20 
with some of the rulemaking. So will that put American 
companies at an international disadvantage because they have to 
play by a different set of rules than the Europeans or the 
Asian markets?
    Mr. Gensler. Let me say that the G-20 came together in 2009 
and agreed to have everything in place by December 2012. So I 
think we are just living with the commitment our President 
made, and 19 other heads of state made.
    Mr. Kingston. But they are not living up to their 
commitment.
    Mr. Gensler. We are not jumping ahead. We are living with a 
very important commitment, and a commitment I would say is to 
the American public. We share all of our internal drafts and 
work papers at the right level with the Europeans and the 
Asians, and we have made tremendous progress. The European 
Parliament did pass--it was not identical--similar law that now 
has to get conferenced like a Senate and House conference, and 
they are about to finalize that, I am told, on March 29.
    So we are different political systems, different cultures, 
but I think we are pretty close on the clearing 
responsibilities and on the data reporting. They are taking up 
some of the transparency initiatives later than us, but they 
have a pretty strong proposal in front of their Parliament 
right now that they hope to complete later this year or early 
in 2013.
    Mr. Kingston. Okay. As you know, having come from Wall 
Street, the financial leadership of America is significant, 
just as our biotech inventions are. There are some areas where 
we really are dominant in terms of the marketplace, and we 
don't want to lose that. I know you don't want to lose that. 
But that is why it is important that as American companies move 
out globally, they are not at a disadvantage.
    Mr. Farr, I know you have a tight schedule here.
    Mr. Farr. I have no further questions.
    Again, I want to thank the chairman for being here and 
thank him for his public service. I guess growing up, it is not 
that we imagined that the people who have access to 
understanding Wall Street and can be successful on it want to 
leave it and come into public service, and I was really 
impressed when you were telling us the reasons last year, 
because of your daughters, and that is why I am going home. I 
am going to get on a plane and go home to see my grandchildren.
    Mr. Gensler. Good for you. One day I hope to have some 
grandchildren. But right now, it is still daughters at home.
    Mr. Kingston. Mr. Farr, I have one more question. I have 
others I will submit for the record.
    Mr. Farr. I will sit here for a while. You can ask them 
all.
    Mr. Kingston. In terms of the market, one thing that we 
asked for last year was an implementation schedule. We would 
like to do that. Are you prepared to give that to us?
    Mr. Gensler. Well, it was at your suggestion and others 
that we put out in the spring of last year an implementation 
plan. I first did it in a speech, then we did the concepts 
release on implementation phasing, and we got 60 days of public 
comment and finally we got very good comments based on 
roundtables. So based on that, and then later in September, we 
actually put out four rules that have implementation phasing 
included in the rules. The biggest of those are about the 
mandate for clearing and the mandate for trading.
    So we have actually, I believe, followed your direction on 
this, Mr. Chairman, to seek public comment both through that 
60-day public comment period and those two roundtables, but 
also then on the four rules we put out in the fall. What we 
heard loudly is to try to do the swap data repositories and the 
clearinghouses early, and do this thing called swap execution 
facilities later. And we have done that.
    Also, we heard that when we do things we should give a lot 
of time. So a lot of the rules that we have put in place give 
upwards to a year after they have been in the Federal Register 
before they have to go into effect. Now we are hearing from 
some people that is not fast enough. But I think we are trying 
to give people time.
    Mr. Kingston. We would like to not necessarily tie your 
hands, but we want to make sure that it is as close to binding 
as possible, so people in the market know, okay, this is what 
is going to happen next. Under that transparency culture.
    Mr. Gensler. Right, right. I understand. So the 
transparency on our agency is we have put out on a regular 
basis, here is our schedule of when we will take up rules. Now 
we are human. Sometimes we think we will take up a rule like 
these definitions, and then when we are working with the SEC to 
finalize it we find it will take longer.
    Where we stand right now is that we firmly believe that we 
will complete the bulk of these rules through this summer; that 
we will put out to public comment the clearing mandate this 
spring, so that if we were to have a mandate, that would come 
during the summer and that would first go into place in the 
fall.
    But we constantly update this thing because one thing that 
I believe strongly is we should not do this against a clock. We 
should get each of these rules right in a balanced way, do the 
cost-benefit considerations thoroughly, give our fellow 
commissioners time to weigh in. And so it has actually been 
evolving as to when we will finish the rules.
    Mr. Kingston. I guess what we want to do is be engaged with 
you in that process so we know where they stand, because we get 
a lot of people saying well, they are not doing this or that. 
So if we can say here is what we have, here is what is going 
on; and if it is not directly like clockwork, that is okay, but 
as long as we have the working document and it is transparent.
    Mr. Gensler. I would like to do that. And if you would just 
tell me which of your staff to constantly be in touch with, we 
will try to make that fairly regular.

                         HIGH FREQUENCY TRADING

    Mr. Kingston. We will do that.
    On the issue of high-frequency trading, if you have a 
definition of that I would like to know, because it is 
certainly a fascinating event in high technology, and I think 
that we do need to be on top of that as a committee.
    Mr. Gensler. Commissioner O'Malia, through a technology 
advisory committee, has actually asked the industry how to 
define that. But if I can, in my own words--because what has 
changed in the marketplace is that people have gone from 
trading on the floor of the New York Stock Exchange or on the 
floor of the Chicago Mercantile, where you have all these 
people trading and screaming at each other, to computers. And 
that has been a big change in the last 10 years. So now 
computers meet computers often in nanoseconds, and the high-
frequency world are people using algorithms, using a computer 
to make markets sometimes, or just to purchase securities for 
their own account or purchase futures for their own account.
    There are various estimates as to how much algorithmic 
trading is part of our markets. It is anywhere from 40 percent 
to 60 percent by different estimates. But I will use a number 
that we did research and we put on our Web site last summer. We 
looked at 20 or so of our markets over a 3-month period, and in 
how many of those transactions on any given day in those 3 
months was there somebody that still owned the position at the 
end of the day. Did they buy it and at the end of the day, as 
the economists called it, did it persist? I don't remember each 
of the ratios, but I know the oil market was one. I think, 88 
percent of the transactions were day trading or what is called 
spread trading, and only 12 percent persisted at the end of the 
day.
    So we are looking at how we update our rules to take a 
count. It is just like when the telephone came or the telegraph 
came or the ticker tape came, that is a good thing for America. 
But we always have to constantly update our rules around new, 
emerging technologies. And that is what Commissioner O'Malia 
and all of us are trying to do.
    Mr. Kingston. Just in your estimation, in the New York 
Stock Exchange how much of that trade is algorithmic trading?
    Mr. Gensler. These various algorithms----
    Mr. Kingston. But really it is computer to computer.
    Mr. Gensler. That is correct.
    Mr. Kingston. It is computer to computer program, and that 
trips the sell?
    Mr. Gensler. That is correct. And I have visited many. Some 
of these organizations are 20 or 30 people. Some are 300 
people.
    Mr. Kingston. These are quants, right?
    Mr. Gensler. Yes. In fact, I visited one where the way they 
do their interviewing is they bring people in and they put them 
at poker tables, literally. That is how they do their 
interviewing. So it is an emerging trend that computers meet 
computers, and the algorithms transact sometimes in 
nanoseconds. I have seen estimates of 50 to 60 percent, but I 
am sure the Securities and Exchange Commission could give you a 
better estimate on the New York Stock Exchange.
    Mr. Kingston. Sam, I would suspect that most Members have 
no idea.
    Mr. Farr. No.

                         COST BENEFIT ANALYSIS

    Mr. Kingston. My last question, and I can put it on the 
record if you want. And it just has to do with the cost-benefit 
analysis guidelines. We have talked about this in the past, 
making sure that they are stringent and transparent, again, but 
to know what the cost-benefit analysis is.
    Mr. Gensler. I think we are doing a very good job. Last 
year I think you directed in your committee or conference 
report to put out some new guidance. We actually did that. And 
then there was a critical case last summer that the SEC, a case 
in proxy access, and after that we went back and looked again. 
Though our cost-benefit considerations are under the 
Commodities and Exchange Act, section 15(a), we do take a very 
close look at OMB guidance as well as what happens in the 
Securities and Exchange Commission cases.
    Just to give you an example, in the last two rules that we 
considered, I think our internal business conduct rules that we 
did a few weeks ago, it was 110 pages of economic analysis and 
cost-benefit considerations. Our chief economist signs off on 
every rule. If he doesn't, it doesn't get to the commissioners.
    Mr. Kingston. Sam.
    Mr. Farr. Yes. I wasn't going to say anything until you 
mentioned that last part. My first job working for government 
was working in the analyst's office, financial analyst's office 
of the State of California. The legislature directed the office 
to do a cost-benefit analysis. I had never even heard the term. 
I mean, I have a background in the Peace Corps and biology. 
They needed people to go out in the field, and I was pretty 
good at doing field analysis.
    But boy, just trying to answer cost-benefit analysis, it is 
an easy word to say, sounds like it has a lot of--but to 
measure benefit, what, until it is well defined. So every time 
I hear that word now, I mean, I remember we never could do that 
for the legislature. They wanted to know of all of the 
categorical programs, which one was more beneficial than the 
other. Is it better to teach kids to read or do math or to take 
teachers out of class and give them teacher preparation? They 
wanted us to compare all of these with a cost-benefit analysis. 
All I remember, because they never described what they felt was 
the benefit in the first place, so how do you measure it as to 
effectiveness versus cost? But it struck me, and I think it has 
been said, and it is so obvious, that we don't always use cost-
benefit analysis. If we applied it to the military, we would 
never have lawns on military bases. Nor would we necessarily 
for the mission of the military invest in military bands. So 
not everything just works out on a cost-benefit analysis. 
Sometimes it is just the public good.
    Mr. Gensler. I have found it to be a very beneficial part 
of what we are doing. I think it has helped in considering 
comments, but I think you are correct. It is often qualitative 
as contrasted to quantitative numbers. What has been a real 
exercise is asking the public to give us numbers and 
quantification of these costs and benefits. Sometimes we get 
it, but often we don't. Often we just don't hear from the 
market on the quantifications.

                               TECHNOLOGY

    Mr. Kingston. Mr. Farr, I am finished with my questions 
except for some for the record. I will just make sure that you 
know where we are probably going to be focusing in the next 
couple of weeks. Only 9 percent of your budget is in new 
technology. We are concerned about that.
    The other thing is at your highwater level in staff in 
1989, or whenever it was, the trading was in that pit-type 
situation of everybody yelling and screaming. And with new 
technology, it would appear to me it is easier to monitor 
without necessarily the human, the level; so that analogy I 
don't think is quite accurate because there has been a change 
in the market.
    The other thing, we started out with in terms of the 62,000 
versus the 65,000 in terms of the number of registrants we will 
want to talk about, and then the notional value versus the 
market value.
    We will continue to be engaged with you on that because I 
think that is where there is going to be pushback on your $308 
million. But the more information you give us, the better we 
are. Often when we are writing you guys, we don't get the 
response back as quickly as we would like to have. But I would 
say open-ended and continuous conversation for both sides is 
very helpful.

                                BENEFITS

    Mr. Farr. And it would be helpful to me and other members 
of the committee if we can put this in another context rather 
than just analysis, sort of a fiscal analysis of the necessity 
for your budget. You know, you are in a new field, and it is 
very difficult to measure the benefit when you are going into a 
new field.
    But it seems to me what would also help is if we don't do 
it. What happens if we don't have the money, you don't have the 
staff, you don't have the technology, you can't do what the law 
carries? What are the foreseen consequences of that?
    I mean, it is sort of like, I was just talking to a doctor 
down on the floor on a prescription. And it says, you know, if 
you take this, this is what happens. What happens if you don't 
take it? I often think we sometimes don't ask that question: 
What happens if we don't give you the money to do the job?
    Mr. Gensler. I think, and you have heard me, I think the 
American public is unprotected. I think anybody who profits 
from this marketplace ought to understand that their branding 
is lower. Wall Street's brand is lower if they can't say it is 
a well-regulated market. And the commercial end users in all of 
your districts want to have confidence in these marketplaces.
    I do agree we can use technology. A third, roughly 96 
million, 70 million of outside services, and about 26 or 27 
million people inside the agency who are in this budget are 
technology. I think that it is critical that we use technology 
and balance. We have asked to increase technology 56 percent, 
while staff 44 percent.
    But just as in football, the instant replay has to be 
watched by somebody. Some referee actually has to watch it. 
Computers meet computers in high-frequency trading. We need 
real people to actually watch the video replay and to answer 
questions in the market and to register these entities.
    Mr. Kingston. With that, this hearing stands adjourned.

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                               I N D E X

                              ----------                              --
--------

                  Commodity Futures Trading Commission

                                                                   Page
Accumulations of Notional Value..................................    67
Appeals and Denials Process......................................   321
Benefits.........................................................    51
CFTC Pay Scale and Peak Staffing Levels..........................    72
Completion of Rulemakings........................................    30
Cost Benefit Analysis............................................    50
Cost Savings.....................................................    90
Cost-Benefit Analysis/Position Limits............................   159
Curbing Speculation in Oil.......................................    26
DCM Core Principle 9.............................................    91
Dual Registration................................................   161
Emergency Authority..............................................    27
Emergency Speculation Authority..................................   320
Floor Trading/Electronic Trading.................................    86
Foreign Regulators...............................................    47
Form PF..........................................................   318
Forward Contracts................................................    33
Funding..........................................................23, 40
Futures and Swaps Transactions...................................    67
FY 2013 Budget Request Justification.............................    65
Ground Passenger Transportation Services.........................   319
Hedging V. Dealing...............................................    30
High Frequency Trading...........................................48, 92
Implementation of Energy Market Rules............................    39
Increased Responsibility.........................................    21
Information Technology...........................................   323
Infrastructure and Management (IT)...............................   332
International Jurisdiction.......................................    45
Legislative Proposal for User Fees...............................   319
Management of Resources/Implementation Schedule..................    89
Market Size......................................................    20
MF Global........................................................    24
National Debt....................................................    36
Notional Value...................................................    66
Oil Speculation..............................................33, 36, 42
Opening Statement, Mr. Gensler...................................     7
Opening Statement, Mr. Kingston..................................     2
Opening Statement, Mr. Farr......................................     5
OTC Market Size..................................................    37
Other Revenue....................................................   315
Performance Reviews and Bonuses..................................   230
Position Limits..................................................29, 34
Prepared Statement, Mr. Gensler..................................     8
Priority Spending................................................    32
Purchase Cards, Gift Certificates, and Employee Choice Awards....   233
Questions for the Record, Mr. Aderholt...........................   394
Questions for the Record, Mr. Kingston...........................    53
Questions for the Record, Mr. Latham.............................   393
Recusal..........................................................    35
Registrants......................................................    20
Role of Regulation...............................................    44
Role of Speculation..............................................    42
Seriatim.........................................................   302
SIPA Bankruptcy Action...........................................    26
Staff Hiring.....................................................   316
Staff Hiring and RIFs............................................   162
Statement on Gas Prices, Mr. Aderholt............................   396
Surveillance (IT)................................................   326
Swap Data Repositories...........................................   211
Swaps and Swaps Dealers..........................................29, 53
Technology.......................................................    51
Travel Costs.....................................................   213
User Fees........................................................28, 35
Value of Transparency............................................    41
West Coast.......................................................   315
Whistleblower....................................................   333
Working Group....................................................   318

Farm Credit Administration.......................................   399

                                  
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