When Does Aggressive Trading Become Market Tampering

PHILIP F. JOHNSON: Dr. Roger Gray, professor and economist at the Food Research Institute at Stanford University, is the Holbrook working professor of commodity price studies. He is one of the most prolific writers that we have in the area and has authored many articles on the economics of futures trading, and on agricultural economics. He was a member of the CFTC advisory committee on the definition and regulation of market instruments, and has consulted with the Office of the President, the Council of Economic Advisors-United Nations, and a list altogether too long to repeat here. He is now and has been for a number of years a consultant to private industry as well. He received his bachelor of economics and master's degree from the University of Colorado, and his Ph.D. in agricultural economics from the University of Minnesota. DR. ROGER GRAY: The question that I am supposed to answer and cannot is: "When does aggressive trading become market tampering?" Obviously, from a legal standpoint, we know the answer as of now: when the CFTC says it is market tampering. At least, that is the current status of the Chicago March wheat case. But I am not a lawyer, and my intention is to look at the economics of this, and at some of the proposed remedies and preventatives for market tampering. I thought I would begin by focusing on some recent episodes that have had media attention. Most recently the COMEX ordered liquidation only in the expiring copper future. In quite recent weeks, both the exchanges (Board of Trade and COMEX) have taken steps on silver futures, which at one exchange entailed, mainly or in part, the raising of margins to rather fantastic levels; at the other exchange, it involved the setting of position limits. Also, there was the March wheat episode at Chicago, which was not exchange action, but rather CFTC-ordered action. The exchange fought it, obtained an injunction, and allowed the market to trade out. And there was the March action at the potato market, in which the directors at the exchange ordered settlement of all April and May potato contracts. Going back a little ways, you may recall coffee in December 1977. 1 suggest going back that far because, to my knowledge, it was an unprecedented approach to the process of liquidation which was an exchange ordered with, I understand, either CFTC consultation or job owning or both. Twenty-five