MAY 2, 1996 Good morning Mr. Chairman and

members of the Subcommittee. Thank you for inviting me to present the

President's fiscal 1997 budget request for the Commodity Futures Trading

Commission. With me this afternoon are Madge Bolinger, Director of the Office

of Financial Management, and Andrea Corcoran, Director of the Division of

Trading and Markets.

Mr. Chairman, I would like to have my written testimony included in the

record and I will briefly summarize it.

As you know, the President's request for the CFTC is $56,601,000. This

request represents a modest increase of $3 million, or 5.6 percent, over the

fiscal 1996 level.

Since the Commission last appeared before your Subcommittee, we have

made progress in six important areas. First, with additional funds provided

last year, the Commission is making critical improvements to its market

surveillance computer system. In particular, we are planning to add daily

options data to our large trader reporting system. Currently, we have daily

large trader reports for futures, but only weekly reports for options. As

options volume has grown over the years, our surveillance picture has become

less complete. We must have a modern system that captures the whole picture

for today's dynamic, and sometimes volatile, markets.

Market volatility over the last few months underscores the need to

improve our surveillance system. When markets become extremely volatile, we

need to know immediately the financial exposure of large traders in both

futures and option markets, and the potential impact they may have on other

market participants. Our new surveillance system will allow us to do this.

Second, we have taken a number of steps to strengthen our enforcement

program. Our goal is to send a clear message that fraud and other violations

of the Commodity Exchange Act will be promptly and thoroughly investigated and

vigorously prosecuted. During fiscal 1995, the Commission brought a number of

significant enforcement cases and imposed over $11 million in civil penalties.

We are concentrating our enforcement resources on matters that will have the

greatest deterrent impact against wrongdoing in the marketplace.

Third, we devoted considerable time last year to dealing with the

collapse of Barings Bank. The CFTC was particularly concerned about the

potential impact of the Barings collapse on U.S. markets and U.S. firms, and

we worked to protect their interests. In the wake of the Barings crisis, the

CFTC and British regulators hosted a meeting to address international

regulatory issues. At the conclusion of the meeting, regulators from 16

countries issued a statement, known as the Windsor Declaration, outlining

recommendations that include:

cooperation among market authorities;

protection of customer positions, funds, and assets;

default protections; and

regulatory cooperation in emergencies.

The CFTC has taken many steps domestically and internationally to

implement these recommendations. Most notably, the Commission, along with 13

foreign regulators, signed a Declaration of Cooperation and Supervision of

International Futures Exchanges in March. Fifty-two futures exchanges and

clearing organizations also signed a companion Memorandum of Understanding.

This Declaration and MOU represent an unprecedented commitment to information-sharing and cooperation among world futures exchanges, clearing organizations,

and regulatory authorities that will significantly enhance the international

safety net for financial markets.

Fourth, the Commission has worked to ensure compliance with the enhanced

audit trail standard that became effective in October 1995 for higher volume

exchanges. The exchanges have made significant improvements that will benefit


Fifth, the Commission has demonstrated concern for competitive issues in

its regulatory program. For example, in response to petitions from futures

exchanges, the Commission has established a pilot program that will allow

exchanges to create markets for sophisticated traders that will be exempt from

many of the requirements of the Commodity Exchange Act. These less regulated

markets will allow U.S. exchanges to compete more effectively with over-the-counter derivative markets and foreign exchange-traded instruments without

sacrificing customer protection.

Finally, the Commission has promoted an ongoing dialogue with industry

by holding public roundtables to discuss regulatory reform initiatives.

Recent roundtables have addressed the disclosure framework for managed funds,

risk-based net capital rules, and agricultural trade options. We are planning

a roundtable on internal controls in the near future.

These roundtable discussions have been followed by concrete action.

After the roundtable on managed funds disclosure requirements, for example,

the Commission issued final rules completely revamping the disclosure

framework. Following the roundtable on net capital rules, the CFTC amended

its capital rules to harmonize them with SEC and industry self-regulatory

organizations' requirements and is collecting the information needed to

consider further changes.

In closing, the Commission recognizes that this Subcommittee faces

difficult appropriations decisions this year. Nonetheless, we believe that

the modest increase we have requested for fiscal 1997 is essential for us to

continue enhancing our enforcement and surveillance programs. Additional

funding in fiscal 1997 would enable the Commission to heighten its

surveillance in major market centers and ensure that the upgrade of its

surveillance system stays on schedule. Additional funding also will enable

the Commission's enforcement program to respond more quickly to fraud and

other wrongdoing in the marketplace, provide a greater level of customer

protection, and better promote market integrity.

For these reasons, we believe that the President's request is fully

justified. I would be happy to answer any questions you may have.