The CFTC's Reply of April 12, 2002, And My Response

April 12, 2002

Dear Mr. Butler:

This is in response to your letters of February 12, March 11, March 25, April 1, and April 8, 2002 in which you alleged an "ongoing manipulation in the Commodity Exchange, Inc. (COMEX) silver contract." You cite as evidence a concentration in net short positions by 4 or less traders that you believe "defies economic justification." Your allegation would potentially involve violations of Commodity Futures Trading Commission (Commission) and Exchange rules prohibiting price manipulation.

The Commodity Exchange Act makes it unlawful to manipulate or attempt to manipulate the market price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any contract market. In order to prove a manipulation, it must be shown that a trader intentionally caused the price of a commodity to become artificial or, in other words, intentionally moved the price of a commodity away from a level reflecting the legitimate forces of supply and demand.

Thank you for the information contained in your letters. As to your suggestion that the Commission should disclose the identity of traders, Section 8(a)(1) of the Commodity Exchange Act provides that the "Commission may not publish data and information that would separately disclose the business transactions or market positions of any person."

I hope this information is helpful to you.

Sincerely,

William C. Kokontis
Acting Director
Market Surveillance Section

The Honorable James E. Newsome April 22, 2002
Commodity Futures Trading Commission
Washington DC 20581 VIA FAX and E-MAIL

Dear Chairman Newsome:

Thank you for the response of April 12, 2002, from your new Acting Director of Market Surveillance, Mr. William C. Kokontis, to my five (5) letters concerning the ongoing manipulation in the Commodity Exchange, Inc.(COMEX) silver contract, by the 4 or less traders with the uneconomically large and concentrated net short position.

Since this is the first response I have ever received from your agency that didn't refute my allegations about this ongoing manipulation, nor disagree with the information I provided, I understand that you now see the problem and intend to act upon it. Hooray and Hallelujah. I wish you luck in rooting out and punishing the perpetrators of this manipulation.

According to your most recently released Commitment of Traders Report (COT), of April 19, 2002, for positions held as of April 16, 2002, the 4 or less concentrated shorts have succeeded in reducing their net short position by some 6000 contracts, or 30 million ounces of silver, in the sell-off in silver prices they have engineered over the past two weeks. This is just as I predicted, and as has occurred on a regular basis for years. Real hedgers don't trade such quantities on a 20 cents per ounce move, only manipulators do. Of course, the 4 or less traders are still net short over 183 million ounces of silver futures, much more than when I first wrote to you.

If you investigate fully, you will see that the dominant commercial net short position holders have actually increased their net short position dramatically in percentage terms, compared to the entire commercial net short position. In the two weeks in which the manipulators reduced their absolute net short position, the concentrated net short position of the 4 or less traders increased from under 72% of the total net commercial short position, to over 85% of the total commercial net short position. This is an unprecedented concentration.

Regarding my suggestion that the Commission disclose the identity of very concentrated position holders in all regulated markets - I knew it was in contrast to current law when I made the suggestion. But I also know that the Commission is continuously working with Congress to update and improve the code. There is no good reason for you not to try and implement my suggestion, as the markets are clamoring for more disclosure and transparency.

I am grateful and encouraged that the Commission finally recognizes this problem, and I await your follow-through. The American silver mining industry faces bankruptcy and extinction due the unlawful activities of the manipulators. Only your forceful and immediate action can save it.

Respectfully yours,
Ted Butler