The Commodity Futures Trading Commission, under fire for moving two weeks ago against what looked like an attempt to corner the wheat futures market, yesterday defended its actions before a Congress.
"We determined there was a major disturbance and felt compelled to step in," said Gary Seevers, CFTC's acting chairman, explaining what prompted the commission on March 15 to suspend trading of March wheat futures. "We feel confident that our action focused attention on a dangerous situation and prevented further price distortions."
But the president of the Chicago Board of Trades, which views federal regulation of its business warily and which got a federal judge to block the CFTC, reiterated his claim that the commission overreacted.
"The Board of Trade did not have then, nor does it have now," board president Robert Wilmouth, told the House Agricultural Committee, "information which shows that there was an actual or attempted mainpulation, corner ro squeeze of the market or that there was in existence a major market disturbance . . . Furthermore, the CFTC did not present to us since then, evidence to show that an emergency did exist."
With the case itself still on appeal in the courts, it was clear Congress would have to wait to see whether the chaff of claims and counterclaims ever falls away to show the grain of a true emergency.
Describing the series of events that led up to the March action, Seevers said early signs of trouble began to appear in December when two "professional speculators" managed to amass more than 60 percent of the open futures contracts.
A similar pattern of concentration surfaced early in March, only this time five traders were involved. Seevers said the CFTC continually encouraged the Board of Trade to take steps to remove the chance of a manipulation or squeeze in the market, but Chicago officials insisted they had the situation under control.
By mid-March, the speculators' holdings had grown to more than 80 percent of the total open contracts. Moreover, this group held contracts entitling them to delivery of 14 million bushels of wheat, although only one-sixth of that amount was then available.
A futures contract if for delivery of a commodity at a certain time at a speclified price. There are contracts to buy (longs) and contracts to sell (shorts). In futures trading, the actual commodity is rarely delivered. Instead, traders liquidate their contracts for cash by matching each long with a short. The prices at the time determine whether a trader makes or loses money.
The concentration of contracts in the hands of so few together with the shortage of available wheat, was an abnormal situation on the commodities exchange, according to CFTC official-enough to prompt serious concern over the creation of artificial prices and windfall profits for speculators.
But under questioning yesterday, Seevrs noted that wihether an emergency existed was "a judgment call" on the part of the commission. "There's no magic formula" to decide when the government should intervene to prevent manipulation of a commodities market, he said.
At the same time, Chicago Board of Trade officials who have long espoused the free market virtues of selfregulation were themselves somewhat befuddled when pressed by several congressmen to define the board's own guidelines for enforcement actions against traders.