2000]COMMODITY FUTURES MARKET MANIPULATION 279
activity. Determining which commodities are to be added to the list of
17 C.F.R. § 150.2 could be based on the susceptibility of a particular
commodity to acquisitions of market power of both the futures and
cash markets.
Furthermore, despite the fact that 17 C.F.R. § 150.3- permits some
persons to exceed the limits of 17 C.F.R. § 150.2 if they have a bona
fide hedging position,310 17 C.F.R. § 15.01(d)(1) deters traders from
attempting to hide speculative transactions under the mask of a bona
fide hedge.3 11 The regulations outline the elements a person must
include in a report and those seeking to abuse the hedging exemption
will likely be unveiled when compelled to report their positions.31 2
Importantly, the quantity of physical stocks that a person owns as well
as the "quantity of a fixed price sale commitment" that a person seeks
to hedge are at least two items that must be included in a
Commission-mandated report. These reporting requirements would,
therefore, require companies like Sumitomo to expose large futures
and cash positions which are truly speculative in nature, but which the
company submits are bona fide hedging transactions. If the CFTC, for
example, observed the establishment of an immense copper position
on a U.S. exchange, the position would send a red flag to the CFTC
that the commodity in question was an area that required further
investigation. The investigation would subsequently lead them to
Sumitomo, a risk that Hamanaka did not want to face.
In addition to reporting requirements for persons, the regulations
require that organized exchanges set position limits for the parties
that trade on the exchange. 313 Exchange-established limits provide an
added level of protection against manipulative activity. The
exchange-set position limits make it even more difficult to amass the
requisite level of futures contracts needed to exercise market power.
Finally, § 4g(a) of the CEA requires any person registered with the
CFTC as a "futures commission merchant [("FCM")],314 introducing
broker,315 floor broker,316 or floor trader'317 to keep reports of their
309. The exemption, however, is not granted without qualification. See id § 150.3.
Section 150.3 permits the CFTC to "call for information" if a person claims an
exemption from the speculative limits. Id § 150.3 (ii)(b).
310. See id.
311. See id § 15.01 (d)(1).
312. See id. § 19.01.
313. See id § 150.2. Interestingly, a Wall Street Journal article published soon after
the Sumitomo debacle was uncovered claimed that it would be easier to prosecute
Sumitomo for violating position limits than manipulation. See McGee & Frank, Hard
to Prove, supra note 40.
314. Futures commission merchants ("FCM") are defined as "[i]ndividuals,
associations, partnerships, corporations and trusts that solicit or accept orders for the
purchase or sale of any commodity for future delivery on or subject to the rules of any
contract market and that accept payment from or extend credit to those whose orders are accepted." Glossary, supra note 55, at 19 (emphasis added).
315. An introducing broker ("IB") is:
FORDHAM LAW REVIEW
activity and to "keep such books and records open to... the
Commission.""31 An FCM must maintain records in a manner in
which trades by customers are capable of being matched with the
trades that are reported in an exchange's daily reports.319 For
example, the regulations require contract markets (e.g. NYMEX) to
give detailed daily reports to the CFTC, including the open interest in
a contract for that day and the number of contracts purchased and
sold.320 Furthermore, the section of the regulations entitled "Special
Calls" authorizes the Commission, at its request, to discover all
information pertaining to accounts held by an FCM.32 1 Specifically,
the Commission, under 17 C.F.R. § 21.02, can demand the names of
traders and the positions they hold through the FCM.31 As a result,
the CFTC can uncover a large position that a company like Sumitomo
is attempting to conceal using its FCM (e.g. Global).3'
The stringent regulatory structure under the CEA is precisely one
of the reasons that Hamanaka ceased trading activity on U.S.
exchanges." If Hamanaka sought to trade on U.S. exchanges, the
regulatory agencies would monitor his every move and could at any
time inquire into suspect trading activity by obtaining position reports
from Sumitomo, Global, and the exchanges. The combination of
reporting and disclosure requirements creates such a risk of being
exposed that even rogue traders, who do not care whether they trade
legally or illegally,3
" would not attempt manipulative schemes because
the chances of success are slim to none. Hamanaka's scandal
flourished, however, because he was capable of establishing large
speculative positions using the title of "hedger" and veiling his
[a]ny person (other than a person registered as an "associated person" of a
futures commission merchant) who is engaged in soliciting or in accepting
orders for the purchase or sale of any commodity for future delivery on an
exchange who does not accept any money, securities, or property to margin,
guarantee, or secure any trades or contracts that result therefrom.
Id. at 23.
316. A floor broker is "[a]ny person who, in any pit, ring, post or other place
provided by a contract market for the meeting of persons similarly engaged, executes
for another person any orders for the purchase or sale of any commodity for future
delivery." Id. at 18.
317. A floor trader is "[a]n exchange member who executes his own trades by
being personally present in the pit for futures trading." Id.
318. Commodity Exchange Act § 4g(a), 7 U.S.C. § 6g (1994).
319. See 17 C.F.R. § 17.00 (1999).
320. See id. § 16.00.
321. Id. § 21.00.
322. Id. § 21.02.
323. Although neither Global nor any of its members were ever registered with the
CFTC in any capacity, see In re Global Minerals & Metals Corp. [1998-1999 Transfer
Binder] Comm. Fut. L. Rep. 27,649, at 48,090-91 (CFTC May 20, 1999), they would
be required to register if they executed trades on U.S. exchanges. See Commodity
Exchange Act § 4d, 7 U.S.C. § 6d.
324. See supra note 262.
325. See supra note 1 and accompanying text.