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Summary of CFTC Meeting to Examine Futures and Options Trading in the Metals Markets, March 25 2010.

Note that there may be a few remarks mis-attributed, as you had to memorize faces as people were introduced.
And this is from a biased viewpoint (as were the viewpoints of most at the meeting, and listening to it).

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PARTICIPANTS:
CFTC Chairman Gary Gensler
CFTC Commissioner Michael Dunn
CFTC Commissioner Jill E. Sommers
CFTC Commissioner Bart Chilton
CFTC Commissioner Scott D. O'Malia

Panel One:
   Dan Berkovitz, General Counsel, CFTC
   Steve Sherrod, Division of Market Oversight, CFTC

Panel Two:
   Jeff Burghardt, Luvata
   Jeremy Charles, HSBC Bank USA, NA
   Tom LaSala, CME Group
   Mark Epstein, Individual Trader

Panel Three:
   Tom Callahan, NYSE Euronext
   Dr. Henry G. Jarecki, Gresham Investment Management
   Bill Murphy, Gold Antitrust Action Committee
   Kevin Norrish, Barclays Capital
   John Lothian, John Lothian & Co.

Panel Four:
   Richard Strait, Triland USA, a Division of Mitsubishi Corporation
   Simon Grenfell, Deutsche Bank
   Mike Masters, Masters Capital
   Harvey Organ, Individual Investor
   Jeffrey Christian, CPM Group

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MEETING NOTES:


o Chairman Gensler started by mentioning that they are looking for comments by public, through April 30, 2010, sent to metalshearing [at] cftc dot gov.  But at the end mentioned the April 30 deadline as being for the Energies comments.  Maybe they will be merged?

o 9:13 Commissioner Dunn said that they usually do not tell the public when there is an investigation.
	o Futures are a 'Zero sum game' -> for every  winner, there's a loser
	o If OTC rules are not made too, then futures market will move to non-transparent OTC
		o [MY COMMENT: That's fine; OTC doesn't set prices, so it would help price discovery to remove people trading large quantities in <1 second]

o 9:16 Commissioner Sommers spoke.
o 9:18 Commissioner Chilton spoke, he supports position limits
o 9:18 Commissioner O'Malia spoke.
o 9:21 Dan Berkovitz, General Counsel, CFTC, spoke.
...
o 9:31 Someone spoke; LBMA OTC accounts for 50% of trading
	o 9:37 The 'Summary of Traders at or Above Positions Limits' slide; those numbers not previously released to public.
	o 9:39 They are owner level, not trader level.  Top 4 net short are copper/gold/silver [see slide]
o 9:40 Gensler asked Dan Berkovitz about manipulation allegations, should they be addressed here?
	o Generally inappropriate to discuss current investigations, nor mention market participants by name.
	o Witnesses should refrain from specific allegations to specific parties
o 9:42 Chilton: 'We are not censoring our witnesses' testimony"

o CMEGROUP said that CFTC can't impose limits, since excessive speculation has not been proved.
	o 9:43 Berkowitz says his interpretation is that a finding of excessive speculation is NOT necessary for imposing position limits
o 9:48 Dunn: 
	o 9:51 DMO (Director of Market Oversight): When accountability limits hit, they monitor daily. They get consent to get more info; if they cannot get it, trader cannot go above limit.
	o Dunn: All of these [large 4 shorts] were sanctioned by the CFTC then, right?
		o DMO was evading, talking about how there were 20+(?) exemptions in gold, 5(?) exemptions gold/silver.
	o Dunn: 'So you have sanctioned what is going on, right?'
		o DMO: DMO doesn't do anything in particular; the exchange gathers the info.  DMO doesn't do anything when traders exceed levels
o 9:55 Sommers:
	o What would justify a trader having these large short positions?  DMO?Dunn?  They don't have to justify it unless hard limit hit.
	o Examples of how traders have justified exemptions?  DMO?DUNN?: There are a variety; the most typical is bonafide hedging position (where trade holds a cash position in gold, hedges in futures).
o 9:56 Chilton:
	o We must promote price activity, but we can't list traders. This concerns Chilton. Making the Bank report less transparent not good. Why did we do it?
	o If a banker has a position so large that it would reveal the trader, shouldn't that pique our interest?
		DMO: Yes.
	o We need mandatory hard-cap limits. If a someone is over the limit, you're in violation. If they still do it, fined, etc.
	o Physical shortages: Some had forecast that the market would drop.
		o ?: ETFs are linked through arbitrage to Comex.

10:08 They then moved on  to Panel 2.  That had Tom Callahan, NYSE Euronext; Dr. Henry G. Jarecki, Gresham Investment Management; Bill Murphy, Gold Antitrust Action Committee; Kevin Norrish, Barclays Capital; John Lothian, John Lothian & Co.

10:12 Tom LaSala (CME Group).  Excessive speculation has not occurred. The 'Fringe' group GATA has not supported their position with credible evidence. Position limits Would shift volume outside of the CFTC's reach. LBMA deliveries dwarf those of Comex (except in November 2009 and January 2010).

10:16 Jeremy Charles (HSBC). With position limits, activity will move to other markets. He suggests that banks have real gold/silver in London, but are shorting it in US [I add: why? Perhaps can't short in London?]. The CFTC should have clear exemptions for (bonafide?) hedging.

10:20 Mark Epstein.  He is a market maker, for 2-sided markets. He has a computer program that adjusts constantly. He closes out positions at end of day, so no overnight risk [I add: wouldn't that mean that he sells positions right before closing; could that manipulate?]. Often it is Second-by-second or millisecond-by-millisecond.  Typically he trades between 1,000-2,000 contracts per day.
o On Feb 4? at 10:15AM, in 1/4 second, 2,000 futures contracts were sold and caused the price to go down 100 ticks.  That's 200,000oz of gold, or $215 million. Stuff like this stuff happens every day.
o He bought physical silver in May 2008.  The price went from $17 down to $8.25 up to 19.50. At the end of 2008, he took physical delivery of 1,000oz silver bars, had them melted into 100oz bars, because of the huge price discrepancy between futures markets and retail markets.
o He believes that the 7.5Moz limit in silver is too high.  Market has net short position of 30,000 short contracts, HUGE. They must have had exemptions, this isn't hedging.  Silver behaves like no other market.
o The short position has a chilling effect on market makers, so they need to widen price spreads to account for the increased risk. The big players set prices.  The short positions are irresponsibly large.
o There is the risk of failure to deliver the silver, would hurt COMEX.
o He thinks limits should be 2,000 contracts, or 1,000 for the delivery month. Only exemptions should be for bonafide hedgers.

10:27 Jeff Burghardt (Luvata).  He thinks hedge funds are causing prices to go up.  If funds had smaller positions, volatility would go down. He suggests higher margin requirements. Position limits would affect only a few if any funds, margin requirements would affect all funds.

10:32 Diarmuid O’Hegarty (LME).  Talking about base metals, e.g. copper.

10:37 Gensler asked Q: What is the nature in the silver market of large concentrated shorts?
	o Charles (HSBC):  Short positions are hedged by loco London (in their case, can't talk about other banks). They sell short to get cash for operations, too.
		o HSBC maintains a long position, so they can provide their clients with silver, the clients buy it.
	o Epstein: That is the role of the futures market (if you have silver, you can then sell it short). The issue with silver is for example on 24 Mar 2010 8:37:53, someone dumped 272 contracts, silver went down 14 ticks or about 1/2%, all within 50ms.  He says that if 2000 silver contracts were sold insantly, it would definitely be 'limit down'(!!!).
	o Q: high frequency algorithms. Epstein, do you see someone on other side with much more powerful program?
		o Epstein: There is a counterparty to every transaction. A bank buying/selling $5M-$10M of silver would massively affect the price.
	o Q: Are you colocated [have a computer right next to Comex computers]?
		o Epstein: Yes, anyone can get access to buy/sell quickly at Comex in Chicago.
	o Q: Some people complained to the CFTC that they couldn't buy silver, but Epstein did.
		o Epstein: I took delivery. I had a truck pick it up from exchange. There are 115 million ounces in the exchange, he just got slip (warehouse receipt) for some of it.
			o Epstein: Once you take the bars off exchange, if you want to put them back, they need to be re-assayed, which would be expensive.
			o Epstein: Futures market needs to track the physical market; there was a $2-3 difference in 2008, the futures market was not serving its purpose.
			o Epstein: Comex could lose all silver. People could have drained all the silver if the price difference kept up.
	o Q: What would happen if people drained the silver vaults at Comex?
		o Tom LaSala: If there was a high demand for metal, metal would come in to replenish supplies.
			o We're not a coin market, that's why coins may be expensive when 1000oz bars through Comex are not.

10:50	o Sommers->Lasala(CME): How do energy/metals markets relate?
		o Being in the pit, you would have a 'feel' of market; with electronic trading you do not. It's more liquid now. Some markets are more volatile than others, normally smaller markets [e.g. silver] are affected more.
		o Perhaps that large order in silver was made in error when the order book was shallow. It was not necessarily a party with high concentration.
10:53	o Sommers->Lasala(CME): Bonafide hedging exemptions. Why would you, or not, grant them? 
		o Lasala: They are not granted blindly. You apply for one, stipulate your book, state what is behind your position. Grants are for a finite number of contracts.
		o Sometimes, I have no doubt in my mind they have the metal, but we can't give them an exemption because it would affect the price/market.
		o The limits are historically small; Lasala wanted to keep them that way.

10:56	o Chilton->Lasala: You took 28 actions in metals. Some were to maintain position, some to reduce; how many to reduce?
		o Lasala: I don't know, I will supply them after the meeting.
	o Chilton: Did you instruct any of the big shorts to reduce?	
		o Lasala: I think so. [!!!]
	o Chilton: Where there any fines?
		o There is at least 1 matter pending. [!!!]
11:00	o Chilton: Jeremy Charles/HSBC, for your bank's own funds, you don't feel that you should be allowed to go over limits, right (e.g. for banks own purposes, not for customers)
		o Jeremy Charles: We would use an exemption to hedge one contract against another.
			o Jeremy Charles: I think it's a misconception that there are large (unhedged?) short positions out there. [!!!]
		o Q: Would you be opposed to limits for your own book?  That is being proposed in energies.
11:02	o O'Malia -> Jeremy Charles:
		o Jeremy Charles: The stocks of gold/silver in London are massive compared to Comex stocks.  For shortages, there's a shortage of one type of product. Physical metal is always available; if you want 1 million ounces of gold, HSBC can get within 48 hours with no problem.  There is a massive stock in London.
11:06	o Epstein: The difference in May and July futures contracts is about $.02, that's about the storage cost.  It is always that way.  But it was trading $.10 in the other direction (in example he mentioned re: early 2008)
	o If it is moving $.12 between months, something significant is taking place.  It should never happen that Comex is the easiest way to get physical metal.
11:07 	o (?). They try to make sure there is enough supply for spot month deliveries. It would trigger a potential action. The rules of exchange allow positions to be forced to be closed out.
11:09	o Gensler->LaSala. Gold/silver have the same limits, but gold is 5 times the size of silver market, why is that?
		o LaSala: That is the way it historically has been.
	o Gensler Q: How often do you talk to Top 4 Shorts?
		o LaSala: We talk to them Where appropriate, when necessary.
	o Gensler Q: How Often?
		o LaSala: Not daily. If we know about their positions, then we leave it alone.
	o Gensler: In the case of being short futures, and long gold: HSBC says they have large inventory. London is the primary settlement globally. Metal normally kept in vault if short.
	o Gensler: More transparency would be helpful.
	o LaSala: We did a recent review of large shorts. They will share with the Director of Market Oversight (DMO).  Numbers are comparable to what they were in the past.
		o [My Note: Why were they not shared already???]
11:15	o Jeff Burghardt(?): It looks like the pricing of copper has moved away from the fundamentals.  e.g. there was an earthquake in Chile, and the price moved just $.07, whereas it moves much more than that when a large player moves into the market.
11:17-12:01 missed.
12:01 Kevin Norrish(?) Barclays has some people with large projects, they need to deal with large quanties of risk.  Smaller investors take other side(?).
	o Norrish: U.S. futures market provides liquidity and price discovery, and is 'exportable'. Position limits would move investments to other countries.
	o Norrish: Index investors are price stabilizers. They buy when prices are too low, sell when prices are too high.
12:04 o Dr. Henry G. Jarecki (GIM). He helps customers diversify their portfolios.
		o Futures have been imune to the problems that plagued stocks, bonds, and the real estate market. He witnessed the Hunt Brothers trying to corner the market.  The price went up high, but 'Billions of dollars of silver came on the market', and the little guys had more silver than the Hunt Brothers had money. [!!!]
		o He feels that all his customers shouldn't be lumped together (for position limits?). His small firm might be forced to move to overseas markets.
		o He suggests that [1] Position limits would cause trading to go to OTC, or physical storage. [2] Trade data, who benefits(?). [3] Rules should apply to the implementor (not the beneficiary), should be attributed to beneficiary(?), [4] It is trivial to identify end users.
12:11	o John Lothian.  Gold has little industrial value; it's a belief of store of wealth, a replacement for money.  Gold is useful if a nation's debt may be defaulted on.
	o Lothian: Low interest rates played role to rising gold price.
	o Lothian: Some think central bankers and others keep price down. That is 'intellectually dishonest'.
		o We didn't have as many tools for risk in 1970s
		o Those alleging manipulation are 'Politically opportunistic' (and other diskind words; 'charlatains'). Healthy skepticism OK, not 'pseudo-skeptical behavior'.
12:16 The CFTC webcast connection failed through 12:20.
12:20 Bill Murphy, GATA, was reading very fast from a paper; presumably same text as is online at CFTC.
12:22 Gensler Q: Concentration is higher in silver, etc. than most markets.  Help us understand how concentration helps orderly markets.
		o A: Norrish: Barclays needs to be able to take large positions.
	Gensler Q: If very concentrated, could you get tipping point where there would be less liquidity? 
		o A: Lothian: Consolidation is occurring, causing the concentration. The tipping point is an issue; your challenge is whether or not to be courageous [based on a 'courageous' quote earlier].  We've lost transparency with electronic trading.
	Gensler->Jarecki.  HSBC says that the short positions are covered with cash gold. Then why is so much physical inventory short; it almost seems constant.
		o Jarecki: There is a great deal of lending of metals from merchants to jewelers, etc. They buy the metal, sell it forward, lend out.
	   o Some people buy and sell forward (e.g. copper), because it is cheaper to do. Buy from one facility, sell at another for arbitrage.
12:29 Dunn:  If position limits, ...
	A: Jarecki: Over centuries, regulations caused trade to move from location to location; it stays in one place until there is a good reason to move elsewhere.
12:37	Bill Murphy: There is no point in having position limits if the big boys can still trade [I.E. if exemptions are granted to anyone].
12:38 Chilton-> Calahan, you have position limits in London, too, right?.  It's the specific level that's important.
	o Chilton: Position Limit is solid concept, just has to be right number.  So what is too much concentration?
		o Calahan: We account for just 5% of market, so limits (that were inherited from CBOT) were relative to size of their market, and are adequate.
		o Calahan: The limits are working out well.  Federally mandated limits vs. exchanges deciding the limits. The exchange can monitor/change limits as needed.
12:43 O'Malia Q: Would position limits spare price increases?
	A1: It is inconclusive whether or not it would help pricing, based on CFTC data. [based on agricultural markets]
	A2: Metals markets are big and liquid. Limits would make prices more volatile in the short term.
	A3: Jarecki: The evidence shows that these high prices existed in all markets (even steel/iron; outside futures(?)). The massive amounts of printed money had to go somewhere.
	A4: Lothian: It adds friction, hurts price signals. Higher prices means we need more production, more selling. Anything retarding that hurts price signal, people will go to OTC.
	A5: Murphy. Anything limiting ability of big bullion banks is a plus, it leads to better price discovery.
12:49 Gensler said he thinks that position limits do not retard; for example, traffic lights are 'friction', they slows down traffic, but are necessary.
	o Gensler: High concentration, does it help price discovery? We have found a rational way to deal with leverage in futures market.
	o Gensler: The clearing mechanism isn't perfect, but works well. It should be in OTC market too.
12:51 Dunn: ->Norrish. Why aren't we walking into the same problem that happened with the housing market?
	 	o Norrish: Commodities worked best, there was accurate discovery, and no distress.
		o Norrish: Some risks are large, for example, it could be building a $10B copper mine. They need large financial institutions to help with risk, who may then feed out the risk to the market gradually.
	Dunn: I'm concerned about those institutions and systemic risk.  Thanks to the Chair for selling the concept of position limits to the EU last week.
12:55	Dunn: Q: If we get OTC regulation, should we put in position limits at that time?
	o Callahan: Correction: We have no position limits in London.  Doing it simultaneously would be best.
	o Jarecki: In the metals markets, it is trivial to own physical material. Our customers put 100% margin, buy gold/silver/copper in warehouses.
	  Jarecki: People who don't trust currencies don't want broker & exchange & clearinghouse to stand between them, especially those worried about inflation. There is a risk that people will move futures paper into warehouses, and that there will be shortages.
	  [!!!But that means futures are holding down prices!!!]

o 1:00 Chilton: $200 Billion went into the markets through 2008. Position limits build confidence in the markets: it is rational, with parameters. But we need to have the right limits (e.g. if too high, limits do nothing).
	o Chilton->Norrish.  Norrish: It is very difficult to distinguish a hedge vs. speculative trading, e.g. a farmer selling next year's corn crop, the crop could be less than he thought.
		Norrish: Imagine that multiplied 1000s of times. That's what financials deal with every day.
	Chilton: Exemptions should be targeted, e.g. a $10B copper mine might be OK. If it is too complicated to figure out w/limits, that makes me queasy.
	Chilton->Murphy. You are critical of Comex, and say they are complicit to manipulation. Can you give the commission evidence of how/when?
		o Murphy: We have 11 years worth of evidence. 2 days ago we got a whistleblower, we will be handing out the information to the press after this meeting.
		o Murphy: March 23, 2010 GATA got an E-mail from Andrew McQuire of Goldman Sachs, that Chase brags about making money. In 2009 he contacted the CFTC, and described in detail the routine manipulation at Comex and options expiration, rollover, etc.
		o Murphy: He gave CFTC 2 days notice of the Feb 5 attack on the gold price, and it was exactly as predicted. It would not be possible to predict that unless the market is manipulated.
		o Murphy: It is common knowledge to flush out the shorts before the discussion today. $1100-$1150 in gold options, so sell short to overwhelm bids.  March 19. Thumbed noses at CFTC.
	Chilton: Thank you, that was more specific than I was expecting. But, we don't want to discuss individual circumstances.
	O'Malia-> Jarecki? Norish?. Epstein said there was a 'Chilling effect with large orders'.
		A: Market makers sometimes harasses large orders, they join bid/offer, use market data.
		A: Often people want to sell all at one time, with no execution risk. Large players want to play and teach market makers a lesson once in a while [!!! THAT IS MANIPULATION!!!].
	Jarecki: Don't the large sellers lose out, since the last lots get sold at a lower price?
	O'Malia: There were 4 recommendations...
	Jarecki: Everything to stop fraud is great. But, having regulations just because they are good is bad.
1:15 Gensler: America benefits from a regulated economy.
1:17 Dunn-> ? A: OTC market, you would just get a piece of it, and piece of world futures trade. We need global regulators to agree to position limits or transparency. Otherwise, it puts us in a bad position here [in the U.S.].
1:19 Chilton: There is a concern in waiting for other countries, but someone has to go first; we need to be the leaders. [!!!]
	Chilton-> Jarecki, what is enough? 50%? A: If you own 20% of soybeans in world, you're in a unique situation, others should know abot it. Practical implication. (?)
1:21 Gensler: We'll leave and come back.
1:33 Meeting Resumed.

--- Panel 4

1:33 Gensler: Jeffrey Christian, CPM Group, here via teleconference.
1:38 Strait(?) OTC. Jarecki warns that people will move from futures to owning the metal.  He is against positions limits.
	o Strait: Epstein talked about buying 1000oz bars to melt into 100 bars.  100oz bars are the most desired product, so the supply was limited. Futures market is basis that fabricated markets use for pricing.
	o Strait: Futures are not meant to be end-all for consumer. It takes up to 20 days to deliver contract.
1:44 Masters: There is manipulation when large traders place large trades; limits would make it harder to manipulate markets.
		o Excessive speculation: No speculator can individually cause harm, but they as a whole harm price discovery. Limits reduce their dominance; not restraint of 1 specific trader.
		o Speculators should never have more than 50% of open interest, because then they dominate.  In the past, they were about 25% [where?] with few liquidity complaints.
		o The ideal varies by market, but 25% is good starting point.
		o Consumables should use both manipulative limits and speculative limits, whichever is lower.  Precious metals can be consumed, but more often they are held. So speculation is OK.
		o Passive speculation caused the run-up over past 8 years. It accounts for the lion's share of open interest.  Active speculation adds liquidity (buying and selling), passive speculation allocates the metals and drains them by buying large quantities. It undermines the process, destroys price discovery.
			[BUT: that is saying that buying physical metal undermines price discovery! If that happens, the market is the problem!]
		o CFTC needs to address passive speculation.
1:50 Organ: The 2008 Bank Participation reports showed that 1-2 banks had 169Moz silver. In July 2008, the same had 31MOz. A short increased of 138Moz is 20% of annual mine production.
		o Silver has the largest concentrated short position in any commodity.  Gold, 3-or-less in August 2008, there was an 11-fold increase, a short increase of 8 million ounces, or about 11% of the annual world production
		o Silver: Ted Butler calculated that JPMorgan was short 200 million ounces.
		o Billions of dollars were lost in 2008. Most futures markets have a limit of 1-2% of annual production; gold-silver exceed that, which allows manipulation. Limits must be on both long+short. Hedgers should deposit 40% in warehouse, provide affidavit of 100% ownership and that they will not lease, etc.
1:56 Christian, CPM.  Some proposals he has heard today wouldn't do any good. Position limits won't help; there is a risk if ill-conceived/ill-applied.
		o Position limits are like Sarbanes-Oxley. He was surprised that so many people speaking today felt that banks are not bonafide hedgers.
2:04 Gensler->Strait: A: Segregating the banks' order books is difficult, since they are making markets for their customers.
		o A: Clearing: The CFTC should encourage clearing, bring in OTC clearing, it improves transparency. Q: If CFTC implements OTC limits, how would it impact Clearport traffic?
		o Gensler: Clearing reduces risk.
2:07 Gensler->Masters: You are saying that gold and precious metals are not consumable, so we should take a different approach for each?
		o Masters:  Copper is a consumable, precious metals are not, so precious metals should have manipulative limits not speculation limits.
     Gensler: Limits on the near-month helps control manipulation. Is that it?
		o Masters: Yes, and all-months-combined limit is for speculation. 
2:08 Dunn->Strait+Masters(?):  You say that there could be a bubble if there are no position limits, or OTC: 
     Dunn->Strait: wheat vs. metals. If people would just buy the real thing, should we have a different type of silver contract?
		o Strait/Masters(?): Silver is mainly OTC. Japan, Hong Kong, Russia, you're doing loco London not Comex. So no, no new market. 'Silver is different than gold'. He was upset at the platinum/palladium ETFs.
     Sommers to Strait+Masters(?).  A: Platinum+Palladium are strategic. Having them in an ETF shocked me, it is insane. It will artificially drive up prices of important metals. The CFTC should have oversight of that, not SEC(?) OCC(?).
2:16 Chilton: The 2008 high demand and high retail price of silver with a low futures price. It gave people concern and it should be addressed.  Yes, if our limits are ill-conceived that would be bad, "duh"! 
2:18 Chilton->Masters: How would you apply limits?
		o Masters: By contract, exemptions? Banks as hedgers, the rules should apply.
     Chilton: 'Massive passives' should as mass have limit, but how?
		o Masters: Zero would be best.
2:21 Chilton->Masters: It there a way for individuals to play the markets.
		o Masters:  If you ask the individuals 'What is a contango?', 99% wouldn't be able to answer. Go buy TIPS, buy the Euro, they are a lot more liquid.
		[In other words, take note individuals: you shouldn't buy gold because you don't know the rules.  Just buy a government-backed inflation-protected bond, or a hedge against the dollar]
2:22 O'Malia: How do we make position limits stick?
		o Masters(?) London Mercantile Exchange is dominant, we don't have jurisdiction there.
2:24 O'Malia: -> Christian. The net short positions exceeds the physical supply. Should we be concerned that the shorts wouldn't be able to deliver?
		o Christian: No. It's been that way for decades, there are mechanisms for cash settlements. Most short positions are hedges offsetting OTC longs.
		o Organ: I see a risk. As China, Russia, etc. demand physical, it put pressures on Comex. At some point in time, we will have a failure.
		o Ethan Douglas, assisting Organ: The LBMA has 20Moz trading in gold per day, net. That's $5.4Trillion/year. Not 100% backed, it is a fractional reserve. Unallocated = unsecured, because it is fractional reserve.
		o Ethan Douglas: Hedgers are paper hedgeing paper. It is a Ponzi scheme. 
		o (?) People trust bullion banks, trust the paper.
2:28 Dunn->Christian: Precious metals are financial assets, they trade at 100 times the underlying physical. Buyers are voting for the paper.
		o Christian: The 2008 explosion of shorts on futures market, Organ implied that it causes the prices to go down. Bullion banks were selling gold/silver hand over fist in OTC, physical, because everyone was buying. Bullion banks had to hedge, so they sold short.
			[BUT, that makes no sense!]
		o Christian: With limits on futures markets, they would find another way to hedge; someone will supply that.
2:31 Dunn->Organ. 'How could it not be manipulative, having such big shorts?'
		o Organ: I'm concerned of the size of short positions of the 1-2 banks and their manipulation of prices. Like yesterday (down .5% in seconds). They are controlling prices. Comex should be the price discovery, but 1-2 banks are making sure they determine the price; we're seeing the opposite of price discovery.
2:33 Chilton: Arbitrage: I have seen valid arguments on both sides.  We could be the gold standard of regulation, and build confidence in our markets.  Without limits, would markets leave U.S.?
		o Organ: Huge exemptions have to be addressed. If similar to 1-2% of annual products.
		o Masters?: People want more regulation and transparency. The thought of people trading in Dubai is an empty threat. What if there is another crisis, will the government of Dubai stand behind it? Is the counterparty OK?
2:38 Gensler->Christian: We're hearing that bullion banks are hedging.  How does that work?
		o Christian(?): I misspoke, in August 2008 it was liquidation of leveraged PM positions, bullion banks were buying, going short to hedge.
     Gensler: What *are* the bullion banks hedging on other side? Is it warehouse receipts?
		o Christian: They are hedging a tremendous number of things. On the bullion bank's books you will find gold forward purchases from mining and refiners. Gold leased to electronics makers and jewellers, etc.
		o Christian: Producers sell the gold the minute it leaves their mine, and goes to smelter. The bullion bank buys it, agrees on a price, but can't sell until it is out of refinery (could be 2 weeks, could be 6 months). So they sell short.
			[Could this cause the huge price swings? e.g. bullion bank just dumps 10MOz of gold from past couple months, buys it back when out of refinery???]
		o Christian: When they get the metal, they can unwind the hedge. Deritivitves are also sold to insurance, etc. often long exposure in gold; offset with shorts.
		o Christian: There has been talk about physical and how "There isn't much out there".  If I look at the large short positions, I ask myself 'Where are other shorts being hedged?'. He believes they have more that gold/silver that needs hedging, he believes it is done as OTC in London.
		[But why is the short amount fairly constant?]
2:43 Meeting adjourned.
Gensler said that the comment period for ENERGY was good until April 30th.  Please comment, send records.


END!

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