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B-146770 1 (1978-03-20)

handle is hein.gao/gaobachke0001 and id is 1 raw text is: -.-647.. COMPTROLLER GENERAL OF THE UNITED STATES S.).. e WASHINGTON. D.C. 10548 IN RDPLY REF O, CED8-272 B-1467o March 20, 19T8 The Honorable Frank E. Evans House of Representatives Dear Mr. Evans: In your letter of March 2, 1978, you asked us to (1) review the effect of speculative short selling in the commodity futures markets on the cash prices of wheat and cattle, (2) review the pertinent literature dealing with speculative short selling, and (3) formulate a mathemati- cal model of the subject matter. As you know we are completing a. year-long-review of the Commodity Futures Trading Commission. Our review did not cover the effect, if any, of speculative short selling on the price of the underlying cash commodity. In re- sponse to your letter, however, we asked Commission offi- cials whether they had .performed any research in this area. They provided us with the enclosed copy of a March 7, 1978, paper on speculative short selling prepared by the Commission's Acting Chief.Economist. The Acting Chief Economist essentially concluded that speculative short selling is necessary to promote and maintain liquid (competitive) markets for futures trading. He also pointed out that futures prices.are intrinsically related to cash prices and cannot override the basic con- ditions of supply and demand for any period of time. Restrictions on short selling would do nothing to change the fundamental supply/demand conditions, according to-the Chief Economist, but would simply decrease liquidity and competition in the markets.. On March 14, 1978, we advised your office of the conclusions reached by the Chief Economist. We were advised that you would like to submit for out review material your o.ffice had received from a group of farmers who were dissatisfied with the present situation .on speculative short selling. We would be happy to review the material and inform you of our observations, including whether we believe it would. be useful or feasible for us to perform a review of speculative short selling. As part ....

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