In Ted Butler's Archive

You Make The Call

(Theodore Butler is an independent consultant and silver analyst.)

This article answers the CFTC’s response to the articles and letters sent to them alleging manipulation in the silver market. My allegations were based upon evidence provided by the CFTC itself in its weekly Commitments of Traders Report (COT). It showed a small number of traders were short more silver than existed in world deliverable inventories and represented a concentration greater than had ever existed in any prior manipulation. This extremely large concentrated short position held on the COMEX is the necessary requirement for manipulation.

The New York Mercantile Exchange (COMEX) was jointly notified with the same letters and allegations as the CFTC. There has been no reply from them, to my knowledge. I consider this strange because the NYMEX is a Self Regulatory Organization * (SRO), and provides the primary defense against violations of commodity law. In other words, it should have been the NYMEX responding first to the allegations of manipulation, with the CFTC deferring to them. That’s the purpose of the SRO structure. The Exchange is the primary regulator, and the government is the backstop. In this case, the CFTC has become the spokesman and defender of the NYMEX, even though this is contrary to the SRO structure.

(*A non-governmental organization that has the power to create and enforce industry regulations and standards. The priority is to protect investors through the establishment of rules that promote ethics and equality.)

My only conclusion is that the NYMEX/COMEX won’t offer a defense against the allegations of manipulation, because they are afraid that any discussion might jeopardize their proposed initial public offering. They don’t want to go there. I suggest they intend to dump the whole silver manipulation problem onto the investing public. If you are as fed up as I am about this exchange ignoring their regulatory responsibilities, I’ll suggest something you can try to do about it at the end of this article.

Now to the CFTC’s responses. The first one was sent on August 23, to only one person that I am aware of.

The second response was sent on September 6 to many people.

The early response contained two paragraphs trying to show how having a short position greater than deliverable supplies is very normal in commodities. But the recent LME nickel default proved that to be false, and the CFTC did an about face and removed those paragraphs from subsequent responses. Both the original inclusion and the subsequent removal of these paragraphs make the CFTC look foolish.

The CFTC took three months to answer with their September 6 reply. Three months is an outrageous and intentional delay, especially for such a non-responsive reply. The simple fact is that the CFTC delayed for as long as they did so that time alone might cause people to forget what the real issue was. The CFTC has been reduced to time delay tricks precisely because they can’t answer the simple allegations and questions posed to them straight up.

The CFTC did not refute a single statement of fact in any of my letters or articles. They didn’t deny that silver has a higher concentrated short position than ever existed in any prior manipulation. They didn’t deny that the short concentrated silver position is greater than the concentrated long position to an extent greater than in any other commodity. They didn’t deny that 8 or less traders are net short the entire commercial short position and what thousands of traders (the entire net long position) held net long. They didn’t deny that the concentrated short position was greater than total world deliverable supplies and that this constituted a grave danger for delivery default. They didn’t say that the short position was backed by real silver or legitimate hedging obligations; which they couldn’t possible document. They couldn’t deny that the very reason they maintained concentration data was because concentration goes hand and hand with manipulation, and if the silver concentration were on the long side, and not the short side, they would have cracked down on it, as they have in the past.

So what did the CFTC say in their response? They made three points, all bogus and deceptive. The first point was to try and show that the concentration on the short side wasn’t large compared to other markets, the majority of which are not physical delivery commodities. They wanted to compare apples and bananas. You can’t have a delivery default in a cash-settled market or a market on financial futures. You can have a delivery default in a physical commodity market, particularly with a large concentrated short position, like nickel or silver.

More importantly, the CFTC was intentionally deceptive in how they calculated concentration. They slyly added option open interest strictly for the purpose of inflating the total open interest. They know full-well that options are a derivative on derivatives and that silver option open interest is 75% spreading (establishing a long and short position simultaneously). The intent of this was to make the open interest artificially high, which makes the concentration appear less than it really is.

What the CFTC has attempted to do is to steer the allegations into some sort of debate on percentages of concentration in various markets. They want to turn it into a meaningless numbers debate, ignoring an obvious crime in progress. This was never a debate on percentages, it is a question of a handful of traders holding a net short position more concentrated, compared to real world supplies, than any concentrated position in history. It is a question of the CFTC not enforcing the law applying to the current COMEX concentrated short position even though they have always moved against long concentrations that were less concentrated than this one.

What the CFTC should be doing to study real concentration (and they know this) is to strip away all “phony” open interest, not add more. They should also be removing phony futures spreading to determine true concentration. It has been suggested to me by those knowledgeable about these matters that the big spreading in COMEX silver futures is uneconomic and designed solely to make the concentrated short position look much less than it really is. Shame on the CFTC for resorting to such shallow number games.

If one looks at percentages alone, which is what the CFTC wants you to do, you lose the evidence of the allegation. This is their intent. No market has a higher overall concentration than silver, especially when you strip away phony open interest. It is when you compare the concentrated short positions to real world supplies that silver really is off the charts. If you compare the concentrated gold short position, for instance, to real world gold supplies, and do the same for silver, you’ll see silver’s concentrated short position is 100 times larger. Similar comparisons yield the same result (as Loeb pointed out in his letters to the Commission). The CFTC ignored this completely.

Next, the CFTC tries to portray the concentrated short position as not changing much in big price run-ups and declines. While I agree there is a “perma short” quality to the concentrated short position that only confirms the long-term nature of the silver manipulation that I have alleged. It is the inclusion, once again, of extraneous option open interest that allows the CFTC to reach such a bizarre conclusion.

The final point that the CFTC makes is the cruelest to the victims of the silver manipulation. They claim that the concentrated shorts sell on the way up and buy on the way down, something that is common knowledge and proof of the manipulation. What they don’t say is how the shorts do this, which is clearly by collusion and withdrawing bids and offers at critical times, like recently on the downside. The CFTC tries to portray the concentrated shorts as providing support to the market on the way down, ignoring their collusive methodology. It is akin to proclaiming a burglar as a crime fighter because after cleaning out a house, he’s made it theft-proof.

In its entirety, the CFTC’s response was weak, non-responsive and downright deceptive. It was designed to cloud the issue, not clarify. I can’t help but reach the conclusion that the CFTC had to know the real story in order for them to issue such a misleading document. They could not be this ignorant. They had to know the truth, in order to lie like this. They only question is why they are failing to enforce the law. Are they too embarrassed to admit they blew it for 20 years, or are they beholding to the big shorts for some unstated reason?

What to do now? As I have previously written, the response from the CFTC would not mark the end of the campaign to end the silver manipulation. Rather, it might serve as a springboard to further action. Today, I need your help to put pressure on the NYMEX/COMEX, the wellhead from which the silver manipulation flows.

If you have reviewed the unfolding saga of the silver manipulation, including the recent response from the CFTC and the vicious engineered sell-off and feel that they have done nothing to dispel the existence of the manipulation, I have a suggestion for something you can do now.

Since the real problem lies with the NYMEX/COMEX and their failure to not only eliminate the manipulation, but also even to respond to credible allegations of that manipulation, that is where the pressure should be applied. Specifically, I am asking you to contact the Securities and Exchange Commission (SEC) and ask them to delay the NYMEX’s plans to go public, until they address the issue of silver manipulation in an open manner. A legitimate SRO would not hide from or ignore allegations of manipulation, which is the most serious market crime possible.

There exists the strong possibility that Exchange insiders know of and/or are involved in the silver manipulation, and are anxious to transfer the great liability that a silver manipulation/default would bring, from seat holders to public shareholders. There couldn’t be anything more wrong than this. It would be a shame of the greatest magnitude for the SEC to permit this. The SEC should force the NYMEX to address these concerns before allowing them to go public.

I believe the SEC will listen to you. I know it can’t possibly hurt for you to contact them, and may, in fact, help tremendously. You are not asking the SEC to investigate the silver manipulation, you are asking them to force the NYMEX/COMEX to go on the record and openly address the allegations of manipulation, that would be expected of any legitimate Self Regulatory Organization. Even if the NYMEX responds that there is no manipulation, it will force them to go on the record and leave them more liable if and when a default occurs.

The contact info for the SEC is as follows. Feel free to send or reference this, or any article of mine.

Division of Corporation Finance at 202-551-3500 or by e-mail at

And/or Chairman of the SEC

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