suin happened with my pension fund i might be suing you. again, i am open to hearing. 60 percent is some magic numbers 59.9 isn't. that isac ridiculous. >> i hear your concern. >> again, i'm not exactly sure you did the same thing. rades.forw dn. exactl the rules of the futures markets are very tight in terms of what is called a busted trade. .. tight in terms of bust -- what's called a busted trade. that they have to occur within a certain number of minutes, really, after the trade. then there's a certain -- i didn't describe it earlier, but a certain limit as to how many ticks away from any future that trades that could actually generate that. so they're very prescribed rules. >> is that subject to a specific standing rule? >> that's correct. >> i may argue with what the rule may be. at least everybody who gets into it know what is the rules are. >> it's very transparent. >> that's i think is the problem

with the other exchanges. the lack of transparency. we've got enough problems with this generating hundreds of thousands of lawsuits on the basis of probably billions or tens of billions of dollars doesn't help the situation. i will ask the next panel. thank you, mr. chairman. i yield back the remainder of my time. >> now we'll hear from the gentleman from california. >> thank you to all three chairman and director cook. i'm trying to understand what we know and what we don't know at this point. chairman f we focus on who these all-publicized trades pendingt the extenders andny so forth tho didn't go to a penny but thosee trades, those trades occurred correct?consummated, but so someone bought and sold the stocks.d, what sort of volume traconsnsac at that level? do we know that?

>> i don't know that but i would be happy to provide. at tha i know there were 300 stuff where the trades were brokenreer because they were 60% or more away from the market and i bn believe the vast number of mor spoiled was 19,000 trades. about >> across all those securities. significant volumes become so in a given security was there aso i thousand shares traded at aca- penny or 300 dolls and traded at a penny or do we know? >> i would be happy to provide a for the a record.nn i don't know that we have all that data yet. h to >> where were they transaction?w new yorke ha stock exchange? new yoq, other exchanges? >> that's the nature of ther fragmented marketplace.ery no stock exchange trade more than 20% of the volume or 25% o. the volume is its own listed eecurity because we of so many treating the news so they traded

in markets like nas-daq, stock exchange, direct image and indoor pools they are not so transparent and internal byn dk broker-dealers so there are multiple ways for securitytion y transactions. >> so again if we took a given security that treated at aso, penny, those transactions occur on multiple exchanges at a penny at that point?ions multiple know? >> we don't know. >> that's part of what we don't. know. okay.s the and then p i suspect a lot of ts is what i don't know and i think what we need to find out before we can, you can or we can jumpen to conclusions but i am to stanp we have orders and those turn jm orde andket orders. but then how does it run through if that happens how does it runs through everything to a penny? how did that occur?

and stand at that point it is a market order but somehow it has got- how did to run with 32 atn we are there significant transactions of weight on the a line or did we have a 20-point gap?s to any >> some cases there were and ome cases there were not. as the orders started to cascade down and they were not buying orders on the books of the xin use besso gup of the sellingf activity and as there was continued pressure from the seller's investors put intivity stop-loss orders they convert basically to a market sell orde, as they go down. order the sellers that were naming the market ended up executing against what we call stub quote that is where you get any price. the market maker doesn't plan ts provide thetu liquidity so theaw have to make the market theyaker will make 1 cent to 100-dollar i market andde for the 1 cent prik it's oute there in thea t

marketplace and some of a these orders get that. stub quote think the view of the tchange's winner yesterday wasi universally that they served no purpose in the marketplace so ws that's another issue we have ont the immediate agenda to conside. whether we were to have to have real obligations to make genuine competitive markets spreads or get rid of the obligation and obgationd up with the penny portions. >> there's a difference inco th future and securities but i'mr not sure you could translate onl to thed other. there is no stop-loss market ser noin the futures markets in both of the major exchanges it is a stop loss limit order meaning when the stock is hit tj the stock is when the price goea down and hits the price and then the order goes and. it has to have a limit. goe >> let me just ask one more question before my time is to running out which is what hasni changed -- this could not have happened i suspect 15 or 20, 25

or 40 years ago. or 20 particularly to the back to the traders on the floor with a rtece of paper 40 years ago, 50 years ago, so forth but i guess what has changed that enabled that kind of significant stop loss of market orders are not a new thing. this is been a long time and what is the new things that occurred that caused this? >> i think that volatility is br part of the markets and was in 1987, huge volatility. volatilii i think the change is floor traders, specialists and the futures are now more and more i an office with computers and the computers are located right next to mor the exchange engines and everything is down to the nanosecond rather than theown t liquidity providers to be a floor specialist or in the pitch

and that changed in the 20 some years. to be eher >> i would say why we haveat's a tremendous public of the inyear. october 1987, we had many more market participants who don't same sort of affirmative obligations to the marketplace that we have at that market time with specialists withrt of market makers on the ground. mark so speed, volume, velocity of on trading, volatility and less our trading,ons to the market as a whole. >> my time is expired.gations he thank you.s >> thank you. now we will hear from the a gentleman from illinois. some of the senate understand the origin of the high prices ad did and it is reported at $100,000 so on? share ayman were these algorithm neck bids or what was the nature of them and the firm's? >> i did believe that is what we're looking at. i would ask robert to jump in. there were 20 stocks the 2 p.m.

price during the period there were 250 or more stocks thathen traded at 90% below the 2 p.m. price but don't know yet if we know the reason.traded90% >> no, we don't. there are many more that traded below the 2 p.m. prices and above but we do not know the nature of the orders that cameb0 in that fit into the prices. tht >> you don't even know who made them?in >> not at this time. that is part of the informationt we are gathering together because we are pulling together the information as to where thet orders originated and which the trading venue and then we will go back further and find out whi put them and for the brokers. >> so you don't know who is that this made these? all right, german gensler, would that be the case? >> in the futures market we didn't have either because there was many curbs and limits in the riskt be management but one of e things high-frequency allimits algorithm traders do is calledn.

friding if i can use the term of the computers actually pueqt ina bid one contract at a time or the security at a time and try to pull out the liquidity and ry t it. if there was interestingo quarter, resting bid at a pennyt or at $100,000, the computersd a can kind of strip through and at maybe find it. maybe. that is just impossible thing tf look at. it may be that is what happened. >> are there mandates that thes firms in the elder rhythmic code and data base is so they can reproduce the trading decisions after the fact in the course of these investigations? >> we thought we asked for some of these largest traders to sit down and see the code folks in the division of market anded foe serveillance are sitting down this weee tk with a member of ts largest ones and actually sur looking at the code. num >> is it possible response theyn >> rht.don't kdnow we have a usrsion then we overrode and i j

mean, are there in force in t fodustry standards so you canen see what corcde were you runnin last wednesday after an?back any >> they're regulated entitiesaf? yes, we can see the code and we've reminded people post code thursday we won the code not wed changed. if they are not regulated-thu entities we haversda to get than information by a subpoena. >> could you explain briefly hoa the trade dustin works on a synthetic positions?explain the underlying stock is determined to be broken does that automatically imply the breaking of synthetic positionsy and how does that work? is there an agreed upon a way that that should happen and is-s dhat we it happens? agree >> i can speak to how the city streets are busted and i thinkha we've talked about its a.m. on satisfying process because ited. lacks clarity and consistency

for investors upfront the exchanges in this situation and this is unusual because normally the trade situation is a single single omething goes wrong in the technology here we have hundreds of stocks that need tos be busted because the prices were sharply diverge from where they had been the previous days. exchanges meet and come up wit i common standard so that theres are trades at the same level. >> my question is how does that percolate back into positions their derivative positions? that >> in terms of the dustin i don't believe it does but itck s does have an impact on if they had hedged position that bustedb they have a hedge now and are exposed.'ve got a >> and the securities markets the options markets would makeee the decision of whether to brea the trade if the underlying security trade had m been brokee

in this case very few wereg se broken but some were. the process was and what we coordinated if the derivatives - the options market made theis decision separately that is one thahe things we are looking at going forward.from the suritie >> i don't remember everything 're in the role which is the busting role.on't what we had last thursday, the industries themselves didn't wht price indices and come back and, say there was a different thing and i know that ,was relevant to they those markets. >> okay. would you say that overall what happened last thursdays se strengthens or weakens the caset for merging of the cftc and sec >> well,th i -- >> first of you don't know my a position the should be merged and moved to a chicago.off, you [laughter] >> i'm with you on half of that

i agree lifelong held the view u that the two agencies should be merged. the participants in the magrrke- view t the products are increasingly similar and the markets are increasingly linked and there would be efficiency and economye of scale to the merger but it'se the political will for that tol happen doesn't exist i think as i said earlier, this is the best working relationship in my year of being about the two agencies, i have ever seen in terms of wo collaboration and cooperation. o i am not sure that the defense of their stay would have played tht differently had there been just one aurgency. >> to share that if a lot offfee software tools that you are developing to analyze this or is that just you have independentm groups? do you have any comments? dev >> it took an act of congress to allow us to create joint advisory committees of theave a? ability to federal agencies to actively share things mystifies me on the limitation.ies >> i want to thank you.

you didn't with the time it was part of the appropriations bill last year congressman lucas probably didn't know about it. but i think the agencies and chairman shapiro delete clause be it for the last 11, 12 si ihs. it's been collaborative, every close and i think the will of congress has been since the 12 1930's that we have one agency, strong agency and the sec overseeing the part of i ct andt another agency over seeing the derivatives exchange derivativer markets and now we seareeing tro fill the gap and the over-the-counter derivatives market as well. this >> thank you free much. that completes our questioningu. for this panel. will just take a moment tostioi thank those of you again and i want to reiterate something mr. scott said in hisoth oyou questioning after hearing the testimony from the two regulators, i feel a lot more secure not certain i can tell you why but i feel more secure.

[laughter] and i look forward to the nexttd several weeks to open disclosur with the american public and thd congress as to what you find aso soon as you find it so that we can get to a final conclusion. but in the meantime to sohat participate in such rules were changes that can help prevent what has happened west thursdayr with that, thank you both.ay. you can get out and enjoy the bh rest of your day. -- before, mr. chairman and the committee. >> [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> first of all i want to thank you for appearing before the subcommittee today. and without objection commodorep written statements will be made a part of theea record. you will each be recognized fore you will minute summary of your testimony.e

first call, we have mr. lawrence leibowitz, chief operating officer, nye euronext. le. leibowitz. >> good afternoon.g of chairmanfi kanjorski, ranking member garrett and members of the subcommittee, my name is terri leibowitz, the officer of nye euronext. thank you for the opportunity t be here. we commend the rapid response of last thursday. as you know we've begun a dialogue with regulators ande f other trading venues and it's been very productive.. we are committed to working with you and other marketalogue wh or participants to restoreour othei confidence and enhance safeguards in the future. ld like to discuss three things. first high-level cause of thecei eventsnv last thursday.ture. second, clarification about the thin nyse market model and what worked and third, recommendations going forward. it's understandable everyone ist looking for a smoking gun behind last thursday's tip.it's uanda however, the circumstances are more complicated than that. i will leave it to the regulators we heard from to line i'e interactions of the various

markets, but from our standpoint we see no evidence of that figure error or market inhabitation but we know that more and more the market withinf the u.s. and if the vehicle in. the world are intertwined. ando however, we see the following: a market activity coming from adverse european news incurred ne huge brought the based order and quotes are of 2:30 p.m.. a significant reduction in theoe market liquidity as measured by the order books through today which exhilarated dramatically to the downturn.y which various mike restricted issues that resulted in certainhrough marketplace is not interacting with one another which variou ofes not liquidity fact. the nyse increased electronic trading and we believe the efrket model provides the best cutting edge technology with h human judgment.ading. the nyse heiberg rules providef hun anisms to mitigate volatility and large swings which we've always believed is a critical piece of the offering to list the companies andhanism investors. specifically, the nyse istical

incorporated the structure, a type of b preak mechanism knowns liquidity for the one negativera appliance or lrp that pause trading in stocks when significant price movement occurs. on a typical day, lrp orcally pe triggered 100 to 200 times, lasting seconds at the most and during the recent financialnifia crisis serve the market well. let me be clear, the lr mechanism doesn't hold trading. instead for a short time the be trading is automatically pauseda tradacilitate more accurate price discovery and prevent the market from a sudden inis to significant move. during a pause, ' is visible to other market participants and new orders are accepted. to jump on chairman gensler's analogies we are taking control of the planto of all the pilot n turbulence. i want to highlight a few specifics and clarify an act of the statements made. this is not meant as a comment on other markets or other market models just to clarify from the th nyse standpoint what we saw.

during the 2:32 3:00 per go the market share on nyse was five percentage points higher than usual during that time of day. in participation rate of the hir market makers formerly known asf thecialists was equally strong. this is evident the liquidity didn't walk away from the market as we actively traded during th downturn. furthermore, to demonstrate thad lrps was not of the market asheo price declines in iran asration executions for greater than on the nyse stock. last, the overall marketplace needs to cancel approximatelynye 15,000d executions after the to decline. on nyse even though we handle the largest share of orders in the marketplace we had to cancee zero trade because thes i protective measures in the market. one note, lrps are not m intended to prevent the market from falling.ur rather, lrps are designed to protect the integrity bye markem protecting a panic downdraft in the mendicant system at risk.ur

in a slum and other electronic market may choose to ignore thee quotes as permitted under the regulation. bottom line while there is always room to improve lrps and other mechanisms these actually worked reasonably well on thursday.chanisms however, the nec and i'm is the it isbly welfective thereby averting the news and on is why german shapiro'servedb plan for the industrywide trading circuit breaker is needed. in terms of recommendations, trg what focus on three main topics echoing what chairman snechapir stated earlier. first the market needed reestablishment coordinated way to respond to the rapid wha volatility. the lrp system worked with the d systems are necessary and will be more effective. the trading venues have agreed s to develop the stock levelven circuit breakers to pause trading when the price ofgreed security changed dramatically in short period. when circuit breakers are triggered in the security they will apply to all the trading in a secure base wherever it takese place. second, the credit marketwide ao

circuit breakers were a establishedse long ago based on market moves of 10%, 20% andaker 30%.establhed long a they're not in a move up greatet than 10% in a single day post 2000. and these levels will be tightened a and the circuit breaker based on a broad index rather than narroo dow jones index.d on a b third, ofro the rules on cancellation of trade will be i. further defined. on may 6th it was announced after the markets closed anyher trades executed at 60% above or trlow the last price at 2:40 would be canceled.cuted at this wasn't predictable and be caused confusion in the markets. we are working with regulators and others to establish clearsed cancellation rules for thewe arw future. and uit breakers will help mitigate the problem substantially. to facilitate a review of eckerr and retreating evens the should be consolidated on a trail thatp will allow the regulators to ease of review the trade data.ao been understand the sec isnts allowoping the proposal and we are committed to assisting in that effort.. ultimately these and other important actions may best be

achieved by consolidating markes surveillance and securitiesactie regulator probably fnra thatsuro would require anne act of re congress. we also need to ensure both fnra and the sec have the full of co ensureg required to provide the duties -- perform the duties.se finally, the sec should continue broadbased market review to find ways to improve the current market structure. in closing we applaud the sec and the cftc for working together to review the defense of may 6th and develop aclosing, coordinated response. and t nyse are committed to maintain ongoing productive dialogue with these agencies and other trading venues. once again, thank you for the opportunity to appear and later on i will be happy to answer prv questions youe might have. tr >> thank you, mr. leibowitz. tor now we will hear from eric nollb executive vice president at ther nas-daq of services. >> good afternoon chairmant, mr. orski and members of the subcommittee for letting me speak to you today.

we meet delete comet yesterday along with fellow exchange's chairman schapiro to develop the fellow car to the princeton and investors in the wake of last thursday. jointly to assess and implement changes to enhance the marketability to handlethury onusual trading events in thelyt future. assess the market for strong despite the 17 minutes of unusual trading occurred may 5th.future fight the market's rapid recoveryng desp during the peakc resilience of strength. to understand fully you have to look the state of the market didn't last week.6 presid fact,s were nervous and to uating during an unusually mang upward trend.e long the market low of below 1300 of march 2009 the nasdaqfra composite index had risen steadilyma 25, 35 on april 26, 2010. >> mr. noll, can you see if your microphone is on and it is close enough to you? >> market were becoming -- increasingly volatile accordingd to the volatile index which measures volatility of the s&p 500 expected over the next 30 i days. m

note that normally is below 20p0 and by may 5th it reached theda. upper 20s and me sixth and by mnth closed about 30 did trade of 40 on several of those uppe times.r this increase to the volatility to the escalating financial crisis increase in europe will o percolating several monthsse thl potential harms seemed to sink into the u.s. market last week we arrived at the afternoon of c may 5th. first the dow jones investor wr already trading of 272 points. avr the day and 500 points in aye last three days. for the d second, the chicago exchange was beginning to experience unusual trading activity. at the same time the equity handle heavy trading in the high correlated equity to that in the future. e the volumes rose and pricesn the began sinking rapidly at 2:42 t before the equity prices sank rapidly as well. at tie 2:40 it became so volatile that the cme trigger the automatic 52nd trading pause

in the futures. the fact that the future triggen autoc fivey leveled off and began to climb rapidly equity followed shortly thereafter.begc third, the exchange began experiencing data communicationd that hindered the linkages between eight and other exchanges.ing dat simultaneously the new york nkages bicchaatnge beganions reg multiple liquidity replenishmen plants and what's the impactepoi trading of individual stocks int the new york stock exchangets o market. from 2:39 titonka 47 the dowhe jones dropped to hundred 37 points now from 98069 and down d 995 points total from the prior close. from 2:472:46 it recovered as pr rapidly and 612 points from 986 to 9974 down 387 points for the day. from 2:56 to close it rose the another point ending the day down 342 points.

nasdaq analysis indicates the unusual activity onro may 6th which triggered that consulate32 of unusual events including the events outside of the cashactivi equity market. m usual etinue to investigate thursday's event but have located no smoking gun that thnglehandedly called for extending thursday's event. from the system standpoint,mokig nasdaq's market operated continuously through the day and the critical 17 minutes each and every one of nasdaq's systems function as designed and o intended.nasdaq's the execution in june, market data and surveillance systems. we have detected no system malfunction or trade by nasdaq members interacting with theeted nasdaq stock market.ion no nasdaq member has identified the system error or applications within their ownto systems.sdaqs sy stated, nasdaq supports the response of thest sec that supports the recommendations to update the market circuit breakers. we think the circuit breakers should automatically of trading in all markets and measuredaker stages. we expect german schapiro's

testament of announcements abou what those look like the very near future. we also support the commission saw your cross market single stock trading cost.ill l the important characteristic ofu such a halt should be the consistency across all theing markets initiated by the primart markets and orderly resumption such a co trading by the primary markets.ss any rules all t of recognize th, trading in different ways rather than one-size-fits-all approach. we do by believe, however tradig off another regulatory actions trould never be a tool for use by primary market or any other market place for any otherl competitive reasons or to a disadvantage any other nationaly market system participant. finally, we are exploring other ideas that will improve and in for a tight with a continuous quote in allt. markets. thank you again for the opportunity toidea ss htharate s and i'm happy to respond from any questions you might have. >> thank you for a much,thk youo mr. noll.ws. now if i may recognize the gentlelady from illinois. >> thank you mr. chairman i'd like to welcome my constituent,y

mr. terrence duffy, the chairman of the c m e group. thank you for joining and sharing the expertise j >> thank you, treen kanjorski, ranking members of the committee iis am the exhibit tariffs emt d i want to thank you for allowing me to testify today. it is widely known futures markets are the leading you f indicators for cash market. rkets views of the markets activities have revealed no suspicious or a running is activity by the customers.f the the exchange didn't bust or ray price transactions. activit further, oury analysis indicated that the decline and the spider ets and three m stock proceededs to drop in the s&p 500 contract. as i will show in a moment they were far more severe even after they we far price recoveries in the s&p 500 contract. after sub liquidity in thste s&p future ar its effect spreads werees considerably better and the

spider ets throughout the day on thursday. nsiders point, it is premature to draw any definitive atnclusions as to what caused the extreme market volatility on may 6th. what we do know is that we are l number of macroeconomice extrem conditions as well as lack of noerational harmonization do k christa multiple treating the news of the equity market. this resulted in the cancellation or the busting of atiorities transactions by the nasdaqna stock market and nyse. in contrast the group's the 500 contract perform smoothly despite significant market activity and volatility. the selling and subsequent rebound in the s&p 500 index future won a dramatic was veryt orderly.rebound the s&p the market provided liquidity w investors needed to hedge against the turmoil happening elsewhere. as i mentioned earlier the cmese groups and s&p 500 is a leadingd indicator not a cause of the decline in the underlying primary market. futures contracts by design

provide an indication of the market view of the value of they underlying stock index. this makes futures index futures a risk-management tool for the market participants. to illustrate this point i would like to draw or attention to th charts. when looking at this informatiol is important to note there is ay difference between futures and cash reporting. cash index values are only d updated every 15 seconds while the futures prices are updated l on a real-time basis.d eve this means futures marketces reflects conditions in real timr while the cash marketea has a 152nd delay. the first chart shows the ile th comparative value ofe the trade it on the futures market forcest the equities markets. as illustrated the s&p which is the blue line and virtually in t tandem with the spider ets mark market as well as the s&p 500e index that is the red line. you can see at 13:46 p.m. theth0 market had time to attract can liquidity and rebalanced and lead their recovering leading dow jones to recover 400 points

in three minutes. moving to chart number two, thi graph shows price movement themi s&p future as well as three m'ss stock. price as you can see the price of m te three and declined much more rapidly starting at 1345. wealthy eat many s&p at 45 and 50 seconds at which time you ca see the market in the reverse one of the three m stock continues to decline. mi market integrity is the of most important to the cme group. to we have systems that maintain integrity including a number of controls to protect marketelopes users. for a simple cme is the only exchange in the world that pre-execution credit only tntrols. as chairman gensler mengin did asmains functionality to pausel. when orders if they were executed would exceedctionality predetermined levels following n the 52nd pause the new orders would come into the market. this is a critical point. fo believe this functionality

and these particles do not exisi thishe cash market. if they did would have beenlity d thly effective in eliminating the dislocations and three m and proctor and gamble. in furthermore, the cme is treading ever stricter incorporatesprocte numerous risk protection tools. they provide added safeguards to customers and clearing firmsmerr including stock price logic functionality.ing price banding and circuit breakers. as i mentioned earlier, the stock price logic function of the help mitigate the market men spikes that caned occur becausee the company was triggering or hl the election of trading of stop orders. this is what happened last week tradinhe s&p futures allowing theg liquidity to come into thd market and ultimately leading to the rally in the equity market. we believe the focus of your anu review should be on the national market system. we support chairman schapiro's recommendation of harmonization irmans platforms. cha we've seen no evidence high-frequency or other specifig

trading practices in any way magnifies the decline one tha may 6th.tr other specifi in fact, we believe practic high-frequency traders in teshe market provide liquidity on both sides of the market and this extraordinary day.ty on we do however recognize changes should be considered to avoid the vp of the events of may 6tht we would like the following cono recommendations. a repeat of the as chairman schapiro printable ma circuit breakers and quote circuit breakers for individual ntocks such as those implementea by the nyse must be harmonized across the market. we also believe that the stop those impleion of the should be adopted across markets on a product by product basis.zed to prevent cascading downward market movement. the circuit b freaker levels ofn theircuitand 30% and the duration of the halt and time of 10%,%nd which the truckers are applicable should be re-evaluated in light of curren da whichonthditions to determine plicabr any changes are warranted. re any such changes must beurrent t implemented across all of thecod market and use. changesre i thank the committee for theans opportunity to share the cme's views and i look

>> thank you for a much,uestion. mr. duffy. now we will move on withery muc questions. and i put my question period first. mr. noll, and mr. leibowitz, qut listening to your testimony iion not sure anything happen on thursday. everything worked; is that correct? >> i don't think any of us woulr say that anything worked. i would say in fact what mr. noll as saying the system support what we would agree the market did not and i. thii nfakct, that systems -- >> what caused the market not tl work?agree that the >> i think what both of us have found is liquidity led the market just as through the day as the market was skittish and d an overwhelming wave of orders came in on the south side that build on itself. or camk having a market like a circuit breaker in effect would that j help mitigate the problem. thinv uircin efinfect the market was illiquid just up a long time.ila

>> thank you. i think mr. chairman there are two things to observe that broke happened. thwould agreento with mr. leiboz that markets didn't believe you normally on the day and my poin. was our technology behaved as it is designed to on that day.behae but i th niornk that it's import av observe two things.logy beh one is that the marketplace beh circuit breakers we do in fact i one place today were not triggered. the mar wide because the market did not fallt to the point they were triggered.iggered. therefore caused the market hale sliding a german schapiro is marrect when she says we should revisit those and reinstitute different types of market circuit breakers that willscro arrest the market wide halts as ret thoppen. i think the other point she madf differently today which we certainly agree with that nasdam is we need a coordinated stock r price circuit breaker across all of the market's we don't have oy ohe books we don't have the regulatory authority to implement and we will see thathe soon coming out of the sec. o

>> the results on your part with the fact that the new york part on exchange e a slowdown operation butth nasdaq continued going around and allowed the sales to pass through to the nasdaqtinu exchange and had no effect is that correct? >> that was a contributing costh toat h the events and it pointst what we would argue is the needo for the coordinated stock by stock of the circuit breaker.nts spearman from our standpoint what we have shown what we see is we don't think that the fact we were moving slowlybreaker. exacerbated the effect that we t were treating high market share in stock prices in line but thee fact other markets the didn't of circuit breakers of all would like the nasdaq listed market had even more damage than in the new york listed market but i think that we can all agree having uniform market circuit breakers would have helped and all of that. agr >> i have a question. circui everybody wants to protect the

private market. and has the market functions. pe but is this the first timect tht pr hu have made that observation the two major markets?u' one set of rules is in place in the new york stock exchange and another set of rules in nasdaq n and that you were not to operate in tandem that y to gather so this could happen or you didn't realize? >> what is fair is the markets l are coordinated in many ways. m. we have several differentr standards for the list ofys. companies. as an example of having to do trading but for the market declines overall markety circuit breakers we are w trordinated. we have lines we use frequently breake the trading problems and technology problems.dinated. >> don't give me everything that you're coordinator --rythingt >> we speak often about many we issues. d k the bond issue that has never appeared yet is a significant

problem between the two marketsk is a corporation of a stock by stock circuit breaker. mkets >> because it never occurred you didn't simulate the possibility that it could occur and you didd not cooperate together to put ii place, and rules that would have prevented it from occurring; is that correct? obviously to free-marketocin operations rely on either theo united states congress or the operions areo take care of the problem rather than giving it the yourselves. >> as permitted by the p regulators we do havero differet yourseg models. welv rely on desiccate market makers to have an obligation tou the market.la the of a different type of trading model and there are areas where the rules are they h slightly different. we've seen times during thearioe crisis of the fourth quarter ofe 2008 where there were significant breakage of trades in the electronic market, an whe erroneous but were not in thedee nyse trading market. erron

at the teoime no one felt that separate rules exacerbated the t problem.market. it's just there were more bricks in the electronic market. they're taken off the tape in it the fourth quarter's just th ofa >> my time is expired. the gentleman from new jersey. m >> it is often the case i will follow-up with the chairman perhaps going on that is is this something you were saying -- is what a situation and thinking back if you had this hearing a while ago that we couldn't haveu seen coming? >> i think it's hard to say that we see in this coming. we have a set of rules in place weat govern the respect ofng. different markets when they are courting and not quoting and the erole set of procedures around that we believe have worked well until quoting this point. they do continue to work very vr well as a fact mr. leibowitz

operates in the market that participate as well as the new york for. they were engaged in the sameofm electronic trading that we were. on thursday and participating. so generally i think that will set work scored nearly well. ha did see the consulate evenk t ensler clearly we need to do something to address it and i a think what chairman schapiro suggested and we agree with isog we need that courtenay the stock price circuit breaker. >> and just to go down that road a little bit, mr. leibowitzby sk maybe you were touching on it if i was hearing you say it thewerg issues out there the confluence of issues was one of thoset issues in the confluence what one of those over in europe and the fact the whole great tha situationt and mr. noll use of the u.s. was finally paying attention to that and the factm that the value of the currency was going down other foreign currencies and the relationshipa

was going out and the btanks wee having a different time with do their kerry trade in that respect and so in the order to deal with that they had to do te something which i guess is too unload equities? was that an element of what wass coming out at that period of time? >> i don't think we have any cong outty into that and we period of tid that. i think we are focusing on ourit market and leading the sec and cftc across the market effect. >> does anybody else have a thought on that as far as the influence of that as being one of the consequences of their impact of the trade as well?nflo >> we have seen nof evidence ofe that and as i said we are very focused on what happened on the individual markets. >> to the extent you're focused on what's happening in the onur individual markets the chairman was saying before that four days neter we are still trying to gee the data collected from the 40 or 50 however many there are das right now data sources. all the there is no central repository for all of those trades and tha. is why she is going out to get

them as she is i guess.trades. is that a problem? is that something that we should have seen in th e past and try o address? is >> i think t the chairman andhea others in the marketplace realized the was a potential problem before and as a mattert of fact there's been ongoing finra d sec with the trail that predates. the it's unfortunate we haven't gotten to that point so far in the marketplace. sprick is their somebody opposed to that?rketplace. >> as far as i know no one isols opposed. it is a matter of applying thet? process. >> who is responsible for that?o >> it is a market issue, multiple regulators. there may even be i'm not for t? absolutely positive but there may be some congressional authority is needed in order to do so. may >> as far as what authority they have now on what day may need is the future one of the points is already been addressed and you raised this to some extent as nt

far as commonality of market colors but potentially put onext their. as far as is there a difference as far as the folks who are at the table right now the major participant and some of the small ornow, alternative platforms as far as whether this should be uniforme across them all and if the answer is no why shouldn't it be and if the answer is yes would that impact upon the slightly a ct impant models of market participants?he >> the answer is there should be one standard across all platforms with an exchange any different than you. and there will be. >> and we didn't have any of them here but if they were sitting here what what their dit argument be why shouldn't it be that case?idn' >> i don't believe anyone woulde argue against the circuit breaker. >> i think he already seen>> i various other bodies come out it favor of it.tock i think the industry at thisnk point what lineup 100% behind it.k the indtry

>> okay. it. about the time to implemenu changes? as you said a lot of it's been looked at for a long period of time. for the in ms took the regulation, they took a long time in order p to implement, we are talking about implementing this quicklye is there a problem if we move inlk too quickly at this point in time or is it the right thing ti do?ckly at oi >> i think on the circuit breaker issue we can quickly. i think the chairman will be mae discussing making the filing is ircuitng the market c breakers will but will shortly e and we will process those and m put them in place veryively efficacious late.tly. deal with some of the stock issues we may want ton cross the issues -- the circuit breakers. i'm sorry.cross there may be some technological but i think those are short dated if not long dated. >> thank the chair and theot log

witnesses. >> thank you very >>mu gch, mr. garrett. the gentleman from california.. gentman from >> we are talking here about ho. to make high-frequency trading saver. the question is does it still in the social utility at all in ini the oldll days somebody would wt to sell stock for $10 somebody else might want to buy it for $10 a nickel. i remember when they were in 18th of a point and somehow there was a settlement inn between and may be one of the 1f other of those to investors gote a slightly better deal. now there is somebody with a sgt fast computer who can come in and scoop up the 5 cents to make sure that neither of the 5 investors benefit from it.

i realize wall street makes a lot of money from the high-frequency trading but the s question is does it help provide liquidity and some other way allocate capital. or in now the event of last week seemed to be high-frequency trading doesn't provide to liquidity it uses up liquidity,g demand liquidity and there was no liquidity for a few minutes. so i will start withdity for mr. leibowitz.minutes. if we didn't have high-frequency trading would this hurt the company's that are doinghe business and their employees? dg >> sure. i'm going tobu move away from i? there is a social value to this. the market makers have existed

for hundreds of years so it isn't correct to say that in th past dustin they sold at $10 they want to buy it matched up. the difference was that were physical people sitting on the floor of the stock exchange or$d market makers and nasdaq buts ty physal peoways been the middleman in treating and what we red oo nis they t matchhe f e buyers and sellers and sometimes they play a role and sometimesea they don't.e sometimes when somebody wants to ses. the buyer doesn't happen to be there so they are matching different time horizons. i think as the technology epersn concentrates to speed up peopl are unable to the, unable to keep on the market-making capacity. that is why the specialists have been replaced by what we callleu markgnated market makers who in cafect are high-frequency traders but they have obligations into the market. reey have to have requirements f to provide a certain amount ofee liquidity to not allow to take more than a certain amount of liquidity from the market so they are high frequency treater to operate in the structuredamot way. >> what percentage of the trading is done by these i will

use the old term market makers?s >> i would say in the case of the d m m and they provide 10% of liquidity to the new york caf stock exchange market. there's another for market% makers we have also in that variety that is another 10%. mkt if i could interrupt because i am have five minutes i'm notf asking what percentage of liquidity is provided by these individuals. i'm a asking what% of the high-frequency trading. it's been reported to a third oo the trade in the united states are these high-frequency traders and you're describing what wouls seem to be a of very small high percentage of the high frequencd trading. you're >> i would estimate 40 to 45% oa the market is high frequency market makers on some form to either as okey or other things.s the balance of what you make int to the two-thirds is algorithm eckert trading.e oth that cerould be a mutual fund t

deciding to tell 2 million is shares in electronic form that is implemented as a series of small trade that looks like higd frequency. so you have to be careful and that is why we heartily endorse german schapiro's large trade fe reporting scheme where we can get transparency into a high frequency trades are doing.aern >> most of us when we think of high-frequency trading are looking at those who are buyingn and selling the same stockf within a short window, not somebody selling it and selling them which as you say could beot an investor deciding to unload i stock or a portion of it.ay mr. noll, do you have a commentg >> yes, when you look at onhis wtwithstanding last thursday tg that you looked the quality the last number of years and see an increasing offer spread and provision of liquidity at the tf tight spreads. so i think the concern would ber as we look at the issue and weni

have agreed with mr. leibowitz and chairwoman schapiro on how they are operating in the marketplace. i think that the evidence is to they provide the value in this since they provide a deep market and tight spread and reduce cost for all market participants to act. i do think however we need to also look at how they interactwe on this basis providing they provide real liquidity. >> obviously last week they were the cause of the absence of they liquidity but i believe my time is expired. you canabse respond further fore record.ime >> privacy we are not sure that you that is the case. furtheror i think is an overstatement toss say we know the high frequency i trader.s that is an issue we areent to continuing to look at at this point and if years there would be a broad market sell-off with. many market purchase opens on rticipantsh-frequency traders.

>> thank you. the gentleman from alabama >> history teachers there been a dramatic falls in the market before we had even an electronic trading and so i don't think the elec culprit's high-frequency trading. so i don't i guess that is part of the debate. one thing we can never preventer is negative market development for economic development from the fact on the markets. just trying to think ofrying sentiments so that is going to move the market and cause changes in volatility.oing to so when you really want the market to reflect is efficientl as possible. i would be encouraged by what i

hear today and what happened wt yesterday and i think there hasd been maybe as a result of last thursday concern everyone hadat before. we are coming to an agreement or not to be some sort of a agrketwide circuit breaker. is that right?here o do you agree on that?maetwide >> absolutely. and coordinated stock by stockan circuit breakers. mr. duffy?eakers. >> we agree with that and see nf issue but that isn't pertaining. to the cme group. we don't trade individual stocks sprick if you try an option oror trade ets for something that would be a trade option?

theyou trade moody's? >> we trade options on futures.e >> okay.es with >> we don't trade the spider.ra >> let me ask all of you, you know, we've kind of gone from af highly structured duopoly at of least with stock trading to a much more fragmented system. how would you advise regulators to meet the challenges of addressing market integrity andt price discovery without hurting the competition? >> i would be happy to start even though i think that this [inaudible] you need a set of standards and protocols across the multiple markets and i think it is ashe e simple as that. you can't have one set of ruless at the nyse and nasdaq and thenh different sets of rules at others. it isn't going to work. it is a recipe for disaster. no one has been able to explain

how it went from $41 to a pennya and that to mest is amazing. so i think you have to have the same protocols across the markeo places. >> all right. mr. leibowitz or mr. noll? >> sure.etplaces i think it is clear the complexity of the market i thients a challenge for the regulators. coere is not's c doubt about it. and i think that the sec is trying to respond to the review various aspects whether it is sponsored access were well timed and the resources need to be spd nimble enough to graduate all through that. to bink the tim challenges thats what of the complex and small changes have unintendedch consequences so for example what's ban high-frequency trading we would be stunned with consequences. it's even small changes are very

big effects we might not see ant they need to unnebe careful whi the same time while we see ad te problem we would like marketwide where webreakers on individual stocks that is an easy one, that is a no-brainer. c >> i would agree with mr. leibowitz. we are moving in that direction on the market circuit breakers t and the stocks changing with the circuit breakers are in the i bn entire market as well as talking to the affect of the audit trail and other functionality set thet sec. breers on it is a durham complex market. t i think that chairman schapiroot and chairman gensler are aware of how complex it is and have i t the tools and intellectual capital to deal with it. and we are here to assist themnd to do that. to >> mr. leibowitz, you need to wh work on what you said i agree with that the market's and exchanges handle volatility it. quite well during the financial crisis in 2008.

they didn't react quite as well for the volatility. last thursday. what do you think is thetility, difference? >> it's interestingknow becauseu discussed this atth considerable length. it has to do with things happening at a certain point in the day. a lot of the news on the lejt.cial crisis cannot override when the markets had a chance to absorb the news. this is something that happened during the day and as mr. noll s was saying it's almost like it was set up. is sometng tha the market was enteringday, and situation. it it was rising and there was in a nervousness about europe and there was speculation through the day and the announcement ofs what is going on in greece and happened at that time. had the news comes out overnight i guess it wouldn't have seemed. like the swing we saw during the day. >> but me ask this question in this circuit breaker concept.

th right now we are in a situation where we have computers using very difficult mathematical dift formulas to treat millions of share of stock in millisecondsn and our solution to this as i hear you say and chair shapirors and dance -- in the schapiro and gensler is the circuit breakers market white in a centralized in aentral and i saw a movie about a couple of weeks ago a fun movie if youa want to see. bu's called "eagle eye." very interesting to see. it concentrates on putting socod

much control into p a computer o what i want to ask each of you because apparently as i hearbecs your testimony particularly the new york stock exchange has said that you have circuit breakers. the complaint was maybe that moved to slow. so as we debate the issue of m circuit breakers, i want each oi you to tell us are there any downside? there is their anything we have todowe fear?ing we is there an element of freedom that takes out of the free an enterprise system the freedom ok thees market exchange? let us be clear is their anything that we have to fear ie this is the solution of puttingo this much control in the stock by stock market wide one central location of a circuit breaker? ..

breaker? >> well, if i could address that, in two parts, mr mr. chairman. i think the issue for us is that technology in and of itself is a tool. it's a tool used by market participants, and i think used very effectively by market participants. we view the functioning of our market and its continuous operation as one of the envies of the world, and generally bethe exception of that 17-minute period on may 6th, it functions extraordinarily well, and i would argue even during that period of time, our technology functioned well, but the market participants on our market experienced an absence of liquidi liquidity, so what we're really concerned about is when our markets become dysfunctional. what the chairman has proposed and what we have discussed as exchanges is not putting centralized control over the marketwide stock by stock circuit breakers, but adopting

similar rules so we have the same rule for when a stock get halted. we'll continue to operate our own technology separate from one another with the oversight of the s.e.c. i don't think we're talking about a central computer that is going to control this. we're talking about >> okay.dina >> i would agree that information is transmitted to the market faster andt faster and many fans have been it just triples to the market's it is on cnbc within seconds and the fact that trading and speeding up is that the market reacts faster and all it isthe designed to two is have a quick pause to make sure thi everybody a understands what is happening so we don't hit a down mak pocket like before. >> we're all strong believers of the market's and we compete with eachfo other aggressively be at we can agree onre're certain wit principles like the sixth

circuit breakers that makes the market better for investors because in the and freedom of the market they don'tt believe in if they feel it is rigged they will not invest their money which it is affecting all of these things. >> u.s. andalatio interesting question what will the technology eventuallyte consume less a what do we do, besides tata circuithat breakers to make sure this again it ispen more to it than that.ike pre-execution in multiple technology big news but then eake what isget into the most important? i inexperience risk management team and a deep regulatory department to make certain all of these h transactions are done legitimately and the technology team can work with your management team to make certain the computers don't go out of control.

>>our i know my time is up but that is a very serious because if we are, going to coordinate this the house to be some mechanism that triggers it.ck i think that was the failure in the new york stock exchange. you have a circuit breaker but apparently it did notchanyor work is that correct. >> that is not correct. our circuit breakers triggered well but in th current market regulations the other markets do not have to obey us when we wereke in the circuit breaker move.t it worked very well for anybody t else that observe that but it clearly shows a failing in the market if another market does not have to follow that circuit breaker but i would agree that this is not anti-conversation we have to make sure doing what they

are supposedconv to be doing that they do not go down saf this path.ke >> my finalt point* is if we go with this circuit breaker stock by stock from each of you very quickly iswi there any downside for what we have to worry about if we go this way?here >> very quickly on that thi point*. >> i'm sorry? to make it truede price than if they design the circuit breakers that we do so that buyers andck sellers are able to find each other because the impact of closing that c awful effective self when it starts to trade again thenvert you have the cascading effect.

>> i do believe he is correct but also of it is done throughout the period of the trading session not on the microsecond said you do have to discover price over a period of time and let everybody participate i ate at year we he is saying but i do not necessarily agree. >> it is incumbent to build these said a way for the market to function properly chance to pause and establish the right price. if we now could do a good job will be in the same place that we were in order for the process to work properly. time is my past thank you for my mak indulgence. >>mu thank you, mr. chairman. mr. duffy did york testimonymo you talk about the price and

highlight in a number of risk-management controls at the cme in addition to the circuit breaker rules sos could you walk the differencer between the circuit breakers and illogic? >> has we all know what the future exchangesordi 10 percent, 20%, 30% depending on what time of day. it up at 1:30 p.m. it is a 10% then 20% then 30% of the market the market is closed all day. what stops the functionalityhe that we have employed if the market goes up or down roughly with the as of the contract is 1/2 of 1% 22 cannot find liquidity to fill the of order it stops for five seconds and allows the market to take the breath if it cannot seek liquidity

halt another five seconds.if i then try to seek ofui liquiditydi again. that is a stop logic function. >> that what happened on thursday that that stabilized the marketcoor activity? >> no question we brought the starts for ahere purpose yoe can see that there were 10 ofht t huge -- futures market hadtd him and people time to assemble, up liquidity and the market went the other. direction so i think it an worked well. >>o g you say the functionality is not available in the securities thi markets is it just because they don't use it? >> to be perfectly honest it is patented technology i am the search and without a t costec we could make it if it made the whole system

better. >> taken work for any individual stock. >> we do believe that it could. >> out like to ask the other w gentlemen mr. noll mr. leibowitz, what ever, would you consider using this is available? >> on the other hand, we do t have ahi functionality that works. they are very similar.t to what the cme is doing that what we do if the stockery moves a certain amount of time and that is gauged by how much liquidity and it triggers a slow quote in which we take a amount of time to track liquidity so it is series similar to what the cma does except theirs is fully automated triggered byidit time to on wind.matt

each exchange we will figure out a way and we will discuss the rules butend, essentially in the end of the circuit breakers will be very similar to the stop-loss pause that mr. duffy has explained. >> except it iserswill v not not on thursday. >> h i disagree. it worked at the new york stock exchange market the failure was that ought not all of the market's obeid.e we just need to implement w mr. duffy's version or another version because to securities to trade slightly differently we can figure that out but it is in implementation from the technology standpointha because the exchanges and the sec have agreed on a framework. >> in other words, it has to be supplemented across all markets and venues?

>> so in the case of the nyse the case of nasdaq it would implement the stop-loss trigger and the o other markets have to obey it with respect to there listed w stocks. >> i think that is where we will endagre up to determine whent h it to well stop. >> how long do you think this will take to work that out? >> understanding of the i t functionality will take place over the next couple days to understand theple framework but the actual implementation is subject to was revisiting our technology. u >> i think we will have and answers it is a high priority. obviously the stock exchangeansw

with our system to have everybody all day that we recognize that is a minimum market participant. >> the gentlemen from indiana? >> i have a question for though nobody. had answers cme took the unusual t step of commenting on individual participation in its market when it denied the citigroup it may have executed and irregular trade. how were you able during that frenetic day to absolves citigroup of any involvement and how you reconcile the citigroup statement with its policy of not commenting on thedo y individual market participation? great question and a difficultng situation att the time because you have to realize we work realtime with the situationre happening, the rumors that o somebody from citigroup

entered 16 million and then said 16 billion that we knew because of the system because of the system that was categorically false. weekend it looked at the inventory on the realtime basis within moments traditionally we would not make statements becausenv of that it was the prudent thing to do on behalf of the taxpayers we when to make sure the rumor went away. >> call-upnt of the spike has been yet to be determined but do preliminary investigation indicates flaws or the regular -- c regulatorytory framework with extraordinarily

technological glitch? mimicry realize the lack of circuit breakers that everyone obeys is clearly a failure among the markets to work together properly to create the right and firemen. the sec review will help identify other areas where we may feel the regulation isviro lacking many of us believe centralize surveillance is i critical andri to be honest i feel sorry for the staff that had to. assemble 40 different venues they did amazing work to do it but we need to not be in a situation going forward and i think we are committeduati and mr. noll is committed to make that happen. >> mr. noll can you please give us a rundown of the decision-makingmitt process that resulted in a cancellation of almost an exchange traded funds and stocks?

>> i would be happy. >> first of all, this was aal multi exchange so all those for dissipated in those trades that occurred in that period of time.so it was not one market making a decision they were always in consultation with one another and we were governed by twots things that influenced our decision making process. sul when did the markets become disorderly as opposed to orderly? if you look at some of the trades that occurred even though it was drastic and fast they were walking down the order books the way it was to happen but only at the very c bottom, we were very concerned about drawing the line at a leveler where we address that and we were very cognizant of the moral

hazard riches people should bear the consequences of their actions.ere we did not know who would win or lose but we were sure below that line capturing the bulk of the trade but above that line people's behavior they bear some consequence dohe that so they should bear that consequence to be a market participant. we're careful not to reward people for baduld behavior but say people left to be a failure from that particular time. >> good gentleman from indiana? >> i am sorry. illinois. [laughter] my apologize. close. [laughter] >> mr. duffy you state that the most significant equity

index futures contract traded on thethat cme is the s&p 500 futures contracts and then also in 2005 the average daily volume from the s&p 500 teachers contract was 2,207,596ture contracts. on page two you discuss the trading data from the time point* between one word to central standard time. the analysis of the trade activitynd indicates the s&p futures contract was not triggered. i heard reports that the c futures contract led the sell-off and precipitated the decline of the dow. can you walk us through what happened and your thoughts the of what may have been the true triggering a bad? in >> we have heard a lott

about different events in the marketplace leading up to the time coming into question. the volume was heavy this was not unusual it is about four times the amount of the spider contract at that time reach rated 10 times of the volume so we saw a flight to quality toamou w trade our largt product and futures contracts by design are indicators of people's viewpoint of what they think will happen so they arepote traditionally leaders up and down in the marketplace and our markets operated within all of thedo protocols of the cme system so we did not have any fat fingered issues the market was moving quite rapidly at the same time there's a lot of macroeconomic eventsth happening so yes it was unusual to nobody will deny that. it happenedt of quickly but we

did not bless trades. we looked at the ofe arithmetic traders that is af question day word liquidity providers at the timing question and not aggressors are taking the market so they were leading the market because it is the nature of the product and you can see our stock logic nat corporation and a list kept going down for whatever reason that is still yet to be explained we did not trigger the stock t of. twenty% instituted among all of these changes we roughly 9.5% at the lowest point* in the s&p contract. >> let me ask you an unrelated question because something obviously maybere notla obviously but something

spooked the markets. anything to do with the problem been there worldwide activity or greece or the inability to predict what is going on with regard to the euro? do see any connection at all or is it just coincidence? lot of highen a volatility coming into that events werehose on the front page i am sure they have had a contributingfr factor to those conditions and at the same time you t have to remember resaw a couple of stocks trading at 1 penny that or $40 stocks improbably wondering. >> would you like to comment on that last question, mr. noll? >>, on the volatility in the marketplace? i don't think we have a b precise answer yet i am not

sure we will ask to the nature of the root cause of the uncertainty in the as marketplace but what is very cau clear we saw the increasing amount of volatility on the v days leadinger up to may 6. midday itself was already a volatile day before the events we are talking about happened. i bef it was the third day of down equity markets you're in a position where it was a downdraft which we recovered from buts a nevertheless it is important to address the causes and prevent that from happening going forward. >> i think the two gentlemen have hit it right it was a spooked market and they market became very liquid and it is very likely some

news out of europe may havearke gotten people selling but the behavior that you saw selling stocks at one penney is not permissible behavior. that is a market structure incumbent tois correct so with a sell-off in a reasonable way if investors werekets afraid of ths increase or the hero or anything else they should be t selling the market off butul with thatd happening in aat w reasonable and orderly way hour investors disadvantaged by evens transpiring? it would be hard to justify to a retail investor hepiri solh the stock at 1 penny so that clearly has to be addressed if we cannot find the actual cause and there is so many a rumors we live with thate, every day that they get transmitted so quickly we have two just deal with that >> furan and sears take into

consideration based on the fact that there was not anybody out there who made a killing that day. is that correct? there is no bad person not there or somebody that you could say look a at t what they did as a group that causehe this? >> i think the investigations looking at t the evidence to take place over the next couple of days or weeks of determination is made everybody's behavior or bad. as of today we have not seen anything that was to just anybody was behaving in the inappropriate fashion. >> quite the opposite if they did follow the markethe down chances are they got hurt pretty bad days and is now try back they sold way

below the cha market. while retail investors followed it down but my guess is they did not make a killing. >> trade with those of the gentlemen i have not heard anything extraordinary but then again it is a sensitive topic we'llof t let the regulatory departments investigates that. >> now we hear from the gentleman from new jersey. h >>ea just one last question. you are on board with the circuit breaker her -- idea and as far as the 20% on the system the circuit breaker is basically the way it works today it goes down roughly half a percent of the value of the s&p contract today and does not liquidity to build

the number of contracts by or sell it will halt for five seconds then try to attract the liquidity than s halts another fiveec seconds to fill the order. >> and when you will be meeting with chairman shapiro and the rest of over up whet few days to come with uniformity is there a'r lower level that you would say this is not a realistic figure that there is rumors a out there that would be too restrictive for individual stocks? b what is the appropriatefo level? vidu >> we are still engaged in thathe effort per cry happen concern not to have the band's drawn too tightly.at i think it is too tight what we saw on thursday was the functionality going off atn t the 2% levels which caused

dislocation in the marketplace unintentional but cause dislocation of all the other markets provided liquidity at that level. i think as larry suggested earlier we need to agree on a the appropriate levels and i don't think that we tend to believe it should bepp 10% butv. we're still a moving target for all ofd t us. >> i would agree 100% andwe procter & gamble it is 2% is but the intention is to continue trading and ago& relatively quickly we want it them to the market wide. >> fed 10 percent your 20% to 30% cancers in me behich narrowed what is more if important is the narrow of the time frame because they seeking liquidity

venues so a few narrow the time where would you comedity up with you cannotn be closed all day you narrow the window and the band and it works out for everybody. >> we're talking about a couple of minutes at most on the market wide basis we are talking about moving the frame so it is not as long of a close as it was in the past. >> overseas trade is a good point*. >> want to thank each of you. of mr. leibowitz, mr. noll mr. duffy german chancellor and and chairman shapiro for excellence superb and well presented witnesses and your testimony as we move to make sure we maintained in

confidence with the investor trading.mark thank you again very, verynves much for helping with us. the chair knows of some members may have additional questions which they mish -- may wish to submit their record will remainaiey h open for 30 days four members to submit written questions and place their responses in the record. before we adjourn thens t following will be made. the record of this hearing, the written statements of commissioner bart shelton and future commodities trading commission without objection isment ordered the panel isdi dismissed and a hearing ispane adjourned. [inaudible conversations]

>> going slow eight we're seeing quite a bit of tension between democrats and republicans and democratic leaders and rank-and-file democrats about how long the debate should go and senator reid said he would like to wrap up the bill this week but that will not happen. whether it will be one more week or two more weeks of work on this bill. >> host: which changes the lawmakers made during the amendment process? >> guest: so far they have

made it pretty much intact. the big amendment a lot of folks were looking at happened today with bernie sanders from vermont was successful to expand transparency at the federal reserve. he modified that amendment more narrow than originally proposed and it got the overwhelming support 96/zero but less intrusive what some wanted to see which was the ongoing audits that included monetary policy decision making it. >> host: how many more amendments are expected? >> there are more than 200 that have been filed there is no way they will consider all of those in that is where you get down to the back and forth between the rank-and-file members and leaders about how many amendments will be offered and the debates are going so slowly and taking a long

time to get the votes on amendments there have not been that many. senator dodd and democrats and republicans trying to get their ideas incorporated into that as well to do standalone votes. >> even though going slowly why is that happening? >> guest: some would say that is the way the senate should operate. i spoke with one republican who said this is good. we're debating the substance but. fed is scheduling and the senate and senators don't tend to vote on mondays or fridays and some of it has been while there was tension between the two sides there was some time spent on negotiating the too big to

fail between senator dodd and shelby and republicans did not want amendments so this is the usual back and forth that happens but it is taking more time than the democratic leaders want to spend so they have a lot of other issues they need to attend to. >> host: thank you from the dow jones news wire.

[inaudible conversations] >>

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close to military is personal as well as the official. i will yield two congresswoman davis and azide do i want to thank her for arranging a very extraordinary trip if there were four words to describe what this trip was about in terms of meeting women on mother's day, and all were women in the military in afghanistan leaders, and in the countryside it was about security, security, security security, security, security , security and education but security for the daughters to go to school. health care and security to the home. jobs securities security they saw it as the answer to every challenge they face. more about this extraordinary leadership of congresswoman davis because

she brought ms. edwards to afghanistan one year ago so it is with great appreciation and ought of the trip we learned so much and we are better equipped to make some decisions miss susan davis from california. >> it was a return we told them and they met them last year we want to return and see them again and see how things would be going for them and we did that part we're able to take a measure of any changes they had experienced. it was also just in the east of the president karzai

visit and we were able to meet with him and the importance of women and the importance of the parliamentary elections that were coming soon and we were honored by the speakers' involvement to being. this particular trip because she brought such seriousness to our mission and elevated that and inspired many of the people we've met along the way. first allowed to talk about the troops and civilians who are now working in theater the mother's of our troops and also the civilians benefactor we're visiting on mother's day high 10 is the reality that these are women who were there knowing that their children and our home, and no branches for them now husbands or

children, they are there because they think that their presence will help our own national security. they are fighting for her security and thinking about our children at the same time and to everybody bespoke to that is why they are there. they are in this remote area and it is not easy they shared pictures of their children and even shared a few years. this is not an easy assignment but we want to impress upon you and president karzai how significant this is that these are women. the second thing that we wanted to do is meet with the afghani women some of whom we have met with in the past. they are the key to security in their areas because we know how critical government is and i can assure you

without their involvement involvement, there is no governance. that they can have confidence and the search and that the people who were there, that their local leaders are caring about them and not just something that perhaps does not matter at all. when you ask them what they care about, they care about security number one for education. in fact, they seem to suggest that the girls can even go to school because of those security issues. borat our table, we had a group of women. last year when we met to ban was put together through the construction teams they have not had a lot of time to work together but this is a great improvement but it is

a council of women and it ranged from women who were essentially were banking on the streets to teachers, it to a midwife and women who really believed that their voices were becoming important even than a small way in the some cases. we were inspired that they believe they have a role to play. >> to highlight one issue midwives spoke to us about the fact that women with house security can even go see a doctor sometimes. of their pregnant about to deliver coming from one of the villages unless security is there they may not make it. because it is too far of a distance and sometimes women arrive at a hospital they're not ready to deliver and

sent home and going home without transportation warring about who could hurt them along the way they don't always make it home and the babies don't make it. these are very important issues for these women. we also heard there are some projects there and we want them to be sustaining that they are seeing that. one of the women who was very poor shared she finally had some work she could now care for her family and made her feel so good this is the woman who covered her face almost full-time we were there with her. very moving. very significant meetings and we felt very good about that. one other group of women in addition to the women who are there week trained of selwyn mccall left the mail

engagement team and that team has been trained in special communication skills but to especially work with translators and with the community and what they shared is actually them having as much success working with men as women and the very fact that you see them coming it changes the environment in which they are working so we know there critical and we were there to wish them a happy mother's day as well. my colleagues will speak to what is coming with a parliamentary election i was particularly pleased that one of the women we had met with last year to was that where we met to has put her name forward on the nomination papers we will certainly be looking to see

the results of those elections turn out for many of the women who put themselves forward at this very critical time of the afghan community. thank you for your presence i especially want to thank the speaker for elevating the track. congresswoman madeleine bordallo is next. >> afternoon i represent the u.s. territory of guam unlike my colleagues to represent big states and large constituencies. of the speaker lent a great deal of prestige and it was unique, we were all women which is unusual and of course, most of us served on an armed services and i am asked to speak about our women in the united states armed forces. we met with them on several

locations afghanistan is about as germany so we went around the room introducing ourselves and asking them to introduce themselves and to give us an idea about their family. what amazed me is here are women serving in harm's way on an important day like mother's day some had children in college i don't know how they can financially accomplish that and one had a set of twins and they all had children. we were curious and said who is taking care of these children? and in some cases the husband serving in the armed services as well. i really marveled in the way

enlisted personnel so we do have a great group of women and what they're doing and what they are carrying on their shoulders and families back home with a lot of responsibilities so i applaud our women and service. i also want to in contrast, mentioned quickly about the women in afghanistan. we have so much and they have so little. and they pleaded with us they can do anything more in advance and life expectancy is 45 years old simply because they can get medical attention. they are depending on us to try to help them in the way of security. that was a key word. it true the was a mind

boggling to may and the eye opener to see a contrast so the mission on mother's day we went to look at the role of women in these foreign countries as well as to check on the women serving in the u.s. armed services. thank you very much. >> we will now hear from congress will men nicola tsongas. >> i went to figure a speaker for organizing a wonderful trip it was a pleasure to distinguished colleagues and this is really how we get to know each other. and we survived 40 hours on planes but it was my third trip to afghanistan and the opportunity to hear directly from our soldiers on the ground those leading the great effort as well as to

meet with afghan women in particular and we were fortunate to meet with so many women who are currently serving to come away with their extraordinary commitment to the war effort there. you have heard what they have given up the story that stays with me i met a young woman who had a six month old baby she left and she will not see that child for another year and we know what happens in the year of the life of a young child it was a poignant reminder because traveling on mother's day but also the extraordinary commitment to securing the national interest of this country as they engage in this effort and afghanistan and ever increasing participation we saw the enormous array said they are serving our country the limited engagement team and a woman who led a convoy

that took 55 hours across very dangerous terrain these of the stories you need to go to afghanistan to hear but their contributions are in stark contrast to what afghan women are able to do. as you could see or hear women were able to make caius assisted living, the ways we make investments and are worried the projects will disappear of two women who are very sophisticated doctors and teachers to have the opportunity to contribute to their society in a long-term way. the challenge we have going forward is to make sure women are. the peace process it is important their participation be significant and robust and as parliamentary elections go forward there is a process in place that women can

participate and lend their full voice to the process. the issues are education health care economic opportunity but without security they cannot access those basic elements of life and they seek to do so on behalf of their families and children. for president karzai to maintain his commitment to include women in a significant way to make sure participating in our government and a significant way and to the ways in which our administration and our president make sure that is the case to win forward. without the participation of the afghan population the long-term security we seek to achieve will not be attainable so much is dependent on the capacity to become engaged and change the lives of their families as well. is one of those things there is nothing like a visit to

bring home the extraordinary to damages and opportunities and engage with the leadership that has the capacity to make a difference for the afghan people and afghan women. of like to think susan davis for putting forth the extraordinary effort and it looked forward to going back again. >> >> thank you for putting together this return trip on mother's day and we really do value and appreciate those leadership of speaker pelosi in joining us because i do think it elevated the concerns raised by women last year and continued to be raised and afghanistan. first like to say it was a privilege to meet his of servicemen and women who were serving in afghanistan who put themselves in harm's

way as my colleagues have described who are mothers themselves into the young woman who graduated from the same high school i graduated and is a sergeant in the army and has a one-year-old and a four year-old here at home and it is their service and sacrifice that our hour barometers for success it a security burma that enables afghan women to provide for their family and achieve prospects for economic development and participation of governance in their country. i join my colleagues and emphasizing the importance of the parliamentary election in september and we had an opportunity to speak with president karzai directly he confirmed 417 women who have qualified for the balance lee upcoming

elections of the 2600 candidates' they 13 more rigorous process getting more than 1,000 signatures that means every province there are least two women and who qualify that there would be a backup plan if for some reason and one woman was not able to serve. is it is entirely possible there could be more than the mandate in the constitution but it is really important. we have learned if we want to gauge the prospects for success in afghanistan, a key barometer has to be the status of women, their participation in activities to achieve an education and

after years and years of taliban where the women have been so suppressed we must use as a barometer for success overall in afghanistan and that is not just with the afghan women but also tied to what is in our national security interest. there are women who don't participate all over the world but the differences it is tied to our national security interest and the security of the afghan women and tied to whether or not there is corruption and government or whether women can get to get the education security or if a woman is safe in her home and whether she is able to go to market to work and contribute and all of these elements have

our interest is important for us to understand how we measure success and i will conclude by saying that it is no great secret as to whether we can achieve that success in afghanistan but what i know for certain is that we will not be able to achieve any level of success that it is not measured using a barometer of women success and participation i believe and hope president karzai understands this and i look forward as we go through discussions with the highest level of our government we can tie women success to the long term success of you very much. >> i wish to associate myself with all of their

remarks with the men and women in the military we started and qatar and which is the platform for going into afghanistan rethink its the men and women in uniform and spent special time with the mothers and the service and heard their stories. then it later in the day to say to president karzai these women are leaving their babies and children at home to fight for our national security and we are present in afghanistan because it is in the interest of our national security. that is the way they see at but you should know we expect the policy here to match the sacrifice of our troops and recognize maybe he had not that women were making this extraordinary sacrifice. when we spoke to him we talked about what congresswoman edwards said

about the election and increase participation by it as congresswoman davis mentioned in is what the president has called for to get consensus to go forward for possible integration for reconciliation of the taliban we want to be sure women were represented in sufficient numbers and i think we made our point* there as a legitimate consensus with the participation of women and we spoke to women leaders and heard from them the challenges that are faced that needed to be done but as congresswoman davis explained it so well we had to take a plane to kandahar where we met with a female

inky to 19 imaginary women reaching a two the families and afghanistan to establish communication to reach wonderful results and products that to me with the moms but then take another long helicopter ride to another province it is not just about seen the women and kabul i don't know how they found this province in the first place it was so remote but they said they were there last year and they would return. imagine these women because of the id that came back to our national security we believe has community builders as moms and the rest a potential to that security and taking that

message back to president karzai now they said i could feed my children? but we need to have security. the level of professionalism of some women coming together and enabling us to be a. it. we had met fed governor who welcomed us from when we arrived but meeting of women and only and of the trust they placed and a gratitude they had floor congresswoman edwards to come back at the end of the meeting these four women gave me these bracelets. there are many more. [laughter] i will save them for my granddaughter's it is very moving. for them to have to make a

sacrifice to give a gift for me and to all of us an appreciation for our visit and a place their trust in us and they know that the future depends on them and that is. what we talk to president karzai about. we had four points. we always do. security, a governance, people reaping the benefit of the policies we have helped to fund a end to corruption a decision to end corruption to have more accountability and transparency but because of the federal dollars are going there we need accountability subjecting every dollar we spend too tough scrutiny we want that

to be well spent in afghanistan and with the other countries in the region which have s stake in afghanistan that would be china, russia including pakistan and i ran that everyone has a state. i want to salute the president he was very clear that the security of afghanistan related to the security of women there and secretary clinton has been absolutely superb i don't think we would be anywhere we are with our tremendous leadership and support the statements she made about the importance of ending corruption in afghanistan. we're at a critical moment because we will soon have to take a boat on this we want to see how the president, after this

meeting the further development of a plan for success. . . we went to see our wounded warriors in germany.

but can you say to these young people who have risked their lives and in very critical conditions. but their patriotism and courage and sacrifice they and their family made for the country frightens us to have a plan that will work in afghanistan and that is the message on to prident karzai. thank you. with that we are pleased to take any questions on the subject. >> [inaudible] and did you talk to them about the comments and do you believe president karzai [inaudible] >> i believe those comments by

president karzai were for domestic consumption and are behind us which are on how we go forward in a way with the planned with confidence in general mcchrystal and eikenberry. we were briefed by the two of them. they believe the prospect for success is good but must be worked for and i just assume for the, and president karzai said behind him however i did tell him his leadership required to convince people easement through decisions in terms of security, corruption and governments if we are to support a plan in afghanistan and the president has given him plenty of opportunity. this trip will tell us what the message will be and i think that

again scores take that off and we will take one over here. we have scores in common. >> [inaudible] sprick i believe president obama has been making the judgment and i think the message is clear to president karzai if people risking their lives, moms are leaving their children, the budget is making a serious commitment that the treasury and men and women in uniform are first and foremost responsibility. if we had all of the money in the world we wouldn't want to squander any of it. we don't and so we will be scrutinizing expenditures going into afghanistan. but again, the sacrifice and

every other we the american people are making for our own national security in our own national security but requires a plan with a reliable partner i think he understands that and i trust the president's judgment as to that message. >> does anyone want to -- >> does this lead you to encourage members to vote for the supplemental that is coming up? i mean, do you have more confidence in the u.s. mission? you still have skeptical members of your caucus with the funding bill coming up. how does your visit factor into that? >> first let me say on the war boats i never encourage -- we present the facts and members make their own decision. it's a different kind of vote. it is -- at the end of this week we will have a better idea what we can present to the members so we will talk again about this

after the end of the president -- president karzai's visit. >> [inaudible] does that make it harder you well know later this week [inaudible] some of them don't think the united states should be committed to afghanistan that we should move past it. >> i think we will know the vote when we see the proposal is the president will make following this week. did you want to speak to that? >> i am a member of the progressive caucus and as i described i have been one who's been very skeptical about the condition that is laid out and i plan to use this visit and other information and as this week of meetings develop to make an

independent decision about what kind of ongoing support for this effort and i appreciate the speaker's leadership here because a vote on war and peace, those are different votes and our votes of conscience and clarity and i intend to use what i've learned during this visit to make that decision and share that with my colleagues so that we can make independent decisions and i look forward to the remainder of the week of president karzai's visit and hear from the administration about the direction for word. >> [inaudible] >> again we will see what he says on his visit here. i think he understands full well how important it is to us. first of all, one of the women

-- in the course of the visit somewhere along the way the women said to us and by not identifying any particular meeting that they solve security served by ending corruption. the people there understand whether it is the government issue and how the government works for people whether it is security and whether corruption could stand in the way that they see a connection of corruption to repeating the government and security and again, president karzai shouldn't be doing it just for us. he's got to be doing it for the people of afghanistan and again in furtherance of them understanding of the benefit that they have from his government so i will be interested to see what statements he makes.

it is a big challenge throughout the world and we are not talking about paying the dollar to cross the road. we are talking about systemic corruption within the system that prevents the flourishing of the nation and we expect a strong commitment in that regard and some of it will be public and some of it may be private but it all depends on evaluation of the president of the united states. we will have a president karzai here tomorrow to speak to the democratic and republican leadership of the house and then he will be over on the senate side as well and i sure he will hear the same message. but i told him we will welcome you with candor and friendship, they in my view go together respecting the office he holds with dignity but we do have questions that will require some answers. it was a pretty exciting to be specially we were leaving for germany has the president was

leaving for the united states. our plans for side by side. we drove to get out first because we still had another destination before coming to the united states and i think that -- yoakley the trip made an impact in terms of raising the level of the importance of women and security. again this is unjust we want more rights for women, this is the bulk of security unless women are in the community building this security for you. and that means women fighters and female engagement teams and the women of afghanistan and civilians working over there and that increased communication has been a very positive force to the women and that's what our trip was about. spec if i could jump in on the supplemental i think a question back there on the supplement is that what you were questioned?

yes. i do feel the at this time around that it will be -- there will be a lot of scrutiny coming up. they will be asking a lot of questions and we will have to have answers and i agree with the speaker after this meeting with our president negative some of these things will be ironed out but i do know that we probably will have a little more difficulty among the members questions because we did find those that went to afghanistan a year ago that the plight of the women were not much improved. so i think there will be more questions than usual. >> if i may say we find ourselves in situations we are in because the fall of 2001 united states went into afghanistan with overwhelming support of the congress but did not defeat the taliban. they headed for the hills and when we went to iraq they came

back and started their campaign to overtake villages and towns and provinces and the rest so now we are in this situation where since 2001 until president obama became president there was no plan in afghanistan. so this is a heavy lift because there was so much time when there was no plan. last year when we may devote the president was only in office a few what, ten weeks, a few months and if he had to do the supplemental in order to pay the bills in the previous administration with the generals, the state department and the rest, general eikenberry having both hands as the general in charge there and now the ambassador. general mcchrystal to put together a plan on how to go forward. essentials to the plan is the reliability of the partner that we have and that is a message we brought to president karzai with

the idea though it is in our national interest and that is why we, are there -- >> and internationally as well so in any event recognizing why we are where we are and if we make these judgments how long there has been a period of neglect as far as a plan in afghanistan. thank you very much. [inaudible conversations] >> during the last year as i have served as solicitor general, my long standing appreciation for our constitutional democracy has become ever deeper and richer.

, washington journal we talked to former national security advisor stephen hadley about current u.s. national security policy including the military deployments in iraq and afghanistan. this is 40 minutes.onli, wat >> host: our guest currently serves as a senior adviser forw. international affairs at the united states institute of peace. formerly national security asviser under the bush administration from 2001 to 2005. stephen hadley, welcome to washington journal. u give context about today's meeting with presidentoe karzai not only what happened as far as the individual but what it means to the larger context of what is going on in to afghanistan? could >> guest: of the is the

president karzai is the elected leader of the afghan people.sidk he is argoing to be the partner for the country in dealing with the challenges in afghanistan and i think what is important here is the president is going to treat karzai as that elected leader and give him the respectb he deserves and also hopefully e build a personal relationship ancause these two leaders face great common challenges and personal relations among leaders matters and hopefully this will be an opportunity for the two oa them to have recanted understanding of the discussion of the challenges they face and build a stronger relationshipeae between the two of them. >> you use the word candor that relationship isn't strong in your opinion?tronge >> i think if you read the papers the last year or so it host: you has been a bumpy relationship.ra that twas public expression and doubt about his leadership andtn commitment to fight corruption

rela and make some of the hard decisions that need to be made and i think it was unfortunates that became such a public issueg i think a good rule of thumb ise when you are dealing with close allies is to praise and the public and criticize and privatu and i think early on in the administration it kind of got that a little bit reversed but n think the of taken some good ateps.priv i think president obama is right having come from this visit iev. think it is an important visit psd it seems pretty clear thatoe ie administration is coming out of its way to put its best t fot forward to turn the page if you will on the past relationship tt g d to try to get this t is goin relationship on firm footing way going forward and that is what the need to do. >> host: as far as the firm theg footing what is the national security implications of only in terms of afghanistanationship ai neighbor in pakistan?ard. >> guest: there are tough issues that need to be worked through.ications there is a coming operation that

is going to be in kandahar that is going to be very important ie for the military dimension. president karzai has had some reservations about that. it's important that there be a clear in the standing of what is willimportanen. president karzai talked about reconciliation and having meetings with broad spectrumarzi including perhaps representatives from taliban. t i know the u.s. government has reservations about that important for them to have a candid exchange and have a common understanding of how to approach the issue of reconciliation and reintegratio. of fighters so there are tough decisions. both of the countries have to make and it is important that they be made together with a good understanding of the positions of each and as much at possible with a coordinated beproach. >> host: what would the even speech about the national security as far as not only whad happened here in the united states but also the connection a of pakistan especially

waziristan and that country?nitd >> guest: we've been worried about the tribal areas of pakistan. it is a witch's brew of al qaeda pakistan, taliban, afghan tel dan and the other groups and its is a source of threat to oth obviously pakistan comes to leave pakistan across the border to afghanistan but also as we tt have seen potentially to theviol united states as well and ifgha. think in a way the administration has been lucky pote because with the times square attempt and the christmas bombing attempt going into the airport in detroit we have had to wake up calls, to terrorist efforts that did not succeed really because of failure on the part of the terrorists and i think it has been useful becausr i think it is helped the bause o administration will look at oure processes and procedures forori. countering these incidents comee strengthening them and in the

processe process nobodys died. the two wake-up calls nobody died. that is a good thing for the country and it reminds theess, two try and the administration that terrorism is still a problem today and there are people out there trying to kills americans. >> host: are their weaknesses in the current process as youatn described? >> guest: that's one of the things you can always get a trim better. s you are learning all the time. this is an enemy that does add t that and use this new methodse and as people say it is the ts truism in terms of preventing terror you have to be right 100 of the time.e if you are a terrorist you onlyt have to be right 1%.terror >> host: what changes are needed? to be ri >> guest: i think they've already been making a series of. if a changes. there was in response to the ony christmas bombing improvement in terms of watch lists which is very important. i think that has been improvedw in shortening the time between

when the watch list notifications come out from the government when the airlines need to put it on their list and be using it as a part of the screening process. i think every w theime you haves something like this you learn something and can further improve the system and that's really what i hope the administration is doing. >> host: our guest on till you 0 and you can talk to him on three lines deciphered democrats is 202-737-0002, for the republicans, 202-737-0001, anddo for independent, 202-628-0205. email is natural@c-span.org and twitter is twittered.com@c-span w.j.. first call from jupiter. on the republican along with lrps akaka gisela wanted to i ask about the recent offer to: destroy the poppy fields that roye the opium and i guess the u.s. declined singing know it

would disrupt local themake agricultural income and we had to protect that and i'm just wod kind of curious when the talibao was willing poppy growing was allowed, it was against their it religion. and it just seems we are giving growingression that we are supporting the poppy fields andi i think we all agree that this money is funding the terrorists so if we are to a strong position on the terrorists we at should also take a strongoney position on getting rid of the poppy fields. on td you comment, please? >> guest: you are right. the link between the poppy andte terrorism poppy and even old dogs as a source of funding to terrorists and for the taliban it is exactly right and it is an enormous problem. the government has been working on that problem, but the united states government in close coordination with the afghan ben government. but obviously we have not made

nearly the progress that is required and a part of the co problem is the issue of how youy attack the problem. obviously there are a number of. things. you want to interject those people who are taking thegs, narcotics and poppy from the farmers turning them into drugs and treating it on the black market and making it, making the profits.in you want to interditect them and provide alternatives, livelihoods' to the afghanon tarmers.lack marke but there's also been a bigprof issue about eradication and i united states pushed particularly under the bush administration to use their stans, to spread chemicals that would kill the poppy. to use that's very controversy. s wod kill afghan context many americans believe that to the best way to approach getting rid of the poppy. the afghan government has been very reluctant because ofst political reaction and that is i one of the unresolved issues thatpo at some point thee government have to talk about so

you are right. it is a huge problem. we've got to get it under of control and quite frankly undert two administrations so far get efforts haven't been up to theco task.nt >> host: memphis tennessee.adni go ahead. on the democrats' line. b >> caller: good morning? >> host: you are on, go ahead.t, >> caller: okay. i was callingd, to ask about th: national security. how in the world can we stoput someone who is willing to blow up themselves and eckert others? you don't know when it is going to happen. who w people arnge out there ready to destroy us and there is the reason. itwould like to know why would anybody heard americans? america is stepping inus everybody's business trying to control other countries.why? people in the country called leggitt and when they call the service explaining to some step americans what they are the tir angry people of donner like white count people are angry abn with a retreat in the 60's and

back in the 1920's. we need to stop this insurgent, those are all iraqis, pakistanis, afghanistan people. people over there, innocent people are getting killed by ou so-called rule. that is the reason the peopleir, are angry. >> guest: there is obviously a lot of anger. i think we have to recognize though the reason we are in afghanistan was becausehe afghanistan under the talibannk was a safe haven for al qaedabes and al qaeda in afghanistan mounted the attack on 9/11 thate killed over 3,000 americans and other citizens in three locations aroundey the country d president bush gave the taliban the opportunity to turn over the al qaeda, shook down the000 training camps and unfortunately the taliban didn't take that opportunity and that istry. whye are in afghanistan. you are quite right one of the wnings we need to do if you areo going to do something like thisd

is to as much as possible be allied with the people of the dt country to deal with a common we problem. the afghan are not happy living under the taliban. of as a brutal form ofith existence.on the women in particular weree hascriminated against, not allowed to gon to school. it was a brutal regime. learning we did coming into afghanistan was to do with with the e various groups, travel groups and others in the afghan and wet so that infected with the afghans with our help liberating themselves from the regime and we have tried since then to work with the afghan people to help them establish a stable political structure andok nore viable economy so that thea afghan people can have a moreal prosperous and hopeful future. you can't do this kind of thing as an adversary of the afghan

people. it needs to be working with thee afghan people to in power them g to establish a better life. that is what the administration is trying afg to do in afghanisn and we try to do in the bush atm ministration as well. >> host: when you hear people reach out to the taliban for some kind of compromise oradmint tability what do you think? >> guest: i need you have to a distinguish between the hard core leadership of the taliban that has been on the reasserting power and probably cannot be bee reconciled and those people whon carhaps for economic reasons or other reasonsn' are aligning wih a taliban in terms of some of the criminal and terrorist activities at think our commanders out there believe that these lower level people can be brought out of theand i t insurgency. that that is clocked the counter insurgency doctrine is is to win

the support of the population to insuate the insurgents and then to basrgically split the insurgency to bring thoseounter willing to come out of thesurgeo insurgency, accept the government, a drop violence, pportunity too return to the society but in any insurgency there's going to be a hard core of people it deal opport logically motivated orun power motivated that are not going to be reconciled. you have to deal with those with are realick >> host: one of the to be discussions be about corruption within the on government? >> guest: that has been afo longstanding. it is part of this notion of tug helping the afghan people presie established a government that id space that serves the interest and can bring them a better life.ple to that government of course has th have legitimacy and support within the afghan people and ser regrettably the reputation oftti

corruption that is played the afghan government now for a number of years is undermined the support with the people. that is why we make such a poinr about corruption.ruption it's not a favor for us. it's something the afghan government needs to do to haveth standing credibility and support from its own people and that is why it's so important the issue be addressed. >> host: fair amount of afgh goverest virginia john on the independent line, you are right. go ahead. >> caller: tristani to ask estimate before i can make a hoestion. ist was extremely disappointed : president obama joking about the immigrants coming over recentlyy at the dinner of the correspondents' dinner and i presid think that our main weakness asg far as watching out for tourists would be our own borders with mexico and i think we don't really understand the severity of they might look like workers

but with just 2% of them coming over year for reasons besides lk working in the field and i just want to know is if your guest would tell me if like the lady sitting getting everybody else's business all over the worlde should we not be trying to change our own borders at the number one priority? >> guest: we certainly should and we obviously if you cannot descend defeat could defend your own borders he will have a problem in keeping the terrorists out. one of the tricks of course isby to defend your borders and a war that keeps the terrorists out t but allows normal people to como through with as minimum dnterruption as you can and also allow the commerce that goes back and forth, the goods that go back and forth there is a huge amount of economic activity between mexico and the united states. it's important for both the united states and mexico.

so it's the trick is to defend your borders, keep the terrorists out, cooperate withc the mexican authorities in term me bringing them to justice but allow normal interaction amongen people across the border and the flow of commerce across the border. mexico has a huge challenge in l inow those provinces that are on the northern a part of the ac country on the border. it is a combination of narcotrafficking nurse who are threatening the rule of law andf the ability of the government of mexico to bring safety and security to their people. it is an extremely serious situation. mexico is one of our closest allies. it affects our border the fax potentially the stability of mexico so in addition to dealing with our side of the border we need to also both the bush and obama administration has beenddo

reactive in trying to help the mexican government deal with thb challenge presented by these criminal terrorists to narcotrafficking element. is a serious threat to the stability of the government of mexico. >> host: maryland, rebecca on the independent line. >> caller: i don't think tha the national security to be wh n na comes to foreign affairs. we made so many mistakes. for instance asked benazirt bhutto to get rid of musharraf o and she ends up dead and the stable pakistan diverse nation e like afghanistan. in we need a strong man to lead that country, not democracy for its troubles, and i would liketa to hear your comment. i >> guest: well, we tried very much to get a reconciliation we

between mrs. benazir bhutto and president musharraf and as you know tragically benazir bhutto was killed by some of those elements in the northwest territories particularly elements of the two masood and was a great tragedy for the pakistani people. northwes president musharrafies. a it unfortunately made some serious political mistakes and it was clear that he had lost the confidence of the pakistani people and what we did was support him in the steps he took to transition from the military regime to a space structure. he courageously set elections, took off the uniform, left the state of emergency and presided over what was widely viewed as a toee and fair election that has resulted in the current democratic government. i think there was a tribute to

resued in musharraf and accomplishment of president bush's foreign policy and i eleo think the alternative wasn to e pakistani descent into chaoswa which would be bad for the pakistani people which would have been a problem for its neighbor india and could have nd iislamic extremists inse a control of the nuclear weapons o in pakistan inventory so thisnd was a difficult time for the people of pakistan and i think president musharraf acquitted himself well and we are lucky it was a democratically elected government and notand the kindf descent into chaos that we feared might occur. >> host: there is a volatile in "the new york times" this morning the result of one ofre three bombs that took place in basra yesterday in iraq. the company says the attacks underscore the ability of iraq e eckert stabenow catastrophic attacks left the country despite

increased security and wave of arrests and killings of extme terrorist leaders and putting the commanders of al qaeda d iraq also known as al qaeda mesopotamia last month. could you give us a sense of these occurrences still iraq.ning and what is this about its security or at least its stabilization? t >> guest: it is obviously a huge challenge for the country and these groups if you notice from that article most of their attacks were in fallujah held in the west and the cinereous butsc mostly the haattacks were in the shia aretas and this was an effort the iraqi authorities believe that our authorities believe i the al qaeda and iraq and most agrhey did in 2005 to attract shia to retaliate so that you get secretary and violence and from the country in the chaos. i've been reassured by some of the quotes from iraqis who basically said the are not going 2005 t to respond to this violence in this way.

but it is an indication that iraq still has not fully eyabilized. it is a person of transition an from an election to a unified government. unity government. that is what they need unity government that involves sunni, shia and kurds. the electoral process and that formation of that government is taking a very long time and it. undermines confidence and gives a sense of instability and opens the door for these kind ofconfe, terrorist attacks they try tod op destabilize iraq during the difficult transition program so the solution i think is one for the iraqis to accelerate theo process, get a legitimaten this government that involves sunni shia and kurds and the people of iraq can rally around and then focus very clearly on the that remaining security challenge that the face and the same time

get the economy moving and do those other kind of things that it's going to bring the long term peace and prosperity to the country. >> host: what is your sense of the current condition of the force the u.s. forces trained as well? long >> guest: i have not been-t ovee there now. i've been out of this for a year or so but thes impression i had is that it is a much improvedll? security force. remember the united states and u the travon forcet that began in 2007 and in 2008 has gone from over 170,000 now to d something around 100,000 we will go torome 50,000 by the end of august thim year.e the fact that we can do that an despite the effect of yesterday have still a pretty stable of the security situation is a tributee to the iraqi forces and their cn ability to maintain order sprint similarly the election they jus had was fairly free of violence

again security response of what almost entirely in the handssecy with our support of the iraqi security forces so that has been a real success but as we found in the incidents. real home is very difficult when people are coming to try to kil your people and in case of iraqy and object to destabilize the political system it's difficult to have zero terrorist incidents but it is a troubling to the allied security forces are good but there's obviously more work that needs to be done toifficu stabilize.ve >> host: to those of thoughtero to those in mind against served as national security adviser to president bush and serves as the united states peace as securitye advisor on international affairs. servefor kentucky, you our next for stephen hadley. s go ahead. cynthia on the democratic line. >> caller: good morning.ernatiol exthink it is very scarykentuckn mr. hadley serving on the institute of peace since he hy

instituted the to war and i havi twotu questions. do you agree that we have had a double the problems, double the terrorists because of your war and iraq and i want to know second, question is why did you allow mr. cheney to manipulate the intelligence that took us into iraq and do you repair the damage you have done? y thank you.amage >> guest: i would say threethan things the call used the phrase institute of course one of the w war, afghanistan we've already talked to earlier on the show. it was response to the attack oo the country on 9/11 and then unwillingness of the taliban toe rein in al qaeda which was responsible for that attack andu in terms of iraq it was a war on

last resort after iraq had defied the international onet at community, supported turkoman invaded neighbors and violatednd the cease-fire arrangements thad were concluded at the end of the gulf war. obviously war is a terribleceas thing and particularly terrible things in the country and which they occur but in both of thesee instances there seems to be noty alternative. the question wasn't a manipulation in iraq and whether there were stocks and weapons of mass destruction. there turned out to be no such stocks biological and chemical h weapons, though saddamer hussein therehe element that would have allowed him soon to reconstituto those programs. but it wasn't a case of b manipulation of intelligence. the case was intelligence was wrong. it was the same intelligence the

basically every intelligence service in the world shared thee judgment that saddam hussein had weapons of massat destruction. l president clinton onig that bass instituted airstrikes into iraq huss in 1998 and was an idea to congress on that intelligence needed changing the regime in iraq u.s. policy.ructed this was a democratic strikes administration, not republican sis so the bottom line was in the i intelligence manipulated by the intelligence turned out to be ie wrong and saddam hussein had account for the to eapons of mass destruction we knew he had at the end of theadu call for mike and he failed to do so and that was in some sense the war and iraq wasn't our decision but it was saddamo hussein's decision to defy the international community and not do what everyone asked him to do which was either destroy theadhi weapons of mass destruction or t

come clean and show he no longer had then and this is what he bows on willing to do. to >> host: long island to yorkwasy on the republican line.pons >> caller: yes, good morning. mr. hadley is a neocon. the sunnis would never give power to the shiites, never in a million years. o the afghanis, taliban call we o are doing is bankrupting the nation at the expense of fighting the bogyman.he like jefferson said trade with everybody. we e the neocons need to align themselves with liberty and candidates, denounced the clowns in congress and the samet point to the will of the people. thank you. >> guest: thank you. or i think that actually there is l more hope in terms of the sunniy in iraq. i think if you look at the last election overwhelmingly they turned out to vote and look

overwhelmingly they turned against violence. remember in anbar province which was the sunni province in the western part of iraq it was actually the sunnis that turnedg against al qaeda and freed the province from control of al qaeda and the terrorists and tht this was the sunnis coming forward and wanting to be twoolf repudiate terror to be part of s unified iraq and the part of afd space iraq and participate in the election so there clearly is an element in iraq in terms of al qaeda and iraq which is a sunni based terrorist group byre think what is interesting abouts iraq is overwhelmingly all iraqis including the sunnis have rejected them and overwhelmingly they are trying to work togethei for the first time in the history of iraq and the firstha time in the arab world where you have sunni, shia and kurds

working together to try to builr a common future for their nation. i thildnk, that is a hopeful siv one would hope there aresunnis d elements of the taliban willing to do the same thing in kur afghanistan. but again that is too soon to t tell. that is one of the things that we are hoping will happen so that a lot of the taliban will o anme out of the insurgency and willing to live peacefully in the government under the this wi constitution of the afghanill constitution and we can bring peace to this troubled land. >> host: our guest, stephen und hadley. welcome, new york, independentet line. >> caller: yes, good morning. you know, after 9/11 it seems like chasing around the mountains will. we need to get the attention of the whole s middle east people d my question is what do you thino china, russia and europe, theire

dntivation is and not helping us because they wouldn't help you financially with soldiers and everything this whole thing probably could have been wrapped up by now and the other thing i a short note to george bush. l. gore and john kerry and they hate us because we are the world's policeman. >> guest: interesting in your question the europeans actually i think are a better story. if you look at the collision involved both in iraq and afghanistan, there were most european countries with exception of russia, france, germany and a couple of others were overwhelmingly in iraq and on and not with us and in terms of the afghanistan of course ths military mission in afghanistang ds really now done under the nato umbrella and it is all of the nato countries now i think

26 at last count and a lot of other, and number of european countries as well, so i think they are standing up. there are questions aboutt performance and questions about how effective is our performanc so there is some discussion.the but i think the important thing. is the europeans have been withf us in those two flights and are. with us today in afghanistan in a big way.ave be russia and china is a different case. us russia because having been an an occupying power in afghanistan going to work for them to return on the ground though they are facilitating operations initying afghanistan logistically in terms of transportation they've been facilitating that and thatn is positive and china is ground ag to get somewhat active in iraq and afghanistan in terms of developing iraqi war dee dee khalil and some of the

construction activities and afghanistan. that i think is a good thing and should be encouraged. so one of the things that thisi. many times a miff is how much both iraq and afghanistan have been an international effort not just the united states alone.eft >> host: the "washington post" reporting he calls it not set to become significant. would you agree? >> guest: again i'm not i current in terms of the intelligence. but we did see the irony af iranians to the active in the western part of the country. i think what i would say is iran has had a conflict of view towards afghanistan. in 2001 and 2002 they were

actually helpful at constructing what is called the bondghanistan conference that got the initial afghan government established. that was a useful thing and very constructive. but we have seen training and arming of folks in afghanistan and i think in some sense irana is trying to play both sides of the street to have some ties with the afghan government and to provide to the limit assistance to the afghan government but at the same timee hedging of bets and maintainingt the groups.e i am a year out of date. my guess is that is what isntaig coming on and what generalr mcchrystal as saying it is not a significant factor in the security situation and i would accept going his judgment. sayigood democratic line, steve indiana.e see >> caller: thank you for taking my call. i would like to comment.

first directed at c-span. i usually feel ceased and as a good job of getting a balanced r account of most issues but on ca the issue of the war i really don't feel that c-span has been offering the counter opinion ofj the people opposed to the war in the middle east and in kind of disappointed about that. second, my comment about the war in iraq and afghanistan, i to really feel that these have anything to do with our nationao secinurity. i don't feel they are making us safer. i would like your guest to explain what is making us savor but you've made the comment the about bringing terrorists to justice. i've been a post -- i'm a that humanitarian basis. if you look at iraq on dee dee to this been civilian casualties in afghanistan that tend to get overlooked in the media quoted at. the bbc, you can go to the bbc news and they are covered their. >> host: okey we will leave it

there. >> guest: you are absolutely fried with the civilian casualty particularly in iraq.guest: you the burden that the iraqi peoplt have suffered in terms of the civilian casualties and suffered part from this war is enormous.have they also unfortunately had an enormous burden under saddam hussein who turned violence against his own people and included using chemical weaponst against his own people so ithe s clear it is absolutely right in hu the war as the civilians sufferl and that hase certainly been the case in iraq, suffering under hs saddam hussein.le. a very difficult in the transition period and wartime period and hopefully with the iraqi people hope for and made clear in their turnout on the recent election is now for the i first time in a long time they hope f may have the prospect for building a peaceful prosperous and space future. there have been civilian casualties in afghanistan. one of things general mcchrystal

has done under presidentture. karzai's pressure is to reduce the civilian casualties at the consequence of the operations but we have to make clear the reason there are these civiliano casualties regrettable as they are is because the united states and afghan forcesth and othersus coalition forces are goingab againstle terrorists whosetates strategy has been to kill innocent civilians to stabilize the government. innoces the w strategy of the terrorists to kill innocent civilians. so we obviously want to minimize terrown casualties but it is to kl innoalties occurred in the course of going after a t terrorist group.own i would say that these wars havn made the country safer in eachea case. remember the reason we are iny e afghanistan as we talked earlier is it because 9/11.

when we found what happens ine n the place like afghanistan under the regime like the taliban cann result in the killing of 3,000 americans and other citizens on a single day in 2001 and the concern i know thent administration has is if we a cannot stabilize the situation the taliban will return and tha. might mean the return of ale qaeda which could then get al qaeda the base for considering a tax on the united states and as we recently saw in the times square attack there is still an effort by these terrorists to w strike out and kill americans.t, similarly i would say the middle east is a much better and safer place today with an iraq that doesn't have saddam hussein.ddls we do not have a regime invadinf the neighbors supporting terrence a saddam hussein didhu

pressing their osswn people and having the potential for and past history of developing weapons of mass destruction. that is a better middle east for the iraqi people and a bettera o middle east for the country and we have an interest as a nationt in a stable middle east. so i would say as difficult as h both of these have been for bote mi of the people of those two countries and our men and womenf in uniform and the enormous cost it has been to the country in the end of the day the world as a better place and it is a safea place for americans because it has been done there. >> host: energy and natural the resources committee starts a hearing taking a look ater oil drilling. we will go to the ring when it starts. virginia, to our next on the ree republican line. that heang w >> caller: good morning. i would like to a couple ofts, quick points. more importantly and then get t,

my question. would like i think unfortunately americansl the leedy from kentucky arek driven by with the media saystu and if you look back to the obama campaign everybody wanteda you loo the sky because nationality and i didn't buy that because i didn't have the e papers in my house to prove itt and i would like the american people to take that stand, too. the media needs to be separatedh rnom aller of this. second, as far as these wars over there i support them but it doesn't make any muslims have the year. but third in the most important pars of my point is the united stater with its immigration slash the terrorist ability to get into the country is the need to be ts completely separated becauseto get terrorists can slow over 3,000,e i think it is the border of canada they can come in a very easy through their. borr

so immigration and illegal immigration has got to bethey cf something completely separate and these middle easternnd countries -- >> we will leave it there.se it's been allowed to make a cout point. emigration has been one of the great strengths of anger the co. and one of the things we have to do when we talked earlier, one of the calls earlier is we need to find a way to keep thee terrorists out but still allow for the free flow of commerce tp about the borders and stillllow permit legal immigration and at the same time we've got to doll andething about the problem of the eagles in this country.e wgo president bush tried to do that with preemptive immigration reform working with republicans and democrats in the congress we got very close in the end of th day i think the senate voted iwn.s of that wmmigas one of the great tragedies actually.rats in that was the time to solve the

issue and i am pleased presidens obama is thinking about taking on that issue again. it is something that needs to bk done and i commend him for being willing to take it on.d i am >> host: ohio, sam on the to independent line we are just about to go to an event so if wg you could go with your question b comment. >> caller: hello, are you there? host cui yes, go ahead. >> caller: i feel that there is a war going on that we don't hear enough about and that is the war on the innocent people by domestic crime. >> host: ok. domestic >> guest: absolutelycr right and one of the first obligations of any society and any government of to protect its people fromga crime and that is one of thety d things that obviously is on the agenda of any president and i am sure president obama as well. >> host: garrett katella about

at the institute. >> guest: the institute of peace is a great organization pt funded by the congress and its asic premise is you probablyinf won't eliminate disagreements in the world but you can prevent pe disagreements from resulting in violence and if there are a won' series of measures that can bede learned and taught that allow people to reconcile disagreements and differences in without resort to violence and so they have focused on the prevention management and resolution of conflict they both developed the literature and the ideas of the programs on the ground. it's a great organization and with the taxpayers' money every dollar it. >> host: garrett, thank you for your time today. >> guest: thanks. nice to be here.

during the last year as i served as solicitor general, my long standing appreciation for the supreme court ruled in our constitutional democracy has become ever deeper and richer. the house financial services committee today hel this hearing on the stock markets and the causes behind last

thursday's 1,000-point drop. you will hear testimony from governor regulators including securities and exchange commission chairman mary schapiro. this is three and a half hours. >> host: the subcommittee on the from sponsored enterprises will come to order. each side will have 15 minutes for opening statements without objection all members open statements will be made part of the record. i would ask unanimous consent, or be allowed to produce a bit in today's subcommittee hearing. without objection so ordered. >> good afternoon. ri today's hearing we will subcome the frightening afternoon of may 6th, 1 of the >> most volatile trading days in, history. within minutes stock market industries dropped precipitous y erasing more than $1 trillion o

capitalization before recovery.1 while we may not yet have had all of the fact about these had defense we must quickly analyze what happened in place reforms t to restore the market integritye and promote investor confidencet to read the wingback to 2,003 questions surrounding the market structure have received considerable attention in the have subcommittee. many of the issues we have explored remain just as relevane priously ecially with aselevanding debates of man versus machine and price versus speed. versus these prior hearings have also taught me that our regulatorsspe mustd. remain nimble by continuingemai to add thant market stricter rules to b respond to an ever el the environment.o a technological lead vances have dramatically altered the wayenvn that wallt. street operates. such progress is natural. wa for the united states to continue to lead the world's the

capital markets we must continue to encourage innovation. change also can have its downside.invation many have cited the role of computers and contributing tode. and exacerbating the last week' gyrations. erbati recent years high-frequency trading hass, hig exploded. a blip two decades ago when technology constraints andes growth last crushed the market's automatic markets automated traders today move in seconds and make up as much as trader two-thirds of the daily trading uke volume. a their decisions to trade or notg to trade can produce n consequences.to tra couencode move from a model of o major trading centers to an electronic network with dozens o of marketplaces for tradingctrok equities creating new headaches ing regulators. the ascendancy of computerizedhc trading andhe automatic exchang in theofc