the existing law for the Department in any way to control the situation by suggestion or request?

Dr. DUVEL. I beg your pardon?

Mr. CHASE. Was it possible to control the objectionable trading, to which you referred, by making suggestions to the members of the exchange?

Dr. DUVEL. We have worked with the business conduct committee of the exchange. When I speak of exchanges, I think of Chicago, which represents about 85 percent of the futures transactions.

We have had a working arrangement with the Chicago Board of Trade whereby large speculative lines, either long or short, of 5,000,000 bushels, are brought to the attention of the business conduct committee, and in a number of instances they eliminated the hazards by requesting the traders to refrain from increasing their position in the market. Much good has been accomplished in that way. Mr. CHASE. Your present procedure is to advise with the business conduct committee and make your recommendation through them?

Dr. DUVEL. Yes; we have been working with the business conduct committee since 1926, with two important exceptions. On two different occasions the reporting requirements covering special accounts were suspended. The first from February to October 1927 and again from October 1932 to July 1933.

The reporting of special accounts to the Grain Futures Administration has never been in high favor with the trade. Every possible kind of argument has been made against it. It has been fought through the courts. It has been vigorously contended that the disclosing of the position of large traders to the Government keeps buyers out of the market. No claim has ever been made that these reports keep short sellers out of the market.

When the reporting requirements were first suspended in 1927 to test the justice of the claims, subsequent investigation showed that seven large traders operated at some time during the period to the extent of 2,000,000 bushels or more. Six of these traders were in the market when the reporting requirements were suspended. All six were on the short side of the market. One had a short interest of 4,000,000, which was later increased to more than 8,000,000 bushels short. The price declined about 7 cents per bushel.

Again, in October 1932, the reporting requirements were lifted under the same strong claims that were put forth by the trade in 1927 and with the further assurance that the exchanges themselves would set up the necessary machinery to safeguard the market against overspeculation. Within a few days following the lifting of these reporting requirements the price again had declined nearly 7 cents per bushel. The last chapter of this second experiment in the suspension of reporting requirements is best recorded in the collapse of the market last July, with a smash of 30 cents per bushel in the price of wheat in 2 days, and it was necessary to close the market to prevent complete demoralization.

Effective July 24, 1933, the reporting requirements were reinstated and the specified amount for the accounts to be reported was reduced from 500,000 to 200,000 bushels.

A more complete statement covering the latter period is contained in Senate Document No. 61, Seventy-third Congress, first session. A detailed report covering the former period is contained in Senate Document No. 264, Seventieth Congress, second session, and Senate Document No. 123, Seventy-first Congress, second session.

Mr. CHASE. Will the provisions of this bill, H. R. 8829, permit the Department to remedy the situation you have just outlined?

Dr. DUVEL. Yes; it will be impossible for any speculator to buy or sell such large amounts. Equitable rules with known limits for trading can be fixed before the game starts.

This point on the chart shows another sharp decline in price in October 1933, when Chicago December wheat sold down to 672 cents per bushel and the May future down to 70 cents. At this point Mr. Harry L. Hopkins, Federal Emergency Relief Administrator, came to the rescue and bought wheat for emergency relief. Except for this support through purchases for emergency relief, the price of wheat undoubtedly would have gone to much lower levels due to forced liquidation of a vast number of speculative accounts for lack of adequate margin. In my opinion, the market would be in a stronger position today had it been possible to prevent the accumulation of such tremendous speculative holdings last July.

A similar situation existed in 1925. The price of May wheat on the 28th day of January 1925 reached a high price of $2.05%. On March 13 and 17, 1925, prices collapsed in much the same way as they did last July, with a break of 144 cents

on the 13th of March and 11% cents on the 18th. By the 3d of April the market recorded a low price of $1.36%. You probably read a part of that story in the Saturday Evening Post. The reason for the collapse in 1925 was the same as in 1933-overspeculation.

The price movements of the various wheat futures at Chicago, together with the open contracts and the daily volume of trading, are shown in chart 7. This also shows the drastic break in July and the secondary decline in October, when Mr. Hopkins routed the bearish trend. Chart 8 shows the price changes when the market was staggering on October 17, 1933.

Mr. BOILEAU. May I ask a question?

Mr. GLOVER. Yes, Mr. Boileau.

Mr. BOILEAU. This bill, as I understand it, gives the Secretary of Agriculture or the commission the power to fix the limit at 2,000,000 bushels, with the general idea of protecting the market; is that right?

Dr. DUVEL. That is right.

Mr. BOILEAU. Now, that is important in order to protect the public. What I am trying to find out is whether there is a provision in the bill that will prohibit or prevent a few traders from getting together in someone else's name, and each buy 2,000,000 bushels or over?

Dr. DUVEL. Yes; if he is responsible for the trade

Mr. BOILEAU. My point is this: Is there anything to prevent a dozen people, for instance, from getting together and each buying 2,000,000 bushels, and in that way destroy the effect of this provision?

Dr. DUVEL. They cannot do so as a group.

check such operations.

Of course, it will be difficult to

Mr. BOILEAU. Is it going to be possible for a dozen men, legitimately, to buy 2,000,000 bushels each?

Dr. DUVEL. Under this bill?

Mr. BOILEAU. Suppose they want to do so individually, but depend upon the advice of some one man.

Dr. DUVEL. You would have to prove that they were doing it together.

Mr. BOILEAU. If they were to get the advice of some individual, they could accomplish the same thing, could they not, and to that extent negative the purpose of this provision? Is there anything in here to prevent their doing that? Dr. DUVEL. There is some difficulty there.

Mr. BOILEAU. It seems to me there would be.

Dr. DUVEL. Under this bill you would have the same control over the group, so far as violation is concerned.

Mr. BOILEAU. I want to suggest that it might be wise to limit the total amount of futures sales.

Dr. DUVEL. Well, that seems practically impossible if we are to maintain a futures market.

Mr. BOILEAU. What you are actually trying to do here, is it not, is to limit the total amount of futures sales?

Dr. DUVEL. So far as the individual is concerned. What we are interested in is in maintaining the market, and at the same time to guard against excessive speculation and unfair practices.

For instance, in this case, representing the operations of five traders, as shown here, we found upon investigation that the trading by this group was guided by one individual, although those five accounts showed up separately. This started on the 27th day of May, each taking about the same share.

Mr. BOILEAU. What would you be able to do in that situation if this bill is enacted?

Dr. DUVEL. You would have to show that the five were acting in unison; that they were operating as a group or pool.

Mr. BOILEAU. Is there anything in this bill to prevent these individuals from getting together and acting on the advice of someone

Dr. DUVEL. I beg your pardon?

Mr. BOILEAU. Is there anything in this bill that would prohibit those individuals from carrying on such a transaction as that?

Dr. DUVEL. If you will look at page 4

Mr. BOILEAU. Of this bill?

Dr. DUVEL. Yes; page 4, paragraph (A), at the bottom of the page, it states: "It shall be unlawful for any person (A) directly or indirectly to buy or sell, or agree to buy or sell, under contracts of sale of such commodity for future delivery or subject to the rules of any contract market, any amount of such commodity during any one business day in excess of the trading limit or limits fixed by the Commission in such order or with respect to such commodity."

Now, these indirect transactions is where somebody would be violating the law. Mr. BOILEAU. That is where you have collusion. Assume, however, that there are a dozen people interested in the same proposition and that they seek your advice, none of them going beyond the limit fixed by the Commission; that they go in there purely for the purpose of making a profit

Dr. DUVEL (interposing). Somebody would have to act for them, to give the buying and selling orders.

Mr. BOILEAU. If any member or group of them violate this provision, that is one thing; but my question is, assume that these men all act individually, and place confidence in you and let you take charge.

Dr. DUVEL. When they get into the group, there would be a limitation placed on them.

Mr. BOILEAU. And suppose their dealings were as much as 2,000,000 bushels each.

Dr. DUVEL. You are assuming that each individual would be working independently in his own dealing?

Mr. BOILEAU. Yes.

Dr. DUVEL. In that instance his transaction would be limited to 2,000,000 bushels or under, or whatever amount is fixed by the Commission.

Mr. BOILEAU. And if they worked in a group

Dr. DUVEL. If they are working in a group, it would be limited to 2,000,000 bushels; that is, where they are working as a unit.

Mr. BOILEAU. Yes.

Dr. DUVEL. Where, for instance, you have five individuals whose total transactions represent more than 2,000,000

Mr. BOILEAU (interposing). There is nothing in this proposed bill that would prevent that, is there? Suppose that they kept their individual accounts separately; each one of them had a separate account, and all of them had confidence in you, and they sought and acted upon your advice; would that not affect the public in the same way?

Dr. DUVEL. The effect on the public would be the same; yes.

Mr. BOILEAU. They would not be violating the law, would they?

Dr. DUVEL. Yes; that is what I was trying to point out; we want to make that a violation of the law the same as if each individual's transactions amounted to that much.

Mr. BOILEAU. But this group or pool's transactions are so limited that no one man has responsibility for the individual group; in other words, each individual is acting in his own interest, except he seeks the advice of someone else. Is that a violation of the proposed law?

Dr. DUVEL. It would be extremely difficult to prove that they were acting as a pool, in that instance, perhaps.

Mr. BOILEAU. If I am dealing on the exchange I have a right to accept your advice and to act on it.

Dr. DUVEL. Yes; if you are operating independently, but on the futures market it is not possible to have an operation such as you speak of; you have to act quickly, and you practically turn the matter over to some individual to operate for you, and in that way they are operating a pool; five men may be combining their interest and operating through some individual.

Now, if you want to go out and buy 500,000 bushels, and someone else wants to go out and buy 500,000, or a million bushels, why, presumably, that would be perfectly all right so long as they were operating independently.

Mr. BOILEAU. But the effect of that would be the same, would it not, if they are acting independently; it would have the same effect upon the general public, would it not?

Dr. DUVEL. The effect is there. It is impossible to eliminate all of the difficulties, of course.

Mr. BOILEAU. You could eliminate the unfavorable reaction, could you not, by_restricting the total amount of futures sales?

Dr. DUVEL. You mean on the exchange as a whole?

Mr. BOILEAU. Yes.

Dr. DUVEL. During each day. That would be impossible; the market could not function in that way.

Mr. HOPE. I have one or two questions.

The CHAIRMAN. Mr. Hope.

Mr. HOPE. Duvel, in line with the question raised by Mr. Boileau, what you are trying to do is not to diminish the volume of trading but to prevent one individual or a group of individuals from either buying or selling so much that it would have an undue influence on the market?

Dr. DUVEL. Yes.

Mr. HOPE. That is your object?

Dr. DUVEL. Within the limits fixed by the Commission.

Mr. HOPE. Now, in speaking about the fluctuations on the market, I understood you to say that there could not have been these fluctuations unless there had been these large holdings on the part of certain individuals. Is it not true that the general public at that time was also buying?

Dr. DUVEL. The general public was buying. The general public was buying in here [indicating], but they went out or were sold out later.

Mr. HOPE. I mean that there was enough buying on the part of the general public, at least, to account for a part of that fluctuation?

Dr. DUVEL. That is entirely possible. That was fully demonstrated in January 1925. When the price reached around $1.80 the large traders, as a group, began to liquidate. At the same time the general public speeded up their buying and forced prices on up to a high of $2.05% per bushel.

Mr. HOPE. When the public gets the idea that it can make money out of speculation there is nothing to prevent it from engaging in it to such an extent as to result in greatly increasing the price

Dr. DUVEL. You are quite right.

Mr. HOPE. As the matter now stands?

Dr. DUVEL. That is right.

Mr. HOPE. And in that case there might be some value, might there not, in having a few short sellers who would hold the thing in check?

Dr. DUVEL. Except, of course, we never get the general public into the market to any considerable extent until some individual trader, or a group of larger traders, gets the machinery in proper order. The small traders, as a group, want to see prices advancing before they take a chance.

Mr. HOPE. These bull movements are all started by the large traders; is that correct? Later the public get in.

Dr. DUVEL. That is generally true. Of course, we have to keep in mind, in thinking of the futures market, that all persons participating in the futures market do so with the expectation or hope of making a profit. They do not expect to take a loss; they expect that the market will advance and yield them a profit. Small traders are not so able to stand losses, consequently they want to see prices advancing before they buy.

Mr. HOPE. Now, with reference to the question of hedging: You will recall, as will the members of the committee who attended the previous hearings when this question was under consideration, that at that time the millers expressed the view that it was necessary to hedge and that it is necessary to have an entirely free market for them to buy their hedges when they need to do so.

Now, do you think that the limitations included in this bill will prevent legitimate hedging?

Dr. DUVEL. No; not in the least.

Mr. HOPE. You think that there will still be a sufficient volume of trading so that there will be opportunity for them to hedge?

Dr. DUVEL. Yes; ample. There is one indication in the chart which will show that, Mr. Hope. That is illustrated here on this chart, showing the transactions in hedging. As you will note, this chart shows that the millers' hedging transactions offset to the extent of about 70 percent.

Mr. HOPE. That runs through a period of a year?

Dr. DUVEL. Yes; that is for a period of 1 year.

Mr. HOPE. But would that be true for a shorter period? What I mean is this: Millers usually are heavy buyers after a crop movement begins. At that time they would hedge by selling futures against their purchases. Later on, when they are selling flour, they would be buying futures. Now, during any particular period or, say, during any 1 month, would these hedges offset one another to the extent you mention?

Dr. DUVEL. There is a considerable variation in that respect, as you see here. Mr. HOPE. So that you could not say, for any particular period, that represents 70 percent of the hedging at that point?

Dr. DUVEL. No; you could not say that.
Mr. HOPE. That would not be correct?

Dr. DUVEL. I would not want to say that.

Neither do I, in this connection, want to leave the impression that I am opposed to short selling. You cannot have a futures market without it. You have to have some short selling to have a futures market. course, we must keep in mind one major point.

In considering that point, of
Whether it is desirable to

maintain or abolish futures markets.

We cannot have a futures market unless we have a certain amount of short selling. That is the only way it can operate. Mr. HOPE. Do you think you would still have an active market if you should put a limitation upon the volume of sales?

Dr. DUVEL. Yes; there is no doubt in my mind on that point. Of course, you never can measure exactly what adjustments will follow any new legislation.

A great many people believe that there should be some way to keep the incompetent or poorly informed out of the markets. There are many who buy and sell wheat futures who know but little about wheat and much less about the world supply or the fundamentals of a futures market. That class should not trade. However, that is an entirely different question, one which we do not undertake to answer.

Mr. HOPE. What you want to do is to regulate that.

Dr. DUVEL. Yes; and moreover, whenever you eliminate this class you destroy the futures markets. We have no desire to destroy the futures markets, but we believe they can be made better and safer by proper regulation.

Mr. HOPE. How do you account for the fact that the present wheat market is very much above the world market? Do you think that is because of speculation? Dr. DUVEL. Speculation. We have been above the world market for 4 years. Mr. HOPE. Yes. If we had had no futures trading do you think that the present price would be above the world market?

Dr. DUVEL. No; unless there was a fixed or a minimum price, I do not think that it would be.

Mr. HOPE. At this time the Chicago price is approximately 20 cents above the Winnipeg price-20 cents a bushel—which evidences the fact that the speculators in this country think that it is worth while to buy wheat at that price, does it not? Dr. DUVEL. It ties up, of course, with the control of acreage, the monetary situation, and various other factors, but it is true that the speculator who holds or buys futures does so with the belief and faith that his trade will yield a profit. In other words, when a man is interested in buying wheat at 80 cents a bushel he does so because he thinks that he will be able to realize a profit on wheat bought on that basis; otherwise he would not care to buy. If he did not think the wheat price would go above that level he would not buy it.

Mr. HOPE. Yes.

Dr. DUVEL. But we do believe that with the provisions in this bill there will be no interference, in any sense, with the man who wants to do a fair and honest business. The proposed amendments will necessitate some readjustments. Mr. HOPE. How do you account for the fact that the millers and others who are interested in maintaining hedging have consistently opposed this type of legislation? They evidently do not agree with you that this legislation will still enable them to hedge with entire freedom.

Dr. DUVEL. In my opinion, it is because the majority of millers do not have occasion to become familiar with the inner workings of speculative training. I find nothing in our studies to indicate any justification of their views on that point. Mr. GLOVER. You spoke about wheat being above the world price. Do you think that the tariff has had anything to do with keeping the price above the world price-the world market? What effect do you think it has had?

Dr. DUVEL. At times it is an important factor; but in my opinion it is not a factor under existing conditions.

The CHAIRMAN. Any further questions?

Mr. GILCHRIST. I notice you have used several charts. I was wondering whether those could be made a part of the record.

Dr. DUVEL. I will be glad to offer them.

The CHAIRMAN. We will see if they can be made a part of the record.

Dr. DUVEL. They will be available to you at any rate. They are contained in various Senate documents and bulletins of the Department, copies of which will be furnished to the members of the committee.

The CHAIRMAN. We desire to thank you. Do you think you could be here tomorrow?

Dr. DUVEL. Yes.

The CHAIRMAN. We would like to have you here.

Now we would like to have the names of any other witnesses who desire to be heard tomorrow. I am going to ask that you leave your name with the clerk so that we may have a list of those who desire to appear tomorrow.

We want to limit the hearings insofar as possible with the view to formulating legislation. We have had a rather full questioning of Dr. Duvel, but we will try to arrange the time of the witnesses tomorrow from the list we get.