spoke on the question of licensing floor brokers, the committee of the New York Cotton Exchange felt that anything they might say would be more or less in the nature of repetition, and in consideration of not consuming the time of this committee, they have requested me to ask the indulgence of the committee to the extent that be allowed 10 minutes, as counsel for the New York Cotton Exchange and its members, to present two brief arguments on the merits of the bill. This request, I realize, may not be agreeable to the chairman, but I respectfully point out that the hearings by this committee on the proposed bill at the last session of Congress were closed and thereafter the bill was amended so as to include cotton, consequently the cotton-futures trade has never been heard on the merits of the bill. May I further respectfully say that the cottonfutures trade may have appeared a few years back in respect of a similar bill affecting cotton futures, but at such time there were not present at least six members of the present committee.

With the consent of the chairman I will, therefore, proceed to submit briefly two arguments.

The first of these arguments is that the cotton trade is so separate and apart from the grain trade it would be a grievous error to include cotton in a bill that primarily was drawn to apply to grain. For instance, the planting of grain, the bringing of same to market, and placing the commodity into the hands of the ultimate consumer engage but few persons and affect but few industries in comparison with that of cotton.

It may be surprising to know that, according to economists and authorities on the subject, from 10 million to 12 million persons in the United States depend for their living on the growing, distribution, and manufacture of cotton or upon industries or trades which are otherwise vitally related to cotton. That the States in which these persons reside are 10 in number, containing nearly one-half of the population of the Union, and this population is dependent either directly or indirectly on cotton. Moreover, out of 6,300,000 farms recorded in the United States census about 2,000,000 grow cotton, and of these 1,600,000 are devoted chiefly to cotton. Cotton has been the chief export of this country for over a century, and now is, and is the most valuable crop raised in the United States. It is respectfully submitted to this committee that any bill that has reference to the control of contract markets of cotton and that may affect the price of cotton or its marketing should be a bill that relates solely to cotton, and no effort should be made to add cotton to a bill that was drawn primarily to apply to grain exchanges, wherefore the New York Cotton Exchange and its members ask that if this committee insists upon legislation affecting cotton-futures exchanges, then let such legisiat on be in a separate law, to the end that deliberation may be had thereon and a bill prepared that through no inadvertence nor sins of omission or commission may the greatest commodity in the United States and the greatest export of the United States be impaired.

The second of these arguments is that your committee, as well as every other patriotic citizen of the United States, are prompted only to demand legislation governing private businesses as and when such legislation is necessary to prevent abuses of the public welfare and

to protect a trade that belongs to no individual nor a group of individuals but, indeed, is the property of our people as is the public domain of our country. I deny that there is any such demand in respect of the cotton-futures contract markets. In support of this denial may I submit that over a period of months many conferences were held by representatives of the three cotton-futures exchanges with representatives of the A. A. A. Division of the Department of Agriculture to ascertain whether or not a code of fair competition was necessary to govern cotton-futures exchanges and its members to prevent abuses against the public or the cotton trade or the members of such exchanges. In these conferences representatives of the N. R. A. participated. The proposed code contained substantially the provisions of the bill H. R. 3009, now under consideration, except in respect of licensing floor brokers; and in fact the proposed code was, perhaps, more drastic in that the power was concentrated in the Secretary of Agriculture or the Administrator for Industrial Recovery.

The result of these conferences was that the A. A. A. Division requested that the members of the cotton-futures exchanges submit memoranda showing why a code should or should not be imposed, and the reasons therefor. Memoranda were accordingly submitted, one of which was on behalf of the members of the New York Cotton Exchange. This memorandum is short, and every argument advanced therein is a meritorious argument against including cotton in the so-called "Jones bill ", wherefore I will end this paper by reading such memorandum.

After conferences and the memoranda, the A. A. A. Division were satified that no code was necessary. Such portions of such memorandum that are applicable here are as follows:

On August 22, 1934, a conference was held in Washington by officials of the A. A. A. Division of the Department of Agriculture, and of the N. R. A. There were also present those members of the New York, New Orleans, and Chicago cotton-futures exchanges, who had been invited to attend. The purpose of the meeting was to afford a free and full discussion of the need, if any, of a code for the cotton-futures trade-whether the same would be helpful and, if what provisions should the code contain.

Views were exchanged and a lengthy discussion ensued wherein every one who so desired voiced his opinion.

The suggestion was finally adopted that the proposed code prepared and presented at the conference by the A. A. A. Division be sent by each exchange to its members for examination, and after a reasonable period each exchange request its members to hold a general meeting at which to express their views on the advantages or disadvantages of a proposed code; and to elect a committee to prepare a memorandum to submit to the Department of Agricultureto reflect the prevailing opinion as registered by the members, accompanied by reasons to support such opinion.

A meeting of members was held at 3:15 p. m., on September 5, 1934. The view was unanimously to the effect that a code was neither necessary nor helpful.

Messrs. Geer, McEnany, and Wachsman were chosen as a committee and requested to prepare a memorandum, apprising the De

partment of Agriculture to the foregoing effect and submitting the reasons that prompted the negative vote.

The committee invited members to give to the committee the reasons on which they based their conclusion that a code would rather hinder than help. From the material so supplied, the committee exercised a selection which it submits to the following effect:

The members of the cotton-futures trade in New York City occupy a position entirely different from members of what might be called the basic trades or industries of the United States-perhaps a unique position-in that, by virtue of being controlled by a central authority, namely, the New York Cotton Exchange, which they established and under which they have voluntarily operated for 65 years, they have subjected themselves to a code of fair-trade practices to eliminate cutthroat competition and destructive evils to the public, which the committee understands is one of the chief purposes that the N. R. A. codes were designed to achieve.

The members of the cotton futures trade in New York City occupy a second different and unique position in that the central authority that they established, namely, the New York Cotton Exchange, and under the bylaws of which they have operated for 65 years, was created by a special law of the State of New York which permitted the members of such exchange to function through a body corporate for limited purposes, the chief of which were to maintain suitable quarters in which to trade, to adjust controversies between themselves, to establish just and equitable principles in trade, and to discipline by suspension or expulsion any member guilty of violating this code. Should the members not conform to the foregoing, the State of New York may bring an action to dissolve the exchange, wherefore the members of the cotton futures trade in New York City are subject to this control by the State of New York.

The members of the cotton futures trade in New York City occupy a third different and unique position in that, under the United States Cotton Futures Act of August 11, 1916, with amendments, more commonly known as the "Smith-Lever Act", such members must, through a tax provision, conduct their business in the manner and time and under the terms and conditions as in said act prescribed, as supplemented by the regulations of the Department of Agriculture, wherefore it may be conservatively said that for 18 years all members of the cotton futures trade have been subject to supervision and control by the Federal authorities-and are now so controlled.

The members of the cotton futures trade in New York City occupy a fourth different and unique position from members of what might be called the basic trades and industries of the United States in that they do not buy or sell anything whatsoever either between themselves or with the public. They offer to the public that for a stated broker's commission they will, on certain terms and conditions, pursuant to the rules and regulations of the New York Cotton Exchange, enter into contracts with each other for the purchase and sale of a single commodity-cotton-to be delivered in the future. These contracts must be of a kind described in the Smith-Lever Act; and the cotton to be delivered on such contracts must be of a kind specified in the same law and certificated by the Department of Agriculture. The stated commission as aforesaid is a fixed sum, wherefore

competition between members is limited solely to persuading the public to employ one member rather than another. Abuse along this line is prevented by the bylaws of the exchange, which are made a part of this memorandum by reference thereto. The public cannot be injured by unstable commission charges or by the delivery of an inferior product.

The public can be injured only in two ways, through the bankruptcy of a member which is guarded against by the limited credit rule established by the exchange, the close scrutiny exercised by the exchange over the financial affairs of its members and the exchange clearing house in requiring original margins on all contracts, and through a manipulation of the market to the prejudice of the cotton trade. Such manipulation, if possible, may only be by members either on their own behalf or for customers in acquiring long or short contracts to a volume that permit the owners thereof, in liquidating these contracts, to put the market prices up or down abnormally, or otherwise, creating a condition wherein the futures market may be made to respond to artificial causes rather than to the law of supply and demand.

To prevent even an attempt at manipulation, section 114 of the bylaws of the New York Cotton Exchange was adopted, providing that the interest in futures contracts for delivery in any one month of any individual, firm, or corporation and his or its affiliations shall not exceed the limit prescribed by the board of managers of the exchange (except as to hedges in any one month wholly against spot or cash cotton), and even in respect to these hedging transactions, if the board of managers determines that the same unduly affect or endanger the normal parities between months or markets or for any other valid reasons, the board may prescribe a limit in respect of the interest in futures contracts which shall include such hedging transactions; and the member or members who have exceeded the limit either in futures or hedging transactions shall be required to reduce such interest to bring it within the permitted total, and may be disciplined by suspension or expulsion. The maximum interest in futures contracts that may be held in any one month by any individual, firm, or corporation and his or its affiliations is prescribed by the board of managers. And section 115 establishes a control committee with wide powers of investigation to insure that section 114 is not violated.

The committee points with pride to the fact that there have been no scandals of any kind in the operations of the members of the cotton futures trade in New York City for years-and certainly no suspicion of manipulation since the adoption of bylaws, sections

114-115.

The members of the cotton futures trade in New York City submit that there has not been a single demand from its members for a code because of evil trade practices, unfair competition, or otherwise; nor has there been such a demand on the part of a single person engaged in the cotton trade whether a producer, consumer, factor, or merchant; nor has there been such a demand on the part of a single person either in the United States, Canada, abroad, or elsewhere, who has had occasion to use the market of the New York Cotton Exchange; nor has there been such a demand on the part of any

financial institution or other interest in the many affiliated lines associated with cotton from its planting to the delivery of the finished product into the hands of the ultimate user.

It is respectfully submitted that the opposition to a proposed code for the members of the members of the cotton futures trade in New York City, is not prompted by arbitrary unwillingness to accede to the suggestion that a code be adopted. On the contrary-and this statement is made in earnest sincerity-if the members believed that a code would be helpful to them or to the trade, or contribute to an improvement of present financial conditions, they would unhesitatingly solicit a code. However, the fact is that the cotton futures market is a delicate mechanism easily thrown out of adjustment. The market established and maintained by the members of the cotton futures trade on the New York Cotton Exchange is a national institution; indeed, a world-wide institution, because it is used by citizens of many countries. It may be safely said, without fear of contradiction, that this market is an indispensable necessity for the marketing of the greatest export commodity of the United States, and that any interference therewith, even though well-intentioned, may invite evils that cannot now be foreseen. Among these evils is the possible diversion to the two foreign futures exchanges whose markets reflect buyers' interest rather than sellers', of hedging transactions ordinarily handled in the New York market. This result would necessarily lower the prices to the American farmer. It may not be unfitting to assert that the present members of the cotton futures trade in New York City, and their forebears, having been engaged in the cotton futures trade for three generations, are better qualified to judge whether or not a code will be helpful or harmful; and by the same token, if they were of the opinion that it would be helpful, they would be the first to step forward with this declaration.

And, finally, may it be said, that it is their firm conviction that a code would not contribute toward reestablishing prices of cotton to farmers thereof, at a level that will give this commodity a purchasing power equivalent to its purchasing power in the base period, which is the declared policy of the Agricultural Adjustment Act. On the contrary, it is believed that a code may have the reverse effect, in that its operation may reduce or limit competitive buying in the futures market to price prejudice which, in turn, would react on the crop.

I most earnestly beg the members of this committee not to take lightly the appeal that I am making to omit cotton from the bill. There is no reason for haste—there has been no abuse nor scandal in the cotton futures markets since the enactment of the SmithLever law, 19 years back. Reiteration is not argument, so forgive me when I reiterate that if you insist upon the cotton futures exchanges that are indispensable to the marketing and exporting of the greatest crop that the United States produces, be governed by legislation that must necessarily affect the cotton trade, which in turn will directly affect 10,000,000 people and indirectly affect half of the population of the United States, then pray, I beg of you, put this legislation in a separate law after the most meticulous consideration.