I thank you, gentlemen of the committee, for your indulgence. The CHAIRMAN. Mr. Beale, about 2 years ago on practically this same bill, we had 2 weeks' hearings, most of which, or the major portion of which, was devoted to cotton. There appeared at those hearings Mr. William S. Dowdell, Mr. F. F. Bush, Mr. H. H. Greene, Mr. Robert Harriss, Mr. Gardiner H. Miller, and two or three others. The hearings were delayed for a few days and then there appeared Mr. Charles W. Wells, Mr. Herbert L. Bodman, and then later we again heard William S. Dowdell, who is vice president of the New York Cotton Exchange, and Russel Clarke, who was president of the New Orleans Cotton Exchange. All phases of the bill were gone into very thoroughly.

Now, the only substantial change of any consequence, aside from my changes, was the enlarging and clarifying of provisions which would forbid the exclusion of cooperative organizations from the exchanges, and all of the exchanges that have appeared here before have said they would have no objection to cooperatives having a seat on the exchange. I assume you do not have.

Mr. BEALE. I do not wish to beg the question, Mr. Jones, but I do not know. I do not know what is the attitude of the New York Cotton Exchange in that respect; but I should imagine

The CHAIRMAN (interposing). Well, just as a matter of general justice, if a marketing organization is maintained which you assert is in the interest of the farmers themselves, there certainly could not be any objection to any cooperative organization having the privilege of the exchange.

Mr. BEALE. I would assume that that is true.

The CHAIRMAN. I understand that it has been the position of the exchange all along that they do not have any objection. The main change that has been put into the bill is a provision which makes it certain that they cannot be prohibited. Otherwise, the bill is largely as it was.

Now, of course, on somewhat similar bills that have been pending for years, we have had other cotton men appear. Undoubtedly when this goes to the Senate you will desire further hearings.

If we are ever going to have legislation, we must have it in the bill. Having gone into this question so thoroughly at these previous hearings, we did not feel that it was necessary at this time to have further hearings, especially in view of the fact that the Senate committee will no doubt want to go into that question, if the bill should get that far.

Mr. BEALE. Well, you recognize, of course, Mr. Chairman, that the New York Cotton Exchange does not wish it to appear that by not being present here and opposing this measure it might be interpreted as a tacit acquiescence to this bill.

The CHAIRMAN. We are very glad to have you make your position clear on that, Mr. Beale.

Mr. BEALE. Thank you, Mr. Chairman, very much.

The CHAIRMAN. Are there any further questions by members of the committee? If not, we wish to thank you, Mr. Beale.

Mr. BEALE. Thank you.

The CHAIRMAN. Now, I believe, the committee would like to have a statement from Dr. Duvel, if he cares to say anything in answer to anything that has been said.

STATEMENT OF DR. J. W. T. DUVEL, CHIEF, GRAIN FUTURES ADMINISTRATION, DEPARTMENT OF AGRICULTURE, WASHINGTON, D. C.

The CHAIRMAN. Dr. Duvel, we will be glad to hear you at this time.

Mr. HOPE. Mr. Chairman, before Dr. Duvel begins I would like to ask whether he is going into all phases of the bill or is he going to limit his discussion to matters developed by the witnesses?

Mr. DUVEL. I might say at the outset, Mr. Chairman, that there is really not anything that I need to say. I think the Department's position is very clear on this legislation and the need for it. This is substantially the bill which was approved by the last Congress, by the Department, and which was submitted to the last Congress by the President. Unless there are some questions which members of the committee desire to ask me, I think I have no particular

statement.

The CHAIRMAN. Just one or two questions. I would like to ask you about this 10-day provision. What is the reason for, or the desirability of having a provision of not exceeding 10 business days' requirement of notice of delivery?

Mr. DUVEL. The situation at the present time in the grain trade is that the buyer must stand ready to take delivery on any day that the seller tenders it; the seller may deliver it on the 1st day of the month or he may defer delivery until the last day of the month, but the buyer must stand ready to take delivery and to pay for it. I believe he is allowed an hour in which to make payment; anyhow, it is a very short time, practically immediate payment.

Now, this bill requires at least 3 days' notice to the buyer. We have a great many people who advocate the idea that the buyer should be granted a longer time when he demands it. This only requires that the buyer be entitled to 3 days' notice. The Secretary may give as much as 10 days.

And, from the standpoint of the grain trade, I do not believe there would be any need for or that they would want more than 3 days. The cotton trade, I think, is given 5 days. And the sugar trade 7 business days; however, sugar is not in this bill. The requirement in this bill is not to exceed 10 days' notice; 3 days, not exceeding 10. Of course, if the exchanges want 10 days, we will be glad to give it to them.

The CHAIRMAN. What is the reason for the provision that such contracts shall be made prior to a date to be fixed by rule or regulation of the Secretary of Agriculture, which shall not be earlier than the 15th day of the delivery month to which such contract relates?

Mr. DUVEL. That is in order to stop aggressive trades of those engaged in heavy trading, but to give an opportunity to the man who has sold a future to secure the actual grain and make delivery whereby the benefits will be reflected to the producers in the country. For example, take corn, the price may advance sharply on the last day of the month. I have in mind a case where the price advanced during the last few days of the expiring future, and on the last day of the delivery month was 14 cents above the price of cash corn the following day. If the seller had had 15 days to complete deliv

ery, the producers would have received some benefit in that they would have had 15 days to get their corn to market.

This bill does not stop trading the 15th of the month but merely makes it possible to do so. If there is any serious belief that to stop trading the 15th will work to the detriment of the producers, then may I suggest that the period be extended into the following month-that is, January. If speculative activity should force prices above proper levels at the very end of a delivery month, why shouldn't the farmers have an opportunity to share in these profits? To do so they require sufficient time to get their grain to market. Mr. KLEBERG. Mr. Chairman, I would like to ask Dr. Duvel a question.

The CHAIRMAN. Mr. Kleberg.

Mr. KLEBERG. Does not the code in operation at the present time control that situation?

Mr. DUVEL. No. The code, as far as delivery is concerned, the code has nothing to do with it; does not touch it at all. It covers margin requirements. It requires a minimum margin of 10 percent on speculative transactions up to 2,000,000 bushels and 25 percent thereafter.

It eliminates trades in privileges. The code also limits the daily price fluctuations, which was also in operation before the code became effective.

I think there are one or two other points which I do not recall at the moment.

Mr. KLEBERG. Has the code generally failed to remedy the complaints that come to you?

Mr. DUVEL. Generally speaking, yes. In the matter of excessive lines the code operates only indirectly; it does not go into many things that are touched here. The bill goes into many matters which

are not covered by the code.

Now, there is not a single thing in the code-and I do not wish to be understood as criticizing it but there is not a single thing in the code that could not be continued by the exchanges.

Mr. KLEBERG. As a matter of fact, do you have reason to believe that through a redrafting of the code to meet some of those inequities and complaints you speak of the same thing could not be reached?

Mr. DUVEL. The only difficulty about redrafting the code is that we do not know how long the code is going to last; whether it will last longer than June or whether it will be extended for another 2 years.

Mr. KLEBERG. Is there now not an indication that the code, in all probability, will be continued for at least 2 years? I am asking just as a matter of information?

Mr. DUVEL. I believe so; yes.

Mr. KLEBERG. Yes.

Mr. DUVEL. I might say, however, that our views with reference to this legislation are based on intensive study that has been made of the marketing of grain, and our approval of it does not depend upon whether or not a code continues. I would like to see the provisions of the code extended, of course. But I think this law should be enacted whether the codes are extended or not.

Now, there is just one other thing I want to say in reference to floor brokers, which has been discussed.

We have in Chicago on an average of about 11 billion bushels of wheat traded in each year. That is about 14 times the average production of the United States and more than 3 times the world crop. About one-half of the trading is by floor brokers; they do about 50 percent of the business. Every order must go through a floor broker, must be executed on the floor, presumably executed on the floor, so that the floor brokers are indirectly connected with the orders that go through. In fact, there is no part of the exchange operations for customers which is not directly connected with the floor brokers. If the floor broker is not fair, or if he is dishonest then it affects all of the orders of the commission house for which he executes customers' orders. But if he is honest the order is handled for the benefit of the customer. In that event, of course, he is rendering a proper service to the customer. But we have found cases where the floor brokers were taking orders into their own account.

Mr. TOBEY. How many cases do you know of?
Mr. DUVEL. How many cases?

Mr. TOBEY. How many cases in the last 5 years?

Mr. DUVEL. We have not undertaken to go into that matter in the last 3 years very seriously.

Mr. TOBEY. Why not?

Mr. DUVEL. In one case that was taken up with the Commission; the Commission ruled that the irregularity complained of was not a violation of the Grain Futures Act, and there was nothing else we could do about it.

Mr. TOBEY. Then, as I understand you, you do not have a single case, and have not had a single case in which a complaint has been sustained? Nor do you have any evidence that would justify you in saying how many times the condition you complain of has happened?

Mr. DUVEL. At the time we went into this matter, as I recall, roughly, there were 14 instances.

Mr. TOBEY. How long ago was that?

Mr. DUVEL. That was about 4 years ago.

Mr. TOBEY. Have you done anything since then?

Mr. DUVEL. We have not undertaken anything.

Mr. TOBEY. Have you found out about it?

Mr. DUVEL. We have not undertaken to check such cases because the Commission has ruled that we had no authority to prevent such irregularities.

Mr. TOBEY. Well, in the 14 actual cases that you refer to, what did you do? Bring it to the attention of the exchange?

Mr. DUVEL. Not at that time. We brought that one case before

the exchange when that matter was up.

Mr. TOBEY. What did you do about the 14 cases

Mr. DUVEL. The other cases?

Mr. TOBEY. Yes.

Mr. DUVEL. I do not think that anything was done.

Mr. TOBEY. Why did you not take it up with the exchanges and see whether or not they were acting in good faith, if you thought they were not?

Mr. DUVEL. They have seemed to cooperate.

Mr. TOBEY. Why did you not take these specific cases up with the exchanges and give them a chance to either affirm or deny the charges before the exchanges?

Mr. DUVAL. As I have said, in that one case, much time had elapsed, 2 or 3 years, and there was nothing that we could do under the Commission's ruling. Therefore, the other instances were allowed to rest.

Mr. TOBEY. So, if I understand you, Dr. Duvel, you had specific cases where a man's honesty was challenged, or where he was charged with a law violation, but that nothing was done by your department to bring that matter to the attention of the exchanges and that no demand was made upon the exchanges to take action in those cases? Is it your judgment that law violations are going on continuously

Mr. DUVEL. That is not my judgment. In some instances-it is just a question of human conduct, and you cannot get away from the fact that there will be some variations, some chiseling. We are interested in it because there may be only an occasional instance, but the practice of the exchange itself, in doing business is

Mr. TOBEY (interposing). The question that I want to bring out is this: That you had these complaints, but as I understand, you say they were not taken to the exchange, nor was the evidence.

Mr. DUVEL. When we tried to deal with these cases we were told by the Commission that we did not have any authority. There was nothing we could do about it until some legislation of this kind was enacted.

Mr. MARSHALL. Mr. Chairman, I have a question.

The CHAIRMAN. Mr. Marshall.

Mr. MARSHALL. Dr. Duvel, my question relates to the fact that the chairman just asked you about, and that is giving the Secretary authority to fix a delivery date not earlier than the 15th of the month. Now you were here and heard the statement a little bit ago by the gentleman from Kansas City, and I understood his statement to be almost opposite to that of yours. I understood that you do not give much credit to the opposition in stating that harm would come as the result of the Secretary having this authority.

I understood him to say that it would result in harm. I am very anxious to know what these facts are. I would like to know which is right, for my own information.

Mr. DUVEL. We have this situation: Let us assume trading in December wheat; that is one of the leading futures.

Mr. MARSHALL. Yes?

Mr. DUVEL. It merely fixes a cut-off for new trades. The basis for trading could be just as well in November wheat, and eliminating December entirely. It is the basis of the contract, where the cut-off is. So long as everybody knows, it would not do any harm, whether the 15th or the end of the month.

Mr. MARSHALL. Then the whole proposition which is asked for in the bill is what? Just what is the real purpose of that section? Mr. DUVEL. So as to give some opportunity to close out contracts and prevent the cornering of the market contracts could be liquidated in a normal manner. At the present time the limit on cotton,