we mentioned yesterday was simply as an illustration. We started out by quoting that and saying that that was at a premium.

Now, the figure in that market report there I do not know whether the doctor knows it or not-I would not say he did; but we have had two short crops of wheat. They have been entirely protein wheat. Protein wheat sells for from 5 to 15 cents a bushel premium over ordinary wheat. Of course, we have had only 2 or 3 cars of wheat a day. Some days in December we had no wheat at all on the trading floor owing to the short crop; but there were 18,000,000 bushels in the elevators.

Now, as a matter of fact, my own firm delivered 280,000 bushels of ordinary wheat on December contracts in the last 15 days of December, because Washburn Crosby and two other mills were long that week. They had bought it months before.

The CHAIRMAN. Were those contracts made after December 15 and executed, too?

Mr. DAVIS. We made them. We went short, then bought. They were bought on delivery basis, but they wanted that wheat for a specific purpose. Now, the man who had sold them did not have any wheat. He could not go out and buy protein wheat on the floor and deliver it. So that price went to a premium over May wheat, and during the last half of the month my own firm delivered 280,000 bushels of wheat which we sold at 3 cents over May, and we would have delivered them 3,000,000 bushels of wheat if that had not satisfied the contracts.

Now, that put us in the market, and we were buyers of wheat wherever we could buy it. Now, this is an unusual year. It does not apply usually. We simply used the word "December" to show that you gentlemen could properly get what I was talking about. I know that wheat did not even sell at 95 cents in Kansas City in December, but I was trying to give an illustration that would carry the thought to you.

Of course, coming here, I can agree to all the doctor said, every word of it, but that is why we are afraid of this licensing provision, that a man sitting down in Washington cannot tell the conditions in Kansas City.

Now, I want to spend just 1 minute on this Kansas City crosstrading business.

Mr. HOPE. Let me ask you a question about the matter you were just discussing. I think the committee at least I did got the impression from your statement yesterday that no one would buy cash wheat in the illustration you used, say, during the latter half of December, unless it was lower than the current future, so that it could be delivered at a profit.

Mr. DAVIS. Futures?

Mr. HOPE. Futures.

Mr. DAVIS. Correct.

Mr. HOPE. For that month?

Mr. DAVIS. Correct.

Mr. HOPE. Now, of course, that has not been the case in this last December.

Mr. DAVIS. Yes; because this law was not in effect.

Mr. HOPE. But, if this law had been in effect?

Mr. DAVIS. We could not have made those sales, therefore we would not have been a potential buyer of wheat at that basis.

Mr. HOPE. Why, if this law had been in effect this last December, you could have bought cash wheat and sold it for more than the December futures?

Mr. DAVIS. That was the only place we could sell ordinary wheat, was on that futures. The kind of wheat the Doctor is talking about is protein wheat. That is worth 5 cents a bushel more. That is all that was coming from the country.

Mr. HOPE. Nevertheless, it follows, does it not, if this law were in effect, it would not have affected the price of cash wheat during the latter half of last December?

Mr. DAVIS. That might or might not be the case, yes; but I happen to be a large farmer myself, and why deprive the farmer, the poor devil who is trying to make ends meet, of the chance that he has to get a premium when it is his turn to get the premium? That is what I argue. I am not interested in the speculative end.

Mr. HOPE. This would not necessarily keep him from getting that. Mr. DAVIS. Yes; it would. I could not have made those trades in the last part of December, and I would not have been in the market for more wheat.

Mr. HOPE. Why could you not have made those trades?

Mr. DAVIS. Because if the Secretary had prescribed that there would be no trading after the 15th day of December, I could not have made any new trades.

The CHAIRMAN. He might make it any time. He might just say the last day of the month.

Mr. DAVIS. If you put in the last day, we will withdraw our opposition.

Mr. HOPE. If you bought cash wheat during this last December, you did not pay any attention to the December futures, because the cash price was running higher than the December futures.

Mr. DAVIS. Yes; we had the wheat.

Mr. HOPE. You did not have to consider whether or not you could deliver?

Mr. DAVIS. I told you that the farmers in Kansas raised 67,000,000 bushels last year and this year 57,000,000. We normally raise 140,000,000 bushels. This is an unusual year. There were only a few cars coming in daily. But I will give you any time you want. I promised not to consume the time, because Mr. Coughlin wants to answer those questions.

I want to answer the terrible indictment against Kansas City on cross trades.

To begin with, I cannot understand the action of Dr. Duvel and Mr. Mehl in slighting this code. The Government, whoever the representative, had 8 months to put everything in this code that they thought was necessary.

Now, we worked and worked and worked over it, and we tried to cover every point that is up here today, every loophole that there is. Now the rules provide and the State laws provide against bucketshop trades. That is not anything new. Nobody condones it. But in this provision it says bucket shop, washed sales, accommodation trades, and cross trades. Now we will take Kansas City, and some

of you gentlemen are not familiar with Kansas City. It is a long ways away, but it is the biggest primary hard-wheat market.

Now it was customary in years gone by to buy wheat at Kansas City at 10 cents less than the Chicago price, which is the freight difference between Kansas City and Chicago. Well, that resulted in a heavy movement on Chicago and the farmer was out 10 cents under Chicago, and wheat was selling at about 10 cents under Chicago, so some of us back in 1898 agreed to trade in 5,000 bushels a day to make a futures market, because the natural speculative market is Chicago.

Now, we kept that up and we have maintained a market for futures in Kansas City and we have done it by our own efforts. Omaha tried to have a market. It failed. The St. Louis futures market virtually failed. Wichita tried it. Hutchinson tried it. Their markets have failed. But Kansas City has gone on.

Now there are firms out there such as my own that when we get 2,000 cars of wheat a day, and it depresses the difference between Kansas City and Chicago, we have one of our brokers buy wheat in the pit and sell in Chicago, because we know after the movement is over it will narrow up some.

Then we have other brokers hedging our cash purchases out on the floor. We have three brokers in that pit. It is a small pit, about a fourth the size, or a fifth the size of Chicago's.

Now, at times, inadvertently, one of our men over here (indicating), with an order to buy wheat to go to Chicago, or some customer, as I outlined yesterday, may be the only bidder for wheat when we get a signal out to the cash trader to a broker who is hedging to sell 10 wheat. That is what they do (indicating with signal) and, he, openly, in the pit, offers 10 wheat, and our broker may be, the other broker may be the only buyer, the only man bidding for wheat. Now, we do not want to put that market away down and stop the flow of wheat in there. So we take that.

Now, we have a system of time clocks that sends every quotation. This order that comes from the wire room is timed by a time clock. It is timed when it is filed and goes back. It is a very simple matter for your business conduct committee to check that trading card you have, Mr. Chairman. It shows what time the order came up. It shows the time clocked; and furthermore, the reporter shows what the market was at 10:37, we will say, and if this order was reported back at 10:37, at the market, our board of directors would say that we technically violated our rules, but in the interest of the farmer, which is my contention, that the futures market is a simple economic market for handling the farmer's grain, therefore, we have violated no rules.

The CHAIRMAN. Can you not put one of those completed single individual records in the record, leaving the names blank?

Mr. DAVIS. We could get one from Chicago. From Kansas City it would take 3 days. Chicago would take 1 or 2.

Mr. GILCHRIST. I would like to ask the same question that I asked Mr. Mehl about what provisions if any, are contained in the code which limit the amount of holdings that any one operator may have at a given time.

Mr. DAVIS. As I said, it seems to be a matter of opinon, so I will read from the code.

In the first part it gives the powers of the Code Authority which are, without taking up your time, to the best of our ability to insure the execution of the provisions of this code and to provide for the compliance by the exchanges and members thereof with the provisions of the act, subject to such rules and regulations as may be issued by the Secretary.

Now, we are to investigate violations. We are to insure the execution of the provisions of this code by investigation of suspected violations. Over here [indicating] on the limit of margins, as Mr. Duvel said, on 2,000,000 bushels, that takes a 25-cent-a-bushel margin, which virtually puts it out.

Then over here in section 6, on page 9, each exchange shall vest in its board of directors or board of governors, or in an appropriately constituted committee, authority, subject in each case to the approval of the Secretary, from time to time to modify, or abolish, the limitations on daily fluctuations in the price of futures provided in section 4 of this article, and shall vest in such board of directors, board of governors, or committee plenary authority from time to time to establish, modify, or abolish (1) limitations on the amount of members' or nonmembers' open contracts, for the purchase or sale of futures, and (2) margin requirements in excess of but not less than the minimum margin requirements fixed in section 3 hereof. Now it requires then a business conduct committee and under the business conduct committee, under this code, when established, supervisors to do the very things that have been mentioned here.

The supervisor has assistants who are auditors. They check members' books at any time. They may bring them in, and if they have violated any rules the business conduct committee must prosecute their cases. If they do not, the Code Authority takes charge of the case, and if we do not do it we report to the Secretary of Agriculture and he does it.

The CHAIRMAN. We desire to thank you, Mr. Davis.

Now, any witnesses who have appeared may have the privilege of filing a statement for the record.

STATEMENT OF M. B. THATCHER, WASHINGTON REPRESENTATIVE OF THE FARMERS' NATIONAL GRAIN COOPERATIVE, AND THE NATIONAL AGRICULTURAL CONGRESS

Mr. THATCHER. My name is M. B. Thatcher. I am the Washington representative of the Farmers' National Grain Cooperatives, and the National Agricultural Congress.

In connection with the question raised by Mr. Coughlin and some of the statements made by the witnesses yesterday as to why the representatives of the farm organizations were not appearing in these hearings calls for just a short explanation.

We have been appearing for years with specific proposals for consideration of Congress. In this particular case, in connection with this hearing, we understood they were limited to the question of licensing floor brokers and in that regard the testimony would be

limited to the opposition. That was our understanding. We have gone far afield in some three or four hearings. I merely want to state that for the record, as to why we have not appeared in this manner. If you care to extend the hearings and give the producers' organizations an opportunity to appear and testify on all of these questions that have been under controversy, then we must have an opportunity to call our technical men.

The CHAIRMAN. Mr. Thatcher, the farm organizations appeared at the last session, practically all of them, and endorsed the pending bill.

Mr. THATCHER. That is right.

The CHAIRMAN. Have they changed their position in that matter? Mr. THATCHER. They have not.

The CHAIRMAN. They still endorse it?

Mr. THATCHER. Yes.

The CHAIRMAN. Then, I do not think it is necessary to hear them. Mr. THATCHER. Thank you, Mr. Chairman.

Mr. WICKHAM. Mr. Chairman, Mr. Coughlin, who is more familiar with this situation than anyone else, would like to have about 7 or 8 minutes.

The CHAIRMAN. We can give Mr. Coughlin 4 minutes, if he wants to take that.

STATEMENT OF JAMES J. COUGHLIN, PRESIDENT OF THE BROKERS' ASSOCIATION, CHICAGO BOARD OF TRADE-Resumed

Mr. COUGHLIN. Mr. Chairman and members of the committee. The CHAIRMAN. I will ask the committee not to interrupt with questions so that Mr. Coughlin may have the full time.

Mr. COUGHLIN. I am familiar with the particular instance mentioned by Mr. Mehl because in that case I appeared as counsel for two of the respondents.

That particular case grew, I think, out of one of the most extraordinary conditions ever to exist on the board of trade. The transactions that were complained of took place in July of 1929.

Now, first of all, let me call your attention to this: During that time the board of trade was occupying temporary quarters pending the construction of its new building. Those temporary quarters were about one-fourth the size of the quarters we were accustomed to. During that period, as you know, the great so-called Coolidge bull market was in full swing in stocks. In July of 1929 the Agricultural Marketing Act was passed. About mid-summer there developed a tremendous apprehension over a crop failure in Canada, so that during this period, through the impetus gained from the passage of the agricultural marketing act, the reaction from the stock market, and the conditions created by the Canadian crop scare, we had, I think, the biggest trading in point of value that I have ever seen on the board of trade. We traded in those days in excess of 200,000,000 bushels of wheat a day, whereas our total trade today in all grains is approximately 20,000,000. That gives you some idea of what we were faced with.