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place the large traders at a great disadvantage and would make operation impossible.

The CHAIRMAN., They would not be able to operate because they are selling something they do not have. If the trader intended to make delivery or was able to make delivery under his contract, if he were selling 2,000,000 bushels of wheat that he had in his bin, he would not be hurt by having his name disclosed, would he?

Dr. DUVEL. No; that is true, in that situation.

The CHAIRMAN. But if he sells 2,000,000 that he does not have in his bin, it might hurt his position among some of the same people to have his name disclosed

Dr. DUVEL (interposing). Well, he could not sell.
The CHAIRMAN. He could not sell?
Dr. DUVEL. No.

The CHAIRMAN. In other words, when he is operating on thin air and you disclose his name, you spoil his playhouse, is not that about it?

Dr. DUVEL. Well, the reason they give for objecting to giving their names is that it makes it impossible for them to operate with safety.

The CHAIRMAN. If the transactions that they were engaged in were legitimate, there could not be much objection to disclosing their names, it seems to me, but if they were trying to manipulate the price and to deceive the public, they would object. It is the old, old story, “Men love darkness rather than light because their deeds are evil.”

Do you see any real objection to the names of these “big dealers", so-called, being disclosed, or to giving the Secretary of Agriculture the authority to disclose them at the request of any Member of Congress or Governor of the State?

Dr. DUVEL. In my opinion, such step would lead to much disturbance. A disclosure of the names of large traders having an interest in current futuresthat is, with contracts actually open-would immediately demoralize the market. The average individual would not like to disclose his own line, whether he had a long line to be liquidated or a short line which he had to cover. It would be hardly fair to do so.

The CHAIRMAN. Of course, it might demoralize the market, it is true, for a short time; it might temporarily cause an upset of conditions. But I think if a report were made of the names of these parties and that report made available to the public later on, giving the public a knowledge of how these transactions are carried on, it would bring about more orderly marketing and there would not be so much fluctuation in the actual price of the commodities.

Dr. DUVEL. You mean, disclose the names after the transactions have been completed?


Dr. DUVEL. Of course, we have done that in part in connection with investigations in response to Senate resolutions as reported in various Senate documents, by assigning numbers to certain large traders. We have not given the names, but we have assigned numbers so that the transactions of the different traders in each of those reports can be followed through in detail.

The CHAIRMAN. It is probably not fair to ask you that question. I would like to ask the gentlemen on the other side when they come up what good reason they have for declining to have their names disclosed. We may want to ask to come back then and analyze some of the reasons assigned by them.

Dr. DUVEL. All right.
The CHAIRMAN. After they have been heard.
Dr. DUVEL. I will be glad to do that, Mr. Chairman.
Mr. GILCHRIST. The present bill does not carry that provision, does it?

The CHAIRMAN. Yes; there is a provision in the present bill giving the Secretary of Agriculture certain authority; but it does not give him authority to make the names public; it requires that records be kept to show the names of all persons involved in the transaction. and this record shall be open to the inspection of the Department. Mr. GILCHRIST. That is what I mean.

The CHAIRMAN. I was trying to find out what the objection was so that if necessary we might add an amendment.

Mr. GILCHRIST. Is there anything in the provisions of the bill that provides for disclosing the names?

Dr. DUVEL. No. The present act as it stands now gives us access to the books and records and to call for such reports as the Secretary of Agriculture may deem necessary. At the outset we required reports of all accounts involving 500,000 bushels or more. Since the crash in the market last July we have required reports on all accounts of 200,000 bushels or more. These reports show pretty well what is going on in the market, but we have considerable difficulty in getting many of these reports promptly and in due form. In certain quarters evasion has been the policy.

For example, when we had the reporting requirment fixed at 500,000 bushels, it was really appalling to see how many different accounts were held in amounts of 495,000 bushels—just under the reporting requirement.

Mr. GILCHRIST. Can you give out the names now?

Dr. DUVEL. As the law now stands, we are prohibited from disclosing the names, unless the traders have been guilty of some violation, some wrongdoing, in which case the names are disclosed through public hearings as provided in section 6 of the act of 1922.

Mr. GILCHRIST. What section of the proposed bill grants that authority?
The CHAIRMAN. You will find that on page 13, section 4.

Dr. DUVEL. For your information along that line, I would like to call your attention to this particular chart here. This shows the operations of trader "Z.His orders were placed with eight different commission houses, all nonclearing members. From these eight nonclearing members the orders were redistributed through 14 different clearing members before they reached the pit for execution. Through this process of dilution the full facts were not disclosed until weeks later after a careful examination of the books and records.

Mr. HOPE. Why could you not get these accounts when they were sent to you; is that because they were so small, or because they were scattered through the records in such way that they did not appear?

Dr. DUVEL. The regulation provided that they report on 500,000 bushels or more. These orders were so scattered that most of the accounts did not come within the reporting requirements. We find many accounts of 495,000 bushels. When we follow through on accounts of this character it is not uncommon to find them coupled with accounts in the name of the wife, some relative, or even an imaginary individual.

The CHAIRMAN. Any further questions?
Mr. GLOVER. I would like to ask a question or two.
The CHAIRMAN. Mr. Glover.

Mr. GLOVER. Dr. Duvel, you spoke of the short seller and the effects that he had on the market. This information and this knowledge concerning these short sales you have, do you not?

Dr. DUVEL. Yes; we get that.

Mr. GLOVER. Now, what have you done to prevent the effect that it had on the market; what has been done by the Department with those that have been guilty of short selling?

Dr. DUVEL. Of course, they are not violating the act.
Mr. GLOVER. They have not violated the act?
Dr. DUVEL. No; short selling is not a violation of the act.

Mr. GLOVER. But you have some regulations, and rules, which they have violated?

Dr. DUVEL. None that cover the matter of short selling. Neither do we have regulations that prevent the splitting of accounts to keep under the reporting requirements. For that reason the amount was reduced from 500,000 to 200,000 bushels.

Mr. GLOVER. You are authorized by law to prescribe rules and regulations, are you not, that would prevent that?

Dr. DUVEL. No.
Mr. GLOVER. You do not have that authority?

Dr. DUVEL. Not under the present law, except as we require reports from individual traders.

Mr. GLOVER. Now, if the names of these parties who were trading in the futures market were made public, if the public had that information, a thing like that would not happen, would it? If the public knew just what was going on they would not permit it to go on, would they?

Dr. DUVEL. I think probably there would be no futures market under such conditions. I think it is much the same as in any other transaction. Most persons in business do not want others to know what they are doing until they have accomplished it.

Mr. GLOVER. Do the bulls and the bears ever get to the point where they lie down peacefully and play together?

Dr. DUVEL. Well, that sometimes happens, I guess.
Mr. GLOVER. That is usually the way they depress the market, is it not?
Dr. DUVEL. How is that?

Mr. GLOVER. They always depress the market when they do that, do they not?

Dr. DUVEL. Well, if it works that way, yes. There might be a decline sometimes, and sometimes an advance in the market, depending on the leadership.

In this bill it is proposed to amend the Grain Futures Act to make unlawful transactions such as "wash sales” and “cross trades”, and “indemnities".

Mr. GLOVER. You said awhile ago, as I remember, that only about one-fourth of 1 percent of the sales represent actual deliveries; is that right?

Dr. DUVEL. That is about right.

Mr. GLOVER. Now, take cotton, as I understand, sometimes they will buy and sell 130,000,000 or 140,000,000 bales of cotton, when all of us know that there is not more than 24,000,000 or 25,000,000 bales raised in the world. Does that not have a great deal to do with depressing the market price of cotton?

Dr. DUVEL. It is generally recognized, of course, that the volume of futures sales must exceed the sales of actual cotton in order to maintain the futures market. There must be many more sales than is presented by actual deliveries. Cotton sold for futures delivery on the exchanges averages 10 to 12 times the crop. About the same ratio applies to wheat.

Mr. GLOVER. Well, these traders in cotton, any number of them, do not know anything at all about what the cotton crop is going to be. If you were to require them to trade in actual cotton, to make delivery of the commodity, do you not think that would prevent a lot of this fluctuation in price?

Dr. DUVEL. I do not know that it would, Mr. Glover. The advantage in the exchange is that it furnishes a ready market. A great deal of the volume of trading, of course, is purely speculative. Most buyers do not intend to take delivery; neither do the sellers expect to make delivery. The theory is, however, that a futures exchange furnishes a ready market on which purchases or sales can be made at all times on a very much smaller margin than would prevail otherwise. In the case of wheat, I should say, the average margin to the traders who supply liquidity to the market is perhaps somewhere around one-sixteenth of 1 cent per bushel.

Mr. GLOVER. Now, so far as this bill is concerned, does it not amount to about this—an attempt to regulate a wrong, rather than to abolish outright the wrong itself? Is that not about what it amounts to?

Dr. DUVEL. Regulation, as provided in this bill, recognizes the advantages of futures exchanges in that they furnish a ready market at all times, and a market on which the producer and the merchant can sell or buy grain at the prevailing price.

Mr. GLOVER. But it does permit of gambling in the amount that you indicate here up to, say, 2,000,000 bushels, or some such amount, does it not?

The CHAIRMAN. The bill provides that the commission can fix the trading limit.

Dr. DUVEL. This bill authorizes the commission to fix the trading limit; yes. Mr. GLOVER. What basis do you contemplate fixing that on?

Dr. DUVEL. Well, in the case of wheat, our investigations indicate that the limit should be around two or three million bushels. Mr. GLOVER. Two or three million bushels?

Dr. DUVEL. Yes; but the commission is authorized to fix different limits for different commodities, as well as to fix a different limit on selling than is applied to buying.

Mr. GLOVER. We had quite a bit of testimony before, when this matter was pending in Congress, with reference to fixing prices, particularly on cotton, when some cotton firm in the South, or in the East, for instance, next fall, in September of this year, will fix the price for cotton for September of next year. They do not even know how much cotton is going to be planted, or what the market will be next year, when they fix the price of cotton a year ahead of time. How do you think they can do that?

Dr. DUVEL. Well, they gage that by general conditions, based on previous years, as to how much cotton has been raised, the average conditions during past years, and somebody is willing to sell it, and somebody is willing to buy it.

Mr. GLOVER. Is it not just a proposition, as a general rule, of a bunch of these pit operators getting together, or perhaps one man will come up to another and say, "I will sell you so many bales of cotton"? In other words, it is just a speculative proposition; and under that scheme, so far as the sale and the buying is concerned, it is made at a price fixed by them, which has a detriment on the farmer or the man who is going to sell the crop.

Dr. DUVEL. In the last analysis, that is the way they fix it. I might say, “Mr. Glover, I will sell you so much cotton basis, September, at 14 cents."

Mr. GLOVER. Yes, I understand; and you do not have any cotton and I do not have any idea of taking any cotton. It is purely a speculative trade, and those are the kinds of trades that I think ought to be abolished.

Dr. DUVEL. A futures contract provides, of course, that the buyer must take delivery if the contract is held open. At the same time it is gnerally conceded that most buyers of futures do not expect to take delivery and have no intention of doing so when the trade is made. A very small percentage of the contracts are settled by delivery of the commodity.

Mr. GLOVER. Do these traders in that market have any financial responsibility or know anything about what is going on in the way of actual delivery? I mean, do they have contracts which could actually be enforced against them

Dr. DUVEL. Yes; I think there is no difficulty about that, if the contract stands. If I should buy 10 May wheat and leave it open, and did not attempt to sell it, I would have to take the 10,000 bushels of wheat upon delivery during the month of May. Mr. GLOVER. If you are able to take delivery. Dr. DUVEL. If I am able? Mr. GLOVER. Yes.

Dr. DUVEL. Yes; and if I cannot, there is a penalty for failure to fulfill my obligation.

Mr. GLOVER. But if the buyer cannot pay the penalty, then what happens?

Dr. DUVEL. He would be just like anyone else who fails to pay for what he has purchased.

Mr. GLOVER. But he really does not expect to take delivery when he buys it.

Dr. DUVEL. There are very few cases of defaults on contracts. That happens once in a while, but very seldom. Of course, if he could not take delivery and pay for the wheat, and refused to liquidate his contract, he would be subject to discipline by the exchange.

The CHAIRMAN. Any further questions?
Mr. CHASE. I would like to ask Dr. Duvel one or two questions.
The CHAIRMAN. Mr. Chase.

Mr. CHASE. Your statement, Doctor, interested me very much, particularly your general statement with reference to wheat, and your reference to the exchange code. Do you know when the exchange code was signed?

Dr. DUVEL. Sometime in March. I cannot give you the exact date. I believe it was the 20th.

Mr. CHASE. A few days ago?
Dr. DUVEL. Yes.

Mr. CHASE. The reason for my question is this: Does the code in any way accomplish the purposes which this bill seeks to accomplish?

Dr. DUVEL. In part, yes. The Grain Exchange Code, for instance, eliminates trading in indemnities; that is one of the purposes we outline in this proposed bill.

Mr. CHASE. Yes. The reason I asked the question is because you referred to certain procedure that had been outlined by the code, and I was wondering whether in the preparation of this bill you gave consideration to the possible effects of the procedure outlined in the code.

Dr. DUVEL. While indemnities come within the class of practices outlawed by the code, it is primarily a temporary measure. If we could have any assurance that we are always going to have a code, and that indemnities would be prohibited, we would not need that provision in the bill.

Mr. CHASE. In other words, this is more in the nature of permanent legislation, while the code is considered purely temporary?

Dr. DUVEL. That is right.
Mr. CHASE. Rather than permanent legislation?

Dr. DUVEL. That is right; that is the way we look at it. An emergency measure.

Mr. CHASE. Will any provisions in this bill militate against the enforcement of the code?

Dr. DUVEL. Not in any sense; no. For instance, the code, in many instances, goes further than we do in this bill. The code, for example, provides for a minimum margin. We make no provision of that kind in this bill; we say nothing in the proposed bill about minimum margins. There is a provision in the stockexchange bill concerning minimum margins.

In that connection, we believe, based on our past experience, that so far as the commodities are concerned, it is more desirable to provide for the protection of margin money, and leave to the commission houses themselves the matter of fixing the amount of the margins required from various classes of customers.

On the commodities exchanges certain classes of speculators and others are able to secure credit but in many cases the credit so extended represents margin money taken from one class of customers and used to extend credit on margin the trades of others. Our aim is to protect the customers' margin money and thereby protect the market as a whole. Moreover, excessive speculation in this bill is controlled by limitation rather than by higher margins which are not so readily applicable to commodities as to stocks. This, however, will not interfere in any sense with the margin provisions of the code. In fact the extra margins required under the code point to a greater need for the protection of margin money than has existed heretofore.

There are other provisions in the code, of course, that are not in the proposed bill.

Mr. CHASE. You speak of the difficulty of securing access to or inspection of the books: Is that covered in the code? Does the Grain Exchange Code give authority to the Secretary to inspect the books?

Dr. DUVEL. Not any more than we have at the present time; we have the same authority to inspect the books. We have considerable difficulty sometimes, and I think that difficulty may be reduced through the operation of the code. Under the licensing provision of this bill the examination of records should be greatly facilitated. We have experienced much difficulty in securing proper reports from certain commission firms while others have given the fullest cooperation. We have other commission houses where we have difficulty identifying the individual accounts. We have some records now that will illustrate that; one large operator had three different accounts with one commission house.

Another house which had eight accounts for the same person; and another with seven accounts in the same house. Correct identifications were secured after very much delay.

Mr. CHASE. May I ask you whether the charts to which you refer are incorporated in the report of which you spoke?

Dr. DUVEL. This one is. Here is one that is not, but I think that you can find these charts, some of them, by referring to Senate documents.

Mr. CHASE. What was the number?

Dr. DUVEL. I think this one is in Senate Document 264, Seventieth Congress, second session.

Mr. CHASE. May I ask you a question for my own personal information: I notice you provide here for a new commission consisting of the Secretary of Agriculture, Secretary of Commerce, and the Attorney General. Is this the wish of the Department, the request of the Secretary of Agriculture?

Dr. DUVEL. That is the same as in the present Grain Futures Act; the authority is vested in a commission composed of the Secretary of Agriculture, the Attorney General, and the Secretary of Commerce, and we are leaving that, so far as that provision of the bill is concerned, except that this bill gives to the Secretary of Agriculture alone the authority to deal with licensing the commission houses, and the revocation of such licenses. But the major provisions dealing with the exchanges as a whole are left under the authority of the commission.

Mr. CHASE. But you are dividing the responsibility with the commission so far as fixing the trading limit is concerned?

Dr. DUVEL. Yes. That provision is in the present act.

Mr. CHASE. The reason I ask that is because it seems to me that we are overloading the Secretary of Agriculture, and I cannot see why one human being should be required to undertake so many responsibilities as are being placed on the shoulders of the Secretary of Agriculture, and I was wondering whether or not the Department had requested this authority, or that this additional burden should be put on the Secretary.

Dr. DUVEL. Yes. While the Secretary is loaded with a great many duties at the present time, transactions involving agricultural commodities are so clearly related to agriculture that it would be extremely difficult to have it function efficiently under an entirely independent organization. It would mean much duplication and involve additional expenditures that would seem to be unwarranted.

Mr. CHASE. Your feeling is that the Department thinks this could be incorporated in this way?

Dr. DUVEL. Yes.
Mr. CHASE. Under the duties imposed upon the Secretary?

Dr. DUVEL. In the last analysis, of course, the burden must rest largely on the Grain Futures Administration.'

Mr. CHASE. You spoke of a number of special cases where it was not proper for you to give the individual names. May I ask you if it was possible under

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