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and each quality. That is the business of the merchants. That is where the merchant makes his profit.

The CHAIRMAN. And that is what the members of your exchange do ? Mr. MARSH. That is what the members of our exchange do.

The CHAIRMAN. Is this gentleman correct in saying that spinners can not afford to buy future contracts on the New York market?

Mr. MARSH. Spinners can not afford, unless they are willing to undertake to be at once spinners and merchants, to enter into contracts on the New York Cotton Exchange for their immediate account.

The CHAIRMAN. Then if spinners can not go to New York for their cotton, I am still a little at a loss to know how the merchants in New York can furnish them the cotton.

Mr. MARSH. I do not think I understand the question, Mr. Chairman.

The CHAIRMAN. You have stated your substantial agreement with the observation of this writer that spinners can not afford to buy future contracts in the New York market, and you have qualified it by saying that they could not do it unless they undertook to exercise some of the functions of the merchant. Mr. MARSH. Yes.

The CHAIRMAN. That being the case, and inasmuch as I assume they do not intend to exercise the functions of a merchant, how can it still be claimed that the New York merchants furnish the American spinners with their cotton?

Mr. MARSH. Mr. Chairman, it is a matter of fact that they do. It is not a claim that they do; they do.

The CHAIRMAN. But if the spinners can not buy it there, how can the merchants furnish it?

Mr. MARSH. Well, I do not catch the drift of the question. Is the chairman quite clear as to what the merchant does—how the mercbant conducts his business in spot cotton ?

The CHAIRMAN. I understood you to say that the New York merchants on the cotton exchange distribute 80 per cent of the cotton of the country. Mr. MARSH. Yes.

The CHAIRMAN. On the face of it that statement would seem to imply that the spinners out through the country make contracts with the New York merchants whereby they secure cotton for the use of their mills.

Mr. MARSH. They make contracts with the members of the New York Cotton Exchange.

The CHAIRMAN. That is what I mean, that they make contracts with the members of the New York Cotton Exchange by which they secure their supplies; and yet the statement is made that they can not afford to buy a contract for the future delivery of cotton on the New York Cotton Exchange, because they do not know what they are going to get if that cotton should be delivered.

Mr. MARSH. Mr. Chairman, let me put a parallel case. Just as the spinner can not afford, unless he is willing to exercise some of the functions of the merchant, to take up cotton on the New York Cotton Exchange, so he can not afford, unless he is willing to exercise some of the functions of the merchant, to buy cotton of the cotton producer. The CHAIRMAN. Then where, as a matter of fact, does the spinner get his cotton? Mr. MARSH. He gets it from the merchant. The CHAIRMAN. §. merchant? Where? Mr. MARSH. From the merchant who has the cotton, all through the South and all through Europe, and even as far away as Japan. On this point, Mr. Chairman—and here is a very good opportunity to bring it in Tiet me call your attention to the fact that there is a good deal of juggling with words in connection with this matter. Mr. BURLEsoN. Before Mr. Marsh gets away from that branch of the matter, .. on the same phase of it, I would like to ask him one question, because it would save going back to it. The CHAIRMAN. I do not think he is getting away from it. I would like to have him make his statement. Mr. BURLEsoN. Very well. Mr. MARSH. Continuing what I started to say, Mr. Chairman, in discussions of this matter by persons who do not understand it, a great deal of stress is laid upon what is called the “New York stock of cotton,” and the figures are used, for the New York stock of cotton, of the stock of cotton actually in warehouses in the port of New York. Mr. Chairman, those two terms are not synonymous, terms. The New York stock of cotton is all the cotton in the world, wherever it may be, against which contracts have been sold to buyers in New York. In this present day and generation, with railroad facilities and steamship facilities what they are, there may be a portion of the New York stock of cotton in Liverpool or Bremen or in Savannah or in Austin, Tex., just as .." part of the New York stock as though it were in Hoboken or Brooklyn. The CHAIRMAN. That is very clear. Mr. MARSH. Now, if you will permit me to go on a moment: You ask how it is that the spinner can get his cotton—each spinner the kind of cotton that he needs and desires—if the cotton which is delivered on contracts in New York is not of that kind. My answer to that, Mr. Chairman, is that he buys it of the merchant who has his share of the New York stock—of the true New York stock, not the ort of New York stock, but the true New York stock—scattered m one end of the South to the other. The CHAIRMAN. Yes; I understand your answer. Then, as a matter of fact, we know that the cotton which the mills in South Carolina use, for example, is probably gathered from that immediate vicinity. It never has been shipped to New York. Mr. MARSH. How is that, o The CHAIRMAN. I say, the cotton which the spinners use in South Carolina has never been shipped to New York. Mr. MARSH. At times it has. The CHAIRMAN. As a rule, though— Mr. MARSH. As a rule, yes. The CHAIRMAN. As a rule, the spinners get their cotton from the nearest source of supply; and I would like to have you explain in just what way it can be claimed that the members of the New York Cotton Exchange handle that cotton. Mr. MARSH. Well, sir, you have had before you already two members of the New York Cotton Exchange who do a very large amount of that southern mill business.

The CHAIRMAN. Their cases will illustrate the question I have in my mind very well. They made it clear to us that they bought cotton, actual cotton, either from the producer or from the small merchant, and they sold it to their customers. Their only use of the New York Exchange, so far as I drew from their testimony, was as a place for hedging. They did not claim that the money of members of the New York Exchange was used by them in buying this cotton; and it therefore left the question in my mind as to how the New York cotton merchants could claim to have handled it. Is it through the hedging operation that you think they get this claim ?

Mr. MARSH. No, sir; I have no reference to the hedging operation when I make the statement that members of the New York Cotton Exchange handle 80 per cent of the cotton crop of the United States. I mean exactly and precisely what I say. The two members of the New York Cotton Exchange who have appeared before this committee, who are merchants in the Carolinas and who make a business of buying cotton where it is offered to them for sale and of selling it to spinners as spinners need it in such quantities and of such characters as the individual spinners need, are doing their part toward the making up of this 80 per cent of which I speak.

The CHAIRMAN. May I ask a question in relation to your own business, in order to get a little light upon the matter? Mr. MARSH. Yes. The CHAIRMAN. You are a cotton merchant ? Mr. MARSH. Yes.

The CHAIRMAN. Do you sell cotton to spinners in the same sense that Mr. Cone does?

Mr. MARSH. I am at present fulfilling the subsidiary character. I am a broker.

The CHAIRMAN. That is, you are buying and selling on orders from other persons ? Mr. MARSH. Yes.

The CHAIRMAN. To what extent are all the members of your exchange engaged in that way? Can you give any idea at all how many of them actually sell cotton to spinners just as Mr. Cone does ?

Mr. MARSH. I do not think, sir, that I can give you a figure. I do not want to dodge the question or give the impression that I am dodging the question. Certainly a majority of them; but whether the percentage would be 60 per cent or 70 per cent I really could not say.

The CHAIRMAN. You think you are safe in saying a majority?
Mr. MARSH. I think I am perfectly safe in saying a majority.
The CHAIRMAN. Yes.
Mr. MARSH. But I have no positive figures in my mind.

The CHAIRMAN. I believe the laws of New York have prohibited, or tried to prohibit, the institution known as the “bucket shop ?”

Mr. Marsh. They have, sir.

The CHAIRMAN. Can you explain briefly to the committee the difference between a bucket shop and a cotton exchange or any other exchange ?

Mr. Marsh. Well, the fundamental difference between the bucket shop, claiming to deal in cotton, and the cotton exchange is that in the bucket shop. there is no contract entered into, whereas every transaction on the New York Cotton Exchange or any other cotton exchange is an enforceable and legal contract,

The CHAIRMAN. Are there any contracts made on the New York Cotton Exchange in which the total amount to be gained or lost is determined by agreement beforehand and within a fixed period of time? Mr. MARSH. Such a contract would lead to the instant expulsion of any member who made it. Mr. SIMs. What about a stop-loss order; would that be the same? Mr. MARSH. A stop-loss order? Mr. SIMs. Yes. Mr. MARSH. No, sir. Mr. SIMs. When a gentleman buys 100 bales of cotton, of course the assumption of the contract is that it is for absolute delivery; but he accompanies that with an order, what you call a “stop-loss” order, that if the price goes down so much you shall sell him out; is not that an indication to you, when he buys that cotton in that way, that he does not intend to take delivery unless it goes up? Mr. MARSH. It is not such evidence. Mr. SIMs. What is it evidence of, an actual transaction or a speculative transaction? Mr. MARSH. It is evidence of the entering into a contract. Mr. SIMs. What is the fact that there is a stop-loss order evidence of; that his intention is to speculate in the contract, in the fluctuations before the day of delivery arrives? Mr. MARSH. I find it hard to say, Mr. Chairman, what my interpretation of an order of that kind is. I do not interpret it. The CHAIRMAN. Will you explain just what you mean by a stop-loss order? In what way does it differ from a contract whereby the amount to be gained or lost can be determined in advance? Mr. MARSH. Why, it differs from it in this respect, Mr. Chairman. I have already said that there are speculative contracts entered into on the New York Cotton Exchange. A person who makes a contract, let us say of a speculative character, may make up his mind that the amount of money, which he is willing to lose in that operation is limited to a certain amount, as I may buy a piece of real estate expecting that it will advance in value, and if I find that it does not advance and that the interest on it is eating me up and I find that I can get out of it with a loss of 5 per cent or 10 per cent, I limit my loss to that extent and I get out of it. But, Mr. Chairman, an essential feature of the contract entered into on the New York Cotton Exchange is that a man's whole fortune, no matter what the order is which he puts in there, is behind that contract. The CHAIRMAN. Suppose that I should write you an order to buy cotton for me and should send my check for $500 to protect the trade, and should say to you in that letter that if cotton falls to such a point that the $500 would be required to cover the difference between the price at which I buy and the price then prevailing, you shall sell— to put it...plainly, I would give you instructions to the effect that I was willing to iose the spoo but fid not want to lose any more. Would you be authorized under the rules of your exchange to execute that kind of an order? Mr. MARSH. You can not give me that kind of an order, sir. You can not give me an order in which you limit your loss to $500 or any other sum. You can give me an order of this kind; you can give me an order to buy 100 bales of cotton for you and when the loss on the cotton which I have bought for your account has reached the sum of $500, to sell it out. But that is not the same thing, Mr. Chairman.

The CHAIRMAN. I am trying to get at the difference. Mr. MARSH. The difference is this, and this is one of the points in which the difference between a bucket shop and the cotton exchange most clearly appears. Suppose you give me an order to buy 100 bales of cotton for you, and when the loss is $500 to sell it out; and when the loss is $500 I try to sell it out, but instead of selling it out with a loss of $500, I sell it out with a loss of $800; you have got to pay that $800.

The CHAIRMAN. Then really the difference between a bucket shop dealing in cotton and the cotton exchange is that in operating upon the exchange a man may lose his whole fortune? Mr. MARSH. Exactly.

The CHAIRMAN. While in operating in a bucket shop he loses only the margin that he puts up?

Mr. MARSH. I have never operated in a bucket shop and I have not the slightest idea what they do there, but I say that a man's whole fortune is behind the obligations he enters into upon the New York Cotton Exchange. The contract is a contract as valid as any other contract in law, and any loss arising from it the man is liable for, in so far as he has any property to pay it.

Mr. Sims. You have announced the proposition—I do not go as far as you do, because I do not know as much about it—that a man who gives an order for cotton that he does not want or sells what he does not have-in other words, of which he does not expect to make delivery—is a fraud and a cheat, but when a man gives an order to buy or sell cotton, and then gives a contrary order, a stop-loss order, as it is called, is not that evidence from the beginning that that man is a fraud and a cheat, or, in other words, that he is using your cotton exchange, not to get or sell cotton, but to deal in speculative features of contract, and why do you not refuse that kind of business when the stop-loss order comes with the original order until you inquire into whether he intends to

Mr. MARSH. As I understood your previous questions and statements, Mr. Sims, on this point, you supposed the case of a man who fraudulently

Mr. Sims. You called it “fraudulently." I did not.

Mr. MARSH. Well, I think you have taken up my word “fraudulently."

Mr. Sims. Only as a quotation. Mr. MARSH. Well, “fraudulently" with quotation marks about it, then, sir. You have supposed the case where a man fraudulently, in the face of an express statement that he is entering into a valid contract for the delivery or the receipt of cotton, without advising and confessing to his agent what his real intentions are, instructs that agent to enter into this contract for his account, you have supposed, I say, a case of that kind, giving an order with a stop-loss attachment to it, and asked me if I do not think that is evidence of intended failure to fulfill the terms of the contract. Now, Mr. Sims, in our business, as I suppose in every business, the assumption is that men are honest; that they mean to do what they contract to do or what they instruct their agents to contract for them to do, and we certainly have no system of calling for affidavits. We do not ask a

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