Mr. BEALL. Suppose, Mr. Marsh, you should buy 1,000 bales of cotton from "A," desiring and expecting delivery of that cotton to be made to you.

Mr. MARSH. Yes.

Mr. BEALL. Would you permit A to substitute, at his own will, the party who would make that delivery?

Mr. MARSH. Certainly. Why not?

Mr. BEALL. Without any question as to the ability of B, to whom he might transfer that contract, to comply with it?

Mr. MARSH. If both A and B are members of the New York Cotton Exchange, the question of the responsibility of B does not come up. As a member of the New York Cotton Exchange I am obliged

Mr. BEALL. Anybody throughout the country can send in orders through the brokers of the New York Cotton Exchange, buy and sell cotton through those brokers?

Mr. MARSH. Precisely, but those brokers are responsible to their fellow members for the contracts they make.

Mr. BEALL. You are a broker, I understand. One hundred bales of cotton is worth now about $7,500?

Mr. MARSH. Yes.

Mr. BEALL. When you receive an order for the purchase or for the sale of 100 bales of cotton, how much cash is required to accompany that order? How much money, how much per bale, is required in the way of a margin?

Mr. MARSH. There is no requirement.

Mr. BEALL. As I understand it, then, a man in Texas who wants to buy 100 bales of cotton from a broker on the cotton exchange sends an order to you, and will not be required to put up any amount of money?

Mr. MARSH. I shall certainly ascertain his credit before I execute the order.

Mr. BEALL. What means have you of ascertaining?

Mr. MARSH. Mr. Beall, how do Marshall Field & Co. ascertain about the credit of the 10,000 dry goods men they sell goods to on credit?

Mr. BEALL. Do you have correspondents out over the country? Mr. MARSH. Certainly, sir.

Mr. BEALL. Is it not a fact that anybody who has a margin to put up can come into the office of one of your correspondents and direct the purchase, through that correspondent and through you, of any number of bales of cotton, or the sale of any number of bales of cotton? Mr. MARSH. If he is a responsible person, yes.

Mr. BEALL. And only the man who is capable of delivering the 100 bales of cotton can buy the cotton through a brokerage firm in that way?

Mr. MARSH. How is that?

Mr. BEALL. It is only the man, then, whose financial responsibility is such as to satisfy you that he is capable of performing his contract, who can buy or sell the 100 bales of cotton?

Mr. MARSH. Every member of the exchange being responsible to every other member of the exchange, naturally exercises his own best discretion as to persons for whom he will execute contracts. Every member of the exchange knows that if he executes an order for a contract from a person who is not responsible, then he, the member

of the exchange, has got to make good. There is absolutely no difference between the methods of doing business in cotton, as far as credits are concerned, and the methods of doing business in dry goods, as far as the credits are concerned-not the slightest.

The CHAIRMAN. Let me follow that just a bit longer, Mr. Beall. I want to get my own mind clear in the matter, if I can. Mr. Marsh, suppose I should wire your firm from my home, in Kansas, to buy me 1,000 bales of cotton. You do not know me; you probably have no correspondent in my neighborhood to inquire as to my credit. Do you execute that order?

Mr. MARSH. I should not execute it at all.

The CHAIRMAN. Would you execute it if it were accompanied by a draft, say for $1,000?

Mr. MARSH. No; I do not think there is any member of the New York Cotton Exchange who would.

The CHAIRMAN. Would you simply throw it in the waste basket, or would you proceed in some way to satisfy yourself as to my credit? Mr. MARSH. I do not know what I should do.

The CHAIRMAN. Have you ever had an order from some one whom you did not personally know, or with whose credit you were not familiar?

Mr. MARSH. I do not think personally I have. I have heard of such orders being received. They are generally shown around the floor of the exchange as curiosities. What members do in the way of answering them I do not know, but every once in a while somebody comes around and says, "Just look at this; here is an order from a man in Kalamazoo who wants me to buy 500 bales of cotton for him, says he has deposited $500 in the Third National Bank of Kalamazoo to my credit." Then we all have a laugh, and that is the end of it. The CHAIRMAN. I think the general impression prevails throughout the country that an order will be executed for anybody on the Cotton Exchange, if it is accompanied by the required amount for margin. I do not know myself what the amount is, or whether there is any specific amount; but the general impression prevails that there is some generally understood amount of money which must be deposited in the way of a margin when the order is given, and that the order being executed, it will be held to the credit of the purchaser, until, in the event of cotton going down, enough has been lost to cover the margin; whereupon the purchaser is notified that he must put up more margin or his cotton will be sold. Is that impression entirely mistaken?

Mr. MARSH. I should say it was entirely mistaken, sir. I do not know of any firm in the New York Cotton Exchange-of course, I will not say that there may not be some member or members of the New York Cotton Exchange who would so violate the principles of reputable business as to do precisely what you describe, but it certainly would be a very small contingent who would dream of doing a thing like that.

The CHAIRMAN. In the case of one of your regular customers with whose credit you are familiar, do you require any sum to be put up by way of a margin in executing his order?

Mr. MARSH. No definite sum. This is the customary method of handling that matter: As you probably know, commission houses in the street-as we call them-being some 125, I think, houses in

New York that are carrying contracts for their own account, have to keep their obligations with each other, as we call it, "margined to the market," by which I mean this: If a commission house, A & Co., is a seller of hedges or of contracts to a commission house, B & Co., and the market advances after A & Co. have sold those contracts to B & Co., then A & Co. are required to put up, either directly with B & Co. or in a trust company, money enough to bring those contracts up to the market price. That requirement of the market means that any house carrying on a commission business must have a substantial amount of cash on hand all the time, and naturally a house having these requirements of cash will not carry contracts for its customers without making them supply a part of the cash or the whole of the cash which they have to use in this operation of margining the contracts to the market. It is therefore customary for commission houses, in the case of their very strong and well-known customers, to simply ask them to remit now and then when the market balance against them reaches three or four thousand dollars, or, possibly, eight or ten thousand dollars. With smaller customers, and customers at a distance, it is customary to ask that the customer leave with the commission house a sum of money sufficient to supply these cash requirements for any ordinary movement of the market.

The CHAIRMAN. Is there a fixed amount of that sum, say $5 or $10? Mr. MARSH. No; it is a matter of private arrangement between each commission house, or member of the exchange carrying contracts, and each individual customer.

The CHAIRMAN. Your statement, then, is that the members of the New York Cotton Exchange, as a rule, pay no attention to miscellaneous orders which they might receive from Tom, Dick, and Harry out over the country, even though they might be accompanied by checks to cover reasonable margins?

Mr. MARSH. I should say certainly they do not.

Mr. LEVER. These 125 commission houses operate through the members of the exchange?

Mr. MARSH. They are members; that is, the members of those firms are members of the exchange.

Mr. MANDELBAUM. Mr. Lever asked Mr. Marsh whether it was true that spinners of this country or spinners in general, or at least seventenths of the spinners, use only grades from low middling to good middling; at least I understood his question that way. What are the other three-tenths using, Mr. Marsh?

Mr. MARSH. They are obviously using the other grades of cotton. Mr. MANDELBAUM. So there is none left when a crop is practically marketed?

Mr. MARSH. No.

Mr. LEVER. What per cent is below low middling?

Mr. MARSH. Mr. Lever, you are now asking a question which nobody has an answer to. Mr. Herbert Knox Smith, in his investigation, made numerous attempts to discover the proportion of the various grades of cotton in various crops. So far as I can find in his report, he has only one statement with regard to this proportion, and that statement interests me chiefly because of the small proportion of middling cotton which it showed. He had a statement from one firm operating in the Atlantic States as to the proportion of the various grades of cotton which they bought in two years. In one of

those years, I remember, the proportion of middling was 19 per cent, and in the other year it was 29 per cent. Obviously the other grades represented, in one case, 71 per cent, and in the other case 81 per

cent.

Mr. SIMS. Mr. Marsh, I want to preface my questions first by stating that I have no personal interest in this matter; that I am simply trying to represent my constituents, some of whom are presentMr. Brooks, for one-and I think about every farmer in the district, from the letters I am getting, believes maybe they are incorrectthat the operations of the New York Exchange, as conducted, have been such as to be an injury to natural, ordinary business, and affect the prices of the products which they have, I will say artificially, not always, governed by natural conditions. I may not use technically accurate language, for the reason that I do not know it, and I suppose that is what was the matter the other day when I asked you a question which I thought you or any other man of your great information would understand. In other words, it might not have been that I would have used the words I did had I been possessed of the knowledge you are possessed of. But I have no idea of trying to be unpleasant about this matter, but to get the truth. I do not want the New York Cotton Exchange abolished. Personally, individually, I do not want any of its functions reduced or injured, provided, as a whole, it is better to have it with all the functions it has than to deprive of it of some of these functions. But that is the reason I am going to ask you the questions about it, and I may use language used in the newspapers that has no place in the vocabulary of a member of the exchange, but you will readily understand why I ask them. In the first place, is it not the opinion and judgment of the members of the cotton exchange-and when I say cotton exchange, I do not mean the building; I mean its membership; its actual, living, constituent members-do they not condemn what has generally been called "bucket shops," and bucket-shop transactions, throughout the entire country?

Mr. MARSH. They do.

Mr. SIMS. And have always used their influence to prevent the existence of those instrumentalities as far as possible?

Mr. MARSH. They have.

Mr. SIMS. They have always desired that quotations of the New York Stock Exchange should not be furnished these men who are operating the bucket shops?

Mr. MARSH. Yes.

Mr. SIMS. Is it not a fact that about all the States in the Union, where such bucket shops were operated, have passed laws against their existence; how is that? I do not know.

Mr. MARSH. A very large number of States have.

Mr. SIMS. There are some States, then, I suppose, that have not? Mr. MARSH. Most of the Eastern States have, and the Southern States all have.

Mr. SIMS. Is it possible for a bucket shop to be operated successfully without receiving currently, daily, momentarily, I might say, by wire, the quotations upon the New York Cotton Exchange or some other cotton exchange?

Mr. MARSH. I have no knowledge of what is possible in the way of a bucket-shop operation. I should think it would be a great incon

venience to a bucket shop not to have any such quotations on which to base its own quotations.

Mr. SIMS. The fact is, I never was in one in my life and would not know one if I was to meet it in the road; I know it from the description given and what is charged up to it. If the current use of the telegraph were denied to the bucket shops every day, they would naturally go out of existence; could not exist for a moment. Is it not a fact that the transactions of the proprietor, or whoever was operating, the actual head, in buying or selling cotton, to some extent transactions upon the New York Cotton Exchange upon those exchanges would be restricted?

Mr. MARSH. I have never known such a case, sir.

Mr. SIMS. You think they never do the thing in that way?
Mr. MARSH. I never heard of a case.

Mr. SIMS. I am asking for information; I am not making a charge.
Mr. MARSH. I have never known that to be done.

Mr. SIMS. I thoroughly agree with you about a bucket shop being an evil, because it looks to me, the way I define it, as simply betting on whether the quotations on the New York Exchange will be higher or lower than the current quotations at the time the trade is made. Therefore I call them gambling transactions, because it is utterly impossible for persons to deal with that without one person making what the other person loses. If there are transactions conducted on the New York Exchange, not by its members, but by outsiders, or what we call outsiders, those who operate through members, who are not members, that, in effect and nature, is just the same; I mean in the results, not in the language of the contract, not in the intention of the party to speculate, not in cotton, but in futures, in contracts for future delivery of cotton, whereby I buy to-day a future from Mr. Burleson for October; I do not mean to charge that Mr. Burleson would do anything of that sort; I am only using this for illustration. It is a long time to October. Fluctuation is against me. It goes down 40 points, and I give an order to do what you gentlemen call in the papers "covering;" I do not know what it really means. I wire you to cover my contract which Mr. Burleson holds, and I lose 40 points and the commission I pay he has made it absolutely, so far as I am concerned, and so far as he is concerned, so far as it has gone, is apparently a bucket shop transaction in the effect between him and me.

Mr. MARSH. In the cash result it is the same.

If

Mr. SIMS. That is it. That is what they are all playing for, is the cash.

Mr. MARSH. But in the mutual obligations which you entered into, if you did this through the New York Cotton Exchange, the difference is immense. In the mutual obligations which you entered into through the New York Cotton Exchange, each of you pledged his entire fortune to make good that contract.

Mr. SIMS. I understand legally that I would have to do that if it requires it. I do not mean that your contracts are illegitimate in the sense of being illegal or nonenforceable, but I am speaking about the effect of the business on the country at large. Mr. Burleson turns around and he orders his contract closed, and he quits the market with $400 of my money, and is out and gone. That is a purely speculative transaction-I understand you call it that. His contract may