Mr. FITCH. I should say the language was in poor taste. The CHAIRMAN. Is it not a common expression in such market letters?

Mr. FITCH. I think not. I never use such expressions myself.

The CHAIRMAN. You are more diplomatic; but is it not common for members of the Chicago Board of Trade to send out market letters in which they suggest, not always perhaps in language so brutally frank as that, but yet in language which can be just as easily understood, that this is an awfully good time to take a flyer in wheat, for instance, a good time for quick profits, and doesn't it indicate to the average outsider that a very important part of the business of this firm is executing such orders?

Mr. FITCH. I will say this: That people in the business are not backward about expressing their opinion as to the trend of the market. On the question of language, I take issue with them. You know, Mr. Chairman, that you can not account for the parlance or slang that gets in use in any organization of a thousand members.

Mr. HAWLEY. Such language as that would not subject him to discipline by your exchange?

Mr. FITCH. No, sir.

Mr. LAMB. It gets in Congress even, sometimes.

Mr. FITCH. Yes; sometimes worse.

The CHAIRMAN. I have another letter in which appears this query, on which I should like your comment. It is by C. W. Clawson, of Kansas City, Mo. He writes it voluntarily, addressed to myself, commenting upon this matter, and states that he has had 20 years' experience both in and off the board of trade. He asks this question:

If trading in futures is a legitimate business proposition, why is it made a crime to deal in futures off the board of trade-that is to say, to run a bucket shop? If trading in futures is legitimate, why is it not just as legitimate when transacted off the floor of the exchange as on the floor of the exchange? Why can the board of exchange make legitimate or legal that which is declared by law illegal and illegitimate?

What I mean to say is this: If I were to meet you on the street and say to you that I would like to buy from you 10,000 bushels of wheat for May delivery at $1.18 a bushel, or any other agreed price, and you would sell it to me, we would be committing a crime, according to the claims of the Chicago Board of Trade.

Is that last statement true?

Mr. FITCH. No, sir.

The CHAIRMAN. What would be your answer to his first inquiry, that if trading in futures is a legitimate business proposition, why is it made a crime to deal in futures off the board of trade; why is it made a crime, as it is by the legislatures of many States, to run a bucket shop, when precisely similar transactions are conducted on the board of trade?

Mr. FITCH. We disagree as to their similarity, Mr. Chairman
The CHAIRMAN. In what way would you differentiate?

Mr. FITCH. As I stated this morning, in using the illustration of John Smith at Springfield, the methods pursued in his buying or selling 10,000 bushels of corn as against the execution of the same in a bucket shop.

The CHAIRMAN. I am trying to get information.

Mr. FITCH. I understand, yes, sir; and I will try to answer your question.

The CHAIRMAN. Could you expand that answer a little bit and show clearly what difference there is in going into a bucket shop and

placing an order for 10,000 bushels of May wheat and responding to the suggestion in the letter of Houston, Fible & Co. that we regard September and December wheat as a conservative purchase around the existing level for scalpers' profits?" What would be the difference between placing an order with Houston, Fible & Co. for scalping profits and placing an order with a bucket shop?

Mr. FITCH. The difference would be that Houston, Fible & Co. would execute what orders I gave them either to buy or to sell. For instance, put it on the basis of a scalping profit. If I walked in and told them to buy me to-day 25,000 bushels of May wheat, they would buy it. They would report to me the price that they bought it at and send me a written confirmation showing the execution of that order. showing the price it was purchased at and from whom they purchased it. They made a trade for me; they did not take the trade.

The CHAIRMAN. Did they execute a contract?

Mr. FITCH. Yes, sir. They confirmed the trade to me. They have made a trade with another house upon the board of trade who probably represented somebody. As I said this morning, they might represent somebody in Erie or New York or London, who might be selling against some wheat that my brokers bought. Perhaps that is the wheat I bought. Then, say, in two days I want to sell that wheat. I may have a profit in it and I may have a loss. I may desire to substitute my contract. I might be looking around and saving. "I want to sell this wheat out." Now, whom do I sell it to? To somebody who wants to buy it. I tell Houston, Fible & Co. to sell out that 25,000 bushels for me, and they immediately send it where it was bought, or to the place where people gather together to trade. It is easy to trade on a stock exchange or a board of trade, because people gather together there to buy and sell things. They would not send it to Racine, Wis., for it to be sold on the street there, because there is nobody there to sell or buy; but they send it where people go every day, who trade in grain. I tell them to sell out this 25,000 bushels of wheat, and when they sell it out they report to me with the written confirmation, not only of the price at which they sell it, but of the concern whom they sell it to.

The CHAIRMAN. Then, in brief, an order on the board of trade involves the execution of a contract, while an order in a bucket shop does not. Is that it?

Mr. FITCH. The order on the board of trade involves the execution of a contract, confirmations, practically back and forth. If I wanted to trade in a bucket shop I would walk in and look at the board and say, "I want 25,000 May wheat." And they would write me out a ticket for the price on the ticker. They are taking the other end of it; they don't send that order anywhere, they don't make the trade somewhere; they are acting as principal and agent, which under law of any kind seems to be wrong. They are acting as principal and agent.

Mr. MCLAUGHLIN. And bucket shops charge commissions?
Mr. FITCH. Certainly.

The CHAIRMAN. I presume the regular board of trade does, too. Mr. FITCH. The board of trade charges one-eighth; the bucket shops charge that and sometimes more. He doesn't act as your agent. I go in to buy 25,000 wheat, and he doesn't act as my agent and buy that wheat for me. He sells it himself; or, as we call it, he sheets it.

Now, what is he doing? He is operating on what? On which way the fluctuations will go, made by the real exchange, made from the result of actual trade, made from the result of actual commerce, the commerce of the country passing back and forth through the market. The CHAIRMAN. Well, would it be fair to say that a very large proportion of the transactions of the board of trade are in contracts solely?

Mr. FITCH. Well, all transactions are contracts in a way.

The CHAIRMAN. I differentiate that from such trades as involve the delivery of wheat.

Mr. FITCH. You asked me before-you asked about the scalping

element?

The CHAIRMAN. Yes.

Mr. FITCH. My answer to that was that I considered it small as compared with the general business.

The CHAIRMAN. Have you any statistics on that at all?

Mr. FITCH. No, sir.

The CHAIRMAN. It is commonly understood that a vastly larger amount is dealt in in a purely speculative way than in a commercial way. Is that impression a mistake?

Mr. FITCH. I have no statistics on the question. Statistics would be impossible to gather on that; but from years of observation, based upon personal observation-perhaps close observation on account of being an officer of the institution-I still would adhere to the statement I made this morning.

The CHAIRMAN. You do not think it is large enough, then, to influence the price of any commodity?

Mr. FITCH. Scalpers never influence prices.

The CHAIRMAN. Well, is the price of spot wheat anywhere in the country governed in any way by the price of futures?

Mr. FITCH. Yes, sir. In this system, if you will allow me, in the hedge system, insurance that has been built up, that enables what we call the hedger to exist and operate, it has everything to do with the price of the spot wheat.

The CHAIRMAN. Then, if there are very large transactions in futures, might it not influence the price of spot wheat?

Mr. FITCH. At times; yes, sir. I say, at times. As an illustration, take May wheat, for May delivery; the price yesterday closed at 1133. There are three grades of wheat that the seller may deliver to fulfill his contract when delivery day comes in the month of May-No. 2 red, No. 1 northern, No. 2 hard. They are even grades of wheat, all much in demand by different millers, depending mostly on the section of the country they live in. All those are deliverable upon contract. A man who has them sold to deliver in May can deliver them when the month of May comes. And yet the No. 2 red winter is selling, I think, in the neighborhood of 128. In other words, the farmer to-day or the grain men or anybody else who has the No. 2 red winter wheat can get 15 cents a bushel over and above what wheat is selling for delivery in May. It would entail upon the seller the carrying charge, the expenses of insurance, interest, and so forth.

Mr. BURLESON. When you say "wheat," what do you mean by that; what do you mean by the term "wheat?"

Mr. FITCH. I mean one of the three kinds of wheat, all distinct and separate, clearly described varieties grown in different parts of the country.

Mr. BURLESON. Then what did you mean when you said No. 2 red was selling for so much above what wheat is selling for, May, when No. 2 red is embraced in the term "wheat?"

Mr. FITCH. You and I might be in business selling red, brown, and green hats, all of the same grade, and a big bunch of colored gentlemen might come in and buy red hats, so that there would only be a few red ones left, and they might tell their friends about the red hats and others might come in and buy the red hats, until we could put up the price of red hats and still be able to sell them. They might bid up the price of the few red hats we had left. And so in the matter of wheat, a miller needs a particular kind of wheat, there is a demand for that wheat, and it puts it at what we call a premium.

The CHAIRMAN. Is there normally a parity between the future and spot price of wheat that is fairly regular?

Mr. FITCH. I should say yes, sir.

The CHAIRMAN. To what extent is it interrupted by speculation? Mr. FITCH. Rarely by speculation; but most always by supply and demand.

The CHAIRMAN. You think that dealing in futures does not interrupt the law of supply and demand?

Mr. FITCH. At times it temporarily might affect it.

The CHAIRMAN. Let me read you two or three sentences from a dispatch from Chicago which appeared in the newspapers nearly a year ago. (Reading:)

Once more the Chicago Board of Trade is the scene of wild excitement.

Half-crazed men with hollow, cracked voices, are raising pandemonium in the wheat pit.

Mr. FITCH. May I reply in my own way?

The CHAIRMAN. Certainly.

Mr. FITCH. Mr. Chairman, if I should believe all I read in the papers regarding the actions in these two Houses of Congress I should have refused to come down here on the ground that you were all either crooked or crazy.

The CHAIRMAN. Are we to understand from that answer that it was not true?

Mr. FITCH. Yes.

The CHAIRMAN. You think there was not pandemonium in the wheat pit?

Mr. FITCH. I never heard a half-cracked voice in the wheat pit. The CHAIRMAN. They have good voices?

Mr. FITCH. Yes. And I have been there and I know.

The CHAIRMAN. How about the wild excitement? Is that term justified?

Mr. FITCH. No, sir.

The CHAIRMAN. Everything is always calm and serene, and gentlemen speak in ordinary tones of voice in transacting their business on the exchange?

- Mr. FITCH. No, sir. There attends the trading in the markets the usual noise that attends any body of men that are earnest and going about their affairs. There is the hustle and the bustle, the voices raised for bids and offers to sell and buy; the execution of orders naturally requires noise.

The CHAIRMAN. It is a fact, is it not, that during an active day in the pit orders are given and accepted with great rapidity, so rapidly

in fact that a man has not time to raise his voice, whether it be sound or half cracked, but often raises a finger or uses some other sign to indicate that he accepts or rejects an offer?

Mr. FrтCH. I never saw anything of that kind in all my experience there, and to bear that out I will say that in our system of trading there again comes in the question of rapidity. You would spend three weeks and I would spend three weeks over the purchase of a corner lot. But on the board of trade if I were getting an order from a London exporter or a miller who overnight gets offers abroad to sell 10,000 barrels of flour, and he wanted to pick the wheat up against it, he would send me the order before the opening and I would get the order and go in there to execute it, and there would be no craziness about it. We are used to those things.

The CHAIRMAN. I should not think there would be.

Mr. FITCH. That is the general order of business, and in support of that I want to say in connection with what you said, I might reject an order. We reject nothing; we accept or say nothing. I would go in and buy that wheat for the miller, and buy it maybe of a dozen different brokers. The market might be 113 and I might buy some at 113 and have to pay 113 for my next 5,000 bushels. Maybe I can't buy another 5,000 bushels at five-eighths, but have to give threefourths. I may have an order to buy half a million bushels of wheat, and by the time I finish getting that wheat it may be a point higher than when I started. Of course we have a system of checking the sales and the purchases; naturally so. There are clerks in that department that do that. Your house has sold 100,000 bushels to Walter Fitch & Co., and you will be visited by the check clerk. "You have 100,000 May sold to Fitch & Co." "Check!" And do you know, Mr. Chairman, that the number of trades that do not check and the questions that arise or disputes that have to be settled are down to such a minimum that you can not count them? Am I right, Mr. Merrill ?

Mr. MERRILL. Absolutely right.

Mr. BURLESON. If there is a record of those transactions, why is it that you can not tell us how many sales are made, how many bushels are bought and sold on the exchange during the year?

Mr. FITCH. I can tell you how much groceries I have bought of a certain house, and I could tell you how much my meat bill was at a certain place, and how much my tailor's bill was, but I can not tell what yours, and yours, and yours, and yours was.

Mr. BURLESON. Then, the reason you can not tell is because there has been no addition?

Mr. FITCH. Right, Mr. Burleson; there has never been a keeping of a total of it.

Mr. MERRILL. Nothing but a private individual record of each trade made by each party.

Mr. FITCH. Yes; which is the same as if I sold you a suit of clothes and charged it to you.

The CHAIRMAN. In what other farm product is there a future market on the Chicago Board of Trade?

Mr. FITCH. On the Chicago Board of Trade wheat, corn, oats, and rye, to what extent (addressing Mr. Merrill)? Any future trading? Mr. MERRILL. Yes; but limited (referring to rye).

Mr. FITCH. Very limited.