and it is in the warehouse. He wants to borrow money on it. He has already hedged it. Suppose that suddenly he should suffer great financial loss, that a fire should break out in the warehouse and destroy a considerable portion if not all of the grain. The banker, to indemnify himself, would have recourse to the insurance on the grain?

Mr. MERRILL. We always deposit the insurance policies with the certificates.

Mr. HAWLEY. And you deposit the hedging contract?

Mr. MERRILL. If the banker asks for it. Of course, if he believes that I am honest he will not ask me to bring it to him.

Mr. HAWLEY. But you would have the hedging contract?
Mr. MERRILL. Oh, yes; that contract would be carried to him.
Mr. HAWLEY. That is, in a measure, an insurance.

Mr. MERRILL. Yes; he knows exactly where the grain is going. Mr. HAWLEY. These questions that I am asking may have been already covered by others. I have not been here all the time. Have the contracts as made on your exchange ever been tested in the courts?

Mr. MERRILL. Yes.

Mr. HAWLEY. They have been held legal in all instances?
Mr. MERRILL. In all instances; by the Supreme Court.

Mr. HAWLEY. In all instances?

Mr. MERRILL. In every instance.

Mr. HAWLEY. Have you ever changed them to conform to the decision of the court?

Mr. MERRILL. No, sir.

Mr. HAWLEY. In what courts have they been tested?

Mr. MERRILL. In the supreme court of the State of Illinois and in the Supreme Court of the United States, and in other courts.

Mr. HAWLEY. In case a member of your exchange fails to keep his agreement with you, would you sue him?

Mr. MERRILL. The proceeding would be before the directors. We only expel for dishonest conduct. We suspend for dishonorable conduct. He would be suspended from all privileges of the board until he had met his engagements. If there was any question about it, it would be submitted to a committee of arbitration of ten men, and if he was not satisfied with that arbitration he could appeal it to a committee of appeals of ten men. Ordinarily the outgoing president goes onto the board of appeals.

Mr. HAWLEY. That does not quite answer my question.

Mr. MERRILL. Then if there was any question about it and he still refused to pay, he would then be suspended. Then of course being suspended and off the board, if he had money and we could not get it from him in any other way, we would have to sue him. That would be our only recourse then. But we call margins on contracts as may be needful; we do not have those questions arise.

Mr. HAWLEY. But you would sue him?

Mr. MERRILL. Yes.

Mr. HAWLEY. But not until he was expelled from your membership?

Mr. MERRILL. We would exhaust our own remedies first.

Mr. HAWLEY. That does not happen often?

Mr. MERRILL. No, sir; there may have been instances, but I can not recollect any of them.

Mr. HAWLEY. Have you filed with the committee citations of the decisions?

Mr. MERRILL. No, sir; I have not.

Mr. HAWLEY. Have you them, so that you can file them?

Mr. MERRILL. I will engage to do so as soon as I return to Chicago. I will ask our attorney, Mr. Robbins, to make up a list of them. Mr. HAWLEY. I wish you would.

Mr. MERRILL. I will certainly attend to it, sir. Did you hear me read the decision of the Supreme Court?

Mr. HAWLEY. Yes.

Mr. MERRILL. It covers every point that can be raised. It gives us as clean a bill of health as any exchange could have. That is from the Supreme Court of the United States.

The CHAIRMAN. In glancing through the rules of the board of trade I notice in section 20 on page 22 some terms that I do not exactly understand and I would like to have your interpretation of them.

The board of directors is hereby empowered to establish a public "Call" for corn, oats, wheat, and rye to arrive, to be held in the Exchange room immediately after the close of the regular session on each business day.

What do you mean by that?

Mr. MERRILL. You asked about the call, did you not?
The CHAIRMAN. Yes.

Mr. MERRILL. Very well; to answer your question. The call is a call for car lots of grain to arrive. Grain sold for shipment from the country to Chicago, this is now February, will first be "seller, the month," and then the next to be called will be first half of March; and then March, and so on through; and anyone out in the country having a carload of corn or a carload of oats or any grain, it being a less quantity than can be sold for forward delivery in the pit, and hedged in that way, sells it on the call with the intent of delivering that identical car, of course, when he ships it in. Now, we did that because I hope my elevator friends back here will not think I am trenching on their province we did that because elevator concerns, or large concerns in our market, by reason of their having the ownership of elevators, had a great advantage. It costs three-quarters of a cent for elevation and storage for the first ten days, and then this one-fortieth of 1 cent begins ten days after that; and that threequarters of a cent always follows the grain. The man who delivers it on contract does not deduct that. The man who ships it out pays that. If I buy a cargo of grain I pay that three-quarters of a cent for the discharging of my grain to my vessel. Now, these men got control practically of all the grain moving to Chicago, and the smaller fry were out. Our business was greatly interfered with, because they would use, as I said, that three-quarters of a cent, or part of it, to bid more than we could afford to bid.

And so the call was established, and the board exercising its right by rules and regulations over its members, prohibits trading in grain of any kind for future delivery after 1.15 o'clock, when the session closes, until 9.30 next morning when it opens, and likewise it prohibits any trading in grain to arrive in car lots, except at the prices established on the open call. Otherwise we found we were kept down in our

offices until nearly midnight, and we had to stay there in order to take care of our business, because we would be constantly called up over the telephone by somebody who would say "Smith has offered me so and so for a car of corn, and what will you do?" After the close of the exchange, trading was adjourned to some other place, and it got so bad that they used to adjourn to the lobbies of one or two of the hotels, or a number of men would assemble somewhere and continue to trade, so that the board exercised this right, and it is wholly within the provisions of our charter. In fact, United States District Attorney Sims had his attention directed to this call, thinking it was possibly a restraint of trade, and I went over with our attorney to explain it to him-this was a year ago-and he said: "I can readily understand how you have a right to exercise that function of control over your members." The result of it was that it carried the trade back into the hands of 150 or 200 firms, which, without the call and until we instituted it, had drifted into the hands of a few men, showing where the grain trade of the country will go unless it can be kept broadly based.

The CHAIRMAN. Then, in brief, if I understand your explanation, this rule is intended to prohibit the members of your exchange making any offer for corn or buying corn between 1.30 p. m., when the exchange closes, and 9.30 a. m. the next morning, when it opens?

Mr. MERRILL. That is the result of the establishing of a call where buyers and sellers of car lots of grain may go and transact their business, of course, through a member of our board.

The CHAIRMAN. Would a member of your board be permitted under the rules to send a bid out to a country merchant for corn, naming any price other than that fixed at the call?

Mr. MERRILL. Naming none above it.

The CHAIRMAN. Naming none above it?

Mr. MERRILL. Naming none above it during the hours that the exchange is closed. You understand, he could bid anything he wanted to between 9.30 and 1.15.

The CHAIRMAN. I understand, but he could not bid above a certain figure between 1.30 and 9.30 the next morning?

Mr. MERRILL. No.

The CHAIRMAN. Is it not a fact that nearly all the bids sent out through the country are sent out by mail after 1.30?

Mr. MERRILL. Yes, sir; the bids go out; but the next morning if the market should be higher so that they could pay more, all the grain dealers throughout the country are very well informed now through telephones or otherwise, and they will phone in and say, "Your bid yesterday on corn was 67. I can sell it to you at 67" Or they will file with us a sale list. There is a class of farmers of whom the grain dealer knows that he can buy their corn at a spot price, and they have told him when he can sell it for that he can book it and phone them, so that the call in that way carries to the grain dealers in the country in the morning a bid on which they may work with their farmers.

The CHAIRMAN. But it carries, all of them, the same bid?

Mr. MERRILL. Yes.

The CHAIRMAN. It practically eliminates competition between 1.30 and 9.30 the next morning?

Mr. MERRILL. Yes.

The CHAIRMAN. To that extent is it not in restraint of trade? Mr. MERRILL. You say in restraint of trade. That is not the intent of the call, at least. It would be paradoxical to say that it was a restraint of trade, because as a matter of fact the establishing of the call restored the greatest freedom of trade. That was the object of it. There was great restraint of trade established by the concentration in the hands of seven firms, of the business, before the establishment of the call; and the theory of it and the practical working of it is to restore that trade to the open bids and competition of at least 150 separate firms instead of seven firms.

The CHAIRMAN. Why was it concentrated into the hands of seven firms?

Mr. MERRILL. I have sought to show you that these seven firms owned the elevators, and that we would have to pay that threefourths of a cent storage. If the grain went into the elevators, those people had the advantage of that.

The CHAIRMAN. And yet from the standpoint of the seller of the grain would it not be better to have competition between seven firms than to have no competition between 150 firms?

Mr. MERRILL. He has now active competition of all buyers. It is only suspended until the next morning, and then he has the most active competition of all of them until 1.15, so that there is no restraint.

The CHAIRMAN. Then the remedy in the hands of the seller is not to accept any offer he gets between 1.30 and 9.30?

Mr. MERRILL. He does not need to, sir. These acceptances are all due to be received in Chicago before the opening of the market the following morning. The operation of it, Mr. Chairman, I assure you, has been very excellent in that it has given a very much broader market and wider competition than existed before."

The CHAIRMAN. Have you any information as to whether it has been more satisfactory to the sellers than the former condition?

Mr. MERRILL. Well, I have heard no complaint about it. In fact, I am very sure that it is much more satisfactory to them.

The CHAIRMAN. I called the attention of Mr. Fitch the other day to two or three market letters containing paragraphs which were evidently intended to encourage gambling, pure and simple. Do I understand that such paragraphs are uncommon in the market letters sent out by members of your exchange?

Mr. MERRILL. Well, Mr. Chairman, you say "evidently intended to encourage gambling." I stated a little while ago that every order executed on the board contemplates the delivery. Now, your wording, "gambling," I could not consent to.

The CHAIRMAN. I used that word because I did not want to beat around the bush. We understand very well what the transaction is. Mr. MERRILL. Yes; it is speculation, simon pure. Whether these persons are qualified to buy grain for forward delivery because they think it is going to rise or not is not my business, because I do not know who they are; but with respect to the market letter, I do not know who he is, and I do not want it to be of record here that I do know, because some of these people will think that as a representative of the Chicago Board of Trade down here I have injured them. I think I can identify it well enough; and there has been talk, Mr. Chairman. Not long ago a matter was brought before our board of

directors and as we were going out of the room, informal conversation occurred with respect to some of these overstatements, as you may call them. I scarcely know just how to well describe them, but we think they are undignified, to say the least; that they do not reflect the proper degree of dignity on the board of trade in that they are seeking to get what we call small speculators, and that is the class which we generally discourage all we can, because as a rule they are not financially equipped to speculate.

The CHAIRMAN. Do you make that statement with consideration, that the small speculator, in the newspaper parlance of to-day, the "lamb," is generally discouraged?

Mr. MERRILL. Yes, sir; I think that is true with nearly all board of trade firms. If you will allow me to say this for myself, I invariably advise a man to not speculate. I have never encouraged anybody to do it. I have had to conduct the business at times on a large scale for those who said they were going to do it anyway, and they have said, "If you want the business, all right; if not, we will let somebody else do it." But I have returned money many times to men who have said to me, "What do you think of wheat; is it a purchase?" I can see that with them it is a very great risk. They have not the well-equipped intelligence that Cohn, the German economist, describes as belonging to the speculator.

The CHAIRMAN. Do you return such letters as those when they come from your personal friends or from your regular customers only, or do you return all such, whether you know the writers or not? Mr. MERRILL. All such.

The CHAIRMAN. What proportion of the membership of your exchange do you think follows your custom in that respect?

Mr. MERRILL. I should think a very large proportion of it.
The CHAIRMAN. More than half?

Mr. MERRILL. Yes, I think nearly all; I should think 90 per cent of them, certainly.

The CHAIRMAN. Then if, in the judgment of 90 per cent of the membership of your board, such practices are inadvisable, not to say indefensible, it would not seem to be a very difficult matter to adopt a rule that would prohibit them, would it?

Mr. MERRILL. Not if you could censor those orders. You would have to establish some means of passing upon those orders which would fairly represent the board, or which would fairly represent the voice the concrete opinion of the board. That is where the difficulty resides, you know. It is private business, so to speak, and you can hardly know whether somebody will view that particular order in the same way that you do, and it is hardly feasible to establish a censorship of that business.

The CHAIRMAN. It seems to have been feasible on some other exchanges. There was a gentleman who was here the other day, testifying on behalf of the Minneapolis Board of Trade

Mr. MERRILL. That was in respect to sending those inflammatory market letters?

The CHAIRMAN. Yes. He made the statement that their rules prohibited such statements in letters, and I believe the gentleman from the Toledo board made the same statement regarding his exchange.

Mr. MERRILL. Yes.