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Thursday, March 3, 191011 o'clock ́a. m. The CHAIRMAN. The committee has met this morning, pursuant to an order made some days ago, to continue consideration of the socalled antifutures bills. Mr. Atwood Violett, of New York, has requested to be heard, and if he is ready the committee will be glad to have him proceed.


(The witness was sworn by the chairman.)

The CHAIRMAN. Are you a member of the New York Stock Exchange?

Mr. VIOLETT. I am a member of the New York and New Orleans stock exchanges.

The CHAIRMAN. Where is your place of business?
Mr. VIOLETT. Twenty Broad street.
The CHAIRMAN. You may proceed.

Mr. VIOLETT. I am pleased to appear before your committee to testify regarding the matters you have under consideration in connection with the investigation the committee is conducting.

I succeeded my father in the cotton business, at New Orleans, very many years ago, and have been continuously identified with it for forty years, and because of this long experience, and the greater part of it in the southern market, I have reason to believe that I am competent to express the opinion that it would be extremely detrimental to the interests of the cotton trade generally, and more particularly, perhaps, to those engaged directly and indirectly in the production of the cotton crop, to take away by legislative enactment the privilege to buy and the privilege to sell a contract for the delivery of cotton at some future time, and I hope that what I shall have to say on this subject during my appearance before you may assist in bringing the committee to the same conclusions.

I am engaged in business of this character, as well as in that of spot cotton, and therefore this opinion may be considered as biased, but, nevertheless, it is given with utmost sincerity.

I have reason to believe that I represent the views of the majority of the membership of the New York Cotton Exchange in desiring the same modifications and changes in the contract now existing as the general public seems to demand, and my purpose in accepting the invitation to be present at this meeting is to impart this belief to the committee.

We insist that our contract shall be so constructed as to remove excuse for charges that are being so generally made against the New York Cotton Exchange as a body (many of these charges very serious), and which perhaps are considered as reflecting upon the integrity of every individual member of it, and therefore we naturally feel the injustice of this.

The stockholders of any corporation and the New York Cotton Exchange is a corporation may be, to some extent, responsible for the acts of its administration, but individual stockholders should certainly not be considered as open to censure if they can show they do not approve of some of the policies of those in control, and this is

the situation that exists at present in the New York Cotton Exchange. No permission to exercise discretion should be allowed, such as is taken by the revision committee, at their two annual meetings, on so vital a matter as the adjusting of grade differences, especially as upon their action in that respect mainly depends the value of the contract to the planter, the spinner, and the exporter. This committee is, in great measure, a law unto itself, and proof of this can be had in the correspondence that will be found in the Report of the Bureau of Corporations of May 4, 1908, on pages 87 and 88, to which I call ...i. attention. Therefore, responsibility for the character of the contract mainly rests with that committee. The duties performed by them, twice yearly, are to declare the rates or differences—nothing else, but that declaration means substantially as follows: That between one committee meeting and the next, each grade above middling, the buyer of the contract must pay for, at a fixed premium, and the grades below middling at a fixed discount, at any time within a period of two months in one instance, and within a period of ten months in the other instance, regardless of what may be their commercial or market value, in their relation to middling, during those periods. As the November announcements of the committee have, for some years, shown at the time an overvaluation of most or many of the grades, compared with their actual market value, in their relation to middling, to this, and the effects therefrom, is generally attributed the reason for bringing about this present investigation, as well as those conducted by the Bureau of Corporations, and because of which latter, the bureau claims that a commercial or market-value contract is the only alternative for the New York Cotton Exchange. The remedies to apply in giving the trade what it wants, and must have, in these respects, are quite simple, from my point of view, and I shall present them for the consideration of the committee. o . CHAIRMAN. Mr. Violett, have you any further statement to make? Mr. VioleTT. I should like to read to you the correspondence to which I have referred as to be found in the report of the Bureau of Corporations of May 4, 1908, on pages 87 and 88. e writers of this correspondence are the most prominent people in the cotton trade, not only in this country but abroad. On November 19, 1903, they wrote to the chairman of the revision committee as follows: * PHILADELPHIA, November 19, 1903. Mr. GEORGE BRENNEcKE,

Chairman Committee of Revision,
New York Cotton Exchange, New York.

DEAR SIR: Will you kindly advise us your ...; as chairman of the committee of revision, as to the basis on which the differences between grades should be fixed by the revision committee? That is, what facts should be considered by them? One of the members of this firm is a member of the revision committee, but we request a statement from you as to your interpretation of how the differences should be arrived at. We desire to know whether or not his ideas, which are the same as our own, are in accord with your understanding of the duty of the committee in determining what is to govern them in fixing the differences. It is only fair to the members of the committee that the facts .#. are to govern them should be known to the members

of the exchange. Yours, truly, GEORGE H. McFADDEN & BRo.

To that letter Mr. Brennecke wrote as follows:

NEW YORK, November 20, 1903. Messrs. GEORGE H. McFadden & BRO.,

Philadelphia. DEAR SIRS: In answer to your yesterday's favor I beg to say that in my understanding the duties of the revision committee are the same as those of any other committee, or, in fact, of any officer or the board of managers of the exchange. That is, the welfare of the exchange should be considered only, and no measure should be entertained for individual interests. Very truly, yours,

GEORGE BRENNECKE. I have already said that this committee is in great measure a law unto itself, and proof of this can be had in the correspondence I have just read.

Now, that correspondence was referred to the president of the exchange, as follows:

PHILADELPHIA, November 23, 1903. Mr. Robert P. McDougALL,

President New York Cotton Exchange, New York. DEAR SIR: We most earnestly request a ruling by the board of managers as to what, under section 72a of the by-laws, shall be considered as governing the committee on the revision of spot cotton in fixing the differences between grades under that section.

This section (72), after giving particulars and the time of meeting, states:

The committee shall on the day of meeting consider the report of the committee on spot quotations, and suggestions and opinions presented by members, whether in writing or verbally, and establish differences in value of all grades on or off as relating to middling cotton, which shall constitute the rates at which grades other than middling may be delivered on contract."

The particular point that we request a ruling upon by the board of managers of the New York Cotton Exchange is as to whether, under section 72, it is understood that these differences shall be annually fixed in accordance with the commercial value of the same grade in the South and their selling value to spinners, due consideration of the weather conditions which have existed and are existing, as they may affect future values in connection with that portion of the crop still to be picked, or whether the committee may establish differences between the values of the different grades as they may deem best without being controlled by the commercial values.

I may say, by way of parenthesis, as they have been doing all these years, namely, without being controlled by commercial values.

We, in this letter, make no plea for any particular method, but we earnestly request that the board of managers make a ruling upon this question. We consider it quite as necessary a decision for the exchange to make as any which would govern transactions in futures, also a vital question as affecting the business of the cotton world, which now and in the future may be based upon the New York quotation.

I should like to say just here that these men are the largest exporters of cotton, they are the largest buyers of cotton, and there is no firm, individually or collectively, that would know as much or more as to the importance of fixing the commercial value upon the grades as this firm.

It will certainly have a bearing upon the merchant business in the future, and as cotton merchants we desire to know the facts.

In connection with our request we attach herewith copy of letter addressed to the chairman of the committee of revision, together with copy of his reply, which to our minds fails to specifically answer the question addressed to him, although the last clause of his reply, reading “that no measure should be entertained for individual interests,” with which sentiment we are heartily in accord, would indicate that the differences are to be governed by the commercial values of the grade, as only uncommercial or artificial differences can be considered as favoring special as against general interests. Yours, truly,


Now, gentlemen, the inference to be drawn from that is that as long as that committee has been governed, as they say here, by uncommercial or artificial differences, then those artificial differences have been favoring special as against general interests. That has been the basis of my agitation of this matter for four years. There is no more right or power delegated to the revision committee to do the things they do in exercising discretion than you, except that you are not a member of the exchange, and they are. They simply arbitrarily get together and fix these differences. For four years I had sent a committee before each meeting with quotations from twelve or more principal southern markets, showing the average premium and discount on cotton above and below grade, and they have disregarded it.

It is the revision committee that has caused this trouble, the action of that committee delegating to themselves the power to fix a difference, which McFadden says is artificial. In November, 1909, I produced a telegram showing an average premium on good middling at the principal markets in the South of 30 to 31 or 32 points. I believe the premium was 50 points, but they reduced it only to 44. Why? What right had they to do that? Mr. Smith goes over that very question, and goes into it elaborately. Why should anybody take upon themselves as a member of the committee to go contrary to the facts, when, as McFadden says in his letter, it is an uncommercial or artificial difference? What does he do? He does the very thing Mr. Benning has called attention to.

The CHAIRMAN. I understand from what you have said that your chief ground of complaint against the practice in the New York exchange rests upon the manner of fixing the difference in the grade of cotton. Mr. VIOLETT. Not alone; that is primarily. The CHAIRMAN. Primarily ? Mr. VIOLETT. Yes, sir.

The CHAIRMAN. I understand you to say that you have reason to believe you represent the views of the majority of the membership of the New York Cotton Exchange. If you do represent the views of the majority, or, to put it another way, if the majority is of the opinion that the system which you have been criticising is wrong, why have they not changed it?

Mr. VIOLETT. You must ask the gentlemen who appear before you.

The CHAIRMAN. Does not a majority of the membership of the New York exchange control that exchange?

Mr. VIOLETT. They should. Now, Mr. Chairman, the majority of the sentiment of the New York Cotton Exchange must be in favor of a fair, square, commercial, market value contract; that stands to reason; you can not get away from it. But they have no voice in the formation, in the appointment, of the revision committee. That is a matter simply in the hands of the board of managers and administration. You ask if the majority does not control. It should control, but we can not get the votes in sufficient number to elect a ticket opposed to the regular ticket in each year. We did it in 1907, but have not been able to do it since.

The CHAIRMAN. The continuation of the present system promotes pure speculation, does it not, and takes the market further and further away from the spot business?

Mr. VIOLETT. That is a little bit intricate. I will tell you. The contract that we have now prevents a greater amount of legitimate buying and selling by the spinner

The CHAIRMAN. Exactly. Mr. VIOLETT (continuing). Than the present contracts permit. I do not need to say that. Anybody can see it. I will tell you why the spinner does not buy a contract to a greater extent than he does. He may buy a contract to hedge himself temporarily, but he can not buy a contract to take the difference in the grades, because if he takes the grades in the delivery of cotton he would have to take them on artificial differences, he would have to take them at differences of greater premiums than he could buy the same grades for in the South in their relation to middling. So that that question answers itself. No spinner is going to be fool enough to go and buy on the New York Cotton Exchange and pay 44 points for good middling when he could buy the same cotton in the South and pay 33. That is the point.

I am defending the New York Cotton Exchange as a body. I am a member of it. I am standing up for its dignity and its traditions, because it is a body of men as to the integrity of whose individual members there can be no question. And I am only and solely striving, to the best of my ability, to educate the members of the New York Stock Exchange in regard to those conditions described by Mr. McFadden.

Mr. LEVER. I would like to ask you whether or not the New York Cotton Exchange has not been abandoned to a large extent as a hedging market ?

Mr. VIOLETT. I could not say that, because I do not do enough business of that kind.

Mr. LEVER. That would be the natural result, would it not, if the criticism you make is well founded ?

Mr. VIOLETT. I am sure the spinners are buying contracts from time to time as a hedge, but what they did in 1906, following the revision committee figures of 1906, their hedges went one way, and spot cotton went the other way.

Mr. LEVER. But when that is likely to happen, the spinners are not very much given for hunting that sort of market, for hedging ?

Mr. VIOLETT. Naturally not; why should they? They do it to some extent. Mr. LEVER. I realize that.

The CHAIRMAN. But if that is true, as I understand you to say, that on account of the character of the contracts, on the New York Cotton Exchange, the spinners are coming there less and less, not only for spot cotton but even for their hedging, does it not follow that the market is becoming more and more a purely speculative market?

Mr. VIOLETT. As long as cotton is not bought by the spinner-if the contracts were bought by the spinner, and he would buy it if he had a commercial contract, it follows that the contract would be given a stability it has not now.

The CHAIRMAN. That is not the point of my question. What I was asking your opinion about was this: If the contract is of such a character that men desiring to buy spot cotton avoid the market, does it not follow that the market becomes more and more a purely speculative one ?

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