Mr. VIOLETT. I should say, by the character of the contract, if not commercial differences, I should think it would.

The CHAIRMAN. Is it not barely possible-and I ask this question without reflecting upon any member of the Cotton Exchange-that the reason you have not been able to bring the majority of the exchange to your way of thinking, or at least to act at a given time along the line of your suggestions, has been that a majority of the members of the exchange would rather have it a speculative market, pure and simple, than a market of another character?

Mr. VIOLETT. The majority of those voting?

The CHAIRMAN. Yes; the majority of those voting.

Mr. VIOLETT. Now, Mr. Chairman, the very large portion of our members do not understand this question at all.

The CHAIRMAN. It is certainly time they were being educated.

Mr. VIOLETT. They do not understand it. I think a great deal of my literature has gone to members of the exchange, and I have given a whole lot of it. I have done my best. No man ever did more. I may say this: If I had been appointed specially by the New York Cotton Exchange to present conditions that would be for the best welfare of the Cotton Exchange, from the point of view of a commercial contract and to do away with uncommercial conditions, I could not have done more than I have. I have given my best efforts. Therefore I appear before your committee in the absolute confidence, as I said in the beginning, that after an experience of many years I believe the taking away of the privilege to buy and sell a contract for the delivery of cotton would destroy this business. I say it because of my knowledge of the business, and I have been in all phases of it. The sore spot here is not the exchange itself; it is the committee that delegates to itself powers to do the things they do year in and year out.

The CHAIRMAN. Can you suggest a way in which Congress can reach that committee?

Mr. VIOLETT. That is for the committee, Mr. Chairman. That these conditions can continue, that 17 men can get together and say that these shall be the premiums and these shall be the discounts, regardless of the market value of the grades in their relation to middling, is an impossibility. There must be some way to stop it.

Mr. LEVER. Do you still entertain a hope of reform along these lines?

Mr. VIOLETT. It depends on who gets the majority in the New York Cotton Exchange. As long as the conditions continue as at present I see no hope of changing.

Mr. LEVER. How long has the present condition existed?
Mr. VIOLETT. I will produce the exact figures later.

Mr. BEALL. What effect did it have on trading on the New York Stock Exchange when in last November a difference of 44 point was fixed, when the real commercial difference was 33?

Mr. VIOLETT. I do not know that it had any. At the same time, there was an advantage to the man who delivered cotton. Why should a man deliver at 33 points when he could turn around and sell it at 44 It created a condition by which the seller of the contract would be given an advantage of 11 or 12 points, to the corresponding injury or loss to the man who received it, who took it.

Mr. BEALL. Did it have any effect upon the hedging contracts?

Mr. VIOLETT. I can not say that.

Mr. BEALL. What effect did it have on the cotton trade generallythe differences that were fixed in 1907, and what would you think about that operation?

Mr. VIOLETT. I am too full for utterance. All you have to do, gentlemen, is to read the report of the Bureau of Corporations. Í could wax eloquent on that subject, but

Mr. BEALL (interrupting). Do you think the report to which you refer correctly stated the situation?

Mr. VIOLETT. I will say this, that the revision committee had absolutely no basis for fixing the differences they did at the time, considering the facts they had before them, especially on the low grades. Either myself or the superintendent of the New York Cotton Exchange produced the evidence as to the quotation of the leading southern markets on the low grades at that time. They had that before them. I am not trying to bring up ancient history, but we are confronted with a situation that is the result of a continuation of an abuse of power, the taking of a discretion which the bylaws do not permit and which the board of managers should never have allowed. It has been taken arbitrarily.

Mr. BEALL. What other criticisms, if any, have you of the system which prevails upon the New York Cotton Exchange?

Mr. VIOLETT. I object to their method of fixing differences.

The CHAIRMAN. Would you have them fixed more frequently? Mr. VIOLETT. Suppose they start out in November with commercial differences. They are just as likely to be wrong later on, starting out with commercial differences, as they would be starting out with uncommercial differences. The only claim that I have ever heard made by the revision committee of the exchange, or the administration, in favor of a continuation of these methods, is that when they put on an excessive premium or an insufficient discount, in the course of the season sometimes those premiums established in November and those discounts established in November, will prove to be correct. That is the basis. It was not my purpose to go into ancient history, but as long as I have been asked the question I will go into it. The only history I would bring up in this connection is the correspondence of 1903.

Now, the good ordinary grade, up to the meeting in November, for the ten months ending November, 1906, by the New York Cotton Exchange was 100 points. When that committee met, the average discount all over the South at the principal points was about 170 points; at New Orleans, I think, it was 190 points. They increased the discounts by 25 points, and there were five men on that committee who did not want to make any at all. As I say, the only argument I have ever heard used as to why an excess of premium or an insufficient discount should be put on contracts established in November is that some time within the next ten months those differences will prove to be correct. In November, 1906, following that September storm in the South and throughout the Mississippi Valley, everybody knew that there would be a superabundance of cotton, and those impressions were correct. During the winter of 1907 good ordinary cotton sold at Galveston and Houston and other points at 250 points below middling, and still the discount in the New York market continued at 125 points until December. Therefore the claim that some

times this might prove to be correct was in that instance not proven. It did not work that way. That is just to show you the fallacy of putting a fixed discount for a fixed period of time, especially when starting out wrong.

Then, the question of differences varies in any spot market. You have several gentlemen here from the South on the committee, and they know it. They know the premiums on good grades and the discounts on low grades, below grade, and the character of the crop after November.

For years those in favor of the present manner of fixing differences have given their reasons for their position, and are entitled to their opinion; but the facts are against them. There is only one way. I will submit it to your committee during the day. I do not want to take up all of your time now.

New Orleans has never had anything else but a frequent revision. It does not mean they are going, necessarily, to change them arbitrarily simply to readjust the differences, the premiums, and discounts in relation to middling as the season progresses if it becomes necessary. That is all. Why there should be any objection to so reasonable and so commercial a way of conducting the manner of delivering cotton on contract is absolutely beyond me.

Mr. ARTHUR MARSH (of the New York Cotton Exchange). Mr. Chairman, I simply desire to clear the record up a little bit by asking Mr. Violett what rule or principle he thinks should be imposed upon the revision committee of the New York Cotton Exchange in determining differences in value of the different grades of cotton to be delivered on contracts?

Mr. VIOLETT. I have it prepared and will submit it to the committee during the day.

The CHAIRMAN. Why could you not submit that right now, while you are on the stand?

Mr. VIOLETT. I will read what I have prepared in relation to that:

PROPOSED AMENDMENTS TO THE BY-LAWS OF THE NEW YORK COTTON EXCHANGE.

1. Require that the grades deliverable on contract for the New York and New Orleans cotton exchanges shall correspond, and to secure similar types, that an expert cotton classer be selected by each exchange, and a third to be selected by them, to constitute a board in this respect; this board to meet once yearly, say, October 1. 2. Eliminate from delivery on future contracts all stained cotton below middling in grade, and all tinged cotton below low middling; therefore only one of stained and only one of tinged, as a delivery on contract.

I would like to ask Mr. Marsh how many grades of stained and tinged cotton we have now?

Mr. GEORGE W. NEVILLE (of the New York Cotton Exchange). That is the limit of the contract deliverable in New York to-day [exhibiting paper to the witness].

Mr. VIOLETT. Have you gentlemen a copy of the daily report of the New York Cotton Exchange?

Mr. NEVILLE. That is it, and it has been so since 1908.

Mr. VIOLETT. That is 1908?

Mr. NEVILLE. It is the same thing to-day. The committee has the last one, the 24th of February, which it had in its possession, which shows the same grade. Low-middling tinge is the lowest grade deliverable; just what you asked for.

Mr. VIOLETT. We have strict low-middling tinge, and low-middling tinge, and middling stained. Mr. Neville, as I understand, says that this is the same as now. But here are two, and there are three. It may be that the tinges and stains that I have in mind are those above middling; I am referring to the grade below middling, middling and

below.

Mr. LUITPOLD MANDELBAUM (of the New York Cotton Exchange). I would like to ask whether Mr. Violett admits those are the grades deliverable on contract?

The CHAIRMAN. He stated that from his understanding there were three grades deliverable instead of two, as stated by Mr. Neville.

Mr. NEVILLE. He stated there were strict low-middling tinge and low-middling tinge and middling stained; and that is exactly the condition to-day. It has been so since 1908.

The CHAIRMAN. Mr. Neville wants to know whether you concede that the contract upon which cotton is deliverable now in New York is exactly what you have just outlined?

Mr. VIOLETT. As to stained and tinged cotton?

The CHAIRMAN. Yes.

Mr. VIOLETT. I do not want to place myself in the positionThe CHAIRMAN. Really, while this is interesting, it is not directly germane to the matter we have under consideration. There is no bill pending before this committee which undertakes in any way to alter or amend the rules of any cotton exchange.

Mr. VIOLETT. No; but you asked me if I had any suggestions. The CHAIRMAN. I understand; and we are very glad to have your opinion.

Mr. VIOLETT. I am differing from Mr. Neville, and the production of this shows I am correct-no; I stand corrected. He is right.

The CHAIRMAN. I see that your remedies refer entirely to changes in the present rules and practices of the New York Cotton Exchange. Mr. VIOLETT. Exactly. As to the stains and tinges, Mr. Neville is correct, and I am incorrect.

The CHAIRMAN. But, as I said just now, that is a matter the committee does not care to take the time to go into, because no bill is pending relating to it at all.

Mr. VIOLETT. I do not contradict Mr. Neville; I admit that he was correct. Now, I am simply defining what should be put into the by-laws of the cotton exchange as deliverable on contract in connection with grades of that character.

Mr. MARSH. I do not know whether or not this is an appropriate time to bring it in, but I have understood that Mr. Violett's position has been that a rule or principle should be laid down to the effect that the revision committee of the New York Cotton Exchange must fix its differences at the average of the differences of a certain number of southern markets. That point is of some importance, because I understand that the Commissioner of Corporations in his report tells us that if we were so to fix our differences, the New York Cotton Exchange would be free from criticism. In that particular I understand that Mr. Violett coincides with the Commissioner of Corporations and the Commissioner of Corporations coincides with Mr. Atwood Violett.

a

I had hoped to get on the record, from Mr. Violett himself, statement of this principle which he thought ought to be imposed

upon the revision committee, and bearing on that point I had brought down with me figures showing the differences which existed in various southern markets at the time of the revisions in New York from November, 1906, down to the present time. I do not want to encumber the record with this, if the committee does not feel the matter is of importance. Perhaps its greatest importance arises from the fact that the Commissioner of Corporations has suggested that this method of fixing differences is the only proper one for us to follow.

The CHAIRMAN. If I do not speak the sentiment of the committee in what I shall say in response to Mr. Marsh, I wish any gentleman would correct me. My impression would be, Mr. Marsh, that it would not be necessary for your figures to go into the record, or for us to pursue at greater length the question as to any change that ought to be made or might be made in the rules or principles guiding the New York or any other cotton exchange, for the reason that we do not pretend to have any right to go into a State and dictate what the rules of an exchange shall be. No bill presuming to exercise such authority is pending before the committee. It is a matter of interest in general discussion of the subject, but I do not believe it is germane to this particular question.

Mr. LAMB. I think you are correct, that it is not at all germane.
Mr. MANDELBAUM. May I ask one question?

Mr. VIOLETT. I would like to be allowed to go on without interruption. These gentlemen will have their day in court when I get through.

The CHAIRMAN. I was just stating to Mr. Marsh that the committee does not care to go into any matter which relates to the internal government of any cotton exchange. We have no bill here presuming or undertaking to change in any way the rules or principles by which these exchanges guide their business. The bill we are considering is one to prohibit the transmission of messages relating to future contracts in cotton, wheat, and other farm products in which there is no delivery intended; and therefore we do not care to consider a matter which is entirely outside of that question. We would be very glad to have your opinion upon the advisability of such legislation.

Mr. VIOLETT. The point I want now to impress upon you is that I thought there were more grades than two on tinges and stained cotton.

The CHAIRMAN. That point was not further disputed, and the committee does not care to go into that further, for the reason, as I have said, that we are not attempting to alter or amend the rules of the exchanges. That is entirely beyond our province.

Mr. VIOLETT. What I desire to do is to read this with my statement. Let me go over it again.

2. Eliminate from delivery on future contracts all stained cotton below middling in grade, and all tinged cotton below low middling; therefore only one of stained and only one of tinged, as a delivery on contract.

Make strict good ordinary the lowest grade deliverable on contract, instead of good ordinary, as the lowest grade deliverable, as at present.

There is nothing more important in the formation of the contract than that; that is, in the formation of a commercial contract. Those from the South on your committee know what good ordinary cotton