SELLER'S OPTION.-Delivery is made on such day during the delivery month as may be determined by the seller. In other words, future contracts are now seller's option. This, however, is a matter of custom, not of prescribed rule. Section 1 of Rule XXII provides for time contracts where property is deliverable at the buyer's demand. Section 2 of the same rule provides that contracts for property deliverable at the pleasure of the seller within a specified time may be made at the hours and in the manner prescribed in Rule XXI, as described below. In the early days of the Chicago Board of Trade futures providing for buyer's option as well as seller's option were actually dealt in to a considerable extent. Buyer's option contracts are not now used.

Misunderstandings with regard to what is involved in the seller's option were conspicuous during a recent period when the trading was under a fixed upper limit as to price. Such a limit in effect gave the seller the option of settling at that price instead of making delivery at all. This condition prevailed during the winter of 1917-18. Board of Trade houses then received letters inquiring as to whether, if the writer bought corn or oats at the prices shown for dealings on the exchange, he could obtain delivery. The seller will naturally pay a difference rather than make delivery where it costs him much more. When the limit of $1.28 was effective for future trades in corn, if a short seller entered into a contract in the future market at $1.27, this meant merely that he was willing to pay 1 cent for the chance of profiting by a possible decline in the price below $1.27 before the close of the delivery month. Future trading under such circumstances was of little or no use for hedging purposes, or for any other purpose. In principle the objection to a decreed settlement allowing the payment of a difference in place of actually making delivery is of a similar nature.

THE DELIVERY NOTICE.-Tender of warehouse receipts to effect delivery on future contracts is made in the form of a delivery notice1 that provides for being passed from firm to firm by indorsement 2 the firm with which the notice remains at the close of the delivery session being required to pay for the receipt. Delivery sessions are held in

*

* Such notice shall and the con

1 "All such deliveries shall be made by a notice in writing. state in detail the warehouse receipts proposed to be delivered, * tract price on which delivery is proposed to be made; also the net cash value (deducting extra storage) of said property at the market price." (Rule XXI, sec. 2.)

This section 2 of Rule XXI is a disorderly jumble of provisions from which sentences are taken here and there and quoted as above and in the following footnotes in support of statements made in the text. The ground is first covered in a general way in the rules for 1881. It may be inferred that the system of delivery by notice was established between 1877 and 1887.

"Such delivery notice may be passed from one purchaser to another before 11 o'clock a. m., or before 2 o'clock p. m., as the case may be, by indorsement thereon by the seller of the name of the party to whom it is to be delivered, together with the contract price at which the property is sold and also the time at which the delivery is made."

the Board of Trade Building in the afternoon; but on the first day of each delivery month there is also a forenoon session for delivery." Concerns having futures bought and subject to delivery must be represented at delivery sessions. On any business day during the month delivery may be made during certain specified hours of the forenoon at the office of the commission house that has the future bought. The subject matter of the delivery notice is carefully prescribed. A separate notice is used for each 5,000-bushel or 1,000-bushel lot, as the case may be.

To illustrate the use of delivery notices to settle many trades in a short time a copy of such a notice, front and back, as actually used, except for the substitution of assumed names, is shown below.

[Front.]

This Notice is deliverable on Contracts in the Exchange Hall in accordance with the Rules of the Board of Trade of the City of Chicago.

We have on hand ready for delivery the following described Warehouse Receipts, and hereby make tender to you of the same, in fulfillment of our contract of sale to you of

in store,

1 All deliveries of grain and flaxseed in 1,000 or 5,000 bushel lots, * on time contracts, shall be made between 9.30 a. m. and 11 o'clock a. m. at the office of the clearing member who has the property bought, or shall be made in the exchange hall, or in such other place as may be designated by the board of directors, between the hours of 1.30 and 2 o'clock p. m., except as hereinafter provided." (Rule XXI, sec. 2.) There is no reference to 1,000-bushel lots in 1881, but there is in 1886.

“All parties having property due them on time sales shall be present, or shall be represented by an authorized employee, in the exchange hall, or such other place as may be designated by the board of directors, between the hours of 1.30 and 2 o'clock p. m. of each business day, and on days when the Board adjourns at 12 o'clock m., between the hours of 12.30 and 1 o'clock p. m., and on the first business day of each month between the hours of 8.30 and 9.15 o'clock a. m." (Rule XXI, sec. 2.)

The indorsements on the back of the notice show the price paid for the contracts and the time when delivery was made. The prices range between 73 and 861. This range is chiefly due to the various times, presumably prior to May, 1918, at which the contracts were made. A given delivery notice often passes through the hands of the same firm several times. In this case the notice was previously twice passed by the firm that finally stopped it, and it was twice passed by another firm. The time taken to make the 13 deliveries was 19 minutes, and 65,000 bushels were thus "actually delivered.”

Some 35 years ago warehouse receipts were sent from house to house to effect all deliveries, the receipts being attached to the bill. The method of delivery sessions and the use of notices that save to a great extent the carrying about of the warehouse receipts are, of course, much more expeditious and safer. Under the former system, when the recording of warehouse receipts also was not as complete as to-day, sometimes certificates were completely lost. The older method required lively work on the part of messengers and close calculation as to how distant an office the messenger could reach within the time limit in order to avoid the incidence of storage charges, which were then less equitably adjusted than now.

FIVE DAYS FREE STORAGE.-Receipts delivered on futures carry to the new owner responsibility for storage charges, beginning, however, five days after the date of delivery. In other words, the trader who makes delivery pays for storage five days ahead. If storage has not been paid to that date, the delivery notice will credit the accrued charges at the regular rate against the price to be paid for the warehouse receipt.1

1 The rule reads as follows: All deliveries upon contracts for grain or flaxseed, unless otherwise expressly provided, shall be made by tender of regular warehouse receipts, which receipts shall have been registered by an officer duly appointed for that purpose. All such warehouse receipts shall be made to run five days from date of delivery on regular or customary storage charges, which regular or customary charges shall follow such warehouse receipts and be chargeable upon the property covered by the same, etc. (Rule XXI, sec. 1.)

the secretary.

THE DELIVERY PRICE.-Delivery prices are posted twice a day by On the forenoon session of the first business day of the delivery month the delivery price is the closing price of the last business day of the previous month.

The delivery price is the same in its nature as the "settlement price" (to be discussed later); that is, it is used as a basis for figuring net obligations, but it is needed at a different time of day, hence there is provision for posting it separately, and it is also used for settlement by direct payment between the parties to delivery instead of the payment being made through the clearing house, as in the case of all settlements by offset prior to delivery.

This method of handling the matter involves the payment of mere balances on all passed deliveries. The actual transfer of title to the warehouse receipt, however, between the house that issues and the house that stops the delivery notice involves full payment for the property. Thereafter both the houses that "issue" and "stop" and those that pass the notice pay and receive differences between the delivery price and the price at which the contracts were originally made or the trades opened. Provision is made for the prompt passing of notices when notice is given at the recipient's office. Presumably the need of promptness at the delivery session takes care of itself, since nobody cares to pay for a warehouse receipt unnecessarily. On the

1" Twice each day at stated hours it shall be the duty of the secretary to post or cause to be posted in a suitable place the market price of such grain or provisions as are deliverable on time contracts. The first price posted shall be applicable to deliveries between 9.30 o'clock and 11 o'clock a. m. The second price posted shall be applicable to deliveries between 1.30 and 2 o'clock p. m." (Rule XXI, sec. 2.)

This provision does not appear in 1881, and does appear in substance in 1886. Doubtless the intervening organization of a clearing house to expedite the settlement of future contracts made the provision desirable.

See Ch. V. sec. 4.

"It shall be the duty of the party regularly holding such notice at 2 o'clock p. m. to present the same at the office of the issuer before 2.30 o'clock p. m., and of the party regularly holding such notice at 11 o'clock a. m. to present the same at the office of its issuer before 11.30 o'clock a. m. of the same day, together with a certified check on some Chicago bank in good standing, or other satisfactory payment, for the net amount due for the property represented by any or all of said notices, at the market price; and upon tendering said notice or notices, with payment, at the office of its issuer, the holder of said notice or notices shall be entitled to receive the property represented by same." (Rule XXI, sec. 2.)

This section appears in substance in Rule XXV, section 2, of the rules for 1881. 4" Each purchaser receiving notice of delivery shall be responsible to the seller from whom the notice was received, for the difference between the price actually paid for the property and their contract price. In cases where the seller's contract price is less than the price actually paid for the property, such seller shall be responsible to the purchaser to whom he delivered the notice for the difference. All such differences shall be due and payable immediately upon the delivery and payment for the actual property, it being the duty of each person transferring the delivery notice to ascertain what price was actually paid for the property." (Rule XXI, sec. 2.)

"In the case of deliveries made outside of the buyer's office, the first delivery of such notice shall be made before 1.35 o'clock p. m., and any party holding such notice longer than five minutes, as shown by the indorsement on same of the time of the previous delivery, shall not be permitted to deliver it." (Rule XXI, sce. 2.)

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last day of the month the delivery session may be extended by the secretary of the Board.1 "PASSED "" AND STOPPED NOTICES.- "Passed" deliveries are those conveyed by indorsement within the delivery session from a house that receives the notice to another house to which it has the option sold. In this case the indorsement effects a delivery on both the bought and sold side for the house thus indorsing and "passing" the notice. The responsibility of accepting the warehouse receipt and paying for it devolves upon the firm to which the notice is passed, unless that firm also succeeds in passing on the notice. "Stopped" deliveries occur where the warehouse receipt is paid for and passes into the possession of the house to whom delivery is made. A notice may have been stopped merely because there was not sufficient time left within the limit of the delivery session to pass it; in which case the lot will be issued at the next delivery session by means of a new delivery notice. Since the stopping of a notice involves the payment of storage as well as the financing of the payment for the receipt, a commission house seldom wishes to stop a notice if it has a trade open on the sold side. At active delivery sessions-that is, on the first and last days of the montha notice may pass through a dozen or a score of hands before it lodges and is paid for.

If a house with a sold open trade (as well as bought trades open), upon receiving a delivery notice, is unable to pass it merely because of lack of time before the bell strikes, it is said to be "stuck" with the delivery. Pit scalpers in particular are anxious to avoid being stuck" in this way. A pit scalper will practically always arrange to pass a delivery notice if he can not ring out a trade, though one exceptional case of a scalper who took and carried December wheat deliveries as a practice came to the notice of the Commission.

WHEN AND BY WHOM ORIGINAL DELIVERIES ARE ISSUED.-Deliveries are most important on the first and last days of the delivery month. Making delivery means a saving of storage charges and interest, and taking delivery involves a corresponding carrying charge; hence, those who are in position to deliver are likely to do so promptly unless, in the case of the large merchandiser, the house making delivery can see the possibility of greater profit from the cash grain. On the last day, as has been noted, the session may be extended indefinitely to provide needed time for completing deliv

"On the last business day of any month, when deliveries of articles mentioned in this section are made after 11 o'clock a. m., the secretary of the Board, or any person acting under his direction, shall have the power to extend the time for such deliveries from 2 o'clock p. m. (if on a Saturday, from 1 o'clock p. m.), as often and to such time during that day as in his judgment it may be necessary to enable all who are prepared to do so to tender or receive delivery notices." (Rule XXI, sec. 2.)