a year can be expected to be transferred on the Chicago Open Board of Trade in a good year.

VOLUME OF TRADING IN GRAIN FUTURES IN THE UNITED STATES AS A WHOLE, BY FIVE-YEAR PERIODS, SINCE 1884.-It is desirable to obtain, even by the roughest approximation, some kind of figures for future trading in the great cereal crops of the United States for the country as a whole for as long a period as practicable. This can be accomplished with the aid of the index numbers and other data shown in the previous tables of this section. The general results are presented in the following table. It should be noted that the Kansas City and St. Louis returns have been increased somewhat to allow for trades settled outside the clearing house.

TABLE 10.-Estimated volume of future trading (in millions of bushels), in the principal cereals on the futures markets of the United States, by 5-year periods, 1884-1888 to 1914-1918.

2 Arbitrary.

3 Based on data of call transactions shown in Vol. II, Ch. IV, sec. 6, of this report.

The large element of uncertainty in some of the entries of the above table is sufficiently indicated by the footnotes. If the Chicago estimate is fairly representative, however, the remaining figures are of so relatively small weight that the totals are also fairly representative. Actual volume figures for so much as 10 years are available only for Minneapolis, Kansas City, and St. Louis, with a qualification as regards the first set of figures, which are, however, estimated on a sufficiently definite basis. The figures for the "other" column are not merely arbitrary but would be worthless in detail. It is known, for example, that the New York Produce Exchange was an important factor in future trading in the eighties and nineties. But the indications are that trading on the Chicago Open Board, assuming that there has been such trading in volume about like that in 1917 from the beginning, has, taking the 35-year period as a whole, been about equal to that on the New York Produce Exchange. Milwaukee is the next largest contributor to the estimated total for the "other" column, though it was important only for a brief period following 1900. Duluth accounts for more (in the estimate) than

Baltimore and it is assumed that Duluth has grown moderately in importance, while Baltimore had comparatively small volume even at the beginning of the 35-year period. Other markets are assigned insignificant quantities, on the assumption that there has been some trading, presumably by the call method, throughout the period.

In the last 5-year period trading in cereal futures on all the smaller exchanges together did not amount to very much more than trading at Kansas City alone. Kansas City was two-thirds as important as Minneapolis. Minneapolis, in turn, had less than one-seventeenth the volume of future trading of the Chicago Board. The importance of Kansas City as a futures market is comparatively recent.

If the Chicago estimates are sound, the volume of future trading on the Chicago Board and for the United States as a whole was less in the later than in the earlier portion of the 35-year period. But the individual year of the greatest volume of trading was 1916. General statements of several of the older members of the Chicago Board confirm this indication that the high tide of future trading at Chicago was reached in the eighties.

THE PREEMINENCE OF CHICAGO IN GRAIN FUTURES.—The preceding review and summary of trading in grain futures in the United States serves, among other things, to justify the special attention given in this report to the practices and results of future trading at Chicago. The Chicago Board of Trade accounts for six-sevenths of the total volume of future trading in grain in the United States, and is preeminent among grain futures markets.

CHAPTER II.

CONTRACTS AND FACILITIES.

Section 1.-The future contract.

DEFINITION OF THE FUTURE CONTRACT.-The future contract has already been discussed in a general way in the first section of the preceding chapter. A future is there defined as an agreement on the part of the seller to deliver, and of the buyer to receive and to pay a certain price for, a certain kind and quantity of a commodity, at some specified future time, under conditions prescribed by an exchange or understood in the trade.

To consider the least important point first-it is possible that the last clause above should be regarded as description, rather than strictly a part of the definition. If the purpose be to define the "future contract" from a legal viewpoint, the clause is not essential. But the conception of a "future" as the object of transactions in a speculative market includes this element in the idea as a part of what the term denotes. A" future" may therefore properly be considered a contract made under the rules of a commercial body or "exchange" and governed by such rules as regards the unit of trading, the quality or grade deliverable, and the mode of delivery, only the determination of the quantity dealt in and the price (in addition to a choice among delivery periods) being, by custom, left to the contracting parties.

AN AGREEMENT TO SELL, NOT A SALE.-Certain characteristics of the future contract can be made clearer when considered from a legal viewpoint. The future contract is, of course, to be differentiated from other contracts by reference to its special character. It is likely to be called a contract of sale. But a sale is the transfer of the property in a thing for a price in money. A contract to sell, also termed an "agreement to sell" and an "executory contract of sale," is different from such an "executed contract of sale." The executory contract is one whereby the seller agrees to transfer the property to the buyer for a price which the buyer pays or agrees to pay. The transfer of title is the essence of the sale. In order that there be a transfer of title, the goods or the property in them must be in existence. The goods that form the subject matter of a sale must, therefore, likewise be in existence, but a contract to sell may relate to future goods or those having only a potential existence. Of course, the property in goods actually sold must be identified or

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identifiable. Only when these several conditions are met does the sale take place. In a future "sale" the goods are often not in existence at the time of the transaction and the property is not identifiable until represented by a warehouse receipt. At the time of the future trade there is neither transfer of title nor payment for the goods. The future "sale" is not an executed contract of sale. It is in fact executory as to both parties. In accordance with it both parties agree to do certain things in the future, neither being obligated to perform under the contract at once, though each may be required to give security (margin deposits) to insure performance when the time is ripe. The future contract is an agreement to effect a sale at some future time at a price, for a quantity, and under conditions fixed by the agreement. "Future" "Future" as qualifying "contract means, from a legal viewpoint, “executory." "Future trading should be written with a hyphen as a single word. The trading is done in the present; that is, the contract determining the terms of the sale is made in the present, but the sale or the transfer of the property is future.

The usage of the trade, however, assuming that the meeting of minds is the essence of the matter, refers to the "execution " of future "sales" and "purchases " in the pit. The general public, on the other hand, except so far as influenced by this trade usage, is disposed rather to apply the term sale to the transfer of the warehouse receipt representing property in the commodity, or at least to what happens when either transfer or payment is made or begun. This conforms to legal conceptions better than the trade usage. The margin, as has been noted, is not part payment. It is mere security and is put up by the seller as well as by the buyer. A phrase from the 1881 Rules of the Chicago Board of Trade (Rule XV, sec. 4) carries the implication of a difference of the nature suggested in its contrasting reference to "whether the property be purchased for an immediate or contracted for a future delivery.'

Future delivery" is not enough to make a "future." Under a future contract, payment for, as well as delivery of, the commodity is an affair of future time. This is implied in the usage of the grain trade in referring to "cash grain" and "cash" or "spot" prices 1 in contradistinction to futures. This suggests an essential characteristic of the future contract. The distinction between cash and future prices is not identical with that between the cash and credit prices of ordinary commercial dealings. There is nothing to prevent the cash grain trade being made on the basis of a credit arrangement between the parties. In other words, the ordinary commercial dictinction between a cash and a credit price would be applicable to cash

1 Spot prices are cash prices for grain on track or in store and deliverable immediately at the terminal market referred to.

grain transactions. The future trade, therefore, can not be distinguished as being a credit transaction. It is, however, completely on what may be called a credit basis. Payment is not made at the time the contract is entered into, but only upon delivery of the commodity, and such delivery may be several months ahead. Therefore immediate available financial resources are needed by a future trader only to the extent that is necessary to keep good his margins. Payment for the commodity as well as its delivery is postponed. This fact makes possible heavy trading on small capital. Merchandising in all lines is similarly facilitated by credit arrangements, but not so nearly automatically nor in so high a degree elsewhere as in connection with future contracts.

Future contracts may be made for delivery in the current month. May wheat contracts, for example, may be entered into in the month of May, in which case the seller may at his option deliver immediately. There are comparatively few new contracts thus made in the month of delivery, but the procedure in connection with future. delivery, or the situation of the trader in relation to possibilities of delivery, may make such trading preferable to the nearly equivalent · spot sale.

STANDARDIZATION OF FUTURES AND EXCHANGE CONTROL.-The phrase, "subject to the rules of the exchange and the regulations and requirements of its board of directors," may in effect be regarded as an implied clause in all future and other contracts entered into by members in relation to the commodities traded in.1 It is not to be inferred that what may be called the standardization of future contracts is a matter of direct law-making on the part of governing bodies of exchanges. Though there may be some tendency in that direction and also a tendency on the part of boards of directors to assume law-making powers in connection with the interpretation of rules, the older members, at least, are quite definite in their concep tion of the terms of the future contract as determined by the agreement between the parties. Not only has the evolution of uniform

1 In the rules or so-called by-laws of the Chicago Open Board of Trade (sec. 100) the principle is clearly stated that "such by-laws shall become a part of such contracts." The 1917 rules here quoted were rewritten and clarified by the Board's counsel, Mr. Morris M. Townley, who happens to be a law partner of Mr. Robbins, counsel for the Chicago Board of Trade. In the case of other exchanges this point is not made explicit. Doubtless, such explicitness is not legally necessary. Kansas City comes nearest to it in the provision (Rule XXI, sec. 13): "All contracts [involving a member] * for the purchase and sale of grain or provision, or futures, or transactions incident to the grain or provision business proper, are contracts subject to the rules of ths board of trade."

The following extract from a letter of a member of the Chicago Board is expressive of conservative opinion: "The board [of directors] has no right to construe any rule of the Board of Trade of the City of Chicago under which contracts have been made and which is plain in reading and has long been acted under. No such construction could have any validity unless consented to by the contracting parties, either specially or by long acquiescence. The rules of the Board of Trade can be changed only by a vote of the membership, as provided by the by-laws, and any such change could not affect existing contracts." (Date of letter Sept. 23, 1915.)