due concentration of attention upon orders and upon the interests of customers would not be so effectively secured in that way. The practice of having pit traders, on salary is in general more economical for the larger houses, though some commission houses do not oppose the rule because it would mean an automatic reduction of cost with any decline in the futures business.1

The application of the brokerage rule means that a member who executes one side of a trade for his own account, but not the other, whether he holds the trade open for 10 days or not, is allowed 75 cents per 5,000 and pays only $3 to his commission house for accounting and clearing. If he executes both ends but fails to close the trade within 10 days, he pays $2.25. If he closes such a trade within 10 days, he pays $1.25. All trades coming under these provisions must be for the personal account of the member who executes them in the pit by buying or selling, or both.

THE SPECIAL RATE FOR "TRANSFER TRADES. Very recently what is in effect a special rate of commission has been established in favor of pit scalpers for a part of their trades. Formerly they were able to avoid practically all bookkeeping and all commission charges on even-price trades by "transferring" them. The character and significance of such trades is dealt with in a later section. What it amounted to was that, if A had bought 5,000 July wheat of B at 99 cents during the day and sold to C the same amount and option at 991 cents (an "even" price), A notified B to substitute C as the buyer and C to substitute B as the seller, thus letting A out of the trade altogether. Such trades are still referred to as "scratch" trades because

1 The grain trade report of the Federal Trade Commission deals chiefly with conditions as of 1918 and prior thereto. The description and discussion of commission and brokerage rules in general,' and references to salaried pit traders in particular, are therefore not amended to bring them into conformity with the new rule, adopted in May, 1919, by which all trading in the pit is now handled on a brokerage basis. The essential provision of the new rule reads as follows (Rule XIV, sec. 1, par. D, latter half, edition of July 21, 1919):

"Members may be employed in either a managerial or clerical capacity at a fixed salary, but in addition to such salary it shall be incumbent upon the employer to pay, and upon the employee to collect, the prescribed rates of brokerage for the purchase or for the sale by him, by grade alone, of wheat, corn, oats, rye, or barley, and of contract pork, lard, or short ribs, to be delivered in store for future delivery."

Of course, a partner may trade for customers of his firm, in which case the commission (in effect including the brokerage) is collected by the firm, and of course an individual member of the clearing house may do the trading for his customers, similarly collecting the commission.

This system is like that of the New York Stock Exchange. The member of the Board who is largely responsible for the adoption of the present rule says he felt that it would mean increased efficiency in the execution of orders, especially tending to reduce errors in execution and put the responsibility for errors upon the pit broker. One reason why the pit trader could earn more under the new system was because of this fact that he would have to stand losses due to trading errors. While some houses under the old system made the broker assume the trading errors where the responsibility was his, most of them assumed the trading errors themselves. He believes the new rule also gives a better standing to the pit trader, and will doubtless improve the quality of the men doing this work by making it more attractive.

2 Rule XIV, sec. 4 II and 4 J.

they were often thus canceled on the trading card by the scalper thus letting himself out by transfer. Transferring trades normally meant the absence from the books of commission houses of any record of part of the trading, hence it has not been viewed favorably by the Commissioner of Internal Revenue and the Board has accordingly ruled against the practice.

Therefore, in order to prevent the elimination of intermediaries and to have all trades shown on the books, also because the tax in general bore particularly heavily upon scalpers, the commission houses take care of even trades at the rate of 5 cents per 5,000 lot, or at 2 cents per 1,000 for job lots. Some will not do this class of business except for their own pit traders. It is doubtful whether this charge meets the necessary bookkeeping expenses, and it is said that the burden is thrown on the houses at the other end of the trades transferred by scalpers, such houses being obliged to revise the data of the trading cards upon which their bookkeeping is based. Scalpers' trades, however, will settle promptly, or may help to settle old trades and bring open trades up to the market. The minimum rate for clearing prescribed in the rules, of course, is much higher than that for transferred trades. The special rate in effect for this part of the scalpers' trades was adopted as a regulation by the board of directors to go into effect December 1, 1917, the date of the beginning of taxation under the law of October 3, 1917.1

OTHER COMMISSIONS.-The system of commission rates for futures trading in grain is comparatively simple. There are numerous rather specific rules relating to trading in provision futures and especially to the various kinds of cash dealings, including those in grains for which there are no futures markets. The latter are described in another part of this report. (See Vol. II.)

NONMEMBER RATES AT MINNEAPOLIS.-Rates of commission on futures are nearly the same at Minneapolis as at Chicago; that is, $7.50

1 The resolution reads as follows: "Members shall not transfer trades made for their personal account on the same day, bought and sold at the same price, and members doing a commission business [clearing-house members] shall not accept such transfers. But members acting as commission merchants [clearing-house members] may clear trades made by another member for his own account on the same day, bought and sold at the same price, and shall collect therefor a minimum clearing charge of * 1 cent for each 1,000 bushels of grain when in lots of 5,000 bushels or more and 2 cents per 1,000 bushels when in lots of less than 5,000 bushels." Apparently the directorate acted under its war-emergency powers (Rule XXIII, sec. 3) in putting this regulation into effect, since the matter is of such nature as ordinarily to be incorporated into the rules by vote of the membership. Although the even-price or "scratch" trades have been exempted from the tax on futures since the beginning of 1919, the desirability of their being regularly. entered on the books remains and the 5-cent rate is continued. The exemption referred to is circumscribed in the regulations of the Internal Revenue Bureau thus: "Provided, That the purchase and sale are made at the same exchange, on the same day, at the same price, and for the account of the same person." There is also a provision that "no transaction in which a broker or commission member of an exchange receives a commission greater than that charged to a person who executed his own contracts shall be deemed to be a transfer or scratch' sale." These restrictions clearly define, and confine the exemption to, the typical scalper's even-price transfer.

for 5,000 lots and $1.50 for 1,000 lots to nonmembers, but with some qualifications. These rates apply to wheat, corn, and oats, and barley was added to this list by amendment effective October 25, 1918. For rye the rate is one-fourth cent per bushel, amounting to $2.50 per 1,000 and $12.50 per 5,000 lot. Where delivery of warehouse receipts is made on any contract for future delivery of wheat, corn, oats, and barley, furthermore, the rate is one-fourth of a cent per bushel, or for rye three-eighths of a cent. This is doubtless inclusive of, and not additional to, the charge for the future transaction as such. But no additional charge is made if the identical receipts are resold at the owner's request. Where the owner orders grain represented by warehouse receipts that have been taken in on future delivery shipped, he pays one-half cent for wheat, barley, and rye, and one-fourth cent for oats and corn.1

These provisions of the Minneapolis rules-which differ from the rules and practices of the Chicago Board-apparently mean that a higher rate is charged for a future trade involving delivery than for one that does not. There is an implied suggestion that many contracts are entered upon with no expectation of making delivery. At Chicago the rate is the same for a contract completed by delivery and one otherwise disposed of. But the Minneapolis rule covers also the disposition of the warehouse receipt, while at Chicago the cashgrain commission rate is charged if the grain is shipped, and usually (though not uniformly) a second future commission is charged if the receipt is delivered out on a future. That is, if a customer who has 10,000 bushels bought has the warehouse receipt delivered to him on May 15 and on May 16 sells the May future and delivers out this receipt, he will ordinarily pay two commissions at Chicago. If delivery has not intervened—and whether it does or not depends rather upon the street condition 2 of the house than upon whether the individual customer is long-the customer making the same purchase and sale would pay but one commission.

NONMEMBER RATES AT KANSAS CITY.-The full or nonmember commission rate at Kansas City for buying and selling for future delivery is one-eighth cent per bushel. This is somewhat lower than the rate at Chicago. It is in practice the rate for 5,000 lots. The special method of handling job lots on the Kansas City market is

1 Rule VIII. sec. 6a to 6d.

Rules effective Mar. 6, 1887, also make the distinction between the commission rate where settlement is made without delivery of warehouse receipts and where such delivery occurs, the rate in the first case being one-eighth of a cent on a bushel, and in the second case one-quarter of a cent.

2 The reference is to the settlement of trades between commission houses where a house has both bought and sold a given option for different customers. Only when the commission house is long will deliveries be made to it. For a discussion of settlements, see Ch. V, secs. 4-6.

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described in a later section.1 The rule also provides that "when the actual grain is delivered on future contracts the regular commission on [cash grain] consignments shall be charged." This is similar to the Minneapolis provision, but the possibility of resale by way of the futures market is apparently not covered.

MEMBER RATES AT MINNEAPOLIS AND KANSAS CITY.-Member rates at Minneapolis are "not less than one-half of the regular rates of commission." The brokerage rate at Minneapolis is not less than 15 cents per thousand bushels, and the rate that is above described for clearing" is 25 cents per thousand. The availability of the rate for clearing is not limited with reference to the time during which a trade may be left open. The rates are slightly different, but the general system is the same as at Chicago.

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At Kansas City the member rate is $3.12 per 5,000; the rate for clearing, $1.50 per 5,000; and brokerage or futures, $0.50 per 5,000.* The clearing charge is not available where the trade is carried for more than one day, whereas at Chicago the limit is 10 days.

THE TENDENCY TO AN INCREASE IN COMMISSION RATES.-The tendency of the Chicago Board of Trade has of late been toward an increase in commissions charged. An attempt made in the summer of 1918 to increase the nonmember rate to $10 per 5,000 and the member rate to $5, leaving the scalper rate unchanged, failed to get the necessary votes. Following is a tabular statement of rates in force at Chicago. and of changes made in the last 30 years: 5

1 See Ch. III, sec. 2.

2 Rule XXI, sec. 9b.

3 The compensation of a broker may be arranged between himself and his principal except that in futures such compensation shall not be less than 15 cents per thousand bushels. Members of this association shall not act as brokers for persons not resident members of this association. In the case of members who do their own buying and selling, but clear their contracts through other members or firms, the minimum rate of commission shall be 25 cents for each 1,000 bushels of grain. (Rule VIII, sec. 9.)

4 On future trades, the following scale shall apply: Buying or selling, giving up the name of the principal before the close of the market, per 5,000 bushels, 50 cents.

For buying and selling, closing the trade and clearing same day, per 5,000 bushels, $1.50.

For buying and selling, applying the offsetting trade to the principal through the clearing house, per 5,000 bushels, $1.50.

For buying and selling and clearing when carried for more than one day, per 5,000 bushels, $3.121. (Rule XXI, sec. 9d.)

In 1881-which is the first year in which the commission rates on futures appear in the rules, as printed in the annual reports of the Chicago Board of Trade-the subject as regards grain is covered in Rule XV, sec. 4, as follows:

"The following schedule of commissions is established for the government of members of the association as the minimum rates of charges for the purchase and sale or purchase and shipment of the several commodities named, whether the property be purchased for an immediate or contracted for a future delivery; and whether the contract for purchase or sale be first in order in the transaction, to wit: In cases where the transaction is made by the order or for account of parties not members of the association; for the purchase and sale of property in the Chicago market; in all kinds of grain in lots of 5,000 bushels or more, one quarter of a cent per bushel. In cases where the transaction is made by order or for the account of parties who are members of the association, the minimum charge shall be one-half the above rates. For brokerage where the

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name of the principal is given on the day the transaction is made, and the broker thereafter ceases to be considered as the principal: In all kinds of grain, 25 cents per 1,000 bushels."

1 Pit brokerage for 1914, $0.10 for a 1,000 lot.

2 There is added also the provision for "Foreign rates, exclusive of the Dominion of Canada, five-sixteenths of 1 cent per bushel to nonmembers and one-quarter of 1 cent per bushe! to members."

RATES FORMERLY UNSETTLED AND MUCH REBATED.-The rates shown in the rules for the early portion of this period may. be taken with a grain of salt. While according to the rules of 1887 a member violating the commission rule incurred the penalty of suspension for a first offense and expulsion for a second, the penalty clause appears to have been repealed and rates charged left without effective regulation during the decade of the nineties. The rules were subjected to a general revision in 1883, and commission rates reduced, presumably to the 1887 basis, but no copy of the 1883 rules is available. The rule penalizing the giving of rates below the Board's schedule was repealed in 1885.1 The penalty had apparently been temporarily restored on the basis of lower rates between 1883 and 1885. The proposed adoption of a uniform commission rule was voted down by the New York Produce Exchange in 1882.2 It appears that in the eighties commission rates were only beginning to be settled on a fairly uniform basis.

During the nineties the cutting of commissions was rife and business over private wire from New York was handled for as little as 50 cents per 5,000 lot. Penalties were restored in 1901, or shortly before. From 1905 the penalty has been expulsion from the Board and there is a clause by which the directors of the Board are authorized to offer a reward of $2,500 for evidence leading to conviction of violation of this rule."

REASONS FOR THE DIFFERENCE BETWEEN MEMBER AND NONMEMBER RATES.—The difference between nonmember and member rates may be explained on general economic grounds, the presumption being that a member will trade in much greater volume than a nonmember. In commercial practice discounts "to the trade," or to those who are regularly in the business, may in large part be explained in this way. Discounts prescribed by a trade association (such as the Chicago Board of Trade) to apply between members, however, have a broader foundation. It is a benefit to the trade that dealers be mem

1 Taylor's History, p. 719. 2Annual Report, 1883, p. 49. Rule XV, sec. 9, F and G.