CHAPTER III.

PRIVATE-WIRE SYSTEMS AND THEIR SERVICE.

Section 1.-Development of private-wire service.

Consideration of the history of private-wire systems as used in the grain trade is desirable for the purposes of this report only as giving a needed background, because private-wire service is itself a comparatively recent development and because the economic and social effects of the use of such facilities are not yet fully manifested. A brief and more or less chronological statement follows.

THE FIRST PRIVATE WIRES.-The first private telegraph wire for Board of Trade use was operated between Chicago and New York not long before the exchange occupied its new building,' which event occurred May 1, 1885. The exact date of the establishment of such private wire has not been ascertained. On the part of the telegraph and telephone companies, the practice of leasing wires for private Morse service began in 1885 or about that year.2

It appears that a direct incentive to the development of privatewire systems was the competition of the bucket shops. The operations of the latter, it is said,3 tended to put the legitimate broker out of business and compelled him to get quicker service. The bucket shops themselves used private wires extensively for communicating with the head office, but perhaps the statement refers to the still quicker communication and execution of the order where the whole thing could be done in the back room, given the quotation service from the telegraph company as a basis for the "trade." Brokers often clubbed together in getting private-wire service.

TERMINAL MARKETS FIRST CONNECTED.-Connections by private wires between the important terminal grain markets were developed first. To illustrate the extent of such connections, in March, 1918, there were 12 or 13 separate private lines of Chicago Board members between that market and Minneapolis, and also 9 between Chicago and Kansas City. The number of lines given was probably not a maximum number up to that date, though doubtless nearly such.

1 According to the specific recollection of an old member of the Chicago Board. Testimony of representatives of the American Telegraph & Telephone and the Western Union companies, in July, 1914, in the Interstate Commerce Commission private wire case, that the service was then about 29 years old. (50 I. C. C., 734.)

case.

Testimony of Mr. Bryan, of Logan & Bryan, in the Interstate Commerce Commission

Such connections between Chicago and New York are more numerous than anywhere else, but even if the wires are leased by Board of Trade houses, they have less direct reference to Board of Trade business and more to stock exchange transactions.

THE EXTENSION OF PRIVATE WIRES TO THE SMALL TOWNS.-The stretching out of such wires into the producing agricultural districts may have begun about the middle of the decade of the nineties. Private wires were not used to any appreciable extent in the cash-grain business till shortly before 1910. The most definite available statement fixing dates for this last development is to the effect that the number of lessees of private wires who engaged in the cash-grain business in 1908 was limited to two or three houses, while by 1915, with two exceptions, virtually every private-wire house in Chicago had gone into that business.1 Substantially the same statement is made by others. The great majority of wires were leased for the purpose of promoting the futures business of the lessee. They doubtless still serve mainly that purpose. But since shortly before 1910 the private-wire houses have tended aggressively to seek cash-grain business. The two largest merchandising elevator companies in Chicago, as well as the important future commission houses, now have extensive privatewire systems.

PRIVATE-WIRE MILEAGE IN THE UNITED STATES ON NOVEMBER 1, 1914 BY GROUPS OF LESSEES.-Private-telegraph or Morse-service mileage in the United States as of November 1, 1914, for classes of lessees, was as shown in the following table:

TABLE 13.-Aggregate mileage of leased telegraph wires, exclusive of newspapers and associated press and of common carriers, arranged by lessors and by groups of lessees, Nov. 1, 1914.

a

MILEAGE OF BANKERS AND BROKERS BY FIRMS.-The private-wire mileage of Chicago commission houses increased between November 1, 1914, and March 1, 1918, from 47,000 to 96,000 miles. This is so great that it can hardly be true that the entire extent of private-wire mileage multiplied itself with equal rapidity. Mileage by firms as

J. P. Griffin's testimony in the Interstate Commerce Commission case.

of the later date is shown below on page 111. Mileage, rentals, etc., by firms, as of the earlier date and comparable with the summary above given, are shown in the following tables:

TABLE 14.—Private wire systems (Morse service) of bankers and brokers as of Nov. 1, 1914.

1 Data from exhibits in Interstate Commerce Commission private wire case, Docket No. 5421. 2 The Harris Trust & Savings Bank, though a member, is classed with the third group.

HALF YEARLY INCREASES AND SEASONAL CHANGES IN CHICAGO GRAIN WIRES.-Figures for the increase from year to year are available only for American Telegraph & Telephone grain wires. The increase is, of course, partly due to changes of service from other companies to this system, though there were also some changes the other way. Other features of the data (which are based upon installations and withdrawals of service) mean that the figures are approximate rather than exact, but their general reliability is sufficiently proved by the fact that the net changes check substantially with the difference between the aggregates returned as of November 1, 1914, and March 1, 1918. These figures show net increases for the American Telegraph & Telephone or Bell system as follows: Half-year January-June, 1913, 2,900 miles; July-June, 1913-14, 4,200 miles; July-June, 1914-15, 8,600 miles (of which only 100 pertains to the four months, JulyOctober, 1914); July-June, 1915-16, 17,700 miles; July-June, 169514°-20——7

1916-17, 17,500 miles; July-February, 1917-18, 5,600 miles (including a net decrease of 150 in January-February). The marked reflection of the influence of degree of speculative activity in grain upon increases in wire mileage is evident.

These same figures make it possible to determine whether there is an important seasonal fluctuation in the increase, and possibly even a letting go of wires at certain seasons and the resumption of service (if obtainable) at a later date, according to the natural seasonal fluctuation in grain trade activities. The five-year period (calendar years 1913-1917) shows net decreases in April and in September. The latter is a smaller figure and practically all due to 1917 losses, while four out of the five Aprils show decreases. Index numbers (per cent of monthly average for 60 months) to show such seasonal variation as appears in these five-year averages by months were as follows:

The season of entering upon or canceling leases seems to be more influenced by general business considerations than by special grain trade conditions, but the figures are too irregular to be of definite significance either way.

As appears in a later section, the mileage of private wires now serving mainly or very largely the speculative grain trade is in excess of 80,000 and rentals probably $2,000,000 a year or more. The number of offices in other cities and towns so connected with Chicago is several hundred. Details are presented in section 5 below.

Section 2.-The work of the private-wire house.

THE WIRE-HOUSE ATMOSPHERE.—The distinctive and conspicuous— or, rather, obstreperous-feature of the atmosphere of a wire-house office is the assemblage of receiving and sending telegraph implements and their operators. The continuous clicking noise from the telegraph room can not well be shut off completely from the customers' room and other parts of the office-although attempts to do this are now being made with some degree of success. This noise, because of its quality as well as its volume, probably contributes considerably to the state of nervous tension which the quotations, as they are hurriedly changed on the blackboard, and the buzz of tickers tend to produce or accentuate in the group of "traders" or casual callers found in the customers' room. How orders and other matter received and sent over the wires are handled is described in Chapter V on "Accounts and settlements."

THE WIRE HOUSE AS A DISTRIBUTOR OF QUOTATIONS.-The position of the wire house as a distributor of quotations and its employment for the distribution of news and gossip of speculative interest have been discussed somewhat in the previous chapter. It should be noted that matter thus telegraphed out can be taken simultaneously by all offices on the circuit.

The private-wire quotation service has some special characteristics making it not a mere repetition or extension of the public-wire service. The former service is subject to adaptation to the needs of the office receiving quotations and is in general somewhat abbreviated from the service of the telegraph and ticker companies. It emphasizes some one or few phases of trading at will and may repeat old quotations that would be hard to find on the ticker tape. This last refers to inactive stocks. A selection of stock and grain quotations may be sent over the same wire. The degree of use of private wires for quotations varies. Public telegraph quotations are said not to be as rapid as private-wire quotations on a particular inquiry, but the qualification suggests that the advantage is a feature of information rather than quotation service. Finally, though the continuous quotations are superior to private-wire quotations in point of completeness, they are not available in most of the territory served by private-wire offices. The general character of the quotations service of the private wires is indicated by the following extract from the opinion in the Private Wire case.1

Clearly the private-wire quotation service is superior to the carriers' [telegraph companies'] noncontinuous quotations. One prominent lessee says that the quotations sent over his private wires are "approximately continuous." Another sends such quotations as he considers necessary to keep his branch office informed regarding fluctuations of the market. The private-wire continuous-quotation service is immediate and even thongh its quotations are not so extensive as the carriers' continuous service, it leaves the patron free to send such quotations as he desires. Quotations usually take precedence over gossip on brokers' private wires. The record shows one broker's

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wire which serves 10 sublessees and carries no quotations.

ADVANTAGES OF PRIVATE WIRE COMMUNICATION.-The main reason for the use of private instead of public wires for sending orders, confirmations, etc., is speed. This is, of course, not a matter of actual transmission but chiefly of terminal facilities. The connection is direct between the Chicago office and the outlying point. The elimination of messenger service and other causes of delay at terminals accounts for most of the difference."

150 I. C. C., 753.

The difference is concisely explained in detail as follows: "The highly expeditious service of the private wires is generally recognized. In the brief of one respondent reference is made to the almost instantaneous service over leased wires.' The everready facilities, the elimination of messenger-boy service, the restricted vocabulary adapted to the needs of a particular line of business only, the possibility of abbreviation in the message proper and of practical elimination of address and signature, the freedom from