Mr. MARSH. They perform their function in part through transactions they enter into in the market which we call the exchange, but their functions are also performed through contracts entered into with persons who are not members of the exchange, such as spinners.

Mr. BROOKS. Well, the exchange itself is merely a means by which these cotton merchants raise, I might say, and transfer the crop from the grower to the spinner?

Mr. MARSH. The cotton exchange is not a means; the cotton exchange is a place.

Mr. BROOKS. Well, it is used as a means.

Mr. MARSH. Not in any sense of the word "means" that I am acquainted with.

Mr. BROOKS. Then you do not consider that the exchange is in any sense of the word a means by which these cotton merchants can carry on the functions of cotton merchants?

Mr. MARSH. I do not.

Mr. BROOKS. Well, on another point, is it possible, or can a member of the exchange bucket an order that he may receive to buy or sell? Mr. MARSH. It is always possible for a man to be a scoundrel if he is willing to run the risk of being found out.

Mr. BROOKS. Now, is it easy to find out if those things were to happen?

Mr. MARSH. It is not easy in the sense that every man's books, that the books of every member of the exchange, are constantly displayed to every other member.

Mr. BROOKS. If it was found out what would be the treatment accorded him as a member?

Mr. MARSH. Under the by-laws of the exchange he would unquestionably be expelled.

Mr. BROOKS. The practices years ago that gave rise to the terms of "put" and "call" have been abolished, if they ever existed, have they not?

Mr. MARSH. They never existed under the rules of the exchange, and they were specifically prohibited as detrimental to the members of the exchange, and to enter into such an arrangement would now be cause for expulsion and has been for many years.

Mr. BROOKS. Well, would what is called "matched sales" be sufficient cause for the same action?

Mr. MARSH. I do not know what the gentleman means by "matched sales." That is a term very loosely used.

Mr. BROOKS. Well, has it any real meaning? You know the term is used, and, perhaps, you could give us a correct definition of it, if there is such a thing.

Mr. MARSH. As I understand the matter, Mr. Chairman, a matched sale, in the strict sense of the term, would be a transaction in which a single member of the exchange went to one broker and gave him an order to sell a certain amount of cotton at a given price and simultaneously gave an order to another broker to buy the same quantity of cotton at the same price; that would be a matched sale, and a transaction of that kind would be prohibited by the rules of the New York Cotton Exchange and would lead to severe discipline of any member who was caught indulging in it.

Mr. BROOKS. What purpose could a man have in doing that if he were to do it?

Mr. MARSH. I have never done it, I have never seen it done, and I am not enough of a psychologist to state what purpose he might have.

Mr. BROOKS. I didn't know but what there might be some advantage accruing. Would it have any visible effect on the quotations that day or anything of that sort?

Mr. MARSH. I should not think it would, but I have no way of knowing, because it is a practice that does not exist on the New York Cotton Exchange.

Mr. BROOKS. Well, there is another term that is sometimes used, and I would like to know if you think it is ever practiced-that is, "washed sales."

Mr. MARSH. Again, Mr. Chairman, I am unable to answer the question, because I am even more in doubt as to what a "washed sale" is than I was as to the meaning of the phrase "matched sales." Mr. BROOKS. Well, without trying to define it myself, I will leave that to others to discuss.

The CHAIRMAN. I think Mr. Marsh gave a very clear definition of "matched sales" as they are understood by some people; perhaps he would be willing to attempt a definition of "washed sales" in the same way.

Mr. MARSH. My mind is very vague on the subject of "washed sales." My impression has been that "washed sales" and "matched sales" were the same thing.

Mr. BROOKS. What is the difference, then, between those and "ringing out?"

Mr. MARSH. It is difficult to give a nontechnical answer as to what "ringing out" is. "Ringing out" is practiced where, let us say, three or more members find they have a contract or contracts open between the three or more, beginning with one, going through the round, and coming back again to the starter. For instance, if A sells B 100 May, and B sells to C 100 May, and C sells A 100 May, those three persons, A, B, and C, have three contracts, which, as we say, "ring out," and the process of "ringing out" is simply eliminating the intermediary man; it is bringing A and C together.

Mr. BROOKS. That is to avoid the useless transfer of stocks when they can be balanced without?

Mr. MARSH. We do not deal in stocks.

Mr. BROOKS. Contracts, I mean.

Mr. MARSH. Yes.

Mr. LEVER. Before Mr. Marsh leaves the "washed sales" proposition, I would like to ask Mr. Marsh this, by way of illustration. As I understand, a "washed sale" happens something like this and for this reason: You, a broker, a member of the exchange, buy from me a thousand bales of cotton at 14.50 for July; you carry that for a week or ten days and you begin to get a little shaky of my ability to put up margins if I should happen to be called on for them; you go to one of your friends on the exchange and sell it, my thousand bales of cotton, for 14.30, or 20 points below the market, in order to relieve yourself of any doubt that you may have as to me; is that what we know as a "washed sale?"

Mr. MARSH. I do not know that I have ever heard a transaction of that kind characterized as a washed sale.

Mr. LEVER. It is not a washed sale?

Mr. MARSH. I have never heard it so characterized.

Mr. LEVER. Have any such transactions ever happened, to your knowledge?

Mr. MARSH. That I can not answer. I should suppose that in the natural course of business it might happen, but I have never had such a transaction myself. In the entire experience of many years I have never known of that transaction personally.

Mr. BEALL. I understood that the term "matched sale" carries with it a certain impression on your mind.

Mr. MARSH. On my mind; yes.

Mr. BEALL. And is an expression that is more or less generally used?

Mr. MARSH. It is used by the newspapers; yes.

Mr. BEALL. Where did that expression get that particular meaning, if it is not practiced in the New York Cotton Exchange or any other cotton exchange within your knowledge? How did the term originate and where, if you know?

Mr. MARSH. I think that historical question would be a good one at which to set some young candidate for the degree of doctor of philosophy. It is purely a historical question, and to answer it would mean the digging up of newspaper reports for a good many years back and finally running down the exact moment when, historically, that phrase began to be used and then ascertain how it came to be used. I can not answer the question, because I have not made that investigation.

Mr. BEALL. Then the statement would have been sufficient that you did not know.

Mr. MARSH. I suppose a statement that I don't know would have been sufficient, yes.

Mr. BEALL. I asked it because I supposed you knew a good deal about the philosophy of the cotton trade, if it has any philosophy, as well as the history of the cotton trade. However, it has some definite meaning.

Mr. MARSH. I should say it has no definite meaning.

Mr. BEALL. It has some indefinite meaning, then?

Mr. MARSH. It has an indefinite and vague meaning.

Mr. BEALL. But it is supposed to describe the transaction that you outlined a few moments ago, but you do not know where it got that meaning?

Mr. MARSH. I have no idea.

Mr. BROOKS. If I am a member of the exchanges; that is, of New York, Liverpool, and New Orleans, and I sell a contract for 10,000 bales, does that add to the stock of all three of those exchanges by reason of that contract?

Mr. MARSH. If you have 10,000 bales of actual cotton and sell a hedge of 10,000 bales against it in New York, do you add to the stock? Is that the question?

Mr. BROOKS. No, sir; add to the stock of the cotton on the exchange.

Mr. MARSH. You add to the stock of cotton on the exchange in which you sell the hedge.

Mr. BROOKS. Well, here is the idea that I want to bring out: Suppose I haven't got any cotton at all and yet I sell a contract for

36387-A A B-vol 2-10-13,

1,000 bales that I will deliver, does that add stock to the exchange in which I sell it?

Mr. MARSH. No, sir, obviously not; you are then a speculator.

Mr. BROOKS. You mean you distinguish? How can you tell what the stock of the exchange is if it consists of all the cotton against which contracts are sold?

Mr. MARSH. You can not tell except by a process of approximation. Mr. BROOKS. Then there are no statistics by which you can get at the actual differences?

Mr. MARSH. There are none.

Mr. BROOKS. Then how is it ever possible to tell anything accurately about the stock of cotton in any exchange?

Mr. MARSH. We are in the same position with regard to that, Mr. Chairman, as we are with regard to the size of the cotton crop; no one can ever tell the size of the cotton crop until it is a matter of ancient history; no one can tell the volume of transactions until they are ancient history, and then only in case all persons who take part in them were to combine together and give their figures.

Mr. BROOKS. Only one more question. What do you give as a reason for the exchanges ceasing to report the volume of business as they once did?

Mr. MARSH. Because it was found that the reports were exceedingly inaccurate; in the rush of business many transactions were overlooked; members entered into them and failed to report them, many transactions were inaccurately taken down or reported, and I must say, must give one further point; it was found that certain members were greatly exaggerating the volume of their own business for eclat, or some such reason as that.

The CHAIRMAN. Mr. Marsh, I think it has been stated at various times that the reason the exchanges discontinued this practice was because they felt that the great disparity between the number of bales of cotton involved in the transaction on the exchange and the number of bales actually grown in the country was so great it would attract unfavorable attention to the methods of the exchange. you think that had anything to do with it?

Do

Mr. MARSH. I don't think it had the slightest thing to do with it. I think the exchange has always aimed at extreme accuracy.

The CHAIRMAN. Has the exchange any officer that might be regarded as statistician?

Mr. MARSH. Yes, sir.

The CHAIRMAN. Does he make a periodical report?

Mr. MARSH. On what?

The CHAIRMAN. Well, I was going to ask if he did make such a report what it included?

Mr. MARSH. Reports are being made, sir; are coming from the statistical department of the exchange practically every minute of every hour of every business day.

The CHAIRMAN. What does he report upon?

Mr. MARSH. He reports upon the stocks of cotton in all parts of the world, upon the stocks of cotton at a certain number of interior points in the South; he reports upon the daily receipts of cotton at the ports of the United States and the daily receipts at these towns; he reports upon the sales of cotton on the spot in New York, the sales of cotton on the spot at Liverpool; he reports upon the receipts

at Bombay of India cotton, the receipts at Alexandria of Egyptian cotton, the exports of India cotton from Bombay to Europe, the exports from Bombay to China and Japan, the exports from Bombay to the United States-a multiplicity of reports.

The CHAIRMAN. In other words, he reports on everything that might have a tendency to influence the price of cotton, to give information to the members of the exchange which would influence them in their judgment as to the stock on hand or the stock available. Mr. MARSH. Yes, sir.

The CHAIRMAN. In this connection, while it of course does not bear directly on the inquiry now before the committee, if you care to express it, I would like to ask your opinion on the value of the statistical reports published by the Department of Agriculture; are they regarded by members of your exchange as of much value?

Mr. MARSH. I think they are regarded as of very great value. I had occasion to express myself, some months ago, on that point, and the statement that I made then, which was published in some of the newspapers, was to the effect that though the Department of Agriculture, in the nature of the case, can not be absolutely accurate, yet its estimate of the conditions and of the outturn of the cotton crop is substantially borne out by the event; in other words, when the Department of Agriculture tells us, during the summer, that the crop is not doing well, and finally, early in December, estimates the crop at a moderate figure, we can be sure that crop will turn out a moderate crop; we have never had a case, so far as I remember, where the Department of Agriculture has said that we had a very small crop when we had a very large crop, or said that we had a very large crop when we had a small crop.

The CHAIRMAN. Have the estimates of the department had a tendency to render unnecessary the maintenance of a numerous corps of investigators on the part of dealers in cotton, to any extent, or do dealers in cotton rely upon their private division just as much as they ever did? Do they maintain just as elaborate a system of gathering information now as they formally did?

Mr. MARSH. I should say that the system of gathering information was, perhaps, more elaborate to-day than it has ever been; that is, on the part of members. One can not be long in a great market, as in the cotton market, without discovering that these reports, obtained by members, no matter with what care they may obtain them, contain very great discrepancies. They give us an indication, a suggestion, as to the course of events, but they lack that authoritative character which the reports of the Department of Agriculture have. In other words, I should say that the maintenance of these sources of private information is, perhaps, as much for the purpose of anticipating and forecasting the more authoritative statements of the Department of Agriculture as it is for the immediate information. which is obtained.

The CHAIRMAN. I do not care to pursue the question any further now. I am very much obliged for the information.

Mr. MANDELBAUM. Mr. Marsh, you have stated that the exchange is not the means to transfer the cotton from the producer to the spinner. Is it or is it not a necessity to perform that function properly?