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CONTENTS

Statement of L

Beale, Phelan, general counsel, New York Cotton Exchange, New

Boylan, Robert P., president Chicago Board of Trade, Chicago.------
Caldwell, Louis G., member law firm of Kirkland, Fleming, Green &
Martin, Washington, D.C. (attorney for Chicago Board of Trade).--
Christian, Paul J., representative New Orleans Cotton Exchange,
Washington------------------------------------------------
Coughlin, James J., president Brokers' Association Chicago Board of
Trade, Chicago---------------------------------------------
Davis, George H., Terminal Elevator Grain Merchants Assn. and
chairman Grain Exchange Code Authority, Kansas City, Mo-------
Duvel, É'o' . W. T., chief Grain Futures Administration, Washing-
ton, D.C.--------------------------------------------------
Kuh, Edwin, Jr., floor broker, Chicago Board of Trade, Chicago.-----
Mehl, J. M., Grain Futures Administration, Washington, D.C.-----
Thatcher, M. B., representative Farmers National Grain Corporatives
and National Agricultural Conference, Chevy Chase, Mdl--------
Wickham, Thomas Y., chairman Grain Committee on National
Affairs, Chicago---------------------------------------------

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REGULATION OF COMMODITY EXCHANGES

TUESDAY, FEBRUARY 5, 1935

HOUSE OF REPRESENTATIVES,
COMMITTEE ON AGRICULTURE,

Washington, D.C. The committee met at 10:30 a. m., Hon. Marvin Jones (chairman) presiding.

The CHAIRMAN. The committee will come to order, please.

(The committee had under consideration H. R. 3009, to amend the Grain Futures Act, which is printed in the record, as follows:)

[H. R. 3009, 74th Cong., 1st sess.] A BILL To amend the Grain Futures Act to prevent and remove obstructions and

burdens upon interstate commerce in grains and other commodities by regulating transactions therein on commodity futures exchanges, by providing means for limiting short selling and speculation in such commodities on such exchanges, by licensing commission merchants dealing in such commodities for future delivery on such exchanges, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 1 of the Grain Futures Act (U. S. C., title 7, sec. 1) is amended to read as follows: “ This act shall be known by the short title of · Commodity Exchange Act.'".

SEC. 2. The Grain Futures Act (U. S. C., title 7, secs. 1 to 17, inclusive) is amended by striking out the word “grain" wherever it appears in such act and inserting in lieu thereof " commodity”, “any commodity", or "commodities ”, as the case may require.

SEC. 3. Section 2 of the Grain Futures Act (U. S. C., title 7, sec. 2) is amended by

(a), striking out the third sentence of paragraph (a) and inserting in lieu thereof the following: “The word 'commodity' shall mean wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, and mill feeds."; and

(b) adding at the end of paragraph (a) the following sentences: “The words 'cooperative association of producers' shall mean any bona fide cooperative association, corporate or otherwise, owned or controlled by producers of agricultural products, whether or not qualified under the act of Congress of February 18, 1922 (U. S. C., title 7, secs. 291 and 292), or any organization acting for a group of such associations and owned or controlled by such associations. The words 'member of a contract market’ shall mean and include individuals, associations, partnerships, corporations, and trusts owning or holding membership in, or admitted to membership representation on, a contract market or given members' trading privileges thereon. The words 'futures commission merchant'shall mean and include individuals, associations, partnerships, corporations, and trusts engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market and that, in or in connection with such solicitation or acceptance of orders, accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom. The words 'floor broker'shall mean any person who, in or surrounding any 'pit', 'ring', 'post', or other place provided for the meeting of persons similarly engaged, shall engage in executing for others any order for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market, and who for such services receives

or accepts any commission or other compensation. The words the commission' shall mean the Secretary of Agricuture, the Secretary of Commerce, and the Attorney General.”

SEC. 4. Section 4 of the Grain Futures Act (U. S. C., title 7, sec. 6) is amended by

(a) striking out the word “except” at the end of the first paragraph; (b) striking out all of paragraph (a); and

(c) striking out the parentheses and letter “b” and the word “Where ” at the beginning of paragraph (b) and inserting in lieu thereof the words “ except, in any of the foregoing cases, where."

Sec. 5. The Grain Futures Act is amended by adding after section 4 (U. S. C., title 7, sec. 6) the following new sections :

“ SEC. 4a. (1) Excessive speculation in any commodity, causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity. For the purpose of diminishing, eliminating, or preventing such burden, the commission shall, by order, fix such limit or limits on the amount of trading under contracts of sale of such commodity for future delivery on or subject to the rules of any contract market which may be done by any person as the commission finds is necessary to diminish, eliminate, or prevent such burden. The trading limit may be fixed in different amounts for different markets and for different futures or delivery months, or a trading limit may be fixed to apply to all markets and all futures of any commodity. Such trading limit may be different for the different purposes of subparagraphis (A) and (B) hereof and may be fixed in certain amounts for buying operations and in the same or different amounts for selling operations. The commission shall, in such order, fix a reasonable time (not to exceed ten days) after the order's promulgation; after which, and until such order is suspended, modified, or revoked, it shall be unlawful for any person

“(A) directly or indirectly to buy or sell, or agree to buy or sell, under contracts of sale of such commodity for future delivery on or subject to the rules of any contract market, any amount of such commodity during any one business day in excess of the trading limit or limits fixed by the commission in such order for or with respect to such commodity; or

"(B) directly or indirectly to buy or sell, or agree to buy or sell, under contracts of sale of such commodity for future delivery on or subject to the rules of any contract market, any amount of such commodity that shall result in giving such person a net long or net short position at any one time in or with respect to any such commodity in excess of the trading limit or limits fixed by the commission in such order for or with respect to such commodity.

(2) The trading limits authorized in paragraph (1) of this section shall not apply to transactions which are shown to be bona fide hedging transactions. Transactions known as 'spreads' or 'straddles' may be exempted in such order of the commission, or the commission in such order may fix different trading limits applying to such spread or straddle transactions.

“(3) For the purpose of paragraph (2) of this section, hedging transactions shall mean sales of any commodity for future delivery on or subject to tho rules of any board of trade, to the extent that such sales are offset in quantity by the ownership or purchase of cash commodities or, conversely, purchases for future delivery to the extent that such purchases are offset by sales of cash commodities. There shall be included in the amount of any commodit' which may be hedged by any person

“(A) the amount of such commodity such person is raising, or in good faith intends or expects to raise, within the next twelve months, on land (in the United States or its Territories) which such person owns or leases;

“(B) and amount of such commodity the sale of which for future delivery would be a reasonable hedge against the products or byproducts of such commodity owned or purchased by such person, or the purchase of which for future delivery would be a reasonable hedge against the sale of any product or byproduct of such commodity by such person.

(4) This section shall apply to a person that is licensed as a futures commission merchant or as floor broker under authority of this act only to the extent that transactions made by such persons are made on behalf of or for the account or benefit of such person. This section shall not apply to transactions made by, or on behalf of, or at the direction of, the United States, or a duly authorized agency thereof.

“ SEC. 4b. It shall be unlawful for any member of a contract market, or for any correspondent, agent, or employee of any member, in or in connection with any order to make, or the making of, any contract of sale of any commodity in interstate commerce, or for future delivery, made, or to be made, on or subject to the rules of any contract market for or on behalf of any person if such contract for future delivery is or may be used for (1) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (2) determining the price basis of any such transaction in interstate commerce in such commodity, or (3) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof

(A) to cheat or defraud or attempt to cheat or defraud such person;

"(B) willfully to make or cause to be made to such person any false report or statement thereof, or willfully to enter or cause to be entered for such person any false record thereof;

“(C) willfully to deceive or attempt to deceive such person by any means whatsoever in regard to any such order or contract or the disposition or execution of any such order or contract, or in regard to any act of agency performed with respect to such order or contract for such person; or

(D) to bucket such order, or to fill such order by offset against the order or orders of any other person, or willfully and knowingly and without the prior consent of such person to become the buyer in respect to any selling order of such person, or become the seller in respect to any buying order of such person.

“ SEC. 40. It shall be unlawful for any person to offer to enter into, enter into, or confirm the execution of, any transaction involving any commodity, which is or may be used for (1) hedging any transaction in interstate commerce in such commodity or the products or byproducts thereof, or (2) determining the price basis of any such transaction in interstate commerce in such commodity, or (3) delivering any commodity sold, shipped, or received in interstate commerce for the fulfillment thereof

(A) if such transaction is, or is of the character, commonly known to the trade as a 'wash sale', 'cross trade', or 'accommodation trade', or is a fictitious sale;

“(B) if such transaction is, or is of the character, commonly known to the trade as a privilege', 'indemnity', 'bid', 'offer', *put', 'call', 'advance guaranty', or 'decline guaranty', or

“(C) if such transaction is used to cause any price to be reported, registered, or recorded which is not a true and bona fide price.

“Nothing contained in this act shall be construed to prevent the exchange of futures in connection with cash commodity transactions or of futures for cash commodities, or of 'transfer trades' or 'office trades' if made in accordance with board of trade rules applying to such transactions and such rules shall not have been disapproved by the Secretary of Agriculture.

“ SEC. 4d. It shall be unlawful for any person to engage as futures commission merchant in soliciting orders or accepting orders for the purchase or sale of any commodity for future delivery, or involving any contracts of sale or contracts to sell any commodity for future delivery, on or subject to the rules of any contract market unless

"(1) such person shall have been licensed by the Secretary of Agriculture as such futures commission merchant and such license shall not have expired nor been suspended nor revoked; and

“(2) such person shall, whether a member or nonmember of a contract market, treat and deal with all money, securities, and property received by such person to margin, guarantee, or secure the trades or contracts of any customer. of such person or accruing to such customer as the result of such trades or contracts as belonging to such customer. Such money, securities, and property shall not be used to margin or guarantee the trades or contracts, or to secure or extend the credit, of any customer or person other than the one for whom the same are held; Provided, however, That such money, securities, and property may be deposited or pledged separately and apart or commingled with the deposits and pledges of such person with any bank or trust company and that such share thereof as shall be necessary to margin, guarantee, or secure the contracts or trades of such customer carried with the clearing house organization of such contract market or with a member of such contract market, may be deposited or pledged with such clearing house organization or with such member.

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