accept from those mills price fixings on a certain day, based on the close of the New York market of the previous day.

Mr. WYLLIE. I don't want to interrupt your statement at this time, but after you get through I will ask you to explain what you mean by selling on "call", so that it may appear in the record.

Mr. CLAYTON. It is necessary that that be done-I refer now to the custom of permitting the fixing of prices because competitive conditions have brought that about. You understand, of course. that between this country and Europe there is a difference in time of 5 or 6 hours so that in the morning in Europe the mills who have bought cotton on call, if they think the closing of the New York market on the previous day is favorable for fixing the price on their purchases, they will notify the seller of the cotton immediately and then the price has been fixed on the close of the previous day, that being the last market that anybody in Europe has seen. So that cotton merchants feel that in permitting that method of fixing, on the average they will come out all right on it, because the purchaser has not the benefit of looking at any later market than that on which he fixes it.

But we have found that in times when there has been an unusual decline in the market the fixings which are cabled to us from different parts of the world are generally in larger volume than otherwise, hence we felt that on the following day-in other words, on the 12th of March-we would probably have cables reporting that a considerable volume of our call sales had been fixed as of the previous day, so that in order to anticipate this and to put ourselves in a position where we would have a certain number of these sales hedged on the same market on which they were fixed, I gave instructions in New York for the purchase of about 6,000 bales of futures during the afternoon, believing that the market would not stay in its position of decline of that day of nearly 2 cents a pound.

Mr. WYLLIE. That is, March 11?

Mr. CLAYTON. March 11. We did believe that the decline was a technical matter and that the market would within a short time readjust itself, and we so cabled to every sales agency that we had. That accounts for part of that rather unusual volume of purchases on the 11th of March on the New York Cotton Exchange.

Mr. WYLLIE. Those purchases, then, must have been made following the decline rather than before?

Mr. CLAYTON. We bought before the decline, as I said a moment ago, 12,700 bales.

Mr. WYLLIE. But you are now referring to the purchases made after the decline?

Mr. CLAYTON. That is right, and this particular 6,000 bales, approximately 6,000 bales. We bought after the decline 18,000 bales. Now, as to the sales, those sales were largely for the purpose of fixing the price on cotton which had been sold to us by different cotton people in the South on call, and when the market went down many of them had put in their request that the price be fixed, so that, as you see here, we sold after the decline 9,100 bales of futures in New York, and those bales, so far as I have been able to tell from the detailed record, were largely for the purpose of fixing the prices on the cotton which had been sold to us on call.

Mr. WYLLIE. You state that lots of the sellers on call to you had requested that the price be fixed. Were not lots of those fixations made because you were fearful that they would be unable to comply with their contract of delivery or they would not comply?

Mr. CLAYTON. Not that we were fearful they would not, but that they actually had not complied with the contract. I have not examined the particular instances that occurred on the 11th of March, but I feel certain that in an unusual decline such as that which occurred on that day, there would have been some surplus of sellers of cotton on call who had been unable to keep their contracts in respect to the matter of margins, and that we had to sell futures to hedges against that cotton.

Mr. WYLLIE. So you are of the opinion that some of the sales were made at the request of the sellers to you; others were made for your own protection?

Mr. CLAYTON. I feel sure that an examination of each detailed instance would disclose that. That covers the situation in New York. In New Orleans on that day we bought 350 bales and sold 450 bales, making net sales of 100 bales.

In Chicago we bought 200 bales and sold nothing.

In Liverpool we bought 100 bales and we sold 6,000 bales, as I have already stated, making net sales of 5,900 bales.

In Havre we sold 800 bales and bought nothing.

Mr. WYLLIE. The sales in Liverpool were sales offsetting your purchases in New York, were they not?

Mr. CLAYTON. Yes; 6,000 bales.

Our total transactions on all exchanges on that day were 31,350 bales bought; 21,050 bales sold, making a net purchase of 10,300 bales on all the exchanges. I have the figures, as I say, from the 1st of March up to and including the 13th.

Mr. WYLLIE. Well, if there is any particular reason why you want to read them into the record we will be glad to permit you to do so.

Mr. CLAYTON. There isn't any, Mr. Wyllie. I don't care to take up the time except to point out to you that on every day prior to the 11th we made net purchases, except on 1 day, which was the 1st of March, when we had net sales of 1,100 bales.

Mr. WYLLIE. Suppose we just incorporate the figures in the record, unless you desire to read them.

Mr. CLAYTON. I will just hand this to the reporter then to be placed in the record.

The CHAIRMAN. That will be all right; yes. (The paper referred to follows:)

Mr. CLAYTON. I believe that that is all the information you asked for.

Mr. WYLLIE. Now, you had another statement there in which you had a detailed analysis of your purchases and sales on March 11, which you stated you would let us look over?

Mr. CLAYTON. Yes.

Mr. WYLLIE. Will you mark this paper for identification "W. L. Clayton Exhibit No. 1", so that we may later identify it?

Mr. CLAYTON. Do you mind if I give it another number, because I have in my statement exhibit no. 1.

The CHAIRMAN. Call it no. 2.

(The paper referred to was marked "W. L. Clayton Exhibit No. 2" for identification.)

Mr. WYLLIE. Mr. Clayton, have you any way of determining, from the figures which you have before you, what would be the money difference between your sales on March 11 and the settling pricethat is, the closing price on that date-and the same money difference with respect to your purchases?

Mr. CLAYTON. I think what I have handed you there will show it. It will take a little time to work it out, but I think you can work it out.

Mr. WYLLIE. Would it be satisfactory for my office to get at those figures and have them checked by you?

Mr. CLAYTON. Certainly.

Mr. WYLLIE. I will get you to explain what you mean by buying or selling "on call", so that we may have these terms explained as we proceed.

Mr. CLAYTON. Cotton mills often contract for the purchase of cotton at a time when they do not wish to definitely fix the price. They therefore agree with the seller on what we call a "base" price on some futures months, in some futures market, and have the right to fix the price at some subsequent time. In this way the mill is able to buy the quantity and quality of cotton which they wish to secure from the shipper from whom they wish to buy it, for delivery at the time they want it, without actually fixing the price. One of the main reasons, of course, that they do not wish to fix the price at the moment is probably that they have not sold their goods which they expect to make from that cotton, hence if they got it on a fixed price they would have a speculative interest in the market, which most mills try to avoid as much as possible. That is the object of it.

There is also carried on a certain amount of this "call" business in the South. Small dealers in country towns buy cotton from the farmers, and, anticipating that the market may advance, they want to hold a speculative interest in the cotton, but they do not wish to carry it with the expense of storage and interest and so on, and they will sell that cotton to some cotton merchant on call, in the same way as I have described that the mills buy on call.

Mr. WYLLIE. Now, will you explain how the prices are fixed when cotton is bought or sold on call?

Mr. CLAYTON. Yes. When we sell to mills on call, the call is at the option of the mill. For instance, during the summer a cotton shipper might sell to a mill in Germany 500 bales of strict middling fifteen-sixteenths staple for shipment in October-November at, we

will say, a price of 325 points on December futures, New York. The mill has the right to fix the price whenever they elect, and, as I explained in the beginning, the custom has grown up under which the mill has the right up to noon, I believe it is, of any day to fix the price on the previous closing of the New York market.

The CHAIRMAN. That is, previous to the opening the next day. Mr. CLAYTON. Yes, sir. Well, the opening the next day is at 3 o'clock in Europe, 10 o'clock in New York-3 o'clock in Europe and some places 4 o'clock in Europe. So that the mill must act before noon if they wish to fix on the previous day's closing.

Mr. WYLLIE. Now, the contract between a merchant and a mill, covering a sale on call, provides for the basis difference, also the time limit in which the call must be made, and, of course, the futures month on which the basis is determined?

Mr. CLAYTON. Correct.

Mr. WYLLIE. Now, is it or is it not a practice among merchants to permit the mills, if they so desire, to transfer these fixations or calls on the market from near months to a later month on the payment of some charge or fee for that privilege?

Mr. CLAYTON. Yes; it is done; but I would not say it is habitually done.

Mr. WYLLIE. But not infrequently?

Mr. CLAYTON. Perhaps not infrequently.

Mr. WYLLIE. So that if a mill has cotton bought on call, based on, say, New York December-meaning cotton on the futures market in New York for December delivery-and desires to later transfer the call month, fixation month, say, to March, they can do that with the consent of the merchant upon paying some difference for the privilege of transferring that call from one month to another?

Mr. CLAYTON. I believe that is usually permitted. It is a custom. It is growing less and less common, because the merchants now generally will not ship the cotton until the price has been fixed. If they do exceptionally ship it before the price is fixed, they apply generally to the contract the same credit rule which is applicable in the case of futures contracts on the New York Cotton Exchange. As a matter of fact, that is now a rule of the New York Cotton Exchange, of course, applicable only to the members of that exchange. But the mill now must put up in nearly every case margin if they take cotton before the price is fixed; and if there should be an advance in the market

Mr. WYLLIE (interposing). Well, at this time I just wanted you to explain what is meant by buying and selling "on call." We will probably come back to the details later on. I believe, Mr. Clayton, you have written one or more articles for publication, in which you expressed your views as to the reasons for this very drastic decline in prices on the future exchanges on March 11, and I believe you have recently given out to the press a report of your supposed testimony here on the same subject, have you not?

Mr. CLAYTON. I did not give it out to them, but it got to them in some way. Those things happen sometimes.

The CHAIRMAN. Yes; and I hope it will happen differently from the one that occurred here. I want to again refer to the fact that this report that we had here was supposed to be confidential. It