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Also this short quotation:

Section 2 provides specifically for the orderly marketing of the cotton to be taken over by the Board in order to remove the great uncertainty now existing in the channels of trade.

And this last short quotation in the last paragraph of the report: It is believed that this resolution is a progressive step toward the reestablishment of a free and open market for cotton.

That is all of the quotations.

Mr. WYLLIE. All of which is from the report on Senate Resolution 205 of the Seventy-fourth Congress, second session?

Mr. CLAYTON. Correct. Mr. Wyllie, you asked me just before the hearing was adjourned yesterday to check up on our various activities and to give sort of a résumé of it for the record this morning, or to make sure that everything was in the record, and I have a short résumé here which I would like to put into the record at this time.

Mr. WYLLIE. We would like to have you do that, Mr. Clayton. Mr. CLAYTON. Anderson, Clayton & Co. are cotton merchants buying and distributing to the markets of the world over the past 10 cotton seasons an average of 13.8 percent of the American cotton crop. This percentage has not varied greatly over the 10-year period. There has certainly been no tendency to increase during the past few years. It may be of interest in this connection

Mr. WYLLIE (interposing). Mr. Clayton, I don't want to keep interrupting, but we simply want-we don't want you to use that as a means of giving us a dissertation. We simply want facts.

Mr. CLAYTON. This is not a dissertation, Mr. Wyllie. I assure you it is not. I am not trying to get anything into the record that is not germane.

Mr. WYLLIE. We want to give you every opportunity to put everything into the record you want to put in, but we want you to put it in in orderly fashion.

Mr. CLAYTON. This is very short, and I only mention here a comparison with one other concern; then I go right on to the other activities.

Mr. WYLLIE. Well, conclude the statement on that, and in the interest of time let us take up each one of your concerns; just state what they do, and let us make it as brief as possible.

Mr. CLAYTON. I was only pointing out here that Mr. Creekmore, of the cooperatives, had stated in a hearing before Senator McKellar that the cooperatives had, since their organization 6 years ago, handled 11.3 percent of the American cotton crops. In addition to our cotton merchandising, we are engaged in the cotton-compressing and warehousing business. Our estimate, roughly, is that the facilities in which we have a controlling interest comprise less than 10 percent of the United States cotton storage based on a square-foot basis.

We operate a steamship wharf in connection with one of these

compresses.

We are also in the cottonseed oil-mill business. Our mills will crush this season about 4 percent of the commercial production of cottonseed in this country.

Mr. WYLLIE. Can't you give us the volume?

55627-pt. 1—36———4

Mr. CLAYTON. It would be about 170,000 tons, which would be 4 percent, about.

We are in the cotton-ginning business. We own and operate less than one-half of 1 percent of the cotton gins in this country.

We own and operate river terminals and a barge line. It will handle less than 2 percent of this season's crop.

We own a small insurance company which handles our own insurance business.

We own and operate a cotton mill in Houston, Tex., of 8,000 spindles. There are approximately 30,000,000 spindles in the United States.

We own and operate a small plant in Houston engaged in manufacturing jute bagging for baling cotton.

We finance the production of cotton. I just want to add that it has always been our consistent policy to limit our investments and activities to things having to do with the cotton business.

Mr. WYLLIE. You have already given us the names of the concerns to which you refer?

Mr. CLAYTON. No; some of them. You have not the names of the oil-mill companies and the cotton gins, and so on. I don't think that I could give them to you.

Mr. WYLLIE. We are particularly anxious to get the names of the various concerns under which you operate and the volume of their operations.

Mr. CLAYTON. Now, let me see, Mr. Wyllie, you want to know, do you, how much bagging we manufacture?

Mr. WYLLIE. Approximately. I don't as to the bag, but I want to know something approximately about the extent of your operations.

Mr. CLAYTON. May I ask if you think that has anything to do with the decline in the cotton market?

Mr. WYLLIE. Our investigation here is not limited to the decline in the cotton market, Mr. Clayton, as you will see if you have read all the resolutions.

Mr. CLAYTON. Does it extend to an investigation of the manufacture of bagging?

Mr. WYLLIE. It may.

Mr. CLAYTON. I am not trying to obstruct the hearing at all; I just want information. I will be glad to give you all the information you want. I am just wondering how far we are going.

Mr. WYLLIE. I do not want any of your activities which are on a very minor scale, but we do want activities where you do carry on anything in connection with the cotton business on any extensive scale.

Mr. CLAYTON. I have given here the completeness of the activities. You wish now the names of all the companies? Is that my understanding.

Mr. WYLLIE. Well, let me read over your testimony up to date, and if we want any further information we will ask for it.

Mr. CLAYTON. Very well.

Mr. WYLLIE. This morning, Mr. Clayton, I want you to first discuss with us the matter of the New York Cotton Exchange, and particularly its contract. As you know, there has been quite a good deal of discussion regarding the New York Cotton Exchange contract and

certain changes, and so forth, have been suggested with respect to that contract. The first question I will ask you in that connection is, What is your opinion regarding the present form of the New York Cotton Exchange contract?

Mr. CLAYTON. In what respect do you wish my opinion?

Mr. WYLLIE. Suppose I ask you this question first: Is it not a fact that the principal function of the New York Cotton Exchange and all other cotton exchanges is to present a price insuring market where those in the cotton trade can put in proper hedges against their actual spot transactions?

Mr. CLAYTON. The principal function of the futures market is as an aid to the distribution of the cotton crop in the way in which you have mentioned, to permit merchants, cotton merchants, to insure their market risks.

Mr. WYLLIE. That would not be confined simply to cotton merchants? It would be open to anyone in the cotton trade?

Mr. CLAYTON. Yes; cotton mills, cotton farmers-anyone who owns cotton or who makes a contract to deliver cotton.

Mr. WYLLIE. The principal features of the New York Cotton Exchange contract are time, place, and quality. Is that not correct? Mr. CLAYTON. The principal features of the contract?

Mr. WYLLIE. The principal features of the New York Cotton Exchange contract are time of delivery, place, or places of delivery, and qualities of cotton which may be included in such delivery?

Mr. CLAYTON. Yes.

Mr. WYLLIE. They are the three principal features of that contract? Mr. CLAYTON. I believe so.

Mr. WYLLIE. Now, we will discuss first the feature of time. The present contract permits delivery at any time during the delivery month on 5 days' notice by the seller to the buyer? Is that not correct? Mr. CLAYTON. I think that is correct.

Mr. WYLLIE. What is your opinion regarding that feature of the contract?

Mr. CLAYTON. There has been a change made recently in that contract. Have you taken that into account?

Mr. WYLLIE. We have only extended our investigations to July 31, 1935.

Mr. CLAYTON. There has been a change recently in the contract. I have it here-a change on that particular point. The rule now is that the last delivery day for cotton delivered on futures contracts has been fixed as the seventh business day immediately preceding the last business day in the month. It was formerly about the fifth business day, I believe, preceding the last business day. Now it is the seventh.

I have felt, Mr. Wyllie, that perhaps it would be better to fix the delivery day as, say, the 20th of the month. I don't think it is very important, but the idea of moving it up and making it a little earlier is to give the buyer or the receiver of the cotton on the contract a little more time in which to prepare the cotton for shipment in that month and get a bill of lading for it dated in that month.

Mr. WYLLIE. Do you think the New York Cotton Exchange contract should continue to provide that the seller can deliver at any time within the delivery period?

Mr. CLAYTON. Yes; I do.

Mr. WYLLIE. On notice to the buyer?

Mr. CLAYTON. I do.

Mr. WYLLIE. And for the continuation of the practice of permitting trading during the delivery month?

Mr. CLAYTON. Yes, sir.

Mr. WYLLIE. Do you favor the use of transferable notices in connection with such delivery?

Mr. CLAYTON. I do. Would you like me to give my reasons for these things?

Mr. WYLLIE. I will ask you three or four questions, and then you can probably give your reasons in connection with them. Would you be opposed to a change in the rules providing for the cessation of trading in any delivery month prior to the last day of the preceding month?

Mr. CLAYTON. I think it would be unwise.

Mr. WYLLIE. Now, go ahead and state your reasons.

Mr. CLAYTON. May I present them in my statement here?

Mr. WYLLIE. No; I prefer you to just give your reasons, because you can give them briefly and then go into them more extensively in your statement later on.

Mr. CLAYTON. The features about which you have asked, such as the option to the seller to make delivery at any time during the month, that one particularly, conforms very closely to spot-cotton transactions and customs. If a cotton merchant should sell cotton for October shipment, it is understood that he can make the shipment at any time between the first day of October and the last day of October, and the cotton-futures contract has merely grown out of the spot-cotton trading. We had spot-cotton trading long before we had the cotton-futures contract; and the attempt, when the cotton exchanges were organized and futures trading was started, was to model the futures contract as near as possible along the lines of spotcotton trading. The seller of cotton has most of the burdens in connection with the contract on him. He must get the cotton ready for delivery and put it in the place where he has agreed to deliver it, within the period of time in which he has agreed to deliver it. He must class it and weigh it and see that it conforms to the contract, and nearly all the burdens are on him. The only burden on the buyer is to issue a check when the cotton is delivered; therefore, the seller should have some leeway, some time in which to perform these various things. So that I feel distinctly that the present arrangement of giving the seller a certain period of time in which to do these things, and not having to do them on one certain particular day, is sound and all right.

In reference to the matter of fixing the delivery day or the last trading day, rather, on the last of the month preceding the contract month-for instance, for October contracts, September 30-that is what you have in mind, as I understand it?

Mr. WYLLIE. On or prior to September 30.

Mr. CLAYTON. The last trading I am speaking of.

Mr. WYLLIE. The last trading; yes.

Mr. CLAYTON. Your question, as I understand it, is whether-what you want me to discuss is whether I would favor, and if not, why not, fixing the last trading day of October contracts on September 30. I would not favor that, for these reasons: The buyer of the contract today, if he doesn't wish to take delivery of the cotton, may remain

long of the contract until he receives a notice. He may receive a notice on the first notice day or he may not. He may receive it on the second or he may not even get a notice until the last notice day in the month; and he has been able, in that case, to remain long of the contract, if he wishes to do so, until the last notice day in the month. We had an example of that in the December and January trading on the New York Cotton Exchange-that is, the trading for December and January delivery. A good many longs remained long of the contract until well into the month, and those two options, as you recall, advanced considerably in the last few days of the month, the last half of the month, as compared with spot cotton and as compared with later positions in the market. So that the long was permitted to remain long until he got that benefit.

Most of these suggestions, Mr. Chairman, grow out of an evident desire on the part of the people making the suggestion to try to arrange some way in which the long may stay long of his contract and escape the obligation of taking delivery of cotton. The long in a cotton-futures contract has got sooner or later to face either the delivery of the cotton to him or the liquidation of his contract, or the transfer of his contract to some later month. He cannot escape that. Sometime he must face that issue and make a decision as to which one of those three things he will do. I do not think it would help him in the least, but would rather be to his detriment to say that he had to make that decision on the 30th of September as against permitting him to wait until the 25th of October to make it. He must make it sometime.

Mr. WYLLIE. Under the present contract the delivery date is fixed by the seller at his option?

Mr. CLAYTON. No; it is fixed between them.

Mr. WYLLIE. Within certain dates.

Mr. CLAYTON. In the contract between buyer and seller they both know the terms of the contract and sign it. It is an agreement.

Mr. WYLLIE. And that contract provides that the seller may deliver at any time within the delivery period, at his option?

Mr. CLAYTON. At his option. And that the buyer agrees to and they both understand it, and the price is based accordingly.

Mr. WYLLIE. Now, you spoke of an occasion on which a buyer, by not receiving a notice until later on in the delivery month, was enabled to avail himself of the rise in price?

Mr. CLAYTON. Without receiving delivery or notice of delivery of the cotton. That is right.

Mr. WYLLIE. What about the buyer who received a delivery notice calling for delivery on the 1st of the month? Would he have that privilege?

Mr. CLAYTON. Certainly not. He has either got to take the cotton, in which case he could have held it and sold it out later in the month at an advance in price.

Mr. WYLLIE. Or liquidate or transfer?

Mr. CLAYTON. Or liquidate or transfer. But he must face that thing sooner or later in any case. You cannot provide a contract which will relieve him of the obligation of facing that situation.

Mr. WYLLIE. But under the present practice, and in the case which you mention, the buyer who receives the notice for delivery on the first or second day of the delivery month was forced to make that

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