Mr. WYLLIE. Do you handle all of your New York future business through your New York office?

Mr. WEIL. We do.

Mr. WYLLIE. What was the total volume of your American spot business during the years 1928-29, and I am referring to cotton years now, August 1 to July 31, from 1928-29 to and through 1934-35, if you have the figures with you?

Mr. WEIL. I think I have just given those to Mr. Day. I think there are something over 3,000,000 bales.

Mr. WYLLIE. I want you to read that information into the record, giving just the spots first.

Mr. WEIL. May I say first that I instructed our chief clerk to get up these figures and at the time I told him to use the highest figure, in other words, if we had bought more cotton than we had sold in any one year, to use the bought, and if we had sold more cotton than we had bought, to use the sold figure. I asked that these figures be gotten up on the basis as if we had liquidated our business at the time our season closed. So these figures may be somewhat higher than the figures that your auditors have.

You do not want me to give the odd figures?

Mr. WYLLIE. Just the round figures.

Mr. WEIL. In 1928-29, 382,000; in 1929-30, 379,000; in 1930-31, 375,000; in 1931-32, 528,000; in 1932-33, 643,000; in 1933–34, 552,000; in 1934-35, 516,000. That makes a total of 3,377,000. Those figures do not include a small amount of spot cotton which our New York office handled.

Mr. WYLLIE. Approximately how much?

Mr. WEIL. Twenty-nine thousand bales.

Mr. WYLLIE. During what years?

Mr. WEIL. During 1933-34. Those are the only years I have here. I have not any other year except that, 1933-34, for New York. Mr. WYLLIE. Will you give me the amount of all futures transacted by your firm on the New York Cotton Exchange during the same years, giving them by years?

Mr. WEIL. 1928-29, 496,000; 1929-30, 542,000; 1930-31, 515,000; 1931-32, 545,000; 1932-33, 652,000; 1933-34, 551,000; and 1934–35, 449,000.

That makes a total of 3,753,000.

Mr. WYLLIE. How does the total volume of your futures transacted on the New York Exchange compare with the total amount of your spot business?

Mr. WEIL. For the entire 7 years?

Mr. WYLLIE. That is right.

Mr. WEIL. This statement shows that there were 375,000 more futures done than spots in the 7 years.

Mr. WYLLIE. Approximately a little less than 10 percent more? Mr. WEIL. That is right.

Mr. WYLLIE. Have you your figures with reference to the New Orleans Exchange for the same year?

Mr. WEIL. Yes.

Mr. WYLLIE. Please read those.

Mr. WEIL. In 1928-29, 16,000; in 1929-30, 12,000; 1930-31, 4,000; 1931-32, 2,000; 1932-33, 5,000; 1933-34, 4,000; 1934-35, 10,000; a total of a little over 56,000.

Mr. WYLLIE. Did your firm do any business on any other futures exchanges during that period?

Mr. WEIL. I think we did with Liverpool, but not to a large extent. Mr. WYLLIE. Have you the figures with reference to the Liverpool Exchange?

Mr. WEIL. No; I have not; but I can get them for you.

Mr. WYLLIE. I will ask that you do that and have the reporter insert them at this point, if it is agreeable to the chairman. The CHAIRMAN. That is all right.

(The matter referred to is as follows:)

LIVERPOOL FIGURES TURNED IN BY MR. WEIL FOR THE RECORD

In 1928-29, 10,200; in 1929-30, 5,100; 1930-31, 1,700; in 1932-33, 2,500; 193334, 5,600 in 1935–36. 1,000. In addition, by Montgomery office, in 1931-32, 1,000;

1932-33,-1933-34, 4,800.

Mr. WYLLIE. How many cotton exchanges are your firm members of? Kindly name them, please.

Mr. WEIL. You mean cotton-futures exchanges?

Mr. WYLLIE. Yes.

Mr. WEIL. New York, New Orleans, and the Liverpool Cotton Association.

Mr. WYLLIE. Are you a member of the Chicago Board of Trade? Mr. WEIL. No; we are not.

Mr. WYLLIE. Are you members of the Clearing Association of the New York Cotton Exchange?

Mr. WEIL. We are.

Mr. WYLLIE. And of the New Orleans Cotton Exchange?

Mr. WEIL. I do not think New Orleans has a clearing association; has it?

Mr. WYLLIE. The New Orleans Cotton Exchange does have a clearing association.

Mr. WEIL. Well, we are not members, if it has.

Mr. WYLLIE. Mr. Weil, this investigation began under a resolution to inquire into the rapid decline on the cotton exchanges on March 11, 1935. It was thereafter broadened so as to permit the investigators to make a rather exhaustive investigation into the cotton situation as a whole, both prior to and subsequent to March 11, 1935. I will ask you now to please give to the committee your views and opinions regarding the decline in the price of cotton on the cotton exchanges on March 11 1935.

Mr. WEIL. Do you mean as to what precipitated the break?

Mr. WYLLIE. As to what, in your opinion, precipitated the break. Mr. WEIL. Well, if my recollection does not serve me incorrectly, when the 12-cent loan was announced, October or December was about 13.40, and immediately after the announcement futures declined to just about 12 cents. The announcement itself created a rather bullish tendency; everybody had ideas that the market could not go lower than 12 cents and everybody went long of cotton and everybody was afraid to sell cotton. Well, during the months following the announcement of the loan, I do not believe there was more than 50 points fluctuation in the market up to March 11. That is my recollection. Just prior to March 11 there were several articles carried in newsprint to the effect that the 12-cent loan might

be abandoned, that the Bankhead Act might be modified so that sharecroppers and tenants could market more cotton exempt from tax. All of this was denied, however, at that time. Nevertheless, these different announcements, rumors, or statements created a certain amount of lack of confidence. At the same time, Europe began to buy more foreign growth, and our consumption fell off. Some of these people who were long of the market began to get tired and began to be afraid and began to sell. I think it was about noon that the market began to break. As it went down, stop-loss orders were caught and then there was a precipitate drop. That is my own opinion.

Mr. WYLLIE. Do you attribute that decline to any other factor than that which you have named?

Mr. WEIL. Not that I can think of.

Mr. WYLLIE. Did your firm do any buying and selling on that day?

Mr. WEIL. Yes; of course.

Mr. WYLLIE. Have you the figures showing the amount you purchased and the amount you sold? I refer now to the New York Cotton Exchange.

Mr. WEIL. I can give you the figures on all exchanges. On March 11-do you want these by our different offices or as a whole?

Mr. WYLLIE. I would rather have the totals by all offices.

Mr. WEIL. We bought 64 contracts, 6,400 bales in New York, and we sold 4,500. That is for Weil Bros.

Mr. WYLLIE. Just a moment. Does that include the business done for the account of your customers or just simply for the account of your own firm?

Mr. WEIL. That is for the account of Weil Bros. For our customers we bought 17,400 bales and sold 16,300 bales.

Mr. WYLLIE. That is on New York?

Mr. WEIL. On New York.

Mr. WYLLIE. You say you have the figures for New Orleans? Mr. WEIL. They were evidently not given me for New Orleans or Liverpool.

Mr. WYLLIE. Can you tell from the record you have before you whether your firm was buying first or selling first on that day? Mr. WEIL. No; I cannot.

Mr. WYLLIE. Do your records show what the money differences between your purchases and the settlement price on that day would represent?

Mr. WEIL. I have not them with me.

Mr. WYLLIE. Or with respect to the sales?

Mr. WEIL. You mean of futures?

Mr. WYLLIE. Yes.

Mr. WEIL. No; but I imagine our New York office can get that information for you if you like.

Mr. WYLLIE. Did your firm have any straddles in between markets or months in the same market on that day?

Mr. WEIL. I do not remember, Mr. Wyllie?

Mr. WYLLIE. Does your firm do any straddle business to any extent?

Mr. WEIL. To a very small extent. That is necessary.

Mr. WYLLIE. Explain just when and how you do your straddle business, and why it is necessary at times to do a straddle business. Mr. WEIL. Well, suppose we sell a spinner for October, November, December shipment, the logical place for our hedge might be December, but the mill might wish to buy based on May or March. If they do, we sell the mill based on that month and straddle our hedge back into the month on which we must buy to fill the same.

Mr. WYLLIE. If you have your hedge in December and the mill desires to make a fixation or place its call on March or May, then you put in a straddle between those 2 months?

Mr. WEIL. No; that is not it at all. That is not what I said at all. Mr. WYLLIE. I want to get it perfectly clear in the record.

Mr. WEIL. Suppose we sell a mill October-November-December shipment. We have to buy our cotton for shipment during those months based on October and December. If the mill wishes to make its purchase based on March, we will sell them on March, but we will immediately straddle the March back into the Decembers, because when we buy our spot cotton, we will sell those Decembers.

Mr. WYLLIE. Explain that operation clearly: How do you straddle them back?

Mr. WEIL. If we sell a mill, as I stated, for fall shipment, we will buy Decembers and sell the forward month that the mill wishes to base its purchase on. That is obvious because that makes us long of December. When we buy our spot cotton to ship in October, November, December, we sell futures and we sell December. So that eliminates the December position. When the mill fixes its price, then we buy back the May position or March position, and that eliminates that.

Mr. WYLLIE. I want to get that perfectly clear into the record and to do so I will ask you to use a simple illustration. Say you have sold to a mill 500 bales of cotton based on December or whatever month you wish.

Mr. WEIL. Suppose we sell the Pepperill Manufacturing Co. October, November, December shipments. The mill wishes to base its call

Mr. WYLLIE (interposing). You are selling that on call to the mill?

Mr. WEIL. Ninety-nine percent of the sales are on call.

Mr. WYLLIE. The illustration you are using is where you have sold on call to the Pepperill Manufacturing Co.

Mr. WEIL. Practically all sales are on call now. To offer cotton at a fixed price involves a risk that everybody wishes to avoid. So we sell cotton on call and allow the mill to fix it and the mill may fix the cotton in 5 minutes after it accepts the offer but obviously if we offered on call while the market was open, we would be taking quite a risk, would we not?

Mr. WYLLIE. What I want to show in the illustration you are using with respect to a call sale

Mr. WEIL (interposing). Very well. Suppose we sell the Pepperill Manufacuring Co. 500 bales for October, November, December shipment and the Pepperill Manufacturing Co. says "We would like to base our price on call based on May." We will agree to that. When they accept the offer, we immediately buy Decembers, 500 bales, and sell Mays, 500 bales.

Mr. WYLLIE. Is that because you already have the cotton hedged in December, before you made the sale?

Mr. WEIL. NO. The cotton may not yet have been bought. We might sell this cotton in August.

Mr. WYLLIE. I see.

Mr. WEIL. When we buy in the spot cotton to ship against that sale, we sell futures and we sell the Decembers we have bought when we sold the Mays. When the mill fixes its price we have to buy against that fixation and we buy back the Mays we have sold. That is a very common practice.

Mr. WYLLIE. Where you have the cotton on hand, where you have bought it before you have sold it, your practice would be to hedge that in some futures market, would it not?

Mr. WEIL. That is right.

Mr. WYLLIE. If you had on hand 500 bales of cotton unsold, you would have hedged that in some month, would you not?

Mr. WEIL. Correct.

Mr. WYLLIE. Suppose you had that hedge in December and you sell that to a mill on call based on May, then you have an open position between December and May, do you not?

Mr. WEIL. We would unless we do a straddle.

Mr. WYLLIE. That is right. If you put a straddle in between those months, you take care of the fluctuations between those months, do you not?

Mr. WEIL. I do not know what you mean by taking care of the fluctuations. At the time we make the sale, we figure the difference between May and December and whatever difference there is is either added to or subtracted from the basis we sell the mill. If we have the spot cotton bought and have sold December futures, we buy back those futures and sell Mays.

Mr. WYLLIE. In your words, you place your hedge then in the month in which the mill is buying?

Mr. WEIL. No; we do not do that. We place our hedge in the month in which we have to buy the cotton.

Mr. WYLLIE. But if you have the cotton on hand now?

Mr. WEIL. We have already placed it in that month.

Mr. WYLLIE. You have placed it in December?

Mr. WEIL. We have already done it.

Mr. WYLLIE. But you sell it on call based on May. Do you transfer your hedge then from December to May?

Mr. WEIL. Ordinarily. Of course, there are exceptions, Mr. Wyllie, to that, because at times we may have bought cotton and placed our hedges in the beginning by selling Mays instead of Decembers.

Mr. WYLLIE. What I want to bring out here is this: If you have cotton on hand and you have it hedged in, say December, then you have the spot cotton of which you are long, and you have the December futures contract of which you are short, do you not?

Mr. WEIL. That is right.

Mr. WYLLIE. When you sell that cotton to a mill, and if it were based on December, then you would be out of the market, so to speak, so far as any market risk was concerned?

Mr. WEIL. We would be out of our futures hedges.