bales of May short, then you sold that cotton on call based on December, which would give you a long December position and a short spot position, both for a thousand bales, then, as you have just testified, you would be long a thousand Decembers and short a thousand Mays. If you elect to remain in that position you have a straddle interest in the market. Now, suppose I do not say that you do that, but there is nothing to prevent you from doing it or anyone else suppose, instead of buying a thousand May and selling a thousand December, you would buy a thousand December and sell a thousand May, so that you would then be short 2,000 May and long 2,000 December. The interest of your customer, of course, is a short interest in December, is it not?

Mr. WEIL. That I do not know.

Mr. WYLLIE. It would be if no other facts appeared than those we have mentioned?

Mr. WEIL. Yes; but I do not know where my customer is hedged. He buys cotton from me on call.

Mr. WYLLIE. That is right.

Mr. WEIL. On the New York market.

Mr. WYLLIE. Then he is short the New York market if nothing else appears?

Mr. WEIL. He may be long of goods which may be a hedge, he may be long of futures in another market, which may be a hedge, he may be long of futures with another concern in the same market. Mr. WYLLIE'. So far as this transaction with you is concerned, he has a short position in December?

Mr. WEIL. So far as I know.

Mr. WYLLIE. So far as any transaction he has had with you, it results in a short position of a thousand Decembers, does it not? Mr. WEIL. You would not call it short with me, because he does not put up a margin or call me for margin.

Mr. WYLLIE. If you are long the Decembers, who is short the Decembers?

Mr. WEIL. The man who sold to me on the exchange.

Mr. WYLLIE. You have not bought anything in December, you have been trading in May.

Mr. WEIL. I am not the futures short then. You know and I know when I sell based on December, when the mill fixes the price, I have got to buy December which makes me long Decembers.

Mr. WYLLIE. Only when he fixes the price?

Mr. WEIL. When you sell cotton on call, that price must be fixed at some time.

Mr. WYLLIE. I am speaking of the time before it is fixed.

Mr. WEIL. I am still to all intents and purposes long of the month on which the cotton is sold.

Mr. WYLLIE. That is right. Therefore, the customer is short so far as the transaction with you is concerned?

Mr. WEIL. If you wish to put it that way.

Mr. WYLLIE. We are not going outside of the record to assume that he has done something else

Mr. WEIL (interposing). If you wish to put it that way.

Mr. WYLLIE. With that position, if you should buy another thou sand bales of December and sell another thousand bales of May, you in effect would be trading against your customer, would you not?

Mr. WEIL. I would not have that in mind.

Mr. WYLLIE. You would be taking an opposite side of the market from him, would you not?

Mr. WEIL. I do not think that thought ever comes up in my business. It is the first time I have ever heard that. I would not be trading against a man I am doing business with simply because I put my hedges in different places from him.

Mr. WYLLIE. But you are taking an opposite side of the market from him?

Mr. WEIL. We sell a great many mills all the time. We sell one mill based on May and another on March. We go ahead with our business. If I am hedging cotton tomorrow, I have forgotten what I have sold a mill today.

Mr. WYLLIE. You are taking an opposite side of that market to the position which your customer has with respect to a call sale? Mr. WEIL. I would not put it that way at all.

Mr. WYLLIE. Are you taking the same side of the market or no position?

Mr. WEIL. I am not taking either side so far as the mill is concerned.

Mr. WYLLIE. Just answer it this way: If your customer has a short position in December and you have a long position in December, you certainly have a position opposite from that of your customer, do you not?

Mr. WEIL. Would you not say that if I did that I was taking a position against anybody who was short, whether he be my customer or anybody else? Ordinarily, that sort of situation would not occur unless Mays were selling at a good deal more than a carrying difference higher than Decembers. In other words, it is no incentive for us to buy Decembers and sell Mays.

Mr. WYLLIE. As I said before, I am not inferring that your firm has done this but I am trying to elicit from you the information that it can be done. There is nothing in the world to prevent one who has sold on call later on taking an opposite position in the month on which the call is based to that which his customer has in that month?

Mr. WEIL. There is nothing to prevent him from taking any position that he likes but I assure you that you are laboring under a wrong idea if you think that we or any cotton firm, when we do straddles, have in mind that we are doing it against any particular party. If we buy or sell a contract on the New York market, we do not have the opposite side in mind as to what is going to become of him. We are running our own business. As I told you yesterday, my firm operates, as you might say, as a lone wolf. Our busi

ness is ours.

Mr. WYLLIE. We are not intimating in the least sense that you have done any such thing. In fact, I would go on record and say we find no instance where you have done it.

Mr. WEIL. Well, that is relieving.

Mr. WYLLIE. What I am trying to ascertain from you is, what can be done under the existing contract and under existing practices? Mr. WEIL. It can be done.

Mr. WYLLIE. That is the part I am trying to raise.

55627-pt. 1-36-40

Mr. WEIL. It can be done.

Mr. WYLLIE. When you sell on call or any merchant sells on call and he has hedges in the market against the cotton which he is selling on call, those hedges remain under his control, do they not?

Mr. WEIL. Under the merchant's control.

Mr. WYLLIE. And he can concentrate those hedges in any month he desires to concentrate regardless of the month on which the call is to be based?

Mr. WEIL. That is right.

Mr. WYLLIE. We were talking about southern deliveries on yesterday.

Mr. WEIL. Yes, I was in the midst, if I remember correctly, of discussing with you transferable notices and I had remarked in regard to one notice that you had shown me a great many different qualities in one notice.

I have a letter, it is only a short paragraph, that I can read in regard to that, which will throw a little light on the situation if you care to have me read it.

Mr. WYLLIE. I am coming back to transferable notices in a minute or two and I would rather have you read it when we get back to that point. Right now I would rather discuss with you the subject of these southern deliveries.

Mr. WEIL. All right.

Mr. WYLLIE. Under the old contract, deliveries could be made only in New York?

Mr. WEIL. That is right.

Mr. WYLLIE. The objections raised on that old contract were that New York was an unnatural market, it was not a spot market, and the expense of bringing cotton in and the expense of moving cotton out were unnecessary expenses which should not be imposed upon the cotton trade, is that not correct? Was not that the argument principally used against the old New York contract?

Mr. WEIL. Well, I think some people argue that.

Mr. WYLLIE. What would be your objection to the old New York contract?

Mr. WEIL. At the time of this change which I think was in 1928, I opposed southern delivery very strongly, although other members of my firm saw its usefulness. If I am not mistaken, I think the chairman opposed New York delivery.

The CHAIRMAN. No, I assumed a neutral position. I was like this present administration, I was experimenting. [Laughter.]

Mr. WEIL. We were discussing at that time, Mr. Wyllie, a change in contract that was purely theoretical, and at that time I feared that southern delivery would for many reasons, which I will tell you if you like, not work out. However, since that time, through practical experience and not theoretically, I have been converted to the idea that southern delivery is a very much better thing than New York delivery ever can be.

Senator POPE. Mr. Wyllie, did you ask Mr. McFadden that same question as to what he thought of southern delivery?

Mr. WYLLIE. Oh, yes; he expressed his opinion on that. Mr. McFadden is in favor of southern delivery.

Mr. WEIL. As a matter of fact, if you will allow me to say so, I think, if you will poll the entire cotton trade today, you will find

an overwhelming majority in favor of letting the southern-delivery feature of the cotton contract stand.

Mr. WYLLIE. Do you think the overwhelming majority is fully advertent to what can be done and is being done under southern deliveries?

Mr. WEIL. I think they have had experience for 6 or 7 years, have they not?

Mr. WYLLIE. I am asking you the question, Do you think the majority to which you refer

Mr. WEIL (interposing). I think so.

Mr. WYLLIE. Would that majority consist largely of cotton merchants who have instrumentalities in these southern markets with which to take up cotton and with which to receive it?

Mr. WEIL. When I say cotton merchants I mean all cotton merchants in the trade, no matter where located or what the nature of their business is.

Mr. WYLLIE. That would be the majority opinion of the cotton merchants. What about the majority opinion of the cotton producers and cotton mills?

Mr. WEIL. I am not so familiar with that. In my own opinion, I do not know what the cotton producer might think. He is not aware of all these matters.

The CHAIRMAN. He is not generally considered at all in it at any time or any place. [Laughter.]

Mr. WYLLIE. But we would not say that the cotton market, although it has been classed as a merchant's market, if operated solely for the benefit of merchants without any regard whatsoever to the producers of cotton or to the consumers of cotton, would you say?

Mr. WEIL. Oh, I certainly would. The New York Cotton Exchange or any cotton exchange is primarily for the benefit of allowing a cotton merchant to operate safely, and as a matter of fact I think I can also state very positively that no cotton merchant ever wants really to receive cotton on contract or to tender cotton on contract. We are looking for a hedge.

Mr. WYLLIE. But you would not say that the New York Cotton Exchange is run without regard to the interests of producers or to the interests of the mills?

Mr. WEIL. I would not say that it is run without regard to them, but it was primarily created to furnish a price insurance for the merchandising of cotton.

Mr. WYLLIE. But not to furnish a merchandising market?

Mr. WEIL. No; the New York Cotton Exchange itself does not. furnish a merchandise market of cotton where spot cotton is actually intended to be delivered and taken up all the time. You will see from our records that our tenders and deliveries on New York contract are very, very small.

Mr. WYLLIE. Right in that connection, since the question has been. brought up, let me read you what our records show over a period from August 1, 1929, to July 31, 1935.

Mr. WEIL. Of Weil Bros.?

Mr. WYLLIE. Of Weil Bros. and other firms. During this period, the total notices issued were for 2,438,000 bales. Anderson, Clayton & Co. issued a little less than 49 percent and stopped a little less than 36 percent.

Mr. WEIL. Have you the figures there, Mr. Wyllie, as to what percentage of their business that was?

Mr. WYLLIE. That is what I am giving you.

Mr. WEIL. I mean what percentage of the business of Anderson, Clayton that 49 percent amounted to.

Mr. WYLLIE. That could be easily ascertained but I am talking now of the number of notices issued and the number stopped. Of course, the same number would be stopped that were issued. Don't let's argue, Mr. Weil.

Mr. WEIL. I am trying to get your question clearly, I am not arguing.

Mr. WYLLIE. I am talking about the number of notices issued and stopped and not the quantity of business which Anderson, Clayton did either in the futures market or on the spot market. I can discuss but one question at a time and now I am trying to discuss the total number of notices issued and what percentage of those notices were issued and stopped by various interests.

Mr. WEIL. All right, sir.

Mr. WYLLIE. The total number of notices issued, to repeat, was 2,438,000 bales. Of this amount, Anderson, Clayton & Co. issued notices for 1,189,800 bales which was a little less than 49 percent. They stopped notices for 876,600 bales or a little less than 36 percent. Geo. H. McFadden & Bros. issued notices for 258,300 bales which was a little less than 11 percent and stopped notices for 278,800 bales which was a little more than 11 percent. Your firm, Weil Bros., issued notices for 85,200 bales which was a little more than 3 percent and stopped notices for 75,500 bales which was a little more than 3 percent. The Southern Cotton Co. issued notices for 46,600 bales which was a little less than 2 percent and stopped notices for 29,400 bales which was a little more than 1 percent. Robert Moore & Co. issued notices for 42,700 bales, which was a little less than 2 percent, and stopped notices for 162,800 bales, which was a little more than 6 percent. Alexander Sprunt & Sons issued notices for 128,800 bales, a little more than 5 percent, and stopped notices for 12,800 bales, which was a little less than 1 percent. The A. C. C. A. and the pool-producers' pool-issued notices for 106,100 bales, which was a little more than 4 percent and stopped notices for 809.100 bales, which was a little more than 33 percent. The total number of notices issued by the 7 interests which I have read amounted to 1,857,500 bales, which was a little more than 76 percent, and stopped notices for 2,245,200 bales, which was a little more than 92 percent. So we see from these figures that practically the vast majority of all notices issued and stopped were issued and stopped by seven interests. Would that or not convey to your mind that this instrumentality known as transferable notices were or were not being used by only seven interests on the cotton exchange to any appreciable extent?

Mr. WEIL. Is that a question?

Mr. WYLLIE. Yes.

Mr. WEIL. As I stated before you brought in this illustration, no merchant actually would desire, unless it were forced upon him. to deliver or to receive cotton on contract. That is not what we utilize