On the side of demand, opinions regarding the usual factors of foreign and domestic purchasing power changing tastes for alternative foods and substitutes, together with opinions regarding probable purchasers of grain futures are the factors of importance.' (P. 41 and 42.)

"The chief use of short selling, it may be said in conclusion on this subject, is to provide the wide market needed for hedging by millers, exporters, and other cash grain interests."

There should be no limitation by law upon the amount of future trading. Even more objectionable, of course, is the proposed authority to the Secretary of Agriculture to establish at his discretion whatever limitations he may deem proper. We regard the discretion proposed in section 4J to be vested in him to be very dangerous and highly objectionable.

As stated above, the bill would relieve the United States or any agency thereof engaged in stabilizing grain prices from the provisions of section 4J. This exception would seem to be inconsistent with the purpose of the section and to constitute a discrimination in favor of governmental agencies against citizens in the market. Undoubtedly the effect of a transaction by the United States Government upon the price of a commodity is no different from that of a similar transaction by a private citizen, and if there are no objections to the Government's buying or selling grain without limit there would seem to be no good reason for treating the citizen differently.

EFFECT UPON FUTURE TRADING

The bill does not contemplate the prohibition of future trading in grain, but loads it down with such burdensome restrictions as inevitably to result in a substantial curtailment of such trading, and perhaps practically to a prohibition.

We have referred to the proposed restriction upon the total amount traded in one day and the total net position at any one time. This of itself would tend greatly to limit the operations of large traders and to remove from the market an important sustaining influence, and this we believe to be so notwithstanding the trader may at times have a large short interest. Such traders on the whole furnish a volume of trading which gives stability and breadth to the market.

In addition to the restriction just noticed, the bill provides many other burdens. In section 4K it is required that a report shall be made to the Secretary of Agriculture whenever one person shall purchase or sell for future delivery an amount of 500,000 bushels or more on one day or whenever he shall attain an interest in any one future amounting to this total at any one time. The present regulations of the Secretary of Agriculture are even more drastic than these, requiring reports of transactions of 250,000 bushels or more. This regulation is itself a source of frequent complaint from large traders and in the opinion of the trade is deemed to reduce the speculative interest in grain. Other restrictions require the keeping of records in the manner approved by the Secretary of Agriculture and that they be subject to inspection at any time. Another provision allows the Secretary of Agriculture to fix the grade of grain which shall be a lawful tender upon a futures contract. At the present time this is within the control of the exchanges and is determined by vote of the membership as provided in the rules. The grade of grain deliverable upon such contracts profoundly affects the price and also affects the interests of traders in the futures market. The bill provides that all the rules under which such contracts are made shall be subject to the approval of the Secretary of Agriculture, and he may promulgate and enforce any other rule which appears proper to him. In section 5B it is provided that the Secretary of Agriculture can call upon a trader for any information concerning his business that the Secretary desires to secure.

The foregoing considerations will not tend to a healthy market in grain for futures delivery. Speculative traders view all such restrictions with distrust and rather than comply with the innumerable requirements set-up in the bill and those which would follow by order of the secretary, would generally prefer to take their business into other fields. Speculation in securities and in other commodities, such as metals, silks, rubber, coffee, and sugar, are not burdened with these requirements, neither is speculation in grain in other countries so hampered. Speculators are not tied down to a location by investments in physical properties-they can remove their operations to suit their own interests. Speculation in the Winnipeg wheat market by citizens in the United States is

already very large, and the tendency of the proposed legislation naturally would be to drive the public interest in the market out of the country entirely. Such result, in our opinion, would be unfortunate in that it would remove from the markets of the United States the sustaining buying power which carries the farmers' products from the time of harvest to the time of consumption. Without such buying power the price at harvest time must inevitably be lower.

REGULATION OF WAREHOUSES

Section 4G of the bill provides that the delivery of grain on futures contracts shall be in a warehouse approved for the purpose by the Secretary of Agriculture and that such warehouses shall have been licensed as public warehouses under the United States warehouse act, the provisions of which are to govern and control the operation of such warehouses to the exclusion of conflicting State laws. At the present time these warehouses generally are subject to State laws. In the Kansas City market the laws of the States of Kansas and Missouri govern these warehouses according as they are on one side or the other of the State line.

Experience of the Kansas City market over a period of many years has developed no objection whatever from the standpoint of anyone to the functioning of these warehouses under the State laws, and we are unable to perceive any reason for the attempted assumption of authority by the Federal Government to the exclusion of the State governments.

In every large market, and particularly in Kansas City, the elevators or warehouses in which grain may be delivered against futures contracts are also under the supervision of the grain exchanges. In the rules of the Board of Trade of Kansas City an entire chapter is devoted to the regulation of these warehouses, designed to protect the holders of their warehouse receipts. Thus, it appears that there is already adequate regulation of such warehouses; that is, by the States and by the exchanges, and it is difficult to see where any greater protection may be had by the transfer of regulation to the Federal Government.

By rule in the Kansas City market, every elevator in which grain may be delivered against futures contracts is required to issue a receipt against every bushel of grain received, to register such receipts with the registrar of the board of trade, and not to load out any grain without surrendering to the registrar receipts for an equivalent quantity, so that by this system of registration and cancellation a close daily supervision is maintained over the outstanding warehouse receipts. The result of this arrangement is that the market has achieved a country-wide reputation as to the integrity of its warehouse receipts. Close cooperation has at all times been received from the State authorities in the enforcement of the State regulating statutes.

The Kansas City market, finding the State laws governing public warehouses and their enforcement by administrative officials to be adequate and appropriate, is opposed to any change in the situation and urges that no attempt be made by the Federal Government to assume jurisdiction over these facilities.

GRADES OF GRAIN DELIVERABLE ON FUTURES CONTRACTS

Section 4E of the bill would give complete authority to the Secretary of Agriculture to determine and prescribe for each market the grade or grades of grain deliverable in satisfaction of futures contracts. At the present time this is determined by the rules of the several markets. These grades are fixed by rule adopted by the membership and, therefore, represent the combined judgment of the dealers in the market as to what grade or grades are most nearly representative of the kind of grain principally handled in each market, and most fairly serve the interest both of the producer and the consumer. Why it should be deemed necessary to transfer this authority from the exchanges to the Secretary of Agriculture and thereby substitute the judgment of one man at a great distance from the scene for the combined judgment of the traders on the ground is not clear. In our opinion, it would be a serious mistake to attempt such a substitution.

CONCLUSION

While not constituting all the objections which lie to the proposed legislation in detail, the following are summarized as the more important, going as they do to the principles involved rather than to the details:

1. There are no existing evils in the business of buying and selling grain for future delivery which require any additional regulatory legislation to remedy.

2. Trading in grain for future delivery is already subject to the provisions of the grain futures act, to statutes of the various States, to the strict rules and regulations of the grain exchanges, subject to enforcement by the Grain Futures Administration of the Department of Agriculture, State executive officers, and the officials of the grain exchanges.

3. Regulation by the agencies just mentioned is comprehensive and complete in every respect in which the public interest is touched, and the provisions of the bill merely duplicate such regulation or transfer it from the States or from the exchanges to a bureau in Washington headed by the Secretary of Agriculture, whose tenor of office is such that he can not reasonably be expected to have technical and expert knowledge.

4. The effect of the proposed legislation, together with the grain futures act, is to make the Secretary of Agriculture practically a dictator of the marketing of grain, substituting his judgment, operating far from the field for the combined judgment of many men on the ground, including local officials of the States, intimately acquainted with the conditions of the trade, 5. The bill gives the Secretary of Agriculture authority to delve and pry into the private records of traders in matters where the public interest is not concerned and without the process of a court.

6. The bill for the first time undertakes a regulation of cash grain transactions, although there is no evil or abuse to be complained of in this business as is evidenced by the report of the Federal Trade Commission after a thorough investigation of the grain trade. It would discriminate against cash grain dealers in contract markets in subjecting them to regulation while leaving all other similar dealers unfettered by regulation.

7. The bill provides that warehouses in contract markets shall be licensed under the United States Warehouse Act, the provisions of which are to govern and control operations of such warehouses to the exclusion of conflicting State laws, whereas in the Kansas City market the warehouse laws of the States of Kansas and Missouri adequately govern these warehouses in the supervision of handling of grain.

In addition these warehouses are thoroughly regulated by the board of trade through efficient rules affording every necessary safeguard for the protection of the holders of warehouse receipts and the validity and integrity of these receipts in the hands of the public.

Therefore, we feel that no additional Federal regulation or the supplanting of present State regulations is warranted.

8. It undertakes a serious limitation upon the trading in grain for future delivery with the result of limiting the purchasing power which absorbs the producer's surplus offerings, tending to reduce or eliminate. the speculative interest, driving it into other fields of investment or into other countries. Wherefore, your petitioner urges that the proposed legislation be not enacted. THE BOARD OF TRADE OF KANSAS CITY, Mo., By FRANK A. THEIS, President.

KANSAS CITY, Mo., February 6, 1931.

The CHAIRMAN. I believe that Mr. Frank A. Theis, vice president of the Simonds-Shields-Lonsdale Grain Co., Kansas City, Mo., is here. Is Mr. Theis here?

Mr. THEIS. Yes, Mr. Chairman.

The CHAIRMAN. Do you want to say anything in addition to this voluminous brief you have filed?

Mr. THEIS. I should like to call attention to a few points, if I might.

The CHAIRMAN. How long would it take you?

Mr. THEIS. It would take me only a very short time.

The CHAIRMAN. Could you cover it in five minutes?
Mr. THEIS. I think so.

The CHAIRMAN. Very well.

You may go ahead.

STATEMENT OF FRANK A. THEIS, PRESIDENT OF THE KANSAS CITY BOARD OF TRADE, KANSAS CITY, MO.

Mr. THEIS. Mr. Chairman, and gentlemen of the committee, we have gone over very carefully all the points that we think are vital, in this brief I mean, so I will not endeavor to touch upon them at all. Except that I wish to direct your attention particularly to the fact that we believe that all the regulations that are proposed in here are already being carried out thoroughly and faithfully by State law, by the administration of the grain futures act, and by the rules and regulations of the various exchanges.

The CHAIRMAN. Do you speak now as to the proposed Capper amendment?

Mr. THEIS. I speak to the Capper amendment entirely; yes, sir. Mainly, we think two or three things in there are quite objectionable. The first is the bringing of the rules and regulations of the exchanges to the Secretary of Agriculture and the department for approval and their recommendation for amendment. We believe that we are properly policing and handling our rules for the benefit of both producer and consumer. I am speaking now entirely for the Kansas City market. We believe also that the volume of trading in futures in Kansas City is thoroughly representative of the volume of cash business in the section that we serve.

One of the most objectionable features of this bill is the licensing of our elevators in the United States warehouse act. The elevators in Kansas City at the present time are licensed and thoroughly supervised by State laws of Missouri and Kansas. In addition to that we have rules and regulations of the exchange that thoroughly analyze, supervise, bond, and take care of our elevator receipts to such an extent that we believe in Kansas City now we enjoy the nation-wide reputation for proper warehouse receipts. We merely mention that, but there are very many other points in the brief that we should like to have you gentlemen of the committee look over carefully.

Now, I shall be glad to answer any questions the members of the committee may wish to propound to me.

The CHAIRMAN. I think you have made yourself clear, and of course we have your brief. So we are much obliged to you. Mr. Rader, we will now hear you.

STATEMENT OF C. B. RADER, SECRETARY, MERCHANTS EXCHANGE, ST. LOUIS, MO.

Mr. RADER. We filed a brief in behalf of the Merchants Exchange of St. Louis. This is the oldest trade organization in America, formed in 1836.

I have listened to this testimony, and we have no abuses such as have been pointed out. And no such abuses have ever been brought to our attention. We will work in cooperation with the Grain Futures Administration at all times. We particularly think that there should be no limitation on the amount traded, that free trading should be permitted because we realize that the producer is the life of our business. If he does not grow grain we can not handle it.

We have always operated our exchange on that policy. To place any limitation on trading we fear will take away public support, and which in the final analysis will mean that hedging will not be as broad as it is, and when a buyer can not hedge he naturally reflects that in the price he pays to the producer.

But we want you to understand we are glad to cooperate. We have the machinery set up to handle matters. We have disciplined our members whenever necessary. We have our business conduct committee and complaints committee and other committees that are necessary, and we take action when and if it is necessary.

Senator FRAZIER. Your board of trade has regulations that you make yourselves?

Mr. RADER. Yes, sir. And we protect the market and work like the rest of them.

Senator FRAZIER. It was brought out on yesterday that the various boards of trade pass regulations without regard to the grain futures administration of the Agricultural Department.

Mr. RADER. That is true. Our rules have been built up over a period of 50 years.

Senator FRAZIER. And if you put on a new rule now you do not consult the Department of Agriculture before you formulate that rule?

Mr. RADER. We have never adopted a rule bearing on future trading unless we gave a copy of it to the administration.

Senator CAPPER. You give a copy of it to them, but we should like to know whether the sellers, the farmers, the cooperatives, the producers have anything to say about what your rules are.

Mr. RADER. Senator Capper, let me explain that to you: For several years we have had cooperatives who belonged to our exchange, the Farmers' National Grain Corporation now belong to it, and others. They have the right to come before our board and suggest any rules, and they have the right to oppose any rule, or to go out on the floor and work against any rule, just like any other member has. Senator CAPPER. When you propose to make a new rule, who makes it?

Mr. RADER. This is the system: The rules committee frames the rule, and it is posted for 10 days on the floor of the exchange, and then it is voted on by the general membership. The cooperatives who are members of our exchange have the right to go out and work against that rule, or to suggest changes, and to come before the board and suggest rules.

Senator CAPPER. But we would be one out of many.

Mr. RADER. Well; we have some 400 members, and about 12 or 14 work for the Farmers National Grain Corporation, and two or three for another, and two or three or four for another.

Senator CAPPER. But you would have about 16 out of a membership of 400.

Mr. RADER. Yes, sir.

Senator CAPPER. There wouldn't be much chance for them to change a rule.

Mr. RADER. Well, they create a certain influence with other members.

Senator CAPPER. Does your Board of Trade ever pass upon the question of limitation as to volume of trading?