COMMITTEE ON AGRICULTURE HOUSE OF REPRESENTATIVES SEVENTIETH CONGRESS, FIRST SESSION FRED S. PURNELL, Indiana. JAMES B. ASWELL, Louisiana. F. B. SWANK, Oklahoma. HAMPTON P. FULMER, South Carolina. THOMAS L. RUBEY, Missouri. THOMAS A. DOYLE, Illinois. JOHN MCSWEENEY, Ohio. L. A. DARNELL, Clerk GRAIN FUTURES ACT AMENDMENT HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON AGRICULTURE, Friday, May 25, 1928. The subcommittee met at 10 o'clock a. m., Hon. Thomas S. Wil liams presiding. Mr. WILLIAMS. All right, Mr. Dickinson, we are ready to have you proceed in your own way with this hearing. STATEMENT OF L. J. DICKINSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA Mr. DICKINSON. Mr. Chairman, this testimony that I want to present this morning is in support of H. R. 11952, with reference to some amendments to the grain futures act. You will remember that I have been very active in this grain futures act for a good many years. This is an effort to try to formulate some amendments to that act that will make it more effective, and I would like to have Mr. Duvel, the chief of the bureau in charge of the enforcement of this act, called as the first witness. Mr. WILLIAMS. Very well. Mr. DICKINSON. If it is satisfactory, Mr. Chairman, I would just like to submit some questions to Mr. Duvel and have him state the reasons for and what the purposes of the amendments are which we have suggested, section by section, so that any one reading the bill and reading the testimony will have the reasons why we think the amendments are necessary and what the purported amendments attempt to do; and in the explanation of the bill I insert a letter from the Secretary of Agriculture with reference to an identical Senate bill (3575). Hon. CHARLES L. McNARY, United States Senate. APRIL 6, 1928. DEAR SENATOR: The department has the honor to acknowledge receipt of your request of March 12 for a report upon the bill (S. 3575) to amend the grain futures act, of September 21, 1922, which is an act for the prevention and removal of obstructions and burdens upon interstate commerce in grain, by regulating transactions on grain futures exchanges, and for other purposes. The first amendment, which is set forth in section 2 of the bill, would enlarge the definition of "grain" as it occurs inin section 2 (a) of the grain futures act by adding "grass seeds and the seeds of legumes." This is apparently intended to cover such seeds as timothy, alfalfa, red clover, etc. The effect of this would be to bring under the provisions of the act markets dealing in futures in these commodities. At the present time such trading is done only on the Toledo Produce Exchange. The amendments proposed in this bill, which relate to the fixing of deliverable grades and the handling of appeals for the determination of the true grade of any lot of grain delivered on futures contracts, are predicated on standards fixed under the provisions of the United States grain standards act which does not cover seeds of timothy, alfalfa, red clover, etc. Should this amendment prevail it would necessitate a similar amendment to the United States grain standards act or some other form of legislation authorizing the fixing of standards and the handling of appeals to cover the grading of these commodities. It is therefore recommended that this item be eliminated from the bill. The next amendment would add at the end of section 2 (a) a definition of the words "cooperative associations of producers." The effect of this would be to compel contract markets to admit to membership any representative of any organization acting for a group of cooperative associations of producers. The act as it now stands requires the admission to membership of a representative of a single cooperative association, but makes no provision for the admission of a representative of an organization acting for a group of such cooperative associations. It is quite likely that cooperative associations will find it to their advantage to have representation on contract markets through a central organization acting for a group of associations, and there is no good reason why such a representative should not be admitted to membership. This requirement has a precedent in section 2 of the act entitled "An act to prevent discrimination against farmers' cooperative associations by boards of trade and similar organizations, and for other purposes," approved March 4, 1927 (44 Stat. 1428). By including this definition, the grain futures act will make the same requirement of the contract markets with respect to admitting cooperative associations to membership that is made by the act above mentioned of boards of trade dealing in cash grain and other agricultural products but not dealing in grain futures. Section 3 of the bill would add to the grain futures act new sections designated "4A" to "4J," inclusive. Section 4A would make it unlawful for any member of a contract market (1) to make false reports concerning the disposition of orders; (2) to fail to account correctly for any order; (3) to refuse to trade with any person with intent to injure his business; (4) to conspire to injure or destroy the business of any member; (5) to manipulate prices or grades of grain; (6) to disseminate false reports that affect prices; (7) to make false entries in accounts; (8) to fail to make full and correct entries; or (9) to cheat or defraud any person with respect to orders. These various provisions apparently do nothing more than to insure fair and honest dealing by declaring as unlawful practices which are generally recognized as uncommercial conduct. The act as it now stands places the burden of preventing manipulation and the circulation of false information on the contract markets. The amendment goes direct to the individual and authorizes criminal proceedings against him for manipulation and the issuing of false reports. This should be of distinct help to both the department and boards of trade in maintaining a high standard of commercial conduct. Section 4B merely requires brokers who are not members of contract markets but take orders for the purchase or sale of grain for future delivery to keep the same records and make the same reports that are required of members. This would seem to be only fair to the members of boards of trade designated as contract markets, and would enable the Secretary of Agriculture to secure full information needed for effective administration of the act, as there is a considerable number of nonmembers of contract markets who take orders from others on a commission basis. This section would also make it possible to deal effectively under Federal statute with persons operating "bucket shops" or other similar activities of an illegitimate character, such transactions being a distinct menace to the recognized exchanges. Section 4C would make it unlawful for a member of a contract market (1) to use any money deposited as margin except for the benefit of the depo itor; (2) to discriminate between different customers in the matter of margin requirements; or (3) to fail to keep accurate accounts of margin deposits. These provisions seem entirely clear and should prevent losses which frequently occur to customers through the financial failures of commission houses resulting from the use of margin moneys for their own speculative purposes. This should be prohibited and money deposited as margin should be fully safeguarded. Likewise, it is not an uncommon practice for certain classes of commission houses to place orders for special customers up to a certain limit without requiring deposits which not only jeopardize the safety of money deposited by other customers but is unfair and discriminatory. Section 4D, following a similar provision in the cotton futures act, would require that futures contracts be based only on grades fixed by the Secretary of Agriculture, and that the receiver of the grain shall have the right of appeal to the Secretary of Agriculture under provisions of the United States grain standards act for determination of the true grade of the grain when it is loaded out of the warehouse or is delivered in cars on track or otherwise. The purpose of the United States grain standards act is to promote uniformity of standards and grading, with a view of preventing abuses and assuring prices in keeping with true values. Naturally, a purchaser can not pay the full price if he is uncertain |