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NTOR HOKE SMITH
N
Attacks Methods of New York Ex
change, and His Amendment is
Adopted by the Senate.
There is widespread ‘interest in the
South over the determined movement
jn congress to break up the methods
of the New york cotton exchange,
which depress the price of cotton.
While it is generally understood that
the system Of doing business robs the
cotton growers of millions of dollars
appually only those who have h?d
dealings With the exchange Or Ww:io
have studied its methods know how
it is done. It is accomplished by per
mitting the seller of cotton futures, if
actual cotton is demanded, to tender
inferior grades of practically valueless
cotton and to compel the buyer to ac
cept it or (O settle on an arbitrary
basis which would cause a loss in
many instances of as much as $5 a
bale.
The effect of this system is to cause
quotations on futures to be usually
about three-quarters of a cent a pound
below the actual value of spot cot
ton. This statement can be verified
on any day by an examination of the
New York quotations on spots and fu
tures for the current month.
A bill to correct the evils of the
New York cotton exchange, introduced
by Senator Ellison D. Smith of South
Carolina, came up in the senate a few
days ago. Senator Hoke Smith of
fered an amendment which was ac
cepted by the author of the bill under
which cotton tendered on a future
contract must have the actual market
value of spot cotton, and that settle
ment must be made on the market value
of the cotton itself instead of an arbi
trary difference fixed by the ex
change.
Senator Smith Speaks.
‘When the bill “to regulate trading
in cotton and to provide for the
standardization of upland and gulf cot
ton separately,” was under considera
tion in the senate on March 26, Sena
tor Hoke Smith explained the methods
of the New York cotton exchange very
clearly.
He said:
“Mr. President: The purpose of the
pending bill is to compel cotton ex
changes, selling future contracts to so
regulate their contracts as to make
the price list of these exchanges show
the true value of lint cotton.
“It is to prevent these cotton ex
changes from selling a contract giving
such undue advantage to the seller
that those who sell upon the exchange
may have it in their power to depress
the prices at which cotton sells on
the exchange.
“The plan of the bill is to require
all exchanges engaging in the sale
of cotton for future delivery to so
shape their contracts as to remove the
present unfair means by which sellers
of cotton on these exchanges depress
the price of cotton and use the ex
changes for gambling purposes.
“The penalties provided by the bill
are to exclude from the mails all the
business of those connected with the
exchange where this business has any
thing to do with the sale of cotton un
less the contract provided in this bill
Is used by the exchange, and also to
exclude from the mails and telegraph
service all price lists made on cot
ton exchanges which do not use the
contract required in this bill.
Protests Are Universal.
“This bill is especially directed at
the New York Cotton Exchange. For
vears the cotton planters of the South,
the men who on the farms have raised
the lint cotton, have protested that
the market prices of cotton which
their labor brought into commerce
were trifled with and depressed by a
set of gamblers who manipulated the
price of cotton on the New York ex
change in a manner that affected the
price of lint cotton itself,
“Recently the manufacturers of cot
ton have joined in the protest, and
we have resolutions condemning the
methods of the New York cotten ex
change from cotton manufacturers of
New England and from cotton manu
facturers of the South. Other cotton
2xchanges throughout the country have
also joined in protest against the
methods of the New York cotton ex
change. The New York Commercial
day by day condemns them and points
out the fact that the contracts sold by
the New York cotton exchange cause
an unfair fluctuation in prices on that
exchange, misleading the public as to
the true valye of lint cotton. I have
liere also ap editorial from the Newark
News, one of the largest papers in
the manufacturing Section of New Jer-
Sey, where lint cotton is largely spun
and woven, condemning the methods
of the New York cotton exchange.
“So 1 begin my case in support of
this biy with protests from all the
parties at interegt against what ig go-
Ing on upon the New York cotton ex
change,
“The New York cotton exchange han
dles over two hundreq and fifty mil
lion pajeg annually. Its records
Profesg 0 ‘show the sales
daily ¢ middling cotton and
the prices a¢ which this grade of cot
ton sellg ip New York City. Their sales
Drofess tq 2pply not only to immedi
ate monthg, but monthly in the future
to each mopgy, of the year. They pro
fess 10 record the market price of
Mlddling cotron pop immediate deliy.
oy and for fypyne delivery during
eleven monthg of the vear,
N Pepre§;es the Price,
olts g Tk Clty 18 e sliees metrop.
of v;.",i‘l‘ Country, 13 s the center
Cotton oo 2Pd trade. Tne New York
" ®XChanga 1 by far the largest
cotton exchange in the United States, |
Its sales far exceed those of any other i
cotton exchange and all other cot
ton exchanges. The records of its |
daily prices are sent by the press as- !
sociations to each paper in the Unit-?
ed States which handles reports from a |
press association. Its daily price lists |
have a circulation throughout the Unit- |
ed States' and throughout the world |
far in excess of all other price lists |
in the United States indicating the |
market price of cotton. |
“The public generally understands
that cotton is really bought and sold
on the New York exchange, and that
a purchaser under their published
prices can buy for immediate or fu.
ture delivery middling cotton at the
prices indicated by their price lists.
It must, therefore, appear at once that
the price lists which go out from the
New York cotton exchange have an
almost controlling influence on the
market price of cotton.
Depresses the Price.
| “It can be accepted as undoubtedly
i true that an unfair depression of the
‘ price upon the New York Cotton Ex
| change depresses also the price of
lint cotton all over the south. Indeed,
l it is a fact that many large buyers of
! lint cdtton instruct their local buyers
I to purchase by the price lists of the
1 New York exchange, requiring them
! to bid the New York exchange price
' less about one-half a cent a pound.
' “So, if I show that a contract is
. used on the New York Cotton Ex
!change which enables sellers in that
exchange to unfairly depress the price
,on that exchange of cotton for the
present and future delivery, show
. that this exchange takes the hard
earnings of the farmer away from him
' by preventing him from receiving a
Just price for his lint cotton.
* “If I show that their contract is one
which enables them to put up and
| down their own prices almost as they
see fit, I show that the manipulation
‘of the market on this exchange is
. damaging to the manufacturer and the
icotton merchant as well as the zot
ton grower,
| Crop Worth Billion Dollars.
“Lint cotton is the second greatest
agricultural product of the United
States; corn comes first. The crop
last year, including the seed, was
worth $1,000,000,000. A large part of
the crop is shipped abroad. Upon it
our country depends to a great ex
tent for its international trade bal
ances. That portion of the crop which
is manufactured in the United States
furnishes occupation for a large num
ber of cidzens, and is one of our chief
raw materials for manufacture, The
importance, therefore, of the staple,
both as it applies to our international
trade balances and as it applies to the
producer and the manufacturer, is ap
parent.
“I charge that the New York Cotton
Exchange handles its business under
a system which is unfair and disrepu
table. The system permits the man
ipulation of prices for gambling pur
poses, and it is continuously used to
raise or lower the the market prices
of lint cotton to meet the wishes of
the manipulators. This is unjust to
the producer of cotton and to the
manufacturer and is an unfair stab at
the interests of our entire country.
“My charge is that, instead, of being
a legitimate exchange furnishing the
opportunity for those who have cotton
now or will have it in the future to
trade with those who need it now or
will need it in the future, the New
York Cotton Exchange has devised a
scheme by which the seller can so
tender to a purchaser cotton that the
purchases can not take: or if he does
take it, he receives something he did
not buy, worth much less than the
legitimate market price of the cotton
whicli he was supposed to buy.
Shameless Robbery.
“My charge is that the New York
Cotton Exchange contract, with the
rules and regulations surrounding it,
treates a system of doing business
which amounts to little less than
gambling and enables the inside
crowd to play with the outside crowd,
the inside crowd holding and seeing
all the cards, with every opportunity
to fleece their outside customers.
“] wish to point out some features
of their contract and mode of business
—at least sufficient to justify my
charge.
“First: Number of grades. The
New York Cotton Exchange uses un
der its system a large number of
grades of cotton., While middiing is
the basic grade of all sales, they re
tain the right to the seller to deliver
any one of the grades named in their
list, and their list covers 22 grades of
cotton besides middling. A purchaser
may buy 100 bales of middling cot
ton. He may have use for 100 bales
of middling cotton in his own mill, or
he may have a customer who desires
the cotton and will use it at his miil
When the purchaser, through the New
York Cotton Exchange, receives the
cotton, although he bought middling
cotton, he may have delivered to him
cotton so far below middling that it
is entirely useless for the purpose in
tended. Not alone is this true, but he
may be tendered a mixed lot of cot
ton, with only a few bales of each
grade scattered over the entire list of
23 grades, requiring him, if he takes
it, to hunt purchagers for each one of
the various grades, none of which
may be the grade he actually pur
chasged. ;
“Again, these various grades of cot
ton may be scattered all through the
warehouse, not classified, so that the
purchaser can go to the warehouse,
and if ‘he obtains what is tendered to
him, he must have large quantities of
cotton handled and hunt through lot
after lot for his particular grades.
Buyer at Their Mercy. :
“They also have a system of tender
ing the cotton which they call pro
MARIETTA JOURNAL AND COURIER
forma. It consists of tendering cotton
through an invoice which does not
specify the exact grade of the cotton,
and which leaves the party tendering
the cotton additional time to desig
nate the exact grades of cotton to be
actually delivered. The purchaser
puts up his money and must wait to
find out what he is to receive. When
he finally receives a list of the grades
he then must go through the process
I have just described of obtaining it,
and if he finds that he can not handle
the Cotton outside of the New York
Cotton Exchange on account of its bad
character and undertakes to resell it
through the exchange, although it
has been examined and certified by
the exchange to him, he must have it
reclassified and certified and pay for
this work. With all these hindrances
thrown around him he naturally
throws up his hands and says, “Keep
your cotton and settle with me as you
please.”
Arbitrary Difference.
“Second. Arbitary differences: The
mode of delivery before described is
bad enough, but far worse is the sys
tem pursued by the New York Cotton
Exchange of fixing an arbitrary differ
ence of value between the middling
cotton which the purchaser undertook
to buy and the 22 other grades, either
one or many of which may be deliver
ed to the purchaser, By this I mean
that a purchaser may buy on the New
York Cotton Exchange middling cot
ton the seller can deliver to him any
one of the 13 grades less valuable
than middling or any one of 9 grades
of cotton more valuable than middling®
If one of these 13 grades less valuable
than middling, or if a mixed lot is ten
dered, the seller does not pay the pur
chaser the actual difference in market
value of the lower grades which he
tenders and middling cotton. He is
required by the rules of the New York
Exchange to simply tender an arbi
trary difference which the exchange
itself has fixed and which it has been
in the habit of fixing only once a year.
Buyer Loses $5 a Bale.
“Good, ordinary cotton is a grade
below middling. The difference in its
value and the value of middling cotton
varies every year, based on the char
acter of the crop, the amount of the
good ordinary produced, and the de
mand for it. The market difference in
value might be $8 a bale, and yet if
the exchange fixed a difference at $3
a bale the purchaser of middling cot
ton would be forced to take good or
dinary and receive only $3 a bale bo
nus for taking a cotton worth $8 a
bale less that the cotton which he
purchased. . The purchaser would,
therefore, be receiving in cotton and
money $5 less a bale than the mid
dling cotton which he bought was
worth. It will be readily seen that
the inside sellers, realizing that they
cculd settle for middling cotton under
the system of the exchange at s§s a
bale less than its market price, could
bear on the market the sales of mid
dling cotton down 1 cent a pound.
Warehouse Full of “Dog-tail.”
“I will mention yet another element
that furnishes opportunity under the
New York Cotton Exchange system to
manipulate and bear the market by
freeing the seller from having to de
liver a genuine quality of cotton. All
middling cotton is not exactly the
same cotton. All the lower grades of
cotton below middling are not of ex
actly the same value. Cotton is grad
ed largely according to color and
cleanliness. Under the system used
in the New York Exchange a large lot
of cotton can be purchased, and then
the best of the various grades can be
picked out and sold to the manufac
turers, while the poorest are retained
and kept in New York to be tendered
to purchasers. There is a difference
in the lenzth of the staple of cotton
of the same grade, and there is a dif
ference in the character of the cotton
of the same grade. A systematic ef
fort to select cotton of short staple
and poor character, though falling
within the grades named, makes it
possible for those dealing upon the
New York Cotton Exchanze to retain
a lot of junk, commonly called dog
tail cotton, and, supplied with thig in
ferior cotton of the grades to be ten
dered, furnish not only a low grade
with an arbitrary difference between
this and the grade sold, but also a
poor class of the lower grade far be
low the average run of the grade.
This means has also been resorted to
on the New York Cotton Exchange,
and low-character, low-grade cotton
has accumulated from year to year to
be tendered to purchasers as an ad
ditional means of depreciating the
character oi the tender made by the
seller when the purchaser calis for
his cotton, and in this way force down
the price of cotton sold by the farm
er,
Disreputable Methods.
“As low as has been the standard
of character of cotton used by the
New York Exchange, | see by the pa
pers last Saturday that a big cotton
house, the biggest perhaps in the
United States, which is supposed to
be heavily short on the New York Ex
change, has been endeavoring to force
the exchange to accept and certify a
large amount of additional very low
character cotton heretofore rejected
by the exchange. I do not belicve the
officers of the cotton exchange will
dare to yield to this demand. If they
do the law should be used to strike
both the cotton house and the ex
change. The difficulty, however, is
that one small, ordinary dealer can
not carry the burden. It requires an
organization of manufacturers and cot’
ton men to meet the situation.
“1 have certainly pointed out a suf
ficient number of lines of conduct pur
sued on the New York Exchange to
shew that the svstem is unfair, if pot
disreputable. Its uniair means of de-
Jivery gives sel’ers upcn the exchange
the opportunity to force down the
prices bid for cotton on the exchange
almost at their pleasure, for the sell
ers well know that buyers can not af
ford to take under their system what
they offer. The immense quantity of
their sales, with their facility for ad
vertising the selling prices all over
the country, tend to force actual
prices down and thereby injure the
men who raise lint cotton. The prices
are made fictitiously to rise and fall,
thereby injuring all whe handle cot
ton, the manufacturer as well as the
cotton grower.
Time to Suppress It.
“The time has come when this in
stitution as now conducted should be
suppressed, unless it can be forced to
adopt honest methods. It is no more
entitled to the use of the mails and
the telgraph lines under its business
as now conducted than was the lot
tery, the exclusion of the business of
which from the mails was sustained
by the Supreme Court of the United
States.
“It is the organized enemy of cotton
growers and cotton manufacturers,
manipulating prices of the raw mate
rials which the the one manufactures
and which the other grows,
“A few years ago, suffering from
the effect of the evil conduct of this
or that organized enemy, certain cot
ton buyers and cotton manufacturers
united together and determined to
buy and require delivered to them all
the cotton held by the New York Ex
change. They made an agreement
that they would buy and distribute
among themselves the cotton, agree
ing further that neither of those in the
compact would resell the cotton so
that it could be used in the gambling
marts of the New York Exchange.
The organization was made in self
defense against a wicked enemy’
which by unfair means was attacking
and breaking down their legitimate
business, This organization should
have been commended by honest men
who believe in a square deai, and yet
under the direction of the department
of justice these men engaged ir a pa
triotic werk were chdarged with being
guilty of an illegal conspiracy and
were indicted for alleged violations of
the Sherman anti-trust act.
Must Reform or Quit.
“Today if a body of men, manufac
turers and cotton merchants would
join together and make a similar
agreemeent and take up all the junk
called cotton on the New York Ex
change, agreeing not to resell any of
it through any exchange and thereby
arrest the work of the men who have
been manipulating cotton for the past
few months to the injury of the pub
lic, they should be commended for
their service more than any organiza
tion of private citizens who would in
vade a den of gamblers.
“T would be glad to see the ex
changes continue in legitimate busi
ness. [ would be glad to see them
continue with their unfair system
eliminated. But, if this can't be done,
then better destroy them than to al
low a continuation of - their unfair
methods. If they can be made to de
liver cotton covered by government
standardization and deliver it prompt
ly, with no strings tied to the mode of
delivery to deprive the purchaser of
his just rights, then with their gamb
ling methods brought to an end they
would be of real value,
“We will try them now with an ef
fort to regulate, but they should un
derstand that forbearance has about
ceased. There is a way to stop them
entirely, and unless they help purify
their owh house and bring it to a con
dition of decent and legitimate busi
ness, the next movement against them
will be to terminate them.”
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