The Cairo bulletin. (Cairo, Ill.) 1???-1928, 1908-05-04
COTTON FUTURES
SEVERELY SCORED
COMMISSIONER OF CORPORA
TONS DECLARES NEW YORK
METHOD is UNFAIR.
LAMBS" ARE FLEECED
Their Own Fairly they Have
No Right 10 Do
Business,

Washington May Commissions
i of Corporations Herbert Knox SIN Il
D., writing TO the president in respons
to a resolution by congress. orderin
~ an investigation of the methods {
: future dealing in cotton today su,
mitted an exhaustive report in pal
os follows:
Sir: have the honor to submit
herewith Part | of the report on tn
: operations of cotton exchanges, mad
:. in accordance with house resolution
n No. 1875, of February 4, 1907
: This part deals with cotton exchang
methods of determining Offences il
, lprice between various grades of cot
ton in connection with future con
| tracts. Subsequent parts will take ~
the matter of classification of cotton
the range of grades. and effects of ex
change rules and other condition,
upon the price.
Future" transactions in cotton pro
vide for delivery at a distant date in
Istead OF for immediate delivery. as
in the case of so-called spot trans
factions
There are two great cotton ex
changes in this country, New York
and New Orleans. where organized
future dealings are conducted. All
future trading on both these ex.
changes is in so-called basis" con
tracts-that is contracts which permi.
the delivery of a number of grades
Iof cotton on one contract. The seller
| Of this contract may deliver thereon
lany grade he chooses within the range
prescribed by the exchange. The buy
er has no option. The proper theorv
of a basis contract. however. is that
all grades shall be deliverable at
prices which viii make them CONNER
'cial equivalents of each other Cotton
is graded substantially on its color
and on the amount of leaf and other
foreign matter. att materially affect
ing its market value. At the time that
this investigation started, so grades
We're deliverable on scntracts of the
New York Cotton Exchange, later re
duced TO Is gardes. chiefly by cutting
out intermediate grades. with little re
duction IN the exertme range. The
range of grades deliverable at New
Orleans is nominally about the same
: Middling" cotton is always the basis
grade, the grade for which the price
is fixed by the parties to the contract
The prices at which other grades are
deliverable are determined by the so
called differences" above and below
or. in trade parlance, on and
''-middlng.
There are two ways of establishing |
these differences For the last eleven |
years the New York Cotton Exchange |
has had so-called fixed difference" |
system A committee of the exchange |
commonly known as the revision com
nittee, meets twice a year, in Septem
)er and in November, and establishes |
he respective price differences on
IF off which shall apply to the grades
'ther than middling These differ
noes, once established, can not BE-
hanged until the next regular meet
ng, and govern all contracts in fu
ures.
The New Orleans Cotton Exchange.
N the other hand. has what is known
S the commercial difference sys
EN-. committee of the exchange
meets daily. and, upon information OF {
etual spot transactions. quotes the
rices of the various grades. which J
uotations virtually establish the dir | {
arences which apply on future con y
'acts. Thta is to say. the New York u
vstem arbitrarily fixes what the dif Ia
'rences for all grades shall be for two c
lonths or for ten months while New :
rleans follows the actual market diff n
rences for these grades as establish a
by daily spot transactions This a
lrt compares these two methods. d
The buyer of future contract can q
II specify the grades 10 be delivered a
ereOn. Obviously, therefore. he is O
eatly CONCERNED as to the differ r,
ces' at which he may have to ac a
pit the various grades He knows "
acuy the price for one erade-that b.
middline cotton. That price was n
pulated in his contract. the so-called tt
SIS price. But as to the prices which a
must pay for other grades he is m
pendent upon the exchange differ I'm
ces. The underlying principle of a ia
Sis contract undoubtedly is that II S,
? seller does not deliver middlina 81
ton he shall substitute other grades "a
~ at their true value relative to lhs
At of mihdling in the spot market N
the time Ct delivery is at the m
ual commercial differences. This an
arly Is the only equitable basis OK
der these conditions. as far as price sit
concerned, basis future contract
substantially the equivalent of "a
ltract for middling cotton. Consc W
entity the market price OF basis fu in
Q contracts for immediate delivery fe,
'uld be practically the same as the sill
&c of middling cotton in the SPOT
rket There is. however. properly Iit
small regular margin between the NJ
,. because some expense is involved ke
sorting ont aud disposing of tho tn,
Ied assortment OF grades likely To- no
received on contract de-