The Cairo bulletin. (Cairo, Ill.) 1???-1928, 1908-05-04

| livery G. Instant III allOunt~-lHat u
that there should be substantia
i'party' maintained between the spo
l lprice of middling cotton and the prize
| lot middling cotton on contracts TO
lis supposed To represent actual cotton
and from the very nature Of thing,
such a parity should be preserved
: The respective merits OF fixed" ant
commercial" differences are, there
fore, roughly indicated by their effec,
on this parity. In general, It may be
said that the commercial difference
| system maintains this parity far bette
than the fixed difference system. This
Is because the commercial difference
Isystem is based on actual daily trans.
factions in cotton so that the same in.
Iduences that affect the differences in
spot transactions also affect the fu,
iture contract differences aud thus
of future contracts and the price Of
lspot middling cotton. Under a proper
application of the commercial differ
fence system the operator in future
contracts can base his calculations on
the course of middling cotton. aud is
able largely to disregard differences
| fer other grades, since he relies on
the exchange to keep these constantly
correct.
Under the fixed difference system
on THE other hand the operator be
sides considering the probable course
| of the middling price. must also con.
slider the course of the prices of all
Iother grades. Fixed differences are an
attempt to establish arbitrarily. ami
months in advance. the relative values
of grades. These differences are bound
TO become at times erroneous. be.
cause the relations of values ineyi.
|tably vary under the natural laws of
supply and demand Consequently.
.H the operator believes that the fixed"
differences are wrong or may become
wrong by the time the contract ma
lures, he will. because he is bound
by them. endeavor to offset this error
by modifying the basis price which he
offers for the contract. and this. as n |
matter of fact. constantly occurs dur
ing such variance, Further. nasmuch
as the seller has the option of deliver |
ing any one or all the grades, he will |
Of course, deliver those grades which /
are most Oyeryalued by the existing |
diherences, so that the basis future |
price will be affected. not by the |
average error in the differences, but |
by the maximum error therein. The |
result is that the price of future con.
tracts, thus affected by the fixed diff |
ierences, viii at times vary widely
from the actual price Of middling cot
ton in spot transactions. The extent
Of these variations will depend chiefly
upon the extent of the errors in differ.
ances. In other words. these errors
will disturb the normal parity above
described. These disturbances have a
very far reaching effect, cspeciallr~ a
The distribution OF speculative risks
The reply of certain interests in the
New York Exchange is that "a con
ract is contract that men who
teal there come of their own will and
ire supposed to understand the game.
This position can not commend itself
Is sound business ethics PRACTICALLY.
Iiso it is not true that cotton interests
ire wholly at liberty to stay out of the
Exchange AS shown above. certain
interests may have hedging place.
furthermore financial connections
nth New York are so close that New |
'ork must be that place for many of
hem. Still further, the New York Cot.
On Exchange practically owes its ex
itence to the volume OF business
lade possible by the participation of !
inside interests. Both the duty of a !
ficate business man to his customers ,
nd the duty of concern which is to :
certain extent a public utility de 8
and fair dealing :
The injury from such errors in diff l
rences as are inevitable under the
Sed difference system is not, how I
'er.-the limit of possible harm under
at system. There is danger that Il
1proper differences may be inten. 50
Dnally established. n
As stated above, differences are fix
in New York by the revision com -
ittee but twice year. The New
}rk Exchange does not, as does New Z
leans, provide any standard by Il
fch the committee shall act 1t is -
I Obliged to follow the spot market II
citations, or even any general prin- d
de. This leaves it an extreme de "
PC of arbitrary power This com W
ttee is usually made up of men who Of
2 large operators 0 nthe exchange sc
d who are constantly interested in IT
future market. 1t is within their a
wer so to fix these differences as to 10
ect enormously the value of their ct
n future contracts. In this same Oil
iision of November. 1906. when the a
ferences fixed by the committee a.
re radically wrong. several mem :"
IS e this committee have admitted
t they were at the time heavily in
ested in future contracts. and that
y profted by the action of the com ."
tee There is no conclusive proof
t they intended this II is sufficient -,
point ont that this fixed difference ~