Clinch Valley news. [volume] (Jeffersonville, Va.) 18??-2019, 1908-05-08
MUST ACT FAIRLY OR
a GO OUT OF BUSINESS
New York Cotton Exchange Is
Given a Severe Jolt.
SMITH SUBMITS REPORT.
Method of Fixing Future Prices
of Staple Declared to Be I'm
just-Figures Doctored for
Advantage of Spectators.

WASHINGTON. ID. C.-Special.-I
In response to resolution of the
House OF Representatives directing the
Department OF Commerce and Labor
to inquire into and report upon the
cotton exchanges OF the United States
Commissioner Herbert Knox Smith
has submitted a report I'm which he
severely condemns the methods in use
by the New York Cotton Exchange
The report Is in part as follows:
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 exchanges
is In so-called basis contracts-that
Is contracts which permit the delivery
OF cotton on one contract The sell
er OF this contract may deliver there
on any grade he chooses within the
range prescribed by the exchange.
The buyer has no option.
New York System.
For the last eleven years the New
York Cotton Exchange has had a So
called fixed difference" system
committee o fthe exchange, commonly
known as the revision committee.
meets twice year i'm September and
i'm November. and establishes the re-
spcctive price differences on or off
which shall apply to the grades other
once established. cannot be changed
until the next regular meeting. and
govern all contracts in futures.
The New Orleans Cotton Exchange.
on the other hand. has what is known
as the Commercial difference" sys-
tenn. \ committee of the exchange
meets daily. and. upon information
OF actual spot" transactions. quotes
the prices OF the various grades. which
quotations virtually establish the diff
~
tracts.
Gamblers Sure Thing.
Fixed differences are an attempt
substantially to render future trans
actions a sure thing" for a limited
class OF speculative experts. The
system amounts TO an attempt abso-
lutely 10 fix prices-an economic alb
surdity. The relative value OF differ
ent grades are as much subject to the
natural laws OF supply and demand
as the value of middling cotton itself.
and II is as unreasonable TO attempt
to fix one by the fiat OF n committee
"a IL is the other.
The foregoing criticisms were strik-
ingly Illustrated in November. 1906,
as the result OF the failure of the New
correct differences Owing to abnor-
NAL weather conditions. the CONNER
cial values OF the lower grades OF cot
ton fell very sharply from the price of
X.
failed TO adjust its fixed" differences
to the actual situation. and establish
ed differences for low grades which
very heavily oVervalued them.
AS n result the future contract price
at New York dropped abruptly from
the price OF spot middling, to the ire
mendous loss OF vast number OF
holders Of future contracts for cotton,
and the profit of the few experts who
understood and anticipated the effect
a IL.
who had hedged cotton by buying
contracts In New York. were injured
by this striking disturbance in the
parity. number OF failures in the
South were charged To this one cause
alone. one result has been to reduce
hedging in New York. as the posi-
bilities OF its artificial system were
thus disclosed.
Skin the Public.
The New York Exchange does not,
rs does New Orleans. provide any
standard by which the committee
shall act 1t is not obliged TO follow
the spot market quotations, o. even
/ any general principle. This leaves IL
an extreme degree OF arbitrary power.
/ This committee is usually made up of
men who are large operators on the
exchange. and who are constantly in
terested in the future market.
1t is within their power so TO fix
| these difference as TO affect enor-
/
! contracts. In this same revision OF
| November. 1906 when the differences
/ fixed by the committee were radical
| ly wrong. several members of this
committee have admitted that they
were at the time heavily Interested in
future contracts. and that they profit
ed by the acton of the committee
There is no conclusive proof that they
intended this. 1t is sufficient to point
out that this fi&ed-difference system
,.al
body Of men. furnished in this case q
the power thus TO reap enormous pro
fits at the expense OF others: CD they
admit that ttey did reap profits; ant
go the motive for doing so was ex
tremely wrong. Comment upon thu
situation is hardly necessary.
| BE Honest or Quilt.
| 1t is contended by many that suci
a return to the commercial-differen
system would. because OF the disad
Yantages of New York's location. de
stroy the business OF the New Yorl
Cotton Exchange There IS little rea
son to believe that any such result
would occur. However this may be
the New York Cotton Exchange. II
cannot exist under a just and equita
BILE system. has no excuse for exist
ence at all. The present New Yorl
system OF fxed differences is unecono
mic in defiance of natural law, un
fair. and, like all other attempts I
defy natu raj law. results in such com
pick and devious effects that the ben
eft OF its transactions accrues only