Los Angeles herald., 1909-12-06
TRADING
SYSTEM FAULTY
CORPORATION COMMISSIONER
SCORES EXCHANGE
PRODUCERS AND DEALERS VIC
TINS OF METHOD
Herbert Knox Smith in Federal Report
Condemns Practice of Specu-
lating in Futures as Now
in Vogue
Associated Pressl

WASHINGTON, Dec. Both the
producers of cotton and the dealers IN
that commodity are the victims of the
system of trading in vogue on the
cotton exchanges of the country.
This is the burden of parts and .
of the report of Commissioner Of Cor
porations Herbert Knox Smith on the
conduct of such exchanges. The prac-
tice of dealing i'm futures, as 1t IS
carried on at present, is condemned, al
though the report does not condemn
the existence OF the exchange.
THE brief discussion of general
speculation in this report says MI
Smith. recognizes the possibilities for
good inherent i'm "A great central mar
ket like a cotton exchange. and the
need that this good be developed and
evils eliminated by regulations IN llne
with economic law
The report is especially condemna-
tory of the dealings i'm futures, brand
ing this form OF speculation as pure
gambling and highly injurious to
legitimate trade. In quotations for
future" deliveries of cotton the market
is SO uncertain that so many elements
of chance enter into the transaction
that all bids are made at much lower
figure than those offered for cotton
actually in existence.
The effect of these fictitious quota
tions, the report points out, tends to
mslead the cotton planter as to the
tue value of his crop, honestly grown.
In addition, il leads brokers to play
both sides of the market to protect
themselves against loss i'm such trades,
with the result that the producer is
forced to pay i'm the end, while the
farmer loses likewise.
Exchanges Necessary
The report. while recognizing that
the exchanges in New Orleans and
New York are necessary, does not
mince words i'm critiCising the New
York exchange. After declaring that
the New orleans methods of conduct
ing the transactions In cotton followed
natural lines, the report draws atten-
tion to the fact that it has heen
proved that the abnormal depressions
i'm the future price in New York ''Were
almost wholly due TO improper artl-
fetal conditions now maintained by
the New York Cotton exchange. BY
maintaining them the New York eX-
change is responsible for very real
injury to the producer and merchant"
In closing the letter to President
Taft, which accompanied his report,
Commissioner Smith again takes oc-
Casion to reprOve the New York eX-
change. He says:
After the publication Of the earlier
parts of this report the New Orleans
and New York Cotton exchanges
established special committees in
structed to consider the systems Of
their exchanges and to cooperate
therein with the commissioner of cor
porations. Conferences have been held
by the commissioner with both COM
mittees. on the part of New Orleans
this cooperation was very complete, re-
sulting in certain important improve
ments i'm the rules Of that exchange.
After more than years investigation
the committee of the New York eX-
change has not yet made any final re-
port or taken any substantial action"
The commissioner touches on the
activities of the various organizations
Of cotton growers, all formed with a
view of controlling both price and pro-
duCtiOn. lie believes, however, that
so numerous are the factors of supply
and demand in determining the price
of cotton that it is impossible to arrive
at any satisfactory conclusion as to the
extent of influence eXerted by such
organization.