Mr. LUDLOW. Obviously, because of the enormous area affected, you cannot adequately patrol the forests, can you?

Mr. LOVERIDGE. Not with our present set-up.

Mr. JUMP. On top of this regular force, when they have a big fire they put on hundreds and sometimes thousands of men to fight the fire, and the wages they pay those men are included in this deficiency item. Sometimes there will be as many as 20,000 people fighting fires.

The CHAIRMAN. Have there been any deaths during the past year from fire fighting?

Mr. LOVERIDGE. Yes; the number of deaths is 11.

FRIDAY, JANUARY 15, 1937.

COMMODITY EXCHANGE ADMINISTRATION

STATEMENTS OF HON. HENRY A. WALLACE, SECRETARY OF AGRICULTURE; J. W. T. DUVEL, CHIEF; J. M. MEHL, ASSISTANT CHIEF; R. R. KAUFFMAN, ASSISTANT CHIEF INVESTIGATOR; ALBERT STRACK, ADMINISTRATIVE ASSISTANT; AND W. A. JUMP, BUDGET OFFICER

GENERAL STATEMENT

The CHAIRMAN. We have before us in House Document No. 124 an estimate for a deficiency appropriation of $150,000 for carrying into effect the provisions of the Commodity Exchange Act, and providing that the appropriation for the enforcement of the Grain Futures Act may be used for the Commodity Exchange Act.

I see Secretary Wallace is here, and I expect he would like to make a statement in reference to this matter.

Secretary WALLACE. Mr. Chairman, I am more than usually interested in this particular proposed appropriation, which is to carry out an amendment to the Grain Futures Act, which was signed last June, I believe.

The grain futures act was amended to include a number of commodities that were not in the act before, and to clarify the powers of the Grain Futures Administration, or, as it is now known, the Commodity Exchange Administration. It provided that cotton, rice, mill feeds, butter, eggs, and potatoes be included in addition to wheat, corn, oats, barley, rye, flaxseed and grain sorghums.

The CHAIRMAN. It provided that the word "commodity" shall mean wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, and Solanum tuberosum, or Irish potatoes.

Secretary WALLACE. Let us get that quite clear. The act, prior to being amended, provided that the commodities regulated were wheat, corn, oats, barley, rye, flaxseed, and grain sorghums. The amendment provided for adding cotton, rice, mill feed, butter, eggs, and potatoes.

The amendment also provided for clearing up certain matters of power having to do with wash sales, cross trades, accomodation trades, and fictitious sales.

Mr. TABER. Has it resulted in an enlargement of the duties of the Department with reference to the commodities that were previously covered?

Secretary WALLACE. Yes, there is an enlargement of the duties with regard to the commodities previously covered.

Mr. TABER. That is, it will take more activity on the part of the Department to cover the work that has been previously covered? Mr. DUVEL. As to the protection of the customer's margin, there is quite a little activity there which is entirely new.

Mr. CANNON. The amendment to the act increased a number of commodities and also increased the scope of the supervision? Secretary WALLACE. That is right.

Mr. CANNON. On those originally in the list.

Secretary WALLACE. The grain futures act has been largely observational in nature, enabling us to discover which individuals or corporations were in the futures market to an unusual extent so we could determine when there were results due to manipulation.

The CHAIRMAN. It had no teeth in it.

Secretary WALLACE. Very little in the way of teeth.

I feel that the matter is of considerable concern. The amendatory act was passed so late in the last session of Congress that we were unable to get an appropriation to carry it out. I feel it is important to have it provided for in the deficiency bill because there is a great deal of talk in many different quarters to the effect that speculators who had formerly put money into the stock exchanges are now getting ready to put it into commodities, and it would be conceivable that with certain combinations of monopoly factors and weather factors, we might be very much interested in knowing what is going on.

BENEFICIAL RESULTS EXPECTED FROM ENFORCEMTNT OF THE ACT

The CHAIRMAN. Suppose you tell us what beneficial results will flow from the enforcement of this act. What is it supposed to accomplish?

Secretary WALLACE. That was developed quite fully in the hearings last year and I would not undertake to develop in a very brief period what took rather extended hearings to develop last year.

I suppose you are quite familiar with the nature of future commodity

markets.

The CHAIRMAN. Reasonably so; but that is a thing I do not believe anybody ever knows completely.

Secretary WALLACE. It is a very complicated situation, and that is really one of the purposes of the legislation to discover what happens in this complicated market.

The CHAIRMAN. If you discover a corner in some commodity on some market, with an unusual quantity being bought, you are given the power in this act to limit the quantity of transactions on the exchange, are you not?

Secretary WALLACE. Yes.

Mr. CANNON. Bucketeering is absolutely prohibited?
Secretary WALLACE. Yes.

Mr. MEHL. May I suggest that, in a broad, general sense the Commodity Exchange Act as it now exists is designed to accomplish in the field of commodity futures trading what the Securities and Exchange Act is intended to accomplish in the securities field.

I do not mean to suggest that the work of administering this act is similar to the work of administering the Securities and Exchange Act. The CHAIRMAN. I want to know how you will accomplish the same results.

Mr. MEHL. Broadly speaking, the Commodity Exchange Act aims to protect the investor and trader in commodity futures against dishonest and unethical practices, and to protect the national public interest against the dangers of overspeculation

SUMMARIZATION OF THE PRESENT COMMODITY EXCHANGE ACT

The CHAIRMAN. That is a very fine speech, but I want to know how you are going to do it.

Mr. WOODRUM. What is the mechanics of it?

Mr. MEHL. May I place before you first a copy of the Commodity Exchange Act as it now exists

The CHAIRMAN. I have that.

Mr. MEHL. And then indicate the new additions made by the 1936 amendment, and summarize what those provisions are?

The CHAIRMAN. I would rather have you summarize what the act is, what it provides, as it now stands.

Mr. MEHL. The whole act?

The CHAIRMAN. Yes.

Mr. MEHL. In the first place, it is unlawful to trade in commodities for future delivery, on or subject to the rules of any exchange in the United States, unless that exchange has been designated as a contract market by the Secretary of Agriculture.

The CHAIRMAN. Is that a license requirement?

Mr. MEHL. It virtually amounts to a license, because in order to be given this designation an exchange must make a certain showing. It must be located in a terminal market where cash commodities are sold in sufficient volume to reflect the difference in price between the different grades, or the contracts dealt in on such exchange must provide for delivery of the commodity at points where these conditions exist; it must require its members to keep books and records showing the details of all cash and futures transactions, which must be open to inspection by representatives of the Department of Agriculture or the Department of Justice. It must, by rule, provide for the prevention of manipulation of prices and the cornering of commodities, and it must provide for the prevention of the dissemination of false and misleading crop and market information affecting prices in interstate

commerce.

One theory of the old Grain Futures Act of 1922 was that the exchanges would police their own members, so to speak, in order to enjoy the right of being designated as a contract market. We found, from 12 years of experience, that this was not the best kind of a policing system. By the amendment of 1936, in addition to curing some defects in the form of the law, and adding certain commodities, of which cotton was the most important, there was provided a licensing system, or a registration system for futures commission merchants and floor brokers. This enables the Government to know who the various firms are that are engaged in soliciting orders from the general public, and also the individuals who, on the floor of the exchange, are actually executing orders.

Then it provides that as to such futures commission merchants, they must treat and deal with all margin moneys received from customers to margin or guarantee or secure trades in commodities, or moneys accruing as the result of such contracts, as belonging to such customers. They are prohibited from using such moneys either in their own business or for extending credit to others.

In the past some commission firms got much of their working capital through the device of collecting margins from their customers. By having large sums of money belonging to other people, their smaller customers, they were in a position to extend credit and help finance the operations of large speculators.

Men like Mr. Cutten and Dr. Crawford were able at times to conduct market operations on a scale that would be impossible except for the use given them of large sums of money belonging to other people. That may not be done under the act as amended.

Another very important power is given to the Commission, consisting of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General, to fix trading limits.

Mr. CANNON. Under the old Grain Futures Act that power was vested in the Secretary himself, was it not?

Mr. MEHL. No, there was no such power in the old act.

Mr. CANNON. I understand the power has been enlarged, but such power as there was was in the Secretary himself and not vested in this Commission; is not that so?

Secretary WALLACE. Except for the purpose of the hearing of cases, it was under the three Cabinet officers designated.

Mr. MEHL. There has been an important change which I think you have in mind, Mr. Cannon. Some of the powers that, under the Grain Futures Act, were vested in the Commission now are exercised by the Secretary alone, but the power to fix trading limits is a new power, and it is vested in the Commission.

Mr. CANNON. That power is rather analogous to the power also vested in the Commission which has charge of the administration of the Securities Act.

Mr. MEHL. Yes; in the sense that it strikes at the same purpose as regards overspeculation. The accumulation of excessively large speculative lines jeopardize market stability. Such a limitation was necessary to prevent excessive speculation being a burden on interstate commerce. The Commission may fix a limit upon the amount of any commodity that may be bought or sold for future delivery during the course of any trading day. Also upon the amount of the speculative position which one may have in any commodity or in any future of such commodity at any time. When a trading limit has been fixed, it is a criminal offense for any person to exceed that limit for speculative purposes.

Hedging transactions are exempted. Spreading transactions, or straddle transactions as they are referred to in the cotton trade, may or may not be subject to this limitation in the discretion of the Commission. Different limits may be fixed for different purposes, for different commodities and for different futures.

Mr. LUDLOW. Has it been necessary to exercise these restrictive powers?

Mr. MEHL. We have not really started to operate under the act as amended. As the Secretary said, the act was passed too late during

the last session of Congress to enable an appropriation to put it into effect.

Mr. LUDLOW. So far, you are not functioning under the act at all?

Mr. MEHL. Only to this extent, that since it is unlawful for futures commission merchants and floor brokers to operate without being registered, we have taken care of this out of funds appropriated for the enforcement of the former Grain Futures Act.

USE OF APPROPRIATIONS AVAILABLE UNDER ORIGINAL ACT TO CARRY OUT AMENDMENT

The CHAIRMAN. Did you not have an appropriation under the old act to carry out the amendment?

Mr. MEHL. Yes.

The CHAIRMAN. How much was that?

Mr. MEHL. That was $196,500.

The CHAIRMAN. Have you used all of that?

Mr. MEHL. No; we have used that to carry on work formerly conducted under the Grain Futures Administration.

Mr. TABER. How much of it have you used down to date?

Mr. MEHL. I think it is rather fully obligated. We have used from it in excess of definitely obligated funds for the old work.

The CHAIRMAN. Tell us how it is obligated. We want to know the facts. How much have you used and how much have you obligated? Mr. MEHL. May I refer that question to Mr. Strock who has direct charge of our business operations?

Mr. STRACK. From the funds appropriated for the enforcement of the Grain Futures Act we have diverted approximately $16,000 to the additional work brought about by the amendments of June 15, 1936, and in that amount there is included a small amount that would ordinarily be saved, and some money we have taken from other activities to do certain things that had to be done under this new act. have registered the point in our presentation to the Bureau of the Budget that we had to have about $6,000 to actually carry out our obligations in connection with the grain phases and the Commodity Exchange Act.

We

The CHAIRMAN. We want to know what you will need. We want an accounting of the $196,500 that you had. It is available for the amended act, is it not?

Mr. MEHL. Yes, sir.

The CHAIRMAN. Then you have $196,500 to carry out the amended act. You come here for a deficiency, and you have to make a showing that you need this deficiency, or you will not get it.

Mr. STRACK. The situation, briefly, is this, that we have our organization set up to take care

BREAK-DOWN OF ESTIMATED BUDGET FOR COMMODITY EXCHANGE ACT FOR 1937

The CHAIRMAN (interposing). Give us a break-down of it.

Mr. STRACK. I have here a break-down of the items on which the estimate has been based, a break-down of the funds under the old grain futures appropriation. The first two are merely abstract sheets. The first one gives you the basis upon which the supplemental estimate for 1937 has been based.