the Chicag this chapter alation in the the n points with at the larg equal facilit fetch a bette the alterna imes to stor em to get out edges in this view of what as of the us ed. As precago for the or safety in ted back to hedge pur ely hedging he relativel vhen condi tal purpose a straight sort of use a operations le are char CHAPTER IV VOLUME OF FUTURE TRADING Section 1. Character of analysis. 1 A summary estimate of the total quantity of grain future trading in the United States for a period of 35 years, appearing in a previous volume of this report, shows that the Chicago Board of Trade accounts for about 86 per cent of the total. No further reason is necessary to justify paying most attention to Chicago statistics in dealing with the volume and other quantitative aspects of future trading. DATA FOR PERIOD PRIOR TO 1918.--General data for the quantities traded-in (which are not printed but are open to inspection at the office of the Commission 2) show the volume of trading by months for each grain at Chicago for the three-year period 1915 to 1917, together with derivative data of open trades, etc. The data are shown separately for each of eight groups of members clearing future trades. The totals depend to a great extent on estimation.3 General tables for Kansas City are similar in form though the clearing-house members are combined into fewer groups. The tables for Minneapolis do not show the derived open trades. The years covered by these tables depend upon the character of the available data. For Chicago the data for volume of transactions by groups of clearing-house members are carried back through the calendar years 1913 and 1914 on a less comprehensive basis and in less detail than for the later years mentioned above. Statistics of deliveries, of scalping trades, and of the division of trades according to a classification of members are particularly described as regards method and significance in the sections devoted to these subjects. INTERNAL REVENUE BUREAU DATA.-Along with the institution of the tax of 2 cents per $100 of value on commodity futures in December, 1 Vol. V, Ch. I, sec. 4, especially at pp. 42 and 43. 2 The general tables are distinguished by roman numbers. They are listed in Appendixes H and P. 3 Because of the incompleteness of the statistical data in the case of Chicago and Minneapolis-due to the destruction of records, to reluctance of clearing-house members to make returns, etc.-it is necessary to piece out the statistics by estimation. The estimated total trading is in neither case dependent upon the compilation of complete returns. With the aid of tax data for Chicago and of the income of the clearing house at Minneapolis it is possible to arrive at a reliable estimate of total trading for both these markets. In filling the gap between the compiled figures and the estimated totals a system of weights is used that is based upon the relation in each group of clearing-house members of the number of returns to the number of members of the group. The compiled quantity is multiplied by the appropriate ratio. Because of the element of estimation involved in obtaining the data of future trading for the period prior to 1918 (except in those cases where returns used for certain markets are the figures obtained directly from the clearing house) and because the significance of the quantities is mainly relative, the figures for Chicago, Minneapolis, and Kansas City are presented in the form of ratios instead of as quantities in bushels. The conformity of the detailed tables of this volume with the preliminary estimate of Volume V (reproduced in part at the opening of this chapter) is general, but not specific. No attempt has been made to make the variation from month to month such that the individual calendar years will show a close approximation to the figures of Volume V, although there is sufficient correspondence of the figures for several years combined. of records of trades in prescribed form such that adr needs in connection with the collection and checking up and incidentally some other purposes, might be properly is scarcely necessary to say that statistical purposes are served by the records in question. Some of the necessary from the individual records was done by this commission. pilations from the Internal Revenue Bureau's returns fro 1, 1921, the commission is indebted to the Grain Futures A tion of the Department of Agriculture. Prior to July 1 data presented are not for a continuous period, there bein the six months, January-June, 1918, and the year, July, 19. 1920. The possibility of obtaining statistics of open trade data available is especially significant. OPEN TRADES. An open trade is a commitment in futu ligation upon which is extant or open as distinguished fr mitment upon which the obligation has been in some resp by an opposite trade. As there are several senses in wh may be offset, however, the meaning of "open" depends on what is meant by "offset," and there are corresponding kinds of open trades. Open, in the fundamental sense, is open for the pri future trades. Purchases not offset by sales in the same sales not thus offset by purchases, as shown in the ledg for the principal on the trade, are open in this sense. TH quantity may be referred to as open for customers, or ope mate customers. The customers of a Chicago wire hous correspondents submitting trades for others as principa therefore, necessary sometimes to specify the open as for customers or ultimate principals in referring to such op No comprehensive statistics of open trades in this sense are anywhere available. Of course, a commission-house par scalper may be a customer of himself. The quantity op time for any customer's account can be computed from t ledger, being for each option the difference between hist chases and his total sales at that time. Trades described as "open between houses" (or between of the clearing house), "open on the street," "open at the house," are similar to each other and all different from tra for customers. The only statistics of open trades which a able and which are employed in this report are open in s A clearing member or commission house offsets ar trades on his books regardless of whether the bought and tain to accounts of different customers. Hence, what he in his relations to other commission houses (or in his "st 4 Quantities for other than the four most usual options are in general dis the tabulations upon which this chapter is based, except for the July1918-19, when wheat futures were suspended, and except for March, 1921, v quantities in question are insignificant, but their omission affects the comp the data published by the Grain Futures Administration for the period sin also do the minor adjustments (referred to in footnote 8 on p. 89) made wit to convenience and correctness in the compilation of open trades. 5 With a partial exception for certain figures in the 1924 report of the Gra Administration. See also the sample data of days open in secs. 4 and 5, Cha ires the obrom a com spects offset hich trades = altogether gly several incipals on option and er account This sort of en for ultise may be als. It is ▪r ultimate Den trades. at present tner or a en at any the option total pur dealt with in this chapter), all purchases and sales are in effect automatically offset so far as arithmetically possible; that is, only an excess of sales over purchases by any commission house, or vice versa, will remain unoffset between houses (in this case at the clearing house). At Chicago offsetting depends on ringing out and there may be trades on both sides open between houses which would be offset under the complete clearing system. The open between houses under the Chicago method of clearing, therefore, is relatively larger than under the complete clearing system. It has been found convenient in the present chapter to derive a net open as a cumulated net of purchases and sales for each house, or for each clearing member, at Chicago, for the period prior to 1918 and treat this as a net open between houses or on the street. This quantity would correspond to the open at the clearing house under the complete clearing system and is less than the actual street open. To this open the term "net open between houses" is applied." It has been found convenient, also, to derive a further net open by groups of houses in which the group is treated as if it were a single commission house, and a net of cumulated purchases and sales is computed for the group only. These figures are termed "open between groups," and have little general significance. They are significant statistically, however, as showing the side of the market, long or short, on which the dominant interest of the group in question lies. At the other extreme of this class of open is the open reported to the Internal Revenue Bureau by members of the Chicago Board of Trade since 1917. It is not the open for customers but is greater than what would correspond to the open at the clearing house for other markets. This open is termed "open on the street (reported open)." & ४ THE GROUPING OF CLEARING-HOUSE MEMBERS FOR TABULATION.-For statistical purposes the clearing-house members were classified on As a result of a vote of the members in September, 1925, the Chicago board ceases to be an exception. For a description of the old Chicago system, see Vol. V, p. 223. As regards the figures for estimated open trades prior to 1918, a word of caution with regard to their limitations is necessary. The long and short interests should balance. They do not, and usually not by a considerable quantity. The method of obtaining the results in question involves what is known to the statisticians as the theory of sampling and, in fact, puts the principles involved to a severe test. It would be unreasonable to expect the figures for open trades to check exactly. At that stage their significance is largely a matter of signs and they are treated as having chiefly such significance. Some mathematicians might easily figure out the probable error of the figures in question on the basis of the failure of the open trades to come more nearly to a balance. It is always true that the net position of the house, long or short, is the net position of its customers (counting the partners who trade among the customers). It may be important to know on which side of the market the house or group of houses is. The data for open trades shown in the general tables for periods since 1918 are based upon comprehensive returns. To the critical statistician they may look too good to be true and the fact is that adjustments have been made to make the totals check into each other as they should. This is of no importance as regards the indicated volume, or the distribution, of transactions, but the adjustments bring the figures nearer the truth in a way that may be important as regards open trades. The figures themselves by their interrelation often indicate just where the needed correction should be made, and where this is not the situation the apportionment of the adjustments leaves the basis of comparisons and conclusions unaffected. Bought rather than sold figures have been modified on the assumption that more pains will be taken to render exact returns on the taxed side. But the adjustments would be justified by the convenience of having the derivative tables self-checking, as they should be, even if there were no consequent greater accuracy of the adjusted figures, as there is bound to be when the situation so greatly favors correct adjustment. tamed гош a carerur canvass Ur le raue. ап пouses list in other years, both prior and subsequent to 1917, the same group, irrespective of whether or not there was in the character of the business. The classification d account of changes in the character of the business f year chiefly because statistical complications would resul between classes. Changes in the character of the bus over, were gradual and were found not to be importan more, no functional classification of clearing memb clear-cut, since a large proportion of the members are more than one line of business. New concerns beginn in any year were added to the various groups accor character of their business, while concerns discontinu were dropped at the appropriate time. The Chicago classification is shown in detail in Chapt 29. Those in the group of pit scalpers and traders though not exclusively, trading on their own account. 7 elevators, also, are to a large extent so trading. For significance of the classification depends mainly on di tween the customers of the various groups. In all cas the distinctions are merely relative, the wire houses, f including a larger proportion of miscellaneous outside any other group but not all such trade. The numbers the various classes are as of the close of 1917.9 For Minneapolis the grouping of clearing-house me January, 1917, was as follows: Futures-including one Minneapolis and one Chicago wire hous three other commission houses specializing in futures, and of pit scalpers and brokers__. Commission houses handling mainly cash grain for customers an elevator facilities___. Line elevator companies. Total The line drawn between terminal elevators and line Minneapolis is rather arbitrary, the two businesses bei combined. The mills, of course, usually have elevators o In some cases concerns with elevators have been put in sion class because of the predominant importance of the branch of their business. The least homogeneous class nominated "Futures." While the classification appears to differ considerably used at Chicago, it is as nearly comparable as statistica tions and local differences permit. Wire houses are of portance at Chicago and line elevators and mills are o importance. The first five classes at Chicago correspond in the above Minneapolis list. Provision dealers and tra In carrying back the grouping more importance has been attached to th the business of each group than to the applicability of the classificato Thus, a commission house that had a wire system in 1917 is treated as throughout the 5-year period, even though it may have acquired its wires to of the period. in each group as of January, 1917, is as follows: The classification differs from that for Minneapolis in the absence of a separate group of line elevators with headquarters at Kansas City.10 Section 2. Volume of transactions in futures. TOTALS ON THE CHICAGO BOARD OF TRADE.-The total volume of futures traded in on the Chicago board in the year 1916 has been estimated at 23,800,000,000 bushels.11 This is a maximum for a long period prior to the war, though the figure was probably exceeded by the volume traded in in some years in the eighties of the previous century. This high figure also appears to have been nearly equaled by one year since the war (1920-21).12 An approximate figure of 20,000,000,000 bushels a year as a high average is fairly representative of trading on the Chicago Board of Trade in a good year. CURVES SHOWING VARIATIONS OF TRANSACTIONS AND OF OPEN TRADES AT CHICAGO, 1915-1917 AND 1920-1923.-Diagrams 3 and 4 show, respectively, transactions by options for each month in the three calendar years 1915, 1916, and 1917, and open trades at the close of each month similarly arranged. While the units of quantity in the scales are not the same for both diagrams, the quantities are entirely comparable for the curves within each diagram. These diagrams (and also Diagrams 5 and 6) are referred to in various places in this chapter, but some of the more outstanding points may well be mentioned immediately. Diagrams 5 and 6-for the period July, 1920, to December, 1922-are constructed on the same plan as those for the earlier period but are based on Internal Revenue Bureau data. The different character of the open trades shown in Diagram 4 and Diagram 6 is noted at page 89 above. The comparative volume of transactions shows the much smaller importance of oats than of wheat and the intermediate rank of corn. It appears also that, for the year 1917, each is much affected by the practical suspension of trade in wheat futures before the middle of the year, since the heightened activity in corn and oats after May, 1917, may properly be attributed to a substitution of these grains, as regards the speculative interest, for the discontinued trading in wheat. The reverse of such an effect appears, especially as regards 10 The numbers in the various groups of clearing-house members at the three markets should not be expected when added together to equal exactly the total membership, since members entirely inactive in grain futures should not be included for statistical purposes. In using the clearing membership data, moreover, some smoothing as regards changes in membership has been applied on the ground that a new member may not be supposed to obtain a full-fledged business immediately, nor a member that drops out to have maintained an active business to the end. 11 Vol. V of this report, p. 35. 12 The exemption of scratch trades since 1919 may mean a slightly smaller returned total in relation to the same actual total trading than prior to such exemption. |