Page images
PDF
EPUB

Estimated value of seat on New York Exchange, $53,000. Rate of annual charge in proportion to value of seat, eight-tenths of 1 per cent.

[blocks in formation]

Estimated value of seat on Baltimore Exchange, $3,000. Rate of annual charge in proportion to value of seat, 15 per cent.

VI. GRATUITOUS SERVICES OF BROKERS TO THE GOVERNMENT IN SELLING LIBERTY BONDS.

It is well known that the success of the flotation of the three liberty loans which have been issued has been due in very large measure not only to the active work of the banks and trust companies, but also of the stockbrokers throughout the country. These brokers for a month at a time devoted themselves almost exclusively to the flotation of the loan. Many of them served upon liberty-loan committees, devoting all their time to soliciting subscriptions and speaking at meetings throughout their respective States, furnished the services of their clerical assistants, and undertook the financial obligations incident to the handling of enormous numbers of small subscriptions. Probably no class of professional men have made any greater contribution or greater sacrifice in assisting the Government in the essential work of pro-viding means for carrying on the war. Few classes of the community have exhibited greater patriotism or greater willingness to respond to the call of the Government by not only paying their own taxes and assisting and advising others in the preparation of tax returns, but also in the specific contributions they have so freely made to the common welfare by doing their part in bringing out the universal response to the Government's appeal for funds.

Respectfully submtted.

Counsel for Baltimore Stock Exchange.

The CHAIRMAN. Mr. N. B. Lowes will now be heard.

STATEMENT OF MR. GEORGE N. B. LOWES, REPRESENTING THE CHICAGO STOCK EXCHANGE.

Mr. Lowes. Mr. Chairman, our situation is slightly different from the situation presented by Mr. Hinkley. Our members are members of six or seven other exchanges, or many of them are, and the tax based upon memberships will be a very high tax upon them, and it would seem to us that the tax should be a flat tax based upon the business of the brokers, and not based upon the values of the memberships, because it is necessary, quite often, for brokers to be members of other exchanges in other cities. I would, therefore, suggest that the situation be considered with reference to a tax upon brokers, a flat tax upon brokers, not with reference to the value of their memberships. I believe that is all I care to say.

Senator JONES. What advantages do you get by being a member of several exchanges?

Mr. Lowes. Various connections with firms in other cities that probably would send business, and such things as that. And it is possible there would be some other advantage. I will ask Mr. Thomas, treasurer of the exchange, to answer your question.

Mr. THOMAS. Division of commissions.

Mr. Lowes. Upon business sent from other brokers. I thank you. The CHAIRMAN. Mr. James Maloney desires now to be heard. Proceed, Mr. Maloney.

STATEMENT OF MR. JAMES B. MALONEY, REPRESENTING THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK.

Mr. MALONEY. Mr. Chairman, yesterday morning we received a telegram that this hearing was to be held here this morning, from the Baltimore Exchange, and I was sent down hurriedly to consult with you this morning to find out what the idea was with reference to a hearing, and we find that the proposition they have presented here we were not considering at all. But we have had under consideration other matters in connection with the brokerage tax which we are going to ask Senator Calder to arrange for a hearing on, if it is possible, representing most likely the New York Stock Exchange, the Boston Stock Exchange, and the Consolidated Stock Exchange, although I myself can only speak for the Consolidated. That was our idea in reference to the tax on loans, return loans, and those things which developed long after the bill went into effect last year. It was not discovered until March that this tax applied on return loans, but that was the interpretation of the Attorney General, and our opinion has always been that the committee never intended, when they enacted the law, to have that tax applied to the return loans. I do not want to take up your time now; but if you can arrange to give us 15 minutes some day and let us file a brief, that will satisfy us.

Senator SMOOT. Do it this afternoon.

Mr. MALONEY. I just came down from Boston.

The CHAIRMAN. You simply want to file a brief?

Mr. MALONEY. And perhaps have some one come and explain a

few points.

The CHAIRMAN. How much time would you want?

Mr. MALONEY. Not over 15 minutes.

The CHAIRMAN. We will give you 15 minutes Monday or Tuesday morning.

Mr. MALONEY. It is rather a quick notice, which we received only last night.

The CHAIRMAN. You had better advise the clerk which day you will come.

Mr. MALONEY. I thank you very much. We will do that.

The CHAIRMAN. The next gentleman desiring to present his views is Mr. Cunningham, of New Orleans.

STATEMENT OF MR. THOMAS F. CUNNINGHAM, REPRESENTING THE NEW ORLEANS BOARD OF TRADE.

Mr. CUNNINGHAM. Mr. Chairman and gentlemen of the committee, I just desire briefly to address you covering the brokerage matter. Our situation in New Orleans is somewhat similar to that of the stock-exchange gentlemen who have just addressed you, except that in our case we sell on the floor of our exchange only one class of merchandise; that is, rough rice.

The bill, as we read it, will affect a large number of our members, who do not deal in the particular commodity sold upon the floor, but are brokers of other merchandise, and this tax would apply to them. I allude more particularly to merchandise brokers and manufac

turers' agents, of which we have a large number, who are members of our exchange. As the tax now stands, what will happen will be that the board of trade will lose a large number of its members, and the revenue will not be forthcoming, but it is not necessary for those brokers to be members of our exchange in order to do business. They are members merely in the voluntary way.

Senator SMOOT. How would they do their business if they were not members of the board?

Mr. CUNNINGHAM. Their business is not transacted upon the board floor. It is transacted from office to office, from store to store, from buyer to buyer. The board furnishes them with quotations and with traffic information, with a number of other things that go to make up the general commerce of the State.

Senator SMOOT. If they were not members of the board, how would they get that information?

Mr. CUNNINGHAM. They would get it from railroad offices, and from various acquaintances, as many brokers do now who are not members.

Senator SMOOт. But not all the information from one source? Mr. CUNNINGHAM. Not as much; no. But if they have to pay the extra tax, the result is inevitable, those little brokers are smallfry people, and they are going to resign. That leaves our board. without its membership, and of course the Government does not get the revenue.

Senator SMOOт. What are the annual dues?

Mr. CUNNINGHAM. The annual dues are $50. There are a number of similar organizations throughout the South that are somewhat on the same plane. I am not authorized to speak for them, but it just occurred to me that that phase of the situation is being overlooked. It will decimate the membership of a large number of small concerns without bringing in the revenue.

Senator SMITH. This tax would only be a hundred dollars apiece.
Mr. CUNNINGHAM. No; there is an additional tax of $50.
Senator SMITI. That is on the value of their membership.
Mr. CUNNINGHAM. That is on the value of the seat.

Senator SMITH. You described them as not having seats, and that tax would hardly fall on them.

Mr. CUNNINGHAM. I think their membership would be called a

seat.

Senator TOWNSEND. Do you think any tax ought to be imposed on the broker?

Mr. CUNNINGHAM. I do not think any tax ought to be imposed on the broker unless he deals in merchandise as dealt in on the floor of the exchange itself, and then only on the amount of the business he does. We have in our membership at least 75 merchandise brokers. It is not essential, it is not necessary, that they be members of our organization. With the raising of the tax to a hundred dollars, which, of course, they will pay, then comes the additional tax of $50 to the membership, then come the dues of the organization, and you see it is a pretty stiff tax on the small-fry broker, and the consequence will be that he will resign his membership.

Senator WILLIAMS. And could still carry on his business?
Mr. CUNNINGHAM. Yes, sir.

Senator WILLIAMS. With a little less facility?

Mr. CUNNINGHAM. With a little less facility.

Senator LODGE. You spoke of rice as the principal thing dealt in? Mr. CUNNINGHAM. Yes; Senator.

Senator LODGE. Do you not also deal in cotton and sugar?

Mr. CUNNINGHAM. Not on this particular board. We have a cotton exchange there. This is a produce exchange, as a matter of fact, although we sell no futures, and the only thing we trade in actively on the floor, where the samples are brought in and put upon the tables, is rough rice. It is sold to the millers, and the millers then complete the finished article and sell it to the jobber and the con

sumer.

Senator LODGE. But you have cotton and sugar exchanges?

Mr. CUNNINGHAM. Yes; we have two other exchanges, one which sells sugar and the other which sells cotton. We have likewise a stock exchange and a contractors and dealers exchange.

The CHAIRMAN. Did I understand you to say you did not think brokers. ought to be taxed at all?

Mr. CUNNINGHAM. No, Senator. I said I did not think they ought to be taxed except upon such articles as were traded in upon the floor of the exchange. In other words, a broker who sells canned goods, under the present bill would be taxed $50. That is not traded in upon the floor of our exchange. It is not necessary for him to be a member of our exchange at all nor a member of any exchange to sell his canned goods. But if he is member of our exchange he is taxes $50. If he is not, there is no tax except $100.

Senator SMOOT. What is the value of your seats?

Mr. CUNNINGHAM. $50 or $60, varying with the demand for the stock. It is not a large matter, and yet it is an important matter to the exchanges themselves. They lose heavily in their memberships. The CHAIRMAN. Have you any further matter?

Mr. CUNNINGHAM. Nothing further, Senator.

The CHAIRMAN. We are much obliged to you. If there is no one else representing any other exchange who wishes to address the committee, we will hear anybody who may desire to be heard upon any other subject. (After a pause.) I assume there is no one here who desires to be heard, and that will end the hearings for to-day.

(Thereupon, at 11.10 o'clock a. m., the committee adjourned until tomorrow, Saturday, September 7, 1918, at 10 o'clock a. m.)

(The following brief and telegram were subsequently submitted by Mr. J. Ralph Pickell, and by order of the chairman are here printed in full, as follows:)

BRIEF SUBMITTED TO THE FINANCE COMMITTEE OF THE UNITED STATES SENATE BY THE COUNCIL OF GRAIN EXCHANGES, RELATIVE TO THE PROVISION IN THE PENDING REVENUE BILL (H. R. 12863) WHICH PROVIDES FOR A TAX ON BROKERS.

The Council of Grain Exchanges is an association composed of the leading commodity exchanges of the United States, and in behalf of the brokers who are members of the exchanges, whom this council represents, we respectfully desire to submit the following facts and suggestions:

Under the provisions of the pending revenue bill brokers are to be taxed $100, but if they are members of an exchange, such as the Chicago Board of Trade, the leading grain exchange of the world, they are penalized for membership in an organized institution from $50 up. In the case of the Minneapolis Chamber of Commerce, under the provisions of this bill, a broker would have to pay about $250. Under the rules promulgated by the Food Administration, any

one not a member of an organized exchange may bid for wheat, controlled in price and distribution by the United States Government and deliver said wheat to the United States Food Administration, receiving therefor the same compensation that the broker of an organized exchange may receive under the rules of the Food Administration, and yet under the provisions of the revenue bill such a broker, uncontrolled by the rules of any organized exchange, would not be required to pay any tax. Obviously this is a discrimination and it is the purpose of this brief merely to point out the discrimination and then to rely upon the wisdom and statesmanship of the Members of Congress to remove 、 said discrimination, which is unfair and which will tend to discourage organized and properly controlled business.

The brokers, members of grain exchanges, are desirous of doing their full share to win the war. If it be necessary that they should be taxed $100 and then more in order that the war may be successfully financed they will not complain, but they do believe it just that if their memberships in organized exchanges are to be taxed that those who accept opportunities to transact the same kind of business outside of exchanges should be taxed a like sum or else the tax on the brokers' memberships in exchanges should be abolished. Brokers conduct their business under the very careful scrutiny of the officers and directors of the exchanges with which they are affiliated. The rules governing them in the handling and distribution of the cereal crops are solely for the protection of the public and carry severe penalties for any violation thereof.

The following rules are taken from those of the Board of Trade of the city of Chicago and are self-explanatory:

"SEC. 11. No member of this association is allowed under any circumstances to be both principal and agent in any transaction in any of the commodities dealt in under the rules of this board. Furthermore, no member of this association in any transaction in any of the commodities dealt in under the rules of this board shall allow himself, directly or indirectly, either by his own act or by the act of an employee or of a broker or other member of the association, to be placed in the position of agent for both seller and buyer.

SEC. 31. When any member of this association, knowing himself, or the firm in which he is a partner, or the corporation of which he is an executive officer, to be in an insolvent condition, shall make any contract on his own account, or on account of such firm or corporation, under the rules of this association, whereby pecuniary loss shall result to any other member, or to any firm or corporation entitled to transact business on this exchange, he shall be suspended or expelled at the discretion of the board of directors; or, when any member of this association, knowing himself, or the firm in which he is a partner, or the corporation of which he is an executive officer, to be in an insolvent condition, shall accept on his own account, or on account of any such firm or corporation, any money or security or securities as margins from any customer on any trade or trades made under the rules of this board, whereby pecuniary loss shall result to the person, firm, or corporation depositing such margins, such member shall be suspended or expelled at the discretion of the board of directors."

These rules insure fair treatment of the producers and consumers that could not prevail except through a duly organized exchange. The exchanges also insure the handling of the cereal crops economically and efficiently, and that this is recognized by the Government is evidenced by correspondence with the United States Food Administration.

One letter to which we refer, under date of September 3, says, "We appreciate fully the importance of the grain trade, and know of no industry more essential."

A statistical division of the United States Food Administration also recognizes the value of organized exchanges, and says, under date of August 29, "I wish to thank you very much for your trouble in supplying us with this information and assure you that it will be of much use to us."

Also, a letter from the United States Civil Service Commission of August 22, expressing its appreciation of our interest and offer of cooperation.

Also, under date of August 30, from the National War Service Committee, saying that "It is such patriotic cooperation that you gave us that made our drive the success it was."

Also, from the Bureau of Markets, Mr. Chas. J. Brand, Chief, under date of July 17, "The bureau greatly appreciates the manner in which the officers and members of the Board of Trade have cooperated in this investigation and the readiness with which they have opened their books and offered assistance."

« PreviousContinue »