36 BULLETIN 1444, U. S. DEPARTMENT OF AGRICULTURE 
nonmember who buys or sells through a broker has nothing to do 
when he wishes to get out of the market except to order his broker 
to sell or buy the same number of contracts as are in his outstanding 
obligations. When the "undoing" transaction has been made, the 
broker renders the customer a statement which shows the number of 
contracts bought and sold, the time of execution of orders, the prices, 
the commission of the broker, the amount of the Federal tax, and the 
net gain or loss rendered to the customer. 
The members of the exchange can likewise even up their position 
in the market, as they can buy as many contracts as they have sold 
for a delivery month or sell as many as they have bought ; but mem- 
bers and nonmembers balance their accounts differently. The out- 
sider deals only with his broker, and his position is determined en- 
tirely by himself. The broker, on the other hand, is dealing with 
many other brokers and probably for several clients, some of whom 
may be long and some short the market. Since the nonmember can 
not enter directly into the market, the broker in the matter of mar- 
gins and settlement for all contracts must assume entire responsibility 
to the member of the exchange with whom he deals. 
Each member is interested in knowing that the liabilities of the 
other members are either protected by margins with the clearing 
house or by offset contracts. The broker who has sold as many bales 
for one group of clients for a given month's delivery as he has bought 
for others, is technically out of the market and has no responsibility 
to other brokers other than that he must pay or receive the net gain 
or loss on the day's settlement price. When this is done, his con- 
tracts are cleared back to him. He has no margin to put up ; for he 
is even in the clearing house, and other brokers are protected. 
The broker is still obligated to his clients on the outside, especially 
to the extent of making sure that each carries out his obligations, 
and of personally making good to clients any losses caused by the 
failure of other clients to carry out their obligations. 
The member who is long, or has bought a contract, may settle it 
without receiving the cotton, even after a notice of delivery has been 
issued. When the holder of such a contract receives notice that the 
opposite party to the contract, the short, intends to deliver the cotton 
in settlement, the holder of that contract may transfer it to another 
party to whom he has sold a contract for delivery in the same month, 
or if he had not made such a sale at time of receipt of notice, he 
has 15 minutes within which to make such a sale and transfer if he 
wishes. 
Delivery method of settlement. — The second method of settling a 
futures contract is by delivery of the cotton. If the party who has 
sold a future contract wishes to settle it by delivering cotton against 
it, he may do so. The buyer likewise may force delivery by holding 
his contract until the last notice day of the month. The cotton 
futures act provides that five full business days' notice of intention to 
deliver must be given the buyer. If the seller wishes to deliver on 
the first day of the month he must issue his notice about the twenty- 
fifth of the preceding month. This is known as the first notice day. 
In any event, he must issue it not later than five full business days 
before the last business day of the month ; that is to say, on what is 
known as the last notice day. The nonmember must deliver or re- 
