30 BULLETIN 1444, U. S. DEPARTMENT OF AGRICULTURE 
the risks incident to price movements. Transactions are in terms of 
margins, which makes possible the handling of many more bales in 
the form of future-delivery contracts than would be possible with 
the same amount of money in spot cotton. The volume of trans- 
actions in future contracts on the New York exchange for the year 
1921-22 was approximately 80,000,000 bales, and on the New Orleans 
exchange about 40,000,000. 
The liquidity of the future contract rests essentially on the fact 
that personal risk has been largely eliminated. Each member deals 
with all the others indiscriminately. The obligations of the contract 
are made transferable through offsets and substitutes in the clearing 
house. Personal risks are provided against in several ways. There 
are comparatively few members, and they are selected with consider- 
able care on the basis of integrity and financial responsibility. The 
exchange has strict rules governing a highly standardized trans- 
action. Each is required to margin his net position as a protection 
against losses due to adverse price changes. If a loss should occur 
through failure, the assets of the failed member in the hands of 
the exchange, such as value of membership and the guaranty fund 
deposited by the member, are used to pay the loss. If these are in- 
sufficient the guarantee and reserved funds are used and, finally, as- 
sessments may be made. The broker assumes entire responsibility to 
other members for the accounts of his clients on the outside. The 
exchange, as such, assumes no liability for connections with non- 
members. 
Thus, while most of these contracts are settled without delivery 
and receipt of spot cotton, one can always demand and receive spot 
cotton on the contracts he buys. In fact, he must receive it if he hold 
his contract, and he can deliver as many bales as he sells and must 
deliver or buy back or otherwise satisfy all the contracts sold. 
The exchanges perform a number of other functions, such as the 
collection and publication of statistics of prices, supply, movement, 
and demand of cotton, and they provide and enforce rules for the 
conduct of the business and for the settlement of disputes. 
RULES GOVERNING OPERATION OF EXCHANGE 
The general privileges and limitations in the operations of the 
exchange are prescribed by its charter of privileges, its constitution, 
its by-laws, and rules laid down by the Government. Detailed op- 
erations of buying and selling cotton are governed by rules worked 
out by the exchange, not in conflict with the above privileges and 
limitations. This body of rules has a section dealing with trans- 
actions in contracts for future delivery of cotton and another with 
those involved in making spot deals. The rules governing spot 
transactions need not be discussed here. 
CONTRACT FOR FUTURE DELIVERY OF COTTON . 
Transactions in contracts for the future delivery of cotton are 
governed by defined rules. The contract, the foundation of the 
future business, is virtually prescribed by the United States cotton 
futures act. Various regulations governing the operation of the 
futures market itself are also prescribed by the Secretary of Agricul- 
