Trading In Privileges on the Chicago Board of Trade

Report Introduction: Aside from a few short paragraphs in textbooks and pamphlets describing privileges, comments made from a historical standpoint by C. H. Taylor, a former member of the Chicago Board of Trade, and references made in published hearings of congressional committees as to the desirability of retaining or abolishing privileges, and the Report of the Federal Trade Commission on the Grain Trade, nothing has been printed which throws light on trading in privileges. No comprehensive study had ever been made as to the extent privileges were traded in, the uses made of them by merchandisers of grain and by speculators, the frequency with which they were exercisable at a profit to buyers, and their economic value until the task was begun by the Grain Futures Administration. In preparing a report in answer to Senate Resolution 40, adopted by the United States Senate on February 21, 1928, which requested certain information pertaining to reports made by members of grain exchanges, considerable data were collected concerning trading in grain futures during the period of January 3 to October 31, 1927. By obtaining supplementary material showing the privileges bought and sold on the Chicago Board of Trade by the principal traders in privileges during that period, it was possible to arrive at definite conclusions as to the extent bids and offers were traded in and used by the larger speculators in building up and disposing of speculative lines in Chicago wheat and corn futures. Additional data, obtained and analyzed, revealed the frequency with which privileges are exercised on the board of trade and the extent to which they may have a stabilizing influence on prices of futures. In addition to concrete statistical data, the uses made of trading in privileges are presented herein together with the unfavorable aspects of such trading. Reference is also made to the change of attitude from time to time on the part of the officials of the Chicago Board of Trade with respect to privilege trading. Because of the scarcity of material on privilege trading it has been deemed advisable to make public the information collected by the Grain Futures Administration in order that it may throw further light on that phase of exchange activity for the benefit of those who may wish information on the subject.