The rules of the Clearing House are very strict. Any firm which fails to report by two o'clock is fined. The Clearing House assumes responsibility for all purchases and sales and, being actually liable, keeps close tab on every firm. Each firm has a certain credit on the books of the Clearing House, allotted impartially, according to its standing, and this credit forms the fixed basis of that firm's dealings. If its activities exhaust the line of credit, the Clearing House calls for "original margins" at once—a deposit of so-many cents per bushel for every bushel involved and for every point which the market drops. The amount per bushel called for is entirely at the discretion of the Clearing House authorities and if the quantity of grain reaches dangerous proportions the deposit required may be set so high that it becomes practically equivalent to cash purchase. To "corner the market" under these conditions would require unlimited credit with the Clearing House.
When Jones & Brown are "called" for deposit margins they drop everything and obey. They have just fifteen minutes to reach the bank with that cheque, have it "marked" and rushed to the Clearing House. If they fail to arrive with it the Manager of the Clearing House will step into their office and if there were any "hemming and hawing" Jones & Brown would be reported at once to the Secretary of the Exchange who would call a hurry-up meeting of the Exchange Council and Messrs. Jones & Brown would find themselves posted and all trades with them forbidden.
All clerical errors in regard to trades are checked up by the Clearing House and fines paid in for mistakes. Only a nominal charge is made for its services—enough to pay overhead expenses—but the fines have enabled the Clearing House to accumulate a large Reserve Fund which gives it financial stability to provide for all responsibilities should occasion arise through failure of any firm. All futures which have not been cancelled before delivery date are negotiated through the Clearing House and with its assistance the grain can be placed just where it should go and tremendous quantities of it are handled without a hitch and with the utmost despatch.
Excitement in the Pit is not always over wheat. It may be oats. It was Canadian Western Oats which became the storm centre in 1911 when the Grain Growers got into difficulty with the "bears." Traders who attempt to boost prices are known as "bulls"; those who are interested in depressing the market are "bears." A trader may be a bear to-day and a bull to-morrow; thus the opposing groups are constantly changing in make-up and the firm which was a chief opponent in yesterday's trading may be lined up alongside the day following, fighting with instead of against. It is all in the day's business and the strenuous competition on the floor, into which the uninitiated visitor reads all manner of animosity and open anger, is a very misleading barometer to the actual good feeling which prevails.
In recording what now took place in the Pit in connection with the farmers' commission agency it will be well to remember that the rest of the traders would have acted in the same way toward any firm which was fool enough to leave the opening for attack. It may be that as the thing developed some of those who were specially interested in the downfall of the farmers' organization seized the opportunity to ride the situation beyond the pale of business ethics and in their eagerness to be "in at the death" revealed special vindictiveness. But in view of the long struggle with this element it was only what the Grain Growers should have expected when they ran their heads deliberately into the noose.
The situation was this: Shortly after New Year's the export demand for Canadian Western Oats became heavy and it looked as if in Great Britain and all over Europe, where the oat crop had been small, there would continue to be a shortage of oats. In spite of this situation, however, no sooner was the proposed reciprocity agreement reached between the Canadian and United States governments of the day, on January 26th, than market prices began to go down.
The then Manager of the Grain Growers' Grain Company came to the conclusion that this price lowering was a local condition and that the export market for oats was too strong to justify it or sustain it.
"I'll just step into the market and buy some oats," said he. "Later on I'll sell for export at a satisfactory figure." Accordingly, one fine morning he went into the Pit and began to buy.
The Manager's motive in attempting to sustain the market may have been of the best; but it was the first time that such methods had been attempted by the Grain Growers—methods which were not at all in keeping with the avowed principles of the Company. The Board of Control had every confidence in their Manager and, although he was merely a salaried employee and not an executive officer, he had been given a pretty free hand in the conduct of the Company's operations. Apparently it did not occur to him that he should consult the Board before entering the market on a speculative basis. Had the Board known what he was about to do they would have vetoed it; but when they did discover what was afoot it was too late to prevent the situation. It developed very swiftly.
"The Grain Growers are up to the neck in May oats," was the whisper which passed about among the other traders. That was all that was necessary.