ed at that the buying broker should not figure
both as agent and principal in the same transaction.

Cotton-Clearing house, Cotton Bank and periodic settlement of
"differences."

By 1876 "forward" operations had become so vast and complicated that a
cotton-clearing house had to be established to deal with the confusing
networks of debits and credits created by them. Its principle was
exactly that of the clearing houses used by the railways and the banks,
the cancellation of indebtedness and discharge simply of balances. The
final settlement of a "future" contract involved usually a crowd of
persons, and the passage of large sums of money backwards and forwards,
so that the amount of cash required for circulation on the exchange
became unreasonably excessive and an annoying waste of time was
entailed. The cotton-clearing house substituted book-keeping for the
bulk of these payments. The establishment of the Cotton Bank naturally
followed. Now debts are discharged in the first instance by vouchers.
Dealers pass their debit and credit vouchers into the Cotton Bank and
pay or receive the balances which they owe or are entitled to. In order
to protect dealers against the losses due to the insolvency of those
with whom they have had transactions, weekly settlements on the exchange
have been made compulsory; between brokers and their clients they are
also usual. At the settlement, every member of the exchange receives the
"differences" owing to him and pays those which he has incurred. Thus if
a person holds futures for 10,000 bales which stood at 5.20 on the last
settlement day and now stand at 5.30, and in the course of the previous
week has sold 5000 bales of "futures" at 5.10, he receives 10,000 X
(10/100)d. on his old holding, and has to pay 5000 X (20/100)d. on his
sales, and therefore on balance neither receives nor pays. Differences
may be very large sums. The unit of a "future" being 100 bales, an
alteration in the price of cotton of .01d. causes a difference on each
unit of L2. Periodic settlements are obviously periodic tests of the
solvency of dealers. If the test of the settlement were not frequently
applied, speculators who were unfortunate would be tempted to plunge
deeper until finally some became insolvent for large sums. As it is, the
speculator who has incurred losses beyond his means tends to be
discovered before his creditors are heavily involved. Settlement days
fall on Thursday, and the closing