Market veterans mourn the slow death of historical trading pits


When a young law student called Rio Melamed In 1952, he came to 110 North Franklin in Chicago to participate in a job interview in what he thought was a law firm. The chaos he witnessed surprised him.

Merrill Lynch, Pierce, Fenner & Beane are actually a broker. This job is for a “runner” who transmits information on the trading floor of the Chicago Mercantile Exchange. The financial contract there All transactions to eggs.

People in colorful jackets yelling, marking deals on a huge blackboard and recording the end of the day with Polaroid cameras attract young people MelamedAfter finishing law school and quickly giving up his job as an actual lawyer, he returned to “The Merc” and became its chairman in 1969.

“We are a group of people who don’t know the difference between turkey or Treasury bills, or Swiss francs and cows,” he said. “I fell in love with everyone and everything immediately.”

Traders and clerks from the Chicago Mercantile Exchange worked on the Eurodollar trading floor in 2001 © Tim Boyle/Getty

Covid-19 has killedPublic protest“Trading. This week, when the London Metal Exchange canceled its earlier permanent closure plan, traders who prefer to negotiate deals face-to-face won a rare victory this week.Ring“-Europe’s last important traditional trading floor.

But last month, Melamed’s alma mater, now called the CME Group, announced that it would Permanently close the trading floor It was first closed due to a pandemic a year ago, with the only exception being the Eurodollar option pit. For many in the Chicago trading community, this marks the end of an era.

The histogram of CME's daily trading volume share in futures and options shows the last death rattle of traditional

This Trading pit Melamed and many other financial giants learned their trading here-and immortalized them in popular culture through movies Trading places -It was slowly dying even before the pandemic.In the past few decades, the vast majority of transactions have moved to algorithmToday, even the New York Stock Exchange is to a large extent a television studio, and most actual transactions are conducted in its data center in New Jersey.

Others survived, including the Arca Options Trading Floor of the New York Stock Exchange in San Francisco and the Box Options Exchange in Chicago. Contrary to this trend, the CBOE Global Market, which trades the Vix Volatility Index, is building a new and larger trading floor to accommodate hundreds of traders and will move there in 2022.

By keeping the ring open, London Metal Exchange It is trying to appease traditional members who like public outcry pits, as well as large merchant traders and financial participants who support the switch to electronic trading.

Wall Street Trader 1929

Traders on Wall Street when the crash of the New York Stock Exchange triggered a bank run in 1929 © AFP/Getty

New York Stock Exchange Trader 2021

In 2021, as the U.S. stock market rises to record levels, traders work in the quiet trading floor of the New York Stock Exchange © Courtney Crow/NYSE/AP

LME CEO Matthew Chamberlain said he hopes the hybrid approach will extend its lifespan. “I like Ring, and I think everyone at LME likes Ring-it’s an important part of culture and an important reason for many of us to join the organization. We love the community and love the excitement. From a personal point of view, I Hope it will appear in 10-20 years.”

Waylaid Ni, head of Eurodollar options at DRW, a major Chicago trading company, said that there are still valuable people in the CME Eurodollar options pit, and predicts that its surviving open outcry bottom line will remain open for many years to come.

“Many of the trading strategies for this product are complex,” he said. “Compared to seeing the flicker on the screen, it is much more efficient to perform this type of complex transaction when all parties are talking in real time.”

London International Financial Futures Data Center
The servers in the foreign data center replaced the old London International Financial Futures (Liffe) trading floor © ICE Futures Europe

The pandemic conducted a live test of what would happen if markets that rely on floor trading were suddenly closed. Thomas Fitch, founder and CEO of RV Assets, believes that the results are not encouraging because it is a British company that provides trading algorithms for market makers and proprietary traders.

Fitch said that although the Eurodollar options market has changed from about 60% of the floor trading to fully electronic overnight trading, the difference between the trading volume and the price people buy or sell has not been affected at all.

But since the mine reopened and mixed trading resumed, the spread of each contract has widened by approximately 0.15 cents. Fitch said that in a market where 1.5 million contracts are traded every day, this is equivalent to an additional cost of $1.35 billion for end users. “Why moved back again? It is suitable for people who execute trades, brokers and market makers.”

Tokyo Stock Exchange 1937

View of the Tokyo Stock Exchange in 1937 © James A Mills/AP

Tokyo Stock Exchange at the end of pit trading in 1998

Traders on the Tokyo Stock Exchange scattered confetti at the closing ceremony of the 1998 pit trade. © Alamy/Reuters

Many veterans are increasingly accepting the fact that public protest pits will soon die. “Open outcry trading takes longer to die [than people expected], And it’s not completely dead, but as electronic transactions gradually reduce the volume of transactions, it will bleed to death,” said John Lothian, who began to get involved before writing a well-known industry newsletter.

After the death of a former pit trader friend in 2011, he started an oral history project to collect the memories of veterans in the era of public protest. The project was modeled on the Veterans History Project of the Library of Congress. “We are losing so many open outcry traders every day, and I think it’s important that we understand how the market has operated for such a long time in our history,” Lothian said. “This is a face-to-face transaction. You can make a multi-million dollar transaction just by exchanging gestures.”

Transformation has been Emotional For many traders who are still attached to that era and the friendship and creativity that it produced. Melamed remembers that he was criticized as “Darth Vader” by some CME brokers for accepting electronic transactions, but he admitted that he felt “sad” when he saw most of his public outcry venues finally closed. “The floor is a melting pot of ideas,” he said. “This is your loss.”

Traded on the Hong Kong Stock Exchange in 1978
Crazy trading on the Hong Kong Stock Exchange after an unexpected rate hike in 1978 © Chan Kiu/South China Morning Post/Getty

But they have been losing a battle that began in the early 1980s, when pioneers such as Thomas Peterfield Connect their data sources to basic computer programs that perform the same functions as traders perform—scan the market for mispriced quotes. At that time, humans were still executing transactions.

Peterffy still remembers his first day on the trading floor, the silver options trading floor of the New York Mercantile Exchange in 1967 (Commodity Exchange, climax of Trading places Later shooting), leaving an indelible mark. “This is a considerable amount of money, very exciting,” Peter Fei said. “The numbers on the computer can also be exciting, but not as good as people yelling at each other.”

In 1977, he finally saved enough money to buy a seat on the American Stock Exchange. The combative little brother of the New York Stock Exchange first started in an outdoor market on Broad Street in Lower Manhattan. But other floor traders are short and have a strong Hungarian accent. It is difficult to hear and understand Peter Fei in the vortex of the American Express lobby, which proves his motivation to bring trading into the computer age.

Like many other veterans in the public protest era, Peter Fei is nostalgic, but uses realism to ease it. “It was a great experience, but things have changed. Driving a carriage is also exciting.”

Exchange trading slowly declines

Oil traders work at the New York Mercantile Exchange in New York City on May 11, 2012

Oil traders work on the New York Mercantile Exchange in New York City on May 11, 2012 © Justin Sullivan/Getty

1998

The “Battle on the Bund” led the German European Futures Exchange to seize the country’s long-term debt futures market from its London competitor Liffe. These contracts are traded through “open outcry” in the UK, but traders prefer the electronic version because it can be traded remotely more easily and can be transferred collectively.

2001

The Intercontinental Exchange was a small start-up company that made waves by buying the International Petroleum Exchange (IPE) in London, where most of the trading volume was traded on the floor. Drawing inspiration from the Battle of the Bund, ICE built a modern electronic platform.

2005

ICE announced the closure of IPE’s mines and fully digitized energy futures contracts such as Brent crude oil. A few weeks later, IPE’s then larger competitor, the New York Mercantile Exchange (Nymex), announced plans to set up a public outcry pit in London.

year 2006

The New York Mercantile Exchange abandoned its plan to reintroduce on-site trading in oil contracts after traders were not interested.

2012

With the decline in trading volume, the Intercontinental Exchange closed New York’s soft commodity trading platform to support electronic trading, thus ending its 142-year history.

2015

167 years later, CME Group closed most of its trading venues in Chicago and New York. Open outcry trading has fallen to only 1% of total futures trading volume. The decision included the Nymex public outcry futures market, which the Chicago Mercantile Exchange purchased for $8.9 billion in transactions seven years ago. Only the pits connected to certain options remain open.

2020 year

The coronavirus forced CME and Cboe Global Markets to close their trading floors in Chicago, but they reopened many trading floors in the summer. Among the preventive measures, traders must undergo health checks and wear masks in the pit.

2021

After the pandemic temporarily halted trading, the London Metal Exchange overturned an earlier proposal to permanently close the public outcry ring.



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About the Author: Agnes Zang