Market veterans deplore the slow death of historic trade pits

When he was called by a young law student Leo Melamed 110 Arriving in North Franklin, Chicago, in 1952 for a job interview with what he believed to be a law office, the chaotic scene he saw exploded.

Merrill was brokered by Lynch, Pierce, Fenner & Beane, and the job was for a “runner” who sent messages around the Chicago Mercantile Exchange trading hole, where financial contracts were fixed from onions to eggs.

Rumors of people wearing colored jackets, marking businesses on huge blackboards and recording end-of-day results with Polaroid cameras hooked the youngsters. Melamed. After completing his law studies and leaving at a rapid pace as a lawyer, he returned to “The Merc” and in 1969 became his chair.

“We were a bunch of guys who didn’t know the difference between turkey or Treasury letters or Swiss francs and cattle,” he said. “I immediately fell in love with everyone and everyone.”

Covid-19 “kills some of the last bastions”open cry”Trade. Traders who prefer to trade deals face-to-face have achieved a rare victory this week when the London Metal Exchange changed its previous plan to close for good. ”ring”- The last significant traditional European negotiation.

But last month Melamed’s alma mater, now called CME Group, announced that it would be so commercial floors are definitely closed the pandemic first closed a year ago, except for the Eurodollar options pit. It marked the end of an era for many of Chicago’s business community.

The trade pits Melamed and many other finance titans learned their trade and the film immortalized them in popular culture Trading venues – even before the pandemic it was slowly dying. In recent decades, trade has changed tremendously in the world algorithms. Today, the New York Stock Exchange is also largely a television studio, and most of the trading takes place at its data center in New Jersey.

Others are still alive, including the NYSE’s San Francisco Arca options floor and the Chicago Box Options Exchange. Facing the trend, CBOE Global Markets, where the Vix volatility index is trading, is building new and larger trading floors to accommodate hundreds of traders, and will move on in 2022.

Keeping the ring open LME both regular members preferred regular members and both larger traders and financial partners supported the e-market movement.

Matthew Chamberlain, CEO of LME, said he hopes the hybrid approach will extend its duration. “I love the Ring. I think everyone at LME loves the Ring – it’s a big part of the culture. It’s a big part of many of us joining the organization. We love the community, the excitement. From a personal perspective, I hope to be here in 10-20 years.”

Waylaid Ni, head of DRW’s Eurodollar options, a large Chicago trading company, said it was still valuable to have someone in the CME Eurodollar options pit, and he announced for many years that the floor of open-ended shouting would remain open.

“A lot of the strategies that are traded on this product are complicated,” he said. “Carrying out this complex negotiation is much more effective when all parties are talking to each other in real time when they see flashes on the screen.”

The pandemic provided a direct test of what would happen if the floor-based trade market suddenly closed. The results weren’t gratifying for the open shouts, Thomas Fitch, founder and CEO of RV Assets, is a UK company that offers trading algorithms for market makers and owner sellers.

Although the Eurodollar options market traded around 60 percent to be fully electronic, the difference between volumes and the prices people will buy or sell did not fully affect it, according to Fitch.

But since the pit reopened hybrid trading resumed, the expansion has increased by about 0.15 cents per contract. Fitch said that in a market that trades 1.5 million contracts a day, costs $ 1.35 million are added to the end user. “Why has it changed back? It is tailored to the people, brokers and market makers who carry out the trades. ”

Many veterans are increasingly resigning because open-pit holes will soon die. “Open proclamation trade took much longer to kill [than people expected], and it’s still not completely dead, but it’s going to be bleeding as e-commerce removes more and more volume, ”said John Lothian, who started in boxing before writing a well-read industry newsletter.

After the death of the former pit trader in 2011, he began an oral history project to gather memories of veterans of the open-minded era, freely molded into the Library of Congress’s ‘Veterans History Project’ model. “We’re losing a lot of open-minded traders every day, and it seemed important to me to capture how markets have worked for so long in our history,” Lothian said. “It was face-to-face trading, in exchange for hand signals that could make millions of dollars in deals.”

It’s been a turn emotionally charged for the many merchants who remain attached to the era and for the friendliness and creativity created. Melamed recalls how some CME brokers said they had temporarily taken over “Darth Vader” from e-commerce, but acknowledged his “sadness” at seeing the final closure of most of his open-air venues. “The floor was a crucible of ideas,” he said. “That’s what you lose.”

However, they are losing the battle that began in the early 1980s, for example Thomas Peterffy they connected their data feeds to basic computer programs that performed the same functions that merchants performed – looking for quotes scanned in the market. At that time, humans were still pursuing professions.

Peterffy still remembers his first day in a trading post, the floor of the silver options at Comex in New York in 1967 (exchange of goods top of Trading venues then filmed), which left an indelible mark. “It was serious money, and very exciting,” Peterffy said. “Computer numbers can also be exciting, but not as exciting as people shouting at each other.”

In the end, he saved enough money to buy a seat on the American Stock Exchange in 1977, when his younger brother from the NYSE initially started as a street market in lower Manhattan. But with its lightweight construction and strong Hungarian accent, traders on other floors struggled to hear and understand Peterffy in the whirlwind of the Amex floor, which proved to be a boost to the effort to bring the trade to the computer age.

Like many other veterans of the open-minded era, Peterffy is nostalgic, but tempered with realism. “It was a great experience, but things change. It was also exciting to drive a horse and a car. ”

Slow decline in floor trade

1998an

Germany’s “Battle of the Bund” Eurex exchange took over the country’s future long-term debt market with its London rival Liffe. Contracts were negotiated through “open shouts” in the UK, but retailers preferred the electronic version because it could be easily negotiated remotely and changed en masse.

2001

The Intercontinental Exchange, which was a small start to the hour, created floods by buying the London International Petroleum Exchange (IPE), where most of the volume was traded on land. Following in the footsteps of the Battle of the Bund, ICE built a modern electronic platform.

2005

ICE announced the closure of IPE’s pits, making future energy contracts like Brent crude fully electronic. A few weeks later the IPE’s then-larger opponent, the New York Mercantile Exchange (Nymex), unveiled plans for an open proclamation hole in London.

2006

Nymex suspended its plan to reintroduce land trade in oil contracts after creating low interest for traders.

2012

The Intercontinental Exchange concludes its 142-year history of closing soft trade pits in New York’s raw materials as volumes shrink in favor of e-commerce.

2015

After 167 years, the CME closed most of its trade pits in Chicago and New York. Negotiation of open claims fell to 1 percent of the total volume in the future. The decision included future pits for open protests by Nymex, which the CME had bought in a $ 8.9 billion deal seven years earlier. Only pits connected to some options were open.

2020

Coronavirus forced CME and Cboe Global Markets to close their commercial floors in Chicago, but many of them reopened in the summer. Among the measures were for merchants to perform health checks and wear face shields in the pit.

2021

The London Metal Exchange rejected the first-time proposal to close its open ring once and for all when the pandemic temporarily disrupted trade.