CME + CBOT = RIP
By Shannon in News on Dec 2, 2006 4:00PM
Ever wander around downtown, turn south on LaSalle, stare up at that blank, dead-end face and think, "What's it all about? What am I here for?" You're not alone. It's the question many floor traders have been asking themselves for some time now. You see them all the time: harried workers running around in various colored jackets, identifying tags so big Mr. Magoo could see them, jumpy even outside their homeworld of commodity trading in the infamous pits of the Mercantile Exchange and the Board of Trade. They have plenty reason to be skittish: According to the Trib, the merger between the two financial exchange giants is expected to hasten the death of pit trading.
When Chicagoist thinks of the Merc or the CBOT, we conjure up massive throngs of crazed runners, performing wicked hand signals like pitching coaches on PCP, shouting down pork bellies until they're blue in the face. Scare us half to death, they do; the pressure would make us implode. Still, that's how many an underling makes his or her start in the business: trading every day using the "open outcry" system, a combination of spoken lingo and complicated sign language that's become the iconic cornerstone of the markets. However, Chicago is one of the last places worldwide to hang onto this ancient system. With advanced technology encroaching fast, open outcry is becoming obsolete. Both exchanges do 70% of their business electronically already, with the figure fixing only to rise after the Merc's Globex system eats up the CBOT's outdated e-trading by mid-2007.
We're of two minds on the subject. On one hand, the Pit is a glorious trial by fire that leaves everyone who enters it a changed person. There's no substitute for the crushing amount of raw human interaction, the dramatic shifts, the surging adrenaline. On the other ... electronic trading is the wave of the future, and it's here to stay. Even if floor traders continue to use online systems in conjunction with the old ways (as they have been), every other market that's switched to pure electronic will have the edge in speed, accuracy and trading volume. It's the death knell for the good ol' boys, a fascinating institution slated to be just another aspect of the past.