14 February 2015 - Exciting Era Comes to an End

My comments on Samuelson Sez this week will confirm, once and for all, I am definitely part of the ‘Generation Gap’. I nearly shed tears a few days ago when the CME Group, parent of the Chicago Board of Trade and The Chicago Mercantile Exchange announced that effective July 2nd there would no longer be ‘open outcry - hand signal’ trading in the pits at those markets.

That indeed, is the end of an era. I vividly remember the first time I stepped on to the trading floor at The Chicago Board of Trade in 1958. I was actually standing in the place that set the world prices for wheat, corn and soybeans, prices that I shared with my listeners several times a day on the radio. The trading pits were filled with people in colorful jackets furiously waving their hands and screaming at each other. The floor between the pits was just as crowded with young people running orders to buy or sell from the phone desks to the traders, others running filled orders back to the phones. Once the transactions were complete, they tossed the paper on the floor and at the end of every trading day, you were knee-deep in paper.

High on the walls surrounding the trading floor were blackboards with people on cat-walks running back and forth writing in trade prices that were signaled to them from the pits, so traders in the pits could see the latest prices. The Mercantile Exchange was the much smaller and quieter ‘butter and egg’ market. Board of Trade members considered it a small competitor, and while there was no love lost between the two markets, tended to look down their nose at it. That was a mistake because the Merc expanded their market to trade frozen pork bellies, live & feeder cattle, hogs and even cheese and milk and eventually bought the Board of Trade to form the CME Group.

Then computers came on the scene and everything rapidly changed, the blackboards were replaced by bright electronic price boards and huge TV screens with global market and weather information. The trading population dwindled, and the order runners are gone as more and more traders now trade from their office or home using laptops and I-Pads. The Generation Gap hit the markets hard and volume in the trading pits is now just 1% of the total trading volume.

But the excitement is gone, the colorful traders are gone and I share the concern expressed to me by a veteran trader who is retiring. He said when you traded in the pits you knew who you were trading with, which companies were actively selling or buying; now you have no idea, and he doubts that really brings transparency to the markets. And when TV covers markets on the evening news, we’ll no longer see the raucous trading pits, I guess we’ll just see a bank of computers.

I understand why, but I still don’t like it and I’ll miss the good ol’ trading days.

My thoughts on Samuelson Sez.