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05 July 2015 - Memories, The End of an Era

This weekend I will celebrate, with family and friends, the birth of the greatest nation on earth, the United States of America. It was 239 years ago that our founding fathers signed the Declaration of Independence, separating us from the rule of the King of England.

Yet, while I am celebrating that great milestone I am mourning another milestone, the end of an era. For the past 167 years, world grain prices have been set on the trading floor of the Chicago Board of Trade by traders wearing colorful jackets, shouting across the trading pits at each other, waving their hands and frantically signaling with fingers to establish trades that ultimately set the price of grain around the world.
Over the years we have added livestock, dairy and other agricultural products to those trading pits.

The Board of Trade and the Mercantile Exchange, now under the umbrella ownership of the CME Group, established Chicago as the price-setter for the world for agriculture. That will continue, of course, but prices will now be set by traders concentrating on lap-top computers and conducting their business by electronic trading. The computer has taken over the global markets and this week those historic trading pits will become silent. Actually, they have been pretty quiet for the past two years and that’s why the CME is shutting them down. Only 1% of futures trade since the start of the year took place in the pits.

I remember the first time I walked onto the trading floor back in 1958. I was overwhelmed by what I saw and couldn’t believe that such chaos and mayhem could actually set world grain prices, but it did and it worked. As one veteran trader told me this week, it worked well because you knew who you were dealing with when you were trading with that trader across the pit, he could be representing a grain company, a processor, a foreign importer or a speculator trading for himself, but you knew. He said today with computer trading, you have no idea.

Also gone are the runners and phone clerks who gained experience on the floor to learn the market and, ultimately, used that knowledge to become traders themselves, among them Terry Duffy, now Chairman of the CME and my son, David. Gone are the blackboards on the walls with runners on the catwalks marking the latest prices signaled to them from the pits below. Gone are the colorful characters, the torn jackets, the occasional fisticuffs and the reams of knee-deep paper on the floor that had to be carried away at the end of the trading day.

I understand change is inevitable; I understand that technology is the reason for much of that change; and I understand that change is necessary for progress. But, doggone it, that doesn’t mean I have to like it. Market coverage on TV is going to be so boring now...banks of silent computers instead of the colorful, shouting, hand-waving traders in the pits.

My thoughts on Samuelson Sez.