Friday, October 19, 2012

Last day for ICE pits in NY


This afternoon will market the final closing bell for pit trading on what's left of the ICE pits in NY.  To be honest, I already thought they shut down in the summer but that's apparently not the case.  Although the remaining options pits will close, the ICE pits cohabitated with NYMEX on the same trading floor which will continue to remain open for an indefinite period. 

Here's a couple videos back from the 80s or 90s when both the Cotton Exchange and Coffee, Sugar and Cocoa Exchange were very active in their old home at the World Trade Center.

There are a total of seven videos that the user uploaded above but only these two were able to be embedded, so the full suite can be accessed by clicking here.

Wednesday, October 17, 2012

KCBT "Through the Years"

photo credit:

The announcement of the KCBT being acquired by the CME today certainly will draw a quicker close to the trading floor in Kansas City rather than if it remained a member owned organization.  Although the pit is expected to remain open for atleast six more months, the acquisition makes the decision to close it easier because that floor population was the most close knit of any I've experienced.  When I was at the KCBT last week, it was clear that the floor made more sense to close with how slow things were but deciding on an ultimatum could've taken a while to finalize. 

The KC Star newspaper posted a photo gallery of KCBT "Through the Years" and it brings back a lot of memories since I began there as a clerk after seeing the floor and immediately knowing thats what I wanted to do in life.

The link to the gallery is here.

Tuesday, October 16, 2012


One of the major inefficiencies of open outcry trading is the potential for trades not matching correctly which is known as an outtrade.  Even with all the layers of safeguards, it's inevitable that in such a chaotic environment some trades would be written with the wrong price or quantity, be directed towards the wrong trader, the card would be lost, confusion over who bought or sold, trades would be mistyped by the back office or the handwriting was simply illegible.  As long as both counter parties recognized the trade at the correct price, then it was just a clerical issue but if there was a discrepancy on price/quantity, buy/sell or even if a trade actually occurred then it could involve disasterous consequences.

The first safeguard is for both counterparties in a transaction to confirm it if they have time verbally or via hand signals while in the pit before handing off their cards and carbon duplicates to a clerk who serves as a trade checker.  Both trade checkers eventually find each other and confirm the transaction before time stamping and handing the cards off to the clearing firm to get the trades typed into the computer system.  At the end of the trading day a preliminary run of the data entry is available to get checked by a trader or delegated to a clerk which is the final chance to catch a mistake before it hits the trading statement and becomes an outtrade to be dealt with before the market opens the next day.

Early each morning, outttrade sheets are left in an alphabitized stack outside the trading floor showing each clearing firm's and trader's outtrades which they have to resolve.  To take advantage of being the first alphabetized listing (or in the old days when it was distributed to receive first delivery), one trading firm was named Aardvark because it's the first word in the dictionary.

The outtrade sheets would show price discrepancies, wrong clearing firm numbers, mismatch on buying/selling, trades which are coming into a trader which weren't picked up and trades going into another trader that they didn't pick up yet either.  Most of the adjustments were just clerical as the previous safeguards kept from any unknown trades but in the past I've heard of errors which weren't discovered until this stage at a great cost.   Generally if there were any honest errors a 50/50 split for upside/downside would be offered but I never had any issues as a trader or clerk so don't know how much that occurred. 

As part of the official way to handle outtrades, a class from the exchange had to be attended to have it all be explained but in hindsight I can't recall one thing taught in it.  After attending the class, the badge above was issued to note that a person was OTQ (Out Trade Qualified) but it was just a formality.  Dealing w/outtrade clerks as part of early morning duties when I was clerking was always pretty simple as all the outtrade clerks were always competent and they knew what the situation was 99% of the time.  Little more was said beside "you're good," "not yours," or "go my way" which like all aspects of the trading pit was centered on brevity.

Each exchange had it's own idiosyncrasies in comparison to my experience at the CME, for example the traders/brokers at NYMEX fling their cards into the center pit reporter for the exchange to enter and "outtrades" are referred to as "cutouts" at KCBT, etc....

Sunday, October 14, 2012

Amsterdam Exchange, Farewell to the Floor movie

photo credit

The Amsterdam Stock Exchange closed it's open outcry trading floor for equity options in December 2002 and in the months leading up to the closure, a documentary tracked three independent marketmakers.  The film (via doesn't have English subtitles as it was made for a Dutch audience although the floor operated w/English as the official language in the pits which you can hear throughout the film.

It's not possible to embed the 40 minute video but you can link it here.

I never walked on the trading floor itself but stumbled upon it early in 2002 during travels in Amsterdam.  While walking on the backside of the exchange, I saw in a window trading jackets hanging on a coat rack and investigated further by walking to the front when I realized there was still a trading floor there.  Taking a tour on immediate notice wasn't possible so the closest I came to the floor was going into a bar for a beer which was literally just off and connected to the trading floor.  Perhaps the bar is shown in the closing minutes of the film, it looks very similar, and one distinct memory was that it had a closed circuit tv feed of the trading floor hanging above the bar and upon seeing some action on the tv and hearing a little roar, a trader put his beer down to walk back into the pit.

So not only did the exchange have a bar on the same floor (in Chicago you had to at least go down a few floors) but it was located only a few blocks from the red light district and within a block were various 'coffee shops' which sold high grade smoke.  Gotta hand it to the Dutch, they're really disciplined and it's little wonder why the various prop firms which originated at the Amsterdam Exchange dominate a lot of trading worldwide now.  I could only imagine how quick a setup would've killed off the population of any other trading floor. 

Thursday, October 11, 2012

Invert, always invert

Earlier in the week I went back to the KCBT to hang w/friends and take a look at the trading floor and's tough to say how much longer it and the only other futures trading floors in Chicago and NY will be around.  A quick look at the stats show that only about 1% of futures volumes are executed in the pits at these exchanges although options still have about half their volumes done on the floor. 

Since the trading pits continually get quieter to near silence, I have to invoke Carl Gustav Jacob Jacobi's adage to "invert, always invert" and think back to a time when there wasn't enough physical space in the trading pits, specifically at the CBOT.  Various articles from the Chicago Tribune are pieced together below to get the proper lookback at that time. 

The push to find new space for the financial contracts at the CBOT began in the early 90s although relief didn't come until 1997 when the new 'bond room' opened.  Many options were considered at the time including a cohabitation for some contracts at the relatively spacious new CME floor, constructing a new space in the CBOE building, or even moving the financials into the CME's former home on W. Jackson before eventually settling on what eventually happened which was building a new facility in back of the CBOT.

The decision to build the bond room was highly contested and dominated the exchange elections in 1992, particularly on the ability to afford what came at an eventual $175 million cost.  After CBOT members rejected previous building plans, a referendum on whether to proceed in early 1994 was hotly contested by some veteran members, some of whom were later convinced, although there were many high profile endorsers who won out.  Approval was authorized in late 1994 by a referendum of 669-176 and ground was broken in early 1995.  During the time of negotiations, volume continued to climb to new records and seat prices followed accordingly to all time highs

The 60,000 sq ft trading floor was built on time and opened on February 18, 1997 with a capacity of 8,000 people and 60 ft ceilings which could accommodate a jumbo jet easily.  Fittingly the new floor was opened with the singing of the national anthem by Wayne Messmer who also did the same at the Blackhawks old barn.

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