End of session

I'm taking a sabbatical from the blog for a few months mostly because I'll be out of the country for an extended period of time and also so I can focus on arranging some of the hand signal information in preparation for a self published book which hopefully will be out in a year.  See ya in April...

Electronic trading cards

When pit traders thought of automated trading, one of the early concepts was to use handheld terminals rather than cardboard trading cards and although an effort was made to convert traders to using them, it didn't gain much steam.  The concept of electronic trading cards was developed shortly after the FBI sting so in 1990 the CBOT and CME began their effort to find the vendor for electronic cards.  One reason why the developement came after the FBI sting was to enhance the audit trail of trades and the FBI sting highlighted the flaws in the existing audits.

As with any sort of evolution, the push for electronic cards was a difficult one although in 1991 testing began in mock trading sessions.  The above photo is from 1996 and the caption reads that only 10 traders at the CBOT used it with regularity and at the time there was noone at the Merc who used it outside of mock trading so shortly after the effort was discontinued.

I don't know at what point the electronic card program was discontinued within the pit but it came back in different incarnations.  One thing that was pushed during the short time I clerked for a desk at the CBOT (late '99-mid 2000) was electronic order tickets from the desk to the pit broker although I forget what the name of the software/program was.  For the past decade or so, the CME has provided handheld, wireless GLOBEX access to floor traders and I think that the software is proprietary and only used for such handhelds.

Spoo pit circa 1982

The above photo is from October 1982 and shows the S&P 500 pit at the CME just months after launch of the contract earlier in the year on April 21st.  The Merc wasn't the first to launch a stock index contract and was beat by the Kansas City Board of Trade's Value Line contract by a couple months.   

FBI Operation Sourmash and Operation Hedge Clipper

In the above photo is an undercover FBI agent, can you guess who?  I'll give the answer at the bottom of the post. 

In the 1986, the FBI began an investigation into corruption in the Chicago trading pits at the urging of commodity firm Archer Daniels Midland who helped hire and train some undercover agents.  At the CBOT the codename was Operation Sour Mash and at the CME it was given the name Operation Hedge Clipper.  In January 1989 the investigation was closed as details began to leak out and the Chicago Tribune was ready to break the story which resulted in 46 traders being indicted on over 1,500 counts including, racketeering, fraud and lying to the Feds.  Once the news of the investigation broke, the FBI continued to have undercover agents work on the floor to listen to the fallout.

The NFA records of the undercover agents continue to exist under their alias at the NFA's BASIC background records which all current and former floor traders are required to be listed.

For anyone wanted to read more about this fascinating episode, I highly suggest the book Brokers, Bagmen and Moles which was put out by a couple journalists. 

For the lazy, here is a NYT article written a couple weeks after the sting was announced:
F.B.I. Commodities 'Sting': Fast Money, Secret Lives

Answer to trivia question: VOGL in the lower left corner was FBI agent Dietrich Volk, alias Peter Vogel who was given the background of being the nephew of a wealthy Uruguayan who wished to get further into commodities trading.  

there are old traders and bold traders but none w/more style

 image from wikipedia

While in LA to watch the Blackhawks and rereading Taleb's books, I had a good laugh thinking of a friend and I's discussion about our brief time working the phones on order desks at the S&P pit when we first got to the CME.  The nine months I was a desk clerk it involved talking to Japanese traders in broken English or complete a-holes in NYC, pretty much everyday was miserable and I couldn't wait to get on the other side of the phone.  My friend on the other hand got to speak w/Mr Norm Zada, most famously known as the founder of Perfect 10 magazine, but also a money manager and highly esteemed academic mind.  Supposedly some of the models would handle secretarial duties such as checking trades, etc... so my bud would have to chat w/them and to *ahem* put a face to the name, their desk got a stack of magazines sent over. 

There are a lot bigger and more successful traders but I haven't heard of anyone conducting their operation with as much style and enjoyment as Mr. Zada, especially considering he only had one down year since inception. 

*updated* trading pits in New Orleans

photo credit: www.charlesmccain.com

The New Orleans Commodities Exchange began it's short run in 1981 before moving to Chicago to become the Chicago Corn and Rice Exchange in 1983 where it was subsequently absorbed by the MidAmerican Exchange (MidAm) in 1986.  There is very little mention of the exchange but Charles McCain wrote an article in 1981 which does a great job of describing the exchange and the original copy also shows photos of the trading floor:

SOLD!  Bidding on Tomorrow At the Commodity Exchange pdf copy
if you don't have a .pdf view you can use this link as a regular text copy: link

I first learned of the exchange in 1998 as I saw it on my road map during a visit to New Orleans for Mardis Gras.  One morning to help walk off a hangover acquired on Rue Burbon, I wandered into the building named the New Orleans Board of Trade which at the time still had the exchange's wall boards noting prices of the Rice and other grain contracts.  Now the building is mostly used for events like weddings, etc... and is worth taking a peek at next time you're in NOLA although I'd imagine the wallboards are gone by now.

***********UPDATE*********
"KC" posted the following in the comments sections and it's so important it needs to get bumped up to the main page.  Thanks KC for the wonderful commentary and educating us all on the New Orleans Exchange!

"The New Orleans exchange came to Chicago a few months after they closed in NO, the open interest had become dominated by Merril Lynch and Merril was critical in shutting the doors and settling contracts. I don't think that the Gulf delivery soybeans and corn made the move but the rice and cotton contracts did. The cotton contract traded briefly under two different contracts but was never successful. The exchange (really just the rice market) traded on the Mid-Am floor as the Chicago Rice and Cotton Exchange, initially on the Mid-Am floor on the 2nd floor of the Insurance Exchange Building just west of the CBOT Building and then on the Mid-Am floor in the old CME at Jackson and the river before the rice moved to the CBOT ag floor where it shared a pit with wheat options and corn options where the current corn option pit now stands. At that time the Mid-Am moved to the current out trade room on the CME/CBOT floor, which was before the Mid-Am moved to the old bond room and then to its current place on the grain floor.

The cotton contract never took hold, it was a longer staple cotton than what is traded in NY, I recall that they had problems with delivery, which was also a problem in the rice market. Rice originally had a delivery area that stretched from Arkansas to Texas, it was later restricted to the counties around Stuttgart, Arkansas. The larger delivery increased basis risk.

A number of the old New Orleans exchange seats were originally sold to Chicago grain traders due to the Gulf delivery mechanism and frankly, the lure of New Orleans as a business destination and there is still one member on the grain room floor who came from the New Orleans exchange and is likely in that photo. KC"

Another hilarious video

This video falls outside the blogs mandate of "trading pit history" but it's so funny and the 255 views it has so far doesn't do it comedic justice.  A couple things to know before watching, it pokes fun of the trading arcade scene in Gibraltar and gets the characters pretty accurately according to a friend of a friend who traded there in an arcade.  "Brass" is British slang for prostitute so to understand it makes it funnier before watching.