CME visitor gallery

Above is a 1995 advertisement for the CME visitor's gallery which truly was one of "Chicago's most spectacular views."  After the September 11th, 2001 attacks, the viewing gallery was closed to the public unless part of a pre-registered tour group and it's a shame that the terrorism did lead to many reductions in freedom and security restrictions across the US.   Prior to the public closings, it was always a treat for me to wander to the various visitor galleries and watch for a little bit before I got access to be on the floor myself.  Seeing the trading pit for the first time from the visitor's gallery at the KCBT in 1998, I knew that's exactly what I wanted to do in life. 

In the Wheat Pit by James Patten

As a followup to Story of a Speculator by Cutten, I'll present In the Wheat Pit by James Patten who was King of the wheat pit prior to Cutten assuming that role.  Both men presented their stories as serials in the Saturday Evening Post in collaboration with Boyden Sparkes although Patten's story preceeded Cutten's by five years as it was published in 1927.  In the Wheat Pit is great and really uncovered some knowledge that I never knew about the CBOT but most of all showed that the CBOT has always remained the same drama with different actors playing the parts. 

Squeezing two pages into one cut the text size so magnify it if you have a tough time reading it.  Or login to Scribd and download/print it, whatever just don't ask to get a copy emailed.  I'm still busy so blogging will remain infrequent.

In the Wheat Pit by James Patten

Story of a Speculator

I'm going to focus on a few other things for the next couple weeks and won't post much, if at all, but wanted to leave some enjoyable summer reading.  In 1932 Arthur Cutten, who was the single largest speculator the CBOT wheat pit ever saw, wrote the following Story of a Speculator which was privately published after appearing as a three part serial in the Saturday Evening Post.  There have been a few blog posts here on Arthur Cutten and his speculations were so large, the US government began position limits as a result of the size he was trading.  It's a great and easy read at only 88 pages and until my upload of it, this writing has been almost impossible to find, enjoy. 

Story of a Speculator

Trading floor reinvention

photo credit inhabit.com

Like those who once worked in and around the trading pits, the physical trading floors had to be reinvented for a different role once trading became electronic.  The most recent recent exchange to shut floor trading and go 100% was the Minneapolis Grain Exchange and their trading floor is now used as a collaborative office where people can rent desks for various durations and contractual commitment.  The trend for "coworking" is pretty widespread across the US now and it's a great use of space at the MGEX because it is simply installing desks and chairs for the most part. 

Thanks to Nathan Rudd of Minneapolis for the link.

Other People's Money - the theatre performance

photo source: libraryofcongress

This is a pretty cool poster from the 1890s for the play Other People's Money written by E.O. Towne and the caption reads:
"Excitement on the 'Board of Trade'"
"Hopper' Proclaimed King of the Wheat Pit"

I couldn't find the plot or much about the play except for this vague NYT review on August 20, 1895.

So what happened?

If there was a single word which explains which explains why the trading pits have closed everywhere but the US, it's "disintermediation' - the process of removing middlemen from transactions."  Various forms of disintermediation continue to exist in the trading world and recent software developments are speeding the destruction of niches once thought to be permanent. 

These themes were outlined quite well in the book Capital Market Revolution by Patrick Young and Thomas Theys which was published in 1999 during an age that trading pits were in the process of shutting in Europe and the decline of open outcry began in the US.  Author Young is a trader/journalist and author Theys is the founder of trading software firm Patsystems so they were very well qualified to describe the changes which happened and in many respects continue to happen across market structures. 

The book is as much a retrospective on why the changes happened as much as predictions for the future of which some were realized but others remain unfounded.  At the time of publishing in 1999 it was a bold book which largely forecast the trajectory of the industry and remains fascinating for the lessons. 

Viewed as how the industry has changed so much in the past decade, the introspective questions Capital Market Revolution posed were not reflected upon by many participants.  Although I won't compare it quite on a level as my favorite business book of all time, Only The Paranoid Survive by Andy Grove, there are many similarities between the two. 

One charactaristic

A frequent topic I've discussed with others is about if there are any defining characteristics that indicated whether someone would succeed as a trader both in the pit or on the screen.  It's tough to find anything definitive because any characteristic always had an exception or two of guys who proved it wrong.  However, as I'm currently near Coronado Island, which is one of two locations where recruits undergo Basic Underwater Demolition/SEAL (BUD/S) training which is part of the process of becoming a Navy SEAL, it brought to mind a quote from a great book that has some parallels.  

The Warrior Elite by Dick Couch was written by a Vietnam era SEAL who underwent BUD/S training 30 years ago and follows a BUD/S class through modern training.  The following quote I thought was the most interesting of the entire book:

"Perhaps as I watch Class 228 in the coming weeks, I'll learn more about those who chose not to quit.  As Joe Burns so eloqently put it, Hell Week is only a speed bump in BUD/S training.  There were two things I did notice as I watched Class 228 finish Hell Week.  They were also true in Class 45 some thirty years ago.  First, small men seem to get through the training easier and in larger numbers than big men.  The second has to do with tattoos.  With Class 228, success in BUD/S and in Hell Week was inversely proportional to the number of tattoos on a trainee's body.  Almost a third of the men who began with Class 228 had tattoos.  Some were extensive.  All but a very few of these trainees were gone by the end of Hell Week---and those who survived, have small ones.  Perhaps this is not too surprising.  Many young people get tattoos because they yield to peer pressure, or because they lack self-confidence or a strong personal identity.  These are not traits I saw in the men who finished Hell Week."

Similarly I don't know any traders who are still trading that have more than a very small tattoo and even that is rare.  Granted I haven't looked much into this but just a general observation.  In the pits, a handful of guys had noticeable tattoos but the ones I can recall were always executing brokers.  Like everything else, I'm sure there's plenty of exceptions to this but just an observation that came to mind.