With many of the futures pits going dark next month, current and former traders talk about their highs and lows
BY LYNNE MAREK
PHOTOS AND VIDEO BY MANUEL MARTINEZ
When CME Group begins dismantling more than half of its 35 trading pits on July 2, it will be a major step toward extinguishing a form of commerce that established Chicago as the financial center of the Midwest and helped define the city in popular culture as a place where savvy operators could make their fortunes.
The futures pits grew along with the stockyards and railroads. With wheat, corn, cattle and hogs flowing into the city, a marketplace emerged and businessmen formed the Chicago Board of Trade in 1848 and the Chicago Produce Exchange, a forerunner to the Chicago Mercantile Exchange, in 1874. In vast, high-ceilinged trading rooms, men—and they were all men, then—circled noisily to buy and sell contracts for the future delivery of various commodities.
STEPHEN J. SERIO
Traders in the eurodollar options pit, the most active pit at CME Group, in November 2014.
Eventually, the Board of Trade erected a 45-story building at LaSalle and Jackson streets to house the bellowing hordes, with President Herbert Hoover pressing a symbolic button in Washington, D.C., to start trading on June 9, 1930. After the CBOT and CME merged in 2007, they combined trading floors at that location, closing CME’s pits on Wacker Drive.
In the latter decades of the 20th century, the trading floors teemed with thousands of traders pressed together in the pits, where they flashed hand signals and shouted orders in a crackling, competitive mass. Many traders donned colorful jackets to identify their firms and draw attention in the pits. And the exchanges added futures contracts on financial instruments such as bonds and eurodollars, plus options contracts on the futures, offering companies, as well as farmers, opportunities to protect against market price swings.
Chicago brokers and traders have traded billions of contracts over the decades, pumping wealth into the city. Not only were the trading pits a major commercial center but, as Chicago-based
Cheiron Trading CEO Larry Schulman recalls, they offered any kid “with perseverance and a little native ability” a solid career and the real possibility of great wealth.
Today, a few hundred die-hards in 30 Chicago pits stretch over nearly 2 acres of floor, keeping the culture of open outcry fitfully alive. The more active options pits will remain open, for now.
CME still operates the biggest futures exchange in the world, but traders and firms have drifted little by little over the past 20 years to computer screens, taking 90 percent of the trading volume with them. Electronic trading continues to grow, but with high-speed telecommunications, it’s not limited by geography, and many firms have set up far from Chicago.
CME won’t say when it will close the last 13 pits, but when it does—likely in the next few years—it will be the end of an arena where traders battled daily over orders and a club where they formed lifelong bonds. Here, six people share in their own words the experience of working on the trading floor and what it means to them and the city.
THE CATTLE MANhttps://players.brightcove.net/717773684/ry35WFi5_default/index.html?directedMigration=true&videoId=ref:Bot_Clarkson_15526&
NAME: Jim Clarkson
COMPANY: A&A Trading
ROLE IN THE PIT: Broker
PIT WORKED: Cattle futures
Jim Clarkson got hooked on trading as a college student and, after graduating, started in the pits as a runner. Eventually, he went to work for a broker who was indicted for fraud in 1994 and went to prison, leaving Clarkson and another partner to take over the business. Today their firm, A&A Trading, buys and sells orders in the cattle pit for ranchers across the Midwest.
When I started at the building (in 1982), the eurodollar pit was so packed that people would send brokers in to hold your spot at 6:30 in the morning when the market opened at 7:20. When the pit really started moving, brokers would be thrown out of the pit and have to scramble back in. The excitement was palpable.…
All kinds of characters are drawn to the pit. From the intellectual guy who’s got these formulas figured out and they’re going to beat the market with their intellect. Then you’ve got the people with inside information and they’re going to beat the market because they’ve got the inside scoop and they’re bigger traders and can muscle the market around. It’s a melting pot of really smart people, of people who have connections, and then people in the middle, and everybody is just trying to make money.…
The wealth of the city from the exchange is huge.…It was a huge employer, plus the workers were all coming into downtown every day so all these bars and restaurants around here used to be twice as packed and there used to be twice as many as there are now. All the way through the early 2000s, it was very dynamic and then that’s when it really started to (decline).…
It’s still a flow of information that’s here, but the trading has changed a lot because electronically now you’ve got the “algos.”… Back in my day, it was the people who were the bigger (pit) traders and had the inside, fundamental information that were really the ones who pushed the market. Now it’s the electronic people that push the market.
RIDING THE ROLLER COASTERhttps://players.brightcove.net/717773684/ry35WFi5_default/index.html?directedMigration=true&videoId=ref:BoT_15529_Graceffa&
NAME: Chris Graceffa
COMPANY: WH Trading
ROLE IN THE PIT: Trader
PIT WORKED: Bond futures options
Chris Graceffa moved to Chicago after graduating from Wesleyan University in Middletown, Conn., with an economics degree and joined WH Trading, one of the city’s many high-speed trading firms. After working as a runner and clerk on the trading floor, he was a trader on “the screen” for years before asking last year to return to the floor as a trader in the 10-year Treasury options pit.
I’m an analytically minded person and I was uber-competitive and I was told that was a pretty good mix to have success in this field. I’m kind of built for it.…
I remember being overwhelmed at first by the size and the brashness and honesty of it all. It’s in your face. It’s real. It’s tangible. And (I remember) being excited about that. There’s somewhere where I’m not going to have to be at a desk for 12 hours a day and look at spreadsheets, which is kind of where I thought I was heading.…
It’s a roller coaster. Some days are going to be bad. Some days are going to be good. You have to be willing to deal with that. On days when I have success, I really enjoy what I do. I can wake up every single morning and walk into work excited about this new day, this new opportunity, this new problem that I’m going to face.…Every single day is a different day, and every single day there’s a different challenge, and every single day there’s a new problem. There’s no monotony. Even though there’s boring times, they’re never the same.…
They told me eight years ago that the eurodollar options pit would be dead in three or four years. They told me the same thing about the 10-year (options pit), yet I’m still trying to fight to get a spot in that pit. I still can’t get on trades because there are so many people that want to get on them. It could be one year, it could be 10 years, it could be 20 years, it could be in 18 months (that all the pits close). I’m confident that I can go back to screen-trading if I need to. I think that versatility is something that nobody will ever look down on. If you’re good at all different things, then you’ll always have an opportunity somewhere.…
People are going to need the products one way or another—insurance on their interest rates, and oil options—and I’ll just trade it on the screen.…I’m also confident my company is going to work to stay ahead of the curve, like a lot of companies are, and I’ll just go back to trading on the screen.
THE BULLY BUSTERhttps://players.brightcove.net/717773684/ry35WFi5_default/index.html?directedMigration=true&videoId=ref:BoT_15527_McGathey&
NAME: Virginia McGathey
COMPANY: McGathey Commodities (president)
ROLE IN THE PIT: Broker
PIT WORKED: Wheat futures options
Virginia McGathey learned to trade options at the Chicago Board Options Exchange. She moved to the Chicago Board of Trade in 1983 to work in the corn options pit and eventually shifted to the wheat options pit. She created McGathey Commodities in 1987.
Ihave really gone through a lot of blood, sweat and oh-so-many tears. I think that the fact that I’ve made it through—it’s almost impossible to talk about some of the challenges that I faced. It was absolutely so difficult that I would have steered other people away, if you did not have a thick enough skin or if you could not grow your own personal confidence.…
Once I decided that I was going to be a broker, I went around to try to get business and I had people say to me specifically, ‘I would never let a woman touch any of my orders if you were the last broker on this trading floor.’ (One person) said almost verbatim those exact words and it really shocked me, but that’s what he said. A couple other people were not as nice, so you can imagine the kind of language that they used.…
I think that there is a bully mentality, and if you want to be a big shot you can try to say nasty things. And a lot of guys said very, very nasty things to me, and so there was a time where I responded in kind, and I learned how to chop them down to size to where they stopped their side because if they wanted to go toe-to-toe with me, they would be the one on the ground.…
At the time that the computer came out, it was a great tool. I loved it. It was a wonderful help to me. I didn’t quite realize that it was going to totally take over the market. That it would actually become the market.…
One of my best and most fulfilling times was when I had two of my nieces, two of my nephews and my (two) brothers (working for the firm). I had a full group here, and everybody was working and trading and filling in all areas, and it was really satisfying to me personally to have been able to build the company to that level and provide for everyone, whether you made a lot of money or not. That was a great experience, and I think that everyone would agree. It made for very interesting conversation at the Thanksgiving Day table.
THE TRADERS’ GUIDEhttps://players.brightcove.net/717773684/ry35WFi5_default/index.html?directedMigration=true&videoId=ref:BoT_15529_Schulman&
NAME: Larry Schulman
COMPANY: Cheiron Trading (CEO)
ROLE IN THE PIT: Former trader
PIT WORKED: 5-year futures and bond futures options
Larry Schulman was among the first traders in the 30-year Treasury options pit at the Chicago Board of Trade in 1982. Since then he has trained many others in the art of buying and selling on the floor as well as online. His firm, Cheiron Trading, has 15 employees today and trades exclusively electronically in interest rate and commodity contracts. He still remembers his first trade on the floor.
Igo to make that trade and I could not make sound come out of my mouth, I was so nervous. Sound would not come out of my mouth. So I’m trying to signal to the broker to buy 14 futures (and trying to talk to a client on the phone). Fortunately, they both kind of knew what I was trying to do and they figured it out, but it was horrible. That passed, but it’s an instructive thing because as I brought hundreds of people into the business over time, having gone through that myself, I had sort of a visceral understanding of what it’s like for a new guy, in terms of the nervousness and how foreign it is as a place and a way of conducting business.…
I actually became adept at it. The key things about being successful 30-odd years ago were, you needed to be able to do very quick mental arithmetic, be aggressive, be able to sync your voice and hands quickly.…
(For) plenty of guys, it’s like your club. It’s your friends, it’s a way of life, it’s a place to go. There are plenty of people that prefer to have a booth on the floor rather than be in an office because they’ve been going to that floor for 30 years and it’s their home.…
What happens now, and it’s been happening for a long time, there’s no reason for me to be in Chicago other than I’m in Chicago already and change is hard. So you’ve got firms that pop up in Texas or Montreal or wherever that are major players in the market-making, high-frequency business. There’s no barrier to where they’re going to start. Twenty years ago, they were going to start in Chicago.…
The bigger difference is what that talent is going to look like. It won’t be as democratic a way to become successful as it was 30, 40 years ago. You’ve got to win the game of life at an earlier age to participate in this, you’ve got to be able to go to the right school and succeed at that and build those skills.…
You’re not likely to have as many sort of small, individual generators of wealth because of the increased expense of being in the business. It’s becoming far more institutional… whereas (previously) you were a small-business man, or business person, in Chicago, in this location that required this network of people that were all here. That doesn’t exist anymore. The ties to the community and the economic impact of the multiplier of that is definitely different; I think it’s smaller. Even if the (overall) numbers are bigger, it’s going to have a smaller impact overall. If one institution makes $1 billion, it has far less of an impact than if a thousand individual small-business people all make $1 million.…Those thousand people are tied to the community in a way that those institutions are not.
THE VOICE OF EXPERIENCEhttps://players.brightcove.net/717773684/ry35WFi5_default/index.html?directedMigration=true&videoId=ref:BoT_15527_Stern&
NAME: Lee Stern
COMPANY: LBS (president)
ROLE IN THE PIT: Former trader
PIT WORKED: Soybean futures
Lee Stern has been trading at the Chicago Board of Trade longer than anyone else, with a membership stretching back to 1949. He became a formidable trader in the soybean futures pit and started his own clearing firm guaranteeing trades. When one of his clearing clients illegally tried to corner the market on U.S. Treasury bonds in 1992, it cost Stern $6.5 million. (He and his firm weren’t accused of wrongdoing.) Stern is not on the trading floor today, but he buys and sells all sorts of contracts from a desktop computer at his CBOT Building office.
Igot a job as a runner at the Board of Trade when I got out of the service. I was in the Army Air Corps at the end of World War II. I was familiar with the Board of Trade because I knew someone who had been a member for a number of years. I was going to Roosevelt College… and my timing at school was my classes started about 2 o’clock and ended about 5, and the runner’s job started at 9:15 (a.m.) and ended up at 1:30, so that worked perfect.…
My first day trading I had a very small account. I had $500 in an account and so I had to be very, very careful that I didn’t lose that because if I lost that money then I was out of the ballpark. I would have had to sell my membership.…
Anti-Semitism was prevalent here (at the Board of Trade) when I came down.…I didn’t take anything from anybody. Eventually, of course, people of different religions became active and prominent and members of the exchange, whether they were Irish Catholics or Jews or whatever.…
The market is so huge today, you cannot compare the trading today with the trading that I participated in back in the ’50s, ’60s, ’70s, ’80s. There’s no comparison. The size of the market is just enormous, so much bigger.…
The floor, for all intents and purposes, has been closed for a long time. Ninety-five percent of the trade is on the screen now. The only people (the closing is) going to affect, I think, are the people who are trading down there now. That’s unfortunate. I know a lot of my contemporaries—younger than me, but I call them my contemporaries—found it very difficult to go onto the screen. For whatever reason, I never found it difficult.
THE MAN IN THE MIDDLEhttps://players.brightcove.net/717773684/ry35WFi5_default/index.html?directedMigration=true&videoId=ref:BoT_15527_Young&
NAME: Eian Young
COMPANY: Bear Brokerage
ROLE IN THE PIT: Clerk
PIT WORKED: Eurodollar futures options
Eian Young is a clerk at Bear Brokerage in the eurodollar options pit, the most active one at CME. He left Hampshire College in Amherst, Mass., after two and a half years to return to his hometown and become a runner at the Chicago Board of Trade. Now he helps a broker take orders from local traders.
These guys (at Bear Brokerage) have taken me to Vegas, taken me to New Orleans, several times. They become family after a point in time; it’s a real family. When you’re dealing with that trust and other people’s money—that gives perspective. They need to trust you, so having that trust, you’re like, ‘Wow, they trust me.’ They trust me not to mess up or make an error or mistake. I’ve been doing it for a while now so it becomes natural after a point. After a while, we all become a community.…
That was one thing I noticed for sure was that the diversity within our company was way more than the other (firms). There were companies that were just all white. We had Jews, Catholics, African-Americans, Belizean-Americans, Asians, Mexicans. We all were on the rainbow and it all worked well…like, you do your job well, then we’ll hire you.…
The pit is thrilling—just the angst and when people are calling out for those markets and you have locals in your face trying to jam it down…it’s a good feeling. No one else experiences that on a daily basis. Does your job try to almost strangle you? That high anxiety, it’s kind of appealing and it always has been, and that’s why I think the pits have survived for so long. People need that.…
(The pits) provided a lot of jobs that were reasonable employment…and people enjoyed the work they did. And also you’re a familiar name around town. You’re like, ‘I work at the CBOT.’ You provide this history of Chicago that’s really important to our financial basis and our financial district. I don’t want to see that disappear.…
At the options pit, as far as we know, the business volume activity is still going strong, so we’re trying to hold on to that last spectrum before we come to the end of the road. It’s been a wacky, crazy ride the whole way.