After years of low open-outcry volumes, the CME Group Chicago has decided to close all of the futures pits in New York and Chicago, effective July 2015. The only futures pit to remain open is the S&P 500 futures.
I started in the grain room as a runner at 18 years old. Four years later I was working phones in the bonds and 9 years later I moved to the CME Group, where I helped build one of the largest operations in the S&P futures in terms of volume. As with many of my friends from the floor, it’s all we know.
The Chicago Board of Trade (CBOT) was established in 1848 and traded oats, wheat, and corn. The Chicago Mercantile (CME) was founded in 1898 as the Chicago Butter and Egg Board. Over the years the two exchanges made up the heart of Chicago’s Financial District. The envy of the New York Stock Exchange (NYSE), the two exchanges made up the largest trading floors in the world and held thousand of traders, order fillers and pit and desk clerks. Over the years technology took the trading floors from chalk quote boards to high speed trading.
Out of high school I took a job working for my family’s printing company at 600 W Van Buren but that was not where my heart was. One Friday evening a very attractive bartender by the name of Mary Claire Cain offered me a job as a runner on the floor. That Monday I drove my dad to work and when I got out of the car I started marching toward the Board of Trade. I remember my dad yelling at me and asking me where I was going. I yelled back, “Chicago Board of Trade!”
He yelled back at me, “Good job, son!”
The Chicago exchanges including the Chicago Board of Options (CBOE) have employed thousands of people over the last 150 years and still employ thousands of people today. The trading floors of Chicago were famous for making millions of dollars. The rich history of the floors has captured the imaginations of thousands of people that visit the observatories and trading floors every year. Back in the late 1800s and early 1900s traders would march to the floor wearing a suit and tie. By the time electronic trading came around 1996 many traders threw in the towel while others stuck it out. The mighty futures pits started to shrink.
The Chicago Board of Trade’s bond pit that held over 600 clerks, order fillers, and locals became a hybrid trading pit that serviced all the CBOT interest rates. The CME eurodollar futures that that once held hundreds of people now has fewer than 15 traders. The S&P 500 pit that held over 500 is now down to less than 40. It was an amazing time working on the floors, traveling the world and meeting and working with some of the best customers anyone could ask for.
Many of my friends made millions of dollars working for Goldman Sachs filling orders in the bond but the legacy of all those millions made is that most didn’t hold on any of it. Yesterday CME Group decided to shut down all of the futures pits between New York and Chicago effective July 2015. Most traders we talked to said they knew it was coming but were still in shock at the announcement. It doesn’t seem that long ago that the ICE exchange was in a bidding war for the Chicago Board of Trade and it seems like even less time since the Chicago Mercantile moved over to the combined trading floors of the Chicago Board of trade. After years of crosstown rivalry and a bitter takeover battle, the Chicago Mercantile Exchange became the single largest futures exchange in the world.
The pit was a place where, if you had a good position and some good friends, you could do very well. It didn’t matter if you went to Notre Dame or Penn State, trading on the floor was considered one of the best occupations in the world. Nowhere else can you bid and offer with your hands and still make thousands of dollars. The rich history of the trading floors and the exchanges helped make Chicago what it is today. As more volume moved to the electronic platforms most of Chicago’s futures pits went from hundreds of traders down to a handful. New rules about how opening and closing orders were executed was one of the final blows to the CBOT grain room.
Block orders became a big issue as well, as customers report things up in the pits and then trade it electronically. Most good traders we talked to say they make one-third of what they used to. The pits have been in decline for decades. The cost versus the volume that the futures pits create fell well below the daily volume thresholds set by the exchanges years ago.
A small group of traders is trying to sue the CME Group, which owns the Board of Trade, claiming some of its new rules killed the trading pits, but I believe most traders have known for a long time that this day was coming. The noise of the floor and all the jumping up and down was replaced years ago by the hum of computer fans and drives.
Many say the trading floor has become more of a museum than an actual place to buy and sell and trade. I disagree. Despite the decline of humans on the trading floor, it’s still one of the best places for information on order flow in the world. While they closed all the futures spreads, all the options of the CME group will remain open. I said over three years ago that the grain options would eventually be moved over into the financial room that is owned by the CME Group, so while the futures pits are closing a new trading floor is emerging, a combined futures pit for the S&P 500 and all of the CME Group’s options.
Is it a blow to Chicago? Is it a blow to the futures and options industry? Did these pits actually have to stay open as long as they have? Old habits die hard, and as they say, old traders don’t die, they just drift away. We will always remember the bright lights, big city days of the CBOT and CME and the great things that they’ve done for the community and the traders of these exchanges. But we also know that nothing lasts forever.
In Asia 7 of 11 markets closed lower and in Europe this morning 9 of 12 markets are trading lower. Today’s economic and earnings calendar starts with the Chain Store Sales, Eric Rosengren speaks, Challenger Job-Cut Report, Gallup US Payroll to Population, International Trade, Jobless Claims, Productivity and Cost, EIA Natural Gas Report, 3 and 6 Month T-bill announcement, Fed Balance Sheet, Money Supply and earnings from Cigna Corp. (NYSE: CI), Philip Morris International, Inc. (NYSE: PM), News Corporation (NASDAQ: NWSA), Cummins Inc. (NYSE: CMI), and Twitter, Inc. (NYSE: TWTR).
Our View: Pick your poison. Eventually the S&P is going to go down hard, but I don’t think that’s until later in the year. Over the last two weeks the S&P has been up and down sharply and continues on the same path. I don’t believe there is any clear read other than that the S&P rallies when everyone’s too short and sells off when everyone gets too long.
The overall trade in 2015 has been all about taking out the buy stops and taking out the sell stops, and I don’t believe that’s going to change anytime soon. Today we have another big round of economic reports and earnings. While the Greek headlines knocked the S&P off its high yesterday, the actual market on close orders showed MOC buy $850mil. There is no doubt that the mutual funds have been putting money back to work. Our view is that the S&P should see some early weakness and then rally. We’re going to keep it like tha t…
“S&P 500 Greek Bushwhack”
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 of 11 markets closed lower: Shanghai Comp. -1.18%, Hang Seng +0.35%, Nikkei +0.21%
- Earlier in Europe 9 of 12 markets were trading lower: DAX -0.16%, FTSE -0.30%, MICEX +2.10%, Athens GD.AT -5.45%
- Fair value: S&P -5.64, Nasdaq -4.66, Dow -72.69
- Total volume: 1.69 mil ESH and 6.4k SPH traded
- Economic schedule: Chain Store Sales, Eric Rosengren speaks, Challenger Job-Cut Report, Gallup US Payroll to Population, International Trade, Jobless Claims, Productivity and Cost, EIA Natural Gas Report, 3 and 6 Month T-bill announcement, Fed Balance Sheet, Money Supply and earnings from Cigna Corp. (NYSE: CI), Philip Morris International, Inc. (NYSE: PM), News Corporation (NASDAQ: NWSA), Cummins Inc. (NYSE: CMI), and Twitter, Inc. (NYSE: TWTR).
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