Remember the Roar

Sorry I haven't been posting in a while as I've been traveling w/my wife a lot and a few days ago we came across something which is probably the closest equivalent to a busy trading floor.  There are two roars which I'll never forget, the most memorable is from seeing the Blackhawks play at old Chicago Stadium while the second was the sound of walking onto the trading floor when it was busy and of the two, memories of the latter were brought back in the most unlikely place.

We were just in the Philippines and attended a cockfight, known locally as sabong, and after walking in the entrance below the arena, the roar brought me back to when the trading pits were busy.  I mentioned to my local buddy that it's amazing how excited everyone is for the fight in progress and he said no, that roar is from all the betting.  Sure enough when we walked up to our seats in the balcony, the noise was deafening and visually was also amazing as betting is done w/a series of handsignals across the arena.

Just like the trading floors there were middle man to broker bets, known as cristos (ironically the Latin name for Christ but sometimes spelled w/a K to differentiate) and for instance split a $200 bet into smaller bets like $40, $60, $50, $50.  However unlike the trading pits, every transaction is done by memory so nothing is written down and every bet is settled immediately after each cockfight in cash which is rolled up and thrown across the arena.  This is probably the reason why no beer is sold in the arena.

Cockfighting is big business in the Philippines and the current 8 cock derby (each entrant has 8 roosters) we attended had a $750,000 USD pot for the winner.  To get up to that kind of money, the derby runs 24 hours a day for about a week, involves about 2400 roosters and is simulcast on tv.  I didn't realize how big it was until we got to the door and paid $20-$30 each for admission which is a big amount in the Philippines.  Here's a 2 minute phone video of the action and to give perspective, we were there about 6pm and heard by midnight it's standing room only.  A longer 4 minute video can also be seen by clicking here.

Chicago's decade of innovation: 1972-1982 (article)

It's amazing how most traders take the origin and development of various futures contracts for granted considering the ingenuity it took to launch them in first place.  Fortunately the FT's Chicago correspondent Hal Weitzman wrote the following article for the World Federation of Exchange's monthly magazine earlier this year which puts into focus the decade of 1972-82 when the financial futures were developed and launched in Chicago.  The article, Chicago's Decade of Innovation 1972-1982, is perfect for holiday week reading as it's short enough to condense the decade's achievements but long enough to properly explain the circumstances which lead to their creation.  From the introduction,

"Yet between 1972 and 1982, Chicago’s futures exchanges effectively created modern financial derivatives markets. In a decade-long burst of radical innovation, the Chicago Board of Trade and the Chicago Mercantile Exchange – its younger and smaller rival –introduced a string of new financial derivatives that completely transformed the city, its exchanges and the entire world of finance. Beginning with the creation of the International Monetary Market in 1972, followed by the birth of the Chicago Board Options Exchange in 1973, through the introduction of Government National Mortgage Association (“Ginnie Mae”) Mae futures in 1975, futures on US Treasury bills in 1976, US Treasury bond futures in 1977, Eurodollar futures in 1981 and capped by the creation of index-based derivatives and options on futures in 1982, this decade of innovation laid the foundation of modern finance. It marked a critical paradigm shift, opening up the world of derivatives to the power of trading financial instruments and making the broader financial world aware of the importance of derivatives."

Full article linked:
Chicago's decade of innovation: 1972-1982

Reality weirder than fiction

After a guy rogue trades his way to destroying a CBOT clearing firm in 1992, what could possibly be the second act for him????

photo and story from VancouverNewsBlog.com

Run for mayor of Vancouver with his campaign based in the Occupy Vancouver tent city, noting that he's the only homeless candidate in the election.

CBOT hand signals guide from 1995

This 1995 guide to CBOT hand signals was published by the exchange and shows just prices and quantities.  I obtained it from the Library of Congress which was quite helpful in this and other research requests.  Sorry my scanner isn't that great and some signals are a bit faint. 

cbothandsignals

NY cocoa ring

This photo of the NY Cocoa Exchange is from an undated postcard but my guess is the 50s or 60s. 

Gursky - Chicago Board of Trade

Andreas Gursky photographed various trading floors in the late 90s and some of the photos have reached, in my opinion, ridiculously high valuations.  Clearly I am in the wrong business when his "Chicago Board of Trade" photo was sold last year for $902,500 at above the high estimate range of 600,000 - 900,000. 

How that photo is justified to be valued at just under a million dollars completely blows my mind.  Perhaps this description complete w/English art wanker accent can help me understand:



Nope, I just don't get it.  Click on the "Lot Notes" tab below the photo in this link to read further on what mental masturbation the art world justifies itself on for further description of the photo. 

Art valuations are really the only thing that can make me, politically further to the Right than the Tea Party, wonder if some people do make too much money and taxes should be increased.

What I've learned (Esquire knockoff)

Esquire magazine has a column each month entitled What I've Learned and various 'famous' people share knowledge on what they've learned through the journey of life.  Most of those interviewed aren't that interesting or even ought to be looked at for advice (reality stars, actors, etc...) but there are some great interviews in the archives worth reading.  Anyways, here's what I've learned mostly from having worked in and around various trading pits from 1998 until 2005 when I left to go fully electronic.  Generally it scares me when people offer advice/knowledge but these are simply observations over the years.  Or perhaps it'd be better to knockoff the title of one of my favorite books, Ice-T's The Ice Opinion - Who Gives a Fuck?

- As an impressionable eighteen year old, I once read that there were more millionaires per square foot in the trading pits than anywhere else in the world and that no one lived more alive than traders, so that's where I went.  Now it's certainly not the case anymore and tough to say what the equivalent currently is.

- Traders who blow up once tend to blow up again.  Similar to guys who cheat on their wives, if they do it once they'll do it again as it's deeply rooted in their psychology.  Ironically, those who blow up tend to find new financial backing easier than those who fade slowly.  

- Successful veterans tend to be the most helpful and encouraging to those starting along the same path as they know how difficult it is.  It's failed old men who try to discourage younger upstarts from achieving what they could not.

- A trader's wife has to be 100% supportive of trading because either the marriage won't last or trading will likely fail so a choice must be made if there is that rift. 

- "Trader" is one of the most ambiguous words in the English language and my definition is pretty narrow.

- When I first interviewed w/the traders who hired me as their clerk and put me on the path to trading, one of the first things they mentioned was how they go about business, "it's better to do the right thing ethically and lose money than do the wrong thing ethically and make money."

- Optimal level of wealth is enough to do anything but not enough to do nothing.

- There's a lot of miserable rich people and in particular, good health is the truest form of wealth there is. 

- Anyone who is afraid to look dumb or unable to admit fault is dangerous cause it will eventually lead to a large meltdown. 

- In high school, I got into an on the job training program which earned me class credit along with minimum wage and was able to get on at a small brokerage doing clerk work.  One duty was to accept and record checks as they came in and often the big checks would come from rural Kansas farmers who'd walk them in.  The look of caution and ambivalence in their eye when handing over the check was so powerful that I knew that I'd never want to deal w/outside capital or clients in any business later on, it's just too much moral responsibility.

- Successful people are willing to do what unsuccessful people are unwilling to do, i.e. sacrifice their free time, work smart, stay out of trouble, reinvest in their business and themselves, put in the long hours, move cities or countries, trade a paycut for more opportunity elsewhere, delay gratification, etc...

- The amateur looks for the greatest reward, the professional looks for the least amount of risk. 

- I honestly think that no one before or since on the trading floor has ever been mentored by a greater group of guys than I learned about trading and life from.  Brings to mind the song which was played as "Lucky" Luc Robatille's number was retired by the LA Kings a few years ago, it was Lynyrd Skynyrd's "Lucky Man."

That's all I can hammer out at the moment but if anyone has any to add, feel free to put them in the comment section. 

MATIF photos

Fabien Danis was kind enough to share some photos of his days trading at MATIF in Paris during the 1990s.  Floor traders worldwide always had a joie de vivre that is unmatched in other industries and combined with how the French have mastered the art of living, it must've been incredibly fun to work on MATIF. 

A dedication to MF Global

I was going to post a bit more on the lessons since arriving in Chicago twelve years ago today but got a little boozed at dinner so best I can do is dedicate a song to MF Global.  Having spent my youth in Kansas around various small, independent businesses like gun shows and pawn shops I noticed there were a lot of colorful ways to ask for payment.  My dad's favorite was "In God We Trust, All Others Pay Cash" and my favorite was "Cash on the Barrelhead" so to the bankrupt clearing firm MF Global that has my funds frozen I dedicate this song to you:

"That'll be cash on the barrelhead son
Not part not half but the entire sum
No money down, no credit plan
Cause a little bird told me , you're a travellin' man"

My personal holiday

For me, November 1st every year is a personal holiday as it was the day in 1999 that I started as a clerk on the CME/CBOT, began trading off the floor in 2001 as a backed acct under my mentors and 4 years later in 2005 grew out of that to trade on my own.  Lots to celebrate!  Ironically this year is the first day I'll have it off since the clearing firm my trades go through just blew up (MF) and it'll be another day or so before it gets straightened out.


Earlier this year while on a train ride in France I took out the laptop and started writing a bit about how it was to even get a job on the floor.  It's not written for any particular audience, maybe my potential kids, but figured I'd put it up here as it leads up to the day of November 1st, 1999.  The length is 5 pages in Word and it's lightly edited so not totally complete, but hopefully it gives a laugh or two to others as it was fun to go down memory lane for me.  The story also shows why I enjoy the ride everyday cause it was a hassle to get here in the first place!

If you can't read it on the embed, here's the link to the scribd upload.

kctochi

CBOT telegraphic cipher

Trading via telegraph is more than old time, it's olde tyme.  To facilitate a more accurate way of receiving orders and relaying information, the Robinson Telegraphic Cipher was created in 1872 (a few years before invention of the telephone) to have a standardized listing of telegraphic communication at the Chicago Board of Trade.  The following pages are scanned from the 1897 edition of the cipher and to be honest I don't know when it ceased to be published.  Although I'll highlight a few scans, fortunately the entire book is scanned by google books so it can be seen here.  Basically the premise of the cipher was for the telegraph operators to translate a certain word into a phrase, number, word, etc...  to abbreviate it in an accurate and standardized manner.  (Click on photos to enlarge)

The first scan shows the table of contents as to which type of information is listed.  Now some might wonder why things other than wheat/corn were listed and that's because there was a provision pit at the CBOT which to my understanding had misc commodities trading in it like beef, etc....

This scan is of the first page and illustrates how the ciper actually works.  I clipped the sentence from the top which reads: "The following phrases have been arranged to save in a great measure looking through the book, when using the cipher for orders. The month or word for time of delivery, following the word for the amount. Example: "Abdicate, Achieve, March," translated reads, Buy 250 bbls. Mess Pork, March delivery."

There is also some blank spaces which can be filled in w/custom words/phrases/numbers/etc....

The final scan just shows some misc phrases which could be used to describe market activity. 

If anyone wants one, the cipher can be found in various booksellers on the internet for around $30 on up so it's not too rare. 

Friday

Like most work environments, most people don't like working on Friday afternoons and are ready to get the weekend started.  A lot of the funniest memories I have on the trading pits are people screwing around for laughs late on Friday as activity is usually slow and as they say, the devil makes work for idle hands.  Clerks and brokers were generally much more lighthearted than traders as most, particularly scalpers, were only still trading on Friday afternoons because they were either stuck on a position they couldn't get out of or down money on the day and trying to get it back. 

But of all the Friday afternoon memories, my favorite one is of a clerk that would stand on the outside steps of the S&P pit, his arms outstretched, facing the order desks an hour or two before the close and he'd yell, "COME ON 3:15 GAWD DAMMIT!" and everyone would clap and cheer thinking the same. 

#Rant

#Rant

I wasn’t going to comment on the #Occupy protests but I’m so fed up w/how misguided they are that I really can’t help myself even though this isn’t an appropriate forum.  I haven’t even been in Chicago for the past couple weeks but have known that the protests have taken place outside the CBOT.  Rather than elaborate on emotion or vague debates, I’d like to present facts as various demonstrations have taken place outside the same venue in years past with zero effect.

 

FACT: Virtually all of those remaining on the trading floor of the CME/CBOT are not in the 1% of top earners or even close to it.  The large participants for the most part left the trading floor  many, many years ago and those remaining are generally the foot-soldiers that execute what few orders that aren’t done electronically.  The executives that run the company don't even work in the building so it's a pointless venue to protest at.  

FACT: Futures trading is simply risk transference where participants willingly enter into contracts with others as part of a free market to shift risk as they deem appropriate.  Profits/losses are shifted twice daily from winners to losers in a centralized clearinghouse so there are never any losses that result into a devastating build.  It’s the purest form of facing reality in real time with no excuses.  THE ENTIRE FINANCIAL CRISIS HAD NOTHING TO DO WITH FUTURES TRADING.  Risk cannot be avoid in the world, there are people willing to take it and others who wish to avoid it, so as long as they don't ask for bailouts it's noone else's business.

FACT: There is nothing that can be said to anyone who worked on the trading floor which they can be offended by or not heard worse of before.  Verbal joking/harassment was simply a part of everyday life and as a result everyone knew everyone’s opinion of each other, nothing can be said outside of the trading pits which tops what was said within it.   

FACT: Independent speculators such as myself are leveraged to the shirt on their back, if I or any others lose then we lose everything down to our home and everything in it.  Willingly that responsibility is accepted just as American pioneers accepted their risk/reward ratios to build this great country.  To boycott an entity such as CME Group which was reliable and actually prevented systematic losses during the financial crisis is pure ignorance. 

FACT: There has never been a contractual default of the Chicago clearing houses in their entire history dating back to the mid 1800s.  Protestors may not appreciate it but simply realize that no one will do business with anyone who doesn’t make good on their obligations.  It appears to me that all those protesting have never built ANYTHING substantial to understand the responsibilities and obligations it takes.

FACT: I’ve travelled widely to North Korea, Cuba, Turkmenistan, Russia, Ukraine, Zimbabwe, Vietnam, China, Philippines along w/virtually everywhere else from Sub-Saharan Africa shitholes to back alley India to flat on your ass poor South America……America as they say, love it or leave it!  Believe me, there are few in the countries I mentioned who wouldn’t trade places to be a poor immigrant (as my relatives were) in the US and in turn succeed as they wish.  Look in the mirror and live life to your full potential instead of being pissed at those who put in the 12+ hour days starting at 4am and reinvest in themselves and businesses over years to add real value to the world.  That is a discipline I haven’t seen exhibited amongst the protestors and believe I have plenty of ultra-liberal friends/family which I discuss the same issues with.  If you aren’t making it in America, you only have yourself to blame, there is more opportunity to succeed in whichever way you desire than anywhere else in the entire history of mankind here.

FACT: If you’re going to put blame about how the world works, the Chicago futures industry ain’t it and you should find real fault in the “poverty pimps” of Washington and other gov’t centers.    

FACT: I no longer give a shit and am in the process of moving from Chicago to Texas where these issues can be generally avoided. 

1980 CBOT ad

I really like this CBOT magazine ad from 1980, it simply states "With the freedom to fail, comes the freedom to succeed."  One of the great things about the US is that everyone generally gets a fair shot to succeed or fail on their own merits and that's certainly the case in trading. 

New trading pit frontier

Good news for those trading floor diehards that refuse to trade electronically and who have drifted to different trading floors across the world (believe there are more people who fall into this category than you'd imagine), there is a somewhat new trading pit in Addis Ababba, Ethopia to trade grains at the Ethiopian Commodities Exchange.

photo credit: flickr

To make it easier to trade, buyers and sellers are separated into two different jacket colors and all transactions are sealed w/a high five.  No doubt the flights from Chicago to Addis Ababba are gonna be packed w/guys who want a piece of that action.

Ethiopian Commodity Exchange was also featured in the PBS film The Market Maker, it's an hour long and is linked here.  The Market Maker is an excellent documentary and has a lot of parallels to the early days of Chicago grain trading and why a centralized market like the CBOT was formed.

New York Cotton Exchange

I can admit to not knowing much about the New York Cotton Exchange so you're better served reading it's wikipedia entry. Also, click on the photos to enlarge the detail on them.

image source: usslave.blogspot.com

image source gutenberg.org

Relatedly, it might be of interest for some of the book Speculation as a Fine Art and Thoughts on Life by Dickson Watts who was the President of the Cotton Exchange from 1878-1890.
Dickson G Watts-Speculation as a Fine Art and Thoughts on Life-En
There is also a facebook group for people who worked on the New York Cotton Exchange which also has additional photos of the trading pits. 

McDonald's 1989 commercial filmed at CME

McDonalds - The Trading Floor  (1989) - 0:30 (USA)

The above commercial aired during the Super Bowl in 1989, ironically at about the same time that the FBI were concluding Operation Hedge Clipper and Sour Mash to combat corruption on the exchange floor.  The commercial was filmed on the lower trading floor at the CME and it seems that most of those featured were paid actors rather than locals.  For whatever reason, many in the commercial had trading badges which read LBC and one I saw read MAC. 

For the weekend

Seeing that trading is almost done for the week, I wanted to make sure everyone is prepared w/proper hand signals while out at the bar such as the ones above.  The entire slate is linked here at Modern Drunkard Magazine:

Bar Signs: When words come out, whiskey can't get in.  Remove the roadblocks to drinking success with this arsenal of non-verbal communication.

Of course at the American Liquor Exchange, pictured in 1933 from a picture I own, it always feels like the weekend.  Too bad this exchange didn't last too long because it would've been really useful for my attempt to corner the supply of Lagavulin 21 which has more than tripled in price since buying my stash a few years ago.

9999.75

Today's surprise announcement of central bank coordination brought to mind surprise announcements in the past and the most memorable one for me was October 15, 1998 when the Fed cut interest rates just after the bond market closed.  The graphic above of what I saw on the KCBT wall boards was eternally burned into my mind as a result.

Back in 1998 I started out like most at the KCBT as a pit reporter and remember being assigned to work the lightly traded Western Natual Gas contract late that day in October.  Being a pit reporter for the natural gas or Value Line stock index (both no longer trade) was a pretty boring job and most of my days were spent reading magazines, bugging traders for their opinion or looking at charts on CQG.  At the time there was plenty to watch in the market as the Long Term Capital saga was unfolding which lead the Fed to a surprise interest rate cut at 2:14pm CST one day.

Like every big announcement, everyone had an "oh shit" response and immediately eyes turned to the e-mini S&P 500 contract which was launched just a year prior in September 1997.  The emini started soaring higher and it quickly went out of control as the market was exhausted of sell orders and the gaps between prices printing got larger and larger before finally going bid 9999.75 which was the highest price the globex system was designed to handle even though the S&P was trading that day around 1050.  Since then many safeguards have been built by Globex to prevent a similar glitch from happening again.

Eventually the CME busted or adjust all trades above 1085 but in the meanwhile the emini S&P was broken and anyone needing to trade had to send orders for fullsize S&Ps in to the CME pit.  The problem for many was that the ratio was 5 eminis to 1 big S&P so anyone who was short an odd number like 3 and bought a big spoo got net long.  One friend had that situation and he was so pissed off by the market ambush that it was his final day trading. 

Charlie D. famously said that "the only traders in the history of the Board of Trade who have consistently made money over time are the spreaders."  There are a handful of reasons to backup his assertion but the biggest is that spreaders are hedged and thus less likely to get a knockout punch by a surprise announcement.  To consider and guard against any possibility brings to mind the following quote from Guys and Dolls:

One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you're going to wind up with an ear full of cider.

The following article from the December 1998 issue of Futures Magazine summaries the day the emini S&P printed 9999.75

Fed cut wreaks havoc

And this is just one illustration of the various surprises and panics that traders have to go through.  I love to sit and listen to legitimate traders from the floor tell old stories and how they made it through the craziness.  Previously I made the assertion that the closest equivalent to trading is bullriding and continue to stand by it, thinking of what the PBR's doctor said in an interview that "wimps don't make it this far" and certainly the same applies to independent traders who have been through decades of panics because all it takes is one day to get knocked out.

In the year 2000

 

photo credit scenesc.com

I just came across the following article, written for Fortune in 2000, by a journalist that spent a week in and around the pits of the CBOT.  The author does a good job capturing the mentality at that time regarding the threat of electronic trading to the pit and general observations of the trading floor.  Click on the following link to read it:

CBOT Gazes into the Pit The venerable Chicago Board of Trade is waging an uphill battle to keep its open-outcry system relevant in the Internet Age. Our writer spent a week in the pits to see how the fight is going. The conclusion: Always bring Listerine.

9/11

photo credit september11news.com
(that photo w/me in it is from 2002 during the moment of silence)

I wasn't going to write a 9/11 post like every other blog, media outlet, etc.... but with a little time on my hands while babysitting some trades, figured might as well show a different perspective.

Unlike most people who can recall how they watched the attacks, I was asleep during the entire morning on 9/11 since I was working nights for the trading group and must've been on the train going home when the first plane struck.  Like most mornings, I went immediately to sleep once home until 2 or 3 in the afternoon.

Not to get off tangent but the old way of doing things for a lot of trading groups such as the small one I was with had the junior guys start clerking on the floor for a bit then switch to working the overnight shift which involved doing a little trading and watching orders for everyone else in the group.  It paid $1800/month and required working 14 hours/day from 530pm to 730am five days a week.  Being only 21 at the time made it a lot easier but even one of my mentors who was a University of Chicago MBA, worked five years at a Big Four accounting firm, and married did the same for $1500/month.  Only reason to note this is that a lot of traders took a long road and often a step down to get the opportunity to trade.

Waking up around 3 in the afternoon it was stunning to read on the internet that the towers were gone and the entire cycle of events took place while I was sleeping.  Just a month prior, I was at NYMEX for a week and every day my routine would be to take the train from the hostel I stayed at to the WTC, get a muffin and coffee then walk outside to sit between the towers before walking over the footbridge to the World Financial Center and NYMEX. 

On the evening of 9/11, the group said I didn't need to go in because everyone got flat or very hedged during the trading session but I remember looking to see that SIMEX eurodollars reopened on the high print that night as the market panicked.  Without having to go into the office and not having a tv at home, I went nearby my apartment to the Old Town Ale House which only had a few old guys in there drinking and watching the news.  The single most memorable moment of 9/11/2001 was at that bar when a sixty year old black gentleman put money in the juke box to play this song:

Trading Places: Griffith, Patten and Agriculture Modernity

One thing I came across recently on the web was the following paper:

Trading Places: Griffith, Patten and Agriculture Modernity

It's a lengthy academic paper which is largely based upon the film A Corner in Wheat, directed by D.W. Griffith in 1909, but in many other ways captures the sentiment towards grain speculators at the time.  The film is only about 15 minutes long:



I thought it would be good to juxtapose some of the photos in the paper of political cartoons with some commentary at the end relating a farmer's perspective towards James Patten.  Click on the photos to read them better.

Whereas the farmer's perspective as quoted in the New York Evening Post, 10 April 1909 :

"James A. Patten is the man of the hour in this market and all over the agricultural regions. He is talked about at the corner groceries. The women talk about him over the telephone to their neighbors, they tell of him at the country blacksmith shops, or wherever there is a gathering of farmers. 'He has given us high prices for wheat, corn, and oats, and we are with him,' they say. The coming generation of farmers' boys will be named James Patten Jones, or James Patten Olsen"

Identity

Although the following article doesn't fall within the realm of 'tradingpithistory' it does have a lot of similarities with those who left the trading floor as to their self identity.  Justin Bourne, a former pro hockey player who is now a columnist, wrote recently on the effect of leaving a career that largely defines who a person is.  I've watched others make a painful transition out of trading into 'the real world' and it's generally not pretty.  Even when trading has gone through slow periods, a question I posed to myself is what else would I like to be doing and nothing could come close to sticking with trading, it's the greatest job in the world.  Anyways, here's the link to the article:

Bourne Blog: Losing your identity after the hockey’s done

MATIF trading cards

Thanks to Fabien Danis of Paris for sending on the scan of the front and back of some cards used at MATIF by the firm Oddo.  I'm a bit suprised that the A side is red and V is blue (A for acheter "buy" and V for vendre "sell") as those colors are reversed everywhere else. 

Although nothing remains of MATIF at the Bourse de Commerce to indicate it was once an open outcry trading floor, it's worth visiting when in Paris because the interior and exterior of the building is gorgeous.

New York style pits

One thing I've never understood is why the New York trading pits were a circular ring rather than an octagonal shape like the pits in Chicago, Minneapolis, Kansas City and the first pit in Milwaukee.  As a result, most NY traders refer to the trading pit as "the ring" and the roots stretch back to at least 1886 as shown below in this sketching from Harper's of the wheat pit at the NY Produce Exchange.

photo credit nypl.org

1906 photo from my personal collection also of wheat pit at NY Produce Exchange

photo credit heatusa.com

Finally the above photo shows the modern 'ring' at NYMEX over 100 years later to show that some standards never changed.

Anyone wishing to read more about the NY Produce Exchange can read the Harper's article from 1886 which elaborates extensively about the many features although it's pits, I mean rings, were never near as large as Chicago's.  An interesting thing in the article for me was that the NY Produce Exchange had a Gratuity Fund for the widow or heirs of members who died.  To this day the CME hits up all us members for $100/year for the Gratuity Fund for the same reasons.

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.