Edward E. Mansfield Trading Room

The two trading floors at the CBOT are simply referred to as the "bond room" and the "grain room" but while the bond room remains unnamed, the grain room is officially titled the Edward E. Mansfield Trading Room.  Mansfield worked over 65 years at the CBOT starting at 16 in 1924 and retired in 1989 at age 82 as Chief Security Guard with the grain room being named after him in 1985. 

There isn't much written about Mansfield but everything I've read portrayed him as a loving guy who knew everyone's names and even their kid's names.  If I come across more about Mansfield, I'll update this post but otherwise this is the only article I could find on him:

Retirement Closing 65-year Era At Cbot

Trading floor toliets

There's a number of things that are missed from working on the trading floor but there's zero nostalgia for the bathrooms.  Amen to that, brothers!

When I first came to Chicago, most of my time was spent at the CME which restricted all the clerks to one, yes ONE, bathroom in between the upper and lower trading floors.  Maybe there was another bathroom but I never knew of it because to only provide the thousand or so yellow jacket clerks half a dozen stalls, that must've been an OSHA violation.  Each morning before the staggered openings of each market, clerks would line up outside the bathroom while waiting for a stall to open up and that kept the toliet seats warm for a 2 1/2 hours straight.  Unless you lived it, there's no way to describe the stench and destruction those bathrooms handled each morning w/the Tuesday mornings after Monday Night Football being the worst.

My solution was to remove fiber from my diet Sunday through Thursday so I wouldn't have to use the toilets not just off the trading floor but the entire Merc building.  There's not a claim that the toilets were as bad as in the Trainspotting photo above but most people that worked on the floor had no respect for anything, particularly in an environment where others could cleanup the mess. 

In Chicago things didn't get any better with the members bathrooms which were also disgusting, as in I'd prefer going at the Port Authority Bus Terminal in NY.  However, there was more stalls available and most importantly the members bathrooms were located on the trading floor.  The black badge at the CBOT and dark brown at the CME were jokingly referred to as "bathroom passes" because they cost a couple hundred bucks to lease each month and would allow access to the members bathrooms.

CBOT toilets were better than the CMEs although that's not saying much, NYMEX also was bad from what I remember but was there such a short time a decade ago it's tough to recall fully, MGEX had a nice old fashioned bathroom right on the floor which even visitors could use and KCBT were as nice as could be. 

One of the benefits of trading from home is that I can put fiber back in my diet. 

Protect your neck

The above embed is from a news program in the 1980's which shows vintage clips of the NYFE pits and focuses on the importance of pit brokers protecting their voice.  I've never known anyone to have taken such exercises but certainly have read about people doing something along the lines.  Handsignals were never highly developed in any of the NY pits but even so, communication within any pit was largely by voice anyways. 

A short NYFE story...when I was at the KCBT in 98/99, there was a guy who would spread Value Line futures (when they still traded in KC) against something on the NYFE, maybe the NYSE composite futures.  So everytime he needed to do the NYFE side of the trade he'd yell to his clerk, "get me the NYFE" but NYFE is pronounced "knife" and there were a few floor visitors who'd wonder why someone on the floor was yelling "gimme the knife."

Signs Of The Times Stir Cbot Fuss - Chicago Trib article

I was quite pleased to stumbled upon the following 1985 Chicago Tribune article:
Signs Of The Times Stir Cbot Fuss Curb On Flashing Signals Pits Brokerage Firms, Floor Traders

In 1985, the bond pit was experiencing large growth and as a result, space in the bond room and pit were both scarce which resulted a greater reliance on "flashing," another term for using hand signals.  The use of flashing created some rifts as clerks were crowding the pit and a movement to have such clerks get on a membership badge was made.  Some old grain traders were also against flashing as outlined from this clip of the article, said as only an old grain trader could:

"In contrast, grain futures trading has always relied on slips of paper, carried by clerks called runners, to take customers` orders to the pits. ``We have existed for 200 years without flashing,`` said one grain trader. `These financial futures houses just want instant gratification on their orders.``

Perhaps the most exciting thing to come out of the article was a new hand signal which isn't up yet on tradingpithistory.com for Bear Stearns at the CBOT.  It was noted that the signal for Bear Stearns was a mock hug, which must've derived from bear hug.  Previously, the only signal I knew was the hand making a claw to signal Bear Stearns and perhaps this is part of the evolution from a two handed signal as cited in the article to a single handed signal which was prevalent when I was on the floor. 

Know any signals which aren't up on tradingpithistory.com? Please leave them in the comments section or an email: info@tradingpithistory.com
Thanks!

NYBOT - Anatomy of a Trade

This 15 minute video was produced by the NYBOT in 2005 and does a good job explaining basic order execution on that exchange w/lots of footage of NYBOT pits which no longer exist. 



Although there the footage is good, the subject matter is a bit dry so thought I'd relate a story which a KCBT trader told me when I was there over a decade ago about trading a NYBOT market.  He was remarking how he was short some OJ futures for a while and it became enough of a problem that he decided to cover.  When he called his NYBOT desk and asked what's going on, he was told it's snowing to which he asked why that matters if it's snowing in NY?  It wasn't snowing in NY, it was snowing in the orange orchards of FL he was told!  Well this was a major problem because he was short the front month which didn't have any limits.

Because the trader was a desk manager at the KCBT branch of the firm, the desk manager at the NYBOT said he'd work the order and take care of it.  As expected the OJ market skyrockets right from the open and the guy in KC didn't want to bother the NYBOT desk to see where he got out cause it'd be busy there but eventually called and was told nothing was done yet but just wait and it'll be taken care of later.  Of course he wasn't happy w/that answer but there was nothing to do but wait.  Sure enough the market craters later that day and his shorts are bought in at an amazing price.

Once he gets the call and told his fill, the guy in KC is immensely grateful for the desk manager in NY to hold the trade like he did.  Before hanging up the phone, the guy in KC was simply asked by the NYBOT broker, "why the hell would a Midwestern Gentile try and trade in a market run by New York Jews?"  Of course there's basically no answer to that except for the guy in KC to send his NY broker the largest kosher meat package which Omaha steaks offered.

How true that story is, I don't know which is why I don't rehash other's stories, but for this instance I'd make the exception cause I heard it from the source.

Flash crash

photo grabbed from wallstreetcheatsheet.com

The flash crash of 2010 was largely blamed on electronic trading however there were certain precedents many years before in the trading pits as outlined in the 1987 Chicago Tribune article, Exchanges Drowning in Orders.  I think Merton Miller said it best in the article: ``The market makers` inventories are quickly exhausted, in much the same way tellers` windows are drained of ready cash during a run at a bank.``

Personally, I believe the futures markets still suffer from the same structural issues with how a lot of perceived liquidity flees in an instant but history shows that markets won't change until there is a significant problem like the Crash of 87 which occurred later in the year of the article.

1981 Esquire article on "The Young Millionaires in the Chicago Pits"

The January 1981 edition of Esquire magazine featured an article on pit traders at both the CBOT and CME.  *updated in pdf format thanks to Nate R.*

Boys in the Pits

There aren't a lot of things that compare to pure trading....

but if I had to make a comparison to the closest activity to independent trading, more so on the screen than in the pit, bullriding is the only thing that comes close.  Although bullriders represent physically what the few independent traders left do mentally, there are are a lot of similarities in trying to ride an uncontrollable and overwhelming force which brings the pain on a regular basis.  The thrill of success far outweighs any negative consequences and as a result, there is a dedication and optimism of the next chance which no other "careers" can match.  In an age where pay rarely reflects performance in both sports and the corporate world, bullriding and independent trading both have to earn everything solely by their performance with no safety net whatsoever.  In my opinion, both activities are the toughest, ballsiest activities in sports and the financial world, respectively.

Ginzy - splitting the tick *updated*

 photo from http://splitting-axe.com/

When I first started working on the KCBT back in 1998, the term "ginzy" I heard jokingly tossed around a lot.  Thinking about it a bit more, some loudmouth would jokingly yell "do a ginzy" when two brokers quoted a tight market with size on both sides.  For years I never knew what it was or the origin of the term but later reread The New Gatsby's and it noted what it actually was and rather that quote from the book, here is the definition from investopedia:

"Ginzy trading is an order of different prices placed by a floor broker. It occurs when a floor broker attempts to avoid an exchange's rule against trading at fractional increments, often called "split ticks". Ginzy trading works when a floor broker executes a particularly large order and fills a portion of the order at one price, but then fills the remainder of the order at a different price. Hence, the floor broker has quoted different prices to different customers on the same order.   This not only is considered unethical; it also is illegal. Some exchanges have technology systems in place to prevent these illegal trades, but many smaller exchanges do not have such strategies in place. Ginzy trading is in violation of the Commodity Exchange Act as set forth by the United States Commodity Futures Trading Commission."

A real world example would be a market, which trades in one point increments, of 5 bid at 6 offer so the participants would collude to do half 5s and half 6s so the average price would be 5.5 which both participants would be satisfied with, basically splitting the tick. 

I never saw anyone do it but apparently it would happen and the origin of the term "ginzy" came from a trader named Ginsburg who chronically did it.

*UPDATE*  The following comment was posted anonymously in the comment section and warrants a bump up to the main post:

"There are instances where something commonly referred to as a "Ginzy" is perfectly legal, an example would be a market that's 5 bid at 7, a broker gets an order to sell 50 at the market, there are 5 locals bidding 5, if the broker offers 50 at 6 and one local steps up and buys 25 lots at 6, knowing that if nobody joins him buying 6s he would get the remainder of the 50 lot at 5, that would be legal (the tactic would be based on the knowledge of the broker's normal practice of handling orders in that fashion, and avoids specific collusion) and really a normal part of pit business (for the broker the incentive of only selling 5s to the local[s] who also paid 6 is to get better fills for the customer through a split fill and for the local it's to get 25 at the bid). I've heard that scenario also described as the local doing a "Ginzy".
The above scenario may also result in the entire order being filled at 6 when one of the other 4 locals decides that he doesn't want that so and so who stands next to him all day to buy 5s if he's not buying 5s."

Lion dance at SIMEX

In Singapore during Chinese New Year, it's a tradition for businesses to celebrate by having a lion dance which is supposed to invite good fortune for the new year.  I've been in Singapore a handful of times during the festivities and although never witnessed any firsthand, would frequently hear the drums and see the troupes travel from business to business. 

SIMEX would also have a lion dance in the trading pits each Chinese New Year and it must've brought all the locals consistent good fortune considering all the bad fills I experienced in the market there!  Also at SIMEX, most traders wore red jackets because red is a lucky color in Chinese culture, at the CME most traders also wore red jackets but only cause that was the free one the exchange gave to traders.  It looks to me that this is the old trading floor in the UOB building around 2003ish.

REFCO

A joke I was once told many years ago came to mind recently, a friend asked if I knew what the letters in REFCO stood for?  My reply was that it was simply named for the founder, Ray E. Friedman & Co.  He said no, it stood for Ripoff Every Fucking Customer Order. That gave me a roaring laugh because before it's fraudulent demise, REFCO was a firm that chronically broke all sorts of rules in the trading industry and fittingly never shook it's dirty reputation.

For a more complete history on the scandal which made it collapse, it's best to read the wikipedia link:
http://en.wikipedia.org/wiki/Refco

USA Today also wrote a great article outlining REFCO's past:
Refco's flameout ends history of ups, downs

At the time of it's collapse I was actually a REFCO client because the clearing firm at the CME I used and still am loyal to, ultimately used REFCO to handle the backend of their clearing business.  When the initial news of the liquidity troubles REFCO had started to leak out, I and those in the same trading group all withdrew excess funds in our accounts as a matter of caution.  One thing I'll never forget is standing in line w/a bunch of traders to pickup or request checks at the clearing firm while the head of the firm, who looked like he hadn't slept in days, was nearby explaining not to panic. There is an wise saying that "when large amounts of money are involved, it's advisable to trust no one" even though it turned out that no customers on any exchange suffered damages because the clearinghouses segregated all client funds.  Those who traded in the OTC market or with REFCO's retail currency trading arm were not so lucky and had to take losses because their funds were unsecured.

The most staggering part of the collapse was that REFCO had it's IPO just weeks before and a famous private equity group invested in them leading up to the IPO.  Although the timing certainly surprised me, it didn't shock me that the REFCO would flame out in some foul manner as this was after all the firm which handled Hillary Clinton's famous cattle trades.  Reputation is everything in most businesses but especially trading and a lot of people paid a high cost for disregarding the warning signs and dealing with REFCO.

1981 Comex documentary "Yelling for a Living"

 A short 8 minute video documenting the day of a gold pit broker trader at COMEX in 1981.  There are some commercials at the beginning but they're over shortly.  Hat tip to my friend Kevin Spain for pointing it out.