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.

That's all folks

 photo credit hark.com


Appropriately, we'll use Porky Pig's phrase to say that's all folks for the pork belly contract as it is officially delisted today after a long decline in the use of the contract.

Above is a photo from the opening of the pork belly contract in September 1961 and the caption of the photo is "A noisy opening greets he start of trading in frozen pork bellies Monday on the Chicago Mercantile Exchange."  The Merc always was prominently Jewish and there is a certain irony in the price being more or less set by those who are forbidden to consume the product.

I used to work for a small firm w/operations at the KCBT/MGEX and every year the owner would invite all their employees up to their lake home in Wisconsin, even me the lowly KCBT clerk.  Their boat was simply named PBQ, which is the commodity code for "August 'bellies," just brilliant.

Trader's shoes

photocredit southcoasttoday.com

Displayed above is a shoe that was commonly worn in a busy trading pit as the bottom had an additional inch added so the wearer could get a better sight line in the pit.  The maximum which could be added was 3 inches to the bottom of the shoe per exchange rules and my guess is roughly 20% of those in a busy trading pit wore shoes such as these.  The two articles below elaborate a bit more on the use of platform shoes as a competitive advantage. 

Traders stand tall over hubbub with platform shoes

Brought Back to Earth At the Chicago Merc

Hong Kong Futures Exchange

Above is the final bell of the Hong Kong Futures Exchange which began in 1976 and although it continues electronically, it's trading floor closed in 1999 (not in 2007 as listed in the video).  The HKFE has the infamous distinction of going bankrupt after the 1987 crash when a large HK speculator defaulted on $1 billion HKD in losses and tried to cite two Panamanian companies he established to trade through as limiting his liability.  Ultimately he was held liable for half of the losses with the Hong Kong taxpayers paying the balance.  The following article describes the incident further, linked here.

Below is a nice visual as if one was walking along the trading floor although it mostly centers around an options pit.


Finally, here's a clip of the floor a few days before what was the 1997 mini crash which cratered the Asian financial markets.

CBOT's 1929 temporary home on South Clark

Another set of photos to get me through the lunchtime trading lull.  The current CBOT building was completed in 1930 and was built upon the site of the 1885 building which preceded it.  I always wondered where the trading floor moved to for the year or two during demolition and construction but just found out, 449-511 South Clark Street and below are some photos of the cramped trading floor.  Currently in that area around South Clark are modern buildings/parking garages so nothing remains of it from that era.

 Source links:
Photo 1
Photo 2
Photo 3

Chicago Board of Trade photos 1905

The Library of Congress has a lot of great historical resources and in their collection are the following photos of the Chicago Board of Trade in 1905 pictured during and after trading in the second photo.  You'll have to clink on the links to enlarge the photos for better detail but even better is to click on the Library of Congress links below because they have higher resolution versions you can download, I strongly recommend downloading the 20mb file of the second photo to see the amazing detail of the trading room. 

library of congress source link

library of congress source link

The Floor by David Gleason

Although not entirely trading pit related, one of the finest documentations on the shift from floor to computer trading is a 1996 book on the Johannesburg Stock Exchange entitled The Floor, written by David Gleason with photography by Graeme Williams. The book is hard to find and mine was shipped from the UK if I recall correctly, amazon currently shows no listings although abe.com shows a copy at a bookshop in Johannesburg. 

The JSE has a rich history largely based upon mining and metals which continues, albeit electronically, as the trading floor closed in 1996 which the book does an excellent job of capturing the final days.  Perhaps the best feature is the photography as it illustrates the clubby culture and traditions of the those who worked on the trading floor.   Ironically, the JSE contined to use chalkboards for price display right up to the point trading shifted entirely to the computer. 

The author Gleason wrote the following late in the book and it applies well to all trading floors:

"Those old, hard drinking, easily cursing, wickedly tempered, curiously generous traders are yesterday's men and the place where they did their raucous business is silent now.  The floor has gone.  Never again will pandemonium erupt as bad news is rushed in hurriedly from the customer dealers; never again will wild scenes of frenzy and demand take control as traders scream orders for a newly listed stock. 

The computer screen is the silent replacement.  The click of the keyboard is still the sound of money.  Oh, smoke still drifts across the trading rooms, bad language punctuates every sentence, the phones still ring, and the old exclamatories remain commonplace - but, somehow, it isn't quite the same.  Where there was apparent chaos, there is order.  Where a few men might 'run' the market in a liquid, well-traded stock, now everyone can see what's happening.  Status, length of service, respect - these no longer count for much.  Now, it is speed of response, swiftness of execution, ability to access lines or sell concepts.

The Floor is dead.  Long live the screen."

141 West Jackson by J. Peter Steidlmayer

If there ever was a Hall of Fame for CBOT members, J. Peter Steidlmayer would be a first ballot inductee.    As a CBOT trader since the 1960s and director of the CBOT in the 80s, Steidlmayer lead the development of the Liquidity Data Bank, developed Market Profile and actively continues to refine his theories.

One of the great benefits of working on the floor was to be able to sit and listen to old timers recount experiences and lessons, so to this day whenever I get such an opportunity I tend to just shut up and listen.  However, it's hard to find people worthy of listening to and few actual traders did any writing but fortunately Steidlmayer has put out a few books. 

141 West Jackson is a self published book that Steidlmayer wrote in 1996 and it's almost impossible to find anywhere now.  I was fortunate to buy it in 1999 from a bookstore owned by a CBOT member in the Lincoln Park neighborhood and now only two copies can be found on the internet at amazon.co.uk.  Although the majority of 141 West Jackson focuses on trading with Market Profile, Steidlmayer writes throughout the first half of his CBOT experiences and how his methods were developed trading on the floor.  One of the opening lines shows what a great mind Steidlmayer is and why he's been a CBOT member for over 50 years while many fail to make it past the first year or two:

"I also knew it was important to keep the learning process separate from making money.  To me, what others regarded as success, whether it was immediate financial gains, or the good opinion of others, was not real success, because it might not have a real foundation.  The foundation for being successful was in the the learning; the real definition of success was improvement in my ability to function, improvement in my performance as compared to the background of what I was before.  I felt that most people didn't take the time to learn and didn't make a commitment to keep learning once they began to make some money."

This immediately brings to mind what Charles Darwin wrote:
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

The latest book that Steidlmayer put out in 2003 is generally available, Steidlmayer on Markets, and more focused on trading but worth reading for the stories he shares early in the book, although they generally aren't trading pit related.