Board of Trade Daily Reporter 1861

click to enlarge

Early traders at the CBOT had an enormous amount of external factors to deal with and some of the difficulties were reflected in the above Board of Trade Daily Reporter from May 23rd, 1861 in my collection.  To begin it states, "Business is brought to a dead halt on account of the want of funds wherewith to operate."  Not exactly an indication of market confidence!  Liquidity events are a common occurrence in commodity markets but this end of day quote sheet indicates the severity of how the burgeoning American Civil War affected trading.  Just over a month prior was the Battle of Fort Sumter and as one would expect, it created tremendous upheaval in money markets. 

Many Illinois banks had their capital base backed with securities issued by what would eventually become Confederate states.  The value of such Confederate securities were in decline since the election of Abraham Lincoln but due to the first skirmish of the war, liquidity became severely impacted as different premiums differentiated into the method by which payment would be made.  The issues weren't limited to Illinois banks (of which over 80% eventually failed) as the quote sheet indicates that a couple larger banks "threw out eleven of the Union list, and holders refuse to sell for anything but gold or eastern exchange."  Drawing a check upon certain solvent banks could also demand a 10-12% premium which indicates the level of panic.  The CBOT decided to take drastic measures in maintaining benchmark pricing and passed the following resolution on this day:

"WHEREAS, The recent events in the monied affairs of Chicago have culminated in a return to a standard of Gold and Silver.  Therefore
Resolved, That in the opinion of the Board of Trade of Chicago, all sales of property, and daily quotations thereof should hereafter be made in funds equal to specie."

While this was a disaster for the nation and almost everyone, it's a goldbugs dream.  Let me veer off for a little editorial comment that modern day goldbugs envision a similar wish because they're some of the most miserable people imaginable.  The best summation of what I've generally observed w/goldbugs is that they've failed in how the world is so they wish for the destruction of it so they can finally come out on top as that's the only way for them to succeed. 

Back on topic, if you look at the transaction list on the quote sheet you can see it not only indicates price but also method of payment which includes preferred check, union currency, stump-tail check, sight exchange, and gold.  It's apparent that gold receives the largest premium followed by preferred check and then union currency.  For anyone with a further interest in grain trading during the Civil War and early CBOT history, I highly suggest William Ferris' excellent book The Grain Traders.

Just over a year after that day, the CBOT raised $15,000 and 180 volunteers to create the CBOT Battery which served as a horse artillery battery for the Union.  Following the war, the CBOT also established centralized clearing to ensure market efficiency and eliminate the problems which this quotation sheet described.  

Gnomes of South Wacker Drive

Starting with the launch of the IMM currency futures at CME in 1972, the Gnomes of Zurich had to match wits with the Gnomes of (first on West Jackson and then later on) South Wacker Drive when it came to trading Swiss Franc futures. A few pictures below show an active currency quadrant in the early 1990s, click to enlarge the photos. 

Above is the currency quadrant during the opening of the upper trading floor in 1993.  By the time I got to the Merc in 1999, the crowd was much thinner than in this photo as volumes were beginning to shift to electronic trading by that point. 

This is of the Swiss Franc pit during heavy trading and the gentleman in the center of the photo in the light blue jacket showing a 7 offer isn't trading but is a pit reporter who was relaying quotes to another pit reporter at the top of the pit who would then enter them into the electronic system. 

Also of the same Swiss pit, the photo shows how chaotic is could get in there.  To me it appears that the broker in top center is trying to get the attention and sell to the local who is 9 bid at the bottom even though another broker is 0 even bid behind him on the far right, LOL.

Opium futures

Taking a slight deviation from strictly 'trading pit' history, the origins of any futures trading I find interesting and recently obtained these telegraph orders regarding Indian opium futures from 1869 and 1870.  Now it might be a slight stretch to refer to these as 'futures contracts' because ultimately there was no clearinghouse but there was standardization in terms of delivery month, quality grade, delivery location and quantity.  Opium was traded in chests which weighed to a standard, historically estimated at 140 lbs and that came about to be what two men could carry at a time.  According to records of the British East India Company, there were distinctive grades of opium which had varying prices due to quality differences such as Turkish, Malwa, and Patna.

photosource: mit.edu

The two telegraphs below are on behalf of the Buchraj/Buchraz family who were prominent opium traders in the city of Indore, modern day Rajasthan but was then known as Malwa. 

click photo to enlarge

"Purchased (29000) July (25) annas (3 1/2) now (25 7/8)+"

I'm not going to dip into the history of the Indian exchange rates but 29000 sounds like an awful lot to have been purchased.  FYI, annas were an Indian currency unit and this trade was done in that denomination.  Appears to simply be a trade confirmation from Indore to Mandsaur, the city which served as the center of the Malwa opium trade.  

click photo to enlarge

"Fourth (1373) hearing new crop short buy 4 bales opium at (58) four annas less +"

The principles of supply and demand are no different for any crop and this telegram is using information from the growing area to purchase opium at the primary trading center of Calcutta.

For an excellent and illustrated background on the opium industry during the late 19th century in India, I highly suggest looking through this link from MIT (yes that MIT) Visualizing Cultures.

In addition while on the topic of opium, I can't recommend highly enough Nick Tosches' article "Confessions of an Opium-Seeker" which was first published in Vanity Fair and then expanded as a book The Last Opium Den.  Tosches is an amazing author and this piece remains one of my all time favorite pieces of writing. 

Best of

In returning to the blog from paternity leave, now is an appropriate time to list what I consider to be the "best of" various categories in regards to trading pit history.  Of course it is all just one man's opinion, but I've sought, read, watched, listened and been exposed to almost every resource concerning this topic and combining that with the experience from being on various trading floors, believe these selections are the greatest depiction of each category. 

Book - Nonfiction
Lessons from the Pit

There are a lot of books written about open outcry trading but very few have been authored by a successful, competitive and highly ethical local trader as Lessons From The Pit by Joe Leininger. The unique perspective of the author gives a candid view of his experiences trading in the Eurodollar options pit at the CME from the mid 1980s to late 1990s, most notably including the mental thought processes of consistently succeeding in that environment and living a balanced life outside of the trading floor.  The honest straightforwardness of Lessons from the Pit properly gives a confident, yet humble, voice to what it was like being an independent local trader and managing risk, like no other book in the 150 year history of the trading pit.  On occasion, the book occasionally strays into broader business lessons to widen it's audience (likely at the publisher's behest) but by a wide margin it remains the best pick on what it was like to trade in the pit as a local.  Lessons From the Pit doesn't represent the average experience of the majority of locals but it does illustrates the highest calling that it was possible to aspire to.

Book - Fiction
The Pit

The Pit is properly subtitled A Story of Chicago because the book is as much about the city as it is about the trading scene at the CBOT since the city and exchanges have always relied on the reflexive strength of each other to succeed.  Early trading at the CBOT was frequently manipulated with attempts to corner a market and the plot of The Pit revolves around such an attempt in the wheat market that was loosely based upon a true story.  The characters and psychology of those involved in trading have changed little in the over 110 years since The Pit's publication so the lessons and narrative remain compelling.

Film -
Open Outcry

Short of getting into a time machine, watching Open Outcry is as close as you'll ever get again to standing on a busy trading floor.  The entire film is long pan shots and raw audio so it gives the perspective of simply being placed on the floor of the CME in 1999 and observing trading on a typical day across different pits.  The occasional voice over commentary by traders and brokers adds a direct perspective but ultimately leaves way more unsaid than what was included.



Non-Film video -
Charlie D.

Charlie D. was one of the (many say THE) dominant independent local pit traders in the 30 year Treasury bond contract at the CBOT during the 1980s and spoke at this informal seminar put on by a clearing firm in 1989 about how to trade in the pit.  To see a bona fide expert speak in an unstructured and altruistic format to aspiring colleagues is rare for any field, particularly in something as competitive as trading.  This video captures not just how the mechanics of a large pit operated but also the relatively open culture amongst many locals at the Chicago exchanges.

Art-
Smug Trader

I previously discussed Smug Trader and believe that if Gursky's exchange photos can fetch obscene valuations then Smug Trader, as a far superior piece of art, ought to be in a vault at Singapore Freeport and not on my condo wall.  In looking at this piece of art as well, it brings to mind that perhaps it's time to resurrect the Ancient Order of Froth Blowers?

Back to the blog...if I don't have a diaper to change

photo credit: USAtoday (not my kid in pic)

Once again I'd like to give thanks to all the dads and others who wrote to wish my wife, baby and I well as it was very kind of you all!  I'm happy to report that my wife gave birth to our perfectly healthy daughter a few weeks back in the most perfect place in the world today, Palo Alto, and slowly everyone is getting into a routine.  Having a kid is THE GREATEST so I can understand all the enthusiasm from the dads who wrote in and I will be sure to extend the same wishes to other expecting parents.

I'm looking forward to sharing with my daughter children's stories from my own youth and reading her kids books. As a "push gift" to myself, I bought a copy of Sled Driver and it's followup book The Untouchables, amazing books that are highly recommended and well worth the cost!

Although the Family Medical Leave Act of 1993 still covers another 8 weeks of unpaid leave to unpaid bloggers at an unpaid blog, I'm about ready to get back a little earlier than I thought to rambling in this space.  Even though he's not my guy, I still don't want to disappoint the President when he visits this blog for new content, LOL