Dancing in the pit

I'm a bit busy lately so will just put up this video of a guy dancing in one of the currency pits at the old Merc.

Singapore Exchange documentary

To celebrate 30 years as the premier Asian futures exchange, the Singapore Exchange recently released the above video, entitled Founding Futures.  The 19 minute documentary provides a great retrospective of SGX's origins which were initially developed upon the trading pits of SIMEX and is a mix of vintage trading pit footage in addition to commentary from those who built or traded at SGX. 

I really enjoyed watching the video and it brought back a lot of memories since the group of other locals I traded with used to be really active when it served as the overnight eurodollar market.   Days were very long for many on the SIMEX/SGX floor as the eurodollar market was open about 12 hours each day and for many, including the excellent broker we used (Amelia Phua, email me if you read this!), worked the entire session on the floor then stayed there to track how things rolled onto Globex after and subsequently the Chicago open. 

One funny memory I'll share really quick was how kiasu the pit was when it came to even small trades.  At the end of each day we'd get a breakdown of each trade and how it was carded up, for something like a 25 or 50 lot the pit broker would often card up a dozen people on the other side which always seemed like a nightmare to constantly keep a count straight. 

The SIMEX/SGX trading floor was opened from 1984 and twenty years later in 2004, the exchange began the transition to becoming a fully electronic marketplace.  For the Singaporean trading pits by mid 2006, it was finally game over, lah.

photo credit: http://p0kka81.blogspot.com

Turkey futures

photo credit: Chicago Tribune archives

Back in the late 1940s, turkey futures contracts were traded at the CME as shown above in this clip from 1949 with delivery months in November and December of course.  As Billy Ray Valentine also came to learn, "it ain't cool being no jive turkey so close to Thanksgiving."

Japanese open outcry seafood trading

image credit: http://www.tsukiji-market.or.jp

Over the weekend I was in Tokyo and on Saturday went back to the Tsukiji Fish Market as I hadn't been there the last few visits after previously always making it a part of each Tokyo trip.  For those who haven't visited, it's the largest fish market in the world and a bit beyond description for the scale and activity, but I'm always left with the impression that the planet's oceans have been entirely fished out considering the immense amount of seafood there.  The interest of visiting it this trip was mainly because it will relocate in a couple years and modernity will remove a lot of it's current appeal. 

As it relates to this website, the seafood auctions of Japan still function using open outcry and hand signals so it was nice to be back amongst a chaotic 'trading floor.'  Now my enthusiasm didn't go as far as to act like the bee girl in the Blind Melon video, but it's probably the only place outside of the futures trading pits to have groups of guys wearing trading badges (on top of baseball caps) and using open outcry hand signals to transact, so I do find it pretty cool. 

The tuna auction is the main attraction at Tsukiji and from what I've witnessed, it moves from tuna to tuna laying on the floor, not as shown above using tiered platforms like a trading pit which (I believe) is only used for special auctions like the first fish of the year.  Trading badges are restricted in number to stallholders and various wholesalers much like seats were (and kinda still are in some respects) on financial exchanges.  Hand signals used at Tsukiji are described along with a very indepth explaination of the auction processes in Theodore Bestor's book Tsukiji.  Vegetables are also auctioned using the same process and you can see how it's done in some of the following video links.

Video links:

Standard Tsukiji Fish Market tuna auction

First tuna auction of the year at Tsukiji 2009

Tsukiji vegetable market

Trader in Kyoto explaining hand signals used at that market

Tsukiji sea urchin market

Kumamoto wholesale market

Kyoto vegetable market

Busan (South Korea) market

Who's your daddy?

image credit: wikipedia

When it comes to financial futures, it is appropriate to ask who's your daddy, because two men are credited with paternity.  As a product of spending most of my time at the CME, I had always figured that Leo Melamed was widely regarded as the "father of financial futures" but upon reading Dr. Richard Sandor's book Good Derivatives, it's not as straightforward as I assumed. 

In the preface of Good Derivatives, Dr. Sandor writes of "universal recognition afforded to me as the 'father of financial futures" and footnotes that title as being declared by "Resolution by the City of Chicago, honoring Richard L. Sandor, August 12, 1992."  A google search of "father of financial futures" also corresponds to Dr. Sandor's recognition as he is credited in 18 of the first 20 search results. 

I'm not trying to direct credit either way or reduce credit to either men who were both essential in developing the expansive derivatives markets we have today, it was just something that struck me as notable.  Nor do I have any understanding of how competitively sought this title is between the two, if at all but it's my assumption that it is.  However, it struck me as interesting that in Melamed's 1996 book Escape to the Futures he makes a handful of respectful mentions of Sandor and none in his more recent book For Crying Out Loud, but in Good Derivatives, Melamed is only mentioned a few times only in reference to his "political skills" which is conspicuous because Sandor devotes more writing in his 600 page book to M.C. Hammer. 

Clearly this needs paternity issue needs to be resolved the Chicago way.....on the Jerry Springer Show!

imagecredit: theblaze.com

Unfortunately as of 2009, Springer no longer tapes at the NBC building in Chicago and that's too bad because I went to a couple tapings and it was something else. 

image credit: futurespastfilm.com

To shift gears a bit, I also just discovered that Melamed's son Jordan has created a film documenting their relationship and the decline of open outcry trading entitled Futures Past.  It appears that the film has been screened briefly at some film festivals a couple years ago but it hasn't been released beyond that.  An additional surprise about the film as well is that the Executive Producer is Vincent Viola, the head of HFT trading firm Virtu Financial. 

The Hollywood Reporter reviewed the film at the following link in 2012 and a brief snippet follows:
Futures Past: IDFA Review


"As the film begins this method is being phased out in favor of a much quieter, more sedate electronic alternative known as Globex, championed by the CME's septuagenarian chairman emeritus, Leo Melamed. Leo doesn't hide his long-burning disgruntlement at Jordan's mid-life volte-face: "my career didn't take off," admits Melamed junior, who, short of cash, returns to the pits for one last stint of trading before the final bell tolls for the old ways. Clearly in his element, Jordan Melamed proves an excellent guide to this disorientingly chaotic environment, eliciting salty testimony from the battle-hardened traders whose philosophy is "you kill or be killed."

"But it's in his conversations and confrontations with Leo that Jordan strikes documentary-film gold. Both of them articulate, conflict-hungry men with personal scores to settle, which they proceed to chew over on camera for our delectation. It's intrusive, perhaps even exploitative stuff, this very publuc display of one clan's dirty laundry. But the three credited editors ensures fairness to both sides and Melamed jr gamely includes several sequences in which his father effectively takes control of directing duties. And the process seems to prove as therapeutic for the Melamed men -- Leo's wife Betty is a serene presence, fleetingly glimpsed on the sidelines -- as it is entertaining and illuminating for the audience."

Comedy webseries of ex-NYMEX pit trader

I was debating on whether to put this up and figure to go for it because it's ultimately part of the trading pit culture for many.  As various pit traders left the trading pit and ultimately the trading industry, a new search for their identity begins yet they always have a hard time letting go of their old identity as traders who could generally speak without filter.  For most from what I've seen, the first stop on this journey is a period of idleness and while it's often pretty sad, a comedy webseries, entitled The Stay At Home Dad, was made by some ex-NYMEX guys about this transition period.  Here is the synyopis:

"He’s just lost his job at the Mercantile Exchange to a software program. Adios to fifteen years on the trading floor with other alpha males in a testosterone-fueled financial mosh pit. His wife’s become the sole breadwinner--which means no more nanny. Now Brandon will be responsible for the daily childcare for their 9 month-old and 3 year-old boys. The SAHD explores Brandon’s hilarious inability to censor himself in these new interpersonal situations as he navigates this maternally-dominated landscape. Brandon is delightfully offensive to everyone he meets, he can’t help it."

The webseries is very original and hilarious but be warned that each episode of a couple minutes can be lewd and NSFW.  Generally I don't like things which reinforce all the negative stereotypes of traders but the SAHD is an exception as they cast and scripted characters that aren't too removed from reality. 

A couple 2 minute episodes to give an example:

Ass from the Past


Eat My Meat


The full listing of episodes can be seen on the homepage of the project. 

Ginnie Mae futures launch and it's legacy

One of the rarest pieces in my collection is an original button celebrating the launch of GNMA "Ginne Mae" bond futures at the CBOT in 1975.  The Ginnie Mae contract was the first interest rate futures listing ever traded and established a lot of standards with which financial futures continue to use today.  For a complete history behind the efforts to create the Ginnie Mae contract, there is no better source than to read Dr. Richard Sandor's excellent book, Good Derivatives, as he shares his experience having been the primary developer of the contract and hence interest rate futures.

Here is a brief summation from Good Derivatives regarding the practical origin of certain aspects which continue to be used in financial futures:

- The tick size of $31.25 or 1/32nd was established as a happy medium because the end users of these bond futures needed a bigger tick size than the grains, yet this increment also was smaller than the spot and forward markets at the time.  One benefit of the increased tick size (relative to the $12.50 in grains) was that it was more attractive for market makers to trade which also increased liquidity.

- Quarterly contracts were established to maintain a similar synch w/company financial quarterly reports. The quarterly calendar differed from grain expirations which revolved around the growing cycle. 

- Trading hours were initially established to be 8:35am to 2pm in hopes that grain traders would be attracted to trade it before and after regular grain hours of 9:30am to 1:15pm.  Sandor noted that if the GNMA hours would've been the same as grains, then noone would've left their profitable trading in the grains to trade Ginnie Mae's so by adding a little extra time onto the grain hours, the Ginnie Mae would get additional liquidity on the open and close.

- Contract size of $100,000 was established because it was the rough equivalent to the volatility in a standard grain contract and could have the same margins.

- The cheapest-to-deliver concept was established with these Ginnie Mae futures.

Sandor also came up with the advertising campaign seen in the button and ad below from Time Magazine's October 27, 1975 issue.  He writes of the concept, "we should have ads with a pretty cartoon faced girl named Ginnie Mae --- the personification of GNMA --- winking and smiling with her name under her face.  The ad marketing campaign was controversial and at odds with the staid manner of the exchange....  Following the launch of the new contract, buttons were handed out to the members to pin on their trading jackets."

As far as I know, this is also the earliest contract launch button the exchanges handed out. 

Trading for "devout cowards"

click to enlarge

In another example of how the CME used to run relatively edgy advertisements, the above ad from the mid/late 1970s offers a paper trading Scorecard if the coupon is clipped and mailed in.  This particular ad ran in Playboy (!) and takes a dig at a man's masculinity by stating "How to trade commodity futures while remaining a devout coward" above a photo of a chicken costume speaking to a man sitting in a brokerage office.

How come there's no Peking Duck Exchange, Moscow Mercantile Exchange, or Havana Cigar Exchange?

It will come as a surprise to most that a company so stiff and humorless as CME Group currently is, once used to run an aggressive and somewhat jingoistic ad campaign in the mid 1970s for the purpose of celebrating free markets.  As I recently obtained a second set of these somewhat rare prints from a retired former CME marketing employee, it's worth taking a deeper look into the story behind them.

I've always been fascinated by the ad campaign because my travels allowed me to see the stark difference firsthand between free markets and controlled economies.  Among the places I've visited are the mausoleums of Lenin, Mao, Ho Chi Minh, Kim Il-Sung (took a second trip to DPRK as Americans weren't allowed inside in 2005 but in 2008 we were), Ayatolla Khomeini, a couple days in Cuba which doesn't have a mausoleum planned to Fidel...yet, Zimbabwe in the midst of their collapse last decade and Turkmenistan months before Turkmenbashi died.  Although the citizens of each country showed a lot of warm hospitality to this American, I couldn't escape feeling pity towards how they were born into a system which didn't allow them to be masters of their own destiny.

Capturing a similar sentiment, the inspiration for the CME to create these prints came from a speech which Leo Melamed gave to a Senate committee hearing on legislation that created the CFTC as an independent agency in 1974.

"Mr. Chairman, there are no commodity exchanges in Moscow; there is no Peking Duck Exchange in China; there is no Havana Cigar Exchange.  The farmers of those countries have no need for a mechanism that offers risk transference, price projection, or price protection.  In those countries, the governments establish the prices at which farmers can sell their products.  Consequently, the farmers' primary risk is entirely removed.  Alas, by removing the risk, that system also removes the incentive.  The sorry history of such systems is that they have been abysmal failures.

In contrast, during the past 100 years, our nation with its agriculture has proved to be the only one in the world that could continue to produce more food products than we could consume---and of a higher quality and at a lower cost than any other nation.  Mr. Chairman, there are many reasons for this remarkable fact.  But the central and primary reason is that we have, for the most part, maintained a free enterprise system.  This is the pivotal difference between us and them.  This is the secret of our success and their failure."

CME advertising executive Martin Cohen was the creator of these ads and deserves credit for the tremendous detail of each.

click photo to enlarge

How come there's no Moscow Mercantile Exchange?

"Millions of tons of potatoes, cabbage and other commodities change hands in the U.S.S.R. every year, but not a ruble's worth is traded on any futures market.  In a regualted economy, the price of a head of cabbage is exactly what the government says it is---no more, no less. Does their system work?  Apparently.  Does it work as well as ours?  You've got to be kidding."

Starting from the back, a babuska chalkboard operator is marking quote board entitled (according to Google translate) Moscow Commodity Exchange with the y-axis listing the 12 months and the x-axis listing cabbage, vodka, caviar, potatoes, (unknown), goats, and soybeans (?).  To the right of the quote board is a portrait of Lenin under which a KGB agent stands, or perhaps this gentleman is just a typical market regulation official, lol.  I can't find the translation for the banner.  Within the pit is a crowd of traders in jackboots and wearing Red Army uniforms, a civilian holding his shoe a la Khrushchev, a Red Army babushka with a head of cabbage and a matryoshka doll in her bag, another babuska sweeping up, and various items including heads of cabbage, bottles of Stoli, a duck, a goat, bag of potatoes, trading cards and a newspaper which I can't identify. 

click photo to enlarge"

How come there's no Havana Cigar Exchange?

"It just wouldn't work.  A commodity futures market such as those that flourish in the United States and other free economies simply can't operate in a highly regulated economy.  Free markets---or controlled?  When you get right down to it, that's probably the single biggest difference between their way and ours.  Except, of course, for the standard of living."

Starting again with the quote board entitled Havana Cigar Exchange, the y-axis lists the 12 months and the x-axis is comprised of the following cigar brands:  Larranaga, H. Upmann, Monte Cristo, Partagas, Hoyo de Monterrey, Rey del Mundo, Romeo y Julieta, and again Rey del Mundo.  Both Cohiba and Trinidad weren't listed because at that time those brands were reserved as Cuban diplomatic gifts and not for sale. Directly in front of the chalkboard operator in the decrepit building is a rifle stack and beside the door is a posted sentry but tough to say if he'd prevent people from entering or traders from leaving before their out trades were settled, certainly a way for firms to avoid O'hare trades.  On the wall is graffiti stating "Viva Fidel" above one of the many spare tires in the set.  Within the pit are various traders wearing the standard fatigues of Cuban Revolutionaries along with 26 de Julio armbands.  One of the traders is wearing a beret, a la Che Guevara, along w/a bandolier and holstered pistol (open carry in the pit!).  Strewn about the pit are chickens, bits of hay, drying tobacco along with boxes of Partagas, H. Upmann and Hoyo de Monterey cigars.  On the right is a sad looking peasant and a sadder looking burro, perhaps he is a former pit trader who blew out and is left to be simply an observer. 

click photo to enlarge

How come there's no Peking Duck Exchange?

"Difference of opinion --- openly aired --- is as essential to a free economy as it is to a free society.  That's why great commodity exchange can flourish in this country and not in the People's Republic of China.  you can't have free markets in a regimented society.  And you can't have regimented markets in a free society."

The exchange hall is draped in red banners and lanterns with two portraits of Chairman Mao looking on approvingly.  Centered between the portraits is a painting of various Chicoms, one holding a firecracker and another holding a duck by it's neck.  In the midground on the left is a large abacus in front of which the child board operator is using the slow trading day to read through Mao's Little Red Book.  The quoteboard on the right midground is titled (according to an old Chinese lady who translated) Peking Duck Commodities with an incomplete listing of rice, duck, eggs and congee.  If you can translate further then email me.  Within the pit are various traders wearing the uniform of the Red Guards which look like they wouldn't be out of place on the rack at Shanghai Tang now.  Multiple traders are clinging to their Red Books and the trader at the center holds a smaller abacus.  Looking on is a young child but I don't know what the book he's holding translates to.  Also included in the picture are various ducks, some in cages and others out.  The only disappointing aspect is that Chinese number gestures weren't involved. 

click photo to enlarge

When the fall of the USSR occurred, CME reprinted these these ads in a single poster to crow about the triumph of free markets.

"That was then; this is now...Some fifteen years ago, back in the days of Chairman Mao and Brezhnev, back when Beijing was Peking and financial futures were in their infancy, the Chicago Mercantile Exchange launched an award-winning ad campaign contrasting the gridlock of controlled economies with our free markets.  Today, the Chicago Mercantile Exchange is the world's leading financial futures exchange.  More important, free markets are sweeping away the old order.  The Moscow Mercantile Exchange?  Well, right idea, wrong name.  It's up and running --- only they've named it the Moscow Commodities Exchange.   And, we're told, the Chinese aren't far behind.  Now, about that Havana Cigar Exchange..."

I'm not sure what CME traders in the mid 1970s would've found more farfetched, the use of microwave networks to trade or that the CME's marquee marketing sponsorship would be in women's professional golf, probably the latter. 

As I mentioned, I've got a double set of these original three prints and would offer them up as tradebait in the unlikely scenario someone has other memorabilia to trade, the bar is high of course.  

Small ball

It's been great to watch the Kansas City Royals get into the MLB playoffs and utilize the small ball strategy to win games via that methodical and incremental approach.  As I don't get back to KC more than once a year it seems, there remains a nostalgia whenever something good comes out of the region and of course it brings me back to my time at the KCBT where a small ball approach was used by many traders in those markets as well out of necessity. 

Being a smaller market, traders at the KCBT always had to develop good instincts because the opportunities weren't anywhere near as prevalent as the larger Chicago or New York exchanges.  As a result, KCBT traders had to adhere even more so to the poster which was taped on the end of a desk near the Value Line pit: RISK NOT THY WHOLE WAD.

Old timers at the KCBT used to say that the Value Line pit was rockin' until the crash of '87 caused a lot of desks such as Goldman to pack up shop.  I never believed them, as it was desolate when I got there in '98, but here is photo proof of that pit in 1983 that surely looks busy to me. 

The King of small ball trading actually overlapped a bit w/my time at the KCBT and I was shocked to learn how far he'd progressed from sitting around the quiet Value Line pit with a frustrated look on his face in a dark green O'Connor jacket.  I never spoke with him, but from observing it was clear that he always had the gears working in his mind about trading and wasn't the usual floor joker.  Dave Cummings went on to create early HFT prop shop Tradebot which according to Scott Patterson's excellent book Dark Pools, scaled quickly to trading over 10% of NASDAQ volume in 2002.  Furthermore, in the same book it notes he wrote GETCO's source code (!!!) and later went on to launch BATS which, besides being a Royals sponsor, handles over 10% of stock market volume in the US today.  In the late '90s, Timber Hill had a broker at the KCBT ("Meat") who held a computer box from which he'd quote Value Line markets and I wonder if that was a driving force behind what Cummings created.

Simultaneously, just down the hallway from the KCBT entrance was a equities propshop which a handful of former floor traders gravitated to.  Their Level 2 symbol was appropriately KCMO for those who traded back then and might recall it. 

Be it baseball or markets, KC is a place where small ball is a great path to success but the town certainly doesn't play small ball when it comes to bbq!

Social media

Now that there's the truest form of open outcry in my life w/a precious infant girl, it's going to be tough to knock out posts as I'd like going forward.  However, a few are in the queue so thanks for your patience. 

Regarding social media, I've had some friends ask about why there isn't a social media presence for the site and book.  Lots of reasons why I'm against it and opt for correspondence via email only, but there is a social media approach which I agree with and saw in Soho recently which was illustrated by a street artist:

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

Admin note

I wanted to give a heads up that this space will be quiet for a while as I'm expecting my first child within weeks and have already cut down on screen time for trading as a result of my wife and I getting as prepared as possible for the baby's arrival. 

In my thinking about having a kid on the way, it's definitely put into perspective time and how quickly it flies by.  As it relates to this corner of the internet, the blog has been up for 6 years now and I last traded in the pit 9 years ago after spending parts of the previous 8 years on various trading floors!  It's a little funny in retrospect how it wasn't even a conscious decision at the time to trade entirely electronic as a full day standing in the pit eventually turned into going there for opens and closes only, then opens only and soon thereafter not even bothering to walk to the floor as better opportunity was on the trading screen.  Even though I was part of it for 8 years, having now been trading entirely electronic for 9 years and only occasionally visiting the floor in Chicago anymore, it still amazes me that something as crazy as the trading pits ever existed in retrospect.

A lifetime of vivid memories can originate from a short amount of time if you were fortunate to be a part of something as interesting as working in and around the trading pits.  To have spent my formative years of 18-25 made the experience more special and eventually I hope to share everything I remember along w/all the memorabilia I've collected.  This might be an improper analogy but I wanted to take a break leaving this thought.....

A lot of my spare time the last few months has been spent reading everything I can about F-105 Thuds during Operation Rolling Thunder.  Pilots who wrote memoirs generally had an even more compressed time of 6-8 months to draw memories from, but air combat clearly leaves a more distinct impression than trading.  That said, one line from a book on Thuds, which I wanted to share, is true for any profession and I felt trading in particular:

"There are pilots who fly fighters and there are fighter pilots.  You guys want to be fighter pilots, not pilots flying fighters.  Look for the difference." - Ed Rasimus When Thunder Rolled

Equity index futures contract launch buttons

click photo to enlarge

I'm not sure when the tradition started, but it was widespread amongst futures exchanges by the 1980's to commemorate the launch of a new contract through buttons which could be pinned on a trading jacket.  These buttons would be handed out in the morning of the launch day at the entrance to the trading floor and generally be worn maybe for a day before being discarded pretty quickly thereafter.  Exchanges used these buttons to market, or at the very least to simply remind the finite amount of members on the trading floor of a new contract launch in hopes that they might step into that pit to trade it.  Illiquidity could doom a contract from the start so anything that would encourage bodies to trade something new would help a nascent contract gain momentum. 

In the past I've showcased various buttons from my collection w/individual photos but recently got a chance to categorize them into various groups like the equity index buttons shown above.  I'll try to put up other categories eventually, such as grains or fixed income, and provide the background on them as time allows.

1 - Probably the best of my collection is the S&P 500 button from 1982 whose graphic was based upon the STP fuels logo.  When the Spoos began trading, I don't think anyone could've expected the contract to be as hugely successful for the exchange as it has.  I actually have an extra one of these buttons, so if someone has an amazing memorabilia trade to offer I'd consider it but the bar is very high.  

2 - This button celebrated a decade of success for the S&P 500 contract in 1992 and incorporated that original button style into it.

3 - From 2007, this button also celebrates a milestone for the Spoos at 25 years.

4 - Just before celebrating a decade with the S&P 500, the CME launched the S&P 400 Midcap contract.

5 & 6 -This is a pair of buttons from the CME to celebrate the launch of options on the S&P 500 futures in 1983, a year after the futures contract proved successful.  One button has Pac-Man rebranded as Option Man eating his enemy Risk on the other button.

7 - I'm not 100% certain of this button as it represents the launch or expectation of launch for the S&P 100 in July 1983 and what confuses me is that the CBOE launched OEX options a few months earlier in March 1983.  Since I'm far away from various reference books I have, I'm not sure if there was an attempt by the CME for instance to launch S&P 100 futures around this time.

8 - Another button I'm not exactly sure on the background of because Value Line was the first stock index ever traded, predating the S&P 500 by a short period of time, and it traded at the KCBT but this button regarding options on the index also lists CBOT.  Perhaps there was a mutual offset agreement between the exchanges where it had dual listing, the closest guess I can come up with.

Line three, which has buttons 9 - 13, moves from the S&P suite to the interesting attempts surrounding the NASDAQ contract at both the CME and CBOT.  It's probably surprising to see, in button 13, that the CBOT actually licensed the original rights to list the NASDAQ-100 index in 1985.  To compete, the CME created the SPOC contract (S&P Over the Counter index) which was a broader listing of 250 nonfinancial contracts compared to 100 in the NASDAQ contract.  Button 9 is the original launch button for the SPOC and to encourage trading in the SPOC, button 10 asked for "15 minutes please" from traders to stand in the pit at least that much each day and try trading it.  A 15 minute button was also used for the launch of the S&P 500 and, from what I read, traders learned that 15 represented losses in thousands of dollars more so than minutes trading it as the true measure of their commitment.  Button 11 was distributed at the CBOT to take a jab against the SPOC contract, Lenoard Nimoy, aka "Spock" from Star Trek, is pictured with a red circle and backslash on top.  Both the CME's SPOC and CBOT's NASDAQ-100 contracts eventually failed but the relaunch of the NASDAQ-100 at the CME in 1996 is shown with button 12 and it continues to be a success.

14 - Nikkei 225 index futures were launched in 1990 with this button at the CME just as the Japanese stock market bubble collapsed.

15 & 16 - The AMEX Major Market Index, consisting of 20 blue chip stocks that closely followed the Dow Industrials, had futures traded at the CBOT starting in 1984.   Eventually the index was rebranded as the MAXI and then delisted after moving over to the CME.  Most notably, the MMI contract is famous for Blair Hull buying a large amount of MMI futures at the bottom of the market on the day following Black Monday in 1987. 

17 - Institutional Index button from the CBOT which I don't know anything about except it traded briefly and was doomed from inception since the launch preceded the 1987 crash by a month.  As even the S&Ps traded thinly following the crash, there was too much career risk to have anyone trade a new and narrower contract like the IX.

18 - Although I'm not sure if this CBOE OEX button was from the launch, it likely would've been given out not too long after because there is no need to promote what was the dominant index option listing.

Life in the Pits (1981 tv news program)

Thanks to G.D. for pointing out this multi part, evening news story entitled "Life in the Pits" as it is an interesting snapshot of trading at the CME in 1981.  The uploader of the 19 minute vid was the main subject profiled and I thought the whole vid was great, not just for the look back at the trading floor 33 years ago, but also for some parts which would be considered politically incorrect now. 

To set the scene a bit, one year T-bill rates in 1981 were around 14% and because of raging inflation, all commodity markets traded w/extreme volatility.  Must've been one hell of a time to be a trader (right Hillary Clinton?) and this golden era was also profiled in the 1985 book The New Gatsbys which I highly recommend reading.  The newscaster mentions that at the time of taping, volumes had doubled from a few years prior so the trading industry easily captured the nation's attention.

The video intro is certainly an attention grabber:  before dawn, a trader wearing a fur coat gets into his Cadillac, vanity plate UP TICK, and speeds off to the Merc.  The ensuing stories relate the velocity which money was made/lost trading, likely due to pyramiding positions as that was a popular, yet often financially fatal, strategy back then. 

One of the funnier segments was dedicated entirely to how life is lived after hours to showcase the trader's lifestyle including his condo (Lakepoint Towers?), blonde European wife, sipping Champagne at a club w/a toast "to free enterprise" and then grooving on the tiles.  His wife says the following in the third segment, "He always call me and say I'm gonna play racquetball tonight, and oh I say Thank God.  He's gonna beat the ball instead of me."  LOL WUT

Another politically incorrect thing which stood out was the newscaster mentioning that most of the Merc "successes are white, Jewish, and male" which was generally true and somewhat obvious.  To contrast that perception while simultaneously doubling down on political incorrectness, the last segment is on a black, female broker from Detroit and they profile her arriving in a Mercedes with 14k gold rims.

Smug Trader

(click for bigger detail and sorry about the fatty watermark on it)

Behold the greatest piece of trading art ever created.  The piece is untitled, undated (likely from early 1970s) and by an unknown artist (Alfred Marshall), yet like the Mona Lisa it can be admired for it's simplicity, intriguing facial expression and style which reflects upon it's subject.  I hereby entitle it Smug Trader.

I can admit to being at a total loss when it comes to highbrow art conversations but this piece speaks to me like no other piece of art ever created, and I've been to most of the top art museums around the world.  The artist's style and text is very crude like futures industry always has been so Smug Trader is a very appropriate mirror not just of the public perception but even of the industry upon itself.  In 2014 it remains a bit of an eccentric occupation to be a commodities futures trader but it was significantly more unconventional when this piece was likely created around 1970.

The most fascinating aspect of the piece is his smirk combined with the beer chalice which has runneth over.  I've traded millions of futures contracts in my career and never felt anywhere near that good at the end of a trading session so it's very intriguing as to why he feels so good about himself.  My theories behind Smug Trader's emotion are widely divergent in that he's either a drunk in between trading blowups or is actually that good.  His scruff is also a nice touch because I used to say that the easiest way to identify a trader in Chicago was simply to see a guy on Thursday who hasn't shaved in a few days.

Trading has a large culture based around alcohol and it was never a surprise to see various drunks trade the open and then head to the exchange club for drinks around 9 or 10am.  When I look at this piece, I do observe some of that devil-may-care attitude which I'd see others celebrate a short term victory whilst succumbing to long term attrition.  There were always traders who'd blow up and then find a backer to stake them for another chance and more than anything, this is the type of person who would exhibit such a (temporarily) smug look in a highly volatile industry like futures trading where the odds eventually even out.  In the NHL playoffs, the boilerplate saying is "don't get too high, don't get too low" and amongst the great traders I've been around, that's how they carry themselves as the anthesis of Smug Trader.  Coupled w/a gin blossom on his nose, what looks like an OTB ticket behind the newspaper quotation sheet also leads me to see him as a degenerate. 

Before moving to the other extreme, it is noted "Commodity Brokers - Chicago Mercantile Exchange" at the top of the piece so perhaps this gentleman isn't a trader and is a broker.  Because the sweat factor isn't anywhere near as high for a broker as it is a trader (unless IMHO they operate a clearing firm), this could be a pretty standard look for a broker.  In terms of sloppy drunks my observation from worst to best were:  pit brokers, desk/upstairs brokers, scalper style locals, position carrying locals and then prop firm locals....not hating on any group, just one man's observations largely based upon oversight and accountability.

So that brings me to the other extreme, perhaps he is as good to justify that look.  Because this art is CME centric and from the early 1970's, it must've been some meat contract he was operating in (a zoom on the quote sheet shows Hogs and 'Bellies as the only CME products on it).  Again, having never been around a legitimate trader w/that look on his face makes me recall stories from the '60s and '70s I read of large operators, such as REFCO, who'd move their livestock across the Rio Grande to Mexico so the USDA reports like cattle on feed would be manipulated in their favor.  Smug Trader looks like just the type of guy who'd be raising a frothy glass after a report came in just as he helped to arrange.

Later in the '70's, the CME would use the Friedmanesque saying "Free Markets for Free Men" and in the meat pits, it would jokingly be changed to "Wide Markets for Wide Men" so it's not too far a stretch to imagine Smug Trader easily amongst those wide men quoting wide bid/ask spreads.

I purchased Smug Trader quite randomly many years ago and had it recently undergo scanning and light revitalization at Chicago's finest art restoration service.  There are prints I made of it but I'm reserving them as a type of diplomatic gift to contributors of the historical project, like Cohibas once were. 

Big dogs

Some of you might recall Big Dogs shirts from the '80s and '90s, it was very much the leisurewear of suburban middle aged men then and still continues to churn out t-shirts with attitude.  Above is one such shirt from the late '90s that a reader submitted and although the vintage isn't exact, it would likely be from around 1997 when Big Dogs, Inc. had an IPO and the entire US was enraptured with stock trading.  Everything about this shirt is hilarious because it captures so many public stereotypes about traders:  pushing wimps around, loud gold watch, the Jim Cramer-ese sleeves rolled up, etc...  I could certainly see a retiree in suburban Virginia wearing it as his lucky shirt when buying Iomega options, calls natch, at the tail end of the millennium. 

Book notes

Been meaning to do it for a long time but finally got around to listing some additional book notes for Trading Pit Hand Signals.  Below is my first pass at it and I'll continue to add as much detail as possible going forward. The direct link at Scribd is here just incase the embed below has any issues.

The hardcover book is available from Amazon by clicking here and the e-book is available on Apple's Ibooks via the Itunes store by clicking here. 

If there are any additional questions which readers have about the book or any of the 400+ hand signals, send word and I'll add it to the notes.

   Trading Pit Hand Signals Book Notes 06162014 by tradingpithistory

Sydney Futures Exchange documentary Bulls and Bears - full length video now available

It was brought to my attention yesterday by an amigo of the blog, M.G., that the full length version of the 1999 era Sydney Futures Exchange based film, Bulls and Bears, is now up on youtube since someone uploaded it a few months ago.  The final minutes are missing of it but the vast majority of the hour long film can finally be seen.  I corresponded w/the producer of it to try to get a copy and have looked for years but have never been able to obtain a full look til now. 

The film spectacularly captures the true essence of a trading floor and how loose it used to be.  What makes me nostalgic isn't necessarily the floor but the market volatility which the film captures!  In the next few days I'll post an over-analysis of what I saw in the film.

Charlie D speech *now with enhanced audio*

It was 23 years ago this week that Charlie DiFrancesca ("Charlie D") passed away, but when someone does something great, their legacy lives on in many different ways forever.  His obituary at the Chicago Tribune is a great intro for those not aware of the high regard he was held in by fellow traders at the time and I highly suggest the book Charlie D. The Story of the Legendary Bond Trader by William Falloon for a more in depth look at his life.

The two hour video has been up on youtube since 2009 when I obtained it, after years of focused effort, but the audio has been low and due to youtube upload limits back then, I had to break it into a dozen clips.  It was a big hassle to get it uploaded in the first place that I never circled back around to have the audio enhanced but now I'm happy that the above video is shown in it's entirety and also with enhanced audio.  As a bonus, the speech can now also be heard via mp3 on soundcloud either via the embed below, on the free soundcloud mobile app, and directly at the link http://www.soundcloud.com/tradingpithistory/charlied  It was frustrating to get it all done that I sought out a freelance guy to do it and he did an excellent job on it all. 

Front page of the FT during first days of 1995 Barings collapse

click photo to enlarge

Pictured above is the front pages of the FT on Monday February 27, 1995 and Tuesday February 28, 1995 as news broke of the Barings collapse.  You'll need to definitely click on the photo for this one to properly read the headlines.  It's quite interesting to read, w/proper hindsight after the facts have been established, of a news story as it developed and the wide ranging confusion at the time. 

There are many places to buy copies of old newspapers but I purchased mine at www.historic-newspapers.co.uk to obtain these and they probably have more if others are interested. 

To really bring the story full circle, BBC radio did a reunion a few years ago between Nick and his former colleagues at Barings.  You can listen to the radio program (45 minutes) by clicking here.

1877-1882 CBOT members tickets

click on photos to enlarge

Above are CBOT members tickets dating from 1877, 1878, 1879, 1880 and 1882.  I cannot find any historical reference to the particular person whom these memberships belonged to so my assumption is he was a regional merchant most likely. 

For those with an interest regarding the early history of the CBOT, I suggest reading the research which Mark Geiger has been embarking upon such as this paper: Social Networks on the Exchange Floor

Video of last day in old CBOT bond room

Above is a great 14 minute clip of candid footage on the last day of the old CBOT bond room which closed in 1997 and was subsequently turned into the MidAm trading floor, but is currently occupied by the offices of Peak6.  Clearly it was some seriously tight quarters at the old bond room before moving to the far more spacious new bond room! 

Evidently part of this video, in addition to some other footage shot by the same guy, will be turned into a movie entitled The Floor.   While I'm a huge fan of original content that captures the history of the trading pits, I do get the feel by watching the trailer of The Floor that it'll be overly sensationalist and as we've seen in other floor related documentaries, that mostly reflects bad upon the messenger.  Not trying to prejudge, but it'll certainly be met w/a collective groan by the all locals I still keep in contact with.

Cotton trading, 60 years apart

Two clips of the NY cotton pit w/the first being the recently released clip from British Pathe of the New York Cotton Exchange around 1929 (although the video is dated 1921).  I can't tell if the footage was embellished and staged but lean towards that opinion because it appears that way to me atleast.



The second video is of the NY cotton pit at the World Trade Center in the 1980s and not much to juxtapose against the clip from half a century earlier.



One of the most interesting photos I've seen regarding any type of trading is the one below of the Galveston Cotton Exchange in 1884 where spittoons were provided at regular intervals around the trading ring.  Click on the photo to enlarge it

photo credit: rosenberg-library-museum.org

Transition to amazon complete

Just a quick note that the book Trading Pit Hand Signals is now available only from amazon and click here for that link.  Forthcoming are additional book notes which I'll post up once a first draft is ready into Google Docs and also a source listing of every hand signal in the book.  A short promo vid was shot in January in homage to a track from my favorite Ice-T album (!?!?!?!?) but the footage has yet to be edited into a short clip, hopefully within the next couple weeks I can get on a caffeine binge to make it happen.  Too many other side projects going on so this space has been pretty boring lately, sorry about that.