They may as well have closed the pits as soon as they closed the observation deck at the Board of Trade after the September 11 attacks. What good is the trading floor if you can't watch and see what's going on? Anyway, one more job where computers have put people out of work.That era has finally ended after CME Group Inc. announced Wednesday it will close most of its futures pits in Chicago and New York. The move deals a death blow to trading floors that grew in the 20th century alongside America’s agriculture, mining and energy industries and were once synonymous with capitalism.
With open outcry trading dwindling to just 1 percent of volume at CME, the owner of the Chicago Mercantile Exchange and New York Mercantile Exchange decided to shutter nearly all its trading floors by July 2, according to a statement from Chicago-based CME. The exceptions include Standard & Poor’s 500 Index futures as well as some options on futures.
“It was only a question of time,” said Darrell Duffie, a finance professor at Stanford University and Bloomberg View contributor. “It has taken this long mainly because CME has shown some loyalty toward market participants whose livelihood has depended on their participation in open-outcry trading.”
The rise of computers triggered the decline of floor trading beginning in the 1990s, said Craig Pirrong, a finance professor at the University of Houston.
“The floor in its heyday was an amazing place,” he said. “Despite the seeming chaos, it was an incredibly efficient way to buy and sell.” Yet in-person trading was a technology that hadn’t been updated since the 1860s, when Chicago served as the birthplace for derivatives.
Though CME’s Chicago trading floor has its roots in the 19th century, the pits at the Merc and the Chicago Board of Trade -- which CME bought in 2007 -- also spawned many of the high-frequency trading firms that now dominate computerized markets. Former floor traders Paul Gurinas and Bill DiSomma created Jump Trading LLC, one of the most prolific trading firms in the world.
The frenetic shouting, gesticulating and jumping -- which Gurinas and DiSomma allude to in the name of their firm -- that’s used to buy or sell futures made their way into popular culture. “Ferris Bueller’s Day Off” featured a scene where the main character proposed to his girlfriend while overlooking the Chicago Board of Trade....
The CME decision affects products including contracts linked to metals, energy and agricultural commodities. In the past decade, CME bought the Chicago Board of Trade and consolidated their Chicago trading floors into one location. Many of the posts had become mostly empty in recent years as traders shifted to electronic platforms, including CME’s own Globex system.
All options traded at CME will retain an open-outcry component, except for contracts on the Dow Jones Industrial Average and Nasdaq-100 Index.