Last week when the CME Group announced it would be shutting down 17 open outcry futures trading pits in Chicago and three pits in New York by July 2, it was almost anticlimactic. Most participants in the industry knew that the outcry era was on its way out a long time ago. Some even correctly suspected that once automated systems began to encroach upon the manual, human-based platforms, it was only a matter of time before people would be replaced by IT platforms.
The reasons why are clear: open outcry trading is only one percent of the company’s total futures volume; the company will realize $10 million of annualized expense reduction; and there are likely to be many operational efficiencies to come.
Yet there is a human cost to this march to automation. For the CME Group, there will be the elimination of 60 positions in the floor operations areas. For the CME Group members, there are likely to be layoffs for floor brokers and others that cannot make a transition to new roles. The CME Group has promised to assist floor traders via “every attempt to make booth space available to those who want to trade electronically following the closure of the open outcry futures pits.” Inherent in that statement is the possibility that there might be firms that do not want to trade electronically. Where are they to go? Will they be able to stay in business?
Not all of the outcry floors will be going away. The remaining options pits will be relocated to a single floor in the CME Group’s Financial Room in Chicago by September, according to CME Group officials.
If it’s possible, I’d suggest that you get a tour of one of these outcry arenas before they are gone forever.
When I first started writing about trading technology in the 1990’s, I began by covering the sell side. To become familiar with how things worked, I was able to get tours of the New York Stock Exchange and the New York Mercantile Exchange (Nymex) to see outcry trading firsthand. It was the closest thing I think I’ll ever come to witnessing Roman gladiators fighting to the death.
The Nymex floors, in particular, were an incredible, tribal assault on the senses and the energy was overwhelming. The language the floor participants were using was a series of unintelligible roars that I would never understand. The screaming was accompanied by hand signals given by men in color-coded coats. I knew in an instant that I would never survive in this arena.
It’s still amazing to me that all of the dynamic ingenuity of outcry trading will be replaced by electrons, algorithms, wires, CPU chips, servers and even services in the cloud. The human touch is almost completely gone from securities transaction processing.
I guess the one area where human decision-making and insight might still play a role is in post-trade operations where mistakes are caught and broken trades are fixed. Perhaps some of the brave souls that have survived the pits would be willing to work in operations if they could bear to be away from the action and adjust to a different set of challenges.
Need a Reprint?
Leave a Reply