6 ms·

Turn Out the Lights, the Party’s Over

107 points by minimax 12y ago

deleted 12y ago
[deleted]
dredmorbius 12y ago
"The Party" is the Chicago Mercantile Exchange's trading floor -- for futures. Options trade will continue.
- B1narySunset 12y ago
  Except for the S&P 500 pit which is still pretty active.
  - dredmorbius 12y ago
    Also mentioned in the lede, though yes, I omitted that.
sailfast 12y ago
I will always remember them fondly. There was no more visceral way to witness actual change in the markets manifested in physical stress and volume. It was going to happen, sure, but I will miss them.
chollida1 12y ago
The book DarkPools does a decent job of describing the rise of machine based trading that eventually replaced pit traders. http://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp/0307887189 http://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp/... Good riddance, the markets are better off in almost every way but removing pit traders. - end of day's reconcile, -machines aren't tempted to "lose" trade tickets for trades that would have been loses. - machines don't hold clients trades while they jump infront of them. - liquidity is much, much better off now. Every flash crash has an almost instantaneous rebound of prices back to their "true" values. To paraphrase Churchill. "“Computerized trade matching is the worst form of trading, except for all the others.” To the city of Chicago's credit. Even thought they lost pit trading for futures and almost all options, they've still managed to keep the bulk of those trades via the electronic CBOE and being the center of HFT. I would guess that when an industry gets as disrupted as pit trading was, then the center of gravity would tend to move. In this case, Chicago did well to hang onto it.
- a3n 12y ago
  > machines don't hold clients trades while they jump infront of them. Does machine trading actually bring anything with it that discourages that? I would think that it would make it easier to do that as a defacto business model.
  - jeffreyrogers 12y ago
    Well, it's illegal, and presumably it's harder to cover up a machine doing it (since it's in the source code) than a human who could just deny doing anything wrong.
  - serve_yay 12y ago
    No, it just looks different now. (It looks like spending crazy amounts of money on a wired connection to be 4ms ahead of the other guy.)
  - kjs3 12y ago
    Immutable activity logging.
  - yummyfajitas 12y ago
    Yes - if you put multiple queues into your software, that's pretty easy to spot and prove in court. It's a bit harder to prove if the queue lives in your broker's head.
- pavel_lishin 12y ago
  > the markets are better off in almost every way In which ways are they not better off?
- jackgavigan 12y ago
  > I would guess that when an industry gets as disrupted as pit trading was, then the center of gravity would tend to move. In this case, Chicago did well to hang onto it. Absolutely. At the beginning of 1997, the London International Financial Futures and Options Exchange (LIFFE) had 65% of the market for trading German Government Bond futures (known in the market at Bunds), its most-traded product. Eurex (the German futures exchange in Frankfurt) had the other 35% of the market. Throughout 1997, Eurex slowly grew its market share by slashing trading fees and extending access to its electronic platform to clients in the US and London. By contrast, LIFFE was slow to embrace technology, preferring to rely on the traditional, open outcry trading floor model. However, in January 1998, for the first time, Eurex captured a larger share of the Bund market than LIFFE. This marked a tipping point and by the end of 1998, virtually all Bund trading had shifted to Eurex (and stayed there). Coincidentally, the Streetwise Professor himself wrote a paper on the topic: http://www.bauer.uh.edu/spirrong/dtbtip2.pdf http://www.bauer.uh.edu/spirrong/dtbtip2.pdf
joosters 12y ago
There's an interesting commentary on this over at the FT: http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-of-a-futures-operator/ http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-... (login needed) The problem with the abstracted version of the market is that, well, none of the potential repercussions for breaking the rules involve any sort of face-to-face experience. Just the same way that defrauding people via email is much easier than doing it face-to-face, the lack of a physical interchange creates a similar bad behaviour incentive in the market. With no social-pressure to be collaborative, everyone in it for themselves and regulators inevitably asleep at the wheel, because, well, there’s no way for them to keep up with how bad behaviours are innovating, all we end up with is a Wild West market in which nobody can ever trust anyone. Whether that leads to social stability and growth in the long run, we guess only time will tell?
- jsprogrammer 12y ago
  This excerpt seems to lack perspective. What email scam has taken people for over a dozen billion dollars[1]? And that's just a single example. The OP article also seems to be highly colored nostalgia. Really, a "market" with numerous "rules not written in any book that you adhered to, or else" is believed to be a paragon of efficient markets? I do believe it was a party in there, just not one that anyone but the most well connected and capitalized had any access to. [1] http://en.wikipedia.org/wiki/Bernard_Madoff http://en.wikipedia.org/wiki/Bernard_Madoff
  - minimax 12y ago
    I do believe it was a party in there, just not one that anyone but the most well connected and capitalized had any access to. Except it was the exact opposite of that. The archetypal Chicago futures pit trader was a normal guy off the street, usually without a college degree, who managed to scrape together a few thousand dollars to cover the margin for a couple of contracts.
    - jsprogrammer 12y ago
      Were/are pit traders primarily trading their own money? My impression is that they were/are essentially hired guns for the big money on the other end of the phone.
nsxwolf 12y ago
My first real programming job was at the Chicago Board of Trade in 1999, just when the electronic trading initiatives were really taking off. But the floor was still totally packed, totally crazy, and completely inscrutable (to me). I'm glad I had the chance to see it.
wpietri 12y ago
Back in the mid-90s I did tech work for a Chicago financial trading firm. I ended up with one of those colorful coats so I could go down to the trading floor and swear at our computers there. (Tech note: there is still no good swear-over-IP protocol; some things apparently you have to do in person.) It was an amazing place, and I hope somebody collects all the colorful stories that result when you get so many adrenaline junkies together in one place. (E.g., the time somebody punched out a polar bear. Or the the trash bags full of money. Or the snow futures market.) But my guess is that the traders don't really mourn its loss as much as I will. When I was back in Chicago a couple years ago, the Merc had shut down their trading floor at 30 S. Wacker. I stopped in to ask the security guards if the traders missed it. "Those guys? Hah! No, they just left one day and never came back."
- EC1 12y ago
  I would LOVE if you wrote up a few stories, however long! Do you think you could?
barrkel 12y ago
LME is still keeping its trading pit for now. Had a tour round is, interesting if you get the chance.
IgorPartola 12y ago
Off topic: wow is that text-on-background unreadable...
noname123 12y ago
Great article. Writing has been on the wall for awhile, but sad nonetheless that open outcry is going away. Quick question, for ES futures, SPX options and other major option series that are operating on a hybrid model (electronic + open outcry?) How do the exchanges reconcile these? For instance, do open outcry trades have to follow NBBO; and what is the latency of an open outcry trade/bid/ask being broadcasted in quote feeds? Do people mostly still do open outcry to execute extremely large block orders? Finally, would the cease of open outcry affect membership pricing of CME?
- minimax 12y ago
  You are trying to fit the futures markets into the US equities model. Open outcry and Globex are two separate markets. Open outcry quotes don't show up on Globex. Traders in the pits have handheld devices that allow them view quotes and place orders on Globex. My understanding is that open outcry is still useful for options trading because it lets you do complex multi-legged trades "atomically." A broker can get together with a local (or several, if it's a big order), and sort out a single price for a trade that will involve multiple instruments.
  - noname123 12y ago
    Thanks appreciate it! So sounds like then Globex and Open outcry are separate markets then although they are closely correlate as they trade the same asset but aren't obligated to reroute orders. As for options, AFAIK, CBOE and ICE already keep multi-legged books in electronic trading. For example, you can request for a multi-leg order via Interactive Brokers and it'll return a bid/ask spread that's the sum of all your ratio's/legs. When you execute, I think IB's SmartRouter does the magic to figure out which exchange to submit your order to (whether to submit it all to a multi-leg book or as single orders; but IB is on the hook to guarantee the complete execution of your order). On liquid options, hitting mid on your multi-leg has a decent chance of being executed. However options in general are not as liquid as equity, so happy that guys at CBOE/CME can still do open outcry.
Animats 12y ago
Next, the NYSE floor will close. It may take a few more years, because NYSE management views it as a useful tourist attraction and publicity operation.[1] But Dow Jones announced a few months ago that they will no longer run pictures of the trading floor. Even the webcam feed seems to have been shut down. There are still people going there, but they're mostly using computers, not live trading. It's more of a big co-working space now. http://www.crainsnewyork.com/article/20140602/FINANCE/306019986/nyse-chief-wants-to-bring-back-trading-floor-action http://www.crainsnewyork.com/article/20140602/FINANCE/306019...

107 points by minimax 12y ago

deleted 12y ago

[deleted]

dredmorbius 12y ago

"The Party" is the Chicago Mercantile Exchange's trading floor -- for futures. Options trade will continue.

B1narySunset 12y ago
Except for the S&P 500 pit which is still pretty active.
- dredmorbius 12y ago
  Also mentioned in the lede, though yes, I omitted that.

sailfast 12y ago

I will always remember them fondly. There was no more visceral way to witness actual change in the markets manifested in physical stress and volume. It was going to happen, sure, but I will miss them.

chollida1 12y ago

The book DarkPools does a decent job of describing the rise of machine based trading that eventually replaced pit traders. http://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp/0307887189 http://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp/... Good riddance, the markets are better off in almost every way but removing pit traders. - end of day's reconcile, -machines aren't tempted to "lose" trade tickets for trades that would have been loses. - machines don't hold clients trades while they jump infront of them. - liquidity is much, much better off now. Every flash crash has an almost instantaneous rebound of prices back to their "true" values. To paraphrase Churchill. "“Computerized trade matching is the worst form of trading, except for all the others.” To the city of Chicago's credit. Even thought they lost pit trading for futures and almost all options, they've still managed to keep the bulk of those trades via the electronic CBOE and being the center of HFT. I would guess that when an industry gets as disrupted as pit trading was, then the center of gravity would tend to move. In this case, Chicago did well to hang onto it.

a3n 12y ago
> machines don't hold clients trades while they jump infront of them. Does machine trading actually bring anything with it that discourages that? I would think that it would make it easier to do that as a defacto business model.
- jeffreyrogers 12y ago
  Well, it's illegal, and presumably it's harder to cover up a machine doing it (since it's in the source code) than a human who could just deny doing anything wrong.
- serve_yay 12y ago
  No, it just looks different now. (It looks like spending crazy amounts of money on a wired connection to be 4ms ahead of the other guy.)
- kjs3 12y ago
  Immutable activity logging.
- yummyfajitas 12y ago
  Yes - if you put multiple queues into your software, that's pretty easy to spot and prove in court. It's a bit harder to prove if the queue lives in your broker's head.
pavel_lishin 12y ago
> the markets are better off in almost every way In which ways are they not better off?
jackgavigan 12y ago
> I would guess that when an industry gets as disrupted as pit trading was, then the center of gravity would tend to move. In this case, Chicago did well to hang onto it. Absolutely. At the beginning of 1997, the London International Financial Futures and Options Exchange (LIFFE) had 65% of the market for trading German Government Bond futures (known in the market at Bunds), its most-traded product. Eurex (the German futures exchange in Frankfurt) had the other 35% of the market. Throughout 1997, Eurex slowly grew its market share by slashing trading fees and extending access to its electronic platform to clients in the US and London. By contrast, LIFFE was slow to embrace technology, preferring to rely on the traditional, open outcry trading floor model. However, in January 1998, for the first time, Eurex captured a larger share of the Bund market than LIFFE. This marked a tipping point and by the end of 1998, virtually all Bund trading had shifted to Eurex (and stayed there). Coincidentally, the Streetwise Professor himself wrote a paper on the topic: http://www.bauer.uh.edu/spirrong/dtbtip2.pdf http://www.bauer.uh.edu/spirrong/dtbtip2.pdf

joosters 12y ago

There's an interesting commentary on this over at the FT: http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-of-a-futures-operator/ http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-... (login needed) The problem with the abstracted version of the market is that, well, none of the potential repercussions for breaking the rules involve any sort of face-to-face experience. Just the same way that defrauding people via email is much easier than doing it face-to-face, the lack of a physical interchange creates a similar bad behaviour incentive in the market. With no social-pressure to be collaborative, everyone in it for themselves and regulators inevitably asleep at the wheel, because, well, there’s no way for them to keep up with how bad behaviours are innovating, all we end up with is a Wild West market in which nobody can ever trust anyone. Whether that leads to social stability and growth in the long run, we guess only time will tell?

jsprogrammer 12y ago
This excerpt seems to lack perspective. What email scam has taken people for over a dozen billion dollars[1]? And that's just a single example. The OP article also seems to be highly colored nostalgia. Really, a "market" with numerous "rules not written in any book that you adhered to, or else" is believed to be a paragon of efficient markets? I do believe it was a party in there, just not one that anyone but the most well connected and capitalized had any access to. [1] http://en.wikipedia.org/wiki/Bernard_Madoff http://en.wikipedia.org/wiki/Bernard_Madoff
- minimax 12y ago
  I do believe it was a party in there, just not one that anyone but the most well connected and capitalized had any access to. Except it was the exact opposite of that. The archetypal Chicago futures pit trader was a normal guy off the street, usually without a college degree, who managed to scrape together a few thousand dollars to cover the margin for a couple of contracts.
  - jsprogrammer 12y ago
    Were/are pit traders primarily trading their own money? My impression is that they were/are essentially hired guns for the big money on the other end of the phone.

nsxwolf 12y ago

My first real programming job was at the Chicago Board of Trade in 1999, just when the electronic trading initiatives were really taking off. But the floor was still totally packed, totally crazy, and completely inscrutable (to me). I'm glad I had the chance to see it.

wpietri 12y ago

Back in the mid-90s I did tech work for a Chicago financial trading firm. I ended up with one of those colorful coats so I could go down to the trading floor and swear at our computers there. (Tech note: there is still no good swear-over-IP protocol; some things apparently you have to do in person.) It was an amazing place, and I hope somebody collects all the colorful stories that result when you get so many adrenaline junkies together in one place. (E.g., the time somebody punched out a polar bear. Or the the trash bags full of money. Or the snow futures market.) But my guess is that the traders don't really mourn its loss as much as I will. When I was back in Chicago a couple years ago, the Merc had shut down their trading floor at 30 S. Wacker. I stopped in to ask the security guards if the traders missed it. "Those guys? Hah! No, they just left one day and never came back."

EC1 12y ago
I would LOVE if you wrote up a few stories, however long! Do you think you could?

barrkel 12y ago

LME is still keeping its trading pit for now. Had a tour round is, interesting if you get the chance.

IgorPartola 12y ago

Off topic: wow is that text-on-background unreadable...

noname123 12y ago

Great article. Writing has been on the wall for awhile, but sad nonetheless that open outcry is going away. Quick question, for ES futures, SPX options and other major option series that are operating on a hybrid model (electronic + open outcry?) How do the exchanges reconcile these? For instance, do open outcry trades have to follow NBBO; and what is the latency of an open outcry trade/bid/ask being broadcasted in quote feeds? Do people mostly still do open outcry to execute extremely large block orders? Finally, would the cease of open outcry affect membership pricing of CME?

minimax 12y ago
You are trying to fit the futures markets into the US equities model. Open outcry and Globex are two separate markets. Open outcry quotes don't show up on Globex. Traders in the pits have handheld devices that allow them view quotes and place orders on Globex. My understanding is that open outcry is still useful for options trading because it lets you do complex multi-legged trades "atomically." A broker can get together with a local (or several, if it's a big order), and sort out a single price for a trade that will involve multiple instruments.
- noname123 12y ago
  Thanks appreciate it! So sounds like then Globex and Open outcry are separate markets then although they are closely correlate as they trade the same asset but aren't obligated to reroute orders. As for options, AFAIK, CBOE and ICE already keep multi-legged books in electronic trading. For example, you can request for a multi-leg order via Interactive Brokers and it'll return a bid/ask spread that's the sum of all your ratio's/legs. When you execute, I think IB's SmartRouter does the magic to figure out which exchange to submit your order to (whether to submit it all to a multi-leg book or as single orders; but IB is on the hook to guarantee the complete execution of your order). On liquid options, hitting mid on your multi-leg has a decent chance of being executed. However options in general are not as liquid as equity, so happy that guys at CBOE/CME can still do open outcry.

Animats 12y ago

Next, the NYSE floor will close. It may take a few more years, because NYSE management views it as a useful tourist attraction and publicity operation.[1] But Dow Jones announced a few months ago that they will no longer run pictures of the trading floor. Even the webcam feed seems to have been shut down. There are still people going there, but they're mostly using computers, not live trading. It's more of a big co-working space now. http://www.crainsnewyork.com/article/20140602/FINANCE/306019986/nyse-chief-wants-to-bring-back-trading-floor-action http://www.crainsnewyork.com/article/20140602/FINANCE/306019...