I thought this would be an interesting way to show a lot of the friends I've made over the years here on GCA just what it is that I do when I'm not out studying golf course architecture:
Cheers!!
(btw there is a photo that accompanied it, but I am not computer-literate to post it)
http://www.dailyherald.com/search/searchstory.asp?id=285695 Digital age silencing a growing number of Chicagotraders
BY ROBERT MCCOPPIN
Posted Tuesday, February 27, 2007
Like in the good old days, Paul Richards was yelling.With the electronic trading system down at the Chicago Board of Trade, Richards and his fellow traders were forced to conduct business the old-fashioned way - by hollering, waving and flashing hand signals.
Anyone who wanted to make a deal had to go through Richards and others on the trading floor.
"After yelling for 45 minutes," he said, "it was like, 'Wow! I don't have any voice left.'"
Once the electronic system got up and running again, trading returned to the electronic monitors, and the floor went quiet again, except for the hollow clicking of keyboards.
Paul Richards keeps busy electronic trading now that
action has dwindled on the financial floor at the
Chicago Board of Trade. (Mark Welsh/Daily Herald)
This year, as the Chicago Mercantile Exchange merges with the Board of Trade, efforts are being made to salvage open outcry. But the transition to electronic trading is expected to continue unabated.
Richards of Western Springs is part of a generation of traders who learned their craft in the controlled chaos of the world's largest open outcry pit, and now must learn a new way or be run out of the business.
In the process, they're losing a culture that has imposed a distinct Chicago flavor on the international futures markets for more than a century.
Now, big banks and computer programs are controlling markets that once were run by guys in jogging shoes and canary yellow jackets who in some cases lacked even a college degree.
Instead of traders on the floor reading each others' expressions or picking up on body language, they now peer into electronic monitors, their faces bathed by the flow of glowing digits.
Like many workers being phased out by the tech revolution, the traders are fighting to maintain both a way of business and a way of life.
The tipping point came in 2000, after a new electronic trading exchange stole so much business from the open outcry trading pit in London, the floor shut down for good.
"My biggest customer told me the next day, you're gonna be out of a job," Richards remembered. "The fact is, there've been a lot of naysayers, and we're still around."
Peer into the futures
The financial futures trading room where Richards works is a cavernous, 60,000-square-foot box. Tiers of ascending desks and railings surround the trading pit. The room once held 8,000 people, a cauldron of activity. Now, it's largely empty.
Some exchanges have operated electronically for years, but the transition from face-to-face trading has surged in the past decade, leading to an explosion in trading and profits for financial exchanges.
Under the traditional open outcry system, traders buy and sell contracts for commodities like corn or beans through a flurry of simultaneous auctions in the trading pits.
To buy or sell on the floor, a customer makes a phone call to a clerk who writes down the order and hands it to a runner. The runner races to a broker on the floor, who calls out the order and signals to find a customer.
Time is of the essence, since the longer it takes from when the client placed the order, the more the price could change. A delay of seconds could cost tens of thousands of dollars.
That's one reason electronic trading is so appealing. Not only is it faster, but it allows clients to list the price they want and, in effect, get in line ahead of time for it. By trading themselves, investors cut out the middleman - the broker.
One advantage the trading floor offered was contact among brokers. By knowing when a big player like Cargill was going to deal a lot of product, a trader could anticipate price moves.
Or a trader might read the eagerness or nervousness of a competitor, and bet accordingly, as in a poker game.
All that is lost on the electronic trading boards. Not only are the traders faceless, they are nameless; the offers are anonymous.
Yet more business moves to electronic trading every day. By now, about three out of four trades are conducted electronically.
Some products, like bonds, are traded almost entirely electronically, while more complex instruments, like options, remain traded primarily face-to-face.
While the Board of Trade remained committed to open outcry trading into the 1990s, its rival spin-off, the Chicago Mercantile Exchange, took the lead in electronic trading and in selling stock publicly.
Last year, the Mercantile Exchange agreed to buy into and merge with the Board of Trade for $8 billion.
If approved by federal regulators, the Merc will move its open outcry traders onto the Board of Trade floor. At the same time, the Board of Trade will transition its electronic trading onto the Merc platform.
The merger will force together two rivals whose differences broker and trade writer John Lothian has likened to the split between Sox and Cubs fans.
Culture clash
The Board of Trade has long been populated by ethnic city kids, often Irish or Italian, who worked their way up from the bottom. The board was controlled by its members, and you had to know someone to get started there.
The Mercantile Exchange, while still clubby, comes across as more corporate. Unlike the Board of Trade, which lets members wear colors to represent their firms, the Merc mandates clerks to wear yellow and runners to wear blue. It even provides maroon jackets to members and cleans and presses them.
Unlike the Board of Trade, the Merc uses video cameras to monitor its members, and X-rays bags for security.
Yet Board of Trade members like John DeMartino of St. Charles, who started as a runner and directs customer trading for Penson GHCO, think the merger will help both exchanges face the future.
On a recent tour of the Board of Trade, DeMartino winced from a twisted knee as he returned to the trading floor where he'd worked for years, before moving upstairs to transition to electronic trading.
Old friends called out greetings as DeMartino limped across the commodities floor, still buzzing with activity because it's just begun the transition to e-trading.
"I love this," he said. "I like to show people this because it's going away fast."
But he's glad he doesn't have to jostle for position in the pits anymore.
"It definitely used to be a contact sport," he said. "I would have needed a whole lot of medication for my knee."
Five years ago, DeMartino's firm had a dozen employees working the bond floor. Now the firm has closed its desks and transferred workers to electronic trading.
Instead of a member spending an entire career standing in the corn pit trading the same product, electronic trading requires brokers to trade commodities like silver, gold and grains all at once.
"It's a whole different generation of traders coming into the marketplace," DeMartino said.
So is that good or bad?
"Anything that promotes transparency and efficiency is good for the marketplace," he said. "It's not so good for the trader ... You either adapt or you die."
Trading places
On the trading floor, members crowd close enough together to tell that the guy next to him just had pretzels for breakfast. Runners bounce off each other without even noticing. Traders wear jogging shoes to ease the strain of being on their feet all day - or steel-toed shoes to keep their toes from getting crushed.
Open outcry puts a premium on traders who can get a broker's attention. The guys - and traders are almost always men - who stand out from the crowd with a booming voice, eye-catching motions and manic energy have a better chance of getting deals done.
Yet some of the smallest guys on the floor do some of the most business, because they've built up trust and a reputation for handling big deals.
Tom Cashman, an independent Chicago trader, says he's seeing a "Wal-Martization" of the market, where bigger players replace the individual entrepreneurs.
Investment firms handling big clients now have inside information that only traders on the floor used to have. Their position has helped produce record bonuses like the recent $16 billion at Goldman Sachs.
"Before, if I was honest and hard-working and paid attention, I could really do well down here," Cashman said. "Now, that's not necessarily enough."
Cashman's job in the pit just isn't as lucrative as it once was, which is why he's made the switch to electronic trading.
Many old-time traders have resorted to taking classes in e-trading. People not willing to learn have been forced out of the business.
"It's difficult, but I'm willing to teach an old dog a new trick," Cashman said. "You can see the writing on the wall."
rmccoppin@dailyherald.com
2006 Daily Herald, Paddock Publications, Inc.