Turn Out the Lights.

An era will end this summer.  On Thursday, the CME Group announced that it would close most floor-based trading of futures in Chicago and New York.  I found a fitting requiem to this institution yesterday.  Go read this article by a fellow named Craig Pirrong, "Turn Out the Lights, The Party's Over."  Mr. Pirrong, who evidently spent some time down in the pits, does a pretty good job of describing what did in the Open Outcry" system.  {Hint: it was the machines!}  He also does a decent summation of what life was like down there for the traders who stood all day trying to scratch out a living.

"The floor was an amazing place. (Even though the floors will remain open until July, the past tense is appropriate in that sentence.) A seemingly chaotic place full of shouting and gesticulating men (and yes, it was an overwhelmingly male place). Despite the chaos, it was an extraordinarily efficient way to buy and sell futures. In the bond pit in the 80s and 90s, $100,000,000 notional could be bought in sold with a shout and a wave. Over and over and over.

The economics of the pits were fascinating, but the sociology was as well. They were truly little societies. There were the exchange rules that were in the book, and there were the rules not written in any book that you adhered to, or else. Face-to-face interactions day after day over periods of years created a unique dynamic and a unique culture with its own norms and hierarchies and rituals. And soon it will be but a memory."

I don't think any movie or any particular part of the entertainment industry ever adequately gave a feel for what it was like down there.  "Trading Places" comes close showing the commodities pits at the old Philadelphia exchanges, but as far as I know that's it.  {Start watching about the one minute mark to see the floor action.}

I never worked on those floors but I know a lot of men who did.  Even back in the day it was mostly a young person's world and as Mr. Pirrong noted, mostly male.  You didn't see a lot of floor traders over 40.  The constant pummeling these guys took down there  became too physically demanding.  A lot of those traders had been high school or college athletes.  As a rule they were tall, muscular and not afraid to get in your face if they felt they'd been screwed.  I once saw two traders have at it in the bar of the Union League Club in Chicago over what one fellow thought was the other walking away from a what I assume was a losing trade.  The floors were rough and tumble.  They were perhaps the last place in the investment world where a trader's word was his bond.  I know they were the last place in the financial world where young men who decided college wasn't for them could still go to the exchanges and if they had the moxy and the trading savvy could make fortunes.  I knew guys back in the day, in their 30's making a million dollars a year.  Now they and the places they traded are going.  They will soon be a memory of Chicago's past and in many ways we here will be the worse for their passing.