What will the future of the Chicago Board of Trade hold?
In the heyday of the Chicago Board of Trade, days were filled with traders in an orchestrated rainbow of jackets jockeying for a position in maxed-out pits. Open outcry was observed with loud screams and a tidal wave of energy.
"It was the wild, Wild West," says Gregg Hunt, commodity broker for Archer Financial Services, who moved to Chicago in 1984. "It was the modern-day Gold Rush. You had guys trading from all walks of life and endless ‘rags-to-riches’ stories."
Now when you watch the open or close from the viewing floor, they actually have to pipe in yelling and noise to force an environment of excitement. When the Chicago Board of Trade opened in 1848 as the world’s first futures exchange, all trading was done in the building. For the next 140-plus years, traders had to stand face-to-face, using complex hand signals to buy or sell contracts.
During the 1990s, electronic futures trading launched, causing a dramatic shift in how trading is done. Today, the vast majority (more than 80%) of trading through the Chicago Mercantile Exchange, which merged with the Chicago Board of Trade in 2007, is done electronically.
Of that huge portion, at least half of electronic trading is done by computers that have no idea what they are trading, says Tommy Grisafi, president of Trade the Farm. "When electronic trading started, the human element was affected," says Grisafi, who started at CBOT and CME in 1990. "But, when electronic trading started, there were tons of offices of humans trading electronically. Now even those offices have closed, as algorithms have replaced humans."
Hunt says trading is a totally different world. "Today, accountants pretty much run the show," Hunt explains. Before, when traders were crammed onto the floor, he says, you could just listen for a surge in noise. "When you heard more noise, you knew something was going on," Hunt shares. "That is how you gauged the market."
Now anyone can trade anywhere, as long as they have a strong Internet connection. Grisafi believes those on the floor are at a disadvantage when it comes to market information.
"I’m at home in front of eight computer screens, three TV screens, Twitter, Reuters, Bloomberg, etc.," he says. "I can see the whole world."
Grisafi says electronic trading has given farmers the opportunity to become their own brokers. "In the old days, someone called a broker and that broker wrote an order, which was sent to the pit," he explains. "Now you can open your laptop and sell contracts. A lot of people still use a broker, but it’s not a requirement."
The only reason traders are in the pit today is because of the complexity of the options market, Grisafi says. "Front-month futures are easy to replicate on a trading screen," he says. "The options market is still very pit-dominated and more difficult to trade electronically."
Hunt and Grisafi agree that the physical location of the Chicago Board of Trade will become less important as time passes. Grisafi says farmers should accept and adjust to this shift in the markets.
"Farmers always complain that the guys in Chicago are screwing them," Grisafi says. "Well, there
are no guys in Chicago anymore. The Board of Trade can now be at your house."
Did You Know?
- The Chicago Board of Trade has been an icon for more than 160 years in the Windy City. Here are some fun facts about the CBOT:
- The CBOT was established in 1848, making it the world’s oldest futures and options exchange.
- Since 1930, the CBOT has been operating out of its current building, which is 605 feet tall and displays art deco architecture and artwork.
- A sculpture of the Roman goddess of agriculture and grain, Ceres, caps the top of the building. The sculptor, John Storrs, left her faceless because he believed that the 45-story building would be significantly taller than any other nearby structure, so no one would be able to see the sculpture’s face.
- More than 80% of all trades at CME Group take place electronically.
- Nearly all CME Group products trade electronically almost 24 hours every trading day.
- The octagonal trading pit was installed in 1870 to create order in the often-chaotic trading environment. By organizing traders on sides and steps, this simple yet vital innovation facilitates easy communication through clear sightlines.
Milestones for the Chicago Board of Trade
Originally formed as a centralized location for buyers and sellers to negotiate, the Chicago Board of Trade has a dynamic and unique history. Here are a few of the highlights.
1848: CBOT founded
1851: CBOT offers earliest forward contract, which was for 3,000 bu. of corn
1898: CME founded as Chicago Butter and Egg Board
1936: CBOT launches soybean contract
1969: CBOT begins trading its first non-agricultural product with a silver futures contract
1982: CBOT introduces first options on futures contract
1987: CME pioneers electronic futures trading via the CME Globex platform
2006: CBOT launches electronic ag futures trading
2007: CME and CBOT merge
2008: CME completes acquisition of New York Mercantile Exchange
2012: CME Group acquires Kansas City Board of Trade
To see a photo gallery of Tomorrow’s Top Producer attendees at the Chicago Board of Trade, visit www.TopProducer-Online.com/CBOT.
- March 2014