Chicago Mercantile Exchange demutualization packet from 1999

 

Scanned below is an original packet given to members on November 2, 1999 from the CME which outlines the proposed demutualization of the exchange into a publicly traded company. Because I started as a clerk the day prior, there isn’t a whole lot I can add, but it’s interesting to read of how the CME embarked into the process and transformed into a NYSE listing.

I tried to embed it from Scribd but it’s not working and I’m not gonna keep trying to figure it out so here is the link to the Scribd upload:

Chicago Mercantile Exchange demutualization packet from 1999

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Summer trading

LIFFE trading floor

LIFFE trading floor at the Royal Exchange, photo credit: http://www.theroyalexchange.co.uk/heritage/

It’s been a long while since my last post and apologies for the lack of posts for almost a year at this point.  Trading the volatility of the Trump victory, combined with my daughter being such an energetic toddler, a few other serious hobbies, lots of travel and the never ending tinkering with trading software just didn’t leave me enough mental bandwidth to do a whole lot of the trading pit history stuff.   But I’m starting to warm back up to getting some posts going again over time cause there’s still a lot of trading pit related history which needs to be shared!

I’ve been meaning to post the above photo of the LIFFE trading floor at the Royal Exchange in 1991 because it really captures the mood of summer trading with nothing going on in the markets.   Enlarge the photo and you can see that not one trade is happening in the middle of the day (Tuesday, August 20th, 1991 at 1:44PM) and even though the trading pits are often over sensationalized with chaos, a lot of the sessions consisted of mostly standing around joking or silently contemplating one’s trading position.  What I assume to be an unintended juxtaposition, the photographer captured the normally raucous trading floor at one of the slowest times of the year as it was after the Asian session closed, also after the London lunch break, before the US bond market open and most importantly at the height of summer holidays which leads to a seasonal nadir of volumes.

While I can attest to never really understanding most art, this photo is one of my personal favorites because it gives a very candid perspective on what the trading floor was often really like and it’s possible to isolate the individuals throughout the broad trading floor population.  In particular, because there wasn’t anything really trading at the moment, I appreciate that the photo allowed the perspective of how the individuals interact or stay within their own thoughts while awaiting the next bit of activity.  As a comparison, Gursky really minimized the individual in all his (vastly overrated, imho) exchange photos to emphasize the scale of the trading floor instead.

BBC news clip on LIFFE move from Royal Exchange to Cannon Bridge


Above is a couple minute clip from the BBC which was recently uploaded about LIFFE’s shift from the Royal Exchange to it’s larger trading floor at Cannon Bridge in late 1991.  Every time I visit London, I always walk through the Royal Exchange and it’s hard to believe that it was once home to trading pits but like the rest of the industry, adapted by transformation into optimal use, in it’s case a retail development.  Towards the end of the clip, there is mention of “Essex Man” which, as an American I had to have explained to me in the past, and the closest American equivalent I’d compare it to would be someone from New Jersey.

Must Watch: For Cryin’ Out Loud

Occasionally I come across a treasure trove of media from the golden era of open outcry trading and this collection of raw footage from Media Burn’s independent video archive is not to be missed!!! It appears that all the raw footage was shot for a local Chicago show hosted by Studs Terkel, Chicago Slices, although a polished edit for some of the footage of the old CBOT bond room in 1993 focusing on hand signals is entitled For Cryin’ Out Loud:

The old bond room at the CBOT was before my era so the raw video atleast gave me a sense of how incredibly crowded it was and the raw footage was like walking onto the trading floor again.  Anyone who did work in the old CBOT bond room will certainly love these videos because it’ll place them right back in there 23 years ago.

CBOT Treasury bond trading

CBOT old bond room 1993

I can’t embed the primary clip which the above screengrab came from but the link to the hour long raw footage is linked here.  This particular clip starts off on the streets of Chicago and then transitions from the trading floor turnstiles to walking on the floor and observing w/a little narration by an exchange member.

Treasury bond futures

CBOT bond room 1993

A second batch of raw footage starts in the morning of a desk broker for his commute to the CBOT where he describes the floor and then shows footage of the trading floor.  This clip also can’t be embedded so the link for it is here and the footage for the CBOT section starts around the 25:00 minute mark.

CBOT Treasury bond floor 1993

CBOT bonds 1993

In this batch of raw footage was also an hour long clip of the CME upper trading floor with tour and commentary from a member who I’d suspect to be Steve Urkel‘s dad.  Once again, it’s not possible to embed the clip but you can click the link for it here.

CME currency futures 1993

CME currency clerks 1993

 

 

 

Futures Past movie trailer

The movie trailer for Futures Past has just been released and it looks to be full of great trading floor footage of the CME at both the legacy Merc trading floor and the subsequent CBOT bond room which housed the combined exchange starting in 2008.  It appears to have a dual focus on the automation of futures trading along with the relationship of industry titan Leo Melamed and his son, who is also the film’s director.  Over the next couple weeks, the film is being screened a few times at the Chicago Film Festival and you can see the schedule listed for that here.  Details on further distribution don’t appear to be available at the moment but hopefully I can be back in Chicago to take in one screening while it’s on the big screen.

Last Trade in Toronto

Last Trade Toronto Stock Exchange

The Last Trade by John William Yee

I was recently (out for a rip) in Toronto so it was a good opportunity to bring along and finally read The Last Trade by John William Yee which profiled a few dozen people who worked on the floor of the Toronto Stock Exchange in it’s waning days leading up to THE last trade in April 1997.  This book didn’t just focus on the market makers, brokers and assorted traders, but also captured the perspectives of various support staff such as key punchers, clerks and even the guy who swept the floor.  The Last Trade rarely has interviews of significant depth but the book chronicles the broad perspective of various human elements across an entire trading floor as it approached full automation.

Until reading this book, I was unaware that a small futures trading pit of the Toronto Futures Exchange also shared the same floor as the Toronto Stock Exchange.  Previously, I believed that the only Canadian futures trading pits were in Montreal and Winnipeg.  As you might imagine, the futures guys who were interviewed in the book are an entirely different breed from the equity guys.

For all those who worked on the Toronto floor in that era, I don’t know what would bring back more nostalgia, the shared experience of the trading floor of the amazing Leafs team of the mid 90s.

 

 

 

An expensive square foot

sq ft

What was the intrinsic value of a prime location to stand in the CME’s eurodollar pit back in 1996?

 

Dr. Evil 1 Million Dollars

In reading through some old Crain’s stories, I came across the following article which is something I long heard of:

THE WORLD’S PRICIEST REAL ESTATE; MERC TRADER’S PIT SPACE SAID TO SELL FOR $1 MILLION  Crain’s Chicago Business – May 18, 1996 

Partial snip –

“Around the beginning of this year, Chicago Mercantile Exchange broker Mr. —— may have made real estate history.

Sources say Mr. —— sold his standing spot in the Merc’s Eurodollar pit-a slice of turf that measures just one square foot-to a fellow broker for $1 million.

Quite a sale. But such a deal is verboten at the Merc and other local financial exchanges.

Under the exchanges’ oft-quoted “free markets for free men” slogan, traders and brokers must earn a spot by muscling their way into a pit, then trading or filling enough orders to persuade neighboring traders to let them be.

While traders generally respect each other’s spots, nobody can officially “sell” their pit space.

Yet an informal market for Eurodollar pit space has existed for nearly three years, according to sources on and off the trading floor. This market appears to be an outgrowth of the increasing influence of organized broker groups that dominate the business of filling customer orders at the Merc.

No actual titles change hands, but sources say the rules of ownership are enforced by pit supervision committee members and upheld in appeals to the Merc’s board of directors.

“If you don’t set up a free market, an informal market crops up,” says Merton Miller, a Merc public director and professor emeritus at the University of Chicago’s Graduate School of Business.” /end snip

Granted this spot which changed hands, also assuming the order flow which came with it, was for a broker who was earning a dollar to fifty cents per contract executed and a subsequent Crain’s article noted that floor brokerage fees just in the eurodollar pit averaged about $275,000/day!    I’d venture to guess that figure represented about 20-25% of the total pit brokerage fees across both futures exchanges in Chicago and you can understand the broad economic impact which the trading pits had on the city when over a million/day was going towards brokers and clerks, not to mention what the exchange, institutional brokerages and locals were earning on top of that.

These articles were emerging during a heated division at the exchange by CME members who were trying to reverse the dominance of pit brokerage groups and the following week after this ‘real estate’ story was a line which made me LOL.

HAS FBI RETURNED TO PITS? Crain’s Chicago Business – May 25, 1996

Snip –

“It’s unlikely the feds have planted agents in the pits-as they did in the late 1980s, when an FBI sting led to charges of illegal trading at the Merc and the Chicago Board of Trade.

One reason: Both exchanges have beefed up membership screening-housecleaning that makes it harder for federal agents to pose as traders.”

LOL, having read in the book Under and Alone of how extensive fake backgrounds are created for agents, I’m sure that it wouldn’t have been an issue for the Feds to have gotten agents in again if they wanted.  The funniest part was how the writer made it sound like membership screenings were increased to detect any Feds.