Game stays the same, only the players change

Stock market bucketshop trading ticket from 1901

I don’t write much about the equities markets, mainly because I don’t participate in them and have a lack of interest. The recent squeeze in GME and other stocks did remind me of the above relic from my collection of the famous Panic of 1901. The trading ticket is from the St. Louis branch of the Central Stock & Grain Exchange of Chicago, which was a famous bucketshop of it’s day, and it represents a lot of similarities of the recent frenzy in stock trading.

A lot of speculative manias come down to what I regard simply as distribution of access, although the current buzzword used is “democratization” of the markets with Robin Hood or similar trading apps. Whether it’s crypto or commission free stock trading, the barrier to entry is nonexistent which can be a good thing or a bad thing but history suggests that for the majority, it’ll be a money losing endeavor to get caught up in.

Bucketshops required little to no minimums, gave easy margin access and weren’t subject to many regulatory requirements either (sound familiar?). To get in on the action just required cash on the barrelhead. Trading apps now have a little more restrictions compared to bucketshops of the 19th century, but have added gamification features which are the envy of any casino operator.

All that said, it’s not surprising that this rare bucketshop relic is from the trading frenzy in 1901 as the panic involved the greatest short squeeze seen up to that point in Northern Pacific railroad stock which sent it up 10x in May of 1901. The Global Financial Data blog has a detailed summary linked here about the squeeze in Northern Pacific and I’d suggest reading it for additional background, particularly how the squeeze was eventually diffused.

The bucketshop trading ticket pictured is for shares of Union Pacific which were caught up in the squeeze for Northern Pacific and as might be expected, the purchase was closed out at a loss a few days later as noted on the back of the card. Trading is an incredibly tough game that people don’t realize when so many others are seemingly making easy money. I had the benefit of learning a lot by osmosis on various trading floors and heard a lot of “sayings” which I didn’t really understand the meaning at the time, but eventually the wisdom was understood. Two of my favorite trading floor sayings to share, “the amateur looks for the greatest reward and the professional looks for the least amount of risk” and “there’s old traders and bold traders, but no old, bold traders.”

Jesse Livermore was probably the most famous bucketshop trader of the same era, even operating from St. Louis briefly, and his fictionalized story is told in Reminisces of a Stock Operator. Livermore’s account is worth reading to hear how he traded during the 1901 panic, did most of things right but still managed to lose all his money and go broke once again. That boom/bust trading cycle continued his entire life until he ended it with suicide in a New York hotel cloakroom. I should also note that many RobinHood traders are probably already familiar with the work of Livermore’s granddaughter.

As for the Central Stock & Grain Exchange of Chicago, it was most famous for it’s battle with the Chicago Board of Trade over market quotations after the CBOT had cut off providing market pricing to bucket shops. I believe that the Central Stock & Grain Exchange of Chicago was the last bucketshop to maintain a quote feed from the CBOT, using legal means that eventually went all the way to the Supreme Court.

I have no idea where this current trading mania leads to although it’s gotten far more bizarre that I could’ve imagined already. During the height of the Robin Hood restrictions on GME, I finished a Sunday lunch in Palo Alto and figured I’d drive by Robin Hood HQ in Menlo Park on the way back to the City just to see if anyone was protesting. As it turned out, I saw one lone protestor outside of Robin Hood’s HQ, a man in his 20s, dressed in a Jesus style biblical shepherd outfit and holding a sign stating “God hates market manipulators.” I didn’t have my phone on me, otherwise I’d post up a photo of the guy.

Kansas City Board of Trade documentary from 2006

I transferred this documentary onto youtube from a DVD the Kansas City Board of Trade offered after it was produced in 2006. The documentary was produced as part of what appears to be a PBS affiliated series called Voices of Vision, showing both the speculative and producer perspectives on the hard red winter wheat contract which was traded in the pits at the KCBT.

In 1998, I got my first look at a trading pit from the visitors gallery at the KCBT and instantly knew that it was all I ever wanted to do in life. Shortly after that first look at 18, I got a job as a pit reporter and blew off my plans to go to university a couple months later. As you can understand with the profiles and interviews, it was a very inviting atmosphere for a young guy to be introduced to the futures industry. A lot of great memories come back whenever I see pictures or videos of the KCBT floor!

I might as well repost the video of the final trading bell I took as well there.

1993 CBOT video

I finally got around to converting this sixteen minute 1993 CBOT promotional video from cassette, about futures markets and the trading floor. In particular, I think this video is great with how it leads with the professional perspective of a top step bean local, who has none of the amateurish bravado, but shares his perspective of how serious things are for a local and how a career can be ended in a single day.

1865 CBOT building Inaugural Banquet program

1865 Inaugural Banquet of CBOT building reception program, shared from my personal collection

As anyone who has been a part of the trading floor environment knows, there ain’t no party like a Chicago trader party, and that’s rang true going back to the origins of trading in the city. The CBOT and it’s members were quite flush just months after the end of the Civil War, and offered this luxurious banquet to open up the new 1865 building, their first permanent home within the Chamber of Commerce building.

I love any Chicago collectibles preceding the 1871 Chicago fire, but especially CBOT items as they’re pretty rare. In a prior post, I touched upon the fire as it related to the CBOT, burnt down the above building, and shared a members ticket in my collection from that year. Although I have other opening items for the subsequent CBOT buildings, the only similar item I’ve seen to commemorate the opening of a preceding CBOT building is either at the Chicago History Museum or the Chicago Public Library, can’t recall where I saw it.

4

Course of the Exchange – John Castaing

It’s been a long while since I’ve been back on here to pontificate and curate, largely because I’ve been so busy, I barely have time to wipe my ass. This trading lull ahead of the election and wanting to clear a lot of stuff that’s been backed up ahead of an upcoming project, is giving enough of a push to post up some stuff I’ve had around….

Course of the Exchange, December 31 ,1708 edition from my personal collection

Update: One interesting thing after this post was published was that there were many references to 2020 representing the “UK’s worst recession in 300 years.” The December 1708 editions of Course of the Exchange I have, lead into that period of the Great Frost of 1709, which was the coldest European Winter of the last 500 years according to Wikipedia. Makes it even more remarkable to have these in my collection!

Beginning in 1698, Huguenot stockbroker John Castaing began publication of Course of the Exchange, and other Things, from Jonathan’s Coffee House on Exchange Alley in the City of London. Jonathan’s is largely regarded as the precursor to what became the London Stock Exchange as it, and other nearby coffeehouses, were a centralized gathering place for brokers and speculators to transact or share information. An excellent background article on the London coffeehouses of the 17th and 18th century is: The Lost World of the London Coffeehouse by Dr. Matthew Green. Also, this sample chapter in PDF form from The First Crash: Lessons from the South Sea Bubble is also recommended background reading.

Plaque marking where Jonathan’s Coffee House once stood on Change Alley in the City of London, personal photo

Castaing’s Course of the Exchange was not the first financial list published, but it was quickly taken to be the authoritative source on pricing due to it’s accuracy and consistency. Since it’s founding in 1698, Course was published twice a week on Tuesdays and Fridays as those were the days that foreign mail was dispatched from London. As a result, Course is the also notable to have been the first English business paper to be published more than once a week. I don’t think it’s a stretch to say that Castaing created the world’s first reliable financial data provider and the increased frequency of publication was the first step in latency reduction which now measured in nanoseconds (billionths of a second).

Four sheets of Course of the Exchange from my personal collection, 1708, 1776, 1777 and 1803

Even after Castaing’s passing in 1707, the format of Course remained very consistent by listing price information with the same format on one side of a single sheet. As the sheet was printed bi weekly, the edition number for that year is listed at the top of each page. There isn’t much broadly written on what Castaing created but one blogger noted that his ties to the Huguenot community was instrumental to the accuracy and following among the London business community.

I have an extensive collection of trading floor memorabilia of all types, but these pieces are some of my favorites across my collection. If anyone is aware of other pieces in a personal collection, please email me. From my research the largest original collection is at Guildhall Library in London (also the site of LIFFE trader statue, atleast on my last visit), followed by the Bodleian Library Oxford, British Library, a handful of single pieces at a few American Universities and of course these at Chez Carlson. With my December 1708 batch, which I obtained from one of the most prolific financial history collectors, I still am a bit in awe to have something that was created when Benjamin Franklin was a toddler (the only American reference point I could think of to show how old it is!). I also think it’s really interesting to look over the price changes, or lack there of, from the 1776 and 1777 sheets during the American Revolutionary War. Clearly the 1776 and 1777 sheets were posted on a nail, also a nice touch I like for the utilitarian use.

Photo I took on last visit to Tate Modern of 1847 Edward Matthew Ward painting, The South Sea Bubble, a Scene in ‘Change Alley in 1720

It’s hard to imagine the early 1700s when stocks were traded in coffeeshops although an excellent illustration of early share trading, particularly during the South Sea Company bubble of 300 years ago, is on display at Tate Modern Museum in London. Edward Matthew Ward’s 1847 painting, The South Sea Bubble, a Scene in ‘Change Alley in 1720, depicts the mania and street scene on Change Alley outside of Garraway’s Coffee House, where Castaing published Course of the Exchange after moving on from Jonathan’s Coffee House originally. There’s a lot of interesting details to the painting so I suggest viewing it in person next opportunity in London. There is no direct reference to Course of the Exchange in the painting but I’ll share some photos of some details that I found interesting in it below.

Writing on the torn paper has the words “hemp” “and flax” “capital” “million” “100”
The note on the door states, “The business of the owner is suspended from unavoidable circumstances.” Clearly the gentlemen on the left are surprised at that while the man consoled by a woman is having reality sink in of losses. There is also a chalk hangman drawn on the door.
Centered in the scene are some new speculators who are eagerly looking to get aboard a new issue. The pamplhet that is being read only has the legible words “Perpetual Motion – Capital One Million.”
The shrewdest looking person is the gentleman at the table who looks like he’s awaiting on other’s decisions to close a deal. To have a table setup in that scene makes it clear that he is The Man and also surrounded by others who know what they’re doing. The shady people behind him made me immediately think of some MFers in the eurodollar pit.
I’m not sure exactly what’s going on in this section but the couple in the lower left appear tapped out and likely tore up the paper certificate in front of them. Behind is a pawnbroker that likely provided liquidity for share purchases and a woman appears to either pawning some jewelry or getting some mystical advice.
Beneath the man at the table is a basket full of paper clippings, none appear specifically to be Course of the Exchange but would’ve likely have been if truly accurate.

LIFFE badges

LIFFE badges
LIFFE badge collection

Just a quick post as it’s been a while, the above photo is my collection of LIFFE badges that were distributed on the floor to commemorate a product launch or benchmark attained. There are probably a dozen badges that I know I don’t have but they’re for minor products generally and this is certainly one of the more, if not the most complete, collection out there. If you happen to have any which aren’t shown, please email me (tradingpithistory ‘at’ gmail.com) as I’d love to expand this collection.

In the US we refer to these as pinback buttons but apparently in the UK they’re called badges. Of the ones shown, the most notable are side by side in the middle right, the Bund futures launch and the FT-SE 100 futures. My favorite just for appearance is probably the mosaic pattered BTP futures launch badge from 1991. Any mention of that contract reminds me of a comment a friend once made of it that LIFFE’s BTP pit was more corrupt than Sicily.

My collection of CME and CBOT buttons was expanded quite a bit since I last took a photo of them and at some point I’ll have to do another photo. Next up, hopefully later this week, is another post I’ll have to do that’s also London related, regarding one of my most favorite and historic items in my collection of trading floor stuff.

1

Bag of bucks

grocery bag
Bag of bucks

The bag of bucks was something that really epitomized the trading floor as it was the type of thing that could only be thought up there. I can only speak to my observation of it a couple times on the CME floor in the equity index quadrant, as a clerk around the S&P pit in 1999 and 2000, but have to imagine it occurred also at the CBOT and elsewhere more frequently at the CME before I got there.

Like anything with the trading floor, it’s concept was very simple. The person running it would walk around the trading floor and announce that they were starting a bag of bucks later on and specify some additional details like if it was for $20 bills or $100 bills and if a single bag for everyone or if there’d be a second bag that was for clerks only. In those days, clearing firms had a fair amount of cash on hand which could be withdrawn from a trading account so the sums could escalate easily to five figures. To participate, all it took was to write your name or badge on the bills and drop them into the bag, unlimited. Once the collection was complete, the bag would be shaken a bit to mix it up then someone would get the honor of pulling a single bill from the bag and whoever’s name/badge was on that bill won the entire bag of bucks. Tipping out a cut to the person who organized it was the only vig.

Although the bag of bucks encapsulated the spirit of the trading floor, it also juxtaposed the function of the trading pits. Since the bag of bucks was a closed activity funded only by participants on the trading floor, it was essentially shuffling money around in a lottery style, zero sum game. The trading pits required outside order flow to trade against and as I’ve written before, locals wanted to trade with brokers filling outside orders rather than profit off other locals. Another thing was for all the billions in notional value that exchanged in the trading pits, none was done in tangible cash. Good traders always had an edge to base decisions on and the bag of bucks was a pure gamble, albeit a simple one for entertainment more than anything. It also wasn’t necessarily verboten to speak in terms of dollar amounts but rather than talk dollars, traders generally speak in terms of “ticks” when discussing money on the floor.

Obviously, the CME couldn’t condone the bag of bucks so it had to be done a little quietly. There were other activities like Super Bowl square pools or making markets in sports events which can be found in any workplace but the bag of bucks was unique to the trading floor. Before my time at the Merc, I also heard that when an adjacent street was closed, some fat guys from the floor were organized to race each other. Betting on fat guys racing is also something I can’t imagine happening anywhere other than at the Chicago Merc.