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Half my life

KCBT futures trading pit

KCBT trading pit October 1987

This past week I had a personal anniversary which was worth celebrating, July 1st marked that I’ve spent exactly half my life in the futures industry since I began that day on the floor of the Kansas City Board of Trade in 1998.  Some might say that it means I haven’t had a real job my entire adult life and yes, that’s basically true, but having had plenty of real jobs as a teenager, it’s not a coincidence I’ve done my best to avoid one again.

My first day working at the KCBT, two memories stick out with the first recalling a huge, immediate grin the moment I set foot onto the trading floor.  As exciting as it was to watch the action from the viewing gallery, actually being on the floor had an electricity which was indescribable, comparable to being on the actual field of play at a sporting event rather than sitting in the stands.

The second memory from that day in 1998 was the floor had a buzz about it because one of the female clerks had her car blown up, literally blown up, the day prior in the parking lot across the street and in view from the two slim trading floor windows.  I thought to myself, the people in this business are nuts, and that still holds true today for the most part though bean counters are taking over.  There was never any specific word on the crime but I imagined it was a lit rag stuffed into the gas tank and the motive probably had something to do w/her sleeping around so I heard.   My first exposure to the trading pits was from reading The New Gatsbys and my initial observations were as manic as described in the book.

As fun and interesting it’s been to clerk for the first few years and trade for going on 15 years, 18 years in the industry isn’t much compared to legends like Lee Stern, who has been a CBOT member for 65 years and still trades.  Very few leave the trading business willingly and the appeal is best summed up by this quote by the late, long time CME member Barry Lind, “This place makes you old quickly and keeps you young forever.”  Each day still makes me feel like a mix between that 18 y/o kid back in July 1998 and Methuselah, but if all goes well I’ll still be trading in the year 2067 and can match Stern’s ongoing exchange membership streak.  Swiss 50yr bonds are already negative yield to that year so this interest rate trader will have to find another market to trade for the journey to keep going that long.

After the NYMEX close

Almost a year to the day that the Chicago futures pits closed, FT reporter Gregory Meyer wrote a great postmortem of the NYMEX trading floor and how the closure and electronic transition affected various participants.  Highly recommended to take the time to read it.   The article is paywalled so I’d also highly recommend a FT subscription if you don’t have one already.

For a little peek, my favorite line from the article:

“Money that once sluiced through the chokepoint that was the Nymex floor now spreads across a much broader area, enriching some and stranding others.”

What happened when the pit stopped – Financial Times July 6,2016

Hand signals of the Western Canadian sawmills

Sawmill

Canadian Sawmill (image credit forestryforum.com)

I try to rarely stray from the topic of trading pit hand signals and history but will make exception in this case to highlight an interesting article on hand signals used by Canadian sawmill workers.  These industrial hand signals are classified as an “alternate sign language” and like those used in the trading pit, originated for functional use but evolved much further to allow entire conversations.  The article notes that academic linguists recorded 157 signals used in the sawmills but that’s less than half the number of the signals I’ve cataloged for use in the trading pit.  Because the linguistic study is behind a paywall like most academic papers, I’ll continue to be in suspense on if there is a difference between signaling “drink some Timmy Horton’s” and “swig some Kokanee.”  Definetly check out the article at the following link:

The Lost Secret Sign Language of Sawmill Workers (Atlasobscura.com)

“In the 1970s, sawmill workers could talk about technical matters or insult each other in their own special sign language.”

h/t to Mike Nudelman for pointing the article out to me.

The Good, the Bad and the Ugly

Chicago Mercantile Exchange ad Final Frontier

CME Final Frontier advertisement

On rare occasions, some exchanges (mostly the Chicago Merc), embraced the spectacle which open outcry pit trading exhibited.  The above advertisement is one which the CME placed in a widely distributed Chicago’s visitor guide sometime in the late 1960s or early 1970s to encourage visitors to drop by the exchange’s visitors gallery and view the trading floor themselves.  As typical of the CME, they confidently worded it’s trading floor on a pedestal shared with the Adler Planetarium and the Chicago Art Institute, which continue to be some of the largest tourist draws to town.

One analogy of the Final Frontier themed advertisement was adding the facade of a Wild West frontier street in front of what was then the Merc building at Washington and Franklin Streets (now a vacant lot).  It’s an appropriate analogy as the trading floors were such a mix of The Good, the Bad and the Ugly or a more straightforward description: Some good guys, some crooks and some real desperados.  To further go w/the theme of the advertisement which was placed as the end of the Spaghetti Western craze, trading floors operated on a mix of the Code of the West and Omerta, though I won’t elaborate further which was the dominant influence.

The Good, the Bad and the Ugly

The Good, the Bad and the Ugly

Market Medic

CBOT paramedics

CBOT paramedics

Recent chaotic trading conditions in soybeans and interest rate futures, particularly on this past Friday, brought to mind that the CBOT had paramedics staffed who were actively called to the trading floor for assistance.   It says a lot about a work environment when paramedics are on the premises for almost daily medical emergencies!  The following snip from a Fortune article describes how much the medics were utilized and can only estimate that for every call they received, magnitudes more self medicated w/downing some of the legendary pours at the bar Ceres on the ground floor of the CBOT.

CBOT Gazes into the Pit (Fortune Magazine May 15, 2000)

“Not that there’s any risk of mistaking the floor of the CBOT for a convention of trust fund babies. The stereotypical trader hails from one of Chicago’s scrappier neighborhoods; he’s almost always male, typically of Irish or Italian descent, frequently an ex-jock, and exceedingly fond of the “F” word in its many forms–as noun, verb, adjective, adverb, interjection, punctuation, and term of endearment. Working conditions leave something to be desired as well. The pits are deafening, frequently hostile, and always stressful. Paramedics were called onto the floor 242 times last year–that’s about one emergency per trading day–and they carried 98 people off to the hospital who had suffered heart attacks, panic attacks, and accidental stabbings with the Bic ballpoints that are the floor trader’s favorite tool.”

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Potpourri

Jeopardy!

Potpourri Jeopardy!

The tv show Jeopardy! was and remains on at 3:30 CST each weekday, so watching it was how many a trading day was spent closing out the last 30 minutes of the Globex session back when I used to have the tv on.  Since there are a few odds and ends to mention which I don’t want to put into different posts, I’ll just use the catchall Jeopardy! category “Potpourri” to make mention of everything.  To keep w/the theme, I’ll come up with five listings since that’s what each vertical has on the show.

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A couple excellent resources for financial history is the International Bond & Share Society and the Museum of American Finance.  The IBSS focuses on scripophily, the collecting of stock certificates, and a few times a year the society puts out a great magazine entitled Scripophily, filled with stories of historical companies and stock or bond certificates.  *Update* – the IBSS recently updated their website and I’d encourage any readers of this website to also visit the new IBSS website, scripophily.org to learn of an additionally deep resource on financial history.   The MOAF is also quite broad to cover all aspects of economic history, in it’s NYC location on Wall Street and also puts out an interesting quarterly magazine entitled Financial History.  The most recent issue of Financial History is quite dry but throughout the year, a lot of enjoyable articles are included to justify a subscription.  Membership fees are $32/year for the IBSS and $50/year of the MOAF, small thing to a giant for all you Market Wizards.

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In regard to this site, a lot of it remains a work in progress w/some legacy stuff I have yet to transfer over from the old tradingpitblog.com site and also building out the Further Resources category which is particularly overdue.  Life in general and my many other hobbies have seemed to out-compete for focus and attention compared to this trading pit stuff but I also know that free time and energy will continue to dwindle, so if I put off these improvements much longer then they’ll be harder to finish.  At the beginning of the year I was able to visit the grave of a personal hero, Sir Richard F. Burton, and told myself that I still have to raise this project up to his standards.

The moment isn’t ready to pour resources into it now but I’d also like to establish bourseophily, which I’d roughly define as the study of financial bourses, the physical environs of these exchanges, the contracts/goods/equities traded and participants who transacted at the bourse.  Not sure if I’d ever have enough time to build out the framework as envisioned, but it’s fascinating to learn more of this subject in a more structured manner or just continuing to do so at leisure.

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sliders

White Castle sliders

Can’t mention Jeopardy! without a “Potent Potables” reference.  Trading is incredibly lean these days because no one makes unforced errors although in the days of the trading floor it certainly wasn’t the case.  I don’t typically include any stories that were told to me by others but will make an exception in this case, vaguely, since it showcased an extreme of someone who worked on the floor.

There was one conversation on the trading floor, well over a decade ago, with a clerk who was telling me what a mess the pit broker he worked for was.  On a regular basis, the broker, who held a large institutional deck, would go drinking from the market close until the bars closed.  Afterwards he’d pull up to the drive through at White Castle and bark out “gimme twenty dollars worth of food, I don’t care what” and after getting his food he’d park somewhere, eat what he could and then pass out for a few hours.  When the sun would rise, so would he and on the drive downtown to the exchange he’d toss the White Castle leftovers on the front of his dashboard and crank the heat to warm up the remaining sliders as his breakfast, gross.

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Last week in SF, I went to a local bookstore to listen to an author event with Mary Pilon speaking of her excellent NYT best seller The Monopolists and Mark Braude speak on his new release Making Monte Carlo.  To hear authors share the story of their writing, process and book subject matter was a great way to spend an hour, certainly the type of thing I plan to do more often.

I first came familiar w/the work of Ms. Pilon when the WSJ ran a profile she authored on the trading pit hand signal preservation this website focuses on.  Because I believe self promotion to be bad juju for actual trading, in the five and a half years since the article ran in the WSJ, I actually never even mentioned it on this site or linked it.  However enough time has passed that I think it’s ok to put it here incase anyone is interested further in the backstory of how this all came about:

Trader Keeps Hands in History WSJ July 10, 2010

One positive result from the article was a lot of hand signal submissions which came about due to the exposure.  Additionally, it was also educational to learn of the media cycle and how a story in a global publication like the WSJ is picked up in so many regional outlets worldwide and rewritten as if the regional author originated the story.  The only change I’d make to the article would have been to inserted the word “American” before “citizens tour to North Korea,” perhaps it was cut to fit the print properly.

At the authors event I walked out with the new paperback copy of The Monopolists and a hardback of Making Monte Carlo which I spent the weekend reading.  The most intriguing character of the book was the man who was the driving force behind developing Monte Carlo as a gaming resort, Francois Blanc.  Early in the book, Mr. Blanc is described to have developed a scheme to get an informational edge in the Parisian bond market for which he eventually faced court charges for.  In his 1837 testimony which remains just as true today, Mr. Blanc stated that, “If you want to play on the Exchange you must keep up your guard, because there you will only meet two kinds of people, the cunning and the easily duped, and if you don’t want to be a dupe then you had better be cunning.”

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best surfer

The best surfer out there is the one having the most fun

I’m short on a fifth entry so will just post up a great piece of art that I enjoy seeing a couple times a day when going to get coffee at my usual coffeeshop in SF.  “The best surfer out there is the one having the most fun.”  I’d consider the best trader the same way, not based on P/L, AUM or anything of that sort but how much fun they have enjoying it which is a sharp juxtaposition to how the entire financial industry operates.  While winning trades are the biggest part of having fun in trading, it’s certainly not the only component and imagine others who started out on the trading floor would tend to agree.  Now that I think of it, there’s a friend of mine whose mnemonic on LIFFE was actually FUN so I’ll have to pass this photo his way.

Greatest futures broker in history (from a client perspective)

I was recently thrilled to get the business card of who can be considered one of, if not the greatest execution broker in the history of the futures trading industry….Nick Leeson of Baring Futures (Singapore) Pte Ltd.

Nick Leeson Barings

Nick Leeson Barings Bank business card

A lot of people would be puzzled for me to bestow that title upon a man who was known for rogue trading, however to his clients, Leeson was providing amazing fill prices on a regular basis, especially in futures and option spreads.  Of course the reason why this was possible is because he would often leg spreads and if the price was favorable to the client, he would proudly pass the good fill to them whereas if he was caught on a leg, that trade would get buried in the Barings 88888 error account.   Such subsidies to customers were estimated by FT journalists, Nick Denton (yes the Gawker founder) and John Gapper in their book All That Glitters, to have comprised tens of millions of GBP over a couple years.

It’s understandable why Leeson was under pressure to provide the best execution prices possible to his clients in order to maintain client flows which would help obfuscate the growing positions he was trying to trade out of in the 88888 account.  Institutional clients would often break up orders amongst different desks on the floor to make them compete against each other and Leeson was able to edge out other brokers by taking these risks which weren’t possible by others.

For those of you who haven’t read Leeson’s book Rogue Trader, I urge you to because it’s a truly a case of reality being far more bizarre of any fictional thriller and also to supplement it with a book like All That Glitters will provide an objective perspective.  Personally, my opinion is that Leeson was simply a young man who was overwhelmed by circumstances and things got carried away.  It’s the type of behavior which has happened to many in the trading pits and in his case, there just wasn’t any oversight to stop it sooner.   I actually have a lot of respect for Leeson with how he’s gotten on in life after so many tragedies such as the Barings debacle, divorce and cancer that he followed up Rogue Trader with the book Back From the Brink:  Coping with Stress.

This original Nick Leeson business card was provided by a contact who worked on the SIMEX trading floor at the same time and took some from the Barings desk after news broke of the scandal.  I’ve taken liberty to hide the phone numbers because a financial firm actually still uses the phone number today!  To the gentleman who provided the card to me for free (!), I intend to show my appreciation with a gluttonous dinner befitting the golden era of pit trading whenever travels take me to his city.