

Turn Out the Lights, the Party’s Over - minimax
http://streetwiseprofessor.com/?p=9124

======
chollida1
The book DarkPools does a decent job of describing the rise of machine based
trading that eventually replaced pit traders.

[http://www.amazon.com/Dark-Pools-Machine-Traders-
Rigging/dp/...](http://www.amazon.com/Dark-Pools-Machine-Traders-
Rigging/dp/0307887189)

Good riddance, the markets are better off in almost every way but removing pit
traders.

    
    
      - end of day's reconcile, 
    
      -machines aren't tempted to "lose" trade tickets for trades that would have been loses.  
    
      - machines don't hold clients trades while they jump infront of them.
    
      - liquidity is much, much better off now.   Every flash crash has an almost instantaneous rebound of prices back to their "true" values.
    
    

To paraphrase Churchill. "“Computerized trade matching is the worst form of
trading, except for all the others.”

To the city of Chicago's credit. Even thought they lost pit trading for
futures and almost all options, they've still managed to keep the bulk of
those trades via the electronic CBOE and being the center of HFT.

I would guess that when an industry gets as disrupted as pit trading was, then
the center of gravity would tend to move. In this case, Chicago did well to
hang onto it.

~~~
a3n
> machines don't hold clients trades while they jump infront of them.

Does _machine trading_ actually bring anything with it that discourages that?
I would think that it would make it easier to do that as a defacto business
model.

~~~
yummyfajitas
Yes - if you put multiple queues into your software, that's pretty easy to
spot and prove in court. It's a bit harder to prove if the queue lives in your
broker's head.

------
wpietri
Back in the mid-90s I did tech work for a Chicago financial trading firm. I
ended up with one of those colorful coats so I could go down to the trading
floor and swear at our computers there. (Tech note: there is still no good
swear-over-IP protocol; some things apparently you have to do in person.)

It was an amazing place, and I hope somebody collects all the colorful stories
that result when you get so many adrenaline junkies together in one place.
(E.g., the time somebody punched out a polar bear. Or the the trash bags full
of money. Or the snow futures market.) But my guess is that the traders don't
really mourn its loss as much as I will. When I was back in Chicago a couple
years ago, the Merc had shut down their trading floor at 30 S. Wacker. I
stopped in to ask the security guards if the traders missed it. "Those guys?
Hah! No, they just left one day and never came back."

~~~
EC1
I would LOVE if you wrote up a few stories, however long! Do you think you
could?

------
joosters
There's an interesting commentary on this over at the FT:

[http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-...](http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-
of-a-futures-operator/) (login needed)

 _The problem with the abstracted version of the market is that, well, none of
the potential repercussions for breaking the rules involve any sort of face-
to-face experience. Just the same way that defrauding people via email is much
easier than doing it face-to-face, the lack of a physical interchange creates
a similar bad behaviour incentive in the market._

 _With no social-pressure to be collaborative, everyone in it for themselves
and regulators inevitably asleep at the wheel, because, well, there’s no way
for them to keep up with how bad behaviours are innovating, all we end up with
is a Wild West market in which nobody can ever trust anyone. Whether that
leads to social stability and growth in the long run, we guess only time will
tell?_

~~~
jsprogrammer
This excerpt seems to lack perspective. What email scam has taken people for
over a dozen billion dollars[1]? And that's just a single example.

The OP article also seems to be highly colored nostalgia. Really, a "market"
with numerous "rules not written in any book that you adhered to, or else" is
believed to be a paragon of efficient markets?

I do believe it was a party in there, just not one that anyone but the most
well connected and capitalized had any access to.

[1]
[http://en.wikipedia.org/wiki/Bernard_Madoff](http://en.wikipedia.org/wiki/Bernard_Madoff)

~~~
a3n
I think the point is not that email makes scamming more efficient or
effective, which seems to be what you're disputing, but that because it's not
face to face, it's easier for someone to cross the line and be a scammer,
since there's no immediate face to face social feedback to discourage it.

The same thing happens when someone in car screams and swears at someone for
not driving up to expectations, or not getting out of the crosswalk in a
timely manner. That same screamer would never do that at work, because of
immediate social pressure if nothing else.

Distance and darkness does less to inhibit unchecked corruption than regular
social feedback.

~~~
NittLion78
I think this is a fair point, and it may be one that is really difficult to
grasp now in 2015. But, after 20 years of not doing business face-to-face,
what effect will that have on the trustworthiness of transactions when it
becomes the norm?

I'm neither doomsaying nor cheerleading, but it's something worth watching.

------
Animats
Next, the NYSE floor will close. It may take a few more years, because NYSE
management views it as a useful tourist attraction and publicity operation.[1]
But Dow Jones announced a few months ago that they will no longer run pictures
of the trading floor. Even the webcam feed seems to have been shut down. There
are still people going there, but they're mostly using computers, not live
trading. It's more of a big co-working space now.

[http://www.crainsnewyork.com/article/20140602/FINANCE/306019...](http://www.crainsnewyork.com/article/20140602/FINANCE/306019986/nyse-
chief-wants-to-bring-back-trading-floor-action)

------
dredmorbius
"The Party" is the Chicago Mercantile Exchange's trading floor -- for futures.
Options trade _will_ continue.

~~~
B1narySunset
Except for the S&P 500 pit which is still pretty active.

~~~
dredmorbius
Also mentioned in the lede, though yes, I omitted that.

------
nsxwolf
My first real programming job was at the Chicago Board of Trade in 1999, just
when the electronic trading initiatives were really taking off. But the floor
was still totally packed, totally crazy, and completely inscrutable (to me).

I'm glad I had the chance to see it.

------
noname123
Great article. Writing has been on the wall for awhile, but sad nonetheless
that open outcry is going away.

Quick question, for ES futures, SPX options and other major option series that
are operating on a hybrid model (electronic + open outcry?) How do the
exchanges reconcile these?

For instance, do open outcry trades have to follow NBBO; and what is the
latency of an open outcry trade/bid/ask being broadcasted in quote feeds? Do
people mostly still do open outcry to execute extremely large block orders?
Finally, would the cease of open outcry affect membership pricing of CME?

~~~
minimax
You are trying to fit the futures markets into the US equities model. Open
outcry and Globex are two separate markets. Open outcry quotes don't show up
on Globex. Traders in the pits have handheld devices that allow them view
quotes and place orders on Globex.

My understanding is that open outcry is still useful for options trading
because it lets you do complex multi-legged trades "atomically." A broker can
get together with a local (or several, if it's a big order), and sort out a
single price for a trade that will involve multiple instruments.

~~~
noname123
Thanks appreciate it! So sounds like then Globex and Open outcry are separate
markets then although they are closely correlate as they trade the same asset
but aren't obligated to reroute orders.

As for options, AFAIK, CBOE and ICE already keep multi-legged books in
electronic trading. For example, you can request for a multi-leg order via
Interactive Brokers and it'll return a bid/ask spread that's the sum of all
your ratio's/legs. When you execute, I think IB's SmartRouter does the magic
to figure out which exchange to submit your order to (whether to submit it all
to a multi-leg book or as single orders; but IB is on the hook to guarantee
the complete execution of your order).

On liquid options, hitting mid on your multi-leg has a decent chance of being
executed. However options in general are not as liquid as equity, so happy
that guys at CBOE/CME can still do open outcry.

------
sailfast
I will always remember them fondly. There was no more visceral way to witness
actual change in the markets manifested in physical stress and volume. It was
going to happen, sure, but I will miss them.

------
barrkel
LME is still keeping its trading pit for now. Had a tour round is, interesting
if you get the chance.

------
IgorPartola
Off topic: wow is that text-on-background unreadable...

