The end of personality trading

The purchase of the CBOT by the CME ends an era of Chicago trading. 2007 marks the near final end of personality trading, the conduct of trading face-to-face. Of course, the end of personality trading for most markets ended years ago and there is still pit trading in Chicago, but the combination of these two institutions ends the personal dynamics of two venerable institutions. These two institutions fought for supremacy and bragging rights in the futures business for decades. This competition was not always directly with the product offerings, but through their personality and strategic vision. Going to research conferences in the early 1980’s told me that there was a difference in the behavior of the exchanges. The CBOT had the confidence of a leader and took the lead of spreading the word on futures trading. Working for the CME during part of the 1980’s, you lived the rivalry. The CME wanted to be more innovative faster with technology and find new markets for success. Of course, most of firms traded products on both, but the local traders were wed to one exchange.

Personality trading was defined by the people who worked a market. While you could not see this personality within the data through analysis of the time series, you felt that the color on the market from the traders in the pit who provided information. Of course the color you received on order flow about what was going on could also come and haunt you, but you could sense the rhythm of the markets from those who traded it.

The death of personality trading was slow and not apparent to most. The introduction of electronic trading was the biggest body blow, but the demutualization of the exchanges meant that professional managers beholding to shareholders would run the exchanges. Exchanges would no longer be the vision of exchange committee members. The governance turned the world upside down. Personality could not govern the responsibility of the managers to their shareholders. Efficiency and scale became more important than ego.

The professional managers of the CME group will move to the CBOT building at the end of LaSalle Street. This is progress. The markets have become more prices transparent since the age of electronics. The exchanges are better managed because of the focus from shareholders and the over growth of trading has made this period special in the history of futures markets, yet there is the feeling that we have lost something in his process. The yelling and screaming was a part of the exchanges. The muscular trading of the pits defined Chicago in the same vein as Carl Sandburg described Chicago as the city of broad shoulders.

What does Chicago trading mean now? It has been years since I have lived in Chicago and there is often as ensue of nostalgia for the past when you age. The markets are better served and more efficient, but trading the markets will be different. You are trading the price on a screen and not the additional personality of the pit. These are probably not the first comments that will write glowingly of the Chicago past; nevertheless, with the merger of the CBOT with CME we are coming closer to the finality of personality trading.