More with a Whimper than a Bang!

More with a Whimper than a Bang!

July 7, 2015

A few last minute regulatory hitches further delayed the end of open outcry trading in Chicago and New York, but if all went according to plan, the delayed closure of the CME NYMEX pits happened on 6th July 2015.

For any young traders reading this, “open outcry” trading was where the traders and brokers gather in a pit dedicated to a particular commodity and yelled bids and offers at each other to complete their deals. There were hand signals to represent buying or selling and for identifying the contract type, delivery month, quantity and price etc. This was because when the market was busy the noise in the pit was deafening and it was impossible to distinguish who wanted to trade what just by listening.

You will find an interesting documentary on the History Channel called “Trading Places” told by Dan Ackroyd and Eddie Murphy and showing how open outcry worked in practice.  It purported to take place in an orange juice futures pit, but in reality it was filmed in the WTI pit of the New York Mercantile Exchange, then in the twin towers, with real day traders and brokers, dressed in their distinctively coloured jackets hamming it up for the cameras. If I tell you the Rafferty jacket was emerald green with big white shamrocks, you get the idea.

Apart from a natural flamboyance, the jackets served a purpose- in a fast moving pit you had to be absolutely sure of which company the guy into whose face you yelled “dealt!” at the top of your lungs, worked for. You then scribbled down the details on a deal ticket. You threw the ticket at, or shoved it into the hand of, a sweaty junior whose job it was to scuttle it over to another set of guys typing the deal into a highly sophisticated (not!) computer system for transmission to the waiting world. This maintained the illusion that the poor schmos sitting in offices around the world understood what was happening in the market before phoning their broker to get them to leap (literally) into the melee and grab them a slice of the action.

And action there certainly was, at times bordering on hysteria. I recall the day when the Saudi oil minister, Sheikh Yamani, resigned. The market went limit up then limit down in the space of about 10 minutes before settling back to where it started and wondering what just happened. Sitting in an office in Singapore or London and screaming at their broker to explain the apparently random numbers appearing on the Telerate or Reuters screen, companies sweated in fear that the floor had heard something they hadn’t and they should get in there and deal before it was too late.

Sometimes there was inside information behind a quantum jump in prices, but as often as not someone was spoofing the market and relying on mob rule to push prices one way or the other. The same piece of information could be taken as wildly bearish or wildly bullish depending on the mood in the pit and who was long or short when the news hit. Any fool that leapt on the bandwagon took what was coming to them and would be scorned if they even thought of complaining to a regulator.

In 1986 I was privileged to be allowed to visit the Nymex WTI pit as a new trading manager and guest of my then broker, the late and not very lamented, Drexel Burnham and Lambert. It was the era of Dallas and Dynasty. [These were weekly televised training courses for oil traders.] As a young Scottish hick in the big apple I teetered into the pit on my spiky heels, like Bambi on ice, with my obligatory fashion accessory, the big shoulder pads, and the hair in a Farrah Fawcett “flick”. Half an hour later I re-emerged with my shoulder pads facing north and south instead of east and west and my Farrah Fawcett hairdo totally flicked. Think rugby scrum, or football huddle, and you get the picture.

After that experience I only dealt through tall brokers with loud voices and sharp elbows who could fight their way through the stramash in the pit to get the best price for me.

These were the good old, bad old days before the introduction of palm pilots in the pit put the open outcry traders on the relentless path towards today’s clinical electronic trading.

Don’t get me wrong. Electronic trading is much faster, fairer and more efficient. But allow an old war horse a moment’s nostalgia for the anarchy of open outcry.