Mar

4

Long faces as NY commods floor trade ends long run
Reuters Friday February 29 2008

The downcast looks came days before open-outcry futures trading on ICE Futures U.S. ends for good when Friday's closing bell rings, concluding a nearly 140-year history of trading agricultural commodities on exchange floors in New York. The contracts will become fully electronic March 3.

As an inhabitant of the pit for many years, I mourn any loss of floor trading. What really disturbs me is that many local members bought into the spin that the exchanges put forth about the benefits of electronic trading and allowed this to happen.  I understand the politics of exchanges, and the fact that the directors don't always have the best interests of the members in mind — mainly their livelihood.  Call me old fashioned, but I prefer the open outcry method to any electronic system.  I haven't quantified the following, but I think that there will be a loss of liquidity and depth once the exchanges all go electronic. I just wonder how the exchanges will adapt in the event of a long term computer glitch, power outage, or other computer disruption.  Somehow, eternal optimist that I am, I think that there will someday be a resurgence of floor trading.

Manuel Bravochico remarks:

Floor traders for the most part were dishonest. But the ones in the NY pits were the absolute worst, many times acting as liquidity takers instead of liquidity makers for screen traders. Thank you ICE and Globex, your success at taking essentially all the pit volume away from the floor traders sends the message. A resurgence of floor trading? Someone forgot to take his meds today.


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11 Comments so far

  1. acetrader on March 5, 2008 3:45 pm

    Face it, you are lamenting the demise of a nice, fat, free lunch had by very few! Like I said before, put your pit next to Sue at the museum! Now, back to my SCREEN!!!

  2. jeff on March 5, 2008 7:09 pm

    Manuel said:

    “Floor traders were for the most part dishonest” Can you please quantify that statment or, is that mere hyperbole? While there have been a few rotten apples in the basket, most floor traders I’ve traded with have been 100% honest. In 15 years on the floor at my exchange, one could count the number of bad apples on one’s hand, and they didn’t last very long in the business. When one is as only as good as his word, exchanges generally attracted honest players. Most complaints to time and sales from screen players resulted in bad (unhappy) fills with market orders. I’ve described methods before on how locals can move market orders to their advantage. Locals do get an edge, but they pay a big price for an exchange membership to get that edge, which is not a fat free lunch….just ask the 90% of the locals who don’t last five years in the business. Regarding the meds comment, I thought that civility reigned on this site.

    Jeff

  3. m on March 6, 2008 9:46 pm

    Common Jeff, give us a break. So let me get this straight…because floor traders paid a membership fee that gave them the right to take advantage of customer orders when they got even the slightest “wiggle room” ?

    “Count the bad apples on one hand”….common Jeff, give me another break. I’ve been trading for “15 years” too. For every guy that got caught, three didn’t. You know that.

    How about the “unable special” brought to you by NYMEX floor traders.

    “Oh, the floor committee just called us back and they are busting all the buys you had been filled on. And oh yes, the low print of the day, that’s been busted out too. Someone else got the buy at the low of the day. Sorry.”

    Don’t be mad because the wiggle room has been stomped out. Heck, when I was in college I was thinking about trading on the floor instead of the screen. You saw an opportunity and you milked it. There’s nothing wrong with that, the jig is up, is all.

  4. Anatoly Veltman on March 7, 2008 9:20 am

    m: you did good job of describing some of the front-running variations. Add to those: why customers got (what Jeff called) “unhappy fills with market orders”. Because a local bought at 60, to be a simultanious seller to you at 80 - on your “market buy”. More sophisticated technique of bucketing, which most customers never-ever heard about: if you’re “even bid for 200″, a local was a pre-arranged seller on your “last 50″. I could describe more “techniques”, than some of the floor traders or CFTC investigators - because I never traded without my arb-clerk, purched above the pit and feeding me 1000 words a minute. Of course, you had to pay him salary, to execute your orders exclusively. But that was well worth the alternative.

    Still, what’s happening today with electronic books of orders - is worse, than former. A handful of firms, with black boxes located as close as possible to exchange servers (to beat competitors by milliseconds) trade against your orders way more efficiently, than floor conspirators did. They observe the regulations (unlike some floor people) - but the system enabled these VIP odds in favor of deepest pockets and most scientific minds. Their further claim: that it doesn’t reflect upon longer-term speculators - still futures are zero-sum game; and if some make a billion a year from it - who foots that bill?

  5. jeff on March 8, 2008 9:03 pm

    M: I’m confused. You considered floor trading when you were in college, but went to trade the screen instead. You readily admit the edge of trading in the pit, yet you decided to forego the edge, and trade from the screen. The logic escapes me. What’s the real reason you didn’t buy or lease an exchange membership?

    Jeff

  6. Lon Evans on March 9, 2008 4:44 am

    Wow! Anatoly, Never cease to suggest. As my particular soul possesses little compromise, and exhibits even less sympathy for the weak, Jeff please take your lament [elsewhere]. Competition is a bitch only to those who have rarely, if ever, known it. If you can't play the game, then shut up and get out. Weak [crybabies] are abundant. Take Vic as the perfect anti-example; what of his practicing swing after swing, connect after connect; his perfect attempt towards perfection? And guess what, the man achieved it, didn't he? Did he complain when ostracized by an entrenched elite? No, he simply refused to play their [..] game. How are you different, in your lament, than those who shut out a National Champion for the fact that he was a Jewish street kid, regardless of his talent? And a rare talent that was. So, you no longer have the 'inside' skinny? Well, get used to how the rest of us play the game. There was a time when the black man wasn't allowed to swing the bat. Can you imagine baseball without Jackie Robinson? I hope not. lon

    [Edited by Moderator]

  7. jeff on March 9, 2008 5:52 pm

    Lon,

    Thank you for describing my numerous faults. I can really learn from you and appreciate your keen advice.

    Jeff

  8. m on March 9, 2008 9:01 pm

    Jeff, To respond to your last point would be getting too off point. The average co blogger here doesn't care what the answer is, so why water this topic down? C'mon, what did you expect, a love fest for retired NYMEX floor traders? You are in screen trader turf. If I ever go to certain bars in NJ, I'll make sure I keep quiet when the big guys with the gold chains and tats walk in who used to work at NYMEX.

    Anatoly, I see you're familiar with the execution games being played. The big funds lease server space in the same building, "colocation", to get the fastest execution to use some of the tricks you describe. But the funny part is that the extra money they make from doing this does not move the needle as their capital bases are usually so large to start with. There are a few smaller exceptions, Kansas City, hint, hint. But for most of them, it's making pennies but still p&l ing dollars. And don't forget, even one rogue trade error can wipe out months or even years of pennies made by getting this edge. It's not if the negative trade error happens, it's when and how many months of p&l it will wipe out. I've seen trade errors that could only happen with incredibly bad luck and timing, sort of like rogue waves that sink oil tankers.

  9. Lon Evans on March 13, 2008 2:46 am

    Dear M,

    Why would anyone go to even uncertain bars in Jersey?

    It's painful enough when some from that locale appear in Manhattan. To invite such abuse is, well… abusive to both self and to all considerations of a general personal comfort.

    Possibly you live in Jersey? My sympathies.

    lon

  10. m on March 13, 2008 2:47 pm

    Lon,
    Low IQ response. You live next to them and are in NJ a lot more than I.

    No, CA; sunny winter weather,beach, jeans at business meetings, etc, etc.

    I hope your trading is better than your comedy.

    I think we've squeezed all the mileage out of this thread, no?

  11. Lon Evans on March 14, 2008 3:04 am

    Dear M,

    Born and raised in Los Angeles, CA. Yeah, that would be me. Ever want a real tour of the city, give me a holler. Only wannabes talk about "jeans at business meetings." So where is that you come from, Minnesota? Maybe Ohio?

    And by the way, if you're 'so' LA, why you trashing NJ?

    Huh?

    lon

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