First of two parts
The bidding war for the Chicago Board of Trade hit almost $10 billion last week, astounding exchange members who not long ago were being offered a few hundred-thousand dollars apiece for the ownership interests they still quaintly call "seats."
What a difference the computer makes.
For years, Chicago's futures marts resisted the screen, clinging to the traditional open-outcry pits where traders don colorful jackets, raise their arms and shout out bids and offers, as they have for generations. Technology transformed the rest of the financial world, leaving them behind.
These days, they are catching up with dizzying speed. The trading floors are fading away, their populations dwindling, even as volumes soar in cyberspace.
No way will Wall Street tolerate the extra costs that traditional trading floors impose on Chicago's leading markets.
"It makes so much more sense on the screen," said analyst Chris Allen at Banc of America Securities.
Indeed, today's rich stock prices can be justified only if exchanges commit fully to boosting their scale and distribution through state-of-the-art systems, in the process opening previously cloistered markets to new participants around the world, the analysts say.
With its bid for the Board of Trade, the IntercontinentalExchange Inc. not only topped a Chicago Mercantile Exchange buyout offer, but also set the stage for an even swifter shift away from the old way of doing business.
"In two years, or three years at the outside, you'll see no meaningful floors," predicted Richard Repetto, a principal at Sandler O'Neill Partners. "When they start to go, they go fast,"
Also on its way out is the opportunity that trading floors provided to an extended network of neighborhood guys and ex-jocks gunning for fast fortunes. Electronic trading has nothing like the hypercompetitive macho character of the floors, and almost any veteran of the pits will concede, usually with a sigh, that switching to the screen is a tough transition.
In the heyday of the trading floors, the individual could conceivably prevail over banks, money managers and other institutional investors who dominated the rest of global finance. Barriers to entry were low. No particular pedigrees were required. And even those who lost everything sometimes worked their way back for second chances.
At home in the city
Chicago, for some reason, did it better than anywhere else.
"There's nothing about Chicago to suggest it would be the birthplace where individuals would take on such enormous amounts of risk so successfully, but Chicago had people who caught on," said Gail Eby, a Northwestern University sociocultural anthropologist studying the markets for a doctoral dissertation. "It's a tough life, and it could come and go really fast. For a lot of them, it's given them a lousy livelihood. But there is a palpable sadness about watching the floors disappear, a real intense sadness."
Opportunities have faded for folks like Mark Gold, who started as a lowly runner, bought a membership seat with a family-backed bank loan and parlayed it into a nice living until the soybean markets "changed" to the floor traders' disadvantage, he said.
Gold found a satisfying new niche helping farmers, rural banks and grain elevators manage their risk, but said he hasn't generated more than 15 percent or 20 percent of his previous income.
Not every floor trader has fled, however. Board of Trade Chairman Charlie Carey grew up with the trading pits, working most of his adult life on the floor. As he stood in the heart of the soybean market last week, his old friends were shouting out greetings as if nothing had changed from a bygone era.