End of an era

NEW YORK - When Marc Schwartz heard that many of America's last trading pits were closing down, the veteran commodities trader was hardly surprised. He spent 17 years yelling in the New York pits, but gave it up, like so many colleagues before him, to work in an office.

Still, he felt a blow and a pang of nostalgia when he heard the news.

"I liked the energy, I liked the roar," said Schwartz, 45, as he sat before a bank of six computer screens in an office at DV Trading in Chicago. "There is no more roar."

Traders are calling it the "end of an era" after news late Wednesday that CME Group, the parent company of the Chicago Board of Trade and other exchanges, is shutting down most trading in its 21 pits in Chicago and New York. Those sites are where people establish prices by flashing hand signals and shouting at each other on a trading floor.

But that shoulder-to-shoulder tussle is coming to an end with a whimper, not a bang. Futures traders and clerks in CME pits have dwindled to about 475, and many of them work remotely using computers and don't come to the floor every day.

Blame technology. Faster, cheaper, computers have taken over the process of establishing prices on everything from Exxon Mobil shares on stock exchanges, to hogs and cattle on commodity exchanges. Floor trading has shrunk to a fraction of its volume from two decades ago. In total, 2.8 billion futures were traded on CME exchanges last year, but nearly all electronically. Only 31 million futures changed hands on trading floors - 1 percent of the total.

Jim Bower, a 40-year trading veteran, calls the current computerized environment "austere," and misses the verbal cues that helped him sense where prices were headed. "I could tell whether the market was bullish or bearish just by the tone in the pits," he said. "It's not as much fun as it used to be."

But the global nature of markets today, combined with the information flooding traders every second, makes technology necessary, he said.

"The market is essentially moving around the clock around the world at breakneck speed," said Bower, 65, president of Bowers Trading, a commodities brokerage in Lafayette, Ind. "You have to have the technology to keep up with it."

To many, the romance of the pits was best captured in "Trading Places," the 1983 film starring Dan Aykroyd and Eddie Murphy. In one scene, before entering the pit, Aykroyd famously declares, "Well, this is it, the last bastion of pure capitalism left on earth."

Schwartz, the Chicago trader, recalled the line with a chuckle, adding his own color about the place: "It didn't matter who you were, what your education, everyone was equal in the pit."

For all the technological progress since, it can help to have a human around.

In the Flash Crash of 2010, an algorithm gone wrong caused the Dow Jones industrial average to fall 600 points in less than five minutes. And Facebook's initial public offering in 2012 was beset by technical difficulties on the Nasdaq Stock Market, which unlike the New York Stock Exchange does not use human intermediaries. The Nasdaq had to pay $10 million in fines for the computer failures.

When Twitter decided to go public the next year, it was said the social media company chose the NYSE to avoid a Facebook-like debacle. Its first day of trading went off without a hitch, a rare moment of glory for the iconic trading floor, which is sleepy most days.

Steve Quirk, a senior vice president at broker TD Ameritrade who got his start in the Chicago pits, said he doesn't think closing trading floors is likely to make markets more dangerous. If anything, computers have allowed more people to fill the role of floor trader, acting as a middle man bringing buyers and sellers together.

"You've essentially just made it a virtual trading pit for the world," Quirk said. "That's probably the biggest benefit."

The shutdown of most CME pits means no more people physically trading futures on a vast and varied list of items. At CME exchanges, bets are made on future prices of heating oil, palladium, live cattle and lumber, along with dozens of other commodities.

The CME said it will keep trading pits open for Standard & Poor's 500 index futures and options on futures. The CME says about 60 jobs will be lost in New York and Chicago by July 2.

Schwartz, who trades heating oil now, had long packed away his trading jacket in a closet in his home, but the memories are still fresh. The challenge of the trading in the pits, he said, was like "playing basketball while doing math in your head."

"You knew it was coming," he said of CME's decision. "But to actually hear they were closing the pits, it's sad."