The coronavirus pandemic will leave its imprint on the world’s economy for a long time. One of its casualties is likely to be the remaining open outcry futures trading pits.
Who can forget the dramatic hue and cry of trading pits? (https://www.youtube.com/watch?v=obAoPP1bdIM) The loud shouting and frenetic hand signaling made for great entertainment. Alas, computers have proved to be a more efficient way of matching buyers and sellers than pumped up Chicago boys or London lads.
The Chicago Mercantile Exchange (CME) started experimenting with computerized trading in the early 1990s, running its electronic Globex trading system in parallel with the pits. Customers have voted with their feet, and volume consistently shifted from the trading floor to Globex. In 2015, CME closed most of its futures pits, retaining physical trading in only a handful of products, such as dairy, lumber, grain, and livestock. In March 2020, it closed those pits in order to reduce the spread of covid among the traders, and in May 2021 they announced that the closed pits would never reopen, with the only exception of Eurodollar options.
Most other futures exchanges around the world had gone fully electronic in the 1990s and 2000s, led by Eurex in Europe and ICE in the US. The main holdout was the London Metals Exchange (LME) which remained proud of its “Ring,” a uniquely British institution full of arcane rituals executed from red sofas. Even the LME had to bow to covid, though, and suspend Ring operations in March 2020. To the surprise of traditionalists, trading in LME contracts proceeded just fine on electronic networks. The LME is now faced with the decision of whether to reopen the Ring after covid passes. Most customers prefer electronic trading, but floor traders are organizing a campaign to preserve their position. The exchange committed to making a decision in early June.
If the LME Ring closes, it would mark the end of an era. In the contest of man against the machine, the machine would notch up another win. The old ways of trading and managing money cannot compete with modern technology. If we want to stay in the game, we have to upgrade ourselves constantly. Nostalgia is for losers. Let’s pour out a drink for the trading floors and move on.
Last week’s continuing trends:
- Palm Oil
- Soybean Oil
- Corn
- Iron Ore
- Canola
Last week’s reversing trends:
- Orange