Zero Is a Clenched Fist

Donald MacKenzie

  • Out of the Pits: Traders and Technology from Chicago to London by Caitlin Zaloom
    Chicago, 224 pp, £18.50, November 2006, ISBN 0 226 97813 3

The new financial trading floor of the Chicago Board of Trade is a striking sight, and Caitlin Zaloom describes it well. Opened in 1997, it occupies a ‘huge stone block’; the trading floor itself is ‘the size of Grand Central Station’, and has no windows or even a public entrance. The walls are ‘unadorned granite, shiny, cold and imposing’, with huge electronic displays of prices, index levels and interest rates running across the top. ‘Diffuse, bright, fluorescent light comes from the fixtures four stories above . . . There are no internal walls to break up the space.’

The stepped amphitheatres – the pits in which trading traditionally takes place – are the floor’s dominant feature. In November 1999, when I visited, the pits were crowded with well over a thousand people – nearly all men, although there were a few women who survived, even thrived, there. The crowd that day wasn’t in the frenzy one is accustomed to seeing on television or in films. Indeed, nothing much seemed to be happening, and I felt a little let down. I hadn’t yet learned that there are extensive dull spells in any market, when no big orders arrive and prices seem hardly to move.

A young woman was showing me around, braving the odd wolf whistle from the steps of the pits. She probably noticed my disappointment, and when a huge roar came from another part of the floor, we quickly made our way to its source, the largest of the pits, which dealt in futures on ‘long bonds’, the long-maturity – up to 30-year – debt of the US Treasury. A ‘future’ is a standardised contract, equivalent economically to the two parties having undertaken to trade a given quantity of assets at an agreed price at a set time in the future. None of the usual market-moving factors had caused the excitement. Alan Greenspan hadn’t said anything; neither the dollar nor the stock market had suddenly plunged or soared. Instead, a trader had started using the lid of a large plastic tub as a frisbee.

The lull of that morning in 1999 was temporary: the markets were quiet because they were waiting for the unemployment rate to be published the following day, a number that moves markets because of its potential impact on decisions about interest rates. When I visited Chicago again the following year, its ‘open-outcry’ pits were still thriving. At the Board of Trade, orders were still often carried to the pits on pieces of paper by runners and clerks, and then shouted out by traders or ‘flashed’ to others in the pit using the hand-signal language known as ‘arb’ – an abbreviation for arbitrage, the exploitation of discrepancies in prices. If a discrepancy is spotted, there isn’t usually time to dispatch a runner. Palm outwards signals an offer to sell; palm inwards, a bid to buy. Fingers indicate quantities and the final digits of prices; everyone knows what the leading digits are. Zero is a clenched fist.

As I stood and watched, contracts worth huge sums were agreed by shouts, or by eye contact and hand signals. In November 1999, buying a single Dow Jones futures contract was roughly the equivalent of buying shares worth $110,000 – and if you dealt only in single contracts you weren’t considered much of a trader. When trading futures, you don’t have to pay the full purchase price, but only to maintain an appropriate level of ‘margin’ deposit; that’s a crucial part of what makes futures attractive. The potential for gain or loss, however, is just as big as it is in trading the underlying asset.

Chicago’s open-outcry trading, a way of life stretching back to the grain-futures pits of the 19th century, was on the brink of disappearing when I visited the Board of Trade in 1999 and 2000. There were already signs that technology was encroaching: headsets were increasingly used instead of runners to communicate between the pits and the booths where customer orders arrived, and a few traders carried hand-held computers. Since 2000, Chicago’s pits have emptied, and those who still stand in them focus less on the people around them than on their computers, which are no longer an adjunct to trading but essential to it. Chicago remains central to the world’s financial markets – its recent merger with the Chicago Mercantile Exchange has made the Board of Trade part of the world’s largest exchange – but as the hub of electronic networks, not as a set of huge rooms crowded with bodies.

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