TUPNews can report that open outcry trading is dead and buried in Europe, and that it is only a matter of time before it disappears in the US.
Open outcry trading is basically what you see in the movie
Trading Places, or in that scene in
Ferris Bueller’s Day Off where they go to the Chicago Mercantile Exchange and Cameron makes funny hand gestures from the gallery. Lots of men dress in brightly-coloured jackets and shout at each other for hours on end. As a result, our homes stay lit and heated and pork bellies and orange juice are stocked on our supermarket shelves.
There’s been a creep towards electronic trading platforms for many years now – most of my university friends who are now traders know no different. But the old guard are now slowly starting to die off as the market moves to electronic trading.
The International Petroleum Exchange closed its floor earlier this year and went straight to electronic trading, much to the annoyance of traders and brokers (a broker gets instructions on the phone from clients and relays it to his traders, who make deals with other traders by shouting and waving their hands). The New York Mercantile Exchange (Nymex) saw an opportunity and tried to quickly establish an open outcry trading floor in London. They were held up by the FSA and so opened a temporary floor in Dublin. Traders desperate to keep it old school started racking up the Ryanair frequent flyer miles, making weekly commutes to Ireland – exacerbating existing drink/drug problems and putting the nail in the coffin of many marriages.
Finally, they were able to open the London floor last month, and
TUPNews was lucky enough to be present. It was on a much smaller scale than the huge trading floors you see in the States – the whole room is about the size of a pub, with one main pit for the Brent crude oil contract and a smaller one for the gasoil contract. Traders stand in a ring around the pit, looking up at screens above them streaming in news and prices. A young boy sits in the middle of the ring at a desk, wearing safety goggles. The traders shout at each other and make orders, which they write down on small cards and throw at the young boy in the middle, who files them or something. Even on a small scale, it’s an amazing thing to see.
It’s not until you see these guys in action that you understand why they are so desperate to stick to open outcry trading. It’s basically like being on the terraces of a football match all day – in fact, with their bulky Essex frames and fluorescent jackets, some of them look like football stewards. And when you talk to them, you realise that the cliché is true - all of these old boys are basically Cockney barrow-boys. While they may work in finance, they are the cultural descendents of Billingsgate fish merchants or Smithfields butchers. Most of these boys don’t have any A-Levels; they can barely work a computer. Put them in an office and ask them to trade on a screen and they are completely fucked.
As is the Nymex London floor. Volumes are down 81% since the first week, and the number of traders on the floor has dwindled from 93 to twelve. Nymex are putting a brave face on it, but it is obvious that their crusade to keep open outcry alive has failed, at least on the European front. And now that they are floating themselves on the stock exchange, their New York-based traders will come under pressure from shareholders to make the switch to electronic. The end of an era is beckoning.
Should Joe Sixpack care? Not really, your home will still be lit and heated, the pork bellies and orange juice will stay on the shelves. They won’t cost any more, either. But the world of commerce will have lost a refreshingly chaotic and human face.
