Chicago crops go 21st century
Computerized daytime buying joins historic open-outcry floor
By ANN SAPHIR
Bloomberg News
Jerome Israelov has bought and sold wheat and other grains at the Chicago Board of Trade for 17 years, shouting and gesturing the way members of the oldest U.S. futures exchange have since 1848.
Starting today, the independent trader will also use a computer.
"This day would come eventually, everyone knew it," said Israelov, 42, whose laptop will hang from a strap around his neck to free his arms to gesture as always.
"I'm resigned to changing with the market."
Chicago is losing a link to its past as the Chicago Board of Trade, set up 158 years ago as a central marketplace for contracts tied to flour and hay, supplements its so-called open-outcry floor trading with computerized daytime buying and selling for soybeans, corn and other agricultural commodities.
Traders no longer will need to trek to the 45-story art deco Board of Trade building in the financial district of the third-largest U.S. city during business hours. The CBOT is ending its status as the only one of Chicago's nine exchanges to require customers to use the floor for daytime trading of major contracts.
The futures contracts, agreements to buy or sell assets at a set date and price, were designed to let growers, producers and merchants lock in prices to avoid swings that could hurt their businesses. Now they're traded by hedge funds and other speculators as well. More of those contracts trade on exchanges in Chicago, a record 9 million daily, than in any other city.
'One step further away'
The Chicago Board of Trade, which helped bolster the city's meat-packing and grain-trading economy in the 1800s, today ranks as Chicago's 14th-biggest company by market value, while its bigger rival, the Chicago Mercantile Exchange, is third. "The Board of Trade is part of what shaped Chicago as not a reproduction of an eastern city but really as a Midwestern metropolis," said Sarah Marcus, a Chicago History Museum historian. "You are one step further away from that past."
It's just the latest technological advance to change the face of the exchange and Chicago. The market was founded the same year the first railroad entered Chicago and the Illinois and Michigan Canal opened to link Great Lakes shipping with New Orleans, transforming the city into an agricultural hub.
Mirrors the U.S.
The Chicago economy has moved from those agricultural roots to mirror the U.S., said Geoffery Hewings, who teaches finance at the University of Illinois at Urbana-Champaign. Even so, securities and commodities industry employment in metropolitan Chicago increased 30 percent to 44,900 in 2004 from 1991, more than a 12 percent jobs gain for the state, figures from the Illinois Department of Employment Security show.
'A watershed event'
The growth stems in part from electronic trading in financial products such as Treasury futures — contracts that let investors bet on yields on U.S. government debt — and interest-rate contracts at the Board of Trade and the Chicago Mercantile Exchange. Now crops are following.
"The Chicago grain industry is going to finally get up to the 21st century," said Don Chance, who teaches finance at the University of Louisiana. "It's a watershed event."
The Chicago Board of Trade says electronic trading expands the floor globally, makes sales instant, and eliminates errors from hard-to-read handwriting on orders.
Floor-trading fans such as Israelov say a pit lets traders see whether an influential broker is buying or selling and, while mistakes by computer are fewer, they can be more costly: An errant key press can make an order 100 times bigger than intended, disrupting the market.
