Traders Say Days Numbered for Chicago Currency Pits
Sun May 12, 8:54 AM ET
By Kyle Peterson
CHICAGO (Reuters) - On a typical day in the Chicago Mercantile Exchange's currency futures pits, traders are pacing around, talking about the markets, sports or music.
Sometimes, they also trade.
It seems there's plenty of down time these days on the currency-trading floor. Gradually, trading volume is moving from man to machine as volume rises on electronic trading platforms such as CME's Globex.
The days of the trading floor are numbered, some veteran floor traders say, even in Chicago, where open-outcry, face-to-face trading has created a livelihood for floor brokers for more than a century. Some think the decline in floor trading volume is a sign that it could eventually vanish.
"It may happen. It probably will happen," said one floor broker, who asked not to be named. "From the looks of it, it's pretty thin."
Although electronic trading in currency futures still lags the pit, both the volume and percentage of Globex trade is growing. The CME, which has been trading foreign exchange futures for 30 years, has 16 futures contracts, and plans to launch 13 new contracts on May 16, including 11 contracts denominated in currencies other than U.S. dollars.
The most active contracts are the euro, yen, Canadian dollar, Swiss franc, British pound and Mexican peso.
ELECTRONIC SHARE DOUBLES
In January through April 2002, 24 percent of the CME's 7.5 million currency trades were on the electronic system, Globex. This is more than double the 10.4 percent electronic share of the total 6.7 million trades the same period last year.
"There's no question that a lot of the business that was on the floor is going electronic," Stephen Levin, a veteran floor trader, said. "You do have days when there is a lot of activity on Globex."
While some other markets at the CME, notably the world's most active futures contract eurodollars, have enjoyed steady increases in trading volume, companies are closing or consolidating currency trading desks. Veterans remember a time when every desk was packed with traders.
Now, the trend is toward cutting staff. Last month, for example, Prudential Securities downsized its currency floor set-up from three desks to one. Carr Futures, owned by Credit Agricole Indosuez, also consolidated their floor operations from two desks to one.
Last month, privately held R.J. O'Brien pulled two employees off the floor, closed its desk and now contracts its currency futures business through other firms.
Still, veteran pit traders cling to the traditional way of doing business, saying that they get more information on a market by staying in personal touch with the trading pits.
"In times of uncertainty, human nature is very important to our business," said Joel Berger, a 25-year veteran of the International Monetary Market. He added that pit trade remains far more liquid than electronic trading, a factor that helps traders find better prices faster.
DECLINE IN GLOBAL FX MARKET
The decline in volume on the CME currency-trading floor is not just because of electronic trading. There has been a general decline in the size of the global foreign exchange market. The most recent data from the Bank for International Settlements showed the average daily turnover in April 2001 was $1.2 trillion, down 19 percent from three years earlier.
The currency trading market was hurt by the launch of Europe's single currency the euro, which eliminated many inter-European forex trades, the consolidation of banking and a general tendency of players to avoid risk after the market turbulence of the late 1990s. The BIS attributed the decline in part to the growing role of electronic brokers in the spot interbank market, instead of the currency futures market.
At the CME, trade in foreign exchange futures and options peaked in 1993 at 39.3 million. In 2001, the exchange reported only 22.4 million trades. Overall, however, trade in currency products increased to 7.5 million year-to-date in 2002 from 6.7 million in the same period last year.
The CME is trying to manage the transition as best it can. For example, last year the CME started so-called side-by-side trading allowing traders to trade on Globex and in the pits simultaneously. Previously, Globex was available only when the pits were closed.
The CME recently appointed a committee to look into issues such as retraining traders to prepare for an all-electronic world.
"I think that our job is to manage the evolutionary pace," said Rick Sears, CME managing director of foreign exchange. |
