By Tom Polansek
(Reuters) - The world's largest futures market operator will shutter almost all of its open-outcry futures pits by July 2, ringing the closing bell on a once-raucous tradition that has been in decline since the rise of computerized trading.
The decision by CME Group Inc (CME.O), announced on Wednesday, ousts traders of products ranging from grain and livestock in Chicago to gold and oil in New York. Once the only way to buy or sell a futures contract to hedge against price moves, open-outcry trading is now only 1 percent of total futures trading volume, according to the exchange operator.
Options pits, which have stayed active in the face of electronic trading, will mostly remain open in both cities.
CME is expected to provide more details on its decisions when it reports quarterly earnings on Thursday.
Traders had braced for the closures of the futures pits after watching more and more business migrate to machines over two decades. Still, many said they were disappointed the day had finally come and felt uncertain about the future.
"We all knew it was going to end," said Jerry Israelov, who has spent 25 years in CME's open-outcry pits in Chicago, including the last 10 years trading wheat futures.
The closures will mark the end of an era for the futures industry, which built itself around the pits in Chicago. Traders made and lost fortunes there and treated the trading floors like a schoolyard.
When markets were slow, typically around the holidays, pit traders would find other ways to entertain themselves, like making bets on how many cheeseburgers or chicken nuggets a clerk could eat in a few minutes. And when conflicts arose, they sometimes came to blows, earning their reputations as a rough-and-tumble group.
“My best memory is 20 years ago when it was much busier. The pits were vibrant," said Scott Shellady, who is in his 28th year of trading and wears a trademark cow-patterned jacket on CME's agricultural floor in Chicago.
CME PITS LATEST TO BITE THE DUST
Chicago's 167-year-old grain pits are just the latest to bite the dust. CME's biggest rival, IntercontinentalExchange Inc (ICE.N), in 2012 silenced 142 years of open-outcry trading in New York when it closed the trading rings for sugar, cocoa and other soft commodities. They were the last of ICE's markets to go all electronic.
More than a decade earlier, the London International Financial Futures Exchange became the first major futures house to abandon open outcry when it switched abruptly to all-electronic trading.
The London Metal Exchange, the world’s biggest and oldest metal exchange, has committed to keeping its open-outcry trading alive. The 138-year-old exchange is the only financial market in Europe that still uses a trading floor with traders standing in the “ring” – a circle of padded red leather seats - using arcane hand signals in boisterous, intense sessions.