Here's an example of how the online
and computer revolution are continuing
to eliminate and consolidate jobs.
Work is less and less about moving
pieces of paper around and more about
manipulating electronic bits and bytes.
kelly
from Business Week 9/7/98
ELECTRONIC TRADING: A HUE AND CRY IN THE PITS
Commodities traders fear that an electronic system will wipe them off
the floor
At the Chicago Board of Trade these days, there's a palpable sense of
fear and loathing in the huge bond pit. It's not because business at
the world's largest futures exchange is bad. Indeed, the financial
crisis in Asia has the thousands of shouting, hand-waving traders
executing record numbers of transactions this year.
The fear is of the future. On Sept. 8, Cantor Fitzgerald, the world's
largest bond broker--and a member of the CBOT--plans to begin
electronic trading in futures contracts on U.S. Treasury bonds and
notes. The contracts represent about 50% of the CBOT's total trading
volume. ''We're going to offer the same service for about 75% less,''
says Howard Lutnick, Cantor's CEO.
Based on the experience of exchanges outside the U.S., the ''open
outcry'' method of trading futures contracts pioneered in Chicago
could soon be replaced by markets in cyberspace. That could profoundly
affect the 150,000 people who work for the Chicago exchanges. ''We've
been amazed at the rapid acceleration of [electronic trading] in the
last six months,'' says Patrick H. Arbor, chairman of the CBOT. The
Chicago Mercantile Exchange has lost much of its currency business to
electronic rivals and may soon face competition on its Eurodollar
contract, which accounts for 48% of its volume.
QUICK WINNER. The experience of European exchanges is sobering. Last
year, Matif, the French futures exchange, began trading its contracts
on an electronic network at the same time as traders were buying and
selling on the exchange floor. In that head-to-head battle, the open
outcry pit lasted all of two weeks. Matif is now all-electronic. Even
more unsettling is the experience of LIFFE, the London futures
exchange. After losing its largest contract, the German bund, to the
electronic Deutsche Terminborse (now Eurex Deutschland), LIFFE
announced plans to launch an electronic platform that will run
concurrently with its floor. Many believe the London floor will
disappear.
The Commodity Futures Trading Commission has yet to give regulatory
approval to Cantor's plan, but few in the industry doubt that it will,
despite lobbying by CBOT and other exchanges. Already, Cantor has more
than 20,000 computer terminals on the desktops of bond traders, who
are also bond futures traders. ''There's going to be a lot of
dislocation and a lot of angst,'' says Arthur W. Hahn, a Chicago
lawyer with Katten Muchin & Zavis, who has represented the LIFFE
exchange.
For years, Chicago's futures exchanges have argued that their open
outcry systems were the most liquid markets in the world and immune to
cheaper electronic trading systems. But Hahn points out they ''have
been working in a monopoly environment. In the new world, there's
going to be real competition.''
A MONSTER? The CBOT, where the price of an exchange seat has plunged
nearly 50% in the past year, is at least hedging against a possible
electronic future. On Aug. 18, members voted to operate the exchange's
overnight electronic network, Project A, during the daytime as well.
''We're making a preemptive strike on any entity which might emerge as
our competitor,'' says Arbor. The electronic trading will begin on
Sept. 18. That's fine, says Lutnick. ''They've signaled the demise of
the pit in Chicago.''
That's what traders, brokers, runners, and clerks in the bond pits
fear. Jacob J. Morowitz, head of USA Trading, which clears trades for
about 400 local traders at the CBOT and Merc, says that the exchange
should be enhancing the open outcry system, not replacing it. ''They
could be creating a monster.''
Whether the monster turns out to be a predator or a savior remains to
be seen. But it's clear that fear and loathing in the pits will
persist.
By Andrew Osterland in Chicago
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