In a move likened to two rival sports teams playing home games on the same pitch, traders from Chicago’s Mercantile Exchange are moving onto the floor of the Chicago Board of Trade (CBOT) today.
The marriage of convenience has produced the world’s largest and most diverse financial exchange where daily trading averaged US$4.5 trillion in contracts last year. Rival NYSE Euronext averaged US$2.5 trillion.
Chicago has been a global center for derivatives ever since the CBOT began offering the world’s first futures contracts in 1851, based on the likely prices of farming products in the US Midwest.
While the merger was welcomed by most traders as the only way to remain competitive as exchanges around the world formed alliances and launched competing products, working in the same room with their arch rival was a bitter pill for some to swallow.
For more than a century the exchanges were rival fraternities jostling for status, power and customers.
The CBOT was older, better-known and the bastion of the city’s South Side Irishmen. The scrappier Merc, founded in 1898, was dominated by traders from the North Side and managed to grow to twice the CBOT’s daily volume.
Traders drank in different bars and used different hand signals and lingo in the pits.
“If we had proposed it five years earlier, we might have got shot,” former CBOT chairman Charles Carey, who is now the group’s vice chairman, told Forbes magazine.
But in the past five years, traders have seen their pits empty out as electronic trading took over, now accounting for 80 percent of the volume on the combined exchanges.
Over-the-counter trading, which bypasses exchanges entirely, is also threatening their profits.
The Merc was forced to up its bid following a takeover campaign by Intercontinental Exchange (ICE).
The US$9.4 billion merger was completed in July.
An accident of real estate softened the blow for the CBOT. Since it owned its building, the Merc will get out of its lease and move into the CBOT’s stunning art deco landmark a few blocks away.
Construction began in September, a massive undertaking that is still under way.
Phone and data lines have to be moved, trading pit platforms are being shifted around the room and built, and noise has to be kept to a minimum during trading hours.
The Merc’s equities traders will be the first to move today. The commodities traders won’t arrive until May 19.
“It’ll be different. The cultures are different,” said Bill Brannigan, an independent S&P futures broker who joined the Merc in 1977.
“I think we’ll get the looks on the stairs when we open up,” he said. “And lets face it, we are going to their house, so we’re kind of working our way in there.”
Most traders realize the merger is only way to maintain their market share. And merging the floors will hopefully bring new life to the pits.
“It’s this huge, monster room and when they have it up and running at full capacity it’ll be dynamic,” Brannigan said in an interview on the last day he traded at the Merc.
“When they bring people down to that floor it’s going to rejuvenate it. The noise. The noise level’s going to different. It’ll be extremely exciting ... there’s going to be people everywhere,” he said.
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