CBOE Has Opened a New Open Outcry Trading Floor

Rick Santelli said it well on CNBC: “I never thought we’d see another exchange open up with actual humans, but I was wrong.”

According to a press release on their web site, the Chicago Board Options Exchange opened a new trading floor this past June.  Located in the historic Chicago Board of Trade Building, CBOE’s new trading floor spans the seventh and eighth floors, occupying more than 40,000 square feet, with double-height floor to ceiling windows that overlook Chicago’s historic LaSalle Street financial district.  This is the same location where the organization was founded in 1973.

Financial trading has long been a key part of the Chicago economy.

Long-time residents will remember the days when traders in colored jackets were a common site on downtown streets.  Using a complex system of signals they met face to face in packed pits to cut deals on a range of commodities and financial instruments.

But as with all other businesses the Internet changed everything. In the last twenty-five years open outcry has gone from being the heart of operations to an endangered activity.  Those traders who once spent all day in the pits found themselves trying to adapt to a new world: staring at computer screens all day.

We may now be seeing a significant reversal.  In an interview with Rick Santelli CBOE Global Markets CEO Edward Tilly said the move was based on customer service issues.  It seems more complicated options strategies have better outcomes when humans are in the loop.  He also mentioned liquidity as being an issue.

The transition to electronic trading has not been without issues.  As computer trading has become more prevalent the “Flash Crash,” where huge drops in the market come out of nowhere, have become a problem.  There has been debate over the role of computers in these events.  But it seems pretty clear they did not happen in the days when humans were in charge.

The CBOE would not have spent a large sum of money on this project if they perceived no value in it.  So, after twenty years of experience with an increasing level of electronic assistance, businesses may be starting to learn a lesson: Just because computers can do it does not mean they should.

For more on the history of financial trading in Chicago and the transition to computers watch the documentary “Floored.”  Click below to begin:

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