Thoughts on the potential shifts with loss of trading pits...

[chet everett]

If traders want to get some exercise there are options --

The social aspect is probably harder to simulate...

[Drover]

Originally Posted by rzzzz

Right, no longer will white people in blazers dominate wealth accumulation via the financial exchanges.

Yeah, they can wear T-shirts in their home offices now.

[UC18]

I just hope nobody tells Chet that the Stockyards, Steel Mills, and Marshall Fields are gone, too.

[emathias]

I came to Chicago for a semester as an extension during university, but stayed because I got an internship in technology with the commodities brokerage subsidiary of Cargill, one of the largest agribusinesses in the world with an enormous hedging and trading aspect to their business. One of the guys I interviewed with looked exactly like Gordon Gekko, talked like Gordon Gekko, even acted a bit like Gordon Gekko. Teller has described floor trading as "heroin," and she's right. I was never a trader or directly involved with the trading, but I've been on the floors before they became ghost towns. Before 9/11 and the merger of CME and CBOT one of my favorite things was to take visitors to the viewing decks for both those exchanges. In their office that now occupies one of the original trading floors at CBOT, which looks north over Lasalle, Peak6 has a "painting," if you can call it that, that beautifully captures the chaos of the floor. From a distance it just looks like a random spattering of colors, but as you get closer you see that each point of color is a pea-sized glob of paint that is a person and you see that these "people" are the crowds of traders in their floor jackets. They have a lot of great art, but that's one of my favorite pieces anywhere.

All that said, it was apparent to me even in 1995 when I first came here that floor trading was on its way out. Most of Europe was already fully electronic even in 1995 and I predicted that floor trading in the U.S., too, would be gone within 10 years. It's taken longer than that, but by 2005 electronic trading did already widely eclipse floor trading in volume and the number of pits was a fraction of what it had been.

Realistically the chances of someone hitting it truly big during the height of floor trading was still pretty small. Sure, it could and did happen, but it wasn't a large percentage of the workforce that benefited from that. The benefit to the city at large was the large number of steady support roles, a decent middle-class income for people with limited education and mostly on-the-job training. Even during most of the transition to technology that existed to a certain extent. When I graduated from college in 1996, a lot of people could get entry-level tech jobs just by showing ambition and willingness to work hard and companies would train them. To me, the loss of the ability to "win the lottery" by becoming a wealthy trader after being spotted funds by your employer isn't that big of a deal, but the loss of the ability of someone with minimal education to network their way into a middle class career path is a lot bigger loss. When I started a fair number of people were college educated, but quite a few, even in the tech side, were simply people who got trained after being vouched for my their cousin or neighbor or friend. That rarely happens anymore - connections are still important, but only after you have that voucher called a diploma.

And, realistically, there's a reason Chicago has a ton of trading-related startups. Some of them are started by former floor traders - retail brokers TradeMonster and OptionsHouse recently merged, and TM was started by the former floor traders and now CNBC stars the Najarian brothers, and OptionsHouse was started by Peak6, a more old-school trading company that leverages technology well. But there are also financial startups started by tech workers with financial experience who bring in traders and trading insiders for acumen and financial backing. So smart, ambitious workers can still "win the lottery," the methodology has just changed.

[chet everett]

Originally Posted by emathias

... When I graduated from college in 1996, a lot of people could get entry-level tech jobs just by showing ambition and willingness to work hard and companies would train them. To me, the loss of the ability to "win the lottery" by becoming a wealthy trader after being spotted funds by your employer isn't that big of a deal, but the loss of the ability of someone with minimal education to network their way into a middle class career path is a lot bigger loss. When I started a fair number of people were college educated, but quite a few, even in the tech side, were simply people who got trained after being vouched for my their cousin or neighbor or friend. That rarely happens anymore - connections are still important, but only after you have that voucher called a diploma.

And, realistically, there's a reason Chicago has a ton of trading-related startups. Some of them are started by former floor traders - retail brokers TradeMonster and OptionsHouse recently merged, and TM was started by the former floor traders and now CNBC stars the Najarian brothers, and OptionsHouse was started by Peak6, a more old-school trading company that leverages technology well. But there are also financial startups started by tech workers with financial experience who bring in traders and trading insiders for acumen and financial backing. So smart, ambitious workers can still "win the lottery," the methodology has just changed.

The mergers have come about because the firms can't compete on their own, the result is less staff and less opportunity -- a narrowing of those "at the top".

The fact is that without that direct channel to exposure on the floor "worker bees" will never have the opportunity to capture the attention of the "money guys". My neighbors that are principle partners at firms like Jump or Peak6 will tell you exactly when / who gave them their "shot" and the fact is nobody who cranks code is ever gonna have that happen to 'em...

Bigger and bigger piles of cash are needed to do anything. The efforts of even Citadel to try to leverage their resources as some kind of "cloud platform" for traders has not been effective -- smart people want the whole stack under their control.

Don't kind yourself about the degrees just being a "entrance pass" either -- the scrutiny that firms make before they hire anybody includes a whole lot more than reviewing their GPA. The potential for somebody that is not appropriately trustworthy / overally self-focused to cleverly manipulate their work product is a huge concern for trading firms of any size. The decision to hire folks with "more to lose" is a conscious response to that threat...

The whole industry is moving faster and more chaotically. The current generation of "elders" may very soon be replaced by people that really are much more aligned with the thinking of Silicon Valley type libertarian business leaders. Should they embrace a more "placeless" style of operation the negative impact on Chicago and the region could be quite dramatic.

[emathias]

Originally Posted by chet everett

...
The whole industry is moving faster and more chaotically. The current generation of "elders" may very soon be replaced by people that really are much more aligned with the thinking of Silicon Valley type libertarian business leaders. Should they embrace a more "placeless" style of operation the negative impact on Chicago and the region could be quite dramatic.

That is not a Chicago or trading issue, it's an issue that applies to the entire range of industries. Automation through both software and robots will replace and/or make irrelevant well over half of adults. It's just a matter of time, and anyone who claims it won't happen because it hasn't happened yet despite being warned about since the Luddites is blind or knows it's true but is already rich and doesn't want to risk the social unrest it will bring if society doesn't figure out how to manage in a world that will have to figure out how to run a society without using necessary jobs as means to allocate resources.

Tighter resources, more people and fewer jobs could result in a near-utopian society if people accept that it won't be much longer that only the lazy and unmotivated are unemployable. Unfortunately, the current popularization of a libertarian mindset is a lot more likely to result in famine (both literal and figurative), unrest and war. I'm a fan of Julian L. Simon, who helps provide a more rational (as opposed to Ayn Rand) underpinning to libertarian thought, but his work primarily focuses on the idea that humans can solve problems and I don't think he would disagree that those problems aren't necessarily always solved best by libertarianism. My entire career is tech-based and I love technology, but I really only see two outcomes from the relentless advancement of technology: Socialism or feudalism, and no one in the U.S. has yet been able to remove the stain of Stalin and Mao and Pol Pot and the Kim dynasty from the American perception of socialism, which really only leaves one destiny.

(and you all thought Chet was the pessimist ...)

[chet everett]

Originally Posted by emathias

That is not a Chicago or trading issue, it's an issue that applies to the entire range of industries. Automation through both software and robots will replace and/or make irrelevant well over half of adults. It's just a matter of time, and anyone who claims it won't happen because it hasn't happened yet despite being warned about since the Luddites is blind or knows it's true but is already rich and doesn't want to risk the social unrest it will bring if society doesn't figure out how to manage in a world that will have to figure out how to run a society without using necessary jobs as means to allocate resources.

Tighter resources, more people and fewer jobs could result in a near-utopian society if people accept that it won't be much longer that only the lazy and unmotivated are unemployable. Unfortunately, the current popularization of a libertarian mindset is a lot more likely to result in famine (both literal and figurative), unrest and war. I'm a fan of Julian L. Simon, who helps provide a more rational (as opposed to Ayn Rand) underpinning to libertarian thought, but his work primarily focuses on the idea that humans can solve problems and I don't think he would disagree that those problems aren't necessarily always solved best by libertarianism. My entire career is tech-based and I love technology, but I really only see two outcomes from the relentless advancement of technology: Socialism or feudalism, and no one in the U.S. has yet been able to remove the stain of Stalin and Mao and Pol Pot and the Kim dynasty from the American perception of socialism, which really only leaves one destiny.

(and you all thought Chet was the pessimist ...)

It does not take a whole lot of extrapolation from recent actions of Illinois new governor AS WELL AS the actions of folks allegedly in the other party like Rahm to speculate that more than a few "thought leaders" on both side of the aisle probably agree with aspects of what emathias is laying out.

Personally I would hope that things do not move too dramatically / abruptly, but when the ability to continue to devote so much tax revenue toward just the maintenance of benefits one can't help but think drastic shifts may be the only avenue available...