Technology has long benefited Chicago's futures exchanges, historians say, even though electronic trading is the final blow for its human brokers, rendering obsolete the "open-outcry" futures pits on the trading floor where they have worked for generations.
CME Group Inc plans to close most of these pits as early as July 6, in favor of all-electronic trading, after floor-based volumes fell to 1 percent of total business. Options pits will remain open.
The rough-and-tumble times of the floor were an iconic part of Chicago, and their passing is lamented by historians and traders alike - even though history suggests traders will swiftly adapt.
"It's a whole culture that has disappeared, and it was colorful and lively. I am sorry to see it go, but such is progress," said Libby Mahoney, curator at the Chicago History Museum.
But she added: "It was a cutthroat business, too. Chicago traders are considered the best in the world for a reason. They are pretty hard-nosed."
Chicago is where modern-day futures trading began after a group of grain merchants formed the Chicago Board of Trade (CBOT) in 1848, the year that saw the arrival of railroads in the city that was to become the country's busiest rail hub.
It was also that year that the I&M Canal was completed, connecting the Chicago and Illinois rivers to open another artery of commerce.
"Location, technology and trade seem to be in our blood. All these factors come together to create the right environment for this trading," said Mahoney.
Chicago was ideally situated as a trading center, located between fertile Midwest farmland and population centers on the East Coast. Lake Michigan offered access to ships bearing lumber, iron, coal and grain.
"It really was the first central market for world trade. It established a market for the farmers, a central market where prices could be established," Mahoney said.
The CBOT's founding followed the opening in 1842 of the first steam-powered grain elevator in Buffalo, New York.
In the next two decades, merchants devised ways to trade grain in bulk rather than haggle over sacks of wheat from individual farms. Key developments included a standardized wheat grading system, and warehouse receipts that had the same value as physical grain.
Later, the telegraph and the telephone facilitated the flow of information between Chicago and the rest of the world about supply and demand.
As the CBOT grew, pit traders thrived in the open-outcry environment where it was possible for anyone with street smarts to make a fortune in the markets through sheer hustle and nerve.
Even in the last decade, as smartphones and tablet computers became commonplace in the pits, the dwindling number of floor traders still used the same hand signals as their grandfathers and relied on reading the mood and body language of their colleagues to gain a trading edge.
Not Waving but Drowning?
The electronic trading systems that emerged in the 1990s needed none of that.
CME Group, the parent of the CBOT, launched screen-based trade in 1992. Electronic trading boosted volumes and revenue.
But it also opened up competition from newcomers, like the Intercontinental Exchange Inc, or ICE, that were fully electronic and did not need trading pits.
The demise of the open-outcry pits was foreshadowed at least since 2006, when the volume of trade in CBOT grain futures conducted electronically first surpassed pit-traded volume.
By then, London's LIFFE and Paris-based Matif exchanges had closed their open-cry pits due to the expansion of e-trade led by the Euronext, an all-electronic exchange based in Frankfurt.
"Once they (the CBOT and the CME) realized the future was electronic, they made the change to a for-profit ownership and public ownership," said Craig Pirrong, a finance professor at the University of Houston. "The electronic revolution essentially forced the change in organizational form on these exchanges."
(Reporting by Julie Ingwersen; Editing by Lisa Shumaker)