Nothing to outcry about

AS A new trading year began this week in the art-deco tower that houses the Chicago Board of Trade, big men were clustered around pits dealing in futures and options tied to various commodities.

Their approach dates back to the building’s opening in 1930, and was once familiar in cities throughout America. But after decades of attrition, on December 30th the CME Group (named after the Chicago Mercantile Exchange) closed the “open outcry” trading pits that it operated in New York. In America, Chicago’s hue and cry has become unique.

Even this exchange is a shadow of its former self. There are now nine pits, down from 32 in 2007. A once teeming trading floor was closed in 2015. Most activity in the contracts still traded in the pits is electronic. No one in the surviving CME pits in Chicago seems worried by the New York closures.

But they have a symbolic impact. The markets have long been a colourful, fractious component of America’s financial architecture.

They have always lured the ambitious. Two alumni of New York’s commodity markets have joined the Trump administration. Gary Cohn parlayed a cab ride into a job as a silver trader, into a position at Goldman Sachs, and, eventually, that bank’s presidency. His new post is as Mr Trump’s chief economic adviser. Vincent Viola swapped a job at an exchange for Virtu Financial, the electronic-trading firm he founded that made him a fortune. He will be nominated as army secretary.

Tales of failure as well as of success abound. A scandalous default in the potato market in the 1970s wiped out several firms. A failure to corner the silver market in the 1980s led to the spectacular bankruptcy of one of America’s richest families. The destruction of the World Trade Centre in 2001 obliterated the floor used by four of New York’s commodity exchanges but even before the flames were extinguished they were back to business, some in small temporary facilities like technological junk shops, knit together by familiar cries.

In the end it was not scandal or terrorism that undermined open outcry; it was efficiency.

Computers turned out to be quicker, cheaper and more precise than humans. Almost all the important contracts ended up in the hands of the CME Group, which was first to realise that the most dynamic business was not in traditional commodities but in interest rates, stock indices and currencies. The strong volume these products provided enabled the CME to create economies of scale in clearing and trading systems, and to scoop up other exchanges as they faltered.

Bit by bit, the exchange has shed its real-estate assets. The Board of Trade building was sold in 2012 and the equivalent New York facility in 2013. This contraction, however, is far from reflecting the health of overall business—which is booming. In 2016 Brexit, the American election and India’s monetary experimentation, to cite just three examples, each created demand for futures and options tied to interest rates, precious metals and currency.

Transaction volume on the CME grew by 12% to reach a new record. The markets are more important than ever, even if, increasingly, they can be neither seen nor Heard.