The
Chicago Board of Trade
(
CBOT), established in 1848, is the world's oldest
futures and options exchange. More
than 50 different
option and
futures contracts are traded by
over 3,600 CBOT members through
open
outcry and
eTrading. Volumes at the
exchange in 2003 were a record breaking 454 million contracts. On
12 July 2007, the CBOT
merged with the
CME
under the
CME Group holding company and
ceased to exist as an independent entity.
History
The
concerns of U.S.
merchants to ensure that there were buyers and
sellers for commodities have resulted into
forward contracts to sell and buy
commodities. Still,
credit risk
remained a serious problem. The CBOT took shape to provide a
centralized location, where buyers and sellers can meet to
negotiate and formalize forward contracts.
In 1864, the CBOT listed the first ever standardized "exchange
traded" forward contracts, which were called
futures contracts. In 1919, the
Chicago Butter and Egg
Board[51038], a spin-off of the CBOT, was reorganized to
enable member traders to allow future trading, and its name was
changed to
Chicago
Mercantile Exchange (CME).
On
October 19,
2005,
the
initial public offering
(IPO) of 3,191,489 CBOT shares was priced at $54.00 (USD) per
share.
On
its first day of trading the stock closed up +49% at $80.50 (USD)
on the NYSE
.
In 2007, the CBOT and the CME merged to form the
CME Group.
The Building
Board of Trade building
Since 1930, the Chicago Board of Trade has been operating out of
141 West Jackson Boulevard, Chicago.
It is housed in a
building designed by architects Holabird & Root that is 605 feet
(184 m) tall, the tallest in Chicago until the Richard
J.
Daley Center superseded it in 1965. This
Art Deco building incorporates sculptural work by
Alvin Meyer and is capped by a 31 foot (9.5 m) tall statue of
the Roman
goddess Ceres in reference to the exchange's
heritage as a
commodity market.
Ceres is faceless because its sculptor,
John Storrs, believed that the forty-five story
building would be sufficiently taller than any other nearby
structure and as a result that no one would be able to see the
sculpture's face anyway.
On
May 4, 1977, the Chicago Board of
Trade Building
was designated a Chicago Landmark[51039]. The building is now a
National Historic Landmark.
Today the
Board of Trade Building is closely joined by numerous skyscrapers in the heart of Chicago's busy
Loop
commercial
neighborhood.
Trading platforms
The Pit
The
pit is a raised
octagonal structure where
open-outcry trading takes place. Operating
during regular trading hours (RTH), the CBOT trading floor contains
many such pits.
The steps up on the outside of the
octagon
and the steps down on the inside give the pit something of the
appearance of an amphitheater, and allow hundreds of traders to see
and hear each other during trading hours. The importance of the pit
and pit trading is emphasized by the use of a stylized pit as the
logo of the CBOT. "The Pit" is also the title and subject of a
classic novel (1903) by
Frank Norris
[51040].
Trades are made in the pits by bidding or offering a price and
quantity of contracts, depending on the intention to buy (bid) or
sell (offer).
This is generally done by using a physical representation of a
trader's intentions with his hands. If a trader wants to buy ten
contracts at a price of eight, for example, in the pit he would
yell "8 for 10", stating price before quantity, and turn his palm
inward toward his face, putting his index finger to his forehead
denoting ten; if he were to be buying one, he would place his index
finger on his chin. If the trader wants to sell five contracts at a
price of eight, they would yell "5 at 8", stating quantity before
price, and show one hand with the palm facing outward, showing 5
fingers. The combination of hand-signals and vocal representation
between the way a trader expresses bids and offers is a protection
against misinterpretation by other market participants.
Electronic trading
Electronic trading platforms
operate virtually around the clock.
News lines
Board of Trade building
- On August 1, 1974,
trading at The Chicago Board of Trade was halted after an anonymous
caller said a bomb had been placed in the building.
- On
October 22, 1981,
trading was halted on the Chicago Board of Trade and the Philadelphia
Stock Exchange
after anonymous callers said bombs had been placed
in those buildings.
- On August 1, 2006,
the CBOT launched side-by-side trading for agricultural futures.
Orders can now be traded electronically or placed by pit traders
using open outcry, creating a single pool of liquidity.
- On October 17, 2006, the Chicago Mercantile Exchange
announced the purchase of the Chicago Board of Trade for $8 billion
in stock, joining the two financial institutions as CME Group, Inc. CBOT currently uses outsourced
technology platforms, but will move to CME's Globex trading system.
This will provide much of the merger's anticipated savings. The
merger will also strengthen the combined group's position in the
global derivatives market.
- On July 9, 2007 CBOT
Shareholders approve merger with the Chicago Mercantile Exchange
"creating the largest derivatives market ever."
See also
References
- Durica, Dr. Michael (2006). Product Development for Electronic
Derivative Exchanges: The case of the German ifo business climate
index as underlying for exchange traded derivatives to hedge
business cycle risk. Pro Business. Berlin. ISBN 10:
3-939533-05-X.
- Ryan, Oliver (Nov. 14, 2005). "Chicago's Making A Contracts
Killing". FORTUNE, p. 22.
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