After 156 years, the trading floor of the Kansas City Board of Trade is to shut down, marking another step in the sweeping move to electronic trading.
The Kansas exchange, where wheat futures and options have traditionally changed hands thanks to traders yelling orders in pits and making wild gestures, will close its trading floor on June 28 following an announcement by parent company CME Group that it will move all wheat trading to Chicago.
CME, owner of the Chicago Mercantile Exchange, the Chicago Board of Trade and other markets, bought the Kansas exchange in December for $126 million. The Chicago institution will operate an electronic trading center on the floor of the Kansas City Board of Trade until the end of September so traders here can execute trades on CME’s system, the Kansas City Star reported.
Joe Barker, who buys and sells contracts on the exchange for CHS Hedging told Marketplace that back in 2007, about 80 percent of his branch's trades were completed on the floor of the exchange. “Now, it's less than 5 percent. That's the way the industry has been moving,” he says. Over the last decade, exchanges in Chicago, New York and Minneapolis have all closed or merged with larger exchanges.
Last summer, the open-outcry commodities markets in New York, the ICE Futures U.S exchange, once epitomized in the 1983 movie 'Trading Places', announced it too was closing down. Since October 22, 2012, all options listed on ICE Futures U.S have been trading exclusively through its electronic trading system.
The move to close down the trading floor came four years after ICE shifted all futures trading to computers. The trading floor had continued to be a venue for options on futures as these were seen as too complex to trade only electronically.
However, as options functionality on the ICE platform increased, electronic trading of options accelerated. In April 2011, electronic execution accounted for approximately 10% of options volume, compared to more than 75% in 2012, ICE said at the time.
Last month, ICE announced that it plans to buy NYSE Euronext $8.2 billion, driving some to question whether the trading floor of the revered New York Stock Exchange will also one day shut down.
These days, only about 12 percent of buy and sell orders go through the trading floor at 11 Wall Street, US News reported.
Still some experts argue that the NYSE Trading floor still serves a strong purpose and should not shut down.
"It's the trading place of last resort," says Menachem Brenner, a professor of finance at New York University, told US News late last year. He pointed out that “traders on the exchange floor are typically able to produce quotes for stock prices that serve as benchmarks followed by other exchanges.”
The NYSE floor also tends to see a spike in volume when there's some kind of anomaly in the market, which could indicate that buyers and sellers migrate to the NYSE when there's a hint of trouble, the paper suggested.