Everything about Chicago Board Of Trade totally explained
The
Chicago Board of Trade (
CBOT), established in
1848, is the world's oldest
futures and options exchange. More than 50 different
options 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 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 may meet and 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(External Link
), 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
19 October 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
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's 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Richard J. Daley Center superseded it in 1965.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
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
4 May 1977, the
Chicago Board of Trade Building was designated a
Chicago Landmark(External Link). 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.
The Pit
The
pit is a raised
octagonal structure where
open-outcry trading takes place. 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 (External Link).
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'd 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'd place his index finger on his chin. If the trader wants to sell five contracts at a price of eight, they'd 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.
News lines
- 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."
Further Information
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