Chicago Board of Trade
Encyclopedia
The Chicago Board of Trade (CBOT), established in 1848, is the world's oldest futures and options exchange
. More than 50 different option
s and futures contract
s 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 Chicago Mercantile Exchange
(CME) to form the CME Group, a CME/Chicago Board of Trade Company
. CBOT and three other exchanges (CME, NYMEX, and COMEX) now operate as designated contract markets (DCM) of the CME Group.
The concerns of U.S.
merchant
s to ensure that there were buyers and sellers for commodities
have resulted into forward contract
s 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 contract
s. In 1919, the Chicago Butter and Egg Board
, 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
.
s 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superseded it in 1965.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
. The building is now a National Historic Landmark
. Today the Board of Trade Building is closely joined by numerous skyscraper
s in the heart of Chicago's busy Loop commercial neighborhood.
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
.
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. For historical purposes, an illustrated project to record the hand signal language used in CBOT's trading pits has been compiled and published.
With the rise of electronic trading the importance of the pit has decreased substantially for many contracts though the pit remains the best place to get complex option spreads filled.
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
. More than 50 different option
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
s and futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s are traded by over 3,600 CBOT members through open outcry
Open outcry
Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders...
and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million contracts. On 12 July 2007, the CBOT merged with the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
(CME) to form the CME Group, a CME/Chicago Board of Trade Company
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
. CBOT and three other exchanges (CME, NYMEX, and COMEX) now operate as designated contract markets (DCM) of the CME Group.
History
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
merchant
Merchant
A merchant is a businessperson who trades in commodities that were produced by others, in order to earn a profit.Merchants can be one of two types:# A wholesale merchant operates in the chain between producer and retail merchant...
s to ensure that there were buyers and sellers for commodities
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
have resulted into forward contract
Forward contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. It costs nothing to enter a...
s to sell and buy commodities. Still, credit risk
Credit risk
Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty 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 contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s. In 1919, the Chicago Butter and Egg Board
Chicago Butter and Egg Board
The Chicago Butter and Egg Board, founded in 1898, was a spin-off entity of the Chicago Board of Trade . In the year 1919, it was re-organized as the Chicago Mercantile Exchange . Roots of the Chicago Butter and Egg Board are traceable to the 19th century.Initially, the Chicago Butter and Egg Board...
, 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
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
(CME).
On October 19, 2005, the initial public offering
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
(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
CME Group
The CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
.
The Merger
A merger of the CBOT and CME had been a matter of common speculation for many years before it actually came to pass.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 architectArchitect
An architect is a person trained in the planning, design and oversight of the construction of buildings. To practice architecture means to offer or render services in connection with the design and construction of a building, or group of buildings and the space within the site surrounding the...
s Holabird & Root
Holabird & Roche
The architectural firm of Holabird & Root was founded in Chicago in 1880. Over the years, the firm's designs have changed many times — from the Chicago School to Art Deco to Modern Architecture to Sustainable Architecture.-History:...
that is 605 feet (184 m) tall, the tallest in Chicago until the Richard J. Daley Center
Richard J. Daley Center
The Richard J. Daley Center, also known by its courtyard Daley Plaza and named after longtime mayor Richard J. Daley, is the premier civic center of the City of Chicago in Illinois. Situated on Randolph and Washington Streets between Dearborn and Clark Streets, the Richard J. Daley Center is...
superseded it in 1965. This Art Deco
Art Deco
Art deco , or deco, is an eclectic artistic and design style that began in Paris in the 1920s and flourished internationally throughout the 1930s, into the World War II era. The style influenced all areas of design, including architecture and interior design, industrial design, fashion and...
building incorporates sculptural work by Alvin Meyer and is capped by a 31 foot (9.5 m) tall statue of the Roman goddess
Goddess
A goddess is a female deity. In some cultures goddesses are associated with Earth, motherhood, love, and the household. In other cultures, goddesses also rule over war, death, and destruction as well as healing....
Ceres in reference to the exchange's heritage as a commodity market. Ceres is faceless because its sculptor, John Storrs
John Storrs
John Storrs , also known as John Henry Bradley Storrs, John Bradley Storrs and John H. Storrs, was an American modernist sculptor....
, 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
Chicago Board of Trade Building
The Chicago Board of Trade Building is a skyscraper located in :Chicago, Illinois, United States. It stands at 141 W. Jackson Boulevard at the foot of the LaSalle Street canyon, in the Loop community area in Cook County. Built in 1930 and first designated a Chicago Landmark on May 4, 1977, the...
was designated a Chicago Landmark
Chicago Landmark
Chicago Landmark is a designation of the Mayor of Chicago and the Chicago City Council for historic buildings and other sites in Chicago, Illinois, United States. Listed sites are selected after meeting a combination of criteria, including historical, economic, architectural, artistic, cultural,...
. The building is now a National Historic Landmark
National Historic Landmark
A National Historic Landmark is a building, site, structure, object, or district, that is officially recognized by the United States government for its historical significance...
. Today the Board of Trade Building is closely joined by numerous skyscraper
Skyscraper
A skyscraper is a tall, continuously habitable building of many stories, often designed for office and commercial use. There is no official definition or height above which a building may be classified as a skyscraper...
s 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. 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
Frank Norris
Benjamin Franklin Norris, Jr. was an American novelist, during the Progressive Era, writing predominantly in the naturalist genre. His notable works include McTeague , The Octopus: A Story of California , and The Pit .-Life:Frank Norris was born in Chicago, Illinois in 1870...
.
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. For historical purposes, an illustrated project to record the hand signal language used in CBOT's trading pits has been compiled and published.
With the rise of electronic trading the importance of the pit has decreased substantially for many contracts though the pit remains the best place to get complex option spreads filled.
News lines
- 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 ExchangePhiladelphia Stock ExchangePhiladelphia Stock Exchange , now known as NASDAQ OMX PHLX, is the oldest stock exchange in the United States, founded in 1790. It is now owned by NASDAQ OMX and located at 1900 Market Street, in Center City Philadelphia.-History:...
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 ExchangeChicago Mercantile ExchangeThe Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
announced the purchase of the Chicago Board of Trade for $8 billion in stock, joining the two financial institutions as CME Group, IncCME GroupThe CME Group bases prices for US gasoline on Brent Crude rather than West Texas Intermediate Crude , which many believe is responsible for artificially high gas prices for US consumers...
. 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 marketDerivatives marketThe derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets....
. - On July 9, 2007 CBOT Shareholders approve merger with the Chicago Mercantile ExchangeChicago Mercantile ExchangeThe Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
"creating the largest derivatives market ever."
See also
- Commodity Exchange ActCommodity Exchange ActCommodity Exchange Act is a federal act passed in 1936 by the U.S. Government ....
- Horatio G. LoomisHoratio G. LoomisLoomis was a native of Vermont who came to Chicago as a pioneer settler in 1834. A grocer by trade, Loomis also was an entrepreneur who became involved in many business fields, including commodities trading....
- List of futures exchanges
- List of traded commodities
- New York Mercantile ExchangeNew York Mercantile ExchangeThe New York Mercantile Exchange is the world's largest physical commodity futures exchange. It is located at One North End Avenue in the World Financial Center in the Battery Park City section of Manhattan, New York City...
- Board of Trade of City of Chicago v. OlsenBoard of Trade of City of Chicago v. OlsenBoard of Trade of City of Chicago v. Olsen, 262 U.S. 1 , is a decision by the Supreme Court of the United States, in which it upheld the Grain Futures Act as constitutional under the Commerce Clause of the United States Constitution....
262 U.S. 1 (1923) - Chicago Board of Trade v. Christie GrainChicago Board of Trade v. Christie GrainChicago Board of Trade v. Christie Grain, 198 U.S. 236 , was a decision by the United States Supreme Court, which upheld sales of American grain for future delivery provided for by the rules of the Chicago Board of Trade of the state of Illinois. Justice Oliver Wendell Holmes, Jr...
198 U.S. 236 (1905)
External links
- Chicago Board of Trade
- TradingPitHistory.com A website to preserve the trading pit hand signals used at CBOT
- Chicago Landmarks: Chicago Board of Trade Building
- Chicago Board of Trade Membership overwhelmingly approves restructuring
- CME Group
- Commodities Trader at the Chicago Board of Trade
- News on the Merger: Chicago bulls