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Chicago Board of Trade

Coordinates: 41°52′40″N 87°37′56″W / 41.877821°N 87.632285°W / 41.877821; -87.632285
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41°52′40″N 87°37′56″W / 41.877821°N 87.632285°W / 41.877821; -87.632285

Chicago Board of Trade
TypeSubsidiary
FoundedApril 3, 1848
OwnerCME Group
Websitecbot.com

The Chicago Board of Trade (CBOT), is an American futures and options exchange that was founded in 1848.[1] On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group. CBOT and three other exchanges (CME, NYMEX, and COMEX) now operate as designated contract markets (DCM) of the CME Group.[2]

History

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Men working the floor at the Chicago Board of Trade as photographed by Stanley Kubrick for Look magazine in 1949
Trading floor at the Chicago Board of Trade in 1993

The Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. It was created as a centralized venue where buyers and sellers could meet to negotiate and formalize forward contracts. The idea originated from a conversation between Thomas Richmond and W. L. Whiting, who discussed the potential benefits of forming a board of trade. Their exchange led to a March 13 meeting of merchants and businessmen who supported the initiative, resulting in a resolution to create the institution and draft a constitution. A committee was then formed to develop bylaws, which were officially adopted by 82 charter members on the first Monday of April. This development emerged from broader concerns among U.S. merchants about ensuring the availability of reliable markets for commodity exchange. To address these challenges, they had turned to forward contracts, though credit risk remained a persistent issue – one that the CBOT was specifically designed to help manage.

In 1864, the CBOT listed the first standardized "exchange traded" forward contracts, which were called futures contracts. In 1919, the Chicago Butter and Egg Board,[3] 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). The Board's restrictions on trading after hours on any prices other than those at the Board's close gave rise to a 1917 legal challenge, the Chicago Board of Trade v. United States. The U.S. Supreme Court held that language of the Sherman Antitrust Act of 1890– which outlawed "every contract ... in restraint of trade" – should not be taken literally, but rather should be interpreted under a "rule of reason".

On October 19, 2005, the initial public offering of 3,191,489 CBOT shares was priced at $54.00 a share. On its first day of trading the stock closed up 49% at $80.50 on the NYSE.

In 2007, the CBOT and the Chicago Mercantile Exchange merged to form the CME Group.

Chicago Board of Trade Building

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Main article: Chicago Board of Trade Building
Chicago Board of Trade Building

Since 1930, the Chicago Board of Trade has been operating out of 141 West Jackson Boulevard, Chicago. The building was designed by Holabird & Root and is 605 feet (184m) tall, the tallest in Chicago until the Richard J. Daley Center superseded it in 1965. The Art Deco building incorporates sculptural work by Alvin Meyer and is capped by a 31-foot-high (9.5 m) statue of the Roman goddess Ceres in reference to the exchange's role in trading grain. It has been claimed that the statue was left faceless because its sculptor, John Storrs, thought that no one would ever be able to see the face on top of a forty-five-floor skyscraper. However, it may be that the smooth surface of the aluminium statue is an element of the streamlined look of Art Deco.[4]

In 1977, the CBOT building was designated a Chicago Landmark and a National Historic Landmark the following year. It is now one of many skyscrapers in the city's Loop commercial district.

Trading platforms

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The Pit

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Clock on the front of the building

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: a story of Chicago is also the title and subject of a 1903 novel by Frank Norris.[5]

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 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 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.[6]

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. In 2015, the Chicago Board of Trade officially eliminated the use of open outcry in all agricultural products in favor of electronic trading, a controversial move that angered some long-time traders.[7]

News lines

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Board of Trade building
Further information: CME Group
  • 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 CBOT 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 could 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 institutions as CME Group, Inc.
  • On July 9, 2007, the announced merger with the Chicago Mercantile Exchange was approved by CBOT shareholders, "creating the largest derivatives market ever."[8]

See also

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References

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Notes

  1. ^ Siler, Julia Flynn (1989-02-21). "At Chicago Boards, Styles Differ". The New York Times. ISSN 0362-4331. Retrieved 2020-02-24.
  2. ^ "Futures & Options Trading for Risk Management". CME Group. 2012-09-24. Retrieved 2012-10-02.
  3. ^ "Futures & Options Trading for Risk Management – CME Group". Cme.com. 2012-09-24. Retrieved 2012-10-02.
  4. ^ "Ceres". Wichita Art Museum. Retrieved 2025-05-23.
  5. ^ The Pit by Frank Norris – Project Gutenberg. Gutenberg.org. 2003-08-01. Retrieved 2012-10-02.
  6. ^ "TradingPitHistory.com". CBOT Trading Pit Hand Signals.
  7. ^ "Rowdy 'open outcry' reaching quiet end for longtime CBOT corn trader". Reuters. 2015-02-06. Retrieved 2023-08-19.
  8. ^ "Topic Galleries - chicagotribune.com". Chicago Tribune.[permanent dead link]

Bibliography

  • Michael Durica (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 3-939533-05-X.
  • Oliver Ryan (Nov. 14, 2005). "Chicago's Making A Contracts Killing". Fortune, p. 22.

Further reading

  • Emily Lambert (2011). The Futures: The Rise of the Speculator and the Origins of the World's Biggest Markets. Basic Books.
  • Erika Olson (2011). Zero-Sum Game: The Rise of the World's Largest Derivatives Exchange. John Wiley & Sons.
  • Cari Lynn (2004). Leg the Spread: A Woman's Adventures Inside the Trillion-Dollar Boys' Club of Commodities Trading. Random House/Broadway. [1]
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