An excerpt from
Out of the Pits
Traders and Technology from Chicago to London
LIFFE Goes Online
In 2000, the London International Financial Futures and Options Exchange (LIFFE) evacuated their trading floors under the competitive pressures of the German-Swiss exchange and online technologies. The locals dispersed to the trading rooms and unemployment offices of London. All that is left of the LIFFE floor traders is the bronze cast of a man on the corner of Walbrook and Cannon Streets. The figure poses, legs widely planted, one arm flung out and head angled toward an outsized cell phone. His loose trading jacket is permanently spread in the wind that streams through the glass and stone funnel of the City’s streets. The statue was erected in 1997 to mark the fifteenth anniversary of the London financial futures markets. Just three years later the pits were gone. The metal statue gives material form to the transition from open-outcry to electronic trading in the City of London. By the millennium, the LIFFE floor trader had become the most recent casualty of the ascendance of electronic markets in financial futures.
A Perkins Silver trader who had been a LIFFE stalwart explained to me that many of his buddies from the trading floor had tried and failed to make the transition to online trading. Freddie recounted the career trajectories of his friends who had left the LIFFE. Some had gone belly up and some were driving minicabs. “It is very hard to go from making ten thousand pounds a month to that,” he lamented. He assigned dire percentages to the possibilities of success—40 percent of them had tried to move to screen trading, and about 85 percent of those had now quit. Freddie himself was struggling with the transition. I later learned from him that he had had recently had his best month yet on the screen. He had made a scant eight hundred pounds in profits. Joshua Geller, whose experience as a trader, trainer, and manager lent more credibility to his estimates, painted a similarly bleak picture of the transition from pit to screen; 5 to 10 percent would succeed, he offered. Yet at the same time that Perkins Silver was hiring the barrow boys to try their luck in online futures, the managers were also participating in the professionalization of the City that was displacing these same actors.
American Trading in European Markets
As LIFFE went digital and the old markets closed, Perkins Silver sought to step into the void and supply some of the liquidity that the London locals had supported in the rough and tumble pits. Not only the LIFFE but also Eurex [the joint German-Swiss futures and options exchange] and MATIF [the French futures exchange, now merged into Euronext] needed online market-makers to ensure that customers would find consistent markets on their exchange. Focusing on Eurex, the largest and potentially most lucrative of the three markets, Perkins Silver planned to capture 5 to 10 percent of the business on that exchange. More than that and “we would be trading with ourselves,” Adam Berger, the lead Perkins Silver manager and strategist, told me. With the expertise of Chicago locals, Perkins Silver was positioned to skim profits from the transactions that flowed through these exchanges.
As Perkins Silver was opening its office next door to the LIFFE, the pits that writhed below its windows were slowly dying, and the Chicago model of speculation was disappearing from the trading floor. But it was reappearing online as the Perkins Silver dealing room adapted to the new context of electronic markets for European financial futures. Yet the pit-trading techniques by which Chicago traders and Perkins Silver founders flourished were not easily transposed to the London marketplace or to the new regime of online trading. The face-to-face auctions, where the Perkins Silver founders had developed their talents, thrived on the controlled chaos in the pits. In contrast, electronic futures markets link traders in a neatly networked web of dealing rooms, in which market transactions are played out not in shouts and frenetic hand gestures but through the boldface type of constantly changing numbers on a graphic user interface. Yet neither the Perkins Silver executives nor the futures and foreign exchange traders who staffed their dealing room had much experience with online trading. At the same time, this radical break from open-outcry trading technology provided an opportunity for Perkins Silver’s managers to advance their ideas for improving the composition of the dealing room by recruiting new kinds of traders. In this new technological and social environment, what resources could Perkins Silver draw on to pursue its ambitions in the new markets?
The challenge facing the managers and trainers of Perkins Silver was to translate Chicago-style speculation not only for the London lads who would staff their dealing room, but also for the emerging technologies of online trading. The Perkins Silver executives were not content simply to reproduce the population of the Chicago pit, which they perceived as composed of destructive cliques. In their view, the insular networks corrupted the purity of the market and excluded potentially profitable traders who lacked the personal contacts or did not fit the ethnic or gender profile that allowed access to trading jobs. Perkins Silver wanted to build a trading team that would be most effective in the market and that would correct imperfections in the Chicago markets. They would substitute abstract principals for personal recruiting networks. Their recruitment and training strategies were based on professionalization, American-style multiculturalism, and meritocracy. The Perkins Silver managers planned to engineer the social content and context of their dealing room to create an efficient trading machine.
Recruiting Futures Traders
The new traders were the raw materials from which the managers constructed a Chicago-style trading room in London, planning the social content of the trading room to draw profits to the firm. Particularly, the Perkins Silver managers sought to take advantage of the underutilized trading talent of new university graduates, minorities, and women. They believed that individuals from these groups would bring new perspectives to reading the market, allowing Perkins Silver to profit from their elimination of barriers to participation based on race and gender. The Perkins Silver strategy was based on the idea that education, experience, and membership in different racial, ethnic, and gender categories and levels of education shaped the each individual’s vision.
The Perkins Silver trainers set out to recruit traders. Adam Berger and Joshua Geller, the two leading Perkins Silver managers, had clear ideas about who would make a good futures trader. The most obvious were those who already had some proven record in the industry. In London, these were mostly currency traders recruited from investment banks and futures traders from the floor of the LIFFE. With their dealing skills in place, these traders would have to reorient themselves from the telephones of foreign exchange dealing and the face-to-face world of the pits to a new focus on the screen. Perkins Silver recruited many barrow-boy traders who had been laid off as the City labor market sought university graduates.
Adam and Joshua interviewed some who applied in response to newspaper ads or word of mouth. The managers sought people with certain “personality characteristics” that they used as proxies for undeveloped trading skill, even while acknowledging that, as one of the codirectors of the firm told me, “no profile assures that someone will be a good trader.” Joshua had a list of traits they required, drawn from the executives’ collective experience and knowledge of traders on the CBOT trading floor. They looked for recruits who worked with aplomb under pressure, were “dogged,” ambitious, and had decent math skills. The managers preferred their recruits to be single. They observed that trading was a more difficult and stressful task when a family’s budget was on the line. A speculator should not be worried about such “extraneous” matters as whether he will be able to pay for his wife’s car or the family vacation.
The Perkins Silver managers were also looking for risk-takers. Joshua told me, “Give me a room full of outsiders. Immigrants. People who came to the city with no friends. People who are hungry.” Some of the traders he had recruited for the Chicago dealing room served as models for his London endeavors. Two prime examples were a woman who had worked on attack helicopters in the Persian Gulf and a young man who had grown up in one of Chicago’s most notorious housing projects and was determined to escape his poor neighborhood. Joshua saw material desires as evidence of ambition and drive. One of the directors of the firm was impressed with a woman who told him she wanted to be a trader because she had expensive taste. For their newest cohort of traders—the one that I was to join as an anthropologist and neophyte futures dealer—they were bringing in “graduate trainees,” a group of young men and women between the ages of twenty-one and twenty-five with university degrees. The Perkins Silver innovation was to build a group of traders that would have diverse ways of reading the market.
In mid-September of 2000, the new group that Joshua and Adam had assembled was gathered in the conference room in the Perkins Silver office. From appearances, it was a truly motley crew. Sitting next to me at the back of the table was Paul. He slouched in his chair with his knees wide apart and arms crossed, showing off his thick rings, one with a polished black stone set against his pale skin. His cagey style masked his rigorous training in math and science at Imperial College. Next to us, two neatly dressed white women were flanked by a thirty-something man with an early Beatles-era haircut and a tall, round-faced black man with short dreadlocks and a Midlands accent. Two small Asian (Indian) men, a sleepy, male Orthodox Jew, and I, “the American girl,” completed this group. The thirty-something man, was our group’s sole representative of the barrow-boy traders who dominated the trading room we were all about to enter. Trevor had worked for eleven years as a foreign exchange trader, been laid off, and spent a year traveling in Asia to tourist spots already filled with British vacationers. He broke the silence in the room by spitting out a question in a thick Cockney accent: “OK, so who are the drinkers here?” He assumed he would get a ready, affirmative response. But instead of pointing to themselves and making a date to go to the pub after work, many of the new traders looked furtively around the room. “Drinker” was apparently not the image they wanted to declare to their new employers and colleagues in their first day on the job. Matt broke the uncomfortable silence with a soft chuckle and a light statement of self-incrimination. Sarah chimed in, “I’ve been known to have a few.” The rest of us fidgeted while we waited for the managers to appear and take control.
After about twenty minutes of early morning quiet, Joshua Geller and Andrew Blair, the London risk manager and trainer, entered the room. They complemented each other. Joshua’s energy spilled out of his wide smile. His fringe of hair circled his head electrically. Andrew, himself a currency trader in London markets for sixteen years, meandered through his introductory speech, finishing his statement by articulating, with a schoolmistress’s stridency, a zero-tolerance policy for drinking during work hours. Alcohol, the managers believed, gave traders a sense of false confidence, and the traders’ weakened judgment could cost them profits.
After the initial introductions, the training started. Many of the recruits had never been in a dealing room before and had little experience with finance. But the Perkins Silver trainers understood that deep knowledge of the financial products was not necessary to trade successfully. According to the Perkins Silver executive, and many other traders I interviewed, a good trader could deal in any product. The particulars of the contract itself were not important; a good trader has mastery over the techniques of speculation. So the Perkins Silver trainers focused on producing speculators, not experts in government debt products. Their techniques emphasized creating new relationships to the self and instructed the new group in the particular skills that futures dealers use. They did not on insist on technical mastery of the internal workings of financial instruments or their theoretical bases.
The lessons started out simply, with questions like What is a bond? What is a futures contract? But the curriculum quickly moved beyond that to explain the two techniques that most of us would use to trade in our own accounts: scalping and spreading. Both techniques focus on the profits to be made in the daily fluctuation of futures markets. Scalping focuses on the price movements in a single contract. The scalper buys contracts that he expects to rise in price, or at least he anticipates being able to make money by buying at the bid and selling at the asking price. Spreading takes advantage of the difference in volatility between bonds of different durations. The Perkins Silver managers directed most of their traders work with spread in ten-, five- and two-year German Treasury bond futures nicknamed the Bund, Bobl, and Shaz. The price of a ten-year bond is more volatile than that of a two-year bond because the longer time frame presents more opportunities for changing economic conditions and involves greater uncertainties. A spreader takes opposite positions in each of two instruments, using the more stable contract to limit the loss potential of a position in the more volatile product. These techniques take no more than a day or two to master conceptually. For traders whose computation skills were slow, “cheat sheets” were available that did the work of calculating the initial position of the spread.
Joshua advised that we pursue other training techniques on our own time. Particularly, he suggested playing video games. Minefield was a favorite of Joshua’s. We spent the mornings in class and the afternoons in developing our skills on a program that simulated an arbitrage market. Glued to our screens, we simulated buying and selling cotton futures in New York and London. Later we graduated to trading with real data from past LIFFE markets. Each program tallied up our wins and losses in discreet rounds, as in a video game. These mock markets allowed us to develop online trading skills before “going live,” armed with Perkins Silver cash. These programs taught the group some fundamental lessons about the gamelike character of trading and the intense focus necessary, as well as sharpening our hand-eye coordination.
The physical demands of online trading centered on the ability to recognize visually a profit opportunity and implement a decision to buy or sell by clicking a mouse. One crucial problem we had to surmount during this period was known as “fat fingering”—clicking the right button on the mouse rather than the left. While this has little consequence in a word processing or spreadsheet program, in a live market it is critical. The left button allows the trader to join the bid or offer. The right button, the danger button, sells directly into the bid or buys the offer, establishing a position opposite to the one the trader intended. Establishing control over these opposite intentions embodied in a quick, sharp twitch of barely separated fingers at first took much concentration. Even the more experienced traders sometimes suffered from lapses in manual control. “Ahh, I’ve fat-fingered it,” an unlucky trader would cry with disgust, desperately trying to get out of his position before the losses mounted.
After these basic physical skills were established, trainers provided techniques to help the new recruits evolve from malleable university graduates into seasoned, Chicago-style speculators. The managers recognized that this required creating a bridge between the Chicago and London offices to bring the techniques of the Chicago managers into the London trading room and make their British recruits subject to inspection and evaluation by Chicago management.
Andrew was in charge of managing the London traders. Philip, the cofounder, had recently moved his permanent residence to London and spent his days in an entirely glass- enclosed office. Rumors about him circulated more quickly than futures contracts. He had a mansion in Belgravia, an extensive art collection, and more women than he could fight off. Philip would occasionally venture into the dealing room and trade on a terminal at the edge of the room rather than the one in his office, to get a sense of what the “room was doing.” He was also available for advice and discipline. Even with Philip present, the traders had contact mostly with Andrew, Joshua, and Adam. Joshua and Adam were based in Chicago but spent one week of each month in London. Their visits maintained a connection between the London and Chicago offices and established a virtual presence in London. The Chicago managers had constant live access to the trading accounts of all their traders in both Chicago and London. Adam dropped in daily on tape to give lessons on the techniques of speculation. On the television screen, he paced back and forth in front of a group of neophyte traders in Chicago, pausing to write statements of trading philosophy in capital letters on the board behind him.
But neither these techniques nor the Perkins Silver vision of a professional, egalitarian market were easily implemented and absorbed. When the graduate trainees entered the trading room, they encountered the sixty traders already stationed at their trading terminals. The tensions between the Essex Men, the graduate trainees, and their overseers were high. The graduate trainees represented the educated classes that were replacing the barrow-boy traders throughout the City and were part of an American, multiculturalist program that the barrow boys rejected. Perkins Silver compounded these distinctions by creating special arrangements for the new group. The managers dedicated two rows of trading desks to the graduate trainees, separating them from more experienced traders. This separation helped the new traders cohere as a group, and it also worked to preserve their unique work habits. The managers wanted the graduate trainees to adopt some of the existing dealing-room techniques and attitudes, such as adopting aggressive postures in relation to the market, while avoiding others.
The Perkins Silver managers changed the pay structure for the graduate trainees to avoid some other problems of managing an independent workforce. The barrow boys’ pay was based on the model of the local trader; as independent contractors, most of the traders in the room traded the firm’s money for a percentage of their profits. This percentage was individually negotiated between the trader and the management on the basis of the trader’s success. This structure gave the barrow boys a lot of control over their work hours. They could come in when they wanted, leave when they wanted, and vacation when they wanted. They were subject to reprimand if they were chronically absent, if their profits fell off, or if they were not practicing the firm’s techniques of speculation, but many maintained loose schedules. I would arrive at the trading room at 6:45 in the morning, but the room was sparsely populated until 10:00 a.m. The glow of computer screens that normally illuminated the room came only from the full row of graduate trainees at that early hour.
This flexibility was frustrating to the Perkins Silver managers, who wanted to develop a workforce committed to practicing speculation as a profession. Some of the best traders did not come in until close to 1:00, when the Chicago markets would “wake up,” or come online at 7:00 a.m. Chicago time. Among them was “Pat,” one of Perkins Silver’s best earners. She had been the only woman on the trading floor before the managers brought in our group. She’d stride in after noon on painfully high heels and plunk herself in the chair at her workstation, which was adorned with fuzzy pink beasts. She was always gone by 3:00 when the market began to slow. After she left her desk, her screen saver reminded the room in three-dimensional swerving letters, “I’ve cleaned up.”
The arrangement for the new recruits was meant to remedy what the managers believed was a lax attitude toward producing profits for Perkins Silver. The graduate trainees were required to be at their desks before the market opened at 7:00 and remain there until 4:00. They received a set number of vacation weeks and a bonus determined by performance. While the graduates accepted this arrangement, it enraged Trevor. With his eleven years as an FX dealer, he believed that he deserved the straight percentage deal on which his buddies in the room operated.
The tensions between Essex Men and the new forms of Chicago-style interaction played out in their relationships with the graduate trainees. The older traders assigned nicknames to the new traders. Two in particular stood out. The first was “The Fetus,” their name for Paul, the young, arrogant, and seemingly natural trader. The barrow boys saw themselves in his swagger. The other was for Jason, the orthodox Jew who would leave around 2:00 p.m. on Fridays to make it home before sundown. Jason got the nickname “son of Adam,” supposedly because he bore some physical resemblance to the disliked top manager, though I could discern none. The barrow boys’ discomfort with the characteristics of the new cohort were played out in the marking of Jason and Adam as Jews—different from the barrow boys and beyond the boundary of the acceptable types of traders, according to their own definitions.
Women in the dealing room also challenged this boundary. One of the issues that dominated the management of the trading floor in the fall of 2000 was the use of the word cunt. Although it is used more blithely in Britain than in the United States, it was particularly obnoxious to Perkins Silver managers. They insisted on excluding the word from the trading room to make the atmosphere more comfortable for the newly minted female traders. In the service of profits, the managers believed that the women should have a space where they felt comfortable in expressing their views.
The barrow boys, however, tried to keep the women feeling “out of place” in the dealing room. The saturation of sexual language of male domination demands of women “a physically impossible performance.” In an all-male trading room, cunt could be construed as a metaphor for the market or for a particular competitor, usually a man. However, in the presence of women, the insult slips uncomfortably, but perhaps intentionally, toward its referent.
This slippage did not seem to bother Pat, the original female trader at Perkins Silver. She took up the cause of the word with fervor. She rejected the management’s idea that the term might disturb her. She did not want to be singled out as a woman, but kept her identification with the barrow boys with whom she shared history, class, and, of course, Essex. In the conflict, the word became a protest against the feminization of the dealing room and, therefore, the social experiment of the Perkins Silver managers. The managers’ challenge to their use of swearing was a signal of the barrow boys’ dislocation. Women in the dealing room were an assault on their already tenuous position in the City. The barrow boys and Pat protested by defending their market lingo.
Essex Boys, Germans, and Chicago
While these conflicts exposed divisions in City trading rooms, another set of competitors was emerging online. The Perkins Silver traders were not trading exclusively with people whose habits and fears they knew, as they had on the LIFFE floor or over the telephone networks of foreign exchange dealing. Online trading networks stretch over the globe. Traders rely on knowledge of their competitors to orient their own trading strategies; in the rhythms of the changing numbers on their screens, the Perkins Silver traders constructed virtual competitors. They identified the competition by drawing conclusions about their trading styles from national and regional characteristics that they observed.
In the market for German bond futures, the groups that the Essex traders competed with were “the Germans” and “Chicago.” They had daily nationalist battles with their German and Chicago counterparts. Essex was a locus of identity for Perkins Silver traders who felt their trading prowess was related to their social origins. They drew on their own national and urban identities as streetwise English lads to do combat with their Chicago and Frankfurt counterparts in a market that operates on foreign territory—the German Treasury bond futures market.
The language the traders used to identify these groups linked local identities with trading styles. The Germans were closely associated with an imagined set of national qualities such as dishonesty and inflexibility. The Essex traders suspected them of collaborating with their government to gain market advantages, especially in what they saw as the absence of street-smart trading skills.
The market is ruled by the logic of time zones that are coded by national and regional participation in the German bond futures market. The Perkins Silver traders often griped that the timing of market movements conveyed that the Germans had inside information from the Bundesbank or the banks of the Konsortium, the group that sets rates for German bonds. The Germans were the subjects of the Perkins Silver traders’ narratives in the hours between 7:00 a.m. and 1:00 p.m. London time, when the Essex Men and the Germans were seen to be the majority of players in the market.
This changed daily at 1:00 p.m. Unlike the Germans, “Chicago” was not identified with its national government. Instead, Chicago traders were identified as a collective always referred to by the name of the city where financial futures trading originated. Perkins Silver traders admired members of the Chicago group for their aggressive style of speculation. The markets were often said to be “more interesting” after 1:00 p.m. Along with Pat, several of the most successful traders chose to arrive shortly before then. These traders claimed that the afternoon hours gave the best opportunities for competition because Chicago brought larger volumes and more skillful trading to the market.
Chicago’s involvement also gave clues to the identities and strategies of yet another set of market actors. In the Perkins Silver dealing room, a cable line connected Perkins Silver to the pits in Chicago. When the bond futures pits in Chicago were open for business, a speaker on the Perkins Silver floor funneled the bids, offers, and final prices into the dealing room. A man with a flat-voweled Midwestern accent called out the bids and offers and occasionally the identity of a bank. The Perkins Silver traders derided the predictability of the big financial houses’ strategies. When the nasal voice called out, “Merrill’s a seller,” a jaded reaction followed. “Did you hear that, Billy, Merrill’s selling?” Billy responded in mock surprise, “Yeah, fancy that.” In fact, Merrill Lynch’s selling became an ongoing joke. This information oriented the Perkins Silver traders to the players in the market and added to the notion that these actors were consistent. These clues helped traders imagine and identify patterns of action in the market.
Tensions between a particular kind of localism and the effects of the globalization of populations and markets were felt simultaneously within the Perkins Silver dealing room and in Britain more generally. While the Perkins Silver traders were negotiating the tensions between barrow boys and the new recruits, the shape of British multiculturalism was being debated in the government and in the newspapers. An independent think-tank called the Runnymede Trust delivered a report developed by the Commission on the Future of Multi-Ethnic Britain to Home Secretary Jack Straw. The two-year study called on Britain to reconsider the concept of “Britishness.” Objecting to the racial coding of the nationalist term, it stated that the idea of Britishness was “southern England-centered” and that it potentially excluded millions from the “national story and national identity.” The race-based language and concerns of the report elide the British concern with class. The usurpation of the privileged category of underprivilege was echoed in the tension between the Perkins Silver barrow boys and the new, multiethnic graduate trainees. While this report framed the tension between inclusion and exclusion in terms of the political identity of the nation, the Perkins Silver managers were importing the same logic of race and difference under the mantle of the market.
The Market and Multiculturalism
The Perkins Silver managers constructed their dealing room to create a cohort of professionalized traders within an American-style, multiculturalist paradigm that resonated with the Runnymede Trust report. Perkins Silver hired Asians, blacks, and women, all of them educated, to bring in different views of the market. According to this logic, the categorical differences of each trader would lead him or her to interpret the market differently, providing a range of insights into the market’s actions. This committed and diverse professional staff (certainly different from the population of the Chicago pits from which the Perkins Silver managers came), coupled with Chicago trading techniques, would, they hoped, help their fledgling operations prosper.
The Essex traders, their new colleagues, and their bosses clashed over defining the appropriate economic subjects for a global market. What characterizes the kind of person who operates responsibly and effectively in electronic financial futures markets? This was not an obvious question for Perkins Silver, the CBOT [Chicago Board of Trade], or the London financial world. Early in the process of building the financial futures market, Chicago had a dominant role. In the first wave of innovation, the LIFFE set out to copy the Chicago model. But the electronic environment demanded further adjustments. Rather than reproducing the Chicago model, Perkins Silver set out to correct for the market imperfections of the pits by creating a dealing room more closely in line with market ideals. The Perkins Silver founders and managers worked to make their trading room conform to the image defined by their market ethic, using ideas at the intersection of American multiculturalism and capitalism.
Just as electronic trading forced the CBOT to reconsider its commitment to open-outcry technology, the ascendance of futures trading outside of the Windy City forced a new perspective on Chicago’s cultural resources. To create their own trading room based on electronic technology and physically distant from their home institutions, Perkins Silver managers had to isolate the key characteristics of Chicago-style speculation that they would bring to London markets.
These displacements gave the Perkins Silver managers a new perspective on the norms and practices of the CBOT. The London traders and electronic markets were simultaneously familiar enough and different enough to show Chicago traders what was unique about their own methods, techniques, and the mushy but significant area that Eric Perkins identified as “Chicago culture”—the set of relationships to the self and to competitors interwoven with the trading techniques and the orientation to risk that were rooted in pit trading. The synthesis of nearness and remoteness enabled the Perkins Silver executives to develop their own trading techniques, modifying them for new technologies and geographies while identifying and retaining what they viewed as the key elements of Chicago-style speculation. Their approach blended Chicago techniques with new techniques and practices rather than simply transferring them to a new location.
Perkins Silver tried to perfect its approach to trading by professionalizing speculators while establishing a cohort of mixed ethnicity, race, and gender. According to crude anthropological notion that the Perkins Silver managers implemented, these differences would generate novel perspective and interpretation, a process that they believed would lead to more profits. The Perkins Silver managers were linking a basic market notion—that opposing views build a liquid market—with the values of professionalism and diversity. But the more experienced barrow-boy traders did not easily accept these new traders. Perkins Silver’s plans conflicted with the established position of Essex Man in the British economic and political landscape.