Pete Kosanovich can’t wait to put his trading jacket back on and return to the noisy Chicago pit where he’s worked for 17 years. The burly former football player is known on the floor by the letters “MGLA” printed on his badge, a nickname referencing the 1960s cartoon “Magilla Gorilla.”
Yet this is a nightmare environment when it comes to an illness as contagious as the coronavirus: Sweaty traders crammed closely together, gesturing wildly, and screaming above the ruckus. But brokers at CME Group Inc.’s pit trading eurodollar options -- the biggest of the handful of products that have avoided conversion to fully electronic trading -- feel certain they’ll be back. They say they deliver better results for clients than any algorithm when it comes to complex derivatives trades.
Kosanovich, a 48-year-old CME member, keeps an ear out on the neighboring Treasury options pit for clues about market action, likening it to how professional golfers know a tournament is heating up when they hear the crowd erupt on a different hole.
“When it gets busy, there is still a buzz, you can feel things happening,” said Kosanovich, who played fullback at Purdue University. “When you hear stuff happen in other pits, it’s a lot like being at Augusta and hearing the ‘Tiger roar.’ If you hear something happen in Treasury options, you can get ready for something to happen in eurodollar options.”
As he and his colleagues anxiously await word from CME Group about when the pit will reopen, their competitors in the electronic world are attempting to seize on a rare opportunity to win investors over to their programs and force these traders to hang up their jackets for good.
The abrupt closing of the floor on March 13 -- mirrored by operators of other floor trading operations including NYSE parent Intercontinental Exchange Inc. and Cboe Global Markets Inc. -- forced anyone who wanted to trade eurodollar options to do it electronically. The New York Stock Exchange partially re-opened its floor this week, though only about 25% of the workers are scheduled to return. Meanwhile, Cboe Global Markets Inc. said it will reopen the Cboe Options Exchange trading floor in Chicago on June 8.
Advocates for electronic trading say the eurodollar options floor is an anachronism that’s endured mainly through the sheer will of those involved -- who benefit financially -- and the broader market is better off without it.
‘Move Forward’
“This is the opportunity to not look back but move forward as an industry,” said Christian Hauff, CEO of Quantitative Brokers, which sells trading algorithms for U.S. Treasury securities and Treasury futures. Last month his firm rolled out its first options algorithm, initially for puts and calls on Treasury futures, with a plan to expand to eurodollars this year.
Not so fast, say the workers in the pits.
Open-outcry trading of eurodollar options -- in which market-makers in the pit provide prices for brokers -- survives because of the nature of the product, according to those involved.