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Into the Pit

As the trading floor went the way of the dinosaur, a filmmaker gained access to its tight-knit, supermacho culture.



James Allen Smith set out four years ago to capture the adrenaline-fueled world of Chicago's open-outcry pits before electronic trading completely replaced them at the Board of Trade and Mercantile Exchange. But as Smith shot his documentary, Floored, about what he calls this "crazy culture," the film took on the more somber weight of "people having to reinvent themselves."

"Some of these guys made millions," says Smith, whose film has its Chicago premiere Friday at the Gene Siskel Film Center—and they made it by going to war each day in the pits. But trading now mostly means sitting alone at a computer console tapping keys. "It takes a completely different type of personality to stand on your feet and yell all day than it does to sit in an office and click a mouse," says Smith. "Unless they're incredibly savvy and disciplined and willing to do their homework, they don't have a chance in hell. It's a total Revenge of the Nerds story."

Or as Jody Michael, an executive coach who works with traders trying to make the transition, puts it in Floored, "Guys lose their mojo and can't trade themselves out of a box."

Now living in Seattle after ten years in Chicago, Smith took a circuitous route to the world he documents in his first completed film. He dropped out of the School of the Museum of Fine Art in Boston in 1994 and "chased a girl" to Springfield, Missouri, where he fronted a "nerd rock" band called Glitterboy, booked acts like Cheap Trick, the Wallflowers, and No Doubt for a "stinky club," the Juke Joint, and designed posters for the shows.

In 1998 Smith landed a design job in Chicago with a start-up Web site, Local Knowledge, which gave paid subscribers hourly updates from the Merc floor. Smith remembers his harrowing first impression of the pit: "Imagine you're a kid and you lose your mom and dad in Times Square on New Year's Eve."

Local Knowledge folded after 9/11 and Smith went to work as a Web designer for Eiger Capital Management, a hedge fund cofounded by Local Knowledge partner Steve Prosniewski. "Steve asked me, 'Did you ever think about trading yourself?'" Smith recalls. "I said, 'Absolutely not. I'm a sensitive artist.' A week later I was trading on a computer. I felt like a kid trying to build a soapbox-derby car, asking his dad the Ferrari driver how to swap out a wheel."

After nine months at Eiger, Smith moved on, spending a year of nights working the European markets for Altea Trading Company. "I ended up making something under $20,000," he says. And after paying Altea fees for his trading desk, software, and sales commissions, "I never saw a penny." Smith quit trading and became a freelance Web designer. But he remained fascinated with the outsize characters he'd met in the industry, especially the ones who traded in the pits.

"Almost from the day we met," Smith says, he and Prosniewski talked about making a film about them. "He told me that it was such a tight community that it would be very difficult to get anyone to open up. Years went by, and that community started to fade away. In late 2006 it seemed the time to make the film had come." In fact, it felt like now or never. Prosniewski and another trader, Joseph Gibbons, put up the money.

Futures trading was born 160 years ago in Chicago, where the railroads converged and the stockyards and grain markets fed the nation. When it was established in 1848, the Chicago Board of Trade was the world's first futures and options market. An 1898 offshoot, the Chicago Butter and Egg Board, became the Mercantile Exchange in 1919. Originally trading just agricultural futures, the two exchanges gradually added energy commodities, bonds, stock indices, and, later, more arcane financial products like credit default swaps.

Futures contracts guarantee delivery of a commodity tomorrow at a price agreed upon today, and in theory they protect markets against destabilizing price swings. But speculative trading gets blamed whenever prices spike, like oil and gas prices did in 2008, and the Wall Street meltdown aroused public suspicion of anyone trading any kind of financial products.

"The guys in Chicago have nothing to do with Wall Street," Smith says. "They're not trying to scam other people. When they walk on the trading floor, they're risking their home, their car, their wife's monthly allowance." (The trading pits were overwhelmingly male-dominated; a considerably larger minority of electronic traders are women.)

"I'm the hedge fund manager of my own family's money," Joseph Gibbons says in the film. "They trust me not to fuck up."

Floored paints a lurid picture of the macho energy of the trading pits in their heyday, when the crush of bodies was so great that "before the start of the opening bell we could pick our feet up off the ground and not fall," as one trader says in the film. "By 7:30 you're dripping wet," another says. "Fortunes are gained and lost in the first ten minutes."

"When the bell goes off—boom!" says trader Rob Prosniewski, Steve's younger brother, who had the cover of the Beach Boys album Endless Summer emblazoned on the back of his trading jacket. "It's like throwing a touchdown pass in Michigan Stadium with 100,000 people cheering. Just that adrenaline rush—it's insane."

"Everybody in that pit is against you," another trader says in the film. "The guy next to you needs to make his mortgage payment, but you're going to bury him and tear out his liver. If you want a friend, get a dog. You don't have friends in the pit." Your worst enemy is any trader trying to close the deal you're trying to close with the trader waggling his fingers on the far side of the shrieking pit. If the other trader doesn't close with you, you hate him too.

"Meet me out by the horse" was the mantra at the Board of Trade whenever traders got too upset to leave it on the floor. They'd face off outside, in the shadow of Ludovico de Luigi's bronze horse sculpture, Cavallo, San Marco II.

Trader Mike Walsh recalls a confrontation outside the Merc: "He turns around and cracks me in the face. I duck and his hand goes through the window. Blood is spurting out. He goes, 'Mike, take me to the hospital.'"

Gripping the trader's de rigueur cigar, Walsh stands outside his home and recalls the moment. Then Floored takes us inside. Walsh wheels a taxidermied giraffe into view, one of several animals on display he killed in Africa. Another's a rhinoceros. "The last time I was happy was when I got charged by that rhino," he says. "It's not any fun unless you can die."

There's a trader in Floored who speaks of colleagues making "more money than they knew what to do with—anything you can think of that you can abuse yourself with, that was part of the lifestyle." Another, Greg Riba, rests his bare feet on his pool table under an original Picasso, swallows a glass of wine in one gulp, and slurs: "I fucked a Playmate. Isn't that what every guy's fucking dream is?"

Electronic trading was introduced to the Merc in 1992, and by '98 it was emerging as a major economic force. The electronic market was fast, accurate, and global, and there were no brawls over who saw who first. "When I got on the scene computers were doing 5 to 8 percent of the business," Smith says. "Now they're doing 90 percent plus." The Merc merged with the Board of Trade in '07, and in mid-'08 the Merc closed its trading floor and moved its open-outcry trading to the Board of Trade. At the end of Floored we see die-hard traders in the pit dealing cattle futures, one of the last commodities still traded the old-fashioned way, while other pit veterans flounder as electronic traders or drop out of the business entirely.

Riba left the Merc under circumstances he wouldn't discuss with Smith. After 25 years in the pit, Walsh quit when he stopped making big money, He promptly cracked up his motorcycle and spent months recovering from head injuries.

Rob Prosniewski took an unsuccessful stab at electronic trading last year and considered a career as a park ranger. But ultimately he decided to go back to war. At 41 he joined the army; he reports for duty in February.

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