After An Angry Walkout, CME Traders Vent Against Dark Pools

It wasn't a pretty Friday the 13th for floor traders at the Chicago Mercantile Exchange last week. On the morning of Friday, April 13, a group of independent traders - known as locals - staged a walkout in protest to a trade done in dark pools.

According to news reports, the traders were upset by the exchange's acceptance of large block trades instead of using the human traders on the bourse's open outcry auction market. About 70 traders walked out or stood outside the open outcry ring but returned by around noon.

And it had an impact. Reuters reports that "About 470,000 Eurodollar options contracts traded on the CME floor on Friday, down from 661,000 on Thursday and 536,000 on Wednesday, according to CME data."

As The Chicago Sun Times reports:

Independent trader David Stein, who works in the Eurodollars pit, was involved in a walkout that slowed activity Friday morning. They were angered by the exchange's acceptance of large "block trades," privately negotiated deals that bypass the open outcry auction market.

Stein said he and like-minded independents, known as "locals," met for about 90 minutes with executives of CME Group Inc., parent of the Merc and the Chicago Board of Trade. The executives were "steadfast" in their view that block trades aren't harmful and are an important business source for the exchange, Stein said.

"I'm shocked that the exchange doesn't care that their customers might not be getting the best price," he said.

"They were pretty adamant in their position that if they don't do it, some other exchange will," Stein said. He said he's not sure what traders might do next to dramatize their concerns.

Why the outrage? I asked Advanced Trading's editor-at-large Ivy Schmerken for her take. "I think the floor traders are trying to hold onto their market. I think they are smart to stage a walkout. They provide liquidity to this huge Eurodollar options on futures market. One news report (WSJ) says 95 percent of the business is done on the floor," says Ivy.

Ivy adds, "Of course, the upstairs traders are calling the floor guys 'dinosaurs.'"

For more on dark pools and how they are used by the buy side, check out Advanced Trading's May 2012 cover story by Ivy Schmerken.