Brazilian Futures Pit Empties as Open Outcry Ends in ‘Sadness’

By Alexander Ragir

June 30 (Bloomberg) -- Fernando Tadeo Gaspar remembers the rush he’d get when he started trading futures contracts a decade ago on the floor of Brazil’s derivatives exchange.

There were “people sweating and pushing each other, yelling out their trades,” Gaspar, 28, said during a lunch break last week in Sao Paulo. Now, “it’s complete sadness over there,” he said as he pointed to the market’s main entrance down the street.

For Gaspar and the 359 other floor traders who remain from a peak of 1,300 in 2007, today is their last day. BM&FBovespa SA, the operator of Latin America’s biggest stock and futures exchange, is ending two decades of derivatives pit trading following a push by brokerages into electronic trading that made the so-called open-outcry sessions irrelevant.

Floor trading at BM&FBovespa accounted for 2.7 percent of all derivatives trading in the first six months of this year, down from 27 percent in 2007 and 100 percent in 1999. The closing of the derivatives pit, where contracts such as Bovespa index futures and currency futures are traded, follows the exchange’s elimination of stock trading on the floor in 2005, part of a global move toward automated trading.

Trading on all major stock and derivatives exchanges, with the exception of markets in the U.S. and Germany, is now done entirely electronically, according to Peter Clifford, deputy secretary general at the Paris-based World Federation of Exchanges.

Chicago, New York

About 3,000 people work in the pits of the CME Group Inc.’s derivatives markets in Chicago while the New York Stock Exchange has about 1,200 floor traders. NYSE traders topped 3,200 in September 2006, according to a filing with the Securities and Exchange Commission.

In Brazil, the move away from open-outcry trading “was a decision made by the market itself,” Andre Demarco, 39, director of operations at BM&FBovespa, said in a telephone interview from Sao Paulo. “This is a natural process that exchanges around the world are going through.”

Daily trading volume in Brazilian derivatives this year has averaged 118 billion reais ($60 billion), according to BM&FBovespa. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.

Marcio Andre Mieza, president of the union representing floor traders, says BM&FBovespa failed to provide workers with training for other trading positions and hasn’t offered a cash payout to help them as they shift into other careers. Floor traders earned about 5,000 reais a month on average, according to the union.

‘Clean-Cut and Younger’

BM&FBovespa isn’t responsible for the transition of floor traders into other jobs because the brokerages, not the exchange, employ the workers, the company wrote in an e-mail to Bloomberg News. The exchange said it’s offering floor traders two years of capital markets classes at no cost.

Helio Silverio, a 39-year-old floor trader, said BM&FBovespa’s training is of no use to him. The classes are aimed at helping the traders apply for sales positions in financial markets -- jobs that he said will go to “clean-cut and younger” candidates than himself.

“All I’ve been thinking about the past two weeks is: ‘What am I going to do?’” Silverio said after meeting up with Gaspar on the Portuguese brick-tiled boulevard that surrounds the exchange. About 25 feet (7.6 meters) away, a handful of traders crowded around the main entrance and dragged on cigarettes during the midday break in trading.

‘Empty’

Silverio, who has been working on the floor for 10 years, said he will start dipping into his savings to pay bills.

“They said it was just a natural process and that all the traders should have known, but it happened really fast,” he said. “Three years ago there were more than 1,000 traders. Now the pits are empty.”

The shift away from floor trading accelerated after the derivatives exchange, then known as Bolsa de Mercadorias & Futuros-BM&F SA, created a cross-holding agreement last year with CME Group, operator of the world’s largest futures exchange. The agreement facilitated electronic trading and gave international investors more access to Brazil’s derivatives markets, according to the exchange.

CM Capital Markets plans to move its seven floor traders into electronic-trading positions or other jobs, said Everaldo Oliveira, president of the Madrid-based brokerage’s Brazil unit.

Mock Cheer

Oliveira said he identifies with the floor traders after spending his first 10 years in the industry in the pit. One of his father’s friends landed him a job on the floor at age 16 in 1986, he said. Oliveira traded during the day to help his parents pay for the private high school he attended at night.

“I’m very nostalgic,” Oliveira said in a telephone interview from Sao Paulo. “But I wouldn’t say I miss it because electronic trading is just the direction the world is going.”

Gaspar said his brokerage, Sao Paulo-based Maxima DVTM, offered him a spot on its electronic-trading desk.

“I’m OK because I’m young and went to college,” Gaspar said. “But for most of these guys, this is all they know.”

Down the block, 12 traders gathered at an open-air restaurant and raised longneck bottles of Anheuser-Busch InBev NV’s Brahma beer in a mock toast.

“Here’s to unemployment,” they shouted.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net