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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Thoughts podcast.

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Speaker 1: I'm Tracy Alloway and I'm Joe Wisenthal.

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Speaker 3: Joe, we're here in Chicago.

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Speaker 1: I love it here so much. We don't come here enough.

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Speaker 3: I agree. Chicago is an amazing city.

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Speaker 2: It's also just such an interesting city from a financial perspective,

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Speaker 2: and it has that old school, you know, mercantile Midwest

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Speaker 2: kind of feel totally.

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Speaker 1: I mean, it's what's cool about Chicago. Many cool things,

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Speaker 1: but it obviously has the history of trading and pits

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Speaker 1: and you know, trading pigs and all that stuff, and

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Speaker 1: it's still a city that's at the cutting edge of trading,

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Speaker 1: and so it's pretty cool that, like the history is

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Speaker 1: like not just history, it's still when I think of

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Speaker 1: capital to trading, I usually think of Chicago.

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Speaker 2: Absolutely, And one of the themes for our trip to

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Speaker 2: Chicago this time is trading and the evolution of trading

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Speaker 2: and also the retail revolution that we're seeing. And on

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Speaker 2: that note, we have some very interesting partnerships that have

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Speaker 2: been developing between I guess old school exchanges and more

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Speaker 2: let's just say more retail oriented platforms.

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Speaker 1: So I think there's the thing that I think is

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Speaker 1: really interesting that's going on in financial markets, among many

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Speaker 1: other things. Is it seems like there's two different entities

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Speaker 1: that are trying to cannibalize each other.

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Speaker 4: Yeah.

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Speaker 1: And the way I think about it is you have

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Speaker 1: these sort of legacy well, you have essentially these sort

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Speaker 1: of maybe like gambling oriented entities or what people think

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Speaker 1: of as speculating, wanting to look more like legacy financial institutions.

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Speaker 1: And you have legacy financial institutions that want to subsume

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Speaker 1: the sort of high speed trading, speculative gambling impulse of

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Speaker 1: many young retail traders. And it's like, which one will

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Speaker 1: swallow the other? Will it be that I trade on

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Speaker 1: my sports app?

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Speaker 5: Well?

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Speaker 1: Is it will I be trading cotton futures on my

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Speaker 1: sports app? Or will be the opposite? Will I be

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Speaker 1: going to a traditional brokerage to place bets on a

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Speaker 1: Raiders game.

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Speaker 2: That's a great way of putting it. I also have

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Speaker 2: to say there's a little bit of an irony here

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Speaker 2: because a lot of the old school exchanges used to

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Speaker 2: be criticized for enabling gambling in derivatives contracts right and

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Speaker 2: now and now are considering sports betting. It's all very confusing,

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Speaker 2: but I have to say we have the perfect guests

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Speaker 2: to talk about the cutting edge of trading and the

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Speaker 2: retail revolution. We've had him on before.

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Speaker 3: He was great.

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Speaker 2: We're going to be speaking with Terry Duffy, the chairman

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Speaker 2: and CEO of CME. So Terry, thank you so much

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Speaker 2: for coming back on all thoughts.

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Speaker 5: Tracy, Joe, thank you very much for having me. Appreciate

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Speaker 5: you being here in Chicago.

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Speaker 2: Also, well, the last time we saw you two years ago,

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Speaker 2: you said we were going to be replaced by AI,

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Speaker 2: and that hasn't happened. So I'm very happy that we're

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Speaker 2: back and talking to.

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Speaker 5: And we have a tape that because I do that's true.

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Speaker 1: I got free the transcript you have.

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Speaker 5: Everybody remember something, but let me see the proof.

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Speaker 2: I'll send it to you after this, all right. So

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Speaker 2: one of the reasons we want to talk to you

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Speaker 2: about retail trading specifically is because CMI just announced this

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Speaker 2: partnership with FanDuel. Where you're going to be offering these

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Speaker 2: sort of event contracts. Walk us through exactly what the

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Speaker 2: partnership entails.

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Speaker 5: Well, the partnership is really interesting from a whole host

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Speaker 5: of reasons. I believe that the market in general has changed,

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Speaker 5: and the evolution of the market has changed. The participants

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Speaker 5: have changed, and we can all determine why that is.

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Speaker 5: We can listen to what Joe said in his opening

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Speaker 5: about how traditional exchanges want to have the gaming clients

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Speaker 5: in their world or we could say that the gaming

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Speaker 5: clients want to have the traditional finance people in their worlds.

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Speaker 5: These worlds have been clashing for quite some time. Now.

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Speaker 5: Why is that? It's all because of technology. Technology has

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Speaker 5: enabled the participant from all levels to be on a

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Speaker 5: level playing field, so example being institutional participants traditionally had

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Speaker 5: the greatest technology, and in return, the products were custom

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Speaker 5: sized for institutional participants. As the market's evolved, retail participants

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Speaker 5: want to be able to participate, but they really couldn't

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Speaker 5: participate at the size of a contract that the institutions can.

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Speaker 5: So we customized over the last several years smaller and

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Speaker 5: smaller contracts whatever. They went from e minis to micros

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Speaker 5: and potentially nanos. And now we're looking into the prediction

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Speaker 5: markets going forward. Why is that, Well, there's a host

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Speaker 5: of reasons, but like I said, technology and let's talk

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Speaker 5: about it again. Artificial intelligence. It's the hottest thing God

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Speaker 5: put on the planet right now as far as financial

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Speaker 5: services go, because otherwise the stock market would not be

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Speaker 5: trading where it's at today. Because the market has been

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Speaker 5: driven primarily by artificial intelligence stocks over the last forty

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Speaker 5: eight months. For sure, there's no other stocks really participating

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Speaker 5: to weigh in. Nvidio and some of the other big

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Speaker 5: ones are. So my point being is today the guy

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Speaker 5: that would never be able to trade futures because he's

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Speaker 5: got a five hundred dollars account or one thousand dollars

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Speaker 5: account or that's what he has available to participate, and

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Speaker 5: now we're able to give him the technology that Goldman

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Speaker 5: Sachs may or may not have. That some of the

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Speaker 5: biggest hedge funds in the world may or may not have.

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Speaker 5: How he or she deploys that is up to them,

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Speaker 5: but they're going to have access to that technology. That's

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Speaker 5: why these worlds are collecting and I think it's massively

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Speaker 5: exciting about the future. And people, listen, we're going to

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Speaker 5: have the biggest wealth transfer by twenty forty We're going

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Speaker 5: to have eighty trillion dollars go from I think it's

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Speaker 5: twenty fifty from the existing population to people of the

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Speaker 5: age of forty to twenty four, eighty five trillion dollars

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Speaker 5: of wealth transfer. People want to be in control of

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Speaker 5: their own destiny. Why, because they've grown up in control

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Speaker 5: of their own destinies today that age group, whether it's

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Speaker 5: through the apps on their phone or other things. So

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Speaker 5: I think having access to all different constituencies is really important,

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Speaker 5: and so I'm excited by the future of this marketplace.

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Speaker 1: Let's just talk more details on FanDuel. Is the idea

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Speaker 1: basically that let's say I'm or I don't. I've never

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Speaker 1: gotten into sports betting, but suppose I did. Suppose I were,

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Speaker 1: you know, and I open an app and I see

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Speaker 1: the line for the upcoming Raiders Bears game or.

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Speaker 5: Whatever it is.

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Speaker 1: Is the idea that in that same app, I may

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Speaker 1: see the price of some the gold futures or interest

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Speaker 1: rate futures or something that I can trade at a

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Speaker 1: monetary denomination that is sort of we associate with retail level.

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Speaker 1: Is that the specific product or service that the CM

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Speaker 1: is going to be offering with FanDuel.

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Speaker 5: So Joe, yes, it's similar to that. So today FanDuel

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Speaker 5: is set up a little bit different than some of

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Speaker 5: their competitors. They don't have one app for all different services.

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Speaker 5: They have single apps for different services, where some of

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Speaker 5: the other ones have different apps, and for whatever reason,

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Speaker 5: they feel it's an advantage. So there will be a

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Speaker 5: markets app, a FanDuel markets app powered by CME Group.

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Speaker 5: When you open up their homepage, you'll go to that

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Speaker 5: app and then you'll see in there we'll have potentially

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Speaker 5: three to four event contracts a day per assa class.

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Speaker 5: The events will go on for approximately sixty minutes. They're

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Speaker 5: not like a sporting event that goes on throughout the event.

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Speaker 5: It will be a sixty minute window. Then we will

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Speaker 5: say will the price of goal be above or below

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Speaker 5: three seven hundred dollars an ounce at the.

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Speaker 1: End of that sixty minutes.

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Speaker 2: Yes, they're very binary, and.

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Speaker 5: You will see as the opening of that event starts

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Speaker 5: where the price is set, and it might be set

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Speaker 5: at fifty cents, it's going to be above it because

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Speaker 5: it's kind of in the middle, or if it's higher,

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Speaker 5: it might be eighty cents to say it's to be

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Speaker 5: above it, but there's nothing to say it's going to

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Speaker 5: be above it. So you'll have people taking both sides

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Speaker 5: expressing their interest on the value of gold, which will

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Speaker 5: also give us the ability because we have the liquidity

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Speaker 5: providers in our core asset classes, so the deep pools

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Speaker 5: of liquidity with this will be amazing.

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Speaker 1: Just to be clear, is the sixty minute window? Is

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Speaker 1: that just like the first round? Like eventually, do you

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Speaker 1: anticipate that it'll be weekly or monthly or something that

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Speaker 1: resembles the time intervals of traditional.

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Speaker 5: It's a great question, Joe. So what we're going to

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Speaker 5: do is we'll probably run three events a day for

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Speaker 5: say gold, we'll run three events a day for crude oil,

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Speaker 5: We'll run three events a day for the S and

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Speaker 5: P five hundred, We'll run three events a day for

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Speaker 5: some of our other asset classes treasuries. And these will

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Speaker 5: be multiple events, but they're only going to be an

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Speaker 5: hour long. But we'll probably run three to four sessions

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Speaker 5: every day, so there'll be an hour per session, and

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Speaker 5: that will run five days a week for markets and

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Speaker 5: if in fact fan who wants to put sports up there,

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Speaker 5: as you know, those are weekend events as well.

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Speaker 2: Well, let me ask the really sexy question, then, how

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Speaker 2: exactly are these trades or contracts structured and you mentioned

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Speaker 2: the liquidity providers. There walk us through exactly the mechanics

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Speaker 2: of these trades. Who are the providers, what does the

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Speaker 2: market making look like, are they being cleared, how does

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Speaker 2: it all work?

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Speaker 5: They will be essentrally cleared through CME's clearinghouse, so yes,

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Speaker 5: they will be. The market structure will not look too

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Speaker 5: dissimilar to what we have today. The market participants, we

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Speaker 5: have multiple market makers versus where some of our competitors

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Speaker 5: have a single market maker doing this. We will have

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Speaker 5: as you know at Cema Group, we have a lot

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Speaker 5: of market makers in our different products. They will have

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Speaker 5: access to these event contracts and they will create the

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Speaker 5: liquidity throughout the day and we will incent them to

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Speaker 5: make sure that the participants have a tight, deep market.

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Speaker 5: So that's basically how it'll work.

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Speaker 2: And do the market makers have to hedge their exposure

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Speaker 2: or are these contracts so small that it's not a big.

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Speaker 5: Deal or you know, small content can be small tracy,

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Speaker 5: but as you know, you trade enough of anything that's

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Speaker 5: small turns into something big.

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Speaker 2: And I'm sure you want this to be big trading

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Speaker 2: once we do so.

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Speaker 5: But that will have access to layoff that risk in

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Speaker 5: the primary markets, and that's the big difference with our offerings.

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Speaker 5: So we will be offering our deep liquid products and

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Speaker 5: we'll have events with them, so our market makers will

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Speaker 5: seamlessly be able to offset these contracts you'd said in

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Speaker 5: the beginning, or not by the way, or not that's

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Speaker 5: like them.

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Speaker 1: You said in the beginning that technology is part of

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Speaker 1: the story of why these two worlds of gambling versus

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Speaker 1: legacy finance are have been colliding or maybe merging, et cetera.

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Speaker 1: And I believe that, And I also believe that there

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Speaker 1: is no such thing as a bright line between what's

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Speaker 1: investing and what's speculation. There's a lot of debate about

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Speaker 1: all of that, but is another element here, essentially that

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Speaker 1: the norms have changed. There used to be an expectation

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Speaker 1: that you know, retail investors didn't have access to say

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Speaker 1: like private private invest It used to be much harder

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Speaker 1: to gamble on sports.

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Speaker 3: Period.

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Speaker 1: There's been a big change in the norms, it seems.

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Speaker 1: And then follow on regulation such that by and large

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Speaker 1: it seems to be conventional wisdom that people should be

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Speaker 1: really allowed to trade anything they want on anything they want.

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Speaker 5: Well, I think there's some truth to that, but I

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Speaker 5: think that's a pretty broad brush.

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Speaker 1: Okay.

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Speaker 5: Should people be able to trade anything they want and

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Speaker 5: anything they want? I think you listen, regulation breeds credibility

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Speaker 5: to any product, and if it's not regulated to a

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Speaker 5: point and it's a while west, somebody's going to get hurt.

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Speaker 5: And that's not what a company like mine that I'm

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Speaker 5: determined the CEO of and I have been for the

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Speaker 5: last twenty three twenty four years now, that's not something

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Speaker 5: that I would want to bring forward into this company.

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Speaker 5: You said something else that and I'm going to get

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Speaker 5: back to the regulatory part, but you said something really interesting.

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Speaker 5: Is it investing or is it speculating? Let me ask

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Speaker 5: you a question. This is rhetorical. You ever see an

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Speaker 5: investment that doesn't have If you're making an investment, you

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Speaker 5: need somebody to take the opposite side of the trade

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Speaker 5: and if another investor is going the same direction. There's

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Speaker 5: reasons why Oracle went up thirty percent two weeks ago

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Speaker 5: after their announcement. Why because no one wanted to get

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Speaker 5: run over by a freight train. But you need speculation

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Speaker 5: in order to increase investment. So I think that people

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Speaker 5: say that speculators are bad for the market, Well, who's

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Speaker 5: going to create the liquidity for the investors if we

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Speaker 5: don't have speculators, So that's zero point one. Going back

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Speaker 5: to the regulation, I think that when you look at

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Speaker 5: the regulation for these products, we have to let the

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Speaker 5: participants be made aware through education and other tools of

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Speaker 5: what the rules of the road are. And I think

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Speaker 5: right now with the crypto world where it's going right now,

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Speaker 5: in some of the other marketplaces where they're at under predictions,

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Speaker 5: I think there's some confusion. I'm going to be doing

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Speaker 5: a roundtable in DC this coming Monday associated with just

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Speaker 5: these type of topics, what's innovation, what's not and so Joe,

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Speaker 5: I think your questions are really really strong, and that's

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Speaker 5: one of the reasons I'm doing this deal of FanDuel

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Speaker 5: because I want to walk before I run. Here. I

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Speaker 5: think it's really important. But I do want to make

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Speaker 5: sure that the retail participant has the ability to participate

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Speaker 5: at their level. That's why these contracts will be binary nature.

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Speaker 5: That's why these contracts will be a dollar so anybody

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Speaker 5: can participate. But again, I think that the ultimate regulatory

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Speaker 5: framework as it goes forward has yet to be harmonized.

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Speaker 5: For a lack of a better term between traditional marketplaces

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Speaker 5: and now we're looking at event contracts on sports and

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Speaker 5: other indices. So I'm excited by this, Joe, But I

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Speaker 5: think there's a lot of what you said in your

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Speaker 5: question that's yet to be answered. And the problem is

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Speaker 5: right now, there's a lot of people going out with

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Speaker 5: offerings before these questions have been asked, answered or for

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Speaker 5: sure studied.

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Speaker 1: We've talked to someone, we're talking to some more of.

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Speaker 3: Them for sure.

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Speaker 2: Okay, Well, speaking of regulatory harmonization, I'm just gonna I'm

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Speaker 2: gonna hit all the really provocative topics today and ask

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Speaker 2: about tax treatment, because my understanding is that losses on

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Speaker 2: futures contracts are treated differently under new tax rules than

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Speaker 2: losses on platforms for sports betting and things like that.

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Speaker 2: How much of the interest that you're seeing from places

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Speaker 2: like fan Duel and other markets is coming from, I

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Speaker 2: guess the possibility of people being able to trade with

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Speaker 2: futures contracts or bet using futures contracts and not having

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Speaker 2: to pay as.

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Speaker 1: Much in tax.

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Speaker 5: So let's make sure we understand both sides of the equation.

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Speaker 5: You said only losses gains as well, so we'll talk

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Speaker 5: about tax treats in general. So what Tracy's referring to, listener,

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Speaker 5: is that odd loss is what's called twelve to fifty

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Speaker 5: six contracts under the tax code, which allows people to

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Speaker 5: get a blended rate of sixty forty tax treatment. Sixty

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Speaker 5: long term gains forty short term comes out to a

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Speaker 5: blended rate of about twenty seven percent. Futures contracts cannot

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Speaker 5: get long term capital gains because of the way they

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Speaker 5: expire today, so we don't get long term capital, so

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Speaker 5: we get what's called twelve fifty six treatment. That's what Tracy,

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Speaker 5: I believe you're referring to.

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Speaker 2: That was a great explanation.

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Speaker 5: By the way, thank you should host Thank you anyway,

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Speaker 5: the twelve to fifty six contracts, So when you talk

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Speaker 5: about sports, sports will not be treated on event contracts

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Speaker 5: under the twelve to fifty six regulation. But Gold Equities

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Speaker 5: all our other core businesses on events, we will believe

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Speaker 5: that they are event futures, not event swaps. So swaps

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Speaker 5: are not treated under twelve fifty six. Futures are. So

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Speaker 5: we think our events on our market participants and those

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Speaker 5: products will be treated with the same tax treatment we

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Speaker 5: get today for our other businesses and then events such

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Speaker 5: as entertainment such as political events and sporting events will

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Speaker 5: be traded as ordinary income.

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Speaker 1: Got it, Are you going to enter political betting markets?

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Speaker 5: I would not take anything off the table. It's not

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Speaker 5: something that I support at this moment. But there's a

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Speaker 5: lot of things I think when people say they don't

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Speaker 5: support and then all of a sudden they do it,

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Speaker 5: and you go, well, what changed your mind? And you

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Speaker 5: don't have a good reason. So I never said I

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Speaker 5: wouldn't list bitcoin. I just thought it was important to

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Speaker 5: make sure that the timing is right. So I waited

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Speaker 5: till twenty seventeen. Then one day I said, today's the day,

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Speaker 5: because the timing seems right to me. So I never

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Speaker 5: said I wouldn't do it, even though there was a

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Speaker 5: lot of people between two thousand and eight when the

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Speaker 5: price of bitcoin was eight dollars to twenty seventeen when

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Speaker 5: I listed it that said that this stuff is tulips,

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Speaker 5: it's garbage, don't trade it all right.

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Speaker 1: Let's say you're thinking on the politics.

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Speaker 5: Markets, so I'm going to into the politic So I

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Speaker 5: don't believe right now that event markets on politics are

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Speaker 5: a good thing. That's my take on it. I want

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Speaker 5: to see how it goes out. I didn't like mail

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Speaker 5: mail in voting either. I thought voting should have been

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Speaker 5: in person historically. But my mind has changed on that

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Speaker 5: too for a whole host of reasons. Because now we

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Speaker 5: get more participants and we have technology to protect against

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Speaker 5: bad behavior in voting. I think we can get the

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Speaker 5: same on these event contracts for different events. I don't

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Speaker 5: know if it's there or not yet. We've had one

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Speaker 5: political event contract that was listed so far that we're

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Speaker 5: aware of, and that was the presidential election, right, So

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Speaker 5: that's for the most part, that's all that's happened. I

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Speaker 5: think that's kind of a small sample of a political

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Speaker 5: event contracts to base your decision on it. Is this

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Speaker 5: good or bad? So I kind of want to see

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Speaker 5: how it goes doough to answer your question. So I

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Speaker 5: don't see the rush to get into it. And the

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Speaker 5: reason why I don't see the rush to get into

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Speaker 5: it if you look at me today with XRP on

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Speaker 5: a Ripple crypto contract, we are the premier place for

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Speaker 5: people to mitigate and manage risk on Ripple. Now, I

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Speaker 5: was one of the last people to get into crypto

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Speaker 5: in twenty seventeen, but yet we have one of the

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Speaker 5: biggest marketplaces I just listed Ripple, So the credibility of

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Speaker 5: CMME is very important to me. I think it's important

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Speaker 5: to my customers as well. That's why I'm very cautious

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Speaker 5: about some of these political contracts. So that's why I

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Speaker 5: was trying to tie the two together. Little fair enough, Yeah,

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Speaker 5: fair enough.

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Speaker 2: So you mentioned going to a roundtable next week, and

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Speaker 2: I believe that's the one being held in DC.

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Speaker 3: Is that right? Okay?

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Speaker 2: So I know the CEO of CALCI is supposed to

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Speaker 2: be there.

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Speaker 5: Never met him.

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Speaker 2: One of the pre eminent prediction markets in the world.

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Speaker 2: When you see him, what questions would you ask in

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Speaker 2: order to better understand political prediction markets.

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Speaker 1: I mean, we're interviewing him tonight in Chicago. I know,

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Speaker 1: basically Tracy's asking research ask him.

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Speaker 5: I don't know the gentleman. I've never met the gentleman.

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Speaker 5: I have no idea. I think what's important is that

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Speaker 5: he understands that we because the CFTC, and that's what

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Speaker 5: they are suggesting right now, which is true. So I'm

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Speaker 5: not saying what he's saying is wrong. They self certify

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Speaker 5: these contracts. Does it make it right for him? To

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Speaker 5: list all these different contracts because the CFTC's got twenty

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Speaker 5: four hours to make a decision to either stop it

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Speaker 5: or let it go. It's really hard under the self

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Speaker 5: certification process to understand anything in twenty four hours, especially

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Speaker 5: for the government. So the question I would have for him,

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Speaker 5: as I do for myself, is how are these some

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Speaker 5: of these contracts not novel and complex? And don't you

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Speaker 5: believe that your investors need a little bit more time

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Speaker 5: by the government agencies to make sure that everyone's comfortable

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Speaker 5: so you can offer them in a way that is

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Speaker 5: very sound mind and sound business to grow and versus

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Speaker 5: just going out there after twenty four hours of nobody

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Speaker 5: objecting and now you're promoting and he is promoting that

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Speaker 5: these are CFTC approved products. They're technically that it is wrong.

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Speaker 5: They are not CFTC approved products. What they are is

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Speaker 5: they have not been opposed by the CFTC. There's a

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Speaker 5: big difference there, and that's the part that they are

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Speaker 5: not disclosing to their user base. And so I would

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Speaker 5: say to him or others, and I will say it

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Speaker 5: because I say what I want to say to people respectfully.

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Speaker 5: I think disclosure is good. It's like payment for order flow.

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Speaker 5: I don't think payment for order shall flow should be

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Speaker 5: on the thirty fourth page of a perspective. Put it

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Speaker 5: up front, tell the clients that's what you're doing. And

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Speaker 5: nobody's got a concern with it. But we don't because

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Speaker 5: why And I would say that people are maybe a

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Speaker 5: little thinking that maybe it shouldn't happen. I think it

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Speaker 5: helps the marketplace. But tell people that earlier. And I

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Speaker 5: think that's what you guys should ask him. Why won't

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Speaker 5: you say that these are not approved? They're just not

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Speaker 5: objected to Joe.

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Speaker 2: I'm going to do my best Terry Duffie in Passion

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Speaker 2: tonight and just ask that question for BA And if.

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Speaker 5: You drop my name by Monday, could be a lot

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Speaker 5: of fun.

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Speaker 1: But no, this gets to my quish about norms because,

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Speaker 1: like so political prediction markets have existed in the US

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Speaker 1: on very small scale for maybe like twenty years. It

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Speaker 1: was the Iowa it was an experimental at the University

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Speaker 1: of Iowa, et cetera. It feels like the floodgates have

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Speaker 1: gone open and that actually, you know, under the last administration,

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Speaker 1: for better or worse, kelshy polymarket, which it's another sort

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Speaker 1: of can of worms. They were under a lot of

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Speaker 1: regulatory scrutiny, investigations, and they still operated, et cetera. Now

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Speaker 1: it seems like the door has been flung open. Maybe

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Speaker 1: like it basically seems like we have, whether from a

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Speaker 1: strictly legal perspective or a cultural perspective, very little appetite

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Speaker 1: in this country to say you can't do this. It

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Speaker 1: feels like, yeah, the barn door is open on a

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Speaker 1: lot of this.

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Speaker 5: So Joe's let's talk about that a little bit because

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Speaker 5: I think it's interesting. Under the Commodity Exchange Actor is

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Speaker 5: a provision where a contract cannot be readily manipotable. Okay,

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Speaker 5: all right, so that's a law. So when we're looking

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Speaker 5: at prediction markets on political outcomes, and we're talking about

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Speaker 5: a presidential election, we're talking about one hundred plus million

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Speaker 5: people potentially voting, with the base voters more open than that. Fine, Okay,

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Speaker 5: maybe we say understand, Okay, that's no different than some

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Speaker 5: of these other big markets. That's a big market all

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Speaker 5: of a sudden. Now we'll take it down to the Congress.

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Speaker 5: We have less people voting and a congressional race for Congress. Correct,

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Speaker 5: so every member every five hundred thousand people gets a

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Speaker 5: member of Congress in the United States. So you know,

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Speaker 5: you got five hundred thousand people of a population gets

439
00:22:49,480 --> 00:22:51,840
Speaker 5: a member of Congress. The voting population for that is

440
00:22:51,920 --> 00:22:55,480
Speaker 5: much much smaller that's eligible to vote. Now, let's take

441
00:22:55,480 --> 00:22:57,399
Speaker 5: it to the next level. We have got a local

442
00:22:57,400 --> 00:23:00,040
Speaker 5: mayor's race and a suburb that you live in that

443
00:23:00,160 --> 00:23:03,240
Speaker 5: there is five hundred people there. You want a prediction

444
00:23:03,359 --> 00:23:05,199
Speaker 5: market on that, because I'll tell you what, I can

445
00:23:05,280 --> 00:23:08,760
Speaker 5: probably buy that election and have my prediction market be

446
00:23:09,000 --> 00:23:12,119
Speaker 5: payoff in a big way, and that would be deemed

447
00:23:12,200 --> 00:23:16,200
Speaker 5: readily maniputable. Now I gave you a pretty wild spectrum there, sure,

448
00:23:16,240 --> 00:23:17,720
Speaker 5: but I think you have to look at it and

449
00:23:17,760 --> 00:23:19,720
Speaker 5: at range. That's my whole point what I said to

450
00:23:19,760 --> 00:23:23,120
Speaker 5: Tracy earlier. We have to let people know what they're doing.

451
00:23:23,200 --> 00:23:27,600
Speaker 5: Because every political event is not a presidential election. There

452
00:23:27,680 --> 00:23:30,920
Speaker 5: are some political events that are so small that could

453
00:23:30,920 --> 00:23:33,680
Speaker 5: be deemed readily manipotable, and you don't ever want to

454
00:23:33,680 --> 00:23:36,720
Speaker 5: get in that situation because that's how you destroy innovation.

455
00:23:37,000 --> 00:23:39,360
Speaker 5: And that's my concern with some of the political markets.

456
00:23:39,600 --> 00:23:43,159
Speaker 2: Joe, remember when we did that live experiment at our show,

457
00:23:44,400 --> 00:23:46,000
Speaker 2: what was our big takeaway from that.

458
00:23:46,800 --> 00:23:48,960
Speaker 1: I don't remember it. Take away it's very funny when

459
00:23:48,960 --> 00:23:52,560
Speaker 1: we had the manifold market of whether it's Zemashwitz would

460
00:23:52,600 --> 00:23:54,440
Speaker 1: be on the Odd Laws podcast, and then we brought

461
00:23:54,480 --> 00:23:57,040
Speaker 1: him on stage and we saw the price adjust in

462
00:23:57,040 --> 00:23:57,560
Speaker 1: real time.

463
00:23:57,840 --> 00:23:59,760
Speaker 2: Just to be clear, we did not bet that he

464
00:23:59,920 --> 00:24:01,640
Speaker 2: was going to be the podcast.

465
00:24:01,720 --> 00:24:03,679
Speaker 3: But you know, he could have could have.

466
00:24:04,480 --> 00:24:07,119
Speaker 2: He could have, He could have certainly. Okay, let's broaden

467
00:24:07,160 --> 00:24:10,040
Speaker 2: out the conversation a little bit to overall retail trading,

468
00:24:10,040 --> 00:24:12,760
Speaker 2: which has obviously become a big part of your business.

469
00:24:13,160 --> 00:24:15,880
Speaker 2: When you think about the evolution of retail trading at

470
00:24:16,040 --> 00:24:20,040
Speaker 2: CME over the past few years, what are the biggest

471
00:24:20,080 --> 00:24:24,000
Speaker 2: takeaways in terms of, I guess, the needs or concerns

472
00:24:24,080 --> 00:24:28,840
Speaker 2: of a retail trader versus an institutional or professional one.

473
00:24:28,880 --> 00:24:32,639
Speaker 2: Obviously you talked about contract size earlier, but like, what

474
00:24:32,840 --> 00:24:35,080
Speaker 2: else do you see out there in terms of key differences.

475
00:24:35,359 --> 00:24:38,560
Speaker 5: I think the key difference is the ease of access

476
00:24:38,600 --> 00:24:41,480
Speaker 5: for the retail participant to sign on to a platform.

477
00:24:42,000 --> 00:24:44,840
Speaker 5: Historically has been very very difficult, in a very difficult

478
00:24:44,880 --> 00:24:48,960
Speaker 5: process to sign up to trade markets, whether they're securities

479
00:24:49,040 --> 00:24:52,359
Speaker 5: or whether they're futures, so the retail participant will go

480
00:24:52,440 --> 00:24:54,920
Speaker 5: through an application and probably get to halfway through page

481
00:24:54,960 --> 00:24:58,000
Speaker 5: one ago. You know, this is ridiculous. There's a reason

482
00:24:58,359 --> 00:25:02,360
Speaker 5: why Tracy and Joe at the dark market or the

483
00:25:02,400 --> 00:25:05,919
Speaker 5: illegal market in gambling is still about three times larger

484
00:25:05,960 --> 00:25:10,600
Speaker 5: than the regulated marketplace because people just don't want to

485
00:25:10,640 --> 00:25:14,440
Speaker 5: be have that exposure of giving out their information right,

486
00:25:14,480 --> 00:25:17,840
Speaker 5: So it's still a very large market, the illegal gaming market.

487
00:25:18,800 --> 00:25:21,879
Speaker 5: I think that when you create a greater ease for people,

488
00:25:21,920 --> 00:25:24,199
Speaker 5: which is going on right now for us, especially with

489
00:25:24,240 --> 00:25:25,840
Speaker 5: the FanDuel, you'll go through an Apple, it'll be a

490
00:25:25,880 --> 00:25:29,400
Speaker 5: five click process and you'll be ready to go. That

491
00:25:29,600 --> 00:25:33,360
Speaker 5: historically has never happened. Secondly, the retail participants have never

492
00:25:33,440 --> 00:25:36,119
Speaker 5: had a place to go to clear their trades. As

493
00:25:36,160 --> 00:25:39,600
Speaker 5: you know, at CME, we don't directly take clients. They

494
00:25:39,640 --> 00:25:42,719
Speaker 5: have to come through one of our member clients. So

495
00:25:43,040 --> 00:25:45,399
Speaker 5: those people didn't want some of these really small clients

496
00:25:45,440 --> 00:25:47,840
Speaker 5: because there were a risk. But technology all of a

497
00:25:47,880 --> 00:25:50,400
Speaker 5: sudden is allowed the risk management tools to let them

498
00:25:50,400 --> 00:25:53,760
Speaker 5: participate and you could do And one thing I liked

499
00:25:53,760 --> 00:25:56,280
Speaker 5: about Sam bank Mephy's offering, and I give Sam credit

500
00:25:56,320 --> 00:26:00,600
Speaker 5: for this was auto liquidating. Auto liquidation is something that

501
00:26:00,640 --> 00:26:02,760
Speaker 5: a lot of people have already implemented. They call it

502
00:26:02,800 --> 00:26:07,199
Speaker 5: something different. So that risk management tools that we have

503
00:26:07,280 --> 00:26:10,280
Speaker 5: in place that others have in place, has now allowed

504
00:26:10,359 --> 00:26:12,679
Speaker 5: us to take on the retail clients and the ease

505
00:26:12,880 --> 00:26:16,080
Speaker 5: of them coming in. Thirdly, I think it's really important

506
00:26:16,119 --> 00:26:19,360
Speaker 5: that you educate them what exactly they're doing, and futures

507
00:26:19,400 --> 00:26:22,920
Speaker 5: can be very frightening. People get very frightened. Like during

508
00:26:22,920 --> 00:26:25,359
Speaker 5: the pandemic when the explosion of day trading started to

509
00:26:25,359 --> 00:26:27,560
Speaker 5: happen again, there was a lot of people that were

510
00:26:27,560 --> 00:26:29,879
Speaker 5: on somebody these retail platforms that have positions on that

511
00:26:29,960 --> 00:26:31,879
Speaker 5: don't even know how they got them on because they

512
00:26:31,920 --> 00:26:34,520
Speaker 5: didn't understand it. But they were almost embarrassed to ask

513
00:26:34,720 --> 00:26:37,440
Speaker 5: what happened, whether they got caught up in an option

514
00:26:37,560 --> 00:26:40,640
Speaker 5: stradgle or something else. They did not even realize what happened.

515
00:26:40,760 --> 00:26:43,000
Speaker 5: So education is key, and that's one of the things

516
00:26:43,000 --> 00:26:45,960
Speaker 5: that we have been constantly hammering home. So that's why

517
00:26:46,000 --> 00:26:48,399
Speaker 5: I think the retail business is very exciting. For CMEME

518
00:26:48,480 --> 00:26:51,560
Speaker 5: and for other platforms around the world. Ecosystems are important.

519
00:26:51,920 --> 00:26:53,520
Speaker 5: One of the things I tell my team all the time,

520
00:26:53,520 --> 00:26:55,280
Speaker 5: I said, you better look over your shoulder and see

521
00:26:55,280 --> 00:26:57,080
Speaker 5: a line of clients always coming, because the day you

522
00:26:57,080 --> 00:27:00,000
Speaker 5: look over your shoulder and it's gone, you're in trouble.

523
00:27:00,359 --> 00:27:03,560
Speaker 5: And if you want to be a gigantic institutional player,

524
00:27:03,600 --> 00:27:05,399
Speaker 5: I think that's great, and that's what CM is. But

525
00:27:05,440 --> 00:27:07,600
Speaker 5: we have to make sure that we can move loutterly

526
00:27:07,760 --> 00:27:11,359
Speaker 5: left and right. If you look at historically the growth

527
00:27:11,359 --> 00:27:15,119
Speaker 5: of markets in what's happened in the nineties. There's a

528
00:27:15,160 --> 00:27:16,960
Speaker 5: building across the street from me. It used to be called

529
00:27:16,960 --> 00:27:19,879
Speaker 5: the Sears Tower, Okay, named after Sears and Roebuck. They

530
00:27:19,920 --> 00:27:22,719
Speaker 5: got naming rights over it. When Sears was flying in

531
00:27:22,760 --> 00:27:25,520
Speaker 5: the nineties, eighties and nineties, they never heard of a

532
00:27:25,560 --> 00:27:29,160
Speaker 5: company called Amazon. Nobody knows what a Sears is anymore.

533
00:27:29,359 --> 00:27:31,720
Speaker 5: Seris is gone for the most part, right, So why

534
00:27:31,720 --> 00:27:34,760
Speaker 5: did that happen? Because they didn't adapt, because they felt

535
00:27:34,760 --> 00:27:37,800
Speaker 5: that their vertical was so strong along with some of

536
00:27:37,840 --> 00:27:40,879
Speaker 5: the other ones, and these other new participants came in

537
00:27:40,920 --> 00:27:43,080
Speaker 5: and destroyed them. I cannot allow that to happen. So

538
00:27:43,520 --> 00:27:47,280
Speaker 5: for me to participate in the new world and protect

539
00:27:47,480 --> 00:27:49,840
Speaker 5: the world that's going on today is really important.

540
00:27:50,160 --> 00:27:52,480
Speaker 2: My dad used to love Sears Joe because he said,

541
00:27:52,520 --> 00:27:54,200
Speaker 2: you can always find a parking space there.

542
00:27:54,280 --> 00:27:57,399
Speaker 1: Oh that's great, that's a great reason. It's your shop. Well, actually,

543
00:27:57,520 --> 00:28:00,920
Speaker 1: let's pick up on the Seiars versus Amazon. There could

544
00:28:00,960 --> 00:28:04,680
Speaker 1: be someone who listens to this conversation and here's your

545
00:28:04,800 --> 00:28:09,159
Speaker 1: concern about the speed with which Kelshi lists contracts that

546
00:28:09,200 --> 00:28:12,919
Speaker 1: aren't you know, technically CFTC endorsed. And they might say

547
00:28:14,200 --> 00:28:18,200
Speaker 1: Terry is trying to keep his position by dint of

548
00:28:18,320 --> 00:28:24,239
Speaker 1: regulatory regulatory mode, et cetera. That ultimately Kelshi or some

549
00:28:24,480 --> 00:28:26,760
Speaker 1: or any others, but they're the ones in the headlines

550
00:28:26,840 --> 00:28:29,959
Speaker 1: these days that they could potentially be a major player

551
00:28:30,359 --> 00:28:34,480
Speaker 1: in futures in the future, and that one reason to

552
00:28:34,840 --> 00:28:38,200
Speaker 1: talk about, oh, there's these concerns is regulatory concern. And

553
00:28:38,240 --> 00:28:41,720
Speaker 1: also you know, like there's not like a toime. You know, you,

554
00:28:41,880 --> 00:28:45,040
Speaker 1: as the CME, if I believe, correct me if I'm wrong,

555
00:28:45,120 --> 00:28:49,560
Speaker 1: have had very strong pricing power for your futures and tech.

556
00:28:50,360 --> 00:28:53,560
Speaker 1: In most of finance, margins have generally been going down,

557
00:28:53,680 --> 00:28:56,720
Speaker 1: Fees have been going down, Brokerage costs have been going down.

558
00:28:56,880 --> 00:28:59,400
Speaker 1: Someone might hear the story and say, you're trying to

559
00:28:59,440 --> 00:29:03,800
Speaker 1: protect your our ability to continually expand price by doing

560
00:29:03,840 --> 00:29:06,600
Speaker 1: things like going to Washington and warning them about how

561
00:29:06,640 --> 00:29:08,680
Speaker 1: scary it is these new prediction markets.

562
00:29:08,720 --> 00:29:10,520
Speaker 5: Well, first of all, I wouldn't do that because I'm

563
00:29:10,560 --> 00:29:15,680
Speaker 5: partnering with Fandels, so that's not something I'm prepared to

564
00:29:15,720 --> 00:29:18,280
Speaker 5: go say these new prediction markets. I will say that

565
00:29:18,320 --> 00:29:22,240
Speaker 5: certain prediction markets could be potentially scary, like political outcomes

566
00:29:22,240 --> 00:29:24,080
Speaker 5: and things of that nature. So I wouldn't say all

567
00:29:24,080 --> 00:29:26,120
Speaker 5: prediction markets are scary. So I think that's a bit

568
00:29:26,160 --> 00:29:29,080
Speaker 5: of an overstatement. Second of all, on pricing power, if

569
00:29:29,120 --> 00:29:30,800
Speaker 5: you look at the price of CMME today on a

570
00:29:30,840 --> 00:29:33,120
Speaker 5: per contract basis, it's cheaper now than it was twenty

571
00:29:33,160 --> 00:29:35,320
Speaker 5: five years ago. So you might say to me, how

572
00:29:35,360 --> 00:29:37,640
Speaker 5: could that possibly we got all this pricing power, Well,

573
00:29:38,120 --> 00:29:40,200
Speaker 5: there is also another company. As long as we're talking

574
00:29:40,240 --> 00:29:43,320
Speaker 5: about with retailers. Let's talk about Walmart. There's a Walmart model.

575
00:29:43,520 --> 00:29:45,440
Speaker 5: How about selling something for less, but selling a hell

576
00:29:45,480 --> 00:29:48,440
Speaker 5: of a lot more of it. My volume today, I

577
00:29:48,480 --> 00:29:50,080
Speaker 5: do more in the first hour than I did it

578
00:29:50,120 --> 00:29:52,400
Speaker 5: in a week back in two thousand and two. So

579
00:29:52,600 --> 00:29:55,640
Speaker 5: the question is we do more because we have access

580
00:29:55,640 --> 00:29:57,880
Speaker 5: to around the world, which allows me to make see

581
00:29:57,960 --> 00:29:58,200
Speaker 5: me more.

582
00:29:58,360 --> 00:30:02,080
Speaker 1: Prices have not compressed for prices and your prices have

583
00:30:02,120 --> 00:30:03,880
Speaker 1: compressed it my price is.

584
00:30:03,800 --> 00:30:06,720
Speaker 5: Today versus what they were in O two are completely

585
00:30:06,720 --> 00:30:10,160
Speaker 5: different because when you look at the headline price, you're

586
00:30:10,200 --> 00:30:13,080
Speaker 5: not looking at the tiered pricing that certain constituents get

587
00:30:13,080 --> 00:30:17,920
Speaker 5: for volume. So volume pricing discounts are massive within our world.

588
00:30:18,080 --> 00:30:20,480
Speaker 5: So that is a big deal. So my average rate

589
00:30:20,480 --> 00:30:23,800
Speaker 5: for contracts sixty nine to seventy cents a contract. You know,

590
00:30:24,160 --> 00:30:26,360
Speaker 5: it can be higher or lower, but the volume could

591
00:30:26,360 --> 00:30:28,680
Speaker 5: be a lot less too. So we do quite well

592
00:30:28,720 --> 00:30:30,560
Speaker 5: with the model that we have, but we also have

593
00:30:30,640 --> 00:30:34,400
Speaker 5: pricing on market data and other products that's proprietary to

594
00:30:34,440 --> 00:30:37,479
Speaker 5: CME that you may charge different for, so that's different.

595
00:30:37,560 --> 00:30:40,080
Speaker 5: I don't go to Washington to ever be anti competitive

596
00:30:40,080 --> 00:30:42,720
Speaker 5: because I'm going to be anti competitive. It doesn't serve

597
00:30:42,760 --> 00:30:45,680
Speaker 5: my interest for the long run. Anti competitive people in

598
00:30:45,800 --> 00:30:48,360
Speaker 5: natures is good for the short term, but really bad

599
00:30:48,440 --> 00:30:50,479
Speaker 5: for the long term because you want that ecosystem, as

600
00:30:50,480 --> 00:30:52,800
Speaker 5: I said earlier, to continue to grow and if you're

601
00:30:52,840 --> 00:30:55,840
Speaker 5: smart and innovative enough, you will grow with it. And

602
00:30:55,840 --> 00:30:57,440
Speaker 5: that's one of the things that I'm looking at with

603
00:30:57,480 --> 00:30:59,880
Speaker 5: Cmeme That's why I did a deal with Fanuel fandel

604
00:31:00,200 --> 00:31:04,520
Speaker 5: Is thirteen million accounts active today in the United States.

605
00:31:04,760 --> 00:31:07,360
Speaker 5: Those will have access to my products. I never had

606
00:31:07,360 --> 00:31:11,640
Speaker 5: that before. We're doing things with our retail participants today

607
00:31:11,640 --> 00:31:14,520
Speaker 5: that I think some of my predecessors over the years ago,

608
00:31:14,520 --> 00:31:16,800
Speaker 5: What the hell has he done that we never would

609
00:31:16,800 --> 00:31:19,480
Speaker 5: have done before? You know, And I believe that if

610
00:31:19,480 --> 00:31:24,200
Speaker 5: we still did nothing around innovation, we would be trading

611
00:31:24,720 --> 00:31:28,560
Speaker 5: pork bellies. We would be trading onions, which are illegal.

612
00:31:28,680 --> 00:31:31,400
Speaker 5: They dumped them along the river and kept the burlax sacks.

613
00:31:31,840 --> 00:31:35,040
Speaker 5: Pork bellies are gone. They're no longer here, so we'd

614
00:31:35,040 --> 00:31:35,720
Speaker 5: be out of business.

615
00:31:35,840 --> 00:31:38,480
Speaker 1: Is the best thing when you go to Washington, maybe

616
00:31:38,720 --> 00:31:42,520
Speaker 1: they got to fix that onion thing, prediction market, fix

617
00:31:42,640 --> 00:31:43,120
Speaker 1: that onion.

618
00:31:43,480 --> 00:31:46,400
Speaker 5: Tell them it's the only commodity in the world that's

619
00:31:46,440 --> 00:31:49,000
Speaker 5: banned by Congress. And I think we talked about that

620
00:31:49,080 --> 00:31:51,040
Speaker 5: last time we were together. But I think Joda, to

621
00:31:51,080 --> 00:31:53,160
Speaker 5: your point is I don't go there saying this is

622
00:31:53,200 --> 00:31:54,960
Speaker 5: bad or this is good. I go there and say,

623
00:31:55,200 --> 00:31:57,880
Speaker 5: let's have eyes wide open. That's that's all I want,

624
00:31:57,920 --> 00:32:01,280
Speaker 5: because there's nothing worse than have If someone gets sick

625
00:32:01,320 --> 00:32:02,760
Speaker 5: and we all get a cold and we go, how

626
00:32:02,760 --> 00:32:05,160
Speaker 5: to hell did that happen? Well, that's not good for

627
00:32:05,200 --> 00:32:08,160
Speaker 5: the participants, not good for the institutions. And right now,

628
00:32:08,200 --> 00:32:10,720
Speaker 5: when you get newer entrants coming in, I'm not saying

629
00:32:10,760 --> 00:32:13,760
Speaker 5: they're skirting the process. I'm not saying kelshy skirting the process.

630
00:32:14,000 --> 00:32:17,120
Speaker 5: But when you say you have CFTC approved products, let's

631
00:32:17,160 --> 00:32:20,280
Speaker 5: make sure that the public understands what they are. They

632
00:32:20,320 --> 00:32:24,320
Speaker 5: are CFTC products that have not been objected to. There's

633
00:32:24,360 --> 00:32:26,600
Speaker 5: a difference there, and I don't know if the end

634
00:32:26,640 --> 00:32:28,600
Speaker 5: user understands that. That's all My point was.

635
00:32:28,600 --> 00:32:47,280
Speaker 4: Yah, Treasury futures are a huge part of your business,

636
00:32:47,360 --> 00:32:49,880
Speaker 4: and I know you've been critical of Howard Lutnick's new

637
00:32:49,920 --> 00:32:53,480
Speaker 4: effort to set up his own sort of offering there.

638
00:32:53,920 --> 00:32:56,360
Speaker 2: What exactly are the issues that you see there? And

639
00:32:56,400 --> 00:32:59,200
Speaker 2: I guess what can the CME do possibly to become

640
00:32:59,320 --> 00:33:02,240
Speaker 2: more competitive in that space against you know, you haven't

641
00:33:02,240 --> 00:33:03,640
Speaker 2: had that many competitors before.

642
00:33:03,760 --> 00:33:05,959
Speaker 5: I've got a lot of competitors throughout the years. And

643
00:33:06,320 --> 00:33:09,560
Speaker 5: there's such a thing called efficiencies in the marketplace tracy

644
00:33:09,640 --> 00:33:12,960
Speaker 5: that capital intensive worlds that we live in today because

645
00:33:13,000 --> 00:33:15,120
Speaker 5: of a whole host of rules going back from DoD

646
00:33:15,160 --> 00:33:19,400
Speaker 5: Frank into other BASL rules and things of that nature.

647
00:33:19,440 --> 00:33:23,160
Speaker 5: For the banks, we create today around sixty billion dollars

648
00:33:23,240 --> 00:33:26,040
Speaker 5: a day of efficiencies for our market participants every single day,

649
00:33:26,440 --> 00:33:29,560
Speaker 5: and in my interest rate area it's twenty four billion

650
00:33:29,600 --> 00:33:33,239
Speaker 5: dollars a day of market efficiencies. That's money freed up

651
00:33:33,440 --> 00:33:35,360
Speaker 5: that the largest participants in the world can use it

652
00:33:35,400 --> 00:33:37,160
Speaker 5: for other areas. They don't have to park it with

653
00:33:37,280 --> 00:33:40,760
Speaker 5: me to be in compliance anymore because I created those

654
00:33:40,800 --> 00:33:45,880
Speaker 5: margin offsets for them. I think that's really important going forward.

655
00:33:46,400 --> 00:33:49,920
Speaker 5: So the other part of your question was Lutnik. Lutnick, Oh, okay,

656
00:33:50,400 --> 00:33:52,920
Speaker 5: so I don't have an issue. Listen, he's a tragy,

657
00:33:53,000 --> 00:33:58,480
Speaker 5: he's a commerce secretary. His offering. My concern with his

658
00:33:58,520 --> 00:34:01,480
Speaker 5: offering is the following, and I'll say it one hundred times.

659
00:34:02,400 --> 00:34:07,560
Speaker 5: They are clearing that US Treasury futures contract in the

660
00:34:07,680 --> 00:34:13,760
Speaker 5: UK under UK law. In the United States, the law

661
00:34:13,920 --> 00:34:16,640
Speaker 5: states that if you clear a cash treasury, which is

662
00:34:16,719 --> 00:34:19,359
Speaker 5: under the new law coming up under the Treasury Clearing

663
00:34:19,440 --> 00:34:26,120
Speaker 5: Mandate rules, that it's an SEC single regulatory mandate, meaning

664
00:34:26,239 --> 00:34:28,880
Speaker 5: you go wherever you want, but the SEC is going

665
00:34:28,920 --> 00:34:33,880
Speaker 5: to regulate you. My concern was that futures expire into cash.

666
00:34:34,040 --> 00:34:37,480
Speaker 5: So what's the difference between a future and the cash market.

667
00:34:37,520 --> 00:34:40,600
Speaker 5: Once expiration happens on the future, why wouldn't you treat

668
00:34:40,600 --> 00:34:44,120
Speaker 5: them the same? And why would you allow UK law

669
00:34:45,360 --> 00:34:53,120
Speaker 5: and UK bankruptcy to let US participants in our foreign

670
00:34:53,160 --> 00:34:56,520
Speaker 5: sour indet there's twenty seven trillion dollars or US treasury

671
00:34:56,560 --> 00:35:01,000
Speaker 5: is outstanding today. If we have a problem like we

672
00:35:01,080 --> 00:35:07,520
Speaker 5: saw in London with the metals market of nickel, where

673
00:35:08,360 --> 00:35:11,640
Speaker 5: they busted the trades, they didn't do a risk management,

674
00:35:11,680 --> 00:35:15,400
Speaker 5: they just busted the trades which left people hanging. What's

675
00:35:15,440 --> 00:35:17,400
Speaker 5: to say that the Bank of England doesn't do that

676
00:35:17,480 --> 00:35:20,759
Speaker 5: with the US treasury market if in fact somebody has

677
00:35:20,800 --> 00:35:23,160
Speaker 5: an issue, and if they have an issue with that,

678
00:35:23,520 --> 00:35:26,279
Speaker 5: what's to say that that part of the market that

679
00:35:26,320 --> 00:35:28,920
Speaker 5: they did that on doesn't have a bigger impact on

680
00:35:28,960 --> 00:35:33,080
Speaker 5: the US market. So my issue is the US, like

681
00:35:33,160 --> 00:35:35,680
Speaker 5: every other country in the world, should have the laws

682
00:35:35,719 --> 00:35:38,080
Speaker 5: of its foreign sovereign debt be by the laws of

683
00:35:38,080 --> 00:35:41,240
Speaker 5: that nation, and we don't have that in this particular situation.

684
00:35:41,640 --> 00:35:44,560
Speaker 5: Every other country in the world has the laws of

685
00:35:44,600 --> 00:35:47,439
Speaker 5: their country applied to their sovereign debt, except the United

686
00:35:47,480 --> 00:35:50,000
Speaker 5: States on futures, and they can say, well, it's a derivative.

687
00:35:50,800 --> 00:35:54,200
Speaker 5: No shit, it's a derivative. It's a derivative that turns

688
00:35:54,239 --> 00:35:57,000
Speaker 5: into the cash product. That's exactly what you're trying to protect.

689
00:35:57,040 --> 00:36:01,000
Speaker 5: So that's my argument. I told mister Lutnick, I told Congress.

690
00:36:01,080 --> 00:36:03,959
Speaker 5: I told every regulator in the world, if he wants

691
00:36:04,000 --> 00:36:05,799
Speaker 5: to put that offering in the United States, let's go.

692
00:36:05,840 --> 00:36:08,200
Speaker 5: I want to compete with him, and I'm going to London.

693
00:36:08,280 --> 00:36:09,200
Speaker 2: Do you have a good sense of that?

694
00:36:09,400 --> 00:36:09,600
Speaker 5: Why?

695
00:36:09,680 --> 00:36:09,879
Speaker 3: Yeah?

696
00:36:09,880 --> 00:36:13,000
Speaker 5: Why? Because they believe that the swap dollar swaps market

697
00:36:13,040 --> 00:36:15,880
Speaker 5: that's in London, which is completely different than futures. Dollar swaps,

698
00:36:15,920 --> 00:36:18,840
Speaker 5: is fixed versus floating. It is not issued by the

699
00:36:18,920 --> 00:36:23,960
Speaker 5: United States government. Treasury contracts are issued by the government. Futures,

700
00:36:24,160 --> 00:36:26,600
Speaker 5: like I said, turn into the cash. So they believe

701
00:36:26,640 --> 00:36:30,759
Speaker 5: that because there's a large pool of dollar swaps being

702
00:36:30,760 --> 00:36:34,600
Speaker 5: cleared at London clearinghouse, the offsets will be greater than cme. Oh,

703
00:36:34,640 --> 00:36:37,440
Speaker 5: I see, but that's not the case, because I just

704
00:36:37,520 --> 00:36:39,799
Speaker 5: explained to you that we give twenty four billion dollars

705
00:36:39,800 --> 00:36:42,719
Speaker 5: a day in efficiencies and our interested complex. The only

706
00:36:42,760 --> 00:36:46,120
Speaker 5: way that that larger pool of swaps would be relevant

707
00:36:46,320 --> 00:36:48,919
Speaker 5: in creating a better offering is if they had any

708
00:36:48,960 --> 00:36:52,000
Speaker 5: futures volume. You have to have the future's volume. We

709
00:36:52,120 --> 00:36:54,520
Speaker 5: have one hundred percent of the future's volume here at CME,

710
00:36:54,880 --> 00:36:57,120
Speaker 5: and for every one of those futures contracts, we have

711
00:36:57,160 --> 00:37:00,319
Speaker 5: a swap, a dollar swap at CME that offset and

712
00:37:00,360 --> 00:37:04,080
Speaker 5: if we didn't then that would be a problem. So

713
00:37:04,120 --> 00:37:07,040
Speaker 5: the question is, if you're sitting at a dealer anywhere

714
00:37:07,080 --> 00:37:09,799
Speaker 5: around the world and you're holding US futures and you

715
00:37:09,840 --> 00:37:13,840
Speaker 5: can save the capital of an offset swap, are you

716
00:37:13,840 --> 00:37:15,759
Speaker 5: going to put it at elseh because they're nice guys?

717
00:37:15,800 --> 00:37:17,400
Speaker 5: Are you going to put it at seeing ME to

718
00:37:17,440 --> 00:37:19,600
Speaker 5: be part of that twenty four billion dollars because it's

719
00:37:19,640 --> 00:37:22,880
Speaker 5: going My point is the futures has to grow in

720
00:37:23,080 --> 00:37:25,879
Speaker 5: order to get the larger pull of the swaps offsets,

721
00:37:26,120 --> 00:37:29,640
Speaker 5: And right now, for every swap contract that's out there

722
00:37:30,160 --> 00:37:33,680
Speaker 5: gets the offsets against my future products. Today we're not

723
00:37:33,920 --> 00:37:37,280
Speaker 5: missing out on anything. So his offering is a charade

724
00:37:37,360 --> 00:37:39,640
Speaker 5: game of saying, look how big that is. Okay, it's big,

725
00:37:39,960 --> 00:37:42,839
Speaker 5: but no one needs it right now. The future's market

726
00:37:42,880 --> 00:37:44,640
Speaker 5: is what it is right now. It's big, but we

727
00:37:44,719 --> 00:37:46,560
Speaker 5: have the swaps to give the offsets. Does that make

728
00:37:46,600 --> 00:37:47,399
Speaker 5: sense to you? It does?

729
00:37:48,280 --> 00:37:50,480
Speaker 2: Yeah, we got to get you on stage debating what

730
00:37:50,640 --> 00:37:52,200
Speaker 2: niche at some point that'd be great.

731
00:37:52,360 --> 00:37:56,600
Speaker 5: Yeah. I can't stan any bed right now. I'll wait

732
00:37:56,640 --> 00:37:57,879
Speaker 5: till he's done, then we can do it.

733
00:37:58,040 --> 00:38:00,400
Speaker 1: Well, you didn't say the bad you know, I was

734
00:38:00,440 --> 00:38:03,719
Speaker 1: not expecting earlier to hear you give a little bit

735
00:38:03,719 --> 00:38:07,359
Speaker 1: of a hat tip to Sam Bankman Freed. But there's

736
00:38:07,400 --> 00:38:09,880
Speaker 1: another thing, and actually Sam Bankman Freed was one of

737
00:38:09,880 --> 00:38:13,560
Speaker 1: the main advocate, sort of pushers of it, this thing

738
00:38:13,560 --> 00:38:15,960
Speaker 1: that emerged out of the crypto world, of a perpetual

739
00:38:16,120 --> 00:38:21,120
Speaker 1: futures and could they apply could we have oil purpse? Like,

740
00:38:21,200 --> 00:38:24,280
Speaker 1: is there any reason this model it's rather than oil,

741
00:38:24,360 --> 00:38:26,840
Speaker 1: it's like the December future of the January, the twenty

742
00:38:26,920 --> 00:38:29,760
Speaker 1: twenty eight future. Is there any reason that this tool,

743
00:38:29,920 --> 00:38:32,280
Speaker 1: I guess, product whatever it is that sort of emerged

744
00:38:32,320 --> 00:38:35,360
Speaker 1: out of crypto couldn't eventually be applied to all of

745
00:38:35,360 --> 00:38:37,200
Speaker 1: these legacy hasset classes.

746
00:38:36,719 --> 00:38:43,160
Speaker 5: Against the Act. A futures contract yeah is defined as

747
00:38:43,360 --> 00:38:47,640
Speaker 5: a product that is to be price determined at a

748
00:38:47,680 --> 00:38:50,759
Speaker 5: later date. Okay, it doesn't say it will be and

749
00:38:51,360 --> 00:38:53,279
Speaker 5: you have to have a haha test right on that.

750
00:38:53,719 --> 00:38:56,600
Speaker 5: So a fifty year perp is not a later date.

751
00:38:57,320 --> 00:38:59,799
Speaker 1: So that was just because that's a joke when you

752
00:38:59,800 --> 00:39:00,719
Speaker 1: say ahaha test.

753
00:39:00,840 --> 00:39:04,000
Speaker 5: Yeah, that would be like if you created a fifty

754
00:39:04,080 --> 00:39:07,279
Speaker 5: year perpetual, which some of these people are doing in

755
00:39:07,320 --> 00:39:10,239
Speaker 5: Europe and others. They say, well, they're perpetuals, but they'll

756
00:39:10,239 --> 00:39:13,960
Speaker 5: they'll do a few years. Okay, that's not that's not

757
00:39:14,040 --> 00:39:15,960
Speaker 5: the definition by law.

758
00:39:16,320 --> 00:39:18,919
Speaker 1: If law were to be changed in the US, would

759
00:39:18,960 --> 00:39:21,800
Speaker 1: you see that as a innovation that could be useful

760
00:39:21,960 --> 00:39:23,720
Speaker 1: for these markets that you trade.

761
00:39:24,080 --> 00:39:28,080
Speaker 5: There are certain markets that could never become perpetuals, and

762
00:39:28,160 --> 00:39:30,640
Speaker 5: there's a reason for that. So let's talk about what

763
00:39:30,680 --> 00:39:35,000
Speaker 5: those are. If you have a perpetual livestock or grain market,

764
00:39:35,120 --> 00:39:36,600
Speaker 5: how in the world am I going to make or

765
00:39:36,600 --> 00:39:37,959
Speaker 5: take delivery on something that.

766
00:39:37,920 --> 00:39:39,760
Speaker 2: Never expires, immortal cows?

767
00:39:40,520 --> 00:39:42,360
Speaker 5: How am I going to make or take delivery on

768
00:39:42,440 --> 00:39:45,000
Speaker 5: the food markets of the United States, which is very

769
00:39:45,040 --> 00:39:49,799
Speaker 5: integral into pricing of these so deliverable products. What else

770
00:39:49,880 --> 00:39:53,520
Speaker 5: is deliverable? The United States treasury market is deliverable because

771
00:39:53,560 --> 00:39:57,280
Speaker 5: they expire, They expire. So my point is a perpetual

772
00:39:57,320 --> 00:40:01,680
Speaker 5: would not work in deliverable products. So you say, well,

773
00:40:01,719 --> 00:40:04,759
Speaker 5: what about cast settled products terry would that work? I

774
00:40:04,800 --> 00:40:06,960
Speaker 5: don't know if they would work. They would the index

775
00:40:06,960 --> 00:40:09,799
Speaker 5: would continue to go, but again it would not fit

776
00:40:09,880 --> 00:40:13,399
Speaker 5: the definition under the law of a futures contract, because

777
00:40:13,400 --> 00:40:16,800
Speaker 5: whether it's cash settled or physical settled, the definition is

778
00:40:16,840 --> 00:40:19,040
Speaker 5: the exact same thing for a futures contract, and it's

779
00:40:19,080 --> 00:40:20,400
Speaker 5: not the perpetual definition.

780
00:40:20,920 --> 00:40:23,440
Speaker 2: Let's talk some more general macro I guess, and we

781
00:40:23,920 --> 00:40:26,680
Speaker 2: touched on treasury futures earlier, which again big part of

782
00:40:26,719 --> 00:40:27,280
Speaker 2: your business.

783
00:40:27,840 --> 00:40:28,560
Speaker 3: There's talk of.

784
00:40:28,520 --> 00:40:32,879
Speaker 2: Another potential government shutdown. I'm very curious how you think

785
00:40:32,920 --> 00:40:35,440
Speaker 2: about that. How much of your time you spend thinking

786
00:40:35,440 --> 00:40:37,920
Speaker 2: about that possibility and what it means for CEME risk

787
00:40:37,960 --> 00:40:40,000
Speaker 2: management or is it the case that we've been here

788
00:40:40,040 --> 00:40:42,080
Speaker 2: so many times before you kind of know what the

789
00:40:42,080 --> 00:40:42,719
Speaker 2: playbook is.

790
00:40:43,120 --> 00:40:45,000
Speaker 5: You always think you know what the playbook is to

791
00:40:45,040 --> 00:40:47,560
Speaker 5: some extent tracy. But again I think that if you

792
00:40:48,120 --> 00:40:51,040
Speaker 5: the one time that you apply that strategy and you go, whoops,

793
00:40:51,120 --> 00:40:53,239
Speaker 5: what do you mean it happened? You know that's a problem, right,

794
00:40:53,280 --> 00:40:55,000
Speaker 5: So you always have to be prepared and we are.

795
00:40:55,920 --> 00:40:58,480
Speaker 5: I think if there is a shutdown, which I think

796
00:40:58,520 --> 00:41:01,560
Speaker 5: there very likely could be, I don't think it's going

797
00:41:01,600 --> 00:41:03,759
Speaker 5: to be the shutdown that is going to be a

798
00:41:03,800 --> 00:41:06,200
Speaker 5: disturbance to the economy. I think it's going to be

799
00:41:06,239 --> 00:41:10,000
Speaker 5: a disturbance to parks and recreations. It's going to be

800
00:41:11,360 --> 00:41:14,880
Speaker 5: some of the other disturbances, which this is where it

801
00:41:14,880 --> 00:41:18,560
Speaker 5: bothers me. Social services. You know that's a problem. But

802
00:41:18,640 --> 00:41:21,080
Speaker 5: what does that mean for the financial system? Not so sure,

803
00:41:21,320 --> 00:41:24,080
Speaker 5: But you know, people social Security checks getting out on time?

804
00:41:24,200 --> 00:41:26,520
Speaker 5: Does that get delayed? That's a problem.

805
00:41:26,680 --> 00:41:28,520
Speaker 1: Economic data getting reported in the time.

806
00:41:28,880 --> 00:41:31,759
Speaker 5: I think that when you look at they've always kind

807
00:41:31,760 --> 00:41:34,799
Speaker 5: of carved that economic data out with the USDA and

808
00:41:34,840 --> 00:41:38,680
Speaker 5: other entities. They've always gotten the data out through past shutdowns,

809
00:41:39,120 --> 00:41:41,520
Speaker 5: and I do think that the pressure to reopen the

810
00:41:41,520 --> 00:41:46,040
Speaker 5: government will be immense from both sides of the aisles,

811
00:41:46,080 --> 00:41:47,640
Speaker 5: so that they will have to come to it. Even

812
00:41:47,680 --> 00:41:50,120
Speaker 5: if it's a short shutdown, I don't see it being

813
00:41:50,120 --> 00:41:53,960
Speaker 5: a long one because of the reasons. The social services

814
00:41:53,960 --> 00:41:58,160
Speaker 5: that are so important to so many constituents of Congress

815
00:41:58,640 --> 00:41:59,680
Speaker 5: need to have happened.

816
00:42:00,000 --> 00:42:02,480
Speaker 1: So this actually reminds me going back to the different

817
00:42:02,640 --> 00:42:05,000
Speaker 1: the varieties of event markets, and we talked about the

818
00:42:05,000 --> 00:42:08,680
Speaker 1: political risks, which I find very compelling, especially at the

819
00:42:08,680 --> 00:42:11,880
Speaker 1: small elections. There are other things that are traded on

820
00:42:11,960 --> 00:42:16,000
Speaker 1: event markets that, to my mind, a hedger with a

821
00:42:16,080 --> 00:42:19,080
Speaker 1: sort of economic stake might want to hedge so portfolio

822
00:42:19,120 --> 00:42:21,880
Speaker 1: manager who might be worried, what if we get a

823
00:42:21,960 --> 00:42:25,720
Speaker 1: super weak jobs print that could really bust my trade.

824
00:42:26,080 --> 00:42:28,719
Speaker 1: On these other prediction markets, you can bet is it

825
00:42:28,719 --> 00:42:30,080
Speaker 1: going to be over one fifty, is it going to

826
00:42:30,120 --> 00:42:32,120
Speaker 1: be over two hundred, is it going to be below

827
00:42:32,160 --> 00:42:36,080
Speaker 1: one hundred. You could also maybe someone who's very bullish

828
00:42:36,280 --> 00:42:40,440
Speaker 1: Tesla for their robots division, wants to is barish on

829
00:42:40,480 --> 00:42:42,520
Speaker 1: the cars. So I'm going to go long Tesla, but

830
00:42:42,560 --> 00:42:46,320
Speaker 1: I want to short the prediction market on their volume

831
00:42:46,480 --> 00:42:49,160
Speaker 1: car sales, et cetera. These are different than the politics

832
00:42:49,160 --> 00:42:51,400
Speaker 1: ones in the sense that they're not as easy manipulatable.

833
00:42:51,480 --> 00:42:54,080
Speaker 1: There's something else. How do you feel like there seems

834
00:42:54,120 --> 00:42:55,719
Speaker 1: to be some It strikes me that there could be

835
00:42:55,760 --> 00:43:00,239
Speaker 1: a real economic justification for the existence of these event markets.

836
00:43:00,680 --> 00:43:02,600
Speaker 5: Again, Joe, I'm not going to disagree with what you

837
00:43:02,640 --> 00:43:06,640
Speaker 5: just said, because I think that the more risk management

838
00:43:06,640 --> 00:43:09,759
Speaker 5: tools we have is better. What you just described was

839
00:43:09,880 --> 00:43:13,360
Speaker 5: risk management. You did not describe a gaming type scenario.

840
00:43:13,760 --> 00:43:17,320
Speaker 5: You described a company of Tesla that has multiple divisions

841
00:43:17,320 --> 00:43:19,200
Speaker 5: that you like one, but you're a little worried about

842
00:43:19,200 --> 00:43:22,640
Speaker 5: the production of their cars. So it happens every single day,

843
00:43:22,640 --> 00:43:24,160
Speaker 5: and it's been going on in the market for one

844
00:43:24,200 --> 00:43:26,719
Speaker 5: hundred years called peratrating. So you sell this and buy

845
00:43:26,760 --> 00:43:30,040
Speaker 5: that right because you're not quite sure when the event's

846
00:43:30,040 --> 00:43:31,759
Speaker 5: going to happen, but you know it's all spread it

847
00:43:31,840 --> 00:43:32,359
Speaker 5: up a little bit.

848
00:43:32,440 --> 00:43:34,680
Speaker 1: It just seems to me that there's this proliferation of

849
00:43:34,719 --> 00:43:38,839
Speaker 1: possible tradable events now in part because of these new platforms.

850
00:43:39,040 --> 00:43:42,200
Speaker 1: So you know, when we think about hedging risk, maybe

851
00:43:42,200 --> 00:43:44,520
Speaker 1: a bigger surer wanted to hedge out some interest rate

852
00:43:44,640 --> 00:43:47,719
Speaker 1: risk or something that makes sense. But these new platforms

853
00:43:47,760 --> 00:43:50,600
Speaker 1: are offering very specific things like bet on the car

854
00:43:50,640 --> 00:43:53,280
Speaker 1: sales number or bet on the jobs number, et cetera.

855
00:43:53,680 --> 00:43:56,640
Speaker 1: Is that a space that you could see again, it's

856
00:43:56,680 --> 00:43:59,000
Speaker 1: a risk management that could see me get into events

857
00:43:59,000 --> 00:43:59,400
Speaker 1: such as that.

858
00:44:00,160 --> 00:44:03,360
Speaker 5: Again, I think when you look at specific events that

859
00:44:03,400 --> 00:44:06,239
Speaker 5: you just outline, I'll use Tesla to your example. I

860
00:44:06,239 --> 00:44:09,560
Speaker 5: would have to see what the interest is by the participants.

861
00:44:09,680 --> 00:44:13,160
Speaker 5: Because if you get a contract that you list you

862
00:44:13,280 --> 00:44:16,319
Speaker 5: whether it's a prediction market or a standardized contract, and

863
00:44:16,360 --> 00:44:19,560
Speaker 5: no one wants to trade it, then it's an irrelevant

864
00:44:19,560 --> 00:44:22,960
Speaker 5: contract anyway. So I like to say that, and where

865
00:44:23,000 --> 00:44:24,439
Speaker 5: I hope the people in main don't hate me, because

866
00:44:24,440 --> 00:44:26,319
Speaker 5: I've used this example a few times. There's people in

867
00:44:26,400 --> 00:44:28,840
Speaker 5: Maine that think you should have a lobster futures contract, right,

868
00:44:29,320 --> 00:44:31,759
Speaker 5: but you know who wants that, people that are in

869
00:44:31,800 --> 00:44:34,320
Speaker 5: the lobster business. The rest of world doesn't care about

870
00:44:34,360 --> 00:44:37,160
Speaker 5: that because we can't afford lobster, and we can we

871
00:44:37,280 --> 00:44:39,040
Speaker 5: just pay for it whatever the price is. So there

872
00:44:39,080 --> 00:44:42,200
Speaker 5: really isn't a marketplace there for the speculators to participate in.

873
00:44:42,800 --> 00:44:45,480
Speaker 5: So is that the same situation with what you al

874
00:44:45,600 --> 00:44:48,080
Speaker 5: and I'm not suggesting it is, but that's up to

875
00:44:48,080 --> 00:44:51,359
Speaker 5: the participants. That's why we're very careful not to put

876
00:44:51,400 --> 00:44:54,120
Speaker 5: out products that we think that there's no demand for.

877
00:44:54,239 --> 00:44:59,719
Speaker 5: We research what massive constituents about what they think they

878
00:44:59,800 --> 00:45:04,000
Speaker 5: need in order to manage risk, and we're hearing different things.

879
00:45:04,400 --> 00:45:08,800
Speaker 5: Now does a product come out like a prediction market

880
00:45:08,920 --> 00:45:11,879
Speaker 5: where everybody goes aha, I finally found a holy grail

881
00:45:11,920 --> 00:45:14,680
Speaker 5: on how to lay off my risk. I don't see it.

882
00:45:14,840 --> 00:45:17,359
Speaker 5: I think the prediction markets that will be listed will

883
00:45:17,400 --> 00:45:20,319
Speaker 5: be driven by the demand of the participants, not the

884
00:45:20,360 --> 00:45:21,960
Speaker 5: market itself. Does that make sense to you.

885
00:45:23,400 --> 00:45:26,640
Speaker 2: I really want to launch a a lobster prediction market now,

886
00:45:26,760 --> 00:45:29,640
Speaker 2: lobster price prediction. I think that'd be a really interesting experiment.

887
00:45:30,000 --> 00:45:32,080
Speaker 1: There used to be a cardamom futures that was traded

888
00:45:32,080 --> 00:45:34,720
Speaker 1: in India and I tried reaching out to the regulator.

889
00:45:34,719 --> 00:45:36,640
Speaker 1: I wanted to do a story about a dead futures

890
00:45:36,640 --> 00:45:39,239
Speaker 1: contract that didn't I couldn't get I gotta try again

891
00:45:39,280 --> 00:45:42,280
Speaker 1: because I'd love to like the story of a futures

892
00:45:42,280 --> 00:45:44,320
Speaker 1: contract that just lost. Yeah.

893
00:45:44,560 --> 00:45:47,400
Speaker 2: Sort of on this note, do you see any indication

894
00:45:47,520 --> 00:45:52,560
Speaker 2: of big institutional investors, I guess taking some of the

895
00:45:52,600 --> 00:45:55,680
Speaker 2: strategies that are deployed by retail or sort of imitating

896
00:45:55,680 --> 00:45:58,279
Speaker 2: retail in some way. And what I mean by that

897
00:45:58,360 --> 00:46:01,600
Speaker 2: is I think about one day zero day options. When

898
00:46:01,680 --> 00:46:04,560
Speaker 2: those first gain traction, a lot of the activity was

899
00:46:04,600 --> 00:46:07,840
Speaker 2: through retail, and then the institutional sort of got pulled

900
00:46:07,880 --> 00:46:10,759
Speaker 2: in and got really into it. Is there evidence of

901
00:46:10,800 --> 00:46:13,920
Speaker 2: institutional becoming more like retail and certain patterns of behavior

902
00:46:14,000 --> 00:46:15,719
Speaker 2: or certain interest in certain products.

903
00:46:16,080 --> 00:46:20,640
Speaker 5: Well, I think there is always an opportunity for big

904
00:46:20,640 --> 00:46:24,160
Speaker 5: institutions to look at what the retail's doing. So let's

905
00:46:24,200 --> 00:46:27,359
Speaker 5: be mindful of where the money comes from from institutions.

906
00:46:28,000 --> 00:46:31,120
Speaker 5: So if you put together a pool of dollars and

907
00:46:31,200 --> 00:46:34,440
Speaker 5: you give it to a large institution, they call it

908
00:46:34,440 --> 00:46:38,000
Speaker 5: institutional money. That probably came from a subset of the teachers'

909
00:46:38,040 --> 00:46:40,520
Speaker 5: union of a lot of people. So everybody's got ten

910
00:46:40,560 --> 00:46:41,960
Speaker 5: dollars and this all of a sudden, it's worth one

911
00:46:42,040 --> 00:46:44,640
Speaker 5: hundred million dollars or a billion dollars, whatever the case is.

912
00:46:45,000 --> 00:46:48,520
Speaker 5: So that retail money that's now big is now called

913
00:46:48,560 --> 00:46:53,000
Speaker 5: institutional money. So their thought processes aren't too dissimilar from

914
00:46:53,000 --> 00:46:56,359
Speaker 5: their clients. So yes, I can see that going back

915
00:46:56,400 --> 00:46:59,319
Speaker 5: and forth, ebbing and flowing about the ideas of what

916
00:46:59,360 --> 00:47:02,719
Speaker 5: they want to participate in or not. First of all,

917
00:47:02,760 --> 00:47:05,440
Speaker 5: I think people are always looking for opportunity. I think

918
00:47:05,480 --> 00:47:09,560
Speaker 5: they're always looking for efficiencies. And I think that the

919
00:47:09,600 --> 00:47:14,080
Speaker 5: lines of institutional and retail are absolutely blurred right now.

920
00:47:14,120 --> 00:47:15,719
Speaker 5: And I think there's a lot of people going, what

921
00:47:15,760 --> 00:47:18,399
Speaker 5: does that mean? I feel like I've got some kind

922
00:47:18,400 --> 00:47:20,359
Speaker 5: of handle on that, and that's why I'm doing what

923
00:47:20,400 --> 00:47:23,800
Speaker 5: I'm doing, because I think that those blurred lines will

924
00:47:23,840 --> 00:47:27,359
Speaker 5: continue to go forward, and the products that they participate

925
00:47:27,440 --> 00:47:29,960
Speaker 5: in and how they do it will continue to get blurred.

926
00:47:30,200 --> 00:47:33,239
Speaker 5: I think both can grow, and they'll grow exponentially, but

927
00:47:33,280 --> 00:47:34,440
Speaker 5: they're going to look a lot alike.

928
00:47:35,120 --> 00:47:37,480
Speaker 1: I just have one last question, and I feel compelled

929
00:47:37,520 --> 00:47:40,839
Speaker 1: to ask every CEO, or really every corporate executive this

930
00:47:41,120 --> 00:47:45,719
Speaker 1: these days, with the exception of your software engineers who

931
00:47:45,800 --> 00:47:50,239
Speaker 1: work at CME right now, is there anything that you

932
00:47:50,320 --> 00:47:53,960
Speaker 1: can point to where large language models are being deployed

933
00:47:54,000 --> 00:47:55,799
Speaker 1: in a productive way with in here or is it

934
00:47:55,880 --> 00:47:58,960
Speaker 1: still at test and see and do experiments.

935
00:48:00,000 --> 00:48:02,399
Speaker 5: Okay, so let me see if I can answer that one, Jose,

936
00:48:03,239 --> 00:48:06,360
Speaker 5: large language models being deployed, Yeah.

937
00:48:06,160 --> 00:48:07,960
Speaker 1: I'm sure the engineers are generating code.

938
00:48:08,080 --> 00:48:10,640
Speaker 5: Yeah, there's no question. But see, we're kind of in

939
00:48:11,520 --> 00:48:13,680
Speaker 5: a bit of a limbo, for lack of a better term,

940
00:48:13,760 --> 00:48:15,680
Speaker 5: spot right now because a lot of that stuff that

941
00:48:15,719 --> 00:48:19,040
Speaker 5: I'm working on is going through Google right now. Because

942
00:48:19,080 --> 00:48:22,040
Speaker 5: of the relationship and the partnership I have with Google.

943
00:48:22,400 --> 00:48:25,560
Speaker 5: I'm transitioning. I'm going to transition my markets to Google Cloud.

944
00:48:25,640 --> 00:48:27,800
Speaker 5: I'm transitioning a lot of my tech to Google Cloud,

945
00:48:28,320 --> 00:48:30,600
Speaker 5: and a lot of that machine learning and things of

946
00:48:30,600 --> 00:48:33,960
Speaker 5: that nature, Gemini and all that we're going through Google.

947
00:48:34,040 --> 00:48:36,440
Speaker 5: So we are doing it together, so it's not just

948
00:48:36,560 --> 00:48:39,680
Speaker 5: my people doing anymore. It's CME and Google working together

949
00:48:39,719 --> 00:48:42,200
Speaker 5: to deploy that. So I can't give you a singular

950
00:48:42,239 --> 00:48:45,680
Speaker 5: answer what we're doing as CME because it's a mix

951
00:48:45,719 --> 00:48:46,399
Speaker 5: between us.

952
00:48:46,600 --> 00:48:50,080
Speaker 1: At the moment. There's no workflow that exists where someone

953
00:48:50,120 --> 00:48:52,160
Speaker 1: could point and say, you know what, this used to

954
00:48:52,200 --> 00:48:55,040
Speaker 1: be a ten person job, but thanks to large language models,

955
00:48:55,040 --> 00:48:57,799
Speaker 1: it's a one person job at least as of September

956
00:48:58,239 --> 00:48:59,960
Speaker 1: twenty five to twenty twenty five.

957
00:49:00,040 --> 00:49:01,840
Speaker 5: The only way I can answer that is by headcount,

958
00:49:02,440 --> 00:49:04,839
Speaker 5: and I would say that that is not the case

959
00:49:04,960 --> 00:49:07,400
Speaker 5: because one of the things that I've seen with technology

960
00:49:07,440 --> 00:49:10,439
Speaker 5: is it creates other jobs and it eliminates the last job.

961
00:49:10,880 --> 00:49:13,160
Speaker 5: So yes, we have seen the elimination of certain things

962
00:49:13,200 --> 00:49:15,440
Speaker 5: to your point, but it's created other ones. So I

963
00:49:15,440 --> 00:49:18,440
Speaker 5: look at it as headcount, not so much as project related.

964
00:49:18,800 --> 00:49:21,880
Speaker 2: Spoken like a former pit trader who became the CEO

965
00:49:22,200 --> 00:49:25,600
Speaker 2: of a very large derivatives exchange, can I squeeze in

966
00:49:25,600 --> 00:49:28,440
Speaker 2: one more question. This is backward looking, but I am

967
00:49:28,640 --> 00:49:32,920
Speaker 2: very interested in hearing about it. Liberation Day, huge amount

968
00:49:32,960 --> 00:49:34,000
Speaker 2: of market volatility.

969
00:49:34,280 --> 00:49:37,719
Speaker 5: What was that like for you? You know, just another day,

970
00:49:37,719 --> 00:49:39,040
Speaker 5: To be honest with you, I hate to say it

971
00:49:39,040 --> 00:49:42,839
Speaker 5: that way, but we've seen so many different events in

972
00:49:42,880 --> 00:49:44,840
Speaker 5: my career that you know, when you go back to

973
00:49:44,880 --> 00:49:47,120
Speaker 5: the OAID crisis, you go back to the flash crash,

974
00:49:47,200 --> 00:49:50,360
Speaker 5: you go back to other scenarios, the pandemic. You know,

975
00:49:50,360 --> 00:49:51,880
Speaker 5: I look at the pandemic as one of the more

976
00:49:52,000 --> 00:49:55,360
Speaker 5: the more frightening times in the history of markets versus

977
00:49:55,400 --> 00:49:58,640
Speaker 5: Liberation Day. Liberation Day is more about whatether the terrorists

978
00:49:58,719 --> 00:50:00,560
Speaker 5: going to mean or not mean? And you know, I

979
00:50:00,600 --> 00:50:03,000
Speaker 5: think there's a lot of people that believe that there's

980
00:50:03,040 --> 00:50:05,319
Speaker 5: no way that these could come to fruition, So it

981
00:50:05,400 --> 00:50:07,960
Speaker 5: was kind of tempered down a little bit. The activity

982
00:50:08,040 --> 00:50:11,879
Speaker 5: was pretty exciting, but if that were to come out

983
00:50:11,920 --> 00:50:15,239
Speaker 5: of the blue, it would be really bizarre. But I

984
00:50:15,280 --> 00:50:19,280
Speaker 5: think that was fairly well telegraphed Tracy to say the least,

985
00:50:19,760 --> 00:50:22,640
Speaker 5: Liberation Day, so I think the market was well prepared

986
00:50:22,640 --> 00:50:24,759
Speaker 5: for it. It reminds me a lot of last week with

987
00:50:24,800 --> 00:50:28,680
Speaker 5: the FED that was the most telegraphed quarter point move

988
00:50:28,800 --> 00:50:31,160
Speaker 5: in the history of the Federal Reserve. Right, is that fair?

989
00:50:31,560 --> 00:50:36,760
Speaker 5: I think Liberation Day.

990
00:50:35,520 --> 00:50:37,080
Speaker 1: Moves in the stock market in a row.

991
00:50:37,400 --> 00:50:40,840
Speaker 5: Okay. So when you look at percent of stock market

992
00:50:40,840 --> 00:50:44,160
Speaker 5: moves at the levels that we're at today versus the

993
00:50:44,239 --> 00:50:47,320
Speaker 5: percent of the levels that we're at No. Eight, it's

994
00:50:47,360 --> 00:50:52,120
Speaker 5: a non event. So if we had everything based non event,

995
00:50:54,000 --> 00:50:55,920
Speaker 5: So I think it's relative to the value of the

996
00:50:55,920 --> 00:50:58,319
Speaker 5: product and the percent goes with it.

997
00:50:58,920 --> 00:50:59,759
Speaker 1: What would worry you?

998
00:50:59,800 --> 00:51:02,960
Speaker 5: Now? Everything worries me, okay. So I don't have one

999
00:51:03,000 --> 00:51:05,160
Speaker 5: particular thing. So you could say anything and I say, yep,

1000
00:51:05,200 --> 00:51:09,040
Speaker 5: that worries me. So, but I try to manage it

1001
00:51:09,080 --> 00:51:12,960
Speaker 5: and move forward. And I like to be, you know,

1002
00:51:13,080 --> 00:51:15,399
Speaker 5: telling my people a couple of different things. I love

1003
00:51:15,480 --> 00:51:17,319
Speaker 5: looking for I love the future. I love young people.

1004
00:51:17,440 --> 00:51:20,920
Speaker 5: I think they're innovative. I think their opportunities galore are

1005
00:51:20,960 --> 00:51:24,640
Speaker 5: going forward. And I like to use my past as

1006
00:51:24,640 --> 00:51:26,600
Speaker 5: something that I learned from but not live in it.

1007
00:51:26,680 --> 00:51:28,759
Speaker 5: So I don't like to look through the review mirror.

1008
00:51:28,760 --> 00:51:31,120
Speaker 5: I like to look through the windshield and go forward.

1009
00:51:31,640 --> 00:51:33,719
Speaker 5: So but when you do that, you know there's a

1010
00:51:33,719 --> 00:51:35,399
Speaker 5: lot of things that can scare you. We talked about

1011
00:51:35,440 --> 00:51:37,719
Speaker 5: them earlier today. Some of the new innovations that are

1012
00:51:37,719 --> 00:51:40,920
Speaker 5: coming out, some will win, some will fail. So you

1013
00:51:41,000 --> 00:51:43,440
Speaker 5: have to be very careful about how we participate in

1014
00:51:43,480 --> 00:51:46,200
Speaker 5: that as an institution, like seeing me, so that a

1015
00:51:46,239 --> 00:51:49,520
Speaker 5: lot of that concerns me. No different than when Sam was,

1016
00:51:50,000 --> 00:51:53,640
Speaker 5: you know, putting forth with FTX back in the day

1017
00:51:53,680 --> 00:51:56,800
Speaker 5: and he was backing up his coins with synthetic other coins,

1018
00:51:56,840 --> 00:51:59,000
Speaker 5: and then he wanted to have a margining system with

1019
00:51:59,040 --> 00:52:02,319
Speaker 5: no risk management that was fraught with danger. And I

1020
00:52:02,360 --> 00:52:04,480
Speaker 5: saw that, but it seemed like nobody else did. I'm

1021
00:52:04,480 --> 00:52:07,960
Speaker 5: not suggesting that today's world, but there seems to be

1022
00:52:09,160 --> 00:52:12,080
Speaker 5: a situation right now with regulatory issues where you know,

1023
00:52:12,200 --> 00:52:15,000
Speaker 5: go ahead and do it and we'll apologize later. Is

1024
00:52:15,040 --> 00:52:16,880
Speaker 5: the old saying whatever it is. And that's not a

1025
00:52:16,880 --> 00:52:18,600
Speaker 5: good place to be. So that worries me a little bit.

1026
00:52:18,640 --> 00:52:21,520
Speaker 2: Tracy, all right, Terry Duffy, always good chatting with you.

1027
00:52:21,600 --> 00:52:22,479
Speaker 3: Thank you so much for.

1028
00:52:22,400 --> 00:52:23,239
Speaker 2: Coming back on the show.

1029
00:52:23,360 --> 00:52:24,440
Speaker 5: Thanks Racy, Thanks joeff.

1030
00:52:24,480 --> 00:52:26,359
Speaker 1: It was a blast, Thank you, Thank you so much.

1031
00:52:26,360 --> 00:52:40,800
Speaker 3: Fun Joe, Terry's a blast.

1032
00:52:40,960 --> 00:52:42,000
Speaker 1: I love talking to Terry.

1033
00:52:42,080 --> 00:52:44,359
Speaker 2: Yeah, I'm glad we did it though, because I think

1034
00:52:44,400 --> 00:52:46,759
Speaker 2: if you're thinking about the intersection of the sort of

1035
00:52:47,280 --> 00:52:52,280
Speaker 2: prediction betting markets and the sort of old school traditional markets,

1036
00:52:52,480 --> 00:52:54,680
Speaker 2: the CMME, you know, kind of stands out.

1037
00:52:54,760 --> 00:52:57,880
Speaker 1: It's right there. I thought I really liked his point

1038
00:52:58,080 --> 00:53:03,839
Speaker 1: about twenty seventeen was by some by many measures, very

1039
00:53:03,920 --> 00:53:06,319
Speaker 1: late to the crypto game. Maybe. I mean, I guess

1040
00:53:06,320 --> 00:53:07,759
Speaker 1: we don't know in a one hundred years from now,

1041
00:53:07,760 --> 00:53:10,719
Speaker 1: maybe that'll still be seen this day one. But it's

1042
00:53:10,800 --> 00:53:13,640
Speaker 1: been a successful business for the CMEME, and so this

1043
00:53:13,920 --> 00:53:18,080
Speaker 1: idea that the long term, you know, one way to

1044
00:53:18,080 --> 00:53:20,440
Speaker 1: think about the long term failure creation the CME is

1045
00:53:20,480 --> 00:53:22,600
Speaker 1: that it's okay to be second that doesn't need to

1046
00:53:22,680 --> 00:53:24,600
Speaker 1: rush out of the gate for some of these things.

1047
00:53:24,719 --> 00:53:27,200
Speaker 1: I thought that was a very compelling example.

1048
00:53:26,960 --> 00:53:29,800
Speaker 2: Right, and there you know, there is first mover advantage,

1049
00:53:29,800 --> 00:53:33,080
Speaker 2: but on the other hand, there is also institutional strength

1050
00:53:33,160 --> 00:53:34,800
Speaker 2: that can be an advantage as well.

1051
00:53:35,160 --> 00:53:37,520
Speaker 1: F g exit first mover advantage. That's right, It sort

1052
00:53:37,560 --> 00:53:39,880
Speaker 1: of was missing the latter one that was proved to

1053
00:53:39,880 --> 00:53:40,680
Speaker 1: be very cost.

1054
00:53:40,600 --> 00:53:41,680
Speaker 3: I think that was Terry's point.

1055
00:53:41,960 --> 00:53:44,839
Speaker 2: Yeah, I don't want to be super old fashioned when

1056
00:53:44,880 --> 00:53:46,879
Speaker 2: it comes to a lot of betting markets. But one

1057
00:53:46,920 --> 00:53:48,680
Speaker 2: of the things you hear is that when you think

1058
00:53:48,680 --> 00:53:53,239
Speaker 2: about traditional financial assets, it's about putting money to good use,

1059
00:53:53,360 --> 00:53:55,600
Speaker 2: right you know, you invest in something, you're supposed to

1060
00:53:55,640 --> 00:53:58,160
Speaker 2: get an income stream back, or maybe an asset that

1061
00:53:58,320 --> 00:54:02,160
Speaker 2: appreciates over time, but again probably one that generates some

1062
00:54:02,200 --> 00:54:02,880
Speaker 2: sort of income.

1063
00:54:03,719 --> 00:54:04,480
Speaker 1: I do.

1064
00:54:04,320 --> 00:54:07,880
Speaker 2: I look at the activity on all of these betting

1065
00:54:07,920 --> 00:54:10,960
Speaker 2: platforms and like you know, market making platforms and things

1066
00:54:11,040 --> 00:54:13,280
Speaker 2: like that, and I just think there's so much money

1067
00:54:13,360 --> 00:54:17,680
Speaker 2: being generated and I'm not sure like where it's going.

1068
00:54:17,640 --> 00:54:18,319
Speaker 3: Do you know what I mean?

1069
00:54:18,800 --> 00:54:22,920
Speaker 1: Yeah, there's so much going on right now, and like

1070
00:54:23,239 --> 00:54:26,240
Speaker 1: it just feels like there's a complete blurring of everything,

1071
00:54:26,280 --> 00:54:29,279
Speaker 1: a complete transformation of everything. It really does feel like

1072
00:54:29,360 --> 00:54:32,800
Speaker 1: to me specifically, the doors are being flung open. There's

1073
00:54:32,880 --> 00:54:35,920
Speaker 1: this sort of growing norm in society that anyone can

1074
00:54:35,960 --> 00:54:38,160
Speaker 1: trade anything at any time for better or worse and

1075
00:54:38,200 --> 00:54:40,799
Speaker 1: make no judgment on it. I do think, you know,

1076
00:54:42,600 --> 00:54:45,919
Speaker 1: it is interesting to me one to see me specifically

1077
00:54:47,080 --> 00:54:51,360
Speaker 1: this sort of like caution or you know, let's let's

1078
00:54:51,520 --> 00:54:55,480
Speaker 1: take this stuff seriously, not necessarily dismissing. On the other hand,

1079
00:54:55,880 --> 00:54:58,359
Speaker 1: like when seeing me like partners with fan Duel and

1080
00:54:58,440 --> 00:55:01,600
Speaker 1: which is like a literal sports betting company. It strikes

1081
00:55:01,640 --> 00:55:05,200
Speaker 1: me that that is an accelerating event for this world

1082
00:55:05,239 --> 00:55:07,640
Speaker 1: where we just trade on everything that you could talk

1083
00:55:07,640 --> 00:55:10,480
Speaker 1: about caution, but like when you're like, you know, partnering

1084
00:55:10,520 --> 00:55:13,719
Speaker 1: with a straight up sports betting company, even if it's

1085
00:55:13,760 --> 00:55:17,000
Speaker 1: on a different app et cetera, that you're accelerating this

1086
00:55:17,120 --> 00:55:20,200
Speaker 1: world of everything is a bet on any app.

1087
00:55:20,640 --> 00:55:24,600
Speaker 2: On the plus side, lots of content for loots, episodes and.

1088
00:55:24,600 --> 00:55:25,239
Speaker 5: One other things.

1089
00:55:25,280 --> 00:55:27,360
Speaker 1: Yes, and we have many more like this is like

1090
00:55:27,440 --> 00:55:29,680
Speaker 1: perfect time and this trip and everything. Because there's so

1091
00:55:29,719 --> 00:55:31,560
Speaker 1: much going on, there's that round table. I really like

1092
00:55:31,640 --> 00:55:34,120
Speaker 1: Terry's point about the even if you said it as

1093
00:55:34,160 --> 00:55:36,880
Speaker 1: kind of a joke about the lobster futures, Yeah, because

1094
00:55:36,920 --> 00:55:38,080
Speaker 1: I do think that's very telling.

1095
00:55:38,160 --> 00:55:38,399
Speaker 5: Right.

1096
00:55:38,560 --> 00:55:42,880
Speaker 1: You could imagine that lobstermen might like to hedge their prices,

1097
00:55:43,080 --> 00:55:44,520
Speaker 1: but that there's just not going to be in a

1098
00:55:44,640 --> 00:55:46,640
Speaker 1: volume or real market for it. And I do think

1099
00:55:46,680 --> 00:55:49,839
Speaker 1: that's interesting to keep in mind because I do look

1100
00:55:49,840 --> 00:55:52,000
Speaker 1: at some of these contracts that exist on the other

1101
00:55:52,040 --> 00:55:56,239
Speaker 1: platforms and like I could see a entity wanting to

1102
00:55:56,280 --> 00:55:59,120
Speaker 1: hedge out the risk of a very left tail jobs

1103
00:55:59,160 --> 00:56:01,399
Speaker 1: report or I could see you wanting to hedge out

1104
00:56:01,440 --> 00:56:04,880
Speaker 1: the car sales risk of Tesla. The logic of the

1105
00:56:04,960 --> 00:56:07,600
Speaker 1: market does not necessarily mean that there will be a

1106
00:56:07,640 --> 00:56:10,080
Speaker 1: sizeable market. I think is a very important one to

1107
00:56:10,120 --> 00:56:10,640
Speaker 1: keep in mind.

1108
00:56:10,960 --> 00:56:12,879
Speaker 2: But I also wonder if you wouldn't have the same

1109
00:56:12,960 --> 00:56:17,160
Speaker 2: market size issues for something like a lobster prediction market, like.

1110
00:56:17,160 --> 00:56:19,640
Speaker 1: Who will well, yeah, we don't know.

1111
00:56:19,719 --> 00:56:20,120
Speaker 3: No, no, no.

1112
00:56:20,760 --> 00:56:23,200
Speaker 2: It just throws up all these really interesting questions, and

1113
00:56:23,280 --> 00:56:25,080
Speaker 2: I do think maybe we should start one and then

1114
00:56:25,880 --> 00:56:27,279
Speaker 2: talk about what we learned from it.

1115
00:56:27,440 --> 00:56:28,279
Speaker 1: Let's do it, Okay, the.

1116
00:56:28,280 --> 00:56:30,160
Speaker 3: Next aud Thoughts series. Shall we leave it there?

1117
00:56:30,200 --> 00:56:30,919
Speaker 1: Let's leave it there.

1118
00:56:31,280 --> 00:56:33,960
Speaker 2: This has been another episode of the Odd Thoughts podcast.

1119
00:56:34,080 --> 00:56:37,239
Speaker 2: I'm Tracy Aloway. You can follow me at Tracy Aloway and.

1120
00:56:37,200 --> 00:56:39,680
Speaker 1: I'm Jill Wisenthal. You can follow me at the Stalwart.

1121
00:56:39,760 --> 00:56:43,280
Speaker 1: Follow our producers Carmen Rodriguez at Carmen Arma, Dashel Bennett

1122
00:56:43,280 --> 00:56:46,080
Speaker 1: at Dashbot, and kel Brooks at Kelbrooks. From our Odd

1123
00:56:46,120 --> 00:56:48,600
Speaker 1: Lots content, go to Bloomberg dot com slash odd Lots.

1124
00:56:48,600 --> 00:56:51,040
Speaker 1: We have a daily newsletter and all of our episodes.

1125
00:56:51,440 --> 00:56:53,319
Speaker 1: You can chat about all of these topics. Twenty four

1126
00:56:53,320 --> 00:56:56,759
Speaker 1: to seven in our discord discord do gg slash.

1127
00:56:56,480 --> 00:56:59,080
Speaker 2: Odlocks and if you enjoy odd Lots, if you like

1128
00:56:59,160 --> 00:57:01,319
Speaker 2: it when we come to Chicago to talk trading, then

1129
00:57:01,360 --> 00:57:04,400
Speaker 2: please leave us a positive review on your favorite podcast platform.

1130
00:57:04,719 --> 00:57:07,319
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1131
00:57:07,360 --> 00:57:10,520
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Speaker 2: Apple Podcasts and follow the instructions there.

1134
00:57:15,040 --> 00:57:15,800
Speaker 3: Thanks for listening.