WEBVTT - Terry Duffy on the CME's Big Push into Retail Trading 0:00:02.720 --> 0:00:08.680 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.120 --> 0:00:21.080 Hello and welcome to another episode of the Odd Thoughts podcast. 0:00:21.160 --> 0:00:23.279 I'm Tracy Alloway and I'm Joe Wisenthal. 0:00:23.520 --> 0:00:24.720 Joe, we're here in Chicago. 0:00:24.920 --> 0:00:27.479 I love it here so much. We don't come here enough. 0:00:28.360 --> 0:00:30.280 I agree. Chicago is an amazing city. 0:00:30.400 --> 0:00:34.120 It's also just such an interesting city from a financial perspective, 0:00:34.159 --> 0:00:37.920 and it has that old school, you know, mercantile Midwest 0:00:38.000 --> 0:00:39.159 kind of feel totally. 0:00:39.240 --> 0:00:42.120 I mean, it's what's cool about Chicago. Many cool things, 0:00:42.159 --> 0:00:46.040 but it obviously has the history of trading and pits 0:00:46.120 --> 0:00:49.000 and you know, trading pigs and all that stuff, and 0:00:49.040 --> 0:00:52.040 it's still a city that's at the cutting edge of trading, 0:00:52.400 --> 0:00:54.920 and so it's pretty cool that, like the history is 0:00:54.960 --> 0:00:57.360 like not just history, it's still when I think of 0:00:57.680 --> 0:01:00.320 capital to trading, I usually think of Chicago. 0:01:00.360 --> 0:01:03.480 Absolutely, And one of the themes for our trip to 0:01:03.560 --> 0:01:06.839 Chicago this time is trading and the evolution of trading 0:01:06.920 --> 0:01:10.560 and also the retail revolution that we're seeing. And on 0:01:10.640 --> 0:01:13.280 that note, we have some very interesting partnerships that have 0:01:13.319 --> 0:01:17.480 been developing between I guess old school exchanges and more 0:01:17.720 --> 0:01:20.199 let's just say more retail oriented platforms. 0:01:20.280 --> 0:01:22.720 So I think there's the thing that I think is 0:01:23.080 --> 0:01:27.200 really interesting that's going on in financial markets, among many 0:01:27.240 --> 0:01:30.440 other things. Is it seems like there's two different entities 0:01:30.440 --> 0:01:31.840 that are trying to cannibalize each other. 0:01:32.000 --> 0:01:32.280 Yeah. 0:01:32.319 --> 0:01:34.399 And the way I think about it is you have 0:01:34.480 --> 0:01:37.920 these sort of legacy well, you have essentially these sort 0:01:37.920 --> 0:01:41.360 of maybe like gambling oriented entities or what people think 0:01:41.360 --> 0:01:45.360 of as speculating, wanting to look more like legacy financial institutions. 0:01:45.520 --> 0:01:49.760 And you have legacy financial institutions that want to subsume 0:01:50.000 --> 0:01:55.160 the sort of high speed trading, speculative gambling impulse of 0:01:55.200 --> 0:01:57.760 many young retail traders. And it's like, which one will 0:01:57.800 --> 0:02:00.720 swallow the other? Will it be that I trade on 0:02:00.760 --> 0:02:01.640 my sports app? 0:02:01.680 --> 0:02:01.840 Well? 0:02:01.960 --> 0:02:04.600 Is it will I be trading cotton futures on my 0:02:04.680 --> 0:02:09.880 sports app? Or will be the opposite? Will I be 0:02:10.000 --> 0:02:12.800 going to a traditional brokerage to place bets on a 0:02:13.040 --> 0:02:13.560 Raiders game. 0:02:13.919 --> 0:02:16.040 That's a great way of putting it. I also have 0:02:16.080 --> 0:02:17.600 to say there's a little bit of an irony here 0:02:17.600 --> 0:02:19.919 because a lot of the old school exchanges used to 0:02:20.000 --> 0:02:24.080 be criticized for enabling gambling in derivatives contracts right and 0:02:24.120 --> 0:02:29.120 now and now are considering sports betting. It's all very confusing, 0:02:29.160 --> 0:02:31.560 but I have to say we have the perfect guests 0:02:31.600 --> 0:02:34.200 to talk about the cutting edge of trading and the 0:02:34.240 --> 0:02:36.320 retail revolution. We've had him on before. 0:02:36.400 --> 0:02:37.000 He was great. 0:02:37.200 --> 0:02:39.560 We're going to be speaking with Terry Duffy, the chairman 0:02:39.680 --> 0:02:42.720 and CEO of CME. So Terry, thank you so much 0:02:42.720 --> 0:02:43.880 for coming back on all thoughts. 0:02:44.200 --> 0:02:46.840 Tracy, Joe, thank you very much for having me. Appreciate 0:02:46.840 --> 0:02:47.840 you being here in Chicago. 0:02:47.960 --> 0:02:50.480 Also, well, the last time we saw you two years ago, 0:02:50.560 --> 0:02:52.280 you said we were going to be replaced by AI, 0:02:52.639 --> 0:02:55.720 and that hasn't happened. So I'm very happy that we're 0:02:55.760 --> 0:02:56.560 back and talking to. 0:02:56.639 --> 0:02:59.120 And we have a tape that because I do that's true. 0:02:59.240 --> 0:03:01.240 I got free the transcript you have. 0:03:01.280 --> 0:03:03.280 Everybody remember something, but let me see the proof. 0:03:04.000 --> 0:03:06.520 I'll send it to you after this, all right. So 0:03:06.560 --> 0:03:08.000 one of the reasons we want to talk to you 0:03:08.120 --> 0:03:11.520 about retail trading specifically is because CMI just announced this 0:03:11.639 --> 0:03:14.800 partnership with FanDuel. Where you're going to be offering these 0:03:14.840 --> 0:03:18.480 sort of event contracts. Walk us through exactly what the 0:03:18.520 --> 0:03:19.440 partnership entails. 0:03:19.680 --> 0:03:22.200 Well, the partnership is really interesting from a whole host 0:03:22.200 --> 0:03:26.440 of reasons. I believe that the market in general has changed, 0:03:26.680 --> 0:03:29.880 and the evolution of the market has changed. The participants 0:03:29.880 --> 0:03:33.440 have changed, and we can all determine why that is. 0:03:33.480 --> 0:03:36.640 We can listen to what Joe said in his opening 0:03:36.680 --> 0:03:42.280 about how traditional exchanges want to have the gaming clients 0:03:42.320 --> 0:03:44.360 in their world or we could say that the gaming 0:03:44.360 --> 0:03:48.560 clients want to have the traditional finance people in their worlds. 0:03:49.240 --> 0:03:52.480 These worlds have been clashing for quite some time. Now. 0:03:52.520 --> 0:03:56.600 Why is that? It's all because of technology. Technology has 0:03:56.800 --> 0:04:00.120 enabled the participant from all levels to be on a 0:04:00.200 --> 0:04:05.560 level playing field, so example being institutional participants traditionally had 0:04:05.600 --> 0:04:10.240 the greatest technology, and in return, the products were custom 0:04:10.840 --> 0:04:16.400 sized for institutional participants. As the market's evolved, retail participants 0:04:16.600 --> 0:04:20.000 want to be able to participate, but they really couldn't 0:04:20.040 --> 0:04:23.800 participate at the size of a contract that the institutions can. 0:04:24.560 --> 0:04:28.159 So we customized over the last several years smaller and 0:04:28.200 --> 0:04:31.520 smaller contracts whatever. They went from e minis to micros 0:04:31.560 --> 0:04:34.200 and potentially nanos. And now we're looking into the prediction 0:04:34.320 --> 0:04:38.000 markets going forward. Why is that, Well, there's a host 0:04:38.000 --> 0:04:41.080 of reasons, but like I said, technology and let's talk 0:04:41.080 --> 0:04:45.120 about it again. Artificial intelligence. It's the hottest thing God 0:04:45.160 --> 0:04:47.200 put on the planet right now as far as financial 0:04:47.200 --> 0:04:50.200 services go, because otherwise the stock market would not be 0:04:50.240 --> 0:04:52.600 trading where it's at today. Because the market has been 0:04:52.680 --> 0:04:57.359 driven primarily by artificial intelligence stocks over the last forty 0:04:57.400 --> 0:05:00.720 eight months. For sure, there's no other stocks really participating 0:05:00.800 --> 0:05:03.400 to weigh in. Nvidio and some of the other big 0:05:03.440 --> 0:05:08.640 ones are. So my point being is today the guy 0:05:09.200 --> 0:05:14.120 that would never be able to trade futures because he's 0:05:14.160 --> 0:05:17.040 got a five hundred dollars account or one thousand dollars 0:05:17.320 --> 0:05:20.760 account or that's what he has available to participate, and 0:05:20.800 --> 0:05:23.719 now we're able to give him the technology that Goldman 0:05:23.800 --> 0:05:25.840 Sachs may or may not have. That some of the 0:05:25.880 --> 0:05:27.880 biggest hedge funds in the world may or may not have. 0:05:28.240 --> 0:05:31.320 How he or she deploys that is up to them, 0:05:31.360 --> 0:05:34.039 but they're going to have access to that technology. That's 0:05:34.080 --> 0:05:36.719 why these worlds are collecting and I think it's massively 0:05:36.760 --> 0:05:39.719 exciting about the future. And people, listen, we're going to 0:05:39.760 --> 0:05:44.280 have the biggest wealth transfer by twenty forty We're going 0:05:44.320 --> 0:05:49.120 to have eighty trillion dollars go from I think it's 0:05:49.120 --> 0:05:53.640 twenty fifty from the existing population to people of the 0:05:53.720 --> 0:05:57.960 age of forty to twenty four, eighty five trillion dollars 0:05:58.040 --> 0:06:02.039 of wealth transfer. People want to be in control of 0:06:02.080 --> 0:06:05.080 their own destiny. Why, because they've grown up in control 0:06:05.120 --> 0:06:08.280 of their own destinies today that age group, whether it's 0:06:08.320 --> 0:06:10.480 through the apps on their phone or other things. So 0:06:10.880 --> 0:06:15.000 I think having access to all different constituencies is really important, 0:06:15.360 --> 0:06:18.120 and so I'm excited by the future of this marketplace. 0:06:18.320 --> 0:06:22.000 Let's just talk more details on FanDuel. Is the idea 0:06:22.040 --> 0:06:26.200 basically that let's say I'm or I don't. I've never 0:06:26.200 --> 0:06:29.200 gotten into sports betting, but suppose I did. Suppose I were, 0:06:29.279 --> 0:06:31.080 you know, and I open an app and I see 0:06:31.080 --> 0:06:35.160 the line for the upcoming Raiders Bears game or. 0:06:35.080 --> 0:06:36.160 Whatever it is. 0:06:36.160 --> 0:06:39.159 Is the idea that in that same app, I may 0:06:39.240 --> 0:06:43.320 see the price of some the gold futures or interest 0:06:43.360 --> 0:06:45.960 rate futures or something that I can trade at a 0:06:46.000 --> 0:06:49.200 monetary denomination that is sort of we associate with retail level. 0:06:49.320 --> 0:06:53.360 Is that the specific product or service that the CM 0:06:53.560 --> 0:06:54.719 is going to be offering with FanDuel. 0:06:54.880 --> 0:06:59.080 So Joe, yes, it's similar to that. So today FanDuel 0:06:59.200 --> 0:07:00.919 is set up a little bit different than some of 0:07:00.920 --> 0:07:05.600 their competitors. They don't have one app for all different services. 0:07:05.640 --> 0:07:08.640 They have single apps for different services, where some of 0:07:08.680 --> 0:07:11.559 the other ones have different apps, and for whatever reason, 0:07:11.560 --> 0:07:13.400 they feel it's an advantage. So there will be a 0:07:13.440 --> 0:07:16.680 markets app, a FanDuel markets app powered by CME Group. 0:07:16.720 --> 0:07:19.120 When you open up their homepage, you'll go to that 0:07:19.200 --> 0:07:23.280 app and then you'll see in there we'll have potentially 0:07:23.320 --> 0:07:26.760 three to four event contracts a day per assa class. 0:07:27.240 --> 0:07:31.480 The events will go on for approximately sixty minutes. They're 0:07:31.560 --> 0:07:34.120 not like a sporting event that goes on throughout the event. 0:07:34.520 --> 0:07:37.560 It will be a sixty minute window. Then we will 0:07:37.560 --> 0:07:40.080 say will the price of goal be above or below 0:07:40.200 --> 0:07:42.440 three seven hundred dollars an ounce at the. 0:07:42.520 --> 0:07:43.440 End of that sixty minutes. 0:07:43.600 --> 0:07:46.080 Yes, they're very binary, and. 0:07:45.960 --> 0:07:51.000 You will see as the opening of that event starts 0:07:51.360 --> 0:07:53.360 where the price is set, and it might be set 0:07:53.400 --> 0:07:55.400 at fifty cents, it's going to be above it because 0:07:55.400 --> 0:07:57.880 it's kind of in the middle, or if it's higher, 0:07:58.200 --> 0:08:00.200 it might be eighty cents to say it's to be 0:08:00.240 --> 0:08:02.160 above it, but there's nothing to say it's going to 0:08:02.160 --> 0:08:04.920 be above it. So you'll have people taking both sides 0:08:05.000 --> 0:08:08.080 expressing their interest on the value of gold, which will 0:08:08.080 --> 0:08:11.520 also give us the ability because we have the liquidity 0:08:11.560 --> 0:08:14.240 providers in our core asset classes, so the deep pools 0:08:14.240 --> 0:08:16.240 of liquidity with this will be amazing. 0:08:16.480 --> 0:08:19.320 Just to be clear, is the sixty minute window? Is 0:08:19.360 --> 0:08:22.480 that just like the first round? Like eventually, do you 0:08:22.520 --> 0:08:26.000 anticipate that it'll be weekly or monthly or something that 0:08:26.080 --> 0:08:28.800 resembles the time intervals of traditional. 0:08:28.440 --> 0:08:31.240 It's a great question, Joe. So what we're going to 0:08:31.320 --> 0:08:35.199 do is we'll probably run three events a day for 0:08:35.360 --> 0:08:38.400 say gold, we'll run three events a day for crude oil, 0:08:38.480 --> 0:08:40.600 We'll run three events a day for the S and 0:08:40.600 --> 0:08:44.439 P five hundred, We'll run three events a day for 0:08:44.600 --> 0:08:48.720 some of our other asset classes treasuries. And these will 0:08:48.720 --> 0:08:50.480 be multiple events, but they're only going to be an 0:08:50.480 --> 0:08:53.160 hour long. But we'll probably run three to four sessions 0:08:53.200 --> 0:08:56.560 every day, so there'll be an hour per session, and 0:08:56.600 --> 0:08:59.080 that will run five days a week for markets and 0:08:59.080 --> 0:09:01.520 if in fact fan who wants to put sports up there, 0:09:01.720 --> 0:09:03.680 as you know, those are weekend events as well. 0:09:04.440 --> 0:09:07.199 Well, let me ask the really sexy question, then, how 0:09:07.240 --> 0:09:10.480 exactly are these trades or contracts structured and you mentioned 0:09:10.520 --> 0:09:14.160 the liquidity providers. There walk us through exactly the mechanics 0:09:14.200 --> 0:09:17.040 of these trades. Who are the providers, what does the 0:09:17.080 --> 0:09:19.679 market making look like, are they being cleared, how does 0:09:19.720 --> 0:09:20.280 it all work? 0:09:20.440 --> 0:09:23.640 They will be essentrally cleared through CME's clearinghouse, so yes, 0:09:23.720 --> 0:09:26.200 they will be. The market structure will not look too 0:09:26.200 --> 0:09:29.720 dissimilar to what we have today. The market participants, we 0:09:29.760 --> 0:09:33.679 have multiple market makers versus where some of our competitors 0:09:33.679 --> 0:09:36.560 have a single market maker doing this. We will have 0:09:37.240 --> 0:09:38.719 as you know at Cema Group, we have a lot 0:09:38.720 --> 0:09:40.760 of market makers in our different products. They will have 0:09:40.840 --> 0:09:44.439 access to these event contracts and they will create the 0:09:44.559 --> 0:09:46.800 liquidity throughout the day and we will incent them to 0:09:46.880 --> 0:09:50.200 make sure that the participants have a tight, deep market. 0:09:50.240 --> 0:09:51.559 So that's basically how it'll work. 0:09:52.040 --> 0:09:54.720 And do the market makers have to hedge their exposure 0:09:54.800 --> 0:09:57.720 or are these contracts so small that it's not a big. 0:09:57.600 --> 0:10:01.200 Deal or you know, small content can be small tracy, 0:10:01.200 --> 0:10:02.920 but as you know, you trade enough of anything that's 0:10:02.920 --> 0:10:04.200 small turns into something big. 0:10:04.280 --> 0:10:06.000 And I'm sure you want this to be big trading 0:10:06.000 --> 0:10:06.720 once we do so. 0:10:06.800 --> 0:10:09.319 But that will have access to layoff that risk in 0:10:09.360 --> 0:10:12.439 the primary markets, and that's the big difference with our offerings. 0:10:12.520 --> 0:10:16.520 So we will be offering our deep liquid products and 0:10:16.559 --> 0:10:18.719 we'll have events with them, so our market makers will 0:10:18.720 --> 0:10:23.000 seamlessly be able to offset these contracts you'd said in 0:10:23.040 --> 0:10:25.480 the beginning, or not by the way, or not that's 0:10:25.480 --> 0:10:25.960 like them. 0:10:26.280 --> 0:10:29.199 You said in the beginning that technology is part of 0:10:29.240 --> 0:10:33.120 the story of why these two worlds of gambling versus 0:10:33.280 --> 0:10:37.200 legacy finance are have been colliding or maybe merging, et cetera. 0:10:37.679 --> 0:10:41.480 And I believe that, And I also believe that there 0:10:41.559 --> 0:10:43.800 is no such thing as a bright line between what's 0:10:43.800 --> 0:10:46.960 investing and what's speculation. There's a lot of debate about 0:10:47.200 --> 0:10:51.240 all of that, but is another element here, essentially that 0:10:51.520 --> 0:10:54.160 the norms have changed. There used to be an expectation 0:10:54.480 --> 0:10:57.920 that you know, retail investors didn't have access to say 0:10:57.960 --> 0:11:03.520 like private private invest It used to be much harder 0:11:03.559 --> 0:11:04.480 to gamble on sports. 0:11:04.480 --> 0:11:04.840 Period. 0:11:05.120 --> 0:11:08.160 There's been a big change in the norms, it seems. 0:11:08.520 --> 0:11:12.040 And then follow on regulation such that by and large 0:11:12.080 --> 0:11:14.600 it seems to be conventional wisdom that people should be 0:11:14.840 --> 0:11:18.040 really allowed to trade anything they want on anything they want. 0:11:18.600 --> 0:11:21.800 Well, I think there's some truth to that, but I 0:11:21.800 --> 0:11:23.319 think that's a pretty broad brush. 0:11:23.400 --> 0:11:23.679 Okay. 0:11:23.920 --> 0:11:26.360 Should people be able to trade anything they want and 0:11:26.440 --> 0:11:32.120 anything they want? I think you listen, regulation breeds credibility 0:11:32.120 --> 0:11:34.120 to any product, and if it's not regulated to a 0:11:34.160 --> 0:11:36.880 point and it's a while west, somebody's going to get hurt. 0:11:37.400 --> 0:11:39.400 And that's not what a company like mine that I'm 0:11:39.400 --> 0:11:41.080 determined the CEO of and I have been for the 0:11:41.120 --> 0:11:44.439 last twenty three twenty four years now, that's not something 0:11:44.440 --> 0:11:46.800 that I would want to bring forward into this company. 0:11:47.679 --> 0:11:49.360 You said something else that and I'm going to get 0:11:49.360 --> 0:11:51.800 back to the regulatory part, but you said something really interesting. 0:11:51.920 --> 0:11:54.679 Is it investing or is it speculating? Let me ask 0:11:54.720 --> 0:11:57.839 you a question. This is rhetorical. You ever see an 0:11:57.840 --> 0:12:01.520 investment that doesn't have If you're making an investment, you 0:12:01.600 --> 0:12:04.000 need somebody to take the opposite side of the trade 0:12:04.480 --> 0:12:07.040 and if another investor is going the same direction. There's 0:12:07.080 --> 0:12:11.600 reasons why Oracle went up thirty percent two weeks ago 0:12:12.000 --> 0:12:14.280 after their announcement. Why because no one wanted to get 0:12:14.320 --> 0:12:16.839 run over by a freight train. But you need speculation 0:12:17.280 --> 0:12:21.640 in order to increase investment. So I think that people 0:12:21.720 --> 0:12:23.880 say that speculators are bad for the market, Well, who's 0:12:23.880 --> 0:12:25.600 going to create the liquidity for the investors if we 0:12:25.600 --> 0:12:29.760 don't have speculators, So that's zero point one. Going back 0:12:29.800 --> 0:12:32.000 to the regulation, I think that when you look at 0:12:32.000 --> 0:12:34.960 the regulation for these products, we have to let the 0:12:35.040 --> 0:12:39.200 participants be made aware through education and other tools of 0:12:39.280 --> 0:12:42.320 what the rules of the road are. And I think 0:12:42.440 --> 0:12:45.440 right now with the crypto world where it's going right now, 0:12:45.520 --> 0:12:48.400 in some of the other marketplaces where they're at under predictions, 0:12:48.679 --> 0:12:51.000 I think there's some confusion. I'm going to be doing 0:12:51.000 --> 0:12:54.520 a roundtable in DC this coming Monday associated with just 0:12:54.600 --> 0:12:58.920 these type of topics, what's innovation, what's not and so Joe, 0:12:59.000 --> 0:13:02.440 I think your questions are really really strong, and that's 0:13:02.480 --> 0:13:04.640 one of the reasons I'm doing this deal of FanDuel 0:13:04.679 --> 0:13:06.920 because I want to walk before I run. Here. I 0:13:06.920 --> 0:13:09.520 think it's really important. But I do want to make 0:13:09.559 --> 0:13:13.079 sure that the retail participant has the ability to participate 0:13:13.160 --> 0:13:16.160 at their level. That's why these contracts will be binary nature. 0:13:16.600 --> 0:13:19.679 That's why these contracts will be a dollar so anybody 0:13:19.760 --> 0:13:24.440 can participate. But again, I think that the ultimate regulatory 0:13:24.679 --> 0:13:29.080 framework as it goes forward has yet to be harmonized. 0:13:29.120 --> 0:13:32.080 For a lack of a better term between traditional marketplaces 0:13:32.400 --> 0:13:35.560 and now we're looking at event contracts on sports and 0:13:35.640 --> 0:13:41.240 other indices. So I'm excited by this, Joe, But I 0:13:41.280 --> 0:13:43.240 think there's a lot of what you said in your 0:13:43.360 --> 0:13:46.079 question that's yet to be answered. And the problem is 0:13:46.160 --> 0:13:47.720 right now, there's a lot of people going out with 0:13:47.800 --> 0:13:50.840 offerings before these questions have been asked, answered or for 0:13:50.880 --> 0:13:51.640 sure studied. 0:13:52.000 --> 0:13:54.200 We've talked to someone, we're talking to some more of. 0:13:54.200 --> 0:13:55.280 Them for sure. 0:14:10.720 --> 0:14:14.240 Okay, Well, speaking of regulatory harmonization, I'm just gonna I'm 0:14:14.240 --> 0:14:17.000 gonna hit all the really provocative topics today and ask 0:14:17.040 --> 0:14:21.040 about tax treatment, because my understanding is that losses on 0:14:21.240 --> 0:14:25.120 futures contracts are treated differently under new tax rules than 0:14:25.160 --> 0:14:29.440 losses on platforms for sports betting and things like that. 0:14:29.880 --> 0:14:32.880 How much of the interest that you're seeing from places 0:14:32.920 --> 0:14:36.600 like fan Duel and other markets is coming from, I 0:14:36.600 --> 0:14:39.240 guess the possibility of people being able to trade with 0:14:39.280 --> 0:14:43.360 futures contracts or bet using futures contracts and not having 0:14:43.400 --> 0:14:43.920 to pay as. 0:14:43.880 --> 0:14:44.480 Much in tax. 0:14:44.880 --> 0:14:48.040 So let's make sure we understand both sides of the equation. 0:14:48.160 --> 0:14:51.200 You said only losses gains as well, so we'll talk 0:14:51.200 --> 0:14:55.680 about tax treats in general. So what Tracy's referring to, listener, 0:14:55.760 --> 0:14:57.920 is that odd loss is what's called twelve to fifty 0:14:57.960 --> 0:15:01.160 six contracts under the tax code, which allows people to 0:15:01.200 --> 0:15:03.960 get a blended rate of sixty forty tax treatment. Sixty 0:15:03.960 --> 0:15:06.720 long term gains forty short term comes out to a 0:15:06.720 --> 0:15:10.040 blended rate of about twenty seven percent. Futures contracts cannot 0:15:10.200 --> 0:15:14.040 get long term capital gains because of the way they 0:15:14.120 --> 0:15:16.920 expire today, so we don't get long term capital, so 0:15:16.960 --> 0:15:19.400 we get what's called twelve fifty six treatment. That's what Tracy, 0:15:19.440 --> 0:15:20.440 I believe you're referring to. 0:15:21.360 --> 0:15:22.360 That was a great explanation. 0:15:22.440 --> 0:15:25.000 By the way, thank you should host Thank you anyway, 0:15:25.320 --> 0:15:27.800 the twelve to fifty six contracts, So when you talk 0:15:27.840 --> 0:15:32.480 about sports, sports will not be treated on event contracts 0:15:32.560 --> 0:15:38.160 under the twelve to fifty six regulation. But Gold Equities 0:15:38.280 --> 0:15:41.960 all our other core businesses on events, we will believe 0:15:42.000 --> 0:15:47.760 that they are event futures, not event swaps. So swaps 0:15:47.760 --> 0:15:51.880 are not treated under twelve fifty six. Futures are. So 0:15:52.040 --> 0:15:56.320 we think our events on our market participants and those 0:15:56.360 --> 0:15:59.080 products will be treated with the same tax treatment we 0:15:59.120 --> 0:16:02.440 get today for our other businesses and then events such 0:16:02.440 --> 0:16:07.120 as entertainment such as political events and sporting events will 0:16:07.160 --> 0:16:08.640 be traded as ordinary income. 0:16:08.960 --> 0:16:13.560 Got it, Are you going to enter political betting markets? 0:16:14.920 --> 0:16:17.960 I would not take anything off the table. It's not 0:16:18.120 --> 0:16:21.520 something that I support at this moment. But there's a 0:16:21.560 --> 0:16:23.720 lot of things I think when people say they don't 0:16:23.720 --> 0:16:26.200 support and then all of a sudden they do it, 0:16:26.240 --> 0:16:28.040 and you go, well, what changed your mind? And you 0:16:28.080 --> 0:16:30.640 don't have a good reason. So I never said I 0:16:30.640 --> 0:16:33.880 wouldn't list bitcoin. I just thought it was important to 0:16:34.000 --> 0:16:36.000 make sure that the timing is right. So I waited 0:16:36.160 --> 0:16:38.840 till twenty seventeen. Then one day I said, today's the day, 0:16:38.880 --> 0:16:41.360 because the timing seems right to me. So I never 0:16:41.560 --> 0:16:43.600 said I wouldn't do it, even though there was a 0:16:43.640 --> 0:16:45.800 lot of people between two thousand and eight when the 0:16:45.840 --> 0:16:49.320 price of bitcoin was eight dollars to twenty seventeen when 0:16:49.320 --> 0:16:52.800 I listed it that said that this stuff is tulips, 0:16:52.840 --> 0:16:54.720 it's garbage, don't trade it all right. 0:16:54.760 --> 0:16:57.280 Let's say you're thinking on the politics. 0:16:56.800 --> 0:17:01.520 Markets, so I'm going to into the politic So I 0:17:01.560 --> 0:17:05.720 don't believe right now that event markets on politics are 0:17:05.720 --> 0:17:08.960 a good thing. That's my take on it. I want 0:17:08.960 --> 0:17:12.320 to see how it goes out. I didn't like mail 0:17:13.840 --> 0:17:16.639 mail in voting either. I thought voting should have been 0:17:16.680 --> 0:17:20.000 in person historically. But my mind has changed on that 0:17:20.080 --> 0:17:21.679 too for a whole host of reasons. Because now we 0:17:21.720 --> 0:17:26.120 get more participants and we have technology to protect against 0:17:26.240 --> 0:17:28.679 bad behavior in voting. I think we can get the 0:17:28.720 --> 0:17:32.200 same on these event contracts for different events. I don't 0:17:32.240 --> 0:17:34.119 know if it's there or not yet. We've had one 0:17:34.480 --> 0:17:38.560 political event contract that was listed so far that we're 0:17:38.600 --> 0:17:40.879 aware of, and that was the presidential election, right, So 0:17:40.920 --> 0:17:43.879 that's for the most part, that's all that's happened. I 0:17:43.960 --> 0:17:47.720 think that's kind of a small sample of a political 0:17:47.720 --> 0:17:50.320 event contracts to base your decision on it. Is this 0:17:50.440 --> 0:17:52.240 good or bad? So I kind of want to see 0:17:52.280 --> 0:17:54.080 how it goes doough to answer your question. So I 0:17:54.119 --> 0:17:57.199 don't see the rush to get into it. And the 0:17:57.240 --> 0:17:58.640 reason why I don't see the rush to get into 0:17:58.680 --> 0:18:02.760 it if you look at me today with XRP on 0:18:03.240 --> 0:18:08.119 a Ripple crypto contract, we are the premier place for 0:18:08.200 --> 0:18:11.280 people to mitigate and manage risk on Ripple. Now, I 0:18:11.320 --> 0:18:13.160 was one of the last people to get into crypto 0:18:13.240 --> 0:18:15.520 in twenty seventeen, but yet we have one of the 0:18:15.520 --> 0:18:18.639 biggest marketplaces I just listed Ripple, So the credibility of 0:18:18.680 --> 0:18:20.680 CMME is very important to me. I think it's important 0:18:20.720 --> 0:18:23.600 to my customers as well. That's why I'm very cautious 0:18:23.640 --> 0:18:25.639 about some of these political contracts. So that's why I 0:18:25.640 --> 0:18:28.520 was trying to tie the two together. Little fair enough, Yeah, 0:18:28.560 --> 0:18:29.000 fair enough. 0:18:29.600 --> 0:18:32.320 So you mentioned going to a roundtable next week, and 0:18:32.359 --> 0:18:35.040 I believe that's the one being held in DC. 0:18:36.200 --> 0:18:37.080 Is that right? Okay? 0:18:37.359 --> 0:18:39.960 So I know the CEO of CALCI is supposed to 0:18:39.960 --> 0:18:40.280 be there. 0:18:40.600 --> 0:18:41.200 Never met him. 0:18:41.280 --> 0:18:44.280 One of the pre eminent prediction markets in the world. 0:18:44.720 --> 0:18:47.639 When you see him, what questions would you ask in 0:18:47.760 --> 0:18:50.240 order to better understand political prediction markets. 0:18:50.359 --> 0:18:52.639 I mean, we're interviewing him tonight in Chicago. I know, 0:18:52.680 --> 0:18:56.160 basically Tracy's asking research ask him. 0:18:57.040 --> 0:18:59.240 I don't know the gentleman. I've never met the gentleman. 0:18:59.480 --> 0:19:03.560 I have no idea. I think what's important is that 0:19:05.600 --> 0:19:11.840 he understands that we because the CFTC, and that's what 0:19:11.920 --> 0:19:14.600 they are suggesting right now, which is true. So I'm 0:19:14.640 --> 0:19:17.720 not saying what he's saying is wrong. They self certify 0:19:17.760 --> 0:19:21.199 these contracts. Does it make it right for him? To 0:19:21.240 --> 0:19:24.320 list all these different contracts because the CFTC's got twenty 0:19:24.359 --> 0:19:28.000 four hours to make a decision to either stop it 0:19:28.680 --> 0:19:31.440 or let it go. It's really hard under the self 0:19:31.440 --> 0:19:35.399 certification process to understand anything in twenty four hours, especially 0:19:35.440 --> 0:19:39.160 for the government. So the question I would have for him, 0:19:39.200 --> 0:19:42.119 as I do for myself, is how are these some 0:19:42.200 --> 0:19:45.000 of these contracts not novel and complex? And don't you 0:19:45.080 --> 0:19:47.680 believe that your investors need a little bit more time 0:19:47.760 --> 0:19:51.879 by the government agencies to make sure that everyone's comfortable 0:19:51.920 --> 0:19:54.600 so you can offer them in a way that is 0:19:54.760 --> 0:19:57.440 very sound mind and sound business to grow and versus 0:19:57.560 --> 0:20:00.000 just going out there after twenty four hours of nobody 0:20:00.160 --> 0:20:04.119 objecting and now you're promoting and he is promoting that 0:20:04.119 --> 0:20:08.240 these are CFTC approved products. They're technically that it is wrong. 0:20:08.520 --> 0:20:12.080 They are not CFTC approved products. What they are is 0:20:12.119 --> 0:20:14.679 they have not been opposed by the CFTC. There's a 0:20:14.760 --> 0:20:17.600 big difference there, and that's the part that they are 0:20:17.640 --> 0:20:20.640 not disclosing to their user base. And so I would 0:20:20.720 --> 0:20:22.840 say to him or others, and I will say it 0:20:22.840 --> 0:20:26.720 because I say what I want to say to people respectfully. 0:20:27.160 --> 0:20:29.800 I think disclosure is good. It's like payment for order flow. 0:20:29.960 --> 0:20:32.159 I don't think payment for order shall flow should be 0:20:32.240 --> 0:20:34.919 on the thirty fourth page of a perspective. Put it 0:20:35.040 --> 0:20:37.440 up front, tell the clients that's what you're doing. And 0:20:37.480 --> 0:20:39.800 nobody's got a concern with it. But we don't because 0:20:39.960 --> 0:20:43.000 why And I would say that people are maybe a 0:20:43.040 --> 0:20:46.720 little thinking that maybe it shouldn't happen. I think it 0:20:46.840 --> 0:20:49.480 helps the marketplace. But tell people that earlier. And I 0:20:49.520 --> 0:20:52.080 think that's what you guys should ask him. Why won't 0:20:52.119 --> 0:20:54.480 you say that these are not approved? They're just not 0:20:54.560 --> 0:20:55.960 objected to Joe. 0:20:56.000 --> 0:20:57.959 I'm going to do my best Terry Duffie in Passion 0:20:58.000 --> 0:21:00.960 tonight and just ask that question for BA And if. 0:21:00.880 --> 0:21:03.000 You drop my name by Monday, could be a lot 0:21:03.000 --> 0:21:03.200 of fun. 0:21:05.040 --> 0:21:07.720 But no, this gets to my quish about norms because, 0:21:08.359 --> 0:21:12.600 like so political prediction markets have existed in the US 0:21:12.880 --> 0:21:15.840 on very small scale for maybe like twenty years. It 0:21:15.960 --> 0:21:18.960 was the Iowa it was an experimental at the University 0:21:19.000 --> 0:21:22.399 of Iowa, et cetera. It feels like the floodgates have 0:21:22.520 --> 0:21:26.920 gone open and that actually, you know, under the last administration, 0:21:27.160 --> 0:21:33.360 for better or worse, kelshy polymarket, which it's another sort 0:21:33.359 --> 0:21:35.560 of can of worms. They were under a lot of 0:21:35.600 --> 0:21:40.080 regulatory scrutiny, investigations, and they still operated, et cetera. Now 0:21:40.119 --> 0:21:43.119 it seems like the door has been flung open. Maybe 0:21:43.440 --> 0:21:46.280 like it basically seems like we have, whether from a 0:21:46.440 --> 0:21:50.800 strictly legal perspective or a cultural perspective, very little appetite 0:21:50.840 --> 0:21:54.240 in this country to say you can't do this. It 0:21:54.280 --> 0:21:56.280 feels like, yeah, the barn door is open on a 0:21:56.320 --> 0:21:56.600 lot of this. 0:21:56.760 --> 0:21:58.680 So Joe's let's talk about that a little bit because 0:21:58.680 --> 0:22:03.679 I think it's interesting. Under the Commodity Exchange Actor is 0:22:03.720 --> 0:22:08.160 a provision where a contract cannot be readily manipotable. Okay, 0:22:08.200 --> 0:22:11.240 all right, so that's a law. So when we're looking 0:22:11.280 --> 0:22:16.280 at prediction markets on political outcomes, and we're talking about 0:22:16.359 --> 0:22:21.680 a presidential election, we're talking about one hundred plus million 0:22:21.680 --> 0:22:28.399 people potentially voting, with the base voters more open than that. Fine, Okay, 0:22:28.440 --> 0:22:31.560 maybe we say understand, Okay, that's no different than some 0:22:31.600 --> 0:22:33.480 of these other big markets. That's a big market all 0:22:33.480 --> 0:22:36.040 of a sudden. Now we'll take it down to the Congress. 0:22:36.080 --> 0:22:39.800 We have less people voting and a congressional race for Congress. Correct, 0:22:40.160 --> 0:22:44.399 so every member every five hundred thousand people gets a 0:22:44.400 --> 0:22:46.960 member of Congress in the United States. So you know, 0:22:47.040 --> 0:22:49.480 you got five hundred thousand people of a population gets 0:22:49.480 --> 0:22:51.840 a member of Congress. The voting population for that is 0:22:51.920 --> 0:22:55.480 much much smaller that's eligible to vote. Now, let's take 0:22:55.480 --> 0:22:57.399 it to the next level. We have got a local 0:22:57.400 --> 0:23:00.040 mayor's race and a suburb that you live in that 0:23:00.160 --> 0:23:03.240 there is five hundred people there. You want a prediction 0:23:03.359 --> 0:23:05.199 market on that, because I'll tell you what, I can 0:23:05.280 --> 0:23:08.760 probably buy that election and have my prediction market be 0:23:09.000 --> 0:23:12.119 payoff in a big way, and that would be deemed 0:23:12.200 --> 0:23:16.200 readily maniputable. Now I gave you a pretty wild spectrum there, sure, 0:23:16.240 --> 0:23:17.720 but I think you have to look at it and 0:23:17.760 --> 0:23:19.720 at range. That's my whole point what I said to 0:23:19.760 --> 0:23:23.120 Tracy earlier. We have to let people know what they're doing. 0:23:23.200 --> 0:23:27.600 Because every political event is not a presidential election. There 0:23:27.680 --> 0:23:30.920 are some political events that are so small that could 0:23:30.920 --> 0:23:33.680 be deemed readily manipotable, and you don't ever want to 0:23:33.680 --> 0:23:36.720 get in that situation because that's how you destroy innovation. 0:23:37.000 --> 0:23:39.360 And that's my concern with some of the political markets. 0:23:39.600 --> 0:23:43.159 Joe, remember when we did that live experiment at our show, 0:23:44.400 --> 0:23:46.000 what was our big takeaway from that. 0:23:46.800 --> 0:23:48.960 I don't remember it. Take away it's very funny when 0:23:48.960 --> 0:23:52.560 we had the manifold market of whether it's Zemashwitz would 0:23:52.600 --> 0:23:54.440 be on the Odd Laws podcast, and then we brought 0:23:54.480 --> 0:23:57.040 him on stage and we saw the price adjust in 0:23:57.040 --> 0:23:57.560 real time. 0:23:57.840 --> 0:23:59.760 Just to be clear, we did not bet that he 0:23:59.920 --> 0:24:01.640 was going to be the podcast. 0:24:01.720 --> 0:24:03.679 But you know, he could have could have. 0:24:04.480 --> 0:24:07.119 He could have, He could have certainly. Okay, let's broaden 0:24:07.160 --> 0:24:10.040 out the conversation a little bit to overall retail trading, 0:24:10.040 --> 0:24:12.760 which has obviously become a big part of your business. 0:24:13.160 --> 0:24:15.880 When you think about the evolution of retail trading at 0:24:16.040 --> 0:24:20.040 CME over the past few years, what are the biggest 0:24:20.080 --> 0:24:24.000 takeaways in terms of, I guess, the needs or concerns 0:24:24.080 --> 0:24:28.840 of a retail trader versus an institutional or professional one. 0:24:28.880 --> 0:24:32.639 Obviously you talked about contract size earlier, but like, what 0:24:32.840 --> 0:24:35.080 else do you see out there in terms of key differences. 0:24:35.359 --> 0:24:38.560 I think the key difference is the ease of access 0:24:38.600 --> 0:24:41.480 for the retail participant to sign on to a platform. 0:24:42.000 --> 0:24:44.840 Historically has been very very difficult, in a very difficult 0:24:44.880 --> 0:24:48.960 process to sign up to trade markets, whether they're securities 0:24:49.040 --> 0:24:52.359 or whether they're futures, so the retail participant will go 0:24:52.440 --> 0:24:54.920 through an application and probably get to halfway through page 0:24:54.960 --> 0:24:58.000 one ago. You know, this is ridiculous. There's a reason 0:24:58.359 --> 0:25:02.360 why Tracy and Joe at the dark market or the 0:25:02.400 --> 0:25:05.919 illegal market in gambling is still about three times larger 0:25:05.960 --> 0:25:10.600 than the regulated marketplace because people just don't want to 0:25:10.640 --> 0:25:14.440 be have that exposure of giving out their information right, 0:25:14.480 --> 0:25:17.840 So it's still a very large market, the illegal gaming market. 0:25:18.800 --> 0:25:21.879 I think that when you create a greater ease for people, 0:25:21.920 --> 0:25:24.199 which is going on right now for us, especially with 0:25:24.240 --> 0:25:25.840 the FanDuel, you'll go through an Apple, it'll be a 0:25:25.880 --> 0:25:29.400 five click process and you'll be ready to go. That 0:25:29.600 --> 0:25:33.360 historically has never happened. Secondly, the retail participants have never 0:25:33.440 --> 0:25:36.119 had a place to go to clear their trades. As 0:25:36.160 --> 0:25:39.600 you know, at CME, we don't directly take clients. They 0:25:39.640 --> 0:25:42.719 have to come through one of our member clients. So 0:25:43.040 --> 0:25:45.399 those people didn't want some of these really small clients 0:25:45.440 --> 0:25:47.840 because there were a risk. But technology all of a 0:25:47.880 --> 0:25:50.400 sudden is allowed the risk management tools to let them 0:25:50.400 --> 0:25:53.760 participate and you could do And one thing I liked 0:25:53.760 --> 0:25:56.280 about Sam bank Mephy's offering, and I give Sam credit 0:25:56.320 --> 0:26:00.600 for this was auto liquidating. Auto liquidation is something that 0:26:00.640 --> 0:26:02.760 a lot of people have already implemented. They call it 0:26:02.800 --> 0:26:07.199 something different. So that risk management tools that we have 0:26:07.280 --> 0:26:10.280 in place that others have in place, has now allowed 0:26:10.359 --> 0:26:12.679 us to take on the retail clients and the ease 0:26:12.880 --> 0:26:16.080 of them coming in. Thirdly, I think it's really important 0:26:16.119 --> 0:26:19.360 that you educate them what exactly they're doing, and futures 0:26:19.400 --> 0:26:22.920 can be very frightening. People get very frightened. Like during 0:26:22.920 --> 0:26:25.359 the pandemic when the explosion of day trading started to 0:26:25.359 --> 0:26:27.560 happen again, there was a lot of people that were 0:26:27.560 --> 0:26:29.879 on somebody these retail platforms that have positions on that 0:26:29.960 --> 0:26:31.879 don't even know how they got them on because they 0:26:31.920 --> 0:26:34.520 didn't understand it. But they were almost embarrassed to ask 0:26:34.720 --> 0:26:37.440 what happened, whether they got caught up in an option 0:26:37.560 --> 0:26:40.640 stradgle or something else. They did not even realize what happened. 0:26:40.760 --> 0:26:43.000 So education is key, and that's one of the things 0:26:43.000 --> 0:26:45.960 that we have been constantly hammering home. So that's why 0:26:46.000 --> 0:26:48.399 I think the retail business is very exciting. For CMEME 0:26:48.480 --> 0:26:51.560 and for other platforms around the world. Ecosystems are important. 0:26:51.920 --> 0:26:53.520 One of the things I tell my team all the time, 0:26:53.520 --> 0:26:55.280 I said, you better look over your shoulder and see 0:26:55.280 --> 0:26:57.080 a line of clients always coming, because the day you 0:26:57.080 --> 0:27:00.000 look over your shoulder and it's gone, you're in trouble. 0:27:00.359 --> 0:27:03.560 And if you want to be a gigantic institutional player, 0:27:03.600 --> 0:27:05.399 I think that's great, and that's what CM is. But 0:27:05.440 --> 0:27:07.600 we have to make sure that we can move loutterly 0:27:07.760 --> 0:27:11.359 left and right. If you look at historically the growth 0:27:11.359 --> 0:27:15.119 of markets in what's happened in the nineties. There's a 0:27:15.160 --> 0:27:16.960 building across the street from me. It used to be called 0:27:16.960 --> 0:27:19.879 the Sears Tower, Okay, named after Sears and Roebuck. They 0:27:19.920 --> 0:27:22.719 got naming rights over it. When Sears was flying in 0:27:22.760 --> 0:27:25.520 the nineties, eighties and nineties, they never heard of a 0:27:25.560 --> 0:27:29.160 company called Amazon. Nobody knows what a Sears is anymore. 0:27:29.359 --> 0:27:31.720 Seris is gone for the most part, right, So why 0:27:31.720 --> 0:27:34.760 did that happen? Because they didn't adapt, because they felt 0:27:34.760 --> 0:27:37.800 that their vertical was so strong along with some of 0:27:37.840 --> 0:27:40.879 the other ones, and these other new participants came in 0:27:40.920 --> 0:27:43.080 and destroyed them. I cannot allow that to happen. So 0:27:43.520 --> 0:27:47.280 for me to participate in the new world and protect 0:27:47.480 --> 0:27:49.840 the world that's going on today is really important. 0:27:50.160 --> 0:27:52.480 My dad used to love Sears Joe because he said, 0:27:52.520 --> 0:27:54.200 you can always find a parking space there. 0:27:54.280 --> 0:27:57.399 Oh that's great, that's a great reason. It's your shop. Well, actually, 0:27:57.520 --> 0:28:00.920 let's pick up on the Seiars versus Amazon. There could 0:28:00.960 --> 0:28:04.680 be someone who listens to this conversation and here's your 0:28:04.800 --> 0:28:09.159 concern about the speed with which Kelshi lists contracts that 0:28:09.200 --> 0:28:12.919 aren't you know, technically CFTC endorsed. And they might say 0:28:14.200 --> 0:28:18.200 Terry is trying to keep his position by dint of 0:28:18.320 --> 0:28:24.239 regulatory regulatory mode, et cetera. That ultimately Kelshi or some 0:28:24.480 --> 0:28:26.760 or any others, but they're the ones in the headlines 0:28:26.840 --> 0:28:29.959 these days that they could potentially be a major player 0:28:30.359 --> 0:28:34.480 in futures in the future, and that one reason to 0:28:34.840 --> 0:28:38.200 talk about, oh, there's these concerns is regulatory concern. And 0:28:38.240 --> 0:28:41.720 also you know, like there's not like a toime. You know, you, 0:28:41.880 --> 0:28:45.040 as the CME, if I believe, correct me if I'm wrong, 0:28:45.120 --> 0:28:49.560 have had very strong pricing power for your futures and tech. 0:28:50.360 --> 0:28:53.560 In most of finance, margins have generally been going down, 0:28:53.680 --> 0:28:56.720 Fees have been going down, Brokerage costs have been going down. 0:28:56.880 --> 0:28:59.400 Someone might hear the story and say, you're trying to 0:28:59.440 --> 0:29:03.800 protect your our ability to continually expand price by doing 0:29:03.840 --> 0:29:06.600 things like going to Washington and warning them about how 0:29:06.640 --> 0:29:08.680 scary it is these new prediction markets. 0:29:08.720 --> 0:29:10.520 Well, first of all, I wouldn't do that because I'm 0:29:10.560 --> 0:29:15.680 partnering with Fandels, so that's not something I'm prepared to 0:29:15.720 --> 0:29:18.280 go say these new prediction markets. I will say that 0:29:18.320 --> 0:29:22.240 certain prediction markets could be potentially scary, like political outcomes 0:29:22.240 --> 0:29:24.080 and things of that nature. So I wouldn't say all 0:29:24.080 --> 0:29:26.120 prediction markets are scary. So I think that's a bit 0:29:26.160 --> 0:29:29.080 of an overstatement. Second of all, on pricing power, if 0:29:29.120 --> 0:29:30.800 you look at the price of CMME today on a 0:29:30.840 --> 0:29:33.120 per contract basis, it's cheaper now than it was twenty 0:29:33.160 --> 0:29:35.320 five years ago. So you might say to me, how 0:29:35.360 --> 0:29:37.640 could that possibly we got all this pricing power, Well, 0:29:38.120 --> 0:29:40.200 there is also another company. As long as we're talking 0:29:40.240 --> 0:29:43.320 about with retailers. Let's talk about Walmart. There's a Walmart model. 0:29:43.520 --> 0:29:45.440 How about selling something for less, but selling a hell 0:29:45.480 --> 0:29:48.440 of a lot more of it. My volume today, I 0:29:48.480 --> 0:29:50.080 do more in the first hour than I did it 0:29:50.120 --> 0:29:52.400 in a week back in two thousand and two. So 0:29:52.600 --> 0:29:55.640 the question is we do more because we have access 0:29:55.640 --> 0:29:57.880 to around the world, which allows me to make see 0:29:57.960 --> 0:29:58.200 me more. 0:29:58.360 --> 0:30:02.080 Prices have not compressed for prices and your prices have 0:30:02.120 --> 0:30:03.880 compressed it my price is. 0:30:03.800 --> 0:30:06.720 Today versus what they were in O two are completely 0:30:06.720 --> 0:30:10.160 different because when you look at the headline price, you're 0:30:10.200 --> 0:30:13.080 not looking at the tiered pricing that certain constituents get 0:30:13.080 --> 0:30:17.920 for volume. So volume pricing discounts are massive within our world. 0:30:18.080 --> 0:30:20.480 So that is a big deal. So my average rate 0:30:20.480 --> 0:30:23.800 for contracts sixty nine to seventy cents a contract. You know, 0:30:24.160 --> 0:30:26.360 it can be higher or lower, but the volume could 0:30:26.360 --> 0:30:28.680 be a lot less too. So we do quite well 0:30:28.720 --> 0:30:30.560 with the model that we have, but we also have 0:30:30.640 --> 0:30:34.400 pricing on market data and other products that's proprietary to 0:30:34.440 --> 0:30:37.479 CME that you may charge different for, so that's different. 0:30:37.560 --> 0:30:40.080 I don't go to Washington to ever be anti competitive 0:30:40.080 --> 0:30:42.720 because I'm going to be anti competitive. It doesn't serve 0:30:42.760 --> 0:30:45.680 my interest for the long run. Anti competitive people in 0:30:45.800 --> 0:30:48.360 natures is good for the short term, but really bad 0:30:48.440 --> 0:30:50.479 for the long term because you want that ecosystem, as 0:30:50.480 --> 0:30:52.800 I said earlier, to continue to grow and if you're 0:30:52.840 --> 0:30:55.840 smart and innovative enough, you will grow with it. And 0:30:55.840 --> 0:30:57.440 that's one of the things that I'm looking at with 0:30:57.480 --> 0:30:59.880 Cmeme That's why I did a deal with Fanuel fandel 0:31:00.200 --> 0:31:04.520 Is thirteen million accounts active today in the United States. 0:31:04.760 --> 0:31:07.360 Those will have access to my products. I never had 0:31:07.360 --> 0:31:11.640 that before. We're doing things with our retail participants today 0:31:11.640 --> 0:31:14.520 that I think some of my predecessors over the years ago, 0:31:14.520 --> 0:31:16.800 What the hell has he done that we never would 0:31:16.800 --> 0:31:19.480 have done before? You know, And I believe that if 0:31:19.480 --> 0:31:24.200 we still did nothing around innovation, we would be trading 0:31:24.720 --> 0:31:28.560 pork bellies. We would be trading onions, which are illegal. 0:31:28.680 --> 0:31:31.400 They dumped them along the river and kept the burlax sacks. 0:31:31.840 --> 0:31:35.040 Pork bellies are gone. They're no longer here, so we'd 0:31:35.040 --> 0:31:35.720 be out of business. 0:31:35.840 --> 0:31:38.480 Is the best thing when you go to Washington, maybe 0:31:38.720 --> 0:31:42.520 they got to fix that onion thing, prediction market, fix 0:31:42.640 --> 0:31:43.120 that onion. 0:31:43.480 --> 0:31:46.400 Tell them it's the only commodity in the world that's 0:31:46.440 --> 0:31:49.000 banned by Congress. And I think we talked about that 0:31:49.080 --> 0:31:51.040 last time we were together. But I think Joda, to 0:31:51.080 --> 0:31:53.160 your point is I don't go there saying this is 0:31:53.200 --> 0:31:54.960 bad or this is good. I go there and say, 0:31:55.200 --> 0:31:57.880 let's have eyes wide open. That's that's all I want, 0:31:57.920 --> 0:32:01.280 because there's nothing worse than have If someone gets sick 0:32:01.320 --> 0:32:02.760 and we all get a cold and we go, how 0:32:02.760 --> 0:32:05.160 to hell did that happen? Well, that's not good for 0:32:05.200 --> 0:32:08.160 the participants, not good for the institutions. And right now, 0:32:08.200 --> 0:32:10.720 when you get newer entrants coming in, I'm not saying 0:32:10.760 --> 0:32:13.760 they're skirting the process. I'm not saying kelshy skirting the process. 0:32:14.000 --> 0:32:17.120 But when you say you have CFTC approved products, let's 0:32:17.160 --> 0:32:20.280 make sure that the public understands what they are. They 0:32:20.320 --> 0:32:24.320 are CFTC products that have not been objected to. There's 0:32:24.360 --> 0:32:26.600 a difference there, and I don't know if the end 0:32:26.640 --> 0:32:28.600 user understands that. That's all My point was. 0:32:28.600 --> 0:32:47.280 Yah, Treasury futures are a huge part of your business, 0:32:47.360 --> 0:32:49.880 and I know you've been critical of Howard Lutnick's new 0:32:49.920 --> 0:32:53.480 effort to set up his own sort of offering there. 0:32:53.920 --> 0:32:56.360 What exactly are the issues that you see there? And 0:32:56.400 --> 0:32:59.200 I guess what can the CME do possibly to become 0:32:59.320 --> 0:33:02.240 more competitive in that space against you know, you haven't 0:33:02.240 --> 0:33:03.640 had that many competitors before. 0:33:03.760 --> 0:33:05.959 I've got a lot of competitors throughout the years. And 0:33:06.320 --> 0:33:09.560 there's such a thing called efficiencies in the marketplace tracy 0:33:09.640 --> 0:33:12.960 that capital intensive worlds that we live in today because 0:33:13.000 --> 0:33:15.120 of a whole host of rules going back from DoD 0:33:15.160 --> 0:33:19.400 Frank into other BASL rules and things of that nature. 0:33:19.440 --> 0:33:23.160 For the banks, we create today around sixty billion dollars 0:33:23.240 --> 0:33:26.040 a day of efficiencies for our market participants every single day, 0:33:26.440 --> 0:33:29.560 and in my interest rate area it's twenty four billion 0:33:29.600 --> 0:33:33.239 dollars a day of market efficiencies. That's money freed up 0:33:33.440 --> 0:33:35.360 that the largest participants in the world can use it 0:33:35.400 --> 0:33:37.160 for other areas. They don't have to park it with 0:33:37.280 --> 0:33:40.760 me to be in compliance anymore because I created those 0:33:40.800 --> 0:33:45.880 margin offsets for them. I think that's really important going forward. 0:33:46.400 --> 0:33:49.920 So the other part of your question was Lutnik. Lutnick, Oh, okay, 0:33:50.400 --> 0:33:52.920 so I don't have an issue. Listen, he's a tragy, 0:33:53.000 --> 0:33:58.480 he's a commerce secretary. His offering. My concern with his 0:33:58.520 --> 0:34:01.480 offering is the following, and I'll say it one hundred times. 0:34:02.400 --> 0:34:07.560 They are clearing that US Treasury futures contract in the 0:34:07.680 --> 0:34:13.760 UK under UK law. In the United States, the law 0:34:13.920 --> 0:34:16.640 states that if you clear a cash treasury, which is 0:34:16.719 --> 0:34:19.359 under the new law coming up under the Treasury Clearing 0:34:19.440 --> 0:34:26.120 Mandate rules, that it's an SEC single regulatory mandate, meaning 0:34:26.239 --> 0:34:28.880 you go wherever you want, but the SEC is going 0:34:28.920 --> 0:34:33.880 to regulate you. My concern was that futures expire into cash. 0:34:34.040 --> 0:34:37.480 So what's the difference between a future and the cash market. 0:34:37.520 --> 0:34:40.600 Once expiration happens on the future, why wouldn't you treat 0:34:40.600 --> 0:34:44.120 them the same? And why would you allow UK law 0:34:45.360 --> 0:34:53.120 and UK bankruptcy to let US participants in our foreign 0:34:53.160 --> 0:34:56.520 sour indet there's twenty seven trillion dollars or US treasury 0:34:56.560 --> 0:35:01.000 is outstanding today. If we have a problem like we 0:35:01.080 --> 0:35:07.520 saw in London with the metals market of nickel, where 0:35:08.360 --> 0:35:11.640 they busted the trades, they didn't do a risk management, 0:35:11.680 --> 0:35:15.400 they just busted the trades which left people hanging. What's 0:35:15.440 --> 0:35:17.400 to say that the Bank of England doesn't do that 0:35:17.480 --> 0:35:20.759 with the US treasury market if in fact somebody has 0:35:20.800 --> 0:35:23.160 an issue, and if they have an issue with that, 0:35:23.520 --> 0:35:26.279 what's to say that that part of the market that 0:35:26.320 --> 0:35:28.920 they did that on doesn't have a bigger impact on 0:35:28.960 --> 0:35:33.080 the US market. So my issue is the US, like 0:35:33.160 --> 0:35:35.680 every other country in the world, should have the laws 0:35:35.719 --> 0:35:38.080 of its foreign sovereign debt be by the laws of 0:35:38.080 --> 0:35:41.240 that nation, and we don't have that in this particular situation. 0:35:41.640 --> 0:35:44.560 Every other country in the world has the laws of 0:35:44.600 --> 0:35:47.439 their country applied to their sovereign debt, except the United 0:35:47.480 --> 0:35:50.000 States on futures, and they can say, well, it's a derivative. 0:35:50.800 --> 0:35:54.200 No shit, it's a derivative. It's a derivative that turns 0:35:54.239 --> 0:35:57.000 into the cash product. That's exactly what you're trying to protect. 0:35:57.040 --> 0:36:01.000 So that's my argument. I told mister Lutnick, I told Congress. 0:36:01.080 --> 0:36:03.959 I told every regulator in the world, if he wants 0:36:04.000 --> 0:36:05.799 to put that offering in the United States, let's go. 0:36:05.840 --> 0:36:08.200 I want to compete with him, and I'm going to London. 0:36:08.280 --> 0:36:09.200 Do you have a good sense of that? 0:36:09.400 --> 0:36:09.600 Why? 0:36:09.680 --> 0:36:09.879 Yeah? 0:36:09.880 --> 0:36:13.000 Why? Because they believe that the swap dollar swaps market 0:36:13.040 --> 0:36:15.880 that's in London, which is completely different than futures. Dollar swaps, 0:36:15.920 --> 0:36:18.840 is fixed versus floating. It is not issued by the 0:36:18.920 --> 0:36:23.960 United States government. Treasury contracts are issued by the government. Futures, 0:36:24.160 --> 0:36:26.600 like I said, turn into the cash. So they believe 0:36:26.640 --> 0:36:30.759 that because there's a large pool of dollar swaps being 0:36:30.760 --> 0:36:34.600 cleared at London clearinghouse, the offsets will be greater than cme. Oh, 0:36:34.640 --> 0:36:37.440 I see, but that's not the case, because I just 0:36:37.520 --> 0:36:39.799 explained to you that we give twenty four billion dollars 0:36:39.800 --> 0:36:42.719 a day in efficiencies and our interested complex. The only 0:36:42.760 --> 0:36:46.120 way that that larger pool of swaps would be relevant 0:36:46.320 --> 0:36:48.919 in creating a better offering is if they had any 0:36:48.960 --> 0:36:52.000 futures volume. You have to have the future's volume. We 0:36:52.120 --> 0:36:54.520 have one hundred percent of the future's volume here at CME, 0:36:54.880 --> 0:36:57.120 and for every one of those futures contracts, we have 0:36:57.160 --> 0:37:00.319 a swap, a dollar swap at CME that offset and 0:37:00.360 --> 0:37:04.080 if we didn't then that would be a problem. So 0:37:04.120 --> 0:37:07.040 the question is, if you're sitting at a dealer anywhere 0:37:07.080 --> 0:37:09.799 around the world and you're holding US futures and you 0:37:09.840 --> 0:37:13.840 can save the capital of an offset swap, are you 0:37:13.840 --> 0:37:15.759 going to put it at elseh because they're nice guys? 0:37:15.800 --> 0:37:17.400 Are you going to put it at seeing ME to 0:37:17.440 --> 0:37:19.600 be part of that twenty four billion dollars because it's 0:37:19.640 --> 0:37:22.880 going My point is the futures has to grow in 0:37:23.080 --> 0:37:25.879 order to get the larger pull of the swaps offsets, 0:37:26.120 --> 0:37:29.640 And right now, for every swap contract that's out there 0:37:30.160 --> 0:37:33.680 gets the offsets against my future products. Today we're not 0:37:33.920 --> 0:37:37.280 missing out on anything. So his offering is a charade 0:37:37.360 --> 0:37:39.640 game of saying, look how big that is. Okay, it's big, 0:37:39.960 --> 0:37:42.839 but no one needs it right now. The future's market 0:37:42.880 --> 0:37:44.640 is what it is right now. It's big, but we 0:37:44.719 --> 0:37:46.560 have the swaps to give the offsets. Does that make 0:37:46.600 --> 0:37:47.399 sense to you? It does? 0:37:48.280 --> 0:37:50.480 Yeah, we got to get you on stage debating what 0:37:50.640 --> 0:37:52.200 niche at some point that'd be great. 0:37:52.360 --> 0:37:56.600 Yeah. I can't stan any bed right now. I'll wait 0:37:56.640 --> 0:37:57.879 till he's done, then we can do it. 0:37:58.040 --> 0:38:00.400 Well, you didn't say the bad you know, I was 0:38:00.440 --> 0:38:03.719 not expecting earlier to hear you give a little bit 0:38:03.719 --> 0:38:07.359 of a hat tip to Sam Bankman Freed. But there's 0:38:07.400 --> 0:38:09.880 another thing, and actually Sam Bankman Freed was one of 0:38:09.880 --> 0:38:13.560 the main advocate, sort of pushers of it, this thing 0:38:13.560 --> 0:38:15.960 that emerged out of the crypto world, of a perpetual 0:38:16.120 --> 0:38:21.120 futures and could they apply could we have oil purpse? Like, 0:38:21.200 --> 0:38:24.280 is there any reason this model it's rather than oil, 0:38:24.360 --> 0:38:26.840 it's like the December future of the January, the twenty 0:38:26.920 --> 0:38:29.760 twenty eight future. Is there any reason that this tool, 0:38:29.920 --> 0:38:32.280 I guess, product whatever it is that sort of emerged 0:38:32.320 --> 0:38:35.360 out of crypto couldn't eventually be applied to all of 0:38:35.360 --> 0:38:37.200 these legacy hasset classes. 0:38:36.719 --> 0:38:43.160 Against the Act. A futures contract yeah is defined as 0:38:43.360 --> 0:38:47.640 a product that is to be price determined at a 0:38:47.680 --> 0:38:50.759 later date. Okay, it doesn't say it will be and 0:38:51.360 --> 0:38:53.279 you have to have a haha test right on that. 0:38:53.719 --> 0:38:56.600 So a fifty year perp is not a later date. 0:38:57.320 --> 0:38:59.799 So that was just because that's a joke when you 0:38:59.800 --> 0:39:00.719 say ahaha test. 0:39:00.840 --> 0:39:04.000 Yeah, that would be like if you created a fifty 0:39:04.080 --> 0:39:07.279 year perpetual, which some of these people are doing in 0:39:07.320 --> 0:39:10.239 Europe and others. They say, well, they're perpetuals, but they'll 0:39:10.239 --> 0:39:13.960 they'll do a few years. Okay, that's not that's not 0:39:14.040 --> 0:39:15.960 the definition by law. 0:39:16.320 --> 0:39:18.919 If law were to be changed in the US, would 0:39:18.960 --> 0:39:21.800 you see that as a innovation that could be useful 0:39:21.960 --> 0:39:23.720 for these markets that you trade. 0:39:24.080 --> 0:39:28.080 There are certain markets that could never become perpetuals, and 0:39:28.160 --> 0:39:30.640 there's a reason for that. So let's talk about what 0:39:30.680 --> 0:39:35.000 those are. If you have a perpetual livestock or grain market, 0:39:35.120 --> 0:39:36.600 how in the world am I going to make or 0:39:36.600 --> 0:39:37.959 take delivery on something that. 0:39:37.920 --> 0:39:39.760 Never expires, immortal cows? 0:39:40.520 --> 0:39:42.360 How am I going to make or take delivery on 0:39:42.440 --> 0:39:45.000 the food markets of the United States, which is very 0:39:45.040 --> 0:39:49.799 integral into pricing of these so deliverable products. What else 0:39:49.880 --> 0:39:53.520 is deliverable? The United States treasury market is deliverable because 0:39:53.560 --> 0:39:57.280 they expire, They expire. So my point is a perpetual 0:39:57.320 --> 0:40:01.680 would not work in deliverable products. So you say, well, 0:40:01.719 --> 0:40:04.759 what about cast settled products terry would that work? I 0:40:04.800 --> 0:40:06.960 don't know if they would work. They would the index 0:40:06.960 --> 0:40:09.799 would continue to go, but again it would not fit 0:40:09.880 --> 0:40:13.399 the definition under the law of a futures contract, because 0:40:13.400 --> 0:40:16.800 whether it's cash settled or physical settled, the definition is 0:40:16.840 --> 0:40:19.040 the exact same thing for a futures contract, and it's 0:40:19.080 --> 0:40:20.400 not the perpetual definition. 0:40:20.920 --> 0:40:23.440 Let's talk some more general macro I guess, and we 0:40:23.920 --> 0:40:26.680 touched on treasury futures earlier, which again big part of 0:40:26.719 --> 0:40:27.280 your business. 0:40:27.840 --> 0:40:28.560 There's talk of. 0:40:28.520 --> 0:40:32.879 Another potential government shutdown. I'm very curious how you think 0:40:32.920 --> 0:40:35.440 about that. How much of your time you spend thinking 0:40:35.440 --> 0:40:37.920 about that possibility and what it means for CEME risk 0:40:37.960 --> 0:40:40.000 management or is it the case that we've been here 0:40:40.040 --> 0:40:42.080 so many times before you kind of know what the 0:40:42.080 --> 0:40:42.719 playbook is. 0:40:43.120 --> 0:40:45.000 You always think you know what the playbook is to 0:40:45.040 --> 0:40:47.560 some extent tracy. But again I think that if you 0:40:48.120 --> 0:40:51.040 the one time that you apply that strategy and you go, whoops, 0:40:51.120 --> 0:40:53.239 what do you mean it happened? You know that's a problem, right, 0:40:53.280 --> 0:40:55.000 So you always have to be prepared and we are. 0:40:55.920 --> 0:40:58.480 I think if there is a shutdown, which I think 0:40:58.520 --> 0:41:01.560 there very likely could be, I don't think it's going 0:41:01.600 --> 0:41:03.759 to be the shutdown that is going to be a 0:41:03.800 --> 0:41:06.200 disturbance to the economy. I think it's going to be 0:41:06.239 --> 0:41:10.000 a disturbance to parks and recreations. It's going to be 0:41:11.360 --> 0:41:14.880 some of the other disturbances, which this is where it 0:41:14.880 --> 0:41:18.560 bothers me. Social services. You know that's a problem. But 0:41:18.640 --> 0:41:21.080 what does that mean for the financial system? Not so sure, 0:41:21.320 --> 0:41:24.080 But you know, people social Security checks getting out on time? 0:41:24.200 --> 0:41:26.520 Does that get delayed? That's a problem. 0:41:26.680 --> 0:41:28.520 Economic data getting reported in the time. 0:41:28.880 --> 0:41:31.759 I think that when you look at they've always kind 0:41:31.760 --> 0:41:34.799 of carved that economic data out with the USDA and 0:41:34.840 --> 0:41:38.680 other entities. They've always gotten the data out through past shutdowns, 0:41:39.120 --> 0:41:41.520 and I do think that the pressure to reopen the 0:41:41.520 --> 0:41:46.040 government will be immense from both sides of the aisles, 0:41:46.080 --> 0:41:47.640 so that they will have to come to it. Even 0:41:47.680 --> 0:41:50.120 if it's a short shutdown, I don't see it being 0:41:50.120 --> 0:41:53.960 a long one because of the reasons. The social services 0:41:53.960 --> 0:41:58.160 that are so important to so many constituents of Congress 0:41:58.640 --> 0:41:59.680 need to have happened. 0:42:00.000 --> 0:42:02.480 So this actually reminds me going back to the different 0:42:02.640 --> 0:42:05.000 the varieties of event markets, and we talked about the 0:42:05.000 --> 0:42:08.680 political risks, which I find very compelling, especially at the 0:42:08.680 --> 0:42:11.880 small elections. There are other things that are traded on 0:42:11.960 --> 0:42:16.000 event markets that, to my mind, a hedger with a 0:42:16.080 --> 0:42:19.080 sort of economic stake might want to hedge so portfolio 0:42:19.120 --> 0:42:21.880 manager who might be worried, what if we get a 0:42:21.960 --> 0:42:25.720 super weak jobs print that could really bust my trade. 0:42:26.080 --> 0:42:28.719 On these other prediction markets, you can bet is it 0:42:28.719 --> 0:42:30.080 going to be over one fifty, is it going to 0:42:30.120 --> 0:42:32.120 be over two hundred, is it going to be below 0:42:32.160 --> 0:42:36.080 one hundred. You could also maybe someone who's very bullish 0:42:36.280 --> 0:42:40.440 Tesla for their robots division, wants to is barish on 0:42:40.480 --> 0:42:42.520 the cars. So I'm going to go long Tesla, but 0:42:42.560 --> 0:42:46.320 I want to short the prediction market on their volume 0:42:46.480 --> 0:42:49.160 car sales, et cetera. These are different than the politics 0:42:49.160 --> 0:42:51.400 ones in the sense that they're not as easy manipulatable. 0:42:51.480 --> 0:42:54.080 There's something else. How do you feel like there seems 0:42:54.120 --> 0:42:55.719 to be some It strikes me that there could be 0:42:55.760 --> 0:43:00.239 a real economic justification for the existence of these event markets. 0:43:00.680 --> 0:43:02.600 Again, Joe, I'm not going to disagree with what you 0:43:02.640 --> 0:43:06.640 just said, because I think that the more risk management 0:43:06.640 --> 0:43:09.759 tools we have is better. What you just described was 0:43:09.880 --> 0:43:13.360 risk management. You did not describe a gaming type scenario. 0:43:13.760 --> 0:43:17.320 You described a company of Tesla that has multiple divisions 0:43:17.320 --> 0:43:19.200 that you like one, but you're a little worried about 0:43:19.200 --> 0:43:22.640 the production of their cars. So it happens every single day, 0:43:22.640 --> 0:43:24.160 and it's been going on in the market for one 0:43:24.200 --> 0:43:26.719 hundred years called peratrating. So you sell this and buy 0:43:26.760 --> 0:43:30.040 that right because you're not quite sure when the event's 0:43:30.040 --> 0:43:31.759 going to happen, but you know it's all spread it 0:43:31.840 --> 0:43:32.359 up a little bit. 0:43:32.440 --> 0:43:34.680 It just seems to me that there's this proliferation of 0:43:34.719 --> 0:43:38.839 possible tradable events now in part because of these new platforms. 0:43:39.040 --> 0:43:42.200 So you know, when we think about hedging risk, maybe 0:43:42.200 --> 0:43:44.520 a bigger surer wanted to hedge out some interest rate 0:43:44.640 --> 0:43:47.719 risk or something that makes sense. But these new platforms 0:43:47.760 --> 0:43:50.600 are offering very specific things like bet on the car 0:43:50.640 --> 0:43:53.280 sales number or bet on the jobs number, et cetera. 0:43:53.680 --> 0:43:56.640 Is that a space that you could see again, it's 0:43:56.680 --> 0:43:59.000 a risk management that could see me get into events 0:43:59.000 --> 0:43:59.400 such as that. 0:44:00.160 --> 0:44:03.360 Again, I think when you look at specific events that 0:44:03.400 --> 0:44:06.239 you just outline, I'll use Tesla to your example. I 0:44:06.239 --> 0:44:09.560 would have to see what the interest is by the participants. 0:44:09.680 --> 0:44:13.160 Because if you get a contract that you list you 0:44:13.280 --> 0:44:16.319 whether it's a prediction market or a standardized contract, and 0:44:16.360 --> 0:44:19.560 no one wants to trade it, then it's an irrelevant 0:44:19.560 --> 0:44:22.960 contract anyway. So I like to say that, and where 0:44:23.000 --> 0:44:24.439 I hope the people in main don't hate me, because 0:44:24.440 --> 0:44:26.319 I've used this example a few times. There's people in 0:44:26.400 --> 0:44:28.840 Maine that think you should have a lobster futures contract, right, 0:44:29.320 --> 0:44:31.759 but you know who wants that, people that are in 0:44:31.800 --> 0:44:34.320 the lobster business. The rest of world doesn't care about 0:44:34.360 --> 0:44:37.160 that because we can't afford lobster, and we can we 0:44:37.280 --> 0:44:39.040 just pay for it whatever the price is. So there 0:44:39.080 --> 0:44:42.200 really isn't a marketplace there for the speculators to participate in. 0:44:42.800 --> 0:44:45.480 So is that the same situation with what you al 0:44:45.600 --> 0:44:48.080 and I'm not suggesting it is, but that's up to 0:44:48.080 --> 0:44:51.359 the participants. That's why we're very careful not to put 0:44:51.400 --> 0:44:54.120 out products that we think that there's no demand for. 0:44:54.239 --> 0:44:59.719 We research what massive constituents about what they think they 0:44:59.800 --> 0:45:04.000 need in order to manage risk, and we're hearing different things. 0:45:04.400 --> 0:45:08.800 Now does a product come out like a prediction market 0:45:08.920 --> 0:45:11.879 where everybody goes aha, I finally found a holy grail 0:45:11.920 --> 0:45:14.680 on how to lay off my risk. I don't see it. 0:45:14.840 --> 0:45:17.359 I think the prediction markets that will be listed will 0:45:17.400 --> 0:45:20.319 be driven by the demand of the participants, not the 0:45:20.360 --> 0:45:21.960 market itself. Does that make sense to you. 0:45:23.400 --> 0:45:26.640 I really want to launch a a lobster prediction market now, 0:45:26.760 --> 0:45:29.640 lobster price prediction. I think that'd be a really interesting experiment. 0:45:30.000 --> 0:45:32.080 There used to be a cardamom futures that was traded 0:45:32.080 --> 0:45:34.720 in India and I tried reaching out to the regulator. 0:45:34.719 --> 0:45:36.640 I wanted to do a story about a dead futures 0:45:36.640 --> 0:45:39.239 contract that didn't I couldn't get I gotta try again 0:45:39.280 --> 0:45:42.280 because I'd love to like the story of a futures 0:45:42.280 --> 0:45:44.320 contract that just lost. Yeah. 0:45:44.560 --> 0:45:47.400 Sort of on this note, do you see any indication 0:45:47.520 --> 0:45:52.560 of big institutional investors, I guess taking some of the 0:45:52.600 --> 0:45:55.680 strategies that are deployed by retail or sort of imitating 0:45:55.680 --> 0:45:58.279 retail in some way. And what I mean by that 0:45:58.360 --> 0:46:01.600 is I think about one day zero day options. When 0:46:01.680 --> 0:46:04.560 those first gain traction, a lot of the activity was 0:46:04.600 --> 0:46:07.840 through retail, and then the institutional sort of got pulled 0:46:07.880 --> 0:46:10.759 in and got really into it. Is there evidence of 0:46:10.800 --> 0:46:13.920 institutional becoming more like retail and certain patterns of behavior 0:46:14.000 --> 0:46:15.719 or certain interest in certain products. 0:46:16.080 --> 0:46:20.640 Well, I think there is always an opportunity for big 0:46:20.640 --> 0:46:24.160 institutions to look at what the retail's doing. So let's 0:46:24.200 --> 0:46:27.359 be mindful of where the money comes from from institutions. 0:46:28.000 --> 0:46:31.120 So if you put together a pool of dollars and 0:46:31.200 --> 0:46:34.440 you give it to a large institution, they call it 0:46:34.440 --> 0:46:38.000 institutional money. That probably came from a subset of the teachers' 0:46:38.040 --> 0:46:40.520 union of a lot of people. So everybody's got ten 0:46:40.560 --> 0:46:41.960 dollars and this all of a sudden, it's worth one 0:46:42.040 --> 0:46:44.640 hundred million dollars or a billion dollars, whatever the case is. 0:46:45.000 --> 0:46:48.520 So that retail money that's now big is now called 0:46:48.560 --> 0:46:53.000 institutional money. So their thought processes aren't too dissimilar from 0:46:53.000 --> 0:46:56.359 their clients. So yes, I can see that going back 0:46:56.400 --> 0:46:59.319 and forth, ebbing and flowing about the ideas of what 0:46:59.360 --> 0:47:02.719 they want to participate in or not. First of all, 0:47:02.760 --> 0:47:05.440 I think people are always looking for opportunity. I think 0:47:05.480 --> 0:47:09.560 they're always looking for efficiencies. And I think that the 0:47:09.600 --> 0:47:14.080 lines of institutional and retail are absolutely blurred right now. 0:47:14.120 --> 0:47:15.719 And I think there's a lot of people going, what 0:47:15.760 --> 0:47:18.399 does that mean? I feel like I've got some kind 0:47:18.400 --> 0:47:20.359 of handle on that, and that's why I'm doing what 0:47:20.400 --> 0:47:23.800 I'm doing, because I think that those blurred lines will 0:47:23.840 --> 0:47:27.359 continue to go forward, and the products that they participate 0:47:27.440 --> 0:47:29.960 in and how they do it will continue to get blurred. 0:47:30.200 --> 0:47:33.239 I think both can grow, and they'll grow exponentially, but 0:47:33.280 --> 0:47:34.440 they're going to look a lot alike. 0:47:35.120 --> 0:47:37.480 I just have one last question, and I feel compelled 0:47:37.520 --> 0:47:40.839 to ask every CEO, or really every corporate executive this 0:47:41.120 --> 0:47:45.719 these days, with the exception of your software engineers who 0:47:45.800 --> 0:47:50.239 work at CME right now, is there anything that you 0:47:50.320 --> 0:47:53.960 can point to where large language models are being deployed 0:47:54.000 --> 0:47:55.799 in a productive way with in here or is it 0:47:55.880 --> 0:47:58.960 still at test and see and do experiments. 0:48:00.000 --> 0:48:02.399 Okay, so let me see if I can answer that one, Jose, 0:48:03.239 --> 0:48:06.360 large language models being deployed, Yeah. 0:48:06.160 --> 0:48:07.960 I'm sure the engineers are generating code. 0:48:08.080 --> 0:48:10.640 Yeah, there's no question. But see, we're kind of in 0:48:11.520 --> 0:48:13.680 a bit of a limbo, for lack of a better term, 0:48:13.760 --> 0:48:15.680 spot right now because a lot of that stuff that 0:48:15.719 --> 0:48:19.040 I'm working on is going through Google right now. Because 0:48:19.080 --> 0:48:22.040 of the relationship and the partnership I have with Google. 0:48:22.400 --> 0:48:25.560 I'm transitioning. I'm going to transition my markets to Google Cloud. 0:48:25.640 --> 0:48:27.800 I'm transitioning a lot of my tech to Google Cloud, 0:48:28.320 --> 0:48:30.600 and a lot of that machine learning and things of 0:48:30.600 --> 0:48:33.960 that nature, Gemini and all that we're going through Google. 0:48:34.040 --> 0:48:36.440 So we are doing it together, so it's not just 0:48:36.560 --> 0:48:39.680 my people doing anymore. It's CME and Google working together 0:48:39.719 --> 0:48:42.200 to deploy that. So I can't give you a singular 0:48:42.239 --> 0:48:45.680 answer what we're doing as CME because it's a mix 0:48:45.719 --> 0:48:46.399 between us. 0:48:46.600 --> 0:48:50.080 At the moment. There's no workflow that exists where someone 0:48:50.120 --> 0:48:52.160 could point and say, you know what, this used to 0:48:52.200 --> 0:48:55.040 be a ten person job, but thanks to large language models, 0:48:55.040 --> 0:48:57.799 it's a one person job at least as of September 0:48:58.239 --> 0:48:59.960 twenty five to twenty twenty five. 0:49:00.040 --> 0:49:01.840 The only way I can answer that is by headcount, 0:49:02.440 --> 0:49:04.839 and I would say that that is not the case 0:49:04.960 --> 0:49:07.400 because one of the things that I've seen with technology 0:49:07.440 --> 0:49:10.439 is it creates other jobs and it eliminates the last job. 0:49:10.880 --> 0:49:13.160 So yes, we have seen the elimination of certain things 0:49:13.200 --> 0:49:15.440 to your point, but it's created other ones. So I 0:49:15.440 --> 0:49:18.440 look at it as headcount, not so much as project related. 0:49:18.800 --> 0:49:21.880 Spoken like a former pit trader who became the CEO 0:49:22.200 --> 0:49:25.600 of a very large derivatives exchange, can I squeeze in 0:49:25.600 --> 0:49:28.440 one more question. This is backward looking, but I am 0:49:28.640 --> 0:49:32.920 very interested in hearing about it. Liberation Day, huge amount 0:49:32.960 --> 0:49:34.000 of market volatility. 0:49:34.280 --> 0:49:37.719 What was that like for you? You know, just another day, 0:49:37.719 --> 0:49:39.040 To be honest with you, I hate to say it 0:49:39.040 --> 0:49:42.839 that way, but we've seen so many different events in 0:49:42.880 --> 0:49:44.840 my career that you know, when you go back to 0:49:44.880 --> 0:49:47.120 the OAID crisis, you go back to the flash crash, 0:49:47.200 --> 0:49:50.360 you go back to other scenarios, the pandemic. You know, 0:49:50.360 --> 0:49:51.880 I look at the pandemic as one of the more 0:49:52.000 --> 0:49:55.360 the more frightening times in the history of markets versus 0:49:55.400 --> 0:49:58.640 Liberation Day. Liberation Day is more about whatether the terrorists 0:49:58.719 --> 0:50:00.560 going to mean or not mean? And you know, I 0:50:00.600 --> 0:50:03.000 think there's a lot of people that believe that there's 0:50:03.040 --> 0:50:05.319 no way that these could come to fruition, So it 0:50:05.400 --> 0:50:07.960 was kind of tempered down a little bit. The activity 0:50:08.040 --> 0:50:11.879 was pretty exciting, but if that were to come out 0:50:11.920 --> 0:50:15.239 of the blue, it would be really bizarre. But I 0:50:15.280 --> 0:50:19.280 think that was fairly well telegraphed Tracy to say the least, 0:50:19.760 --> 0:50:22.640 Liberation Day, so I think the market was well prepared 0:50:22.640 --> 0:50:24.759 for it. It reminds me a lot of last week with 0:50:24.800 --> 0:50:28.680 the FED that was the most telegraphed quarter point move 0:50:28.800 --> 0:50:31.160 in the history of the Federal Reserve. Right, is that fair? 0:50:31.560 --> 0:50:36.760 I think Liberation Day. 0:50:35.520 --> 0:50:37.080 Moves in the stock market in a row. 0:50:37.400 --> 0:50:40.840 Okay. So when you look at percent of stock market 0:50:40.840 --> 0:50:44.160 moves at the levels that we're at today versus the 0:50:44.239 --> 0:50:47.320 percent of the levels that we're at No. Eight, it's 0:50:47.360 --> 0:50:52.120 a non event. So if we had everything based non event, 0:50:54.000 --> 0:50:55.920 So I think it's relative to the value of the 0:50:55.920 --> 0:50:58.319 product and the percent goes with it. 0:50:58.920 --> 0:50:59.759 What would worry you? 0:50:59.800 --> 0:51:02.960 Now? Everything worries me, okay. So I don't have one 0:51:03.000 --> 0:51:05.160 particular thing. So you could say anything and I say, yep, 0:51:05.200 --> 0:51:09.040 that worries me. So, but I try to manage it 0:51:09.080 --> 0:51:12.960 and move forward. And I like to be, you know, 0:51:13.080 --> 0:51:15.399 telling my people a couple of different things. I love 0:51:15.480 --> 0:51:17.319 looking for I love the future. I love young people. 0:51:17.440 --> 0:51:20.920 I think they're innovative. I think their opportunities galore are 0:51:20.960 --> 0:51:24.640 going forward. And I like to use my past as 0:51:24.640 --> 0:51:26.600 something that I learned from but not live in it. 0:51:26.680 --> 0:51:28.759 So I don't like to look through the review mirror. 0:51:28.760 --> 0:51:31.120 I like to look through the windshield and go forward. 0:51:31.640 --> 0:51:33.719 So but when you do that, you know there's a 0:51:33.719 --> 0:51:35.399 lot of things that can scare you. We talked about 0:51:35.440 --> 0:51:37.719 them earlier today. Some of the new innovations that are 0:51:37.719 --> 0:51:40.920 coming out, some will win, some will fail. So you 0:51:41.000 --> 0:51:43.440 have to be very careful about how we participate in 0:51:43.480 --> 0:51:46.200 that as an institution, like seeing me, so that a 0:51:46.239 --> 0:51:49.520 lot of that concerns me. No different than when Sam was, 0:51:50.000 --> 0:51:53.640 you know, putting forth with FTX back in the day 0:51:53.680 --> 0:51:56.800 and he was backing up his coins with synthetic other coins, 0:51:56.840 --> 0:51:59.000 and then he wanted to have a margining system with 0:51:59.040 --> 0:52:02.319 no risk management that was fraught with danger. And I 0:52:02.360 --> 0:52:04.480 saw that, but it seemed like nobody else did. I'm 0:52:04.480 --> 0:52:07.960 not suggesting that today's world, but there seems to be 0:52:09.160 --> 0:52:12.080 a situation right now with regulatory issues where you know, 0:52:12.200 --> 0:52:15.000 go ahead and do it and we'll apologize later. Is 0:52:15.040 --> 0:52:16.880 the old saying whatever it is. And that's not a 0:52:16.880 --> 0:52:18.600 good place to be. So that worries me a little bit. 0:52:18.640 --> 0:52:21.520 Tracy, all right, Terry Duffy, always good chatting with you. 0:52:21.600 --> 0:52:22.479 Thank you so much for. 0:52:22.400 --> 0:52:23.239 Coming back on the show. 0:52:23.360 --> 0:52:24.440 Thanks Racy, Thanks joeff. 0:52:24.480 --> 0:52:26.359 It was a blast, Thank you, Thank you so much. 0:52:26.360 --> 0:52:40.800 Fun Joe, Terry's a blast. 0:52:40.960 --> 0:52:42.000 I love talking to Terry. 0:52:42.080 --> 0:52:44.359 Yeah, I'm glad we did it though, because I think 0:52:44.400 --> 0:52:46.759 if you're thinking about the intersection of the sort of 0:52:47.280 --> 0:52:52.280 prediction betting markets and the sort of old school traditional markets, 0:52:52.480 --> 0:52:54.680 the CMME, you know, kind of stands out. 0:52:54.760 --> 0:52:57.880 It's right there. I thought I really liked his point 0:52:58.080 --> 0:53:03.839 about twenty seventeen was by some by many measures, very 0:53:03.920 --> 0:53:06.319 late to the crypto game. Maybe. I mean, I guess 0:53:06.320 --> 0:53:07.759 we don't know in a one hundred years from now, 0:53:07.760 --> 0:53:10.719 maybe that'll still be seen this day one. But it's 0:53:10.800 --> 0:53:13.640 been a successful business for the CMEME, and so this 0:53:13.920 --> 0:53:18.080 idea that the long term, you know, one way to 0:53:18.080 --> 0:53:20.440 think about the long term failure creation the CME is 0:53:20.480 --> 0:53:22.600 that it's okay to be second that doesn't need to 0:53:22.680 --> 0:53:24.600 rush out of the gate for some of these things. 0:53:24.719 --> 0:53:27.200 I thought that was a very compelling example. 0:53:26.960 --> 0:53:29.800 Right, and there you know, there is first mover advantage, 0:53:29.800 --> 0:53:33.080 but on the other hand, there is also institutional strength 0:53:33.160 --> 0:53:34.800 that can be an advantage as well. 0:53:35.160 --> 0:53:37.520 F g exit first mover advantage. That's right, It sort 0:53:37.560 --> 0:53:39.880 of was missing the latter one that was proved to 0:53:39.880 --> 0:53:40.680 be very cost. 0:53:40.600 --> 0:53:41.680 I think that was Terry's point. 0:53:41.960 --> 0:53:44.839 Yeah, I don't want to be super old fashioned when 0:53:44.880 --> 0:53:46.879 it comes to a lot of betting markets. But one 0:53:46.920 --> 0:53:48.680 of the things you hear is that when you think 0:53:48.680 --> 0:53:53.239 about traditional financial assets, it's about putting money to good use, 0:53:53.360 --> 0:53:55.600 right you know, you invest in something, you're supposed to 0:53:55.640 --> 0:53:58.160 get an income stream back, or maybe an asset that 0:53:58.320 --> 0:54:02.160 appreciates over time, but again probably one that generates some 0:54:02.200 --> 0:54:02.880 sort of income. 0:54:03.719 --> 0:54:04.480 I do. 0:54:04.320 --> 0:54:07.880 I look at the activity on all of these betting 0:54:07.920 --> 0:54:10.960 platforms and like you know, market making platforms and things 0:54:11.040 --> 0:54:13.280 like that, and I just think there's so much money 0:54:13.360 --> 0:54:17.680 being generated and I'm not sure like where it's going. 0:54:17.640 --> 0:54:18.319 Do you know what I mean? 0:54:18.800 --> 0:54:22.920 Yeah, there's so much going on right now, and like 0:54:23.239 --> 0:54:26.240 it just feels like there's a complete blurring of everything, 0:54:26.280 --> 0:54:29.279 a complete transformation of everything. It really does feel like 0:54:29.360 --> 0:54:32.800 to me specifically, the doors are being flung open. There's 0:54:32.880 --> 0:54:35.920 this sort of growing norm in society that anyone can 0:54:35.960 --> 0:54:38.160 trade anything at any time for better or worse and 0:54:38.200 --> 0:54:40.799 make no judgment on it. I do think, you know, 0:54:42.600 --> 0:54:45.919 it is interesting to me one to see me specifically 0:54:47.080 --> 0:54:51.360 this sort of like caution or you know, let's let's 0:54:51.520 --> 0:54:55.480 take this stuff seriously, not necessarily dismissing. On the other hand, 0:54:55.880 --> 0:54:58.359 like when seeing me like partners with fan Duel and 0:54:58.440 --> 0:55:01.600 which is like a literal sports betting company. It strikes 0:55:01.640 --> 0:55:05.200 me that that is an accelerating event for this world 0:55:05.239 --> 0:55:07.640 where we just trade on everything that you could talk 0:55:07.640 --> 0:55:10.480 about caution, but like when you're like, you know, partnering 0:55:10.520 --> 0:55:13.719 with a straight up sports betting company, even if it's 0:55:13.760 --> 0:55:17.000 on a different app et cetera, that you're accelerating this 0:55:17.120 --> 0:55:20.200 world of everything is a bet on any app. 0:55:20.640 --> 0:55:24.600 On the plus side, lots of content for loots, episodes and. 0:55:24.600 --> 0:55:25.239 One other things. 0:55:25.280 --> 0:55:27.360 Yes, and we have many more like this is like 0:55:27.440 --> 0:55:29.680 perfect time and this trip and everything. Because there's so 0:55:29.719 --> 0:55:31.560 much going on, there's that round table. I really like 0:55:31.640 --> 0:55:34.120 Terry's point about the even if you said it as 0:55:34.160 --> 0:55:36.880 kind of a joke about the lobster futures, Yeah, because 0:55:36.920 --> 0:55:38.080 I do think that's very telling. 0:55:38.160 --> 0:55:38.399 Right. 0:55:38.560 --> 0:55:42.880 You could imagine that lobstermen might like to hedge their prices, 0:55:43.080 --> 0:55:44.520 but that there's just not going to be in a 0:55:44.640 --> 0:55:46.640 volume or real market for it. And I do think 0:55:46.680 --> 0:55:49.839 that's interesting to keep in mind because I do look 0:55:49.840 --> 0:55:52.000 at some of these contracts that exist on the other 0:55:52.040 --> 0:55:56.239 platforms and like I could see a entity wanting to 0:55:56.280 --> 0:55:59.120 hedge out the risk of a very left tail jobs 0:55:59.160 --> 0:56:01.399 report or I could see you wanting to hedge out 0:56:01.440 --> 0:56:04.880 the car sales risk of Tesla. The logic of the 0:56:04.960 --> 0:56:07.600 market does not necessarily mean that there will be a 0:56:07.640 --> 0:56:10.080 sizeable market. I think is a very important one to 0:56:10.120 --> 0:56:10.640 keep in mind. 0:56:10.960 --> 0:56:12.879 But I also wonder if you wouldn't have the same 0:56:12.960 --> 0:56:17.160 market size issues for something like a lobster prediction market, like. 0:56:17.160 --> 0:56:19.640 Who will well, yeah, we don't know. 0:56:19.719 --> 0:56:20.120 No, no, no. 0:56:20.760 --> 0:56:23.200 It just throws up all these really interesting questions, and 0:56:23.280 --> 0:56:25.080 I do think maybe we should start one and then 0:56:25.880 --> 0:56:27.279 talk about what we learned from it. 0:56:27.440 --> 0:56:28.279 Let's do it, Okay, the. 0:56:28.280 --> 0:56:30.160 Next aud Thoughts series. Shall we leave it there? 0:56:30.200 --> 0:56:30.919 Let's leave it there. 0:56:31.280 --> 0:56:33.960 This has been another episode of the Odd Thoughts podcast. 0:56:34.080 --> 0:56:37.239 I'm Tracy Aloway. You can follow me at Tracy Aloway and. 0:56:37.200 --> 0:56:39.680 I'm Jill Wisenthal. You can follow me at the Stalwart. 0:56:39.760 --> 0:56:43.280 Follow our producers Carmen Rodriguez at Carmen Arma, Dashel Bennett 0:56:43.280 --> 0:56:46.080 at Dashbot, and kel Brooks at Kelbrooks. From our Odd 0:56:46.120 --> 0:56:48.600 Lots content, go to Bloomberg dot com slash odd Lots. 0:56:48.600 --> 0:56:51.040 We have a daily newsletter and all of our episodes. 0:56:51.440 --> 0:56:53.319 You can chat about all of these topics. 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