Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe Wisenthal.
Speaker 3: Joe, we're here in Chicago.
Speaker 1: I love it here so much. We don't come here enough.
Speaker 3: I agree. Chicago is an amazing city.
Speaker 2: It's also just such an interesting city from a financial perspective,
Speaker 2: and it has that old school, you know, mercantile Midwest
Speaker 2: kind of feel totally.
Speaker 1: I mean, it's what's cool about Chicago. Many cool things,
Speaker 1: but it obviously has the history of trading and pits
Speaker 1: and you know, trading pigs and all that stuff, and
Speaker 1: it's still a city that's at the cutting edge of trading,
Speaker 1: and so it's pretty cool that, like the history is
Speaker 1: like not just history, it's still when I think of
Speaker 1: capital to trading, I usually think of Chicago.
Speaker 2: Absolutely, And one of the themes for our trip to
Speaker 2: Chicago this time is trading and the evolution of trading
Speaker 2: and also the retail revolution that we're seeing. And on
Speaker 2: that note, we have some very interesting partnerships that have
Speaker 2: been developing between I guess old school exchanges and more
Speaker 2: let's just say more retail oriented platforms.
Speaker 1: So I think there's the thing that I think is
Speaker 1: really interesting that's going on in financial markets, among many
Speaker 1: other things. Is it seems like there's two different entities
Speaker 1: that are trying to cannibalize each other.
Speaker 4: Yeah.
Speaker 1: And the way I think about it is you have
Speaker 1: these sort of legacy well, you have essentially these sort
Speaker 1: of maybe like gambling oriented entities or what people think
Speaker 1: of as speculating, wanting to look more like legacy financial institutions.
Speaker 1: And you have legacy financial institutions that want to subsume
Speaker 1: the sort of high speed trading, speculative gambling impulse of
Speaker 1: many young retail traders. And it's like, which one will
Speaker 1: swallow the other? Will it be that I trade on
Speaker 1: my sports app?
Speaker 5: Well?
Speaker 1: Is it will I be trading cotton futures on my
Speaker 1: sports app? Or will be the opposite? Will I be
Speaker 1: going to a traditional brokerage to place bets on a
Speaker 1: Raiders game.
Speaker 2: That's a great way of putting it. I also have
Speaker 2: to say there's a little bit of an irony here
Speaker 2: because a lot of the old school exchanges used to
Speaker 2: be criticized for enabling gambling in derivatives contracts right and
Speaker 2: now and now are considering sports betting. It's all very confusing,
Speaker 2: but I have to say we have the perfect guests
Speaker 2: to talk about the cutting edge of trading and the
Speaker 2: retail revolution. We've had him on before.
Speaker 3: He was great.
Speaker 2: We're going to be speaking with Terry Duffy, the chairman
Speaker 2: and CEO of CME. So Terry, thank you so much
Speaker 2: for coming back on all thoughts.
Speaker 5: Tracy, Joe, thank you very much for having me. Appreciate
Speaker 5: you being here in Chicago.
Speaker 2: Also, well, the last time we saw you two years ago,
Speaker 2: you said we were going to be replaced by AI,
Speaker 2: and that hasn't happened. So I'm very happy that we're
Speaker 2: back and talking to.
Speaker 5: And we have a tape that because I do that's true.
Speaker 1: I got free the transcript you have.
Speaker 5: Everybody remember something, but let me see the proof.
Speaker 2: I'll send it to you after this, all right. So
Speaker 2: one of the reasons we want to talk to you
Speaker 2: about retail trading specifically is because CMI just announced this
Speaker 2: partnership with FanDuel. Where you're going to be offering these
Speaker 2: sort of event contracts. Walk us through exactly what the
Speaker 2: partnership entails.
Speaker 5: Well, the partnership is really interesting from a whole host
Speaker 5: of reasons. I believe that the market in general has changed,
Speaker 5: and the evolution of the market has changed. The participants
Speaker 5: have changed, and we can all determine why that is.
Speaker 5: We can listen to what Joe said in his opening
Speaker 5: about how traditional exchanges want to have the gaming clients
Speaker 5: in their world or we could say that the gaming
Speaker 5: clients want to have the traditional finance people in their worlds.
Speaker 5: These worlds have been clashing for quite some time. Now.
Speaker 5: Why is that? It's all because of technology. Technology has
Speaker 5: enabled the participant from all levels to be on a
Speaker 5: level playing field, so example being institutional participants traditionally had
Speaker 5: the greatest technology, and in return, the products were custom
Speaker 5: sized for institutional participants. As the market's evolved, retail participants
Speaker 5: want to be able to participate, but they really couldn't
Speaker 5: participate at the size of a contract that the institutions can.
Speaker 5: So we customized over the last several years smaller and
Speaker 5: smaller contracts whatever. They went from e minis to micros
Speaker 5: and potentially nanos. And now we're looking into the prediction
Speaker 5: markets going forward. Why is that, Well, there's a host
Speaker 5: of reasons, but like I said, technology and let's talk
Speaker 5: about it again. Artificial intelligence. It's the hottest thing God
Speaker 5: put on the planet right now as far as financial
Speaker 5: services go, because otherwise the stock market would not be
Speaker 5: trading where it's at today. Because the market has been
Speaker 5: driven primarily by artificial intelligence stocks over the last forty
Speaker 5: eight months. For sure, there's no other stocks really participating
Speaker 5: to weigh in. Nvidio and some of the other big
Speaker 5: ones are. So my point being is today the guy
Speaker 5: that would never be able to trade futures because he's
Speaker 5: got a five hundred dollars account or one thousand dollars
Speaker 5: account or that's what he has available to participate, and
Speaker 5: now we're able to give him the technology that Goldman
Speaker 5: Sachs may or may not have. That some of the
Speaker 5: biggest hedge funds in the world may or may not have.
Speaker 5: How he or she deploys that is up to them,
Speaker 5: but they're going to have access to that technology. That's
Speaker 5: why these worlds are collecting and I think it's massively
Speaker 5: exciting about the future. And people, listen, we're going to
Speaker 5: have the biggest wealth transfer by twenty forty We're going
Speaker 5: to have eighty trillion dollars go from I think it's
Speaker 5: twenty fifty from the existing population to people of the
Speaker 5: age of forty to twenty four, eighty five trillion dollars
Speaker 5: of wealth transfer. People want to be in control of
Speaker 5: their own destiny. Why, because they've grown up in control
Speaker 5: of their own destinies today that age group, whether it's
Speaker 5: through the apps on their phone or other things. So
Speaker 5: I think having access to all different constituencies is really important,
Speaker 5: and so I'm excited by the future of this marketplace.
Speaker 1: Let's just talk more details on FanDuel. Is the idea
Speaker 1: basically that let's say I'm or I don't. I've never
Speaker 1: gotten into sports betting, but suppose I did. Suppose I were,
Speaker 1: you know, and I open an app and I see
Speaker 1: the line for the upcoming Raiders Bears game or.
Speaker 5: Whatever it is.
Speaker 1: Is the idea that in that same app, I may
Speaker 1: see the price of some the gold futures or interest
Speaker 1: rate futures or something that I can trade at a
Speaker 1: monetary denomination that is sort of we associate with retail level.
Speaker 1: Is that the specific product or service that the CM
Speaker 1: is going to be offering with FanDuel.
Speaker 5: So Joe, yes, it's similar to that. So today FanDuel
Speaker 5: is set up a little bit different than some of
Speaker 5: their competitors. They don't have one app for all different services.
Speaker 5: They have single apps for different services, where some of
Speaker 5: the other ones have different apps, and for whatever reason,
Speaker 5: they feel it's an advantage. So there will be a
Speaker 5: markets app, a FanDuel markets app powered by CME Group.
Speaker 5: When you open up their homepage, you'll go to that
Speaker 5: app and then you'll see in there we'll have potentially
Speaker 5: three to four event contracts a day per assa class.
Speaker 5: The events will go on for approximately sixty minutes. They're
Speaker 5: not like a sporting event that goes on throughout the event.
Speaker 5: It will be a sixty minute window. Then we will
Speaker 5: say will the price of goal be above or below
Speaker 5: three seven hundred dollars an ounce at the.
Speaker 1: End of that sixty minutes.
Speaker 2: Yes, they're very binary, and.
Speaker 5: You will see as the opening of that event starts
Speaker 5: where the price is set, and it might be set
Speaker 5: at fifty cents, it's going to be above it because
Speaker 5: it's kind of in the middle, or if it's higher,
Speaker 5: it might be eighty cents to say it's to be
Speaker 5: above it, but there's nothing to say it's going to
Speaker 5: be above it. So you'll have people taking both sides
Speaker 5: expressing their interest on the value of gold, which will
Speaker 5: also give us the ability because we have the liquidity
Speaker 5: providers in our core asset classes, so the deep pools
Speaker 5: of liquidity with this will be amazing.
Speaker 1: Just to be clear, is the sixty minute window? Is
Speaker 1: that just like the first round? Like eventually, do you
Speaker 1: anticipate that it'll be weekly or monthly or something that
Speaker 1: resembles the time intervals of traditional.
Speaker 5: It's a great question, Joe. So what we're going to
Speaker 5: do is we'll probably run three events a day for
Speaker 5: say gold, we'll run three events a day for crude oil,
Speaker 5: We'll run three events a day for the S and
Speaker 5: P five hundred, We'll run three events a day for
Speaker 5: some of our other asset classes treasuries. And these will
Speaker 5: be multiple events, but they're only going to be an
Speaker 5: hour long. But we'll probably run three to four sessions
Speaker 5: every day, so there'll be an hour per session, and
Speaker 5: that will run five days a week for markets and
Speaker 5: if in fact fan who wants to put sports up there,
Speaker 5: as you know, those are weekend events as well.
Speaker 2: Well, let me ask the really sexy question, then, how
Speaker 2: exactly are these trades or contracts structured and you mentioned
Speaker 2: the liquidity providers. There walk us through exactly the mechanics
Speaker 2: of these trades. Who are the providers, what does the
Speaker 2: market making look like, are they being cleared, how does
Speaker 2: it all work?
Speaker 5: They will be essentrally cleared through CME's clearinghouse, so yes,
Speaker 5: they will be. The market structure will not look too
Speaker 5: dissimilar to what we have today. The market participants, we
Speaker 5: have multiple market makers versus where some of our competitors
Speaker 5: have a single market maker doing this. We will have
Speaker 5: as you know at Cema Group, we have a lot
Speaker 5: of market makers in our different products. They will have
Speaker 5: access to these event contracts and they will create the
Speaker 5: liquidity throughout the day and we will incent them to
Speaker 5: make sure that the participants have a tight, deep market.
Speaker 5: So that's basically how it'll work.
Speaker 2: And do the market makers have to hedge their exposure
Speaker 2: or are these contracts so small that it's not a big.
Speaker 5: Deal or you know, small content can be small tracy,
Speaker 5: but as you know, you trade enough of anything that's
Speaker 5: small turns into something big.
Speaker 2: And I'm sure you want this to be big trading
Speaker 2: once we do so.
Speaker 5: But that will have access to layoff that risk in
Speaker 5: the primary markets, and that's the big difference with our offerings.
Speaker 5: So we will be offering our deep liquid products and
Speaker 5: we'll have events with them, so our market makers will
Speaker 5: seamlessly be able to offset these contracts you'd said in
Speaker 5: the beginning, or not by the way, or not that's
Speaker 5: like them.
Speaker 1: You said in the beginning that technology is part of
Speaker 1: the story of why these two worlds of gambling versus
Speaker 1: legacy finance are have been colliding or maybe merging, et cetera.
Speaker 1: And I believe that, And I also believe that there
Speaker 1: is no such thing as a bright line between what's
Speaker 1: investing and what's speculation. There's a lot of debate about
Speaker 1: all of that, but is another element here, essentially that
Speaker 1: the norms have changed. There used to be an expectation
Speaker 1: that you know, retail investors didn't have access to say
Speaker 1: like private private invest It used to be much harder
Speaker 1: to gamble on sports.
Speaker 3: Period.
Speaker 1: There's been a big change in the norms, it seems.
Speaker 1: And then follow on regulation such that by and large
Speaker 1: it seems to be conventional wisdom that people should be
Speaker 1: really allowed to trade anything they want on anything they want.
Speaker 5: Well, I think there's some truth to that, but I
Speaker 5: think that's a pretty broad brush.
Speaker 1: Okay.
Speaker 5: Should people be able to trade anything they want and
Speaker 5: anything they want? I think you listen, regulation breeds credibility
Speaker 5: to any product, and if it's not regulated to a
Speaker 5: point and it's a while west, somebody's going to get hurt.
Speaker 5: And that's not what a company like mine that I'm
Speaker 5: determined the CEO of and I have been for the
Speaker 5: last twenty three twenty four years now, that's not something
Speaker 5: that I would want to bring forward into this company.
Speaker 5: You said something else that and I'm going to get
Speaker 5: back to the regulatory part, but you said something really interesting.
Speaker 5: Is it investing or is it speculating? Let me ask
Speaker 5: you a question. This is rhetorical. You ever see an
Speaker 5: investment that doesn't have If you're making an investment, you
Speaker 5: need somebody to take the opposite side of the trade
Speaker 5: and if another investor is going the same direction. There's
Speaker 5: reasons why Oracle went up thirty percent two weeks ago
Speaker 5: after their announcement. Why because no one wanted to get
Speaker 5: run over by a freight train. But you need speculation
Speaker 5: in order to increase investment. So I think that people
Speaker 5: say that speculators are bad for the market, Well, who's
Speaker 5: going to create the liquidity for the investors if we
Speaker 5: don't have speculators, So that's zero point one. Going back
Speaker 5: to the regulation, I think that when you look at
Speaker 5: the regulation for these products, we have to let the
Speaker 5: participants be made aware through education and other tools of
Speaker 5: what the rules of the road are. And I think
Speaker 5: right now with the crypto world where it's going right now,
Speaker 5: in some of the other marketplaces where they're at under predictions,
Speaker 5: I think there's some confusion. I'm going to be doing
Speaker 5: a roundtable in DC this coming Monday associated with just
Speaker 5: these type of topics, what's innovation, what's not and so Joe,
Speaker 5: I think your questions are really really strong, and that's
Speaker 5: one of the reasons I'm doing this deal of FanDuel
Speaker 5: because I want to walk before I run. Here. I
Speaker 5: think it's really important. But I do want to make
Speaker 5: sure that the retail participant has the ability to participate
Speaker 5: at their level. That's why these contracts will be binary nature.
Speaker 5: That's why these contracts will be a dollar so anybody
Speaker 5: can participate. But again, I think that the ultimate regulatory
Speaker 5: framework as it goes forward has yet to be harmonized.
Speaker 5: For a lack of a better term between traditional marketplaces
Speaker 5: and now we're looking at event contracts on sports and
Speaker 5: other indices. So I'm excited by this, Joe, But I
Speaker 5: think there's a lot of what you said in your
Speaker 5: question that's yet to be answered. And the problem is
Speaker 5: right now, there's a lot of people going out with
Speaker 5: offerings before these questions have been asked, answered or for
Speaker 5: sure studied.
Speaker 1: We've talked to someone, we're talking to some more of.
Speaker 3: Them for sure.
Speaker 2: Okay, Well, speaking of regulatory harmonization, I'm just gonna I'm
Speaker 2: gonna hit all the really provocative topics today and ask
Speaker 2: about tax treatment, because my understanding is that losses on
Speaker 2: futures contracts are treated differently under new tax rules than
Speaker 2: losses on platforms for sports betting and things like that.
Speaker 2: How much of the interest that you're seeing from places
Speaker 2: like fan Duel and other markets is coming from, I
Speaker 2: guess the possibility of people being able to trade with
Speaker 2: futures contracts or bet using futures contracts and not having
Speaker 2: to pay as.
Speaker 1: Much in tax.
Speaker 5: So let's make sure we understand both sides of the equation.
Speaker 5: You said only losses gains as well, so we'll talk
Speaker 5: about tax treats in general. So what Tracy's referring to, listener,
Speaker 5: is that odd loss is what's called twelve to fifty
Speaker 5: six contracts under the tax code, which allows people to
Speaker 5: get a blended rate of sixty forty tax treatment. Sixty
Speaker 5: long term gains forty short term comes out to a
Speaker 5: blended rate of about twenty seven percent. Futures contracts cannot
Speaker 5: get long term capital gains because of the way they
Speaker 5: expire today, so we don't get long term capital, so
Speaker 5: we get what's called twelve fifty six treatment. That's what Tracy,
Speaker 5: I believe you're referring to.
Speaker 2: That was a great explanation.
Speaker 5: By the way, thank you should host Thank you anyway,
Speaker 5: the twelve to fifty six contracts, So when you talk
Speaker 5: about sports, sports will not be treated on event contracts
Speaker 5: under the twelve to fifty six regulation. But Gold Equities
Speaker 5: all our other core businesses on events, we will believe
Speaker 5: that they are event futures, not event swaps. So swaps
Speaker 5: are not treated under twelve fifty six. Futures are. So
Speaker 5: we think our events on our market participants and those
Speaker 5: products will be treated with the same tax treatment we
Speaker 5: get today for our other businesses and then events such
Speaker 5: as entertainment such as political events and sporting events will
Speaker 5: be traded as ordinary income.
Speaker 1: Got it, Are you going to enter political betting markets?
Speaker 5: I would not take anything off the table. It's not
Speaker 5: something that I support at this moment. But there's a
Speaker 5: lot of things I think when people say they don't
Speaker 5: support and then all of a sudden they do it,
Speaker 5: and you go, well, what changed your mind? And you
Speaker 5: don't have a good reason. So I never said I
Speaker 5: wouldn't list bitcoin. I just thought it was important to
Speaker 5: make sure that the timing is right. So I waited
Speaker 5: till twenty seventeen. Then one day I said, today's the day,
Speaker 5: because the timing seems right to me. So I never
Speaker 5: said I wouldn't do it, even though there was a
Speaker 5: lot of people between two thousand and eight when the
Speaker 5: price of bitcoin was eight dollars to twenty seventeen when
Speaker 5: I listed it that said that this stuff is tulips,
Speaker 5: it's garbage, don't trade it all right.
Speaker 1: Let's say you're thinking on the politics.
Speaker 5: Markets, so I'm going to into the politic So I
Speaker 5: don't believe right now that event markets on politics are
Speaker 5: a good thing. That's my take on it. I want
Speaker 5: to see how it goes out. I didn't like mail
Speaker 5: mail in voting either. I thought voting should have been
Speaker 5: in person historically. But my mind has changed on that
Speaker 5: too for a whole host of reasons. Because now we
Speaker 5: get more participants and we have technology to protect against
Speaker 5: bad behavior in voting. I think we can get the
Speaker 5: same on these event contracts for different events. I don't
Speaker 5: know if it's there or not yet. We've had one
Speaker 5: political event contract that was listed so far that we're
Speaker 5: aware of, and that was the presidential election, right, So
Speaker 5: that's for the most part, that's all that's happened. I
Speaker 5: think that's kind of a small sample of a political
Speaker 5: event contracts to base your decision on it. Is this
Speaker 5: good or bad? So I kind of want to see
Speaker 5: how it goes doough to answer your question. So I
Speaker 5: don't see the rush to get into it. And the
Speaker 5: reason why I don't see the rush to get into
Speaker 5: it if you look at me today with XRP on
Speaker 5: a Ripple crypto contract, we are the premier place for
Speaker 5: people to mitigate and manage risk on Ripple. Now, I
Speaker 5: was one of the last people to get into crypto
Speaker 5: in twenty seventeen, but yet we have one of the
Speaker 5: biggest marketplaces I just listed Ripple, So the credibility of
Speaker 5: CMME is very important to me. I think it's important
Speaker 5: to my customers as well. That's why I'm very cautious
Speaker 5: about some of these political contracts. So that's why I
Speaker 5: was trying to tie the two together. Little fair enough, Yeah,
Speaker 5: fair enough.
Speaker 2: So you mentioned going to a roundtable next week, and
Speaker 2: I believe that's the one being held in DC.
Speaker 3: Is that right? Okay?
Speaker 2: So I know the CEO of CALCI is supposed to
Speaker 2: be there.
Speaker 5: Never met him.
Speaker 2: One of the pre eminent prediction markets in the world.
Speaker 2: When you see him, what questions would you ask in
Speaker 2: order to better understand political prediction markets.
Speaker 1: I mean, we're interviewing him tonight in Chicago. I know,
Speaker 1: basically Tracy's asking research ask him.
Speaker 5: I don't know the gentleman. I've never met the gentleman.
Speaker 5: I have no idea. I think what's important is that
Speaker 5: he understands that we because the CFTC, and that's what
Speaker 5: they are suggesting right now, which is true. So I'm
Speaker 5: not saying what he's saying is wrong. They self certify
Speaker 5: these contracts. Does it make it right for him? To
Speaker 5: list all these different contracts because the CFTC's got twenty
Speaker 5: four hours to make a decision to either stop it
Speaker 5: or let it go. It's really hard under the self
Speaker 5: certification process to understand anything in twenty four hours, especially
Speaker 5: for the government. So the question I would have for him,
Speaker 5: as I do for myself, is how are these some
Speaker 5: of these contracts not novel and complex? And don't you
Speaker 5: believe that your investors need a little bit more time
Speaker 5: by the government agencies to make sure that everyone's comfortable
Speaker 5: so you can offer them in a way that is
Speaker 5: very sound mind and sound business to grow and versus
Speaker 5: just going out there after twenty four hours of nobody
Speaker 5: objecting and now you're promoting and he is promoting that
Speaker 5: these are CFTC approved products. They're technically that it is wrong.
Speaker 5: They are not CFTC approved products. What they are is
Speaker 5: they have not been opposed by the CFTC. There's a
Speaker 5: big difference there, and that's the part that they are
Speaker 5: not disclosing to their user base. And so I would
Speaker 5: say to him or others, and I will say it
Speaker 5: because I say what I want to say to people respectfully.
Speaker 5: I think disclosure is good. It's like payment for order flow.
Speaker 5: I don't think payment for order shall flow should be
Speaker 5: on the thirty fourth page of a perspective. Put it
Speaker 5: up front, tell the clients that's what you're doing. And
Speaker 5: nobody's got a concern with it. But we don't because
Speaker 5: why And I would say that people are maybe a
Speaker 5: little thinking that maybe it shouldn't happen. I think it
Speaker 5: helps the marketplace. But tell people that earlier. And I
Speaker 5: think that's what you guys should ask him. Why won't
Speaker 5: you say that these are not approved? They're just not
Speaker 5: objected to Joe.
Speaker 2: I'm going to do my best Terry Duffie in Passion
Speaker 2: tonight and just ask that question for BA And if.
Speaker 5: You drop my name by Monday, could be a lot
Speaker 5: of fun.
Speaker 1: But no, this gets to my quish about norms because,
Speaker 1: like so political prediction markets have existed in the US
Speaker 1: on very small scale for maybe like twenty years. It
Speaker 1: was the Iowa it was an experimental at the University
Speaker 1: of Iowa, et cetera. It feels like the floodgates have
Speaker 1: gone open and that actually, you know, under the last administration,
Speaker 1: for better or worse, kelshy polymarket, which it's another sort
Speaker 1: of can of worms. They were under a lot of
Speaker 1: regulatory scrutiny, investigations, and they still operated, et cetera. Now
Speaker 1: it seems like the door has been flung open. Maybe
Speaker 1: like it basically seems like we have, whether from a
Speaker 1: strictly legal perspective or a cultural perspective, very little appetite
Speaker 1: in this country to say you can't do this. It
Speaker 1: feels like, yeah, the barn door is open on a
Speaker 1: lot of this.
Speaker 5: So Joe's let's talk about that a little bit because
Speaker 5: I think it's interesting. Under the Commodity Exchange Actor is
Speaker 5: a provision where a contract cannot be readily manipotable. Okay,
Speaker 5: all right, so that's a law. So when we're looking
Speaker 5: at prediction markets on political outcomes, and we're talking about
Speaker 5: a presidential election, we're talking about one hundred plus million
Speaker 5: people potentially voting, with the base voters more open than that. Fine, Okay,
Speaker 5: maybe we say understand, Okay, that's no different than some
Speaker 5: of these other big markets. That's a big market all
Speaker 5: of a sudden. Now we'll take it down to the Congress.
Speaker 5: We have less people voting and a congressional race for Congress. Correct,
Speaker 5: so every member every five hundred thousand people gets a
Speaker 5: member of Congress in the United States. So you know,
Speaker 5: you got five hundred thousand people of a population gets
Speaker 5: a member of Congress. The voting population for that is
Speaker 5: much much smaller that's eligible to vote. Now, let's take
Speaker 5: it to the next level. We have got a local
Speaker 5: mayor's race and a suburb that you live in that
Speaker 5: there is five hundred people there. You want a prediction
Speaker 5: market on that, because I'll tell you what, I can
Speaker 5: probably buy that election and have my prediction market be
Speaker 5: payoff in a big way, and that would be deemed
Speaker 5: readily maniputable. Now I gave you a pretty wild spectrum there, sure,
Speaker 5: but I think you have to look at it and
Speaker 5: at range. That's my whole point what I said to
Speaker 5: Tracy earlier. We have to let people know what they're doing.
Speaker 5: Because every political event is not a presidential election. There
Speaker 5: are some political events that are so small that could
Speaker 5: be deemed readily manipotable, and you don't ever want to
Speaker 5: get in that situation because that's how you destroy innovation.
Speaker 5: And that's my concern with some of the political markets.
Speaker 2: Joe, remember when we did that live experiment at our show,
Speaker 2: what was our big takeaway from that.
Speaker 1: I don't remember it. Take away it's very funny when
Speaker 1: we had the manifold market of whether it's Zemashwitz would
Speaker 1: be on the Odd Laws podcast, and then we brought
Speaker 1: him on stage and we saw the price adjust in
Speaker 1: real time.
Speaker 2: Just to be clear, we did not bet that he
Speaker 2: was going to be the podcast.
Speaker 3: But you know, he could have could have.
Speaker 2: He could have, He could have certainly. Okay, let's broaden
Speaker 2: out the conversation a little bit to overall retail trading,
Speaker 2: which has obviously become a big part of your business.
Speaker 2: When you think about the evolution of retail trading at
Speaker 2: CME over the past few years, what are the biggest
Speaker 2: takeaways in terms of, I guess, the needs or concerns
Speaker 2: of a retail trader versus an institutional or professional one.
Speaker 2: Obviously you talked about contract size earlier, but like, what
Speaker 2: else do you see out there in terms of key differences.
Speaker 5: I think the key difference is the ease of access
Speaker 5: for the retail participant to sign on to a platform.
Speaker 5: Historically has been very very difficult, in a very difficult
Speaker 5: process to sign up to trade markets, whether they're securities
Speaker 5: or whether they're futures, so the retail participant will go
Speaker 5: through an application and probably get to halfway through page
Speaker 5: one ago. You know, this is ridiculous. There's a reason
Speaker 5: why Tracy and Joe at the dark market or the
Speaker 5: illegal market in gambling is still about three times larger
Speaker 5: than the regulated marketplace because people just don't want to
Speaker 5: be have that exposure of giving out their information right,
Speaker 5: So it's still a very large market, the illegal gaming market.
Speaker 5: I think that when you create a greater ease for people,
Speaker 5: which is going on right now for us, especially with
Speaker 5: the FanDuel, you'll go through an Apple, it'll be a
Speaker 5: five click process and you'll be ready to go. That
Speaker 5: historically has never happened. Secondly, the retail participants have never
Speaker 5: had a place to go to clear their trades. As
Speaker 5: you know, at CME, we don't directly take clients. They
Speaker 5: have to come through one of our member clients. So
Speaker 5: those people didn't want some of these really small clients
Speaker 5: because there were a risk. But technology all of a
Speaker 5: sudden is allowed the risk management tools to let them
Speaker 5: participate and you could do And one thing I liked
Speaker 5: about Sam bank Mephy's offering, and I give Sam credit
Speaker 5: for this was auto liquidating. Auto liquidation is something that
Speaker 5: a lot of people have already implemented. They call it
Speaker 5: something different. So that risk management tools that we have
Speaker 5: in place that others have in place, has now allowed
Speaker 5: us to take on the retail clients and the ease
Speaker 5: of them coming in. Thirdly, I think it's really important
Speaker 5: that you educate them what exactly they're doing, and futures
Speaker 5: can be very frightening. People get very frightened. Like during
Speaker 5: the pandemic when the explosion of day trading started to
Speaker 5: happen again, there was a lot of people that were
Speaker 5: on somebody these retail platforms that have positions on that
Speaker 5: don't even know how they got them on because they
Speaker 5: didn't understand it. But they were almost embarrassed to ask
Speaker 5: what happened, whether they got caught up in an option
Speaker 5: stradgle or something else. They did not even realize what happened.
Speaker 5: So education is key, and that's one of the things
Speaker 5: that we have been constantly hammering home. So that's why
Speaker 5: I think the retail business is very exciting. For CMEME
Speaker 5: and for other platforms around the world. Ecosystems are important.
Speaker 5: One of the things I tell my team all the time,
Speaker 5: I said, you better look over your shoulder and see
Speaker 5: a line of clients always coming, because the day you
Speaker 5: look over your shoulder and it's gone, you're in trouble.
Speaker 5: And if you want to be a gigantic institutional player,
Speaker 5: I think that's great, and that's what CM is. But
Speaker 5: we have to make sure that we can move loutterly
Speaker 5: left and right. If you look at historically the growth
Speaker 5: of markets in what's happened in the nineties. There's a
Speaker 5: building across the street from me. It used to be called
Speaker 5: the Sears Tower, Okay, named after Sears and Roebuck. They
Speaker 5: got naming rights over it. When Sears was flying in
Speaker 5: the nineties, eighties and nineties, they never heard of a
Speaker 5: company called Amazon. Nobody knows what a Sears is anymore.
Speaker 5: Seris is gone for the most part, right, So why
Speaker 5: did that happen? Because they didn't adapt, because they felt
Speaker 5: that their vertical was so strong along with some of
Speaker 5: the other ones, and these other new participants came in
Speaker 5: and destroyed them. I cannot allow that to happen. So
Speaker 5: for me to participate in the new world and protect
Speaker 5: the world that's going on today is really important.
Speaker 2: My dad used to love Sears Joe because he said,
Speaker 2: you can always find a parking space there.
Speaker 1: Oh that's great, that's a great reason. It's your shop. Well, actually,
Speaker 1: let's pick up on the Seiars versus Amazon. There could
Speaker 1: be someone who listens to this conversation and here's your
Speaker 1: concern about the speed with which Kelshi lists contracts that
Speaker 1: aren't you know, technically CFTC endorsed. And they might say
Speaker 1: Terry is trying to keep his position by dint of
Speaker 1: regulatory regulatory mode, et cetera. That ultimately Kelshi or some
Speaker 1: or any others, but they're the ones in the headlines
Speaker 1: these days that they could potentially be a major player
Speaker 1: in futures in the future, and that one reason to
Speaker 1: talk about, oh, there's these concerns is regulatory concern. And
Speaker 1: also you know, like there's not like a toime. You know, you,
Speaker 1: as the CME, if I believe, correct me if I'm wrong,
Speaker 1: have had very strong pricing power for your futures and tech.
Speaker 1: In most of finance, margins have generally been going down,
Speaker 1: Fees have been going down, Brokerage costs have been going down.
Speaker 1: Someone might hear the story and say, you're trying to
Speaker 1: protect your our ability to continually expand price by doing
Speaker 1: things like going to Washington and warning them about how
Speaker 1: scary it is these new prediction markets.
Speaker 5: Well, first of all, I wouldn't do that because I'm
Speaker 5: partnering with Fandels, so that's not something I'm prepared to
Speaker 5: go say these new prediction markets. I will say that
Speaker 5: certain prediction markets could be potentially scary, like political outcomes
Speaker 5: and things of that nature. So I wouldn't say all
Speaker 5: prediction markets are scary. So I think that's a bit
Speaker 5: of an overstatement. Second of all, on pricing power, if
Speaker 5: you look at the price of CMME today on a
Speaker 5: per contract basis, it's cheaper now than it was twenty
Speaker 5: five years ago. So you might say to me, how
Speaker 5: could that possibly we got all this pricing power, Well,
Speaker 5: there is also another company. As long as we're talking
Speaker 5: about with retailers. Let's talk about Walmart. There's a Walmart model.
Speaker 5: How about selling something for less, but selling a hell
Speaker 5: of a lot more of it. My volume today, I
Speaker 5: do more in the first hour than I did it
Speaker 5: in a week back in two thousand and two. So
Speaker 5: the question is we do more because we have access
Speaker 5: to around the world, which allows me to make see
Speaker 5: me more.
Speaker 1: Prices have not compressed for prices and your prices have
Speaker 1: compressed it my price is.
Speaker 5: Today versus what they were in O two are completely
Speaker 5: different because when you look at the headline price, you're
Speaker 5: not looking at the tiered pricing that certain constituents get
Speaker 5: for volume. So volume pricing discounts are massive within our world.
Speaker 5: So that is a big deal. So my average rate
Speaker 5: for contracts sixty nine to seventy cents a contract. You know,
Speaker 5: it can be higher or lower, but the volume could
Speaker 5: be a lot less too. So we do quite well
Speaker 5: with the model that we have, but we also have
Speaker 5: pricing on market data and other products that's proprietary to
Speaker 5: CME that you may charge different for, so that's different.
Speaker 5: I don't go to Washington to ever be anti competitive
Speaker 5: because I'm going to be anti competitive. It doesn't serve
Speaker 5: my interest for the long run. Anti competitive people in
Speaker 5: natures is good for the short term, but really bad
Speaker 5: for the long term because you want that ecosystem, as
Speaker 5: I said earlier, to continue to grow and if you're
Speaker 5: smart and innovative enough, you will grow with it. And
Speaker 5: that's one of the things that I'm looking at with
Speaker 5: Cmeme That's why I did a deal with Fanuel fandel
Speaker 5: Is thirteen million accounts active today in the United States.
Speaker 5: Those will have access to my products. I never had
Speaker 5: that before. We're doing things with our retail participants today
Speaker 5: that I think some of my predecessors over the years ago,
Speaker 5: What the hell has he done that we never would
Speaker 5: have done before? You know, And I believe that if
Speaker 5: we still did nothing around innovation, we would be trading
Speaker 5: pork bellies. We would be trading onions, which are illegal.
Speaker 5: They dumped them along the river and kept the burlax sacks.
Speaker 5: Pork bellies are gone. They're no longer here, so we'd
Speaker 5: be out of business.
Speaker 1: Is the best thing when you go to Washington, maybe
Speaker 1: they got to fix that onion thing, prediction market, fix
Speaker 1: that onion.
Speaker 5: Tell them it's the only commodity in the world that's
Speaker 5: banned by Congress. And I think we talked about that
Speaker 5: last time we were together. But I think Joda, to
Speaker 5: your point is I don't go there saying this is
Speaker 5: bad or this is good. I go there and say,
Speaker 5: let's have eyes wide open. That's that's all I want,
Speaker 5: because there's nothing worse than have If someone gets sick
Speaker 5: and we all get a cold and we go, how
Speaker 5: to hell did that happen? Well, that's not good for
Speaker 5: the participants, not good for the institutions. And right now,
Speaker 5: when you get newer entrants coming in, I'm not saying
Speaker 5: they're skirting the process. I'm not saying kelshy skirting the process.
Speaker 5: But when you say you have CFTC approved products, let's
Speaker 5: make sure that the public understands what they are. They
Speaker 5: are CFTC products that have not been objected to. There's
Speaker 5: a difference there, and I don't know if the end
Speaker 5: user understands that. That's all My point was.
Speaker 4: Yah, Treasury futures are a huge part of your business,
Speaker 4: and I know you've been critical of Howard Lutnick's new
Speaker 4: effort to set up his own sort of offering there.
Speaker 2: What exactly are the issues that you see there? And
Speaker 2: I guess what can the CME do possibly to become
Speaker 2: more competitive in that space against you know, you haven't
Speaker 2: had that many competitors before.
Speaker 5: I've got a lot of competitors throughout the years. And
Speaker 5: there's such a thing called efficiencies in the marketplace tracy
Speaker 5: that capital intensive worlds that we live in today because
Speaker 5: of a whole host of rules going back from DoD
Speaker 5: Frank into other BASL rules and things of that nature.
Speaker 5: For the banks, we create today around sixty billion dollars
Speaker 5: a day of efficiencies for our market participants every single day,
Speaker 5: and in my interest rate area it's twenty four billion
Speaker 5: dollars a day of market efficiencies. That's money freed up
Speaker 5: that the largest participants in the world can use it
Speaker 5: for other areas. They don't have to park it with
Speaker 5: me to be in compliance anymore because I created those
Speaker 5: margin offsets for them. I think that's really important going forward.
Speaker 5: So the other part of your question was Lutnik. Lutnick, Oh, okay,
Speaker 5: so I don't have an issue. Listen, he's a tragy,
Speaker 5: he's a commerce secretary. His offering. My concern with his
Speaker 5: offering is the following, and I'll say it one hundred times.
Speaker 5: They are clearing that US Treasury futures contract in the
Speaker 5: UK under UK law. In the United States, the law
Speaker 5: states that if you clear a cash treasury, which is
Speaker 5: under the new law coming up under the Treasury Clearing
Speaker 5: Mandate rules, that it's an SEC single regulatory mandate, meaning
Speaker 5: you go wherever you want, but the SEC is going
Speaker 5: to regulate you. My concern was that futures expire into cash.
Speaker 5: So what's the difference between a future and the cash market.
Speaker 5: Once expiration happens on the future, why wouldn't you treat
Speaker 5: them the same? And why would you allow UK law
Speaker 5: and UK bankruptcy to let US participants in our foreign
Speaker 5: sour indet there's twenty seven trillion dollars or US treasury
Speaker 5: is outstanding today. If we have a problem like we
Speaker 5: saw in London with the metals market of nickel, where
Speaker 5: they busted the trades, they didn't do a risk management,
Speaker 5: they just busted the trades which left people hanging. What's
Speaker 5: to say that the Bank of England doesn't do that
Speaker 5: with the US treasury market if in fact somebody has
Speaker 5: an issue, and if they have an issue with that,
Speaker 5: what's to say that that part of the market that
Speaker 5: they did that on doesn't have a bigger impact on
Speaker 5: the US market. So my issue is the US, like
Speaker 5: every other country in the world, should have the laws
Speaker 5: of its foreign sovereign debt be by the laws of
Speaker 5: that nation, and we don't have that in this particular situation.
Speaker 5: Every other country in the world has the laws of
Speaker 5: their country applied to their sovereign debt, except the United
Speaker 5: States on futures, and they can say, well, it's a derivative.
Speaker 5: No shit, it's a derivative. It's a derivative that turns
Speaker 5: into the cash product. That's exactly what you're trying to protect.
Speaker 5: So that's my argument. I told mister Lutnick, I told Congress.
Speaker 5: I told every regulator in the world, if he wants
Speaker 5: to put that offering in the United States, let's go.
Speaker 5: I want to compete with him, and I'm going to London.
Speaker 2: Do you have a good sense of that?
Speaker 5: Why?
Speaker 3: Yeah?
Speaker 5: Why? Because they believe that the swap dollar swaps market
Speaker 5: that's in London, which is completely different than futures. Dollar swaps,
Speaker 5: is fixed versus floating. It is not issued by the
Speaker 5: United States government. Treasury contracts are issued by the government. Futures,
Speaker 5: like I said, turn into the cash. So they believe
Speaker 5: that because there's a large pool of dollar swaps being
Speaker 5: cleared at London clearinghouse, the offsets will be greater than cme. Oh,
Speaker 5: I see, but that's not the case, because I just
Speaker 5: explained to you that we give twenty four billion dollars
Speaker 5: a day in efficiencies and our interested complex. The only
Speaker 5: way that that larger pool of swaps would be relevant
Speaker 5: in creating a better offering is if they had any
Speaker 5: futures volume. You have to have the future's volume. We
Speaker 5: have one hundred percent of the future's volume here at CME,
Speaker 5: and for every one of those futures contracts, we have
Speaker 5: a swap, a dollar swap at CME that offset and
Speaker 5: if we didn't then that would be a problem. So
Speaker 5: the question is, if you're sitting at a dealer anywhere
Speaker 5: around the world and you're holding US futures and you
Speaker 5: can save the capital of an offset swap, are you
Speaker 5: going to put it at elseh because they're nice guys?
Speaker 5: Are you going to put it at seeing ME to
Speaker 5: be part of that twenty four billion dollars because it's
Speaker 5: going My point is the futures has to grow in
Speaker 5: order to get the larger pull of the swaps offsets,
Speaker 5: And right now, for every swap contract that's out there
Speaker 5: gets the offsets against my future products. Today we're not
Speaker 5: missing out on anything. So his offering is a charade
Speaker 5: game of saying, look how big that is. Okay, it's big,
Speaker 5: but no one needs it right now. The future's market
Speaker 5: is what it is right now. It's big, but we
Speaker 5: have the swaps to give the offsets. Does that make
Speaker 5: sense to you? It does?
Speaker 2: Yeah, we got to get you on stage debating what
Speaker 2: niche at some point that'd be great.
Speaker 5: Yeah. I can't stan any bed right now. I'll wait
Speaker 5: till he's done, then we can do it.
Speaker 1: Well, you didn't say the bad you know, I was
Speaker 1: not expecting earlier to hear you give a little bit
Speaker 1: of a hat tip to Sam Bankman Freed. But there's
Speaker 1: another thing, and actually Sam Bankman Freed was one of
Speaker 1: the main advocate, sort of pushers of it, this thing
Speaker 1: that emerged out of the crypto world, of a perpetual
Speaker 1: futures and could they apply could we have oil purpse? Like,
Speaker 1: is there any reason this model it's rather than oil,
Speaker 1: it's like the December future of the January, the twenty
Speaker 1: twenty eight future. Is there any reason that this tool,
Speaker 1: I guess, product whatever it is that sort of emerged
Speaker 1: out of crypto couldn't eventually be applied to all of
Speaker 1: these legacy hasset classes.
Speaker 5: Against the Act. A futures contract yeah is defined as
Speaker 5: a product that is to be price determined at a
Speaker 5: later date. Okay, it doesn't say it will be and
Speaker 5: you have to have a haha test right on that.
Speaker 5: So a fifty year perp is not a later date.
Speaker 1: So that was just because that's a joke when you
Speaker 1: say ahaha test.
Speaker 5: Yeah, that would be like if you created a fifty
Speaker 5: year perpetual, which some of these people are doing in
Speaker 5: Europe and others. They say, well, they're perpetuals, but they'll
Speaker 5: they'll do a few years. Okay, that's not that's not
Speaker 5: the definition by law.
Speaker 1: If law were to be changed in the US, would
Speaker 1: you see that as a innovation that could be useful
Speaker 1: for these markets that you trade.
Speaker 5: There are certain markets that could never become perpetuals, and
Speaker 5: there's a reason for that. So let's talk about what
Speaker 5: those are. If you have a perpetual livestock or grain market,
Speaker 5: how in the world am I going to make or
Speaker 5: take delivery on something that.
Speaker 2: Never expires, immortal cows?
Speaker 5: How am I going to make or take delivery on
Speaker 5: the food markets of the United States, which is very
Speaker 5: integral into pricing of these so deliverable products. What else
Speaker 5: is deliverable? The United States treasury market is deliverable because
Speaker 5: they expire, They expire. So my point is a perpetual
Speaker 5: would not work in deliverable products. So you say, well,
Speaker 5: what about cast settled products terry would that work? I
Speaker 5: don't know if they would work. They would the index
Speaker 5: would continue to go, but again it would not fit
Speaker 5: the definition under the law of a futures contract, because
Speaker 5: whether it's cash settled or physical settled, the definition is
Speaker 5: the exact same thing for a futures contract, and it's
Speaker 5: not the perpetual definition.
Speaker 2: Let's talk some more general macro I guess, and we
Speaker 2: touched on treasury futures earlier, which again big part of
Speaker 2: your business.
Speaker 3: There's talk of.
Speaker 2: Another potential government shutdown. I'm very curious how you think
Speaker 2: about that. How much of your time you spend thinking
Speaker 2: about that possibility and what it means for CEME risk
Speaker 2: management or is it the case that we've been here
Speaker 2: so many times before you kind of know what the
Speaker 2: playbook is.
Speaker 5: You always think you know what the playbook is to
Speaker 5: some extent tracy. But again I think that if you
Speaker 5: the one time that you apply that strategy and you go, whoops,
Speaker 5: what do you mean it happened? You know that's a problem, right,
Speaker 5: So you always have to be prepared and we are.
Speaker 5: I think if there is a shutdown, which I think
Speaker 5: there very likely could be, I don't think it's going
Speaker 5: to be the shutdown that is going to be a
Speaker 5: disturbance to the economy. I think it's going to be
Speaker 5: a disturbance to parks and recreations. It's going to be
Speaker 5: some of the other disturbances, which this is where it
Speaker 5: bothers me. Social services. You know that's a problem. But
Speaker 5: what does that mean for the financial system? Not so sure,
Speaker 5: But you know, people social Security checks getting out on time?
Speaker 5: Does that get delayed? That's a problem.
Speaker 1: Economic data getting reported in the time.
Speaker 5: I think that when you look at they've always kind
Speaker 5: of carved that economic data out with the USDA and
Speaker 5: other entities. They've always gotten the data out through past shutdowns,
Speaker 5: and I do think that the pressure to reopen the
Speaker 5: government will be immense from both sides of the aisles,
Speaker 5: so that they will have to come to it. Even
Speaker 5: if it's a short shutdown, I don't see it being
Speaker 5: a long one because of the reasons. The social services
Speaker 5: that are so important to so many constituents of Congress
Speaker 5: need to have happened.
Speaker 1: So this actually reminds me going back to the different
Speaker 1: the varieties of event markets, and we talked about the
Speaker 1: political risks, which I find very compelling, especially at the
Speaker 1: small elections. There are other things that are traded on
Speaker 1: event markets that, to my mind, a hedger with a
Speaker 1: sort of economic stake might want to hedge so portfolio
Speaker 1: manager who might be worried, what if we get a
Speaker 1: super weak jobs print that could really bust my trade.
Speaker 1: On these other prediction markets, you can bet is it
Speaker 1: going to be over one fifty, is it going to
Speaker 1: be over two hundred, is it going to be below
Speaker 1: one hundred. You could also maybe someone who's very bullish
Speaker 1: Tesla for their robots division, wants to is barish on
Speaker 1: the cars. So I'm going to go long Tesla, but
Speaker 1: I want to short the prediction market on their volume
Speaker 1: car sales, et cetera. These are different than the politics
Speaker 1: ones in the sense that they're not as easy manipulatable.
Speaker 1: There's something else. How do you feel like there seems
Speaker 1: to be some It strikes me that there could be
Speaker 1: a real economic justification for the existence of these event markets.
Speaker 5: Again, Joe, I'm not going to disagree with what you
Speaker 5: just said, because I think that the more risk management
Speaker 5: tools we have is better. What you just described was
Speaker 5: risk management. You did not describe a gaming type scenario.
Speaker 5: You described a company of Tesla that has multiple divisions
Speaker 5: that you like one, but you're a little worried about
Speaker 5: the production of their cars. So it happens every single day,
Speaker 5: and it's been going on in the market for one
Speaker 5: hundred years called peratrating. So you sell this and buy
Speaker 5: that right because you're not quite sure when the event's
Speaker 5: going to happen, but you know it's all spread it
Speaker 5: up a little bit.
Speaker 1: It just seems to me that there's this proliferation of
Speaker 1: possible tradable events now in part because of these new platforms.
Speaker 1: So you know, when we think about hedging risk, maybe
Speaker 1: a bigger surer wanted to hedge out some interest rate
Speaker 1: risk or something that makes sense. But these new platforms
Speaker 1: are offering very specific things like bet on the car
Speaker 1: sales number or bet on the jobs number, et cetera.
Speaker 1: Is that a space that you could see again, it's
Speaker 1: a risk management that could see me get into events
Speaker 1: such as that.
Speaker 5: Again, I think when you look at specific events that
Speaker 5: you just outline, I'll use Tesla to your example. I
Speaker 5: would have to see what the interest is by the participants.
Speaker 5: Because if you get a contract that you list you
Speaker 5: whether it's a prediction market or a standardized contract, and
Speaker 5: no one wants to trade it, then it's an irrelevant
Speaker 5: contract anyway. So I like to say that, and where
Speaker 5: I hope the people in main don't hate me, because
Speaker 5: I've used this example a few times. There's people in
Speaker 5: Maine that think you should have a lobster futures contract, right,
Speaker 5: but you know who wants that, people that are in
Speaker 5: the lobster business. The rest of world doesn't care about
Speaker 5: that because we can't afford lobster, and we can we
Speaker 5: just pay for it whatever the price is. So there
Speaker 5: really isn't a marketplace there for the speculators to participate in.
Speaker 5: So is that the same situation with what you al
Speaker 5: and I'm not suggesting it is, but that's up to
Speaker 5: the participants. That's why we're very careful not to put
Speaker 5: out products that we think that there's no demand for.
Speaker 5: We research what massive constituents about what they think they
Speaker 5: need in order to manage risk, and we're hearing different things.
Speaker 5: Now does a product come out like a prediction market
Speaker 5: where everybody goes aha, I finally found a holy grail
Speaker 5: on how to lay off my risk. I don't see it.
Speaker 5: I think the prediction markets that will be listed will
Speaker 5: be driven by the demand of the participants, not the
Speaker 5: market itself. Does that make sense to you.
Speaker 2: I really want to launch a a lobster prediction market now,
Speaker 2: lobster price prediction. I think that'd be a really interesting experiment.
Speaker 1: There used to be a cardamom futures that was traded
Speaker 1: in India and I tried reaching out to the regulator.
Speaker 1: I wanted to do a story about a dead futures
Speaker 1: contract that didn't I couldn't get I gotta try again
Speaker 1: because I'd love to like the story of a futures
Speaker 1: contract that just lost. Yeah.
Speaker 2: Sort of on this note, do you see any indication
Speaker 2: of big institutional investors, I guess taking some of the
Speaker 2: strategies that are deployed by retail or sort of imitating
Speaker 2: retail in some way. And what I mean by that
Speaker 2: is I think about one day zero day options. When
Speaker 2: those first gain traction, a lot of the activity was
Speaker 2: through retail, and then the institutional sort of got pulled
Speaker 2: in and got really into it. Is there evidence of
Speaker 2: institutional becoming more like retail and certain patterns of behavior
Speaker 2: or certain interest in certain products.
Speaker 5: Well, I think there is always an opportunity for big
Speaker 5: institutions to look at what the retail's doing. So let's
Speaker 5: be mindful of where the money comes from from institutions.
Speaker 5: So if you put together a pool of dollars and
Speaker 5: you give it to a large institution, they call it
Speaker 5: institutional money. That probably came from a subset of the teachers'
Speaker 5: union of a lot of people. So everybody's got ten
Speaker 5: dollars and this all of a sudden, it's worth one
Speaker 5: hundred million dollars or a billion dollars, whatever the case is.
Speaker 5: So that retail money that's now big is now called
Speaker 5: institutional money. So their thought processes aren't too dissimilar from
Speaker 5: their clients. So yes, I can see that going back
Speaker 5: and forth, ebbing and flowing about the ideas of what
Speaker 5: they want to participate in or not. First of all,
Speaker 5: I think people are always looking for opportunity. I think
Speaker 5: they're always looking for efficiencies. And I think that the
Speaker 5: lines of institutional and retail are absolutely blurred right now.
Speaker 5: And I think there's a lot of people going, what
Speaker 5: does that mean? I feel like I've got some kind
Speaker 5: of handle on that, and that's why I'm doing what
Speaker 5: I'm doing, because I think that those blurred lines will
Speaker 5: continue to go forward, and the products that they participate
Speaker 5: in and how they do it will continue to get blurred.
Speaker 5: I think both can grow, and they'll grow exponentially, but
Speaker 5: they're going to look a lot alike.
Speaker 1: I just have one last question, and I feel compelled
Speaker 1: to ask every CEO, or really every corporate executive this
Speaker 1: these days, with the exception of your software engineers who
Speaker 1: work at CME right now, is there anything that you
Speaker 1: can point to where large language models are being deployed
Speaker 1: in a productive way with in here or is it
Speaker 1: still at test and see and do experiments.
Speaker 5: Okay, so let me see if I can answer that one, Jose,
Speaker 5: large language models being deployed, Yeah.
Speaker 1: I'm sure the engineers are generating code.
Speaker 5: Yeah, there's no question. But see, we're kind of in
Speaker 5: a bit of a limbo, for lack of a better term,
Speaker 5: spot right now because a lot of that stuff that
Speaker 5: I'm working on is going through Google right now. Because
Speaker 5: of the relationship and the partnership I have with Google.
Speaker 5: I'm transitioning. I'm going to transition my markets to Google Cloud.
Speaker 5: I'm transitioning a lot of my tech to Google Cloud,
Speaker 5: and a lot of that machine learning and things of
Speaker 5: that nature, Gemini and all that we're going through Google.
Speaker 5: So we are doing it together, so it's not just
Speaker 5: my people doing anymore. It's CME and Google working together
Speaker 5: to deploy that. So I can't give you a singular
Speaker 5: answer what we're doing as CME because it's a mix
Speaker 5: between us.
Speaker 1: At the moment. There's no workflow that exists where someone
Speaker 1: could point and say, you know what, this used to
Speaker 1: be a ten person job, but thanks to large language models,
Speaker 1: it's a one person job at least as of September
Speaker 1: twenty five to twenty twenty five.
Speaker 5: The only way I can answer that is by headcount,
Speaker 5: and I would say that that is not the case
Speaker 5: because one of the things that I've seen with technology
Speaker 5: is it creates other jobs and it eliminates the last job.
Speaker 5: So yes, we have seen the elimination of certain things
Speaker 5: to your point, but it's created other ones. So I
Speaker 5: look at it as headcount, not so much as project related.
Speaker 2: Spoken like a former pit trader who became the CEO
Speaker 2: of a very large derivatives exchange, can I squeeze in
Speaker 2: one more question. This is backward looking, but I am
Speaker 2: very interested in hearing about it. Liberation Day, huge amount
Speaker 2: of market volatility.
Speaker 5: What was that like for you? You know, just another day,
Speaker 5: To be honest with you, I hate to say it
Speaker 5: that way, but we've seen so many different events in
Speaker 5: my career that you know, when you go back to
Speaker 5: the OAID crisis, you go back to the flash crash,
Speaker 5: you go back to other scenarios, the pandemic. You know,
Speaker 5: I look at the pandemic as one of the more
Speaker 5: the more frightening times in the history of markets versus
Speaker 5: Liberation Day. Liberation Day is more about whatether the terrorists
Speaker 5: going to mean or not mean? And you know, I
Speaker 5: think there's a lot of people that believe that there's
Speaker 5: no way that these could come to fruition, So it
Speaker 5: was kind of tempered down a little bit. The activity
Speaker 5: was pretty exciting, but if that were to come out
Speaker 5: of the blue, it would be really bizarre. But I
Speaker 5: think that was fairly well telegraphed Tracy to say the least,
Speaker 5: Liberation Day, so I think the market was well prepared
Speaker 5: for it. It reminds me a lot of last week with
Speaker 5: the FED that was the most telegraphed quarter point move
Speaker 5: in the history of the Federal Reserve. Right, is that fair?
Speaker 5: I think Liberation Day.
Speaker 1: Moves in the stock market in a row.
Speaker 5: Okay. So when you look at percent of stock market
Speaker 5: moves at the levels that we're at today versus the
Speaker 5: percent of the levels that we're at No. Eight, it's
Speaker 5: a non event. So if we had everything based non event,
Speaker 5: So I think it's relative to the value of the
Speaker 5: product and the percent goes with it.
Speaker 1: What would worry you?
Speaker 5: Now? Everything worries me, okay. So I don't have one
Speaker 5: particular thing. So you could say anything and I say, yep,
Speaker 5: that worries me. So, but I try to manage it
Speaker 5: and move forward. And I like to be, you know,
Speaker 5: telling my people a couple of different things. I love
Speaker 5: looking for I love the future. I love young people.
Speaker 5: I think they're innovative. I think their opportunities galore are
Speaker 5: going forward. And I like to use my past as
Speaker 5: something that I learned from but not live in it.
Speaker 5: So I don't like to look through the review mirror.
Speaker 5: I like to look through the windshield and go forward.
Speaker 5: So but when you do that, you know there's a
Speaker 5: lot of things that can scare you. We talked about
Speaker 5: them earlier today. Some of the new innovations that are
Speaker 5: coming out, some will win, some will fail. So you
Speaker 5: have to be very careful about how we participate in
Speaker 5: that as an institution, like seeing me, so that a
Speaker 5: lot of that concerns me. No different than when Sam was,
Speaker 5: you know, putting forth with FTX back in the day
Speaker 5: and he was backing up his coins with synthetic other coins,
Speaker 5: and then he wanted to have a margining system with
Speaker 5: no risk management that was fraught with danger. And I
Speaker 5: saw that, but it seemed like nobody else did. I'm
Speaker 5: not suggesting that today's world, but there seems to be
Speaker 5: a situation right now with regulatory issues where you know,
Speaker 5: go ahead and do it and we'll apologize later. Is
Speaker 5: the old saying whatever it is. And that's not a
Speaker 5: good place to be. So that worries me a little bit.
Speaker 2: Tracy, all right, Terry Duffy, always good chatting with you.
Speaker 3: Thank you so much for.
Speaker 2: Coming back on the show.
Speaker 5: Thanks Racy, Thanks joeff.
Speaker 1: It was a blast, Thank you, Thank you so much.
Speaker 3: Fun Joe, Terry's a blast.
Speaker 1: I love talking to Terry.
Speaker 2: Yeah, I'm glad we did it though, because I think
Speaker 2: if you're thinking about the intersection of the sort of
Speaker 2: prediction betting markets and the sort of old school traditional markets,
Speaker 2: the CMME, you know, kind of stands out.
Speaker 1: It's right there. I thought I really liked his point
Speaker 1: about twenty seventeen was by some by many measures, very
Speaker 1: late to the crypto game. Maybe. I mean, I guess
Speaker 1: we don't know in a one hundred years from now,
Speaker 1: maybe that'll still be seen this day one. But it's
Speaker 1: been a successful business for the CMEME, and so this
Speaker 1: idea that the long term, you know, one way to
Speaker 1: think about the long term failure creation the CME is
Speaker 1: that it's okay to be second that doesn't need to
Speaker 1: rush out of the gate for some of these things.
Speaker 1: I thought that was a very compelling example.
Speaker 2: Right, and there you know, there is first mover advantage,
Speaker 2: but on the other hand, there is also institutional strength
Speaker 2: that can be an advantage as well.
Speaker 1: F g exit first mover advantage. That's right, It sort
Speaker 1: of was missing the latter one that was proved to
Speaker 1: be very cost.
Speaker 3: I think that was Terry's point.
Speaker 2: Yeah, I don't want to be super old fashioned when
Speaker 2: it comes to a lot of betting markets. But one
Speaker 2: of the things you hear is that when you think
Speaker 2: about traditional financial assets, it's about putting money to good use,
Speaker 2: right you know, you invest in something, you're supposed to
Speaker 2: get an income stream back, or maybe an asset that
Speaker 2: appreciates over time, but again probably one that generates some
Speaker 2: sort of income.
Speaker 1: I do.
Speaker 2: I look at the activity on all of these betting
Speaker 2: platforms and like you know, market making platforms and things
Speaker 2: like that, and I just think there's so much money
Speaker 2: being generated and I'm not sure like where it's going.
Speaker 3: Do you know what I mean?
Speaker 1: Yeah, there's so much going on right now, and like
Speaker 1: it just feels like there's a complete blurring of everything,
Speaker 1: a complete transformation of everything. It really does feel like
Speaker 1: to me specifically, the doors are being flung open. There's
Speaker 1: this sort of growing norm in society that anyone can
Speaker 1: trade anything at any time for better or worse and
Speaker 1: make no judgment on it. I do think, you know,
Speaker 1: it is interesting to me one to see me specifically
Speaker 1: this sort of like caution or you know, let's let's
Speaker 1: take this stuff seriously, not necessarily dismissing. On the other hand,
Speaker 1: like when seeing me like partners with fan Duel and
Speaker 1: which is like a literal sports betting company. It strikes
Speaker 1: me that that is an accelerating event for this world
Speaker 1: where we just trade on everything that you could talk
Speaker 1: about caution, but like when you're like, you know, partnering
Speaker 1: with a straight up sports betting company, even if it's
Speaker 1: on a different app et cetera, that you're accelerating this
Speaker 1: world of everything is a bet on any app.
Speaker 2: On the plus side, lots of content for loots, episodes and.
Speaker 5: One other things.
Speaker 1: Yes, and we have many more like this is like
Speaker 1: perfect time and this trip and everything. Because there's so
Speaker 1: much going on, there's that round table. I really like
Speaker 1: Terry's point about the even if you said it as
Speaker 1: kind of a joke about the lobster futures, Yeah, because
Speaker 1: I do think that's very telling.
Speaker 5: Right.
Speaker 1: You could imagine that lobstermen might like to hedge their prices,
Speaker 1: but that there's just not going to be in a
Speaker 1: volume or real market for it. And I do think
Speaker 1: that's interesting to keep in mind because I do look
Speaker 1: at some of these contracts that exist on the other
Speaker 1: platforms and like I could see a entity wanting to
Speaker 1: hedge out the risk of a very left tail jobs
Speaker 1: report or I could see you wanting to hedge out
Speaker 1: the car sales risk of Tesla. The logic of the
Speaker 1: market does not necessarily mean that there will be a
Speaker 1: sizeable market. I think is a very important one to
Speaker 1: keep in mind.
Speaker 2: But I also wonder if you wouldn't have the same
Speaker 2: market size issues for something like a lobster prediction market, like.
Speaker 1: Who will well, yeah, we don't know.
Speaker 3: No, no, no.
Speaker 2: It just throws up all these really interesting questions, and
Speaker 2: I do think maybe we should start one and then
Speaker 2: talk about what we learned from it.
Speaker 1: Let's do it, Okay, the.
Speaker 3: Next aud Thoughts series. Shall we leave it there?
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the Odd Thoughts podcast.
Speaker 2: I'm Tracy Aloway. You can follow me at Tracy Aloway and.
Speaker 1: I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 1: Follow our producers Carmen Rodriguez at Carmen Arma, Dashel Bennett
Speaker 1: at Dashbot, and kel Brooks at Kelbrooks. From our Odd
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Speaker 3: Thanks for listening.