Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal.
Speaker 1: Joe, I can't remember did you live in Chicago At
Speaker 1: one point?
Speaker 2: I lived in Juliet, Illinois. Oh, jud two to twelve.
Speaker 3: Oh my gosh.
Speaker 1: Yeah, that's so funny. So I've lived in Chicago for
Speaker 1: middle school, so I think, like, yeah, we probably overlapped.
Speaker 1: It's a great city.
Speaker 2: I love coming here.
Speaker 1: And from a finance perspective, it is also an important city.
Speaker 2: It's an interesting and important city, absolutely, and so obviously, yes,
Speaker 2: when I think of Chicago, I think of trading and
Speaker 2: commodities of particular.
Speaker 1: Yeah, and I feel like there's a lot of trading
Speaker 1: and financial infrastructure located in Chicago that has a great
Speaker 1: line of sight over what's happening in the rest of
Speaker 1: the system and the rest of the country. And so
Speaker 1: since we are here in Chicago at the ISDA AGM,
Speaker 1: we would be remiss if we didn't try to understand
Speaker 1: the perspective of the Chicago sort of trading market and
Speaker 1: what's going on in finance right now, let's do it
Speaker 1: all right, So I am very pleased to say that
Speaker 1: we have the perfect guest for this episode. We are
Speaker 1: going to be speaking with Terry Duffy, chairman and CEO
Speaker 1: of CME Group. Terry, thank you so much for coming
Speaker 1: on all thoughts.
Speaker 3: I'm Tracy, Joe. Thank you very much for having me.
Speaker 3: Welcome to Chicago.
Speaker 1: Thank you appreciate.
Speaker 3: Welcome back, Joe.
Speaker 1: Yeah, it's been about twenty years since since I've actually
Speaker 1: been here. So it's weird because I'm walking around. I
Speaker 1: see some buildings that I recognize, and other things, like
Speaker 1: this area where we are right now, are completely new.
Speaker 1: Why don't we start with some of the things that
Speaker 1: happen happening in markets recently because there is no shortage
Speaker 1: of headlines. You have the debt ceiling ongoing, you have
Speaker 1: the banking crisis, you have the FED raising rates, although
Speaker 1: maybe it's on pause for a while. Now, let's start
Speaker 1: with a banking crisis. What's going on there? What do
Speaker 1: you see from the CME perspective, because of course you
Speaker 1: deal with interest rate derivatives and hedges, so this is
Speaker 1: sort of ground zero for some of the asset liability
Speaker 1: mismatches that we've seen in banking.
Speaker 3: Yeah, so the I don't know if I want to
Speaker 3: call it a banking crisis, because a banking crisis is
Speaker 3: traditionally systemic throughout the whole organization. This is something that's
Speaker 3: affecting mostly these second and third tier banks. So the
Speaker 3: other only one that has gone away in recent times
Speaker 3: is Credit Swiss, which was a major bank, but they, again,
Speaker 3: Credit Swiss has been, you know, advertisers having issues for
Speaker 3: many years, so I don't think that was a giant
Speaker 3: surprise to a lot of participants in the banking world.
Speaker 3: As far as the third tier banks, especially, well, it's
Speaker 3: zooming in a couple I guess. You know. One of
Speaker 3: the couple things that I've said about, especially Silicon Valley SVB,
Speaker 3: is is it's really amazing to me that the banks
Speaker 3: who are in the interest rate business in lending business.
Speaker 3: I'm in the interst rate trading business, hedge risk management
Speaker 3: business of interest rates, and they're in the business of
Speaker 3: making loans to participants and deposits for their clients, that
Speaker 3: they should have a better understanding of the rate market
Speaker 3: just in general. I mean, the FED has telegraphed here
Speaker 3: in the United States that we're going to have a
Speaker 3: prolonged tightening series of events, and we did so we
Speaker 3: went from essentially zero to just over five percent in
Speaker 3: the last year or so, and still they hedged long
Speaker 3: duration on their books with their client money to get
Speaker 3: a yield, and in return the rates continue to go up.
Speaker 3: And we know what happened that was an unhedged position.
Speaker 3: So you would have to ask yourself, you know, where
Speaker 3: is the risk management associated with some of these banks
Speaker 3: that are taking money from participants on deposit their fiduciaries.
Speaker 3: They should have a better understanding of the business that
Speaker 3: they're in. So I was quite surprised by that. I
Speaker 3: don't like to see the banks continue to dwindle. We
Speaker 3: went from roughly thirty thousand banks back in nineteen fifty
Speaker 3: to less than forty three hundred today, so that's not
Speaker 3: a good trend for the financial sector. So I don't
Speaker 3: like to see that activity. So I would hope that
Speaker 3: they people would continue to manage their risk in a
Speaker 3: smart way. And I'm not saying that from a self
Speaker 3: interest proposal. Most second and third tier banks, because of
Speaker 3: some accounting rules, can't even use futures they but they
Speaker 3: can use swaps, and I'd like to see them just
Speaker 3: use the swaps, I said in a meeting earlier today. That.
Speaker 3: I'm a big believer in the ecosystem, because if the
Speaker 3: ecosystem continues to grow, then see them will do just
Speaker 3: finding that ecosystem. So, you know, I'm a little surprised
Speaker 3: by some of this activity with the banks, and it's
Speaker 3: frightening the regular participants listen, they're looking just to keep
Speaker 3: their money in a safe place. And when you lose
Speaker 3: the faith of the banks, it's a very troubling event.
Speaker 3: So the bigger ones get bigger, the smaller ones go
Speaker 3: away and return. You could say that the consumers pay
Speaker 3: for that.
Speaker 1: Do you see anything changing in terms of trading volume
Speaker 1: of some of these interest rate products?
Speaker 3: Now?
Speaker 1: Can you see banks starting to react more to this
Speaker 1: risk here?
Speaker 3: I think what could happen is back in the seventies,
Speaker 3: before even before I was in the marketplace, a lot
Speaker 3: of the agricultural communities, when farmland was really sufferings. Actually
Speaker 3: just south and west of where you spent some of
Speaker 3: your early years, Joe, south of Joliette, some great farmland,
Speaker 3: and you know, mid to southern Illinois was in trouble.
Speaker 3: And you know, eventually when farmers wanted to borrow money
Speaker 3: from the banks, the banks said to them that they
Speaker 3: need to have a hedging program in place in order
Speaker 3: to get loans from the banks. No, not all, but some.
Speaker 3: So I think that was something that you know, helped
Speaker 3: bolster their industry and in return, you know, risk management
Speaker 3: became more of a popular tool for the agricultural community,
Speaker 3: like it with financial services. So what does that mean
Speaker 3: for the banks and the second and third tier banks?
Speaker 3: You know, I think that they can continue to do
Speaker 3: the swaps, as I said, and in return, companies like
Speaker 3: mine can benefit because most of the banks who do
Speaker 3: the swaps with the second and third tier banks historically
Speaker 3: do the layoff in derivatives on CMA groups. So for us,
Speaker 3: it's again, it works for us either way.
Speaker 2: But did you see And I get that your point
Speaker 2: is not to advertise or promote seeing me specifically or
Speaker 2: necessarily out of self interest. But when we had and
Speaker 2: I guess it started with SVB and people, why did
Speaker 2: they not take better care of their duration risk? Can
Speaker 2: you like, if we looked at a chart, could we
Speaker 2: see or something in the data that other entities woke
Speaker 2: up to this? I mean, I'm also thinking of some
Speaker 2: of the deposit moves where it does seem like there
Speaker 2: was the sort of nonlinear steps, Suddenly people want to
Speaker 2: be in money market, mutual funds, et cetera. Was there
Speaker 2: some notable reaction among banks and after the SVB collapse
Speaker 2: in terms of their hedging activity.
Speaker 3: I wouldn't be able to see it, as I said,
Speaker 3: because most of those banks would do swaps, and I
Speaker 3: don't see the swap activity. I would only see the
Speaker 3: layoff from the larger dealers, so their activity is always
Speaker 3: pretty active. Joe so, and I wouldn't see that coming.
Speaker 1: In since we're just throwing out risks in the market.
Speaker 1: Let's do the debt ceiling and treasury market and we
Speaker 1: can get into debt ceiling specifics. But even before this
Speaker 1: latest showdown, I heard complaints from dealers about liquidity in
Speaker 1: treasuries and often in treasury futures, which you wouldn't necessarily expect.
Speaker 1: What's going on there? And is there anything that the
Speaker 1: CME can do to improve liquidity in that market?
Speaker 3: Well, here, I think we continually run the largest futures
Speaker 3: exchange in the world, especially when it comes the raids
Speaker 3: and the treasury complex. The liquidity in our markets has
Speaker 3: been outstanding, especially through this entire tightening process. When people
Speaker 3: talk about liquidity. There's always going to be pockets of illiquidity, Tracy.
Speaker 3: It's just the nature of any market in the world,
Speaker 3: including some of the largest. There becomes a situation where
Speaker 3: the market has a precipitous move because of an unknown
Speaker 3: event or that happened to pop up that caught everybody
Speaker 3: off base, where you're going to have pockets of illiquidity.
Speaker 3: That's called volatility. So I think sometimes people mistake illiquidity
Speaker 3: with volatility, and that's just what makes markets move at times.
Speaker 3: So I don't believe that, you know, everything we've done
Speaker 3: has been proper for the marketplace. We continue to keep
Speaker 3: our engagement with our clients to see if there's something
Speaker 3: that they would like us to do differently. And again,
Speaker 3: I just think it's just a combination of you know,
Speaker 3: ill liquid times because of events that are happening in
Speaker 3: the world.
Speaker 1: This is like illiquidity is another word for a price
Speaker 1: move that I didn't like pretty much.
Speaker 3: You said that, not me, But that's sometimes what happens, Tracy.
Speaker 2: Yes, you know, we the last year we've seen extraordinary
Speaker 2: high rate volatility in general, and maybe it's come down
Speaker 2: a little bit. But of course I'm just curious, like
Speaker 2: obviously seems like volatility across any market is probably going
Speaker 2: to increase demand from any of the products that are
Speaker 2: traded on your exchange. You know, how much, like are
Speaker 2: you able to quantify how much this sort of like
Speaker 2: high rate vall regime has helped CME's business. And if
Speaker 2: we were to go to some just sort of like
Speaker 2: normal I don't know, twenty seventeen some year that we
Speaker 2: all kind of forget for some reason, like what does
Speaker 2: that mean for a business like the CMA.
Speaker 3: Well, I guess what you're trying to ask the question,
Speaker 3: not trying. What you are asking a question is how
Speaker 3: much does volatility play into the CME's average daily volume?
Speaker 3: Is that a fair way to Is that's it? Yeah?
Speaker 2: I on ironically, I always appreciate what the guests like, and.
Speaker 1: The guest rephrases the question.
Speaker 2: In a better way, understand what I'm trying to ask better.
Speaker 3: S So Joe, No, I mean, it's a great question,
Speaker 3: and I get it a lot, especially from new investor community.
Speaker 3: But I tell people, and this has been the historical fact.
Speaker 3: Volatility is a component of what we do, it's not
Speaker 3: what we do. So risk management is critically important. Margins
Speaker 3: are very thin across the board. You need to manage
Speaker 3: your risk in order to survive in today's world. It's
Speaker 3: a very competitive world. So people that have interest rate
Speaker 3: risk are people who have energy risks. Whatever the risk
Speaker 3: may be associated with the asset classes that I trade.
Speaker 3: Volatility is only a component of it because volatility never
Speaker 3: announces itself. You have to remember that this is because
Speaker 3: the VICS goes up or down, doesn't mean volatility is
Speaker 3: announcing itself. Volatility shows up when the FED makes a
Speaker 3: decision that no one saw coming. That's unannounced volatility, right,
Speaker 3: So you have to be prepared because if you're trying
Speaker 3: to manage your risk after the event has been announced
Speaker 3: or disclosed, whatever it may be, you're not going to
Speaker 3: be able to do so. Joe, So I think that's
Speaker 3: when people say volatility, you know, seeing me is based
Speaker 3: on volatility, it's not. It's a component. Risk management is
Speaker 3: critically important through all times of the cycle, no matter.
Speaker 1: What what does volatility actually mean for your own risk management?
Speaker 1: Because I imagine you know there are times you wake
Speaker 1: up and suddenly you have to start collecting more margin
Speaker 1: on something and as an exchange, that must be a
Speaker 1: challenge in the current environment.
Speaker 3: It is a challenge and it is a critical component
Speaker 3: to what we do. Since we don't participate in markets, tracy,
Speaker 3: we manage the risk for others, which makes it a
Speaker 3: lot easier to do so on margins and other things
Speaker 3: since we're not involved economically as far as that, so
Speaker 3: we're agnostic to the market where it goes up or down.
Speaker 3: Our focus is strictly on managing that, and we have
Speaker 3: parameters on our margin capabilities of what we will move them,
Speaker 3: and we go with what we have SPAN and now
Speaker 3: we have a new system called SPAN two, which is
Speaker 3: systems that first of all, SPAN was licensed to multiple
Speaker 3: exchanges around the world for their risk management protocols in
Speaker 3: order to set margins, and we continue to run that
Speaker 3: and now are just introducing a more advanced system coming
Speaker 3: up at the end of this year. So listen, we
Speaker 3: look at it and we don't deviate from the formula.
Speaker 3: We don't speculate on the margins. It's thinking, well, this
Speaker 3: is a good customer, so maybe we'll let that margin
Speaker 3: go a little bit. So we don't do that. We
Speaker 3: go right by the letter of the law when it
Speaker 3: comes to margins. I think sometimes people say that an
Speaker 3: example being during the Ukraine War. I talked about earlier
Speaker 3: today on a panel with Scott o'melio, when you looked
Speaker 3: at what's going on with the price of energy and
Speaker 3: then ultimately the price of wheat was really affected because
Speaker 3: of the bread basket and the Baltic there. We raise
Speaker 3: margins significantly because the price you know you're talking about.
Speaker 3: You know, roughly a third of the European nations are
Speaker 3: counting on that wheat for the survival. Most of the
Speaker 3: African nations are counting on that wheat for this as
Speaker 3: a staple for their survival, and all of a sudden
Speaker 3: it's getting trapped or not being allowed to come out
Speaker 3: of that region. You know, the market really took off
Speaker 3: on that, and we trade both soft and hard wheat,
Speaker 3: so we trade the baker's wheat and we also trade
Speaker 3: to feed wheat. So those are things that we have
Speaker 3: to be very very careful of because we don't want
Speaker 3: to get into a situation where we don't have enough
Speaker 3: margin on deposit or breaches of margin where Tracy, I'm
Speaker 3: not able to pay you because Joe didn't have the
Speaker 3: money to pay me to pay you. So we're very
Speaker 3: careful of that.
Speaker 2: Since we're talking about your market structure. We talked about
Speaker 2: this earlier at the is the meeting a CFTC chair Venom.
Speaker 2: But you know, last year around this time, there was
Speaker 2: a considerable fight debate over this idea put forward by
Speaker 2: FTX about changing how futures are regulated and traded in
Speaker 2: the United States to allow direct access to the exchange.
Speaker 2: Setting aside what happened with FTX, do you see eventually
Speaker 2: any merit or possibility that the US will go in
Speaker 2: something that direction where there is more direct access to
Speaker 2: the futures exchanges as opposed to having to go through
Speaker 2: a broker.
Speaker 3: Well, I don't know the ultimate answer to that, but
Speaker 3: I do know that if there is going to be
Speaker 3: a path forward like that, then everybody needs to be
Speaker 3: involved to make sure that we all understand the process,
Speaker 3: because the last thing we want to have happen is
Speaker 3: people who are hedging risks associated with the food in
Speaker 3: this country don't understand the risk management of it. So
Speaker 3: it all sounds great when we talk about crypto bec
Speaker 3: who cares, right, But when you're talking about if you're
Speaker 3: going to eat or not, or what the price of
Speaker 3: that product is, all of a sudden we care when
Speaker 3: we talk about not allowing energy companies to manage their risk,
Speaker 3: are not understanding how their risk is managed. Then all
Speaker 3: of a sudden we care because ultimately, when the markets
Speaker 3: become inefficient, that the cost does not born by the
Speaker 3: trader or the exchange that is born by the or
Speaker 3: by the consumer. The consumer absorbs those costs associated with
Speaker 3: inefficiencies in the marketplace. So I think whatever the whatever
Speaker 3: is going to be going forward, whether it's a direct
Speaker 3: model or something else, needs to make sure everybody understands.
Speaker 3: We bring all sectors along and we write rules associated
Speaker 3: with to make sure that people understand the rules of
Speaker 3: the road.
Speaker 2: I mean that definitely makes sense. But just to push
Speaker 2: on this a little bit further, like if we were
Speaker 2: to go in that direction in this country, like it's
Speaker 2: how would the CME adapt to such a model or
Speaker 2: what does that mean? What would that mean potentially.
Speaker 3: For ye you're asking me to speculate, Joe, on what
Speaker 3: the CME would do, and I won't do that. We're
Speaker 3: just not going to speculate on a what if scenario.
Speaker 3: I'm prepared for any outcomes that may or may not arise,
Speaker 3: and that's just good prudent risk management. In our part
Speaker 3: to make sure we were ready for those. But again,
Speaker 3: we're not going to comment on what our strategy would
Speaker 3: or would that be.
Speaker 1: I have a bunch of crypto questions that I.
Speaker 3: Want to What about the dee you guys you talked
Speaker 3: about it.
Speaker 1: Wait, wait, wait, I want to ask one other thing,
Speaker 1: just on commodities, because I had dinner with a bunch
Speaker 1: of commodities traders last week and I said, I was
Speaker 1: going to interview you. What should I ask? And yeah,
Speaker 1: they had a bunch of unprintable stuff to ask.
Speaker 3: But but the one those are good friends.
Speaker 1: One question that I thought was really good is one
Speaker 1: of them asked, why aren't you more active in LEM
Speaker 1: style commodities management? You know, the LEMY has had a
Speaker 1: series of scandals at this point, a lot of traders
Speaker 1: have lost trust in that business. Isn't this a giant
Speaker 1: market opportunity for the CME.
Speaker 3: Again, I think we look at markets, and I said
Speaker 3: this earlier, I'm not rooting for anybody to have problems
Speaker 3: like Lam has had. I don't believe in growing my
Speaker 3: business as someone else's despair, because that despair costs participants
Speaker 3: money and that's not healthy for markets in general. So
Speaker 3: I don't like that we are competing with l ME.
Speaker 3: I don't mind good old fashioned competition. We are competing
Speaker 3: with them in aluminum and some other products. But the
Speaker 3: product you're referring to is nichol is a much smaller market.
Speaker 3: It's also has a host of warehouses that are associated
Speaker 3: with that market that you would have to replicate it.
Speaker 3: It's not just let's list nickel and not have the
Speaker 3: facilities to make certain that the deliveries on a nickel
Speaker 3: are facilitated properly so someone doesn't get delivery of a
Speaker 3: box of rocks, which actually happened versus nickel. So again,
Speaker 3: I think from our standpoint, I don't like seeing what's
Speaker 3: going on with l and ME. But at the same time,
Speaker 3: we're going to continue to be competitive in areas that
Speaker 3: we think we can do well at and I've already
Speaker 3: said that right now we're in a strong position on
Speaker 3: some of these metals products that we're competing in. Nichola
Speaker 3: is something that I have said that I am not
Speaker 3: looking to list at this moment. You never say never,
Speaker 3: but at this moment, I'm not looking to list it.
Speaker 3: I think it's got a lot of issues in and
Speaker 3: of itself. So we'll have to see how that market progresses.
Speaker 3: But again, it's a much smaller market than some of
Speaker 3: the other ones they have.
Speaker 2: Actually, I was going to go into the dead shot,
Speaker 2: but now I'm curious, like, what is it about Nickel
Speaker 2: specifically when you say, oh, it definitely has issues.
Speaker 3: But got it? Well, it has issues because I don't
Speaker 3: know if it's the warehouse system. I don't know if
Speaker 3: it's the cash market associated with it. There's a whole
Speaker 3: host of things that maybe we need to modernize in
Speaker 3: cash markets to make the derivative much more efficient as well.
Speaker 3: Sometimes we're trying to have the derivative make the cash
Speaker 3: more efficient. You need to have a strong cash market
Speaker 3: if in fact you're going to have a strong derivative market.
Speaker 1: We're going to have to do an episode on commodities
Speaker 1: collateral management soon, and I think I have the perfect
Speaker 1: guest for that.
Speaker 2: I'm looking forward to that one. Right to the dead ceiling.
Speaker 2: How big of a deal would it be if the
Speaker 2: US were to miss a coupon payment in your opinion, Well.
Speaker 3: Here I don't again speculation.
Speaker 2: You're you're the one who said bring it back to
Speaker 2: the death.
Speaker 3: Well, the only reason I said that is because you
Speaker 3: said I wrote down markets dead selling fed FTX, and
Speaker 3: you hopscotched over two of them.
Speaker 1: So we're getting to them. We're not going in a
Speaker 1: linear rom I'm sorry.
Speaker 3: I'm sorry. Most people go in order, they say they're
Speaker 3: going to go in but that's what jo and Tracy Bloomberg. Sorry,
Speaker 3: so I got it. So I'm teasing you. So anyway,
Speaker 3: So I the dead ceiling here, I think talking about
Speaker 3: a potential default and what it would mean, I think
Speaker 3: you'd have to be hard pressed because I think that
Speaker 3: that could be catastrophic, to say the least, because it's
Speaker 3: not just the US, which is a huge obviously participants
Speaker 3: in the United States that could if we had a default,
Speaker 3: Because it's not just the treasuries. It could be a
Speaker 3: default or slowing a payment on Social Security, it could
Speaker 3: be slowing a payment on veterans affairs, which they need
Speaker 3: that money to survive. These are veterans that fought for
Speaker 3: our country. There's a whole host of things that payments
Speaker 3: need to go out to do so, not just the
Speaker 3: treasury market. So you also look at probably sixty other
Speaker 3: countries that are holding US debt. And I'm not referring
Speaker 3: to just China, because the easiest thing to say is China.
Speaker 3: Sometimes I think China wouldn't even care of the US defaulted,
Speaker 3: because that would only maybe bolster their long term view
Speaker 3: about where they put themselves in the financial system. And again,
Speaker 3: their view is in hundreds of years. Ours is in nanoseconds.
Speaker 3: So you've got to remember the difference between how they
Speaker 3: think about it. What I am very concerned about, and
Speaker 3: I hope our government unsands there's a lot of smaller nations,
Speaker 3: especially European nations, who own US debt that if it
Speaker 3: ever deful they could put them into a world of hurt,
Speaker 3: So not just the US, So that's a big concern here.
Speaker 3: I don't believe we'll see a default in the United States.
Speaker 3: I think we'll see a lot of frightening aspects to it.
Speaker 3: I mean, you got to remember it took US fifteen
Speaker 3: rounds to elect the Speaker of the House from its
Speaker 3: own party ago, and I think that was a bit
Speaker 3: of a proxy to show what's going on right now.
Speaker 3: People kept extracting what they believe they wanted in order
Speaker 3: to give the vote to then now Speaker McCarthy. So
Speaker 3: when you're looking at that, you have to say to yourself,
Speaker 3: what are people looking at to extract on cost cutting
Speaker 3: measures from an administration that's got not just this one,
Speaker 3: but prior administrations, that has the United States of America
Speaker 3: thirty one point five trillion dollars in debt. How do
Speaker 3: we start to address it? And then some of these
Speaker 3: fringe participants of either party might say, this is a
Speaker 3: great opportunity or a horrible opportunity, let's borrow more. The
Speaker 3: point is they don't have the votes right now for
Speaker 3: a debt thing, and so there'll be multiple rounds of this.
Speaker 3: You saw just two weeks ago the House passed the
Speaker 3: bill by five votes, still raise the debt SLENE by
Speaker 3: one and a half trillion, but in return or the
Speaker 3: cuts they asked for over ten years were pretty dramatic,
Speaker 3: and obviously the President and the Senate wouldn't even discuss
Speaker 3: that particular piece of legislation. So they met yesterday, they're
Speaker 3: going to continue, They're going to meet again Friday, and
Speaker 3: we'll have to see where it goes. Secretary of Ellen says,
Speaker 3: we have enough to pay our bills to June first.
Speaker 3: I think people believe that's a bit of a fudge.
Speaker 3: And really we'll probably get into August before we're really
Speaker 3: going to have some major concerns. And listen, I saw
Speaker 3: the debt ceiling go in twenty eleven down to the
Speaker 3: eleventh hour, literally eleventh hour, with President Obama and then
Speaker 3: Speaker John Bayner, And we're talking about some pretty rational
Speaker 3: people back then in twenty eleven, you would have to say,
Speaker 3: what are we dealing with today? And so could it
Speaker 3: go longer? What does it look like? I think you
Speaker 3: can see some delays on some of these payments, but
Speaker 3: not a default. So you can see delays on some
Speaker 3: of the coupons that are expiring this summer or maybe
Speaker 3: even the fall, So you could see some delays on
Speaker 3: the payments. You could see some delays on Social Security
Speaker 3: and other benefits. But if that's the case, what does
Speaker 3: that do to the marketplace? So I can tie this
Speaker 3: all back in to we could be in for you know, again,
Speaker 3: when I talk about volatility and it doesn't introduce itself,
Speaker 3: here's a situation where you better pay attention because this
Speaker 3: could introduce itself in a very ugly way. And that
Speaker 3: is something that people need to pay attention to, because
Speaker 3: if in fact, we have someone make the reference that
Speaker 3: the payment that you were supposed to get on Tuesday
Speaker 3: will be here the following Tuesday. People will take that
Speaker 3: as it's never coming, and the markets will take that
Speaker 3: as it's never coming. Not that that's the case, but
Speaker 3: that's how markets anticipate. And then it happens all of
Speaker 3: a sudden, and now we go into liquidity issues, Tracy,
Speaker 3: that you referenced earlier, because of an event of volatility.
Speaker 3: Then we have illiquidity what it appears to be because
Speaker 3: of the event.
Speaker 1: This is exactly what I wanted to ask you, which is,
Speaker 1: are there technicalities that the CME is now on the
Speaker 1: lookout for in terms of missed coupon payments and things
Speaker 1: like that.
Speaker 3: We are We just did a presentation and I can't
Speaker 3: share all the information that I gave to my produciers,
Speaker 3: my board of directors, with my team last week here
Speaker 3: in Chicago about what it would look like in lieu
Speaker 3: of maybe a technical default and where we stand from
Speaker 3: our makeup of margin. You got to remember, we're holding
Speaker 3: two hundred and fifty billion dollars that we passed through
Speaker 3: into the either the federal reserve on our cash because
Speaker 3: we have the ability to do that as a SIF
Speaker 3: move or we're holding treasuries. We hold roughly ten to
Speaker 3: twenty percent of other colaudalo, whether it's Gold, Warrens corporates
Speaker 3: or others small. But we haircut things dramatically already, even
Speaker 3: including government debts. So the only thing we don't haircut
Speaker 3: is cash, and so we are in a strong position.
Speaker 3: We're holding roughly over one hundred and thirty billion dollars
Speaker 3: today in cash against our margin positions, so roughly almost
Speaker 3: half in cash. So we're in a strong position right now.
Speaker 3: But we do have some treasuries. The only ones we
Speaker 3: would need to worry about are the durations that are
Speaker 3: expiring in a period that we think could be an issue,
Speaker 3: which is, you know, maybe that August through October period,
Speaker 3: And again that's a very small portion of the margin
Speaker 3: we're holding today.
Speaker 1: I'm scared to deviate from our list of talking.
Speaker 3: And I didn't get anything ahead of time. I just
Speaker 3: got my little sheet here that I wrote down.
Speaker 1: Can I pivot slightly to AI, which is like the
Speaker 1: big talking point at the moment, and it feels like
Speaker 1: everyone's freaking out over the possibility of losing their jobs.
Speaker 1: Joe and I have joked that chat GPT could easily
Speaker 1: replicate one of these episodes with a guest, and I
Speaker 1: would love to hear. Never replicate, Terry. I would love
Speaker 1: to hear from your perspective, though, the CME is an
Speaker 1: entity that has gone through significant rounds of technological change.
Speaker 1: We all remember, you know, open outcry pit trading. You
Speaker 1: had human traders actually shouting out their trades and things
Speaker 1: like that that went away. So how are you thinking
Speaker 1: about AI now and what advice do you have for
Speaker 1: people who might be grappling with the potential of this
Speaker 1: new technology.
Speaker 3: I don't know about the markets so much, but boy,
Speaker 3: Michael Bloomberg's got to be just really thinking close about
Speaker 3: this AI. You guys, are you guys are replaceable? You
Speaker 3: know that?
Speaker 1: Thank you.
Speaker 3: I'm sorry, I'm tasing. Sorry listeners.
Speaker 1: We'll do a chat GPT generated version of this interview
Speaker 1: and you see how it does.
Speaker 3: Yeah, you guys all rig that. Remember the information that
Speaker 3: chat GBT has is only up through twenty twenty one,
Speaker 3: so we.
Speaker 2: Have like two years ahead of it.
Speaker 3: I think that the mark there's always pain and there's
Speaker 3: always gain as we progress. So, Tracy, you gave the
Speaker 3: analogy of markets as open out transitioning to markets electronic.
Speaker 3: There was a tremendous amount of pain for people who
Speaker 3: could not make that transition from the floor traded model
Speaker 3: to the electronic model. Now, the electronic model could not
Speaker 3: distribute markets around the world like the electronic model can,
Speaker 3: so there were so many more benefits the efficiencies that
Speaker 3: the electronic model created. Now, a lot of people were
Speaker 3: able to adapt to the new model, and there was
Speaker 3: some that couldn't. So that's the pain part of it,
Speaker 3: because you can't bring everybody along. The gain part of
Speaker 3: it was the market got much much larger due to
Speaker 3: the technology that the markets now used today and continue
Speaker 3: to evolve in each and every day. So when you
Speaker 3: look at artificial intelligence, you know there might be some
Speaker 3: short term pain, but I think that long term there
Speaker 3: could be a tremendous amount of activity. You know, I
Speaker 3: teased a moment ago Chersey about you and Joe, But
Speaker 3: I think that there's many opportunities for all fields as
Speaker 3: it relates to artificial intelligence, And the question is we
Speaker 3: just got to make sure we don't deploy it in
Speaker 3: a way that no one understands it. I'll go back
Speaker 3: to my crypto answer. It is long as the rules
Speaker 3: of the road are well understood by all participants. We
Speaker 3: have an opportunity to participate in new technology, including artificial intelligence.
Speaker 3: So that being said, I hope that it increases the
Speaker 3: job market, not decreases it in the long run. But
Speaker 3: in the short term it could have an impact where
Speaker 3: people see this as a major cost savings to you
Speaker 3: know what. You referenced it as displacing people from their jobs.
Speaker 3: I think ultimately creates jobs.
Speaker 2: Since you mentioned and since in the context of no
Speaker 2: longer having that physical trading floor, I'm curious about like
Speaker 2: the future of Chicago and your role here, and we
Speaker 2: have seen some financial firms leave, like a Citadel. I
Speaker 2: don't know if I assume they still have some offices
Speaker 2: here they do. I'm not sure. City elected a new
Speaker 2: progressive mayor who has talked at times about higher tax
Speaker 2: on hotels, a higher tax for large employers, and even
Speaker 2: a financial transaction tax, which I imagine goes straight to
Speaker 2: the heart of your business. Have you talked to the
Speaker 2: mayor elect?
Speaker 3: No, I have not spoken to him.
Speaker 2: How much of a you know, were some of these
Speaker 2: proposals to go through? How much would that you know?
Speaker 2: What do you what would that mean for the CME
Speaker 2: and how committed would you Is there a future in
Speaker 2: which the CMEME isn't in Chicago.
Speaker 3: First of all, I think that there's a huge difference
Speaker 3: between a campaign, the rhetoric associated with campaigns, and once
Speaker 3: somebody assumes in office, whether it's Mayor of Chicago, whether
Speaker 3: it's President of the United States. A lot of people
Speaker 3: say a lot of things during an election process. Now
Speaker 3: what they can do and get accomplished are two different things.
Speaker 3: I got to imagine that if you run for President
Speaker 3: of the United States, the day you walk into that
Speaker 3: White House, it's got to be absolutely the most awesome
Speaker 3: experience in your life, and it's also got to be
Speaker 3: the biggest burden you've ever seen in your entire life,
Speaker 3: saying you are the leader of the free world. What
Speaker 3: I said on a campaign trail, now, okay, that was interesting,
Speaker 3: But now I'm sitting here, now I got to make
Speaker 3: this on behalf of three hundred and thirty five million people.
Speaker 3: Make sure we're doing the right thing. And so I
Speaker 3: think that when you look at you know, Mayor elect
Speaker 3: Brandon Johnson. I don't know him. I know he's very
Speaker 3: progressive and he's made a lot of comments as it
Speaker 3: relates to taxes, I'm hopeful that he reaches out the
Speaker 3: folks well, I don't care if it's me or whoever,
Speaker 3: and talks about these things I have. First of all,
Speaker 3: let's make one thing perfectly clear for your listeners, mister
Speaker 3: Johnson has no legal authority to impose a transaction tax
Speaker 3: on my business. He just doesn't have it. The city
Speaker 3: of Chicago doesn't have the ability. It's not him, it's
Speaker 3: the city of Chicago. The State of Illinois is somebody
Speaker 3: that can propose a transaction tax on it, and then
Speaker 3: the federal government are the only two entities that can
Speaker 3: do so. So. On the hotel tax, I'll leave that
Speaker 3: to the people that run this hotel to determine how
Speaker 3: they're going to deal with that. I don't think it's
Speaker 3: healthy for tourism. That's one of the things we rely
Speaker 3: on in this great city is tourism. So you hate
Speaker 3: to chase people away over a silly you'd rather take
Speaker 3: maybe take the Walmart model and bring in more in
Speaker 3: charge less. So I'm hopeful that he deals with some
Speaker 3: of the issues that are of concern, and most of
Speaker 3: those are around crime and safety. So I'm hopeful that
Speaker 3: the new mayor focuses on those issues and doesn't get
Speaker 3: too blogged down on how he's going to short term
Speaker 3: think he's going to raise taxes on certain people in
Speaker 3: order to fit his agenda. We have a problem in Chicago,
Speaker 3: and I think there's other cities here. It's not just
Speaker 3: the crime, it's the community. You need to create community
Speaker 3: amongst your city if you're going to survive in the future.
Speaker 3: Meaning we need to have businesses open, We need to
Speaker 3: have people walking into those businesses. You need to have commerce,
Speaker 3: You need to have people living in here. You can't
Speaker 3: chase everybody away. Everybody is afraid right now because of
Speaker 3: whether it's the crime issue or whatever. So I think
Speaker 3: layering on additional cost as you're trying to fix one
Speaker 3: problem would be a catastrophic mistake as far as seeing
Speaker 3: I mean's future in Chicago. See, I mean, we have
Speaker 3: sold all of our property in the state of Illinois
Speaker 3: and the city of Chicago. We don't own anything any longer.
Speaker 3: We put ourselves into a very strong position many many
Speaker 3: years ago. I actually in our leases, we have language
Speaker 3: in there that says if there's something that's ill conceived
Speaker 3: from the city of the state that our leases are
Speaker 3: null and void. So we're in a really strong position.
Speaker 3: We have options coming up on our long term leases already,
Speaker 3: so that doesn't mean we're leaving. We like Chicago. As
Speaker 3: I said earlier today on a panel. I think Chicago
Speaker 3: has been on his back foot before and it can
Speaker 3: get back on its front foots, but it takes all
Speaker 3: of us to do so. So I want to be
Speaker 3: a part of the solution, not part of the problem.
Speaker 3: And that's how I look at Chicago. So again, we're
Speaker 3: in a strong position from a whole host of reasons,
Speaker 3: from our risk management as I talked about earlier, to
Speaker 3: a real estate and if there's any ill conceived taxes,
Speaker 3: you know, we're in a very strong position. If we
Speaker 3: had to leave, we could leave.
Speaker 1: Yeah, a lot of these dynamics apply to New York
Speaker 1: as well. Does the SEMI feel a responsibility to get
Speaker 1: people back into the office and into the city If
Speaker 1: we're talking about crime, it would help to have people
Speaker 1: walking around and businesses open, as you said, so do
Speaker 1: you feel that you're part of that?
Speaker 3: So, Tracy, that's an excellent question, and it's been an issue,
Speaker 3: as you can all can imagine, everybody has been locked up,
Speaker 3: or they've done things a certain way for three plus
Speaker 3: years and it really gets hard to say, Okay, that's
Speaker 3: over with, now come back to work. Everybody was like, well,
Speaker 3: why I'm doing just fine doing it the way I'm
Speaker 3: doing it now, you know, I think it's up to
Speaker 3: And I said this to our governor. I said to him,
Speaker 3: I said, you know when COVID, when you shut down
Speaker 3: the state of Illinois, and certain businesses had to stay
Speaker 3: open because they were essential to the lives of others.
Speaker 3: Some banks and exchanges were part of that is being essential,
Speaker 3: not just grocery stores, not just big box stores and others,
Speaker 3: but we were essential. Nobody thought about how do we
Speaker 3: get them back now? You know? So why isn't government
Speaker 3: getting involved with saying we need people back, We need
Speaker 3: people back in cities and communities. You know, I'm a
Speaker 3: big believer that if you're a steward or a fiduciary
Speaker 3: of other people's money, that you need to be there,
Speaker 3: to be on top of it, and to sit at
Speaker 3: home and monitor that off a screen, to me is
Speaker 3: not the appropriate thing to do. You should have always
Speaker 3: have somebody you know involved in an office setting as
Speaker 3: you're relying on someone to keep your money safe for you.
Speaker 3: So there's a couple of different ways I'm looking at that, Tracy,
Speaker 3: But I will say that, you know, from our standpoint,
Speaker 3: I've met with my people, I'm not a big fan
Speaker 3: of the hybrid, but at the same time, you have
Speaker 3: to It's a competitive world out there, so you have
Speaker 3: to do what you have to do. I will say
Speaker 3: that my risk in clearing people are in five days
Speaker 3: a week, and that's not negotiable, and they know that,
Speaker 3: and I've had meetings with them and they're comfortable. They
Speaker 3: understand my concerns around risk and clearing. I outline them
Speaker 3: for you all, and sitting here how volatility can come
Speaker 3: up very quickly. So I'm very committed. I understand that
Speaker 3: certain people in finance and legal and other parts of
Speaker 3: my company can hybrid a little bit. But again I'm
Speaker 3: holding everybody accountable. I have shareholders that are holding me accountable.
Speaker 3: So we'll see how this all pans out. But I
Speaker 3: do believe there's a role in not only federal government,
Speaker 3: but state government to help rebuild these cities. And listen,
Speaker 3: we have a massive problem with vacancies in office buildings
Speaker 3: around this country, especially in New York and Chicago in
Speaker 3: LA and that's not healthy. I mean, that's a massive
Speaker 3: shoe to drop because all these buildings are levered up.
Speaker 3: I mean, there's loans against them that are going to
Speaker 3: be refinanced that much higher rates, and there's no occupancy.
Speaker 3: What's going to happen to them? So not an economist,
Speaker 3: I'm a realist. I look out the window and you
Speaker 3: see certain things. And again I think it's upon not
Speaker 3: only executives like myself, but of course people in elected
Speaker 3: offices to make sure that we put these pieces back together.
Speaker 3: And it's hard.
Speaker 2: You mentioned office vacancy's problem. And the other issue that
Speaker 2: a lot of banks have run into, besides their duration risk,
Speaker 2: is this perception that many of them have a significant
Speaker 2: potential losses related to commercial real estate. We talked about
Speaker 2: this on a recent episode. Real estate is one of
Speaker 2: these areas which sort of seems somewhat impervious to robust
Speaker 2: hedging instruments. So are futures related to indicase? Can you
Speaker 2: talk to as as someone in this business of these instruments,
Speaker 2: what is it about real estate or commercial real estate
Speaker 2: that has made it difficult to build instruments that it
Speaker 2: would allow for hedging activity.
Speaker 3: So I think there's a lot of things that are
Speaker 3: really difficult to provide what Tracy talked about earlier, which
Speaker 3: is liquidity for every single instrument. Because everybody who's in
Speaker 3: a certain business believes that they should have a risk
Speaker 3: management tool, there's the other people that don't want to
Speaker 3: participate in it because of whatever that industry may or
Speaker 3: may not look like. You also have to make sure
Speaker 3: that nothing is readily maniputable before you can go forward.
Speaker 3: So you have to have a strong cash market, like
Speaker 3: I referenced earlier. So sometimes the markets are just not
Speaker 3: you know, I don't want to say centralized, but are
Speaker 3: just not customized. That is the word I'm looking for,
Speaker 3: customize enough to have for every single product. So in return,
Speaker 3: you know, when you look at here's a great example
Speaker 3: of jet fuel, you would think, boy, there's a lot
Speaker 3: of people flying. Why don't we have a jet fuel contract?
Speaker 3: Why because they use their West Texas intermedia to manage
Speaker 3: that risk in their jet fuel cost. Why don't we
Speaker 3: have other contracts for other businesses? You know, I mean
Speaker 3: I've had people economies saying, Terry, we've seen this lobster market.
Speaker 3: I might excuse me, the lobster market, and we need
Speaker 3: to have a future's market on lobsters because in Maine
Speaker 3: right now they're rolling. I'm like, oh boy, okay, I
Speaker 3: don't think they care in Kansas, but all right, whatever.
Speaker 3: Uh So you need to make sure that you have
Speaker 3: a natural buyer, natural seller, and a market that's not
Speaker 3: readily inipotable. I'm not saying the real estate market is
Speaker 3: what a commercial market is, but the way you can
Speaker 3: deal with that is through interest rates and interest rate markets,
Speaker 3: so you can hedge those exposures on your cost. You're
Speaker 3: not going to be able to have a pure hedge
Speaker 3: on occupancy the way I look at it. But maybe
Speaker 3: somebody you know, Robert Schiller, as you know, created the
Speaker 3: case Shiller index on the home index, and that seemed
Speaker 3: like a real natural product, right. But it's some futures
Speaker 3: on that there are, and we had them and we
Speaker 3: worked with Profred Doctor Schiller on the contract. But again
Speaker 3: it's not a liquid contract because there's a lot of
Speaker 3: people don't participate in that marketplace.
Speaker 1: Joe I was just thinking this was our opportunity to
Speaker 1: turn this into our long awaited onions.
Speaker 3: Onions only it's one of the only products that's outlawed
Speaker 3: by the United States government.
Speaker 2: We've joked about this for years, but we've never done
Speaker 2: an onion futures and why it's banned and we may
Speaker 2: never do an episode. Keep joking.
Speaker 3: Let me give you a snapshot on it.
Speaker 1: Yeah, do it too.
Speaker 3: The market was cornered on the onions, and they dumped
Speaker 3: the onions in the Chicago River and kept the burlap
Speaker 3: sacks that they're in because of burlap sacks were worth
Speaker 3: more than the onions themselves. And the United States government
Speaker 3: stepped in and said we will not have a futures
Speaker 3: contract on onions ever.
Speaker 1: Again, It's amazing that the US government was so active
Speaker 1: on the onion market in like, what was this, like
Speaker 1: the nineteen twenties or thirties, something like that. Yeah, and
Speaker 1: yet here we are today. Okay, speak speaking of government
Speaker 1: and action. Maybe this is my segue into crypto.
Speaker 2: I was just gonna say, it's impressive how long we
Speaker 2: went without really good Yeah, I'm glad anyway.
Speaker 3: Okay, so we didn't talk about.
Speaker 1: Crypto a little bit with FTX, but let me ask
Speaker 1: the broadest crypto question possible. What is your take on
Speaker 1: crypto at the moment, because you have voice some concerns
Speaker 1: about the way the market functions and how it could
Speaker 1: fit into your business, but at the same time, you
Speaker 1: do have a big and growing suite of crypto offerings.
Speaker 3: So again I don't believe I've ever come out publicly
Speaker 3: and said that I don't believe in crypto, because I
Speaker 3: know I haven't said that. What I have said is
Speaker 3: I do believe that people need to understand what they
Speaker 3: are participating in, and for some reason people get a
Speaker 3: case of fomo, or they get a case of influencers
Speaker 3: who influence them because there are celebrity types or whatever
Speaker 3: that this is something that you got to have. And
Speaker 3: we live in an age of where people follow other
Speaker 3: people and it's just you know, off to the races.
Speaker 3: So what I believed with crypto was for an exchange
Speaker 3: like ours, a highly regulated entity that you know, when
Speaker 3: we decided to list bitcoin, it was going to be
Speaker 3: under our comfort level for lack of a better term,
Speaker 3: and we did that. We did it with making sure
Speaker 3: that we have the functionality that we have in all
Speaker 3: where other markets could apply to the bitcoin, such as
Speaker 3: stop logic functionality, velocity logic functionality, meaning if the market
Speaker 3: was to precipitously move so fast it would stop replenished
Speaker 3: liquidity then start again. That's called velocity logic. And then
Speaker 3: we would also make sure that the margins were a
Speaker 3: lot higher than that they were charging in some of
Speaker 3: the cash exchanges like FTX and others, which was just
Speaker 3: a couple percent. We actually went into the high thirties
Speaker 3: low forties when we listed that contract on margin, and
Speaker 3: then we listed in an awful large size contract to
Speaker 3: make certain that we were attracting sophisticated participants. We did
Speaker 3: not want to attract retail participants who still didn't understand
Speaker 3: the product very well. Now we have subsolutely gone into
Speaker 3: smaller contracts on bitcoin udeather, so we have what's called
Speaker 3: micro contracts that trades more for the retail. What I
Speaker 3: will tell you what's interesting about that, and this has
Speaker 3: happened in the last couple of weeks, is our retail
Speaker 3: contracts are actually lower in volume now on a percent basis,
Speaker 3: and our large contract is up in volume on a
Speaker 3: percent basis, which tells me that the larger sophisticated participants
Speaker 3: who will trade the larger contract are in that one
Speaker 3: because it makes economic sense for them to be in
Speaker 3: that and the smaller one. Some of the retail participants
Speaker 3: are not trading that as often. So what is that
Speaker 3: that can tell you as a proxy is retail getting
Speaker 3: a little worn out with the inflation without the stimulus
Speaker 3: money and having to use that money for other costs
Speaker 3: associated with running their households. So not saying that's a
Speaker 3: pure analogy, but I find it quite interesting. So from
Speaker 3: my standpoint, I think crypto, well, you know, you'll have
Speaker 3: a few of these cryptocurrencies going forward, and as long
Speaker 3: as we continue to educate and prove out their use
Speaker 3: cases where people can use them and feel comfortable using
Speaker 3: them and not worry about losing their money to participants
Speaker 3: who are holding that farm. Remember, the bigger issues with
Speaker 3: some of these exchanges is the cold wallet where you
Speaker 3: can get your own but some people just trust that
Speaker 3: the exchange will do it for them, and that's been
Speaker 3: an issue. So I think it's going to continue to
Speaker 3: evolve and you'll have a survivor of one or two
Speaker 3: of these cryptocurrencies, and then you'll have the block chain
Speaker 3: technology being deployed in many other ways outside of just crypto.
Speaker 3: Maybe it's used with the stable coins or used with
Speaker 3: another means.
Speaker 2: Just on crypto. Other one last question, you know, what
Speaker 2: would you look for in terms of other additions. So
Speaker 2: you have bigcoin ether, do you have some I assume
Speaker 2: you have a team that sort of monitors other coins
Speaker 2: and sort of like where the market is going. Do
Speaker 2: you have like sort of like benchmarks or things that
Speaker 2: you would see were like, oh, maybe maybe we'll add
Speaker 2: a third coin, maybe we add a fourth like types
Speaker 2: of things that sort of like, Okay, this is hitting
Speaker 2: a threshold where it might justify having a future's market.
Speaker 3: Yeah, and that's a great question. So we do measure
Speaker 3: or by thresholds on a lot of our products that
Speaker 3: we list on crypto. One of the things that we've
Speaker 3: been successful doing is we have reference rates. And even
Speaker 3: prior to us listing the derivative of bitcoin, we had
Speaker 3: a bitcoin reference rate. Now we have listed several more
Speaker 3: reference rates, and we'll see how those reference rates go
Speaker 3: over the next several months to maybe a year, and
Speaker 3: see if they start to participate more where people are
Speaker 3: actually using them, and then we may decide to go
Speaker 3: from there. So it gives us the ability to have
Speaker 3: a non tradable product on a reference rate that so
Speaker 3: to see how people are looking at it, and then
Speaker 3: if we decide there's enough interest, we could always list
Speaker 3: a futures contract on it.
Speaker 1: Just going back to liquidity real quickly, which is how
Speaker 1: we sort of started this conversation. There does seem to
Speaker 1: be I don't want to say more of a concerted
Speaker 1: effort because it feels kind of disjointed, but there does
Speaker 1: seem to be more noise at the moment about regulating crypto,
Speaker 1: and you have crypto futures, and I guess the question is,
Speaker 1: are you concerned at all that a clamp down on
Speaker 1: crypto in the cash market would affect the future's business because,
Speaker 1: as anyone in financial markets knows, in order to have
Speaker 1: vibrant and healthy futures contracts, you do also need vibrant
Speaker 1: and healthy markets in the underlying.
Speaker 3: Yeah, and again Teresy, I appreciate that question. I think
Speaker 3: when you look at the cash market as it relates
Speaker 3: to crypto, it's already been question asked, question answered as
Speaker 3: it relates to bitcoin, that it is a futures contract,
Speaker 3: So there's no argument, I think, as long as that
Speaker 3: we're in that place right now, when we have been
Speaker 3: since we listed a contract, and both the SEC and
Speaker 3: CFTC obviously have agreed that that is the case. So
Speaker 3: I don't think that harms bitcoin. Now let's talk about
Speaker 3: some of the other cryptos. What does it do? There
Speaker 3: is massive uncertainty of what is this security and what
Speaker 3: is the derivative? As you know, both the SEC and
Speaker 3: CFTC have a difference in that definition, and they both
Speaker 3: want to seek regulation of those products. So until there's clarity,
Speaker 3: markets hate uncertainty, and I think we got to get
Speaker 3: clarity between the regulators about who is going to regulate
Speaker 3: some of these other cryptocurrencies and what are going to
Speaker 3: define them. You know, I remember when the Shad Johnson
Speaker 3: the cord was passed, and that is basically saying what
Speaker 3: what devices a broad versus a narrow based index? So
Speaker 3: what can be traded as a future? What can be
Speaker 3: has to be traded as cash. So you know, I
Speaker 3: think it's eleven or under on the products can be
Speaker 3: determined as narrow and eleven or more is a broad
Speaker 3: based index, so you can trade those as the futures
Speaker 3: like the S and P five hundred we trade at
Speaker 3: CME and other security indexes are deemed as futures. I'm
Speaker 3: not saying that's the way they're going to look at crypto,
Speaker 3: but they have to come to a decision one way
Speaker 3: or another if the market is going to have the
Speaker 3: ability to find its footing and grow going forward. But
Speaker 3: I don't believe, Tracy, that it's going to have a
Speaker 3: massive impact on bitcoin and it's liquidity or not. I
Speaker 3: think that'll be like every other product up to what's
Speaker 3: going on in the world today, not the regulators. It
Speaker 3: does what the other products are.
Speaker 1: All right, Well, an absolute treat to be able to
Speaker 1: come back to Chicago after twenty something years and speak
Speaker 1: to Terry Duffy. So thank you so much for coming
Speaker 1: on all blots.
Speaker 3: Appreciate it, Tracy, Joe, thank you very much and appreciate
Speaker 3: the opportunity to speak to you and your listeners. And
Speaker 3: again I hope you enjoy Shaile and say thank you
Speaker 3: so much. Joe.
Speaker 1: I really enjoyed that conversation.
Speaker 2: You know what I want to do. I want to
Speaker 2: have Terry back, but just for one word. It's like
Speaker 2: we throw out like, yeah, different commodity futures and he
Speaker 2: tells he just says something, why do we have jet
Speaker 2: fuel for?
Speaker 3: Yeah?
Speaker 2: I never thought about that before, but that there's already
Speaker 2: an instrument that's like close.
Speaker 1: Enough or just like old war stories from running the
Speaker 1: SAMI because I remember also a few years ago when
Speaker 1: I was sort of like more involved in this coverage.
Speaker 1: I remember there was like a cattle herdsman association that
Speaker 1: like went to Chicago to talk about the cattle futures contract.
Speaker 1: Like there are so many stories he could tell the burlaps.
Speaker 2: I had no idea.
Speaker 1: Yeah, I didn't realize that either, But there were a
Speaker 1: few things that were really interesting to pull out of there.
Speaker 1: I mean, like one to hear how he's thinking about
Speaker 1: crypto liquidity was interesting, and also that they're thinking actively
Speaker 1: about treasury market risk. I mean, I guess that should
Speaker 1: be obvious, but it does feel to me like the
Speaker 1: debt ceiling drama is one of those things that could
Speaker 1: really materialize, Like the risk could be there's some obscure
Speaker 1: contract language about delivery, and so it's interesting that they're
Speaker 1: sort of looking for that at the moment.
Speaker 2: Speaking of contract language, I thought it was interesting that
Speaker 2: he pointed out specifically that in the leases they have
Speaker 2: for their real estate in Chicago there and ID be
Speaker 2: interesting to like talk to like a real estate lawyer,
Speaker 2: like what kind of leases companies have if they want
Speaker 2: to leave or move to Florida and they say, oh,
Speaker 2: it's tied to political choices. What that looks like. And
Speaker 2: the fact that he was like kind of he didn't
Speaker 2: say like, oh, we're gonna leave or anything like that,
Speaker 2: but it's clearly something that like if.
Speaker 1: They I think there was an implicit threat there, it's
Speaker 1: obviously something they have been thinking about. Yeah, all right, well,
Speaker 1: on that note, shall we leave it there?
Speaker 2: Let's leave it there?
Speaker 1: All right, We're going to go off and enjoy Chicago.
Speaker 3: Now.
Speaker 1: This has been another episode of the Lots podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway.
Speaker 2: And I'm Joe Wasenthal. You can follow me on Twitter
Speaker 2: at the Stalwart. Follow our producers Carman Rodriguez at Carman
Speaker 2: Arman and Dashill Bennett at Dashbot. For all of the
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Speaker 2: twenty four to seven, talk about all of these topics, markets, econ, crypto, water, energy,
Speaker 2: real estate, and more. Super fascinating fun place to hang out.
Speaker 2: I'm spending more and more of my time in there.
Speaker 2: Go there, check it out.
Speaker 1: Is there an Onion Futures You.
Speaker 2: Got to add an Onion Future's room. There's no there's
Speaker 2: no new developments. Maybe we'll get a bot and just
Speaker 2: updates it says Onion futures are still Illegal'll just post
Speaker 2: that once a day and there's no new development. Hey,
Speaker 2: can we never? I want to Let's do that all right,
Speaker 2: Thanks for listening
Speaker 1: In