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Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Aloway

and I'm Joe Weisenthal.

Joe, we are here in Chicago.

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

I agree. Chicago is an amazing city.

It's also just such an interesting city from a financial perspective and it has that old school, you know, merkantile Midwest kind of feel.

Totally. I mean, it's it what's cool about Chicago are many cool things, but it obviously has the the history of trading and pits and, you know, trading pigs and all that stuff.

And it's still a city that's at the cutting edge of trading. And so it's pretty cool that like the history is like not just history, it's still when I think of capital T trading, I usually think of Chicago.

Absolutely. And one of the themes for our trip to Chicago this time is trading and the evolution of trading and also the retail revolution that we're seeing.

And on that note, we have some very interesting partnerships that have been developing between, I guess, old school exchanges and more, let's just say, more retail oriented platforms.

So I think there's the the thing that I think is really interesting that's going on in uh financial markets among many other things is it seems like there's two different entities that are trying to cannibalize each other.

And what the way I think about it is you have these sort of legacy well you have essentially these sort of maybe like gambling oriented entities or what people think of as speculating wanting to look more like legacy financial institutions

and you have legacy financial institutions that want to subsume the sort of high-speed trading speculative gambling impulse of many young retail traders

and it's like which one will swallow the other will it be that I trade on my sports app Well, is it will will I be trading cotton futures on my sports app

or will the uh the opposite will I be going to a traditional brokerage to place bets on a Raiders game?

That's a great way of putting it. I also have to say there's a little bit of an irony here because a lot of the old school exchanges used to be criticized for enabling gambling in derivatives contracts, right?

And now and now are considering sports betting. Doors are all flung open. It's it's all very confusing,

but I have to say we have the perfect guest to talk about the cutting edge of trading and the retail revolution. We've had him on before. He was great.

We're going to be speaking with Terry Duffy, the chairman and CEO of CME. So, Terry, thank you so much for coming back on All Thoughts.

Tracy, Joe, thank you very much for having me. Appreciate you being here in Chicago also.

Well, the last time we saw you two years ago, you said we were going to be replaced by AI and that hasn't happened.

So, I'm very happy that we're back and talking to you in person.

tape of that cuz I'm not so sure that's true.

I got proof. I got the transcript.

You have everybody remembers something, but let me see the proof.

I'll send it to you after this. All right.

Uh, so one of the reasons we wanted to talk to you about retail trading specifically is because CME just announced this partnership with FanDuel where you're going to be offering these sort of event contracts. Walk us through exactly what the partnership entails.

Well, the partnership is really interesting from a whole host of reasons. I believe that the market in general has changed and the evolution of the market has changed.

The participants have changed and we can all determine why that is. We can listen to what Joe said in his opening about how traditional exchanges want to have the gaming uh clients in their world or we could say that the gaming clients want to have the traditional finance people in their worlds.

These worlds have have been clashing for quite some time now. Why is that? It's all because of technology.

Technology has enabled the participant from all levels to be on a level playing field. So example being institutional participants traditionally had the greatest technology and in return the products were customs sized for institutional participants.

As the markets evolved, retail participants want to be able to participate, but they really couldn't participate at the size of a contract that the institutions can.

So, we customized over the last several years smaller and smaller contracts. Well, we went from E- Minis to micros and potentially nanos.

Now, we're looking into the prediction markets going forward. Why is that? Well, there's a host of reasons, but like I said, technology and let's talk about it again. artificial intelligence.

It's the hottest thing God put on the planet right now as far as financial services goes because otherwise the stock market would not be trading where it's at today because the market has been driven primarily by artificial intelligence stocks over the last 48 months for sure.

There's no other stocks really participating the way Nvidia and some of the other big ones are. So my point being is today the guy that would never be able to trade futures because he's got a $500 account or $1,000 account or that's what he has available to participate in.

Now we're able to give him the technology that Goldman Sachs may or may not have that some of the biggest hedge funds in the world may or may not have.

How he or she deploys that is up to them, but they're going to have access to that technology. That's why these worlds are colliding.

And I think it's massively exciting about the future. And people listen, we're going to have the biggest wealth transfer by 2040.

We're going to have $80 trillion go from or I think it's 2050 from the existing population to people of the age of 40 to 24. $85 trillion of wealth transfer.

Those people want to be in control of their own destiny. Why? Because they've grown up in control of their own destinies today, that age group, whether it's through the apps on their phone or other things.

So, I think having access to all different constituencies is really important. And so, I'm excited by the future of this marketplace.

Let's just talk more details on FanDuel. Is the idea basically that let's say I'm or I don't I've never gotten into sports betting, but suppose I did.

suppose I were, you know, and I open an app and I see the line for the upcoming Raiders Bears game or whatever it is

the idea that in that same app I may see the price of some the gold futures or interest rate futures or something that I can trade at a monetary denomination that is sort of we associate with retail level.

Is that the specific product or service that the CME is going to be offering with FanDuel?

So Joe, yes, it's similar to that. So today, FanDuel is set up a little bit different than some of their competitors.

They don't have one app for all different services. They have single apps for different services where some of the other ones have different apps and for whatever reason they feel it's an advantage.

So there will be a markets app, a FanDuel markets app powered by CME Group.

When you open up their homepage, you'll go to that app and then you'll see in there we'll have potentially three to four event contracts a day per asset class.

The events will go on for approximately 60 minutes. They're they're not like a sporting event that goes on throughout the event. It will be a 60inute window.

Then we will say, will the price of gold be above or below $3,700 an ounce

at the end of that 60 minutes?

Yes.

Okay.

They're very binary.

And you will see as the opening of that event starts where the price is set. And it might be set at 50 cents. it's going to be above it because it's kind of in the middle or if it's higher it might be 80 cents to say it's going to be above it but not there's nothing to say it's going to be above it.

So you'll have people taking both sides expressing their interest on the value of gold which will also give us the ability because we have the liquidity providers in our core asset classes.

So the deep pools of liquidity with this will be amazing.

Just to be clear, is the 60inute window is that just like the first round? Like eventually do you anticipate that it'll be weekly or monthly or something that resembles the time intervals of traditional?

That's a great question, Joe. So, what we what we're going to do is we'll probably run three events a day.

Okay.

For say gold, we'll run three events a day for crude oil. We'll run three events a day for the S&P 500.

We'll run three events a day for some of our other asset classes, treasuries, and these will be multiple events, but they're only going to be an hour long, but we'll probably run three to four sessions every day.

So, they'll be an hour per session. And that will run five days a week for markets. And if in fact, FanDuel wants to put sports up there, as you know, those are weekend events as well.

Well, let me ask the really sexy question then. Um, how exactly are these trades or contracts structured? And you mentioned the liquidity providers there. Walk us through exactly the mechanics of these trades. Who are the providers? What does the market making look like? Are they being cleared? How does it all work?

They will be centrally cleared through CME's clearing house. So yes, they will be. The market structure will not look too dissimilar to what we have today.

The market participants, we have multiple market makers versus where some of our competitors have a single market maker doing this. uh we will have as you know at CMA Group we have a lot of market makers in our different products

they will have access to these event contracts and they will create the liquidity throughout the day and we will incent them to make sure that the participants have a tight deep market so that's basically how it'll work Tracy

and do the market makers have to hedge their exposure or are these contracts so small that it's not a big deal or

well you know small contracts can be small Tracy but as you know you trade enough of anything that's small turns into something big

and I'm sure you want this to Of course we do.

So, but they will have access to lay off that risk in the primary markets and that's the big difference with our offering.

So, we will be offering our deep liquid products and we'll have events with them. So, our market makers will seamlessly be able to uh offset these contracts.

You'd said in the beginning that or not, by the way, or not, that's up to them. You said in the beginning that technology is part of the story of why these two worlds of gambling versus legacy finance are have been colliding or maybe merging etc.

And I believe that and I also believe that the there is no such thing as a bright line between what's investing and what's speculation. There's a lot of debate about all of that.

But is another element here essentially that the norms have changed. There used to be an expectation that you know retail investors didn't have access to say like private um private investments

the there used to be it used to be much harder to gamble on sports period. There's been a big change in the norms it seems and then follow on regulation such that by and large it seems to be conventional wisdom that people should be really allowed to trade anything they want on anything they want.

Well, I I think there's some truth to that, but I think that's a pretty broad brush of should people be able to trade anything they want and anything they want.

I think you listen, regulation breeds credibility to any product. And if it's not regulated to a point and it's the wild west, somebody's going to get hurt and and that's not what a company like mine that I'm the chairman and CEO of and I have been for the last 23 24 years now. I that's not something that I would want to bring forward into this company.

I you said something else that I and I'm going to get back to the regulatory part, but you said something really interesting. Is it investing or is it speculating? Let me ask you a question. This is rhetorical.

You ever see an investment that doesn't have if you're making an investment, you need somebody to take the opposite side of that trait.

And if another investor is going the same direction, there's reasons why Oracle went up 30% two weeks ago after their announcement. Why? Because no one want to get run over by a freight train.

You need speculation in order to increase investment.

Yeah.

So I think that you know people say that speculators are bad for the market. Well, who's going to create the liquidity for the investors if we don't have speculators? So that's point one.

Going back to the regulation, I think that when you look at the regulation for these products, we have to let the participants be made aware through education and other tools of what the rules of the road are.

And I think right now with the crypto world where it's going right now in some of the other marketplaces where they're at on the predictions, I think there's some confusion. I'm going to be doing a round table in DC this coming Monday associated with just these type of topics of what what's innovation, what's not.

And so Joe, I think your questions are really really strong. And that's one of the reasons I'm doing this deal with FanDuel because I want to walk before I run here.

I think it's really important but I do want to make sure that the retail participant has the ability to participate at their level.

That's why these contracts will be binary in nature. That's why these contracts will be a dollar so anybody can participate.

But again, I think that the ultimate regulatory framework as it goes forward has yet to be harmonized, for a lack of a better term, between traditional marketplaces and now we're looking at event contracts on sports and other uh indices.

So, I'm excited by this, Joe, but I I think there's a lot of what you said in your question that's yet to be answered. And the problem is right now there's a lot of people going out with offerings before these questions have been asked, answered, or for sure studied.

We we've talked to some and we're talking to some more of them

for sure.

Okay. Okay. Well, speaking of regulatory harmonization, I'm just going to I'm going to hit all the really provocative topics today and ask about tax treatment.

Um, because my understanding is that losses on futures contracts are treated differently under new tax rules than losses on platforms for sports betting and things like that.

How much of the interest that you're seeing from places like FanDuel and other markets is coming from I guess the possibility of people being able to trade with futures contracts or bet using futures contracts and not having to pay as much in tax.

So let's make sure we understand both sides of the equation. You said only losses gains as well. So we'll talk about tax treatment in general.

So what what what Tracy's referring to listeners at oddlots is what's called 1256 contracts under the tax code which allows people to get a blended rate of 60/40 tax treatment.

60 long-term gains, 40 short-term comes out to a blended rate of about 27%. Futures contracts cannot get um long-term capital gains because of the way they expire today.

So we don't get long-term capital. So we get what's called 1256 treatment. That's what Tracy I believe you're referring to. That was a great explanation by the way. You should host.

Thank you. Anyway, the 1256 contract. So, when you talk about sports, sports will not be treated on event contracts under the 1256 regulation.

But gold, equities, all our other core businesses on events, we will believe that they are event futures, not event swaps.

So, we swaps are not treated under 1256. uh futures are. So we think our events on our market participants and those products will be treated with the same tax treatment we get today for our other businesses

and then events such as entertainment, such as political events and sporting events will be traded as ordinary income.

Got it.

Are you going to enter um political betting markets?

I would not take anything off the table. It's not something that I support at this moment.

But there's a lot of things I think when people say they don't support and then all of a sudden they do it and you go, "Well, what changed your mind?" And you don't have a good reason.

So, I never said I wouldn't list Bitcoin. I just thought it was important to make sure that the timing is right. So, I waited till 2017.

Then one day I said, "Today is the day because the timing seems right to me." So, I never said I wouldn't do it.

Even though there was a lot of people between 2008 when the price of Bitcoin was $8 to 2017 when I listed it uh that said that this stuff is tulips. It's garbage. Don't trade it.

All right. Let's hear your thinking on the politics markets.

So, I'm going to we're going to get to the politics. So, I don't believe right now that event markets on politics are a good thing. That's my take on it.

I want to see how it goes out. I didn't like mail um mail in uh voting either. I thought voting should have been in person historically, but my mind has changed on that too for a whole host of reasons

because now we get more participants and we have technology to protect against bad behavior in voting.

I think we can get the same on these event contracts for different events. I don't know if it's there or not yet.

We've had one political event contract that was listed so far that we that we're aware of and that was the presidential election, right?

So that's for the most part that's all that's happened. I think that's kind of a a small sample of uh political event contracts to base your decision on. Is this good or bad?

So I kind of want to see how it goes, Joe, to answer your question. So I don't see the rush to get into it.

And the the reason why I don't see the rush to get into it, if you look at CME today with XRP on the on the Ripple uh crypto contract, we are the premier place for people to mitigate and manage risk on Ripple.

Now, I was one of the last people to get into crypto in 2017, but yet we have one of the biggest marketplace. I just listed Ripple.

So, the credibility of CME is very important to me. I think it's important to my customers as well. That's why I'm very cautious about some of these political contracts.

So that's why I was trying to tie the two together a little bit.

All right. Sorry.

Fair enough.

Yeah, fair enough. Yeah.

So, um, you mentioned going to a round table next week and I believe that's the one being held in DC.

Is that right? Okay. So, I know the CEO of Kouchi is supposed to be there. Um, never met him.

One of the preeminent prediction markets in the world. Uh, when you see him, what questions would you ask in order to better understand political prediction markets?

I mean, we're interviewing him tonight in Chicago. Basically, Tracy's asking what you would like us to ask him.

I I don't know the gentleman. I've never met the gentleman. I have no idea. I I think what's important is that he understands that we because the CFTC and that's what they are suggesting right now, which is true.

So, I'm not saying what he's saying is wrong. They self-certify these contracts.

Does it make it right for him to list all these different contracts because the CFTC's got 24 hours to make a decision to either stop it or or let it go? It's really hard under the self-certification process to understand anything in 24 hours especially for the government.

So the question I would have for him as I do for myself is how are these some of these contracts not novel and complex and don't you believe that your investors need a little bit more time by the government agencies to make sure that there everyone's comfortable so you can offer them in a way that is very sound mind and sound business to grow them versus just going out there after 24 hours of nobody objecting and now you're promoting and he is promoting that these are CFTC approved approved products.

They're technically that is wrong. They are not CFTC approved products. What they are is they have not been opposed by the CFTC.

There's a big difference there and that's the part that they are not disclosing to their user base. And so I would say to him or others and I will say it because I say what I want to say to people respectfully.

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

I don't think payment for order flow should be on the 34th page of a perspective. put it up front, tell the clients that's what you're doing and nobody's got a concern with it, but we don't because why?

And I would say that people are maybe a little thinking that it maybe it shouldn't happen. I think it helps the marketplace, but tell people that earlier and I think that's what you guys should ask him. Why won't you say that these are not approved? They're just not objected to.

Joe, I'm going to do my best Terry Duffy impression tonight and just ask that question verbatim.

And if you if you drop my name, boy, Monday could be a lot of fun. Oh, yeah. Okay.

Right. Um, but no, this gets to my question about norms because like so political prediction markets have existed in the US on very small scale for maybe like 20 years.

There was the Iowa it was an experimental thing from the University of Iowa etc. It feels like the floodgates have gone open and that actually you know under the last administration for better or worse uh Kelshi um Poly Market which it's another sort of can of worms they were under a lot of regulatory scrutiny investigations and they still operated etc.

Now it seems like the doors been flung open. Maybe like it basically seems like we have whether from a strictly legal perspective or a cultural perspective very little appetite in this country to say you can't do this.

Uh it feels like yeah the barn door is open on a lot of this stuff.

So Joel, let's let's talk about that a little bit because I think it's interesting. The under the commodity exchange act there is a provision where a contract cannot be readily manipulable.

Okay.

All right. So that that's a law. So when we're looking at prediction markets on political outcomes and we're talking about a presidential election, we're talking about 100 plus million people potentially voting with a with a base of voters more open than that.

Fine. Okay. Maybe we say understand, okay, that's no different than some of these other big markets. That's a big market all of a sudden.

Now we'll take it down to the Congress. We have less people voting in a congressional race for Congress. Correct. So every member every 500,000 people gets a member of Congress in the United States.

So now you got 500,000 people of a population gets a member of Congress. The voting population for that is much much smaller that's eligible to vote.

Now let's take it to the next level. We have got a local mayor's race in a suburb that you live in that there is 500 people there. You want a prediction market on that?

Because I'll tell you what, I could probably buy that election and have my prediction market be pay off in a big way and and that would be deemed readily manipulable.

Now, I gave you a a pretty wild spectrum there. Sure.

But I think you have to look at it in that range. That's my whole point what I said to Tracy earlier. We have to let people know what they're doing because every political event is not a presidential election.

Yeah. There are some political events that are so small that could be deemed readily maneuable and you don't ever want to get in that situation because that's how you destroy innovation and that's my concern with some of the political markets.

Joe, remember when we did that live experiment at our show?

What was our big takeaway from that?

Um, I don't remember a take away. It was very funny. It was the when we had uh the manifold market of whether Zosvitz would be on the Oddlaws podcast and then we brought him on stage and we saw the price adjust in real time.

Just to be clear, we did not bet that he was going to be on the podcast, but you know, he could have he could have um

he could have

he could have certainly.

Okay, let's broaden out the conversation a little bit to overall retail trading, which has obviously become a big part of your business.

When you think about the evolution of retail trading at CME over the past few years, what are the biggest takeaways in terms of I guess the needs or concerns of a retail trader versus an institutional or professional one?

Obviously, you talked about contract size earlier, but like what else do you see out there in terms of key differences?

I think the key difference is the ease of access for the retail participant to sign onto a platform. Historically, it's been very very difficult and a very difficult process uh to sign up to trade markets, whether they're securities or whether they're futures.

So, um the retail participant will go through an application and probably get through halfway through page one and go, you know, this this is ridiculous. There's a reason why, Tracy and Joe, that the dark market or the illegal market in gambling is still about three times larger than the regulated marketplace because people just don't want to be have that exposure of giving out their information, right?

So that it's still a very large market, the illegal gaming market. Um, I think that when you to create a greater ease for people, which is going on right now for us, especially with the FanDuel, you'll go through an app.

It'll be a five-click process and you'll be ready to go. That historically has never happened.

Secondly, the retail participants have never had a place to go to clear their trades. As you know, at CME, we don't directly take clients. They have to come through one of our member clients.

So, those people didn't want some of these really small clients because they were a risk. But technology all of a sudden has allowed the risk management tools to let them participate and you could do and the one thing I liked about Sam Bank's offering and I give Sam credit for this was auto liquidating.

Auto liquidation is something that a lot of people have already implemented they call it something different.

So that risk management tools that we have in place that others have in place has now allowed us to take on the retail clients and the ease of them coming in.

Thirdly, I think it's really important that you educate them what exactly they're doing.

And futures can be very frightening. People get very frightened. Like during the pandemic when the explosion of day trading started to happen again, there was a lot of people that were on some of these retail platforms that had positions on that don't even know how they got them on cuz they didn't understand it, but they were almost embarrassed to ask what happened.

Whether they got caught up in an option straddle or something else, they did not even realize what happened. So education is key and that's one of the things that we have been constantly hammering home.

So that's why I think the retail business is very exciting for CME and for other platforms around the world. Ecosystems are important.

One of the things I tell my team all the time, I said, "You better look over your shoulder and see a line of clients always coming because the day you look over your shoulder and it's gone, you're in trouble."

And if you want to be a gigantic institutional player, I think that's great. And that's what CME is. But we have to make sure that we can move laterally left and right.

If you look at historically the growth of markets and what's happened in the 90s, there's a building across the street from me. It used to be called the Sears Tower, okay? Named after Sears and Rob.

They got naming rights over it. When Sears was flying in the '9s, 80s, and 90s, they never heard of a company called Amazon.

Nobody knows what a Sears is anymore. Sears is gone for the most part, right?

So why did that happen? because they didn't adapt because they felt that their vertical was so strong along with some of the other ones and these other new participants came in and destroyed them. I cannot allow that to happen.

So for me to participate in the new world and protect the world that's going on today is really important.

My dad used to love Sears, Joe, because he said you can always find a parking space there.

Oh, that's a great that's a great reason to shop somewhere. Well, actually, let's pick up on the um the Sears versus Amazon.

There could be someone who listens to this conversation and hears your concern about the speed with which Kelshi lists contracts that aren't, you know, technically CFTC endorsed.

And they might say Terry is trying to keep his um position by dent of regulatory regulatory mode, etc. that ultimately Kelshi or some or any others, but they're the ones in the headlines these days, that they could potentially be a major player in futures in the future

and that one reason to talk about oh there's these concerns is regulatory concern and also um you know like there's not like a ton you know you as the CME I believe correct me if I'm wrong have had very strong pricing power uh for uh your futures and tech and in most of finance

margins have generally been going down. Fees have been going down. Brokerage costs have been going down.

Someone might hear the story and say, "You're trying to protect your ability to continually expand price by doing things like going to Washington and warning them about how scary it is these new prediction markets are."

Well, first of all, I wouldn't do that because I'm partnering with um FanDuel. So, that's not something I'm prepared to go say how these new prediction markets.

I will say that certain prediction markets could be potentially scary like political outcomes and things of that nature. So I wouldn't say all prediction markets are scary.

So I think that's a bit of an overstatement. Second of all on pricing power. If you look at the price of CME today on a per contract basis, it's cheaper now than it was 25 years ago.

So you might say to me, how could that possibly be? You got all this pricing power.

Well, there is also another company. As long as we're talking about retailers, let's talk about Walmart.

There's a Walmart model. How about selling something for less but selling a hell of a lot more of it? My volume today I do more in the first hour than I did it in a week back in 2002.

So the question is we do more because we've have access to around the world which allows me to make CM more prices have not compressed or prices have and your prices have compressed

my prices today versus what they were in O2 are completely different because when you look at the headline price you're not looking at the tiered pricing that certain constituents get for volume.

So volume pricing discounts are massive within our world. So that is a big deal. So my average rate per contract 69.70 cents a contract.

You know it it can be higher or lower but the volume could be a lot less too. So we do quite well with the model that we have. But we also have pricing on market data and other products that's that's proprietary to CME that you may charge different for.

So that's different. I don't go to Washington to ever be anti-competitive because if I'm going to be anti-competitive, it doesn't serve my interest for the long run.

Anti-competitive people in nature is good for the short term, but really bad for the long term because you want that ecosystem, as I said earlier, to continue to grow.

And if you're smart and innovative enough, you will grow with it. And that's one of the things that I'm looking at with CME. That's why I did a deal with FanDuel.

FanDuel has 13 million accounts active today in the United States. Those will have access to my products. I never had that before.

Yeah.

We're doing things with our retail participants today that I think some of my predecessors over the years ago. What the hell has he done?

That we never would have done before.

You know, and I believe that if we still did nothing around innovation, we would be trading pork bellies. We would be trading onions, which are illegal.

They dumped them all in the river and kept the burlac sacks. Pork bellies are gone. They're no longer here. So, we'd be out of business. is my is the Bible.

I think when you go to Washington, maybe tell they got to fix that onion thing.

Ask if they can set up a prediction market for that onion thing.

Tell them they got

it's the only commodity in the world that's banned by Congress.

I know

and I think we talked about that last time we were together. But I think Joe, to your point is I don't go there saying this is bad or this is good.

I go there and saying let's have eyes wide open. That's that's all I want because there's nothing worse than having if someone gets sick and we all get a cold and we go how the hell did that happen?

Well, that that's not good for the participants, not good for the institutions. And right now, when you get newer entrance coming in, I'm not saying they're skirting the process. I'm not saying Kelshi is skirting the process.

But when you say you have CFTC approved products, let's make sure that the the public understands what they are. They are CFTC products that have not been objected to.

There's a difference there. And I don't know if the the end user understands that. That's all my point was on. Got it.

Treasury futures are a huge part of your business and I know you've been critical of Howard Lutnik's new effort um to set up his own sort of offering there.

What exactly are the issues that you see there? And I guess what can the CME do possibly to become more competitive in that space against you know you haven't had that many competitors before?

We've got a lot of competitors throughout the years and there's such a thing called efficiencies in the marketplace Tracy that capital intensive worlds that we live in today because of a whole host of rules going back from DoddFrank into other uh Basel rules and things of that nature for the banks.

We create today around $60 billion a day of efficiencies for our market participants every single day. And in my interest rate uh area, it's $24 billion a day of market efficiencies.

That's money freed up that the largest participants in the world can use it for other areas. They don't have to park it with me to be in compliance anymore because I created those margin offsets for them.

I think that's really important uh going forward. So the other part of your question was

Lutnik.

Lutnik. Oh, okay. So, I don't have an issue. Listen, he's a treasure, he's a commerce secretary. Um, his offering, my concern with his offering is the following, and I'll say it a hundred times.

They are clearing that US Treasury futures contract in the UK under UK law.

In the United States, the law states that if you clear a cash treasury, which is under the new law coming up under the cash the treasury clearing mandate rules, that it's an SEC single regulatory mandate, meaning you you go wherever you want, but the SEC is going to regulate you.

My concern was that futures expire into cash. So, what's the difference between a future and a cash market once expiration happens on the future? Why wouldn't you treat them the same?

And why would you allow UK law uh and UK bankruptcy to let US participants in our foreign sovereign debt?

There's 27 trillion of US treasuries outstanding today. If we have a problem like we saw in London with the metals market of nickel where they busted the trades, they didn't do a risk management.

They just busted the trades which left people hanging. What's to say that the Bank of England doesn't do that with the US Treasury market if in fact somebody has an issue?

And if they have an issue with that, what's to say that that part of the market that they did that on doesn't have a bigger impact on the US market?

So my issue is the US like every other country in the world should have the laws of its foreign sovereign debt be by the laws of that nation.

And we don't have that in this particular situation. Every other country in the world has the laws of their country applied to their sovereign debt except the United States on futures.

And they could say, "Well, it's a derivative." No It's a derivative. It's a derivative that turns into the cash product. That's exactly what you're trying to protect.

So that's my argument. I told Mr. Lutnik, I told Congress, I told every regulator in the world, if he wants to put that offering in the United States, let's go. I want to compete with him.

He's going to London. Do you have a good sense of that?

Why? Yeah. Why?

Because they believe that the swap dollar swaps market that's in London, which is completely different than futures, dollar swaps is fixed versus floating. It is not issued by the United States government.

Treasury contracts are issued by the government. Futures, like I said, turned into the cash. So they believe that because there's a large pool of dollar swaps being cleared at London Clearing House, the offsets will be greater than CME.

Oh, I see.

But that's not the case because I just explained to you that we give $24 billion a day in efficiencies in our interest complex.

The only way that that larger pool of swaps would be relevant in creating a better offering is if they had any futures volume. You have to have the futures volume.

We have 100% of the futures volume here at CME. And for every one of those futures contracts, we have a swap, a dollar swap at CME that offsets it.

And if we didn't, then that would be a problem. So the question is, if you're sitting at a dealer anywhere around the world and you're holding US futures and you can save the capital of an offset with your swap, are you going to put it at LCH because they're nice guys?

Are you going to put it at CME to be part of that $24 billion because it's growing? My point is the futures has to grow in order to get the larger pool of the swaps offsets.

And right now for every swap contract that's out there gets the offsets against my futures products today. we're not missing out on anything.

So his offering is is a charade game of saying, "Look how big that is. Okay, it's big, but no one needs it right now.

This the the futures market is what it is right now. It's big, but we have the swaps to give the offsets." Does that make sense to you?

It does. That's his offering.

Yeah. We got to get you on stage debating Letic. That would be great.

Yeah.

Well, wait.

I can't say anything bad right now.

I'll wait till he's done then we can do it.

Well, speak you didn't say anything bad. I was, you know, I was not expecting earlier to hear you give a little bit of a hat tip to Sam Bankman Freed, but um there's another thing and actually Sam Bankman Freed was one of the main um advocate or sort of pushers of it.

This this thing that emerged out of the crypto world of a perpetual futures and could they apply could we have oil per like is there any reason this model in rather than oil it's like the December future, the January or the 2028 future.

Is there any reason that this tool, I guess, product, whatever it is, that sort of emerged out of crypto couldn't eventually be applied to all of these legacy asset classes?

It's against the act. The the a futures contract, yeah, is defined as a product that is to be price determined at a later date.

yeah,

Okay. It doesn't say it will it'll be and you have to have a haha test, right, on that. So, a 50-year per is not a later date.

just because that's a joke. That is would you say the haha test? That would be like a

if if you created a 50-year perpetual.

Yeah.

Which some of these people are doing in Europe and others. Yeah.

They say, "Well, they're perpetuals, but they'll they'll do something 50 years." Okay. That's not the that's not the definition by law of a future.

If the law were to be changed in the US, would you see that as a innovation that could be useful for uh these markets that you trade? There are certain markets that could never become perpetuals.

And there's a reason for that. So, let's talk about what those are. If you have a perpetual livestock or grain market, how in the world am I going to make or take delivery on something that never expires?

Immortal cows,

right? How am I going to make or take delivery on the food markets of the United States, which is very integral into pricing of these? So, deliverable products can

can

what else is deliverable? The United States Treasury market is deliverable, right? Because they expire each month.

They expire.

So my point is a perpetual would not work in deliverable products. So you say, well, what about cash settle products, Terry? Would that work?

I don't know if they would work. They would the index would continue to go, but again, it would not fit the definition under the law of a futures contract because whether it's cash settled or physical settled, the definition is the exact same thing for a futures contract.

And it's not the perpetual definition. Got it.

Let's talk some more general macro, I guess. And we we touched on Treasury futures earlier, which again big part of your business.

There's talk of another potential government shutdown. I'm very curious how you think about that. How much of your time you spend thinking about that possibility and what it means for CME risk management?

Or is it the case that we've been here so many times before? You kind of know what the playbook is.

You always think you know what the playbook is to some extent, Tracy. But again, I think that if you the one time that you apply that strategy and you go, "Whoops, what do you mean it happened?"

You know, that's a problem, right? So, you always have to be prepared and we are.

I think if there is a shutdown, which I think there very likely could be. I don't think it's going to be the shutdown that is going to be a disturbance to the economy. I think it's going to be a disturbance to parks and recreations.

It's going to be a uh some of the other disturbances which this is where it bothers me. Social services, you know, that's a problem. But what does that mean for the financial system? Not so sure.

But you know, people's social security checks getting out on time. Is that get delayed? That's a problem.

Economic data getting reported in time.

I I think that when you look at they've always kind of carved that economic data out.

Okay. Yeah.

with the USDA and other entities, they've always gotten gotten the data out through past shutdowns.

And I do think that the pressure to reopen the government will be immense from both sides of the aisle. So, they will have to come to it. Even if it's a short shutdown, I I don't see it being a long one because of the reasons the the social services that are so important to so many constituents of Congress need to have happen.

You know, this actually reminds me going back to the uh different the varieties of event markets and we talked about the political risks which I find uh you know very compelling especially at the small elections.

There are other things that are traded on event markets that to my mind a a hedger with a sort of economic stake might want to hedge.

So portfolio manager who might be worried well what if we get a super weak jobs print um that could really bust my trade on these other prediction markets you can bet is it going to be over 150 is it going to be over 200 is it going to be below 100

you could also maybe a someone who's very bullish Tesla for their robots division wants to is bearish on the cars so I'm going to go long Tesla but I want to short the prediction market on their volume car sales etc

these are different than the politics ones in the sense that they're not as easy, manipulatable. They're something else. How do you feel like there seems to be some It strikes me that there could be a real economic justification for the existence of these event markets?

I again, Joe, I'm not going to disagree with what you just said because I I I think that the more riskmanagement tools we have is better. Yeah.

What you just described was risk management. You did not describe a gaming type scenario. You described a company of Tesla that has multiple divisions that you like one, but you're a little worried about the production of their cars.

So, it it happens every single day and it's been going on in the market for 100 years. It's called parat trading. So, you sell this and buy that, right?

Because you're not quite sure when the event's going to happen, but you know, let's all spread it up a little bit.

It just seems to me that there's this proliferation of possible tradable events now in part because of these new platforms.

So you you know when we think about hedging risk, maybe a big insurer wanted to hedge out some interest rate risk or something that makes sense, but these new platforms are offering very specific things like bet on the car sales number or bet on the jobs number, etc.

Is that a space that you could see again it's a risk management thing could see me get into events such as that?

Again, I think when you look at specific events that you just outlined, I'll use Tesla. Sure.

to your example, I would have to see what the interest is by the participants because if you get a contract that you list you, whether it's a prediction market or a standardized contract, and no one wants to trade it, then it's it's an irrelevant contract anyway, right?

So, I like to say that, and boy, I hope the people in Maine don't hate me because I've used this example a few times. There's people in Maine that think you should have a lobster futures contract, right?

But you know who wants that? People that are in the lobster business. the rest of the world doesn't care about that because we can't afford lobster and we can we just pay for it whatever the price is.

So there really isn't a marketplace there for the speculators to participate in.

So is that the same situation with what you outline? I'm not suggesting it is but that's up to the participants.

That's why we we're very careful not to put out products that we think that there's no demand for. We we research with massive constituents about what they think they need in order to manage risk.

Mhm.

And we're hearing different things now. Does a product come out like a prediction market where everybody goes, "Aha, I finally found the holy grail on how to lay off my risk." I don't see it.

I think the prediction markets that'll be listed will be driven by the demand of the participants, not the market itself. Does that make sense to you?

Yeah. Very interesting.

I really want to launch a uh lobster prediction market now. Lobster price prediction. I think that'd be a really interesting experiment.

There used to be a cardamom futures that was traded in India and I tried reaching out to the regulator. I wanted to do a story about a dead futures contract that didn't I couldn't get in. I got to try again cuz you should try again.

Yeah. I'd love to like the story of a futures contract that just lost. Yeah.

Yeah. Yeah.

Sort of on this note, do you see any indication of big institutional investors, I guess, taking some of the the strategies that are deployed by retail or sort of imitating retail in some way.

And what I mean by that is I think about the one day zeroday options when those first gained traction a lot of the activity was through retail and then the institutional sort of got pulled in and got really into it.

Is there evidence of institutional becoming more like retail in certain patterns of behavior or certain interest in certain products?

Well, I think there is always an opportunity for big institutions to look at what the retail is doing. So let let's let's be mindful of where the money comes from from institutions.

So if you put together a pool of dollars and you give it to a a large institution, they call it institutional money that probably came from a subset of the teachers union of a lot of people.

So everybody's got $10 and this all a sudden it's worth $und00 million or a billion dollars, whatever the case is. So that retail money that's now big is now called institutional money.

So their their thought processes aren't too dissimilar from their clients. So yes, I can see that going back and forth, ebbing and flowing about the ideas of what they want to participate in or not.

First of all, I think people are always looking for opportunity. I think they're always looking for efficiencies and I think that the lines of institutional and retail are absolutely blurred right now.

And I think there's a lot of people going, "What does that mean?" I feel like I've got some kind of handle on that. And that's why I'm doing what I'm doing because I think that the those blurred lines will continue to go forward and the products that they participate in and how they do it will continue to get blurred.

I think both can grow and they'll grow exponentially, but they're going to look a lot alike.

I just have one last question and I feel compelled to ask every CEO or really every corporate executive this these days with the exception of your software engineers who work at uh CME right now.

Is there anything that you can point to where large language models are being deployed in a productive way within here or is it still at test and see and do experiments?

Okay, so let me see if I can answer that one, Joe. So large language models being deployed.

Yeah, I'm sure the engineers are generating code. So let's

Yeah, there's no question. But see, we're we're kind of in a bit of a limbo, for lack of a better term, spot right now because a lot of that stuff that I'm working on is going through Google right now because of the the relationship and the partnership I have with Google.

I'm transitioning I'm going to transition my markets to Google Cloud. I'm transitioning a lot of my tech to Google cloud and a lot of that machine learning and things of that nature Gemini and all that we're going through Google

so we are doing it together so it's not just my people doing anymore it's CME and Google working together to deploy that so I can't give you a singular answer what we're doing as CME because it's it's a mix between us

at the moment there's no workflow that exists where someone could point and say you know what this used to be a 10erson job but thanks to large language models it's a one person job at least as of September 25 2025

the only way I can answer that is by headcount

okay

and I would say that that is not the case because one of the things that I've seen with technology is it creates other jobs and it eliminates the last job

so yes we have seen the elimination of certain things to your point but it's created other ones so I look at it as headcount not so much as project uh related

spoken like a former pit trader who became the uh the CEO of a very large derivatives exchange Can I squeeze in one more question?

This is backward looking, but I am very interested in hearing about it. Um, Liberation Day, huge amount of market volatility. What was that like for you?

Um, you know, just another day to be honest with you. I hate to say it that way, but we've seen so many different um events in my career that, you know, when you go back to the 08 crisis, you go back to the flash crash, you go back to other scenarios, the pandemic.

You know, I look at the pandemic as one of the more the more frightening times in the history of markets versus liberation day. Liberation day is more about what are the tariffs going to mean or not mean.

And you know, I think there's a lot of people that believe that there's no way that these could come to fruition. So, it was kind of tempered down a little bit. The activity was pretty exciting, but if that were to come out of the blue, it it would be really bizarre.

But I think that was fairly well telegraphed, Tracy, to say the least, Liberation Day. So, I think the market was well prepared for it.

It reminds me a lot of last week with the Fed.

That was the most telegraphed quarter point move in the history of the Federal Reserve, right? Is that fair?

I think liberation day nine 5% moves in the stock market in a row.

Okay. So when you look at percent of stock market moves at the levels that we're at today versus the percent of the levels that we're at in '08 it's it's a non-event.

So if we had 8 9% everything based by 2008 is a non-event.

Okay. Therefore is all price anyway.

So I think it's relative to the value of the product and the percent goes with it.

What would worry you now?

everything worries me.

Oh, okay.

So, I don't have one particular thing. So, you could say anything and I'd say, "Yep, that worries me."

So, but I I try to uh manage it and move forward. And I I I like to be, you know, telling my people a couple different things. I I love looking for I love the future. I love young people.

I think they're innovative. I think they're opportunities galore going forward. And I like to use my past as something that I learn from but not live in it.

So, I don't like to look through the rearview mirror. I like to look through the windshield and go forward. So, but when you do that, you know, there's a lot of things that can scare you.

We talked about them earlier today. Some of the new innovations that are coming out, some will win, some will fail. So, you have to be very careful about how we participate in that as an institution like CME.

So, that a lot of that concerns me. No different than when Sam was uh you know putting forth with uh FTX back in the day and he was backing up his coins with synthetic other coins and then he wanted to have a margining system with no risk management that that was fraught with danger and I saw that but it seemed like nobody else did.

I'm not suggesting that's today's world, but there seems to be uh a situation right now with regulatory issues where, you know, go ahead and do it and we'll apologize later is the old saying, whatever it is. And and that's not a good place to be. So, that worries me a little bit, Tracy.

All right, Terry Duffy, always good chatting with you. Thank you so much for coming back on the show.

Thanks, Tracy. Thanks, Joe.

That was a blast. Thank you so much. So much fun.

Joe, Terry's a blast. I I love talking to Terry.

I love talking to Terry.

Yeah. Um I'm glad we did it though because I think if you're thinking about the intersection of the sort of prediction betting markets and the sort of old school traditional markets, the CME, you know, kind of stands out.

It's right there. Yeah. I thought I really I really liked his point about 2017 was by some by many measures very late to the crypto game.

Maybe I mean I guess we don't know in 100 years from now maybe that'll still be seen as day one but it's been a successful business for the CME

and so this idea that the long-term you know one way to think about the long-term value creation of the CME is that it's okay to be second that doesn't need to rush out of the gate for some of these things. I thought that was a very compelling example,

right? And there, you know, there is first mover advantage, but on the other hand, there is also institutional um strength that can be an advantage as well.

FTX said first mover advantage. It sort of was missing the latter one, and that was proved to be very costly.

I think that was Terry's point, right?

Yeah.

I don't want to be super old-fashioned when it comes to a lot of betting markets, but one of the things you hear is that when you think about traditional financial assets, it's about putting money to good use, right?

you know, you invest in something, you're supposed to get an income stream back or maybe an asset that appreciates over time, but again, probably one that generates some sort of income.

I do I I look at the activity on all of these betting platforms and like, you know, marketmaking platforms and things like that and I just think there's so much money being generated and I'm not sure like

where it's going. Do you know what I mean?

Yeah. There's so much going on right now and like it just feels like there's a complete blurring of everything, a complete transformation of everything.

It really does feel like to me specifically the doors are being flung open. There is this sort of growing norm in society that anyone can trade anything at any time for better or worse. I make no judgment on it.

I do think you know it is interesting to me one to CME specifically this sort of like caution where you know let's let's take this stuff seriously not necessarily dismissing

on the other hand like when CME like partners with FanDuel and which is like a literal sports betting company it strikes me that that is an accelerating event for this world where we just trade on everything that you can talk about caution but like when you're like you know partnering with a straightup sports betting company even if it's on a different app etc that you're accelerating this world of everything is a bet on any on any app

you can talk about caution but like when you're like you know partnering with a straightup sports betting company even if it's on a different app etc that you're accelerating this world of everything is a bet on any on any app

on the plus side lots of content for good odds episodes

and one other thing yes and we have many more like this is like perfect timing this trip and everything because there is so much going on there's that round table.

I really like Terry's point about the and even if you said it as kind of a joke about the lobster futures because I do think that's very telling right you could imagine in that lobstermen might like to hedge their prices, but that there's just not going to be enough volume or real market for it.

And I do think that's interesting to keep in mind because I do look at some of these contracts that exist on the other platforms and like I could see a entity wanting to hedge out the risk of a very left tail jobs report or I could see wanting to hedge out the car sales risk of Tesla.

The logic of the market does not necessarily mean that there will be a sizable market. I think is a very important one to keep in mind.

But I also wonder if you wouldn't have the same market size issues for something like a lobster prediction market. Like who Well,

well, yeah. I do think we don't know.

No, no, no. I It just throws up all these really interesting questions and I do think maybe we should start one and then talk about what we learned from it.

Let's do it.

Okay, the next Odd Thoughts series. Uh, shall we leave it there?

Let's leave it there.

This has been another episode of the Odd Thoughts podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway

and I'm Jill Weisenthal. You can follow me at the stalwart. Follow our producers Carmen Rodriguez at Carmen Arman Dashelbennet at Dashbot and Kale Brooks at Kellbrooks.

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