CME's Terry Duffy on the Disconcerting State of Finance Regulation

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Tracy Alloway (0:18)

Hello and welcome to a very special live taped episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:24)

And I'm Joe Weisenthal.

Tracy Alloway (0:26)

Joe, we are here in Chicago. Great city. A very special show. It's a beautiful city and a huge trading capital in the world as well.

Joe Weisenthal (0:32)

That's why we love coming back here year after year to do shows here.

Tracy Alloway (0:36)

That's right. So I'm very happy to say we do in fact have the perfect guest. We're going to be speaking with Terry Duffy. He is, of course, the CEO and chairman of the CME Group.

Joe Weisenthal (0:44)

That's right. Longtime chairman and CEO. Markets have changed so much since the start of his tenure. So looking forward to learning what he's learned throughout his career.

Tracy Alloway (0:54)

All right. So take a listen.

Terry, thank you so much for coming back on Odd Lots. Thank you. Thank you for having me. I really appreciate it. Nice to see you both. You know, I mentioned you are, of course, CEO and chairman of the CME, but you're about to transition to a new position next year. You're going to become executive chairman of the board. Sort of a retirement. How should we think about this?

Terry Duffy (1:16)

A retirement.

Tracy Alloway (1:17)

A retirement. Okay.

Terry Duffy (1:18)

I'm a big believer in that. I think that you need to make sure you have good, smooth transition.

I've been at CME for 46 years. Got my first job for $56 a week. I've been the chairman since 2002 when I took CME Public. And I've been doing this an awful long time and now being CEO for all these years. So I think it's really important to have a good, smooth transition. I'll stay on as executive chairman to help Lynn Fitzpatrick through the initial phase of it. And if needed, I'll be there. But if not, she'll run the firm.

Tracy Alloway (1:48)

All right. Well, we're going to frame this then as a sort of exit interview for you. We expect you to tell us all the really good war stories before you leave.

Terry Duffy (1:56)

Yeah, I'm still CEO, so I got to be somewhat careful of the public company. All right.

Tracy Alloway (2:01)

Let me put it a different way. So you've been at the CME since I think 1980 So you've been working for five decades. You've been in markets regulated by the CFTC.

For those five decades, how has regulation changed for you? How would you characterize the evolution?

Terry Duffy (2:18)

It's amazing. I was just talking to my friend, Don Wilson, who will be out here shortly, and talking about the early days of when we both joined. Donnie was 21, I was 22, but I'm 10 years older than Don. So anyway, when we look at the regulation and what it was, I mean, the CFTC was basically brand new. It was 1973, 72 area came into play, and it was basically a principles-based oversight agency for agricultural products. And then all these new innovations come along the way, you know, from Financial Futures, the Echoed Stock Equity Indexes, and now the cryptocurrency and everything else that's going on. So it's changed dramatically throughout the years. And then, of course, we've had some situations with bad behavior in 2008 in the financial crisis due to the leverage issue on the housing market.

And you go through a whole iteration of change again through Dodd-Frank. And now we are still, even 16 years later, still trying to figure out parts of Dodd-Frank. So it's pretty amazing how parts come.

Joe Weisenthal (3:18)

I was trying to workshop this question with Tracy earlier and come up with a polite or sort of politic way to put it. But we live in a time where an agency that used to regulate agriculture futures is now nominally regulating what a lot of people would say is like sports betting, but they call it trading and so forth. And there's all these new instruments, offshore instruments, that people can access via crypto and so forth.

The impolite, impolitic question is like, are there any laws anymore? Because it feels like that. It really feels like that. Are there still financial regulations and laws?

Tracy Alloway (4:00)

It's worrying that was the workshopped version. Yeah, yeah.

Terry Duffy (4:05)

It does feel a bit of a ready fire aim strategy going on right now where anything can go. And so it's very disconcerting. I'll give you a couple of statistics, which really trouble me.

Since the second Trump administration's come into place, there's been 2,500 self certifications that have been submitted into the Commodity Futures Trading Commission. Not one of them has been denied. Now, how can it be that not one of them has been denied? So when you look at some of these prediction markets, I've made fun of them and people say, will you please stop bringing this up? I bring up, they approved a contract on predictions on Nathan's hot dogs. How many hot dogs did Joey Chestnut eat? I have to ask, what's the economic impact of that contract being out there? How is it not in violation of Core Principle 3, which is readily susceptible to manipulation? George Santos, is he going to show up at the State of the Union address when President Trump was there, the former disgraced congressman in New York? Well, he bet against himself and didn't show. So how is that not a susceptibility?