Terry Duffy on the CME's Big Push into Retail Trading

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, we are here in Chicago.

Joe Weisenthal (0:24)

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

Tracy Alloway (0:28)

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, mercantile Midwest kind of feel.

Joe Weisenthal (0:38)

Totally. I mean, what's cool about Chicago are many cool things, but it obviously has the history of trading and pits and 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 the history is not just history. It's still, when I think of capital to trading, I usually think of Chicago.

Tracy Alloway (1:00)

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.

Joe Weisenthal (1:20)

So I think there's, the thing that I think is really interesting that's going on in financial markets, among many other things, is it seems like there's two different entities that are trying to cannibalize each other. And 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, will I be trading cotton futures on my sports app? Or will the opposite, will I be going to a traditional brokerage to place bets on a Raiders game?

Tracy Alloway (2:13)

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 are considering sports betting.

Joe Weisenthal (2:26)

The doors are all flung open.

Tracy Alloway (2:28)

It's all very confusing. But I have to say, we have the perfect guests 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. Terry, thank you so much for coming back on Odd Lots.

Terrence A. Duffy (2:44)

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

Tracy Alloway (2:48)

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.

Terrence A. Duffy (2:56)

Do you have a tape of that? Because I'm not so sure that's true.

Tracy Alloway (2:59)

I got proof. I got the transcript.

Terrence A. Duffy (3:01)

Everybody remembers something, but let me see the proof.

Tracy Alloway (3:04)

I'll send it to you after this. One of the reasons we want 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.

Terrence A. Duffy (3:19)

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 clients in their world, or we can say that the gaming clients want to have the traditional finance people in their worlds. These worlds 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 custom 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. 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 got 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 to where 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 a $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. People, listen, we're going to have the biggest wealth transfer by 2040 We're going to have $80 trillion go, 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.