CME’s Terry Duffy Visits the NYSE, Reflecting on Trading Futures and the Future of Trading

Speaker 1:

From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years.

Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE exchanges and clearing houses around the world. And now welcome inside the ICE House, here's your host Josh King of Intercontinental Exchange.

Josh King:

A couple of days ago, as I record this, the Kansas City Chiefs defeated the Philadelphia Eagles in Super Bowl LVII, but frankly, I'm still smarting from Super Bowl XX back in January 26, 1986. That's when the Chicago Bears beat my hometown New England Patriots 46-10 in the Louisiana Superdome, including the Bears' final offensive score when William "The Refrigerator" Perry bounded into the end zone for a one-yard touchdown run on a handoff from quarterback Jim McMahon.

So what kind of entrepreneurial risky move was it to give the ball to Perry, a 380-pound rookie lineman out of Clemson? The kind of strategic creative move that a Hall of Fame risk-taking Coach Mike Ditka, who played tight end for six seasons with the Bears before ending his career with the Eagles and the Cowboys, would call to put Chicago's gridiron supremacy on display that year.

Oh, why am I telling you all this? Because on our show today, we have the Mike Ditka of the exchange business, and as a New England guy, I find myself sitting across the table from the competition's head coach, Terry Duffy of Chicago, the longtime Chairman of CME Group, the public company successor to the venerated Chicago Mercantile Exchange and its rolled up businesses that now boasts a market capitalization of just around $67 billion, and just about $7 billion more than ICE's $60 billion market cap.

You don't think we check that score just about every day?

Month after month, year after year, we are engaged in the constant round-the-clock Super Bowl of global exchanges, from Chicago to New York to London to Singapore. Here's Terry discussing his most recent earnings results on February 8th.

Terry Duffy:

'22 was the best year in CME Group's history with record average daily volume of 23.3 million contracts, up 19% from '21. The growth was led by our financial products, which finished the year up 25% to a record average daily volume of 19.5 million contracts. Options average daily volume across all asset classes also set a record with ADV of 4.1 million contracts, up 23% versus last year. And finally, our non-US ADV increased to a record 6.3 million contracts.

Josh King:

That's a lot of records for the record books. As explained by the coach reflecting some of the philosophy at play, here's Coach Ditka with Howard Stern.

Mike Ditka:

The players play the game. And I said... Somebody once said that there's no coach worth a player, but I disagree with that. I think that you formulate the game plan. Everything in life is a game plan. What you do today, we all have a game plan.

I go back in my life to people. I watched Lombardi. When he went to Green Bay, they stunk. Why did they change? They changed because of him and what he made them understand, that there's only one way to do things. That was his way. It was the right way.

Howard Stern:

He was a leader and he inspired them.

Mike Ditka:

Right. Inspiration, right. He inspired him. You don't motivate. They got to motivate themselves.

Howard Stern:

But also tactically, you've got to be sort of a genius. You got to sit there and go, "Hey, how am I going to get this ball downfield?"

Mike Ditka:

Well, and they all think KISS, Keep It Simple Stupid, because it's not genius. It isn't. It's beating the other guy. You know what he's doing. You know what you do best.

Josh King:

You know what you do best, and it's CME for Coach Terry Duffy. Knowing what you do best is a philosophy that you don't have your players do anything that you wouldn't do yourself. From a career that started in the pits of the Merc to sitting in the witness chair across the room from members of the House committee on agriculture, testifying on the dangers of new clearinghouse models proposed by FTX, Terry Duffy has always been ready to roll up his sleeves and speak truth to power.

In a minute, our conversation with Terry Duffy on navigating the regulatory process, the biggest issues facing the markets, and a career that spans from trading futures to the future of trading. It's all coming up right after this.

Speaker 2:

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Josh King:

Our guest today, Terry Duffy, is the chairman and CEO of CME Group. During his tenure, Terry led the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade in 2007 to create CME Group and was named its Executive Chairman. Previously, Terry served as Chairman of the Board of CME and CME Holdings. He's the Vice Chairman of CME Holdings from its formation in August 2001, and Vice Chairman of the Board of CME from 1998 to April 2002. He first joined CME as a member in 1981 and was President of his own firm, TDA Trading, from that point until 2002.

Welcome Terry inside the ICE House, and welcome back to the New York Stock Exchange.

Terry Duffy:

Well, thank you very much Chris Berman from ESPN. I appreciate that. The analogies were quite interesting between the coach and the 1985 Bears.

But you know, you talk about scores and such a great game and they gave the ball to Refrigerator Perry, but you can't talk about the '85 Bears without talking about the greatest legend of all time, which was Walter Payton. And he did not get a touchdown in that blowout game against New England. And that was a shame. But you're right. It was quite fascinating to watch the big boy go across the line and get the touchdown for the Bears.

So anyway, speaking of keeping score, you referenced earlier that the market cap of ICE and CME is $60 billion, and it's roughly $67 billion. So just since we're not keeping score, it's $67.5 billion as we sit right here. And now because I happen to... Not that I'm keeping score.

Josh King:

Not that we're keeping score, Terry.

Terry Duffy:

Not that we're keeping score, but.

Josh King:

I mean...

Terry Duffy:

I just want to make sure we got it straight. But I want to thank you very much Josh and your team for allowing me to participate in your podcast and I've been coming to this place for a long, long time. I took CME public in 2002 and had the pleasure of listing CME under New York Stock Exchange. And it was one of the biggest achievements I felt in my career was the walk into this building in '02 and ringing the bell and list CME under New York Stock Exchange.

A lot's transpired over the last 21 years, but that day, December 9th, I believe, of 2002, was just an amazing day. And I remember it like yesterday, so a lot of fun.

Josh King:

Yeah, it was just over 20 years ago. Terry, Chicago Mercantile Exchange on what is now called CME Group IPO'd here, as you said, on the corner of Wall and Broad Street. You were here to ring the bell in celebration. We dug up an image that we wanted to give to you as a belated anniversary gift. I don't know if you have a similar one in your office.

Terry Duffy:

Oh, actually, that is awesome. I have this picture in my house actually, not in my office, guys. It means a lot to me. And the man directly to my right is somebody who I still talk to and that's the Former Chairman and CEO of the New York Stock Exchange, Dick Grasso. I still talk to Dick, but boy, looking at some of these faces, there's a couple that have been deceased but...

Josh King:

What memories does it bring back?

Terry Duffy:

You know what? It brings back memories. It was almost like a blackout period for me because you're doing a road show for several weeks. You're trying to take an exchange to do an IPO and there's never been an exchange in the United States that went public. So when you're out trying to talk to investors to buy shares in an exchange, they go, "No, exchanges list shares, we don't trade exchanges." Nobody really understood the concept, so that was a very grueling process.

So the day... I'll never forget the night we flew in here. I got in about three in the morning from California and I had to be here for ringing the opening bell so I didn't even go to sleep. And my wife had flown in from Chicago to be part of the festivities and it was just an amazing day. The floors were crowded and that was a different time back then, but really exciting to list the CME on the NYSE.

And you know what? It was amazing. It's hard to believe it's been 21 years.

Josh King:

Yeah. I mean, you were also on the cover of our NYSE Magazine for the March 2003 issue under the headline, "Merc to Market," noting that the firm had started as the Chicago butter and egg Exchange back in 1898, but had really been reduced to just selling one commodity, eggs, by the 1950s. Randy Meyers wrote in this piece of you, and I'm going to quote him here, "A market veteran with an insider's knowledge of how the exchange works, Duffy also has a leader's ability to mold others into a cohesive team, and says Leo Malamed, the longtime Chairman of the Merc, 'a politician's sense of how to get things done.'"

Now Terry, your grandfather's a politician, John F. Duffy. Chicago Alderman, became the President of the Cook County Board. Did you get part of your playbook from him?

Terry Duffy:

You know, my grandfather died very young, so I was a very young boy when he passed away. But sometimes they say the DNA doesn't go far and my dad never wanted to get involved in politics. My dad was just a very blue collar guy, but his father was a go-getter. He was a widower at a very young age, my grandfather, and he was a Golden Gloves boxer back in the day. He owned his own semi-professional baseball team, which were very big. Post-World War II, that was a big thing in Chicago area. And what I read about him and what I know, he was just a guy that was everybody's friend to a degree, but yet he got stuff done.

There was a famous story my dad told me. He just came home from Korea and there was a bomb that went off on the front porch. And my grandfather had said, "Well, I guess that zoning bill's going to now get approved" because that's how things were going.

Josh King:

He was a World War I veteran too, right?

Terry Duffy:

He was a World War I veteran. My dad was a Korean veteran, but the folks that wanted that zoning permit made sure that their voices were very loud when my dad's house porch blew up. So, the zoning got passed. So it's amazing how those things worked back in the old days.

But yeah, my grandfather was quite the guy and so was my father. He just didn't... I think the war hurt my dad a lot.

Josh King:

Speaking of politicians, Terry, one of the first trips that the newly elected 43rd President of the United States made in 2001, before the IPO that we were talking about, was to the Chicago, to the pits of the Merc. Here is George W. Bush surrounded by then-House Speaker Denny Hastert and then-Mayor Richie Daley and an array of traders in their distinctive jackets.

President George W. Bush:

Thank you very much. I thought I had seen just about everything in life till I came here. It is an honor to be in entrepreneurial heaven. What an exciting place. Thanks for having me. I appreciate the hospitality and I appreciate you giving me a chance to come and talk a little tax policy with you.

Josh King:

Things have changed a bit since then Terry, but not just at CME, but here at the New York Stock Exchange and really, across Wall Street as all the major and some of the minor exchanges demutualized or have been absorbed by their exchange groups.

We still like to think that, as President Bush said, we are in entrepreneurial heaven. But when you took the leap to going public, were you getting a lot of calls on how to get that first IPO across the finish line to make CME a public company?

Terry Duffy:

Yes. There was a lot of trepidation by people internally and externally. Is this the right thing to do? Should we just leave it as a member-owned and run institution or should we go ahead and create a liquidity event? So it was a very difficult time because there wasn't a playbook to follow.

So from my standpoint, one of the reasons I actually became Chairman was we had a vote in 1998 or '99 in order to demutualize and then we demutualized in 2000, and the members were told that we would have a liquidity event, and then everybody started to back away from that aspect. And I went to my fellow board members and I said, "Listen, I don't know what you guys are thinking, but I don't know how much more of a mandate you think you need from the people who own this place today. They want to have a liquidity event. I'm happy to lead the IPO if we're looking for someone to do it." But I had a thriving business and I really didn't want to do it.

But it actually ended up working out really well for the company and for me, but we did take it public and listen, people fought it all the way till the day we rang that bell and then there was a lot of smiles going on.

But just to backtrack for a second, to hear the voice of a dear friend of mine, George W. Bush, I still talk to the President and he is a wonderful human being. And I can remember that day like yesterday. And the reason I can remember it was about a week before 9/11, and I have a picture of the President and I standing outside of my office, and I brought it to him in Texas not too long ago. And I showed it to him and I said, "You know when this was taken?" He goes, "About a week before." I go, "Yup."

I mean, it was just amazing because we both look like kids back then and now we both look like this.

Josh King:

No, I watched the video on YouTube yesterday and President Bush is going to be with ICE at the Experience Event in Las Vegas in a couple of weeks. We're very much looking forward to having him there.

I want to hear one other bit from that speech because President Bush talks about another part of his trip to Chicago and sort of the political lessons he was getting.

President George W. Bush:

I've had quite a day here in Chicago. I got a Chicago political lesson for lunch. I dined with the Mayor. It's the second political lesson I've had in recent weeks. First lesson I got was in early November, if you know what I mean. I told the people of Illinois every time I came here, I said, "I wish the Mayor were on my side because he's good." But more importantly, he's a really good mayor. He's a good mayor of a big city.

Josh King:

We don't have a lot of that bipartisanship anymore, Terry.

Mike Ditka:

No.

Josh King:

Since Richard Daley left office, my old White House colleague Rahm Emanuel served for eight years as mayor. Lori Lightfoot has been in since 2019. We're right in the middle of the mayor's race now ahead of the February 28th election. If none of those nine candidates get more than 50%, there's going to be a April 4th runoff among the two top vote getters.

Talk about the legacy in one respect of Mayor Daley and the challenges that the next mayor is going to face from your home city to get it on a firm footing. Boeing, Tyson, Caterpillar, Citadel, a lot of big corporate names that were the community's mainstays have decamped. McDonald's is also making noise.

Terry Duffy:

Yeah, they are, and it's sad to see what's going on. And I would almost wish it was just a Chicago-centric problem, but it's not. I mean, it's a problem that's manifested it itself throughout our country. And it's not just in big cities, it's in small towns too. So, it's very difficult.

But to talk about the leadership of Richard Daley, a great mayor. He's still doing fine. He's had a couple medical issues over the last couple of years, but he's still doing great. And then your colleague Rahm, I mean, you know how Rahm was. He ruled with an iron fist and he was unapologetic, the way he did things. And for a big city, sometimes that's what it needs. And when you eventually lose someone like Rahm, and now we are getting into a place where you're trying to make everybody happy and it's impossible to make everyone happy, and now you have the nine candidates in there. We will go to a runoff. There's no question about it because everybody will get a certain amount of fraction. Nobody's going to get 50% on the first go around.

I said to Mayor Lightfoot recently, I said, "Listen, the pandemic made it really difficult to bring people to work into my offices." I employ thousands of people here in Chicago. And I said, "Now that excuse is gone. And now their excuse is they're worried about their safety." And she said to me, "Well, Terry the homicide rate..." I said, "Don't go there. Please don't go there." I said, "One is too many."

And the problem is here, this happened to my wife just yesterday. Three o'clock in the afternoon, my wife got carjacked right in the city of Chicago and it's absolutely insane what's going on here and 90% of the carjackings in Chicago are done by juveniles. So the juveniles go in and they come right back out literally an hour later. So is that investing in our future?

I said to the Mayor, I said, "Why don't we invest in our future and invest in these young people? They're worth saving, so let's do it." But we have to incarcerate them in some way, shape or form. We can't let them do the same thing an hour later. That's not helping them. That's not helping what we're doing.

I think that's one of the biggest problems big cities have today is just the safety of people walking from point A to point B, whether you are in New York, Chicago, or anywhere else. And now, it's actually going out to some of the suburbs just as well. So there's really no place to avoid this, and that that's unfortunate.

I think it's pent up from the pandemic. I believe that that has not helped the situation. I believe that social media is the black plague of the modern day society. I am convinced of that because people can bully other people anonymously. And to me, that's not communicating with people like we are doing right now. I think communication is critically important to the growth of humanity as much as it is in business, and I think that's lacking dramatically, not only in Chicago but in other major metropolitan areas.

So listen, I think these big cities are important. I think we need to have commerce. I'm writing a piece right now about Main Street and Wall Street, and the problem is people think that they want to hate Wall Street. Well, they don't even know what the hell Wall Street is. Wall Street is what helps facilitate the funding of the municipalities, whether it's sidewalks, hospitals, all these different services that are in rural America too. They don't sell bonds to their own people. We need people here to be selling them to the foreign investors of the likes so we can continue to build outside of our cities, which we do.

So I think the intersection of Main Street and Wall Street, people need to have a better understanding of how that works and not just think it's one against the other because if they understood it, they would know that's not the case.

Josh King:

And we really are on a long-term continuum. I mean, this is not exactly a new phenomenon about what is happening with young people. And in your own city, Chicago has been on its back foot before. I want to hear a clip from Walter Cronkite above the floor of the 1968 Democratic Convention talking about Mayor Daley's father, the first Mayor, Richard J. Daley.

Walter Cronkite:

Mayor Daley says that the Hilton Hotel was invaded by these people last night and that the guests were disturbed and therefore the, according to Mayor Daley, the Hilton Hotel called for assistance tonight. We heard Roosevelt Grier, the professional football player, one of our correspondents on the floor a moment ago, compare that to the call of the... Or rather, Mayor Daley's assertion that the Hilton Hotel called for help and the National Guard was sent to the comparison of the the Russian story, that the Czechoslovak's called for help and the Russian Army was sent.

Josh King:

Now Terry, with all due respect to the great Rosey Grier, we've seen over the past year what the Russian Army can really do when it puts its mind to it. But you were only 10 years old at the time, the age of some of the people that you're talking about now. What were your memories of that moment?

Terry Duffy:

It was quite strange because it was a very difficult time in the history of the United States. It's pivotal.

When the great Dr. King was assassinated, there was a lot of turmoil in the streets, and as kids growing up... I grew up in the inner city. It felt like there was a lot of racial tension, where it really wasn't that much because we grew up with interracial communities where I grew up. And we never saw it before is my point. And now all of a sudden, it really escalated it.

And I remember when J. Daley, Mayor Daley... He was a tough guy. I was showing you a picture of my mom and dad and Mayor and Sis Daley that I have from the '60s. The guy looked like 100 years old when he was in his 50s. I mean, just a tough life.

But it was a tough time growing up in Chicago. So yes, we we've been on our back foot a few times, to coin the phrase that you just said, Josh. But I think we try to move forward and hopefully we can do it again. But I don't think it's a Chicago problem, like I said earlier, anymore. I think it's unfortunately a problem that's manifested throughout the states.

Josh King:

I mean, speaking of your dad, I've heard you talk a lot about love and respect. You were born and raised in the South Side, a neighborhood that you've described as having raised a lot of policemen and firemen, career paths that you might have considered yourself if not for something that happened. How did you first become interested in or exposed to financial markets?

Terry Duffy:

It was strange because I was convinced that I was going to be a policeman or a fireman because that's the only jobs that were in my neighborhood. And as you know, in Chicago to work for the city, you had to live in the city. So it was just filled with city workers, where I grew up, and my sister still owns that home that we're all raised in.

And so I didn't like that destiny so much. I was a worker where I was always looking for a job because we didn't have any extra money to be giving around. So I was always working, whether when I was 15, lying I was 16, and going to sell shoes at a shoe store. Whatever I could do, I would do. And I always said, "I got to find something different, but I don't know what it is."

And I ended up... If you remember, the drinking age in Wisconsin was 18 and I just turned 18 and I said, "I'm going to go up to Wisconsin and I have a friend up there and I could become a resident because I'll put his address as mine. I got a Wisconsin driver's license," can't do that anymore. And then I put myself in the school at University of Wisconsin-Whitewater, but I could tend bar at night and do that.

Josh King:

At Chuck's in Lake Geneva?

Terry Duffy:

At Chuck's in Lake Geneva. And I met this fabulous gentleman who was a young guy and he was the only guy that really tipped. And I thought, "What a nice guy this is." And he says, "I hear you could play golf." I said, "A little bit. I don't play much, but I could play." And he goes, "Well, I'm just retired and I'm going to take it on." "You're retired?" I go, "You're not much older than me."

And his name was Vincent Schreiber, he has now since passed away, but a great guy and a great mentor, and he brought me to his home with a bunch of us on Lake Geneva, and I knew Lake Geneva really well, but it was a very affluent area. So you had homes of the Wrigleys and some of the most prominent Chicago families had these big houses up there. Morton Salt was a big one.

So anyway, we get to this house and I said, "Vince, I don't know whose house this is. They're not going to be very happy that you're bringing a bunch of us idiots in here to trash this beautiful Frank Lloyd Wright house." And he goes, "It's mine." I go, "This is not yours, but if you want to kid yourself, that's fine with me and tell me it's yours. I don't really care. These guys don't care. It's got an indoor pool. Let's go have fun."

Josh King:

Frank Lloyd Wright masterpiece.

Terry Duffy:

Yeah, right? Here we go. So, off we went.

And I walked into the office area and there was a picture of him and Ronald Reagan and I thought, "Huh, maybe this guy's legit." I said, "Oh, how did you get the picture of Ronald Reagan?" He goes, "Well, I supported him for Governor out in California." I said, "Really?" I said, "What is it you do again?" He says, "That's what I've been trying to tell you. I think you'd be really good at this." He says, "You've got a great mathematical mind, you just don't apply yourself enough." He said, "I'd never seen anybody who can remember things like you do."

So I said, "Well, what do I do?" I said, "I see a path." Because you got to remember, 1980, interest rates and unemployment were both around 20%. There was nothing going on. Lawyers were waiting on tables, there was no jobs.

So I took a ride with them to the Chicago Mercantile Exchange on Jackson Street. I walked in, I'll never forget, the bell went up. I thought someone bombed the place. It scared the hell out of me. And I just fell in love with it. I said, "Jesus, this is a numbers game for Christ's sake. I think I can do this."

So I was in my last year of college or my third last, I don't know where I was at, and I said, "You know what? I'm going to stay here and take a job." They offered me a job for what I thought was $56 a day. It was $56 bucks for the week. So I took it anyway and I became a runner on CME and just fell in love with it. And then I convinced my mom to loan me mortgage. They're city bungalows, so I could rent the membership on the CME when I was 22. And she forged my dad's name and we got the loan for more than her house was worth because she knew the banker guy. This was such a relationship time in history.

And then I went in there and then I lost $150,000 in one day, and my mentor came in and he says, "Well, you got a problem." I said, "I know I have a problem." And he says, "Well, here's what I'm going to do for you." I'm like, "Oh, thank God. He's going to write me a check." He goes, "I'm not giving you any money." I'm like, "Oh, shit. Now what?" And he goes, "I'm going to give you my name, my reputation. I'm going to guarantee your loss to the clearing firm. So if you walk, I'm stuck with it."

And it just gave me such discipline at a young age that I would never want to let this person down. He called my mother, told them that I lost the house but, "Don't tell your husband because Terry's going to work it off." And I did. And I was very fortunate. I worked, over a three-year period, worked it off and was able to be successful and take care of my mom and dad the rest of their lives.

So he was a great mentor and it was a really fast growing-up session at 22. And I think about kids today at 22. They're having a tough time putting their shoes on.

Josh King:

I mean, Vincent wanted to make sure you'd never walk. You never did walk. You call it the numbers game. I want to go back to those days, let's call it the late 1980s. A clip from 1987 from this show that was called The Trading Game.

Janet Davies:

To most outsiders, this is chaos and confusion, but actually, it's a business, a business of fever and frenzy, systems and superstitions, fast fortunes and the fear of losing it all. Hi, I'm Janet Davies, and this is The Trading Game.

Speaker 3:

When you're in the pit, there's not one minute that you are able to relax.

For every winner there's a loser.

Speaker 4:

It is a hard way to make an easy living.

Janet Davies:

They've been called 20th Century cowboys, modern day pioneers. These are Chicago's traders, the ultimate risk-takers in search of fortune.

Josh King:

So Terry, I've heard you talk about that misheard trade or misheard call that resulted in the $150,000 loss. But for our listeners, and hearing that maelstrom that we just heard of what the pits were like, actually bring us into that the way you are at that age and the propensity or the possibility of making mistakes. What were the skills that you were employing at that moment and what actually happened?

Terry Duffy:

Well, when I lost the money, what happened? I think I was young, and like everybody else at a young age, thought I had all the answers. The problem is I didn't realize they were all wrong.

And so as I was trading back then, I was getting my feet wet and just assumed I had a pretty good grip of what was going on in the marketplace. And I literally was supposed to buy 100 contracts and I sold them instead. So I sold them, which-

Josh King:

Is that through hand signals and what you were actually doing?

Terry Duffy:

Yeah. Someone tapped me and said, I thought they said, "Buy 100," they said, "Sell 100." Now I had a 200-contract problem, which was substantial because the market now had moved the other way precipitously against me.

And back then, when people knew they had you, they didn't help you. They just as soon stab you. I mean, it was really a cutthroat business back then. You had friends after the bell was over with, but in between bell-to-bell, there wasn't a whole lot of friendship going on. So, it was a tough time.

And I remember, like yesterday, the Janet Davies piece that you just played, 1987, I can remember exactly where I was standing on Black Monday and it's just crazy, all the things you could remember. I remember the S&P 500 futures pit, which was the only place... The New York Stock Exchange had closed down, essentially. We were the only market left open, and the guys in Chicago were literally falling out like dominoes. The pit went from 1,000 people to maybe a handful by the end of the day. Everybody was just falling like flies, but we stayed open the entire day. It was insane. It was crazy.

Today, that kind of move, 520-and-some-odd points, whatever it was that day in '87, we don't even talk about it anymore. It's a day trade. It's an absolute day trade today. So, things have changed a lot.

Josh King:

I mean, things have changed so much, Terry. At the start of your career, the process to execute a trade could take anywhere from maybe three minutes to three hours. Now you're running the world's largest digital exchanges. Change is difficult for a lot of those players who were heard about in those videos talking about the hardest way to make an easy living. What did it take to get here and are you proud of how far the industry's come?

Terry Duffy:

I am very proud of how far the industry has come, and I think that's a good way to say it. It's the industry. It's not just CME. It's the New York exchanges. We were very fortunate to partner and then acquire the New York Mercantile Exchange along with COMEX to get into the energy and metals business and more the New York clientele.

So the whole industry was able to grow leaps and bounds, but it's difficult for people that cannot adapt to change. And it's not just our industry, Josh. I think there's a lot of industries that go from one thing to another and people just can't keep up with the technology or don't want to keep up with the technology or don't believe in it, and they think it's inferior to what technology can provide.

So unfortunately, there are people that get displaced along the way and you hate to see it, but the growth of the business is amazing. The day I walked in here to do the IPO in 2002, our average daily volume was less than a million contracts. Today, our average volume is over 23 million contracts. So the distribution of product around the world today is so much greater, which makes the markets deeper, liquid, more efficient for people to execute their risk management.

So to me, I think the whole industry should be proud of where it's come.

Josh King:

Terry, talking about adapting to change, part of the modernization of the markets has been the economies of scale that lead to M&A activity. One of the big potential mergers that picked up steam, I think in 2006, is documented in the book Zero-Sum Game. And Erika Olson writes that, you and Charlie Carey, then the Chairman of the Chicago Board of Trade, arranged an informal luncheon at Sullivan's Steakhouse and we're going to quote from Erika's book.

"For some of the most influential members and traders from each exchange, the invitees weren't aware of any merger talk. Charlie and Terry simply wanted to see if everyone could get along, if it was possible for the two cultures to coexist."

What did you learn at that luncheon?

Terry Duffy:

It was priceless. We had a private room upstairs and Charlie and I had, we'd been friends for so many years. We got to know each other in the early '80s. Charlie came over from the Board of Trade to trade livestock when the grain markets were slow and he kind of bounced back and forth. And Charlie's just a dynamic guy. I wish he was here for your opening because he would've corrected or added to every one of your sports analogies. He's an absolute encyclopedia of commodity markets and Chicago sports. He's an amazing individual.

But Charlie and I set that lunch up and I remember it was almost like we're on this side of the table or they're on that side of the table and it is like, "Come on, fellas. What is the big deal here? We have two institutions a block and a half apart that have so much to do together. Let's just talk through it." And people were just entrenched, entrenched in the ways of the past.

And it was early 2000s, but you thought it was 1970, the way the people were still entrenched because it was basically the same people from the '70s and '80s. And so it was quite interesting, but it was civil for the most part, but we didn't get much accomplished at the Sullivan's lunch.

Josh King:

How did you and Charlie compare notes when they took the dessert away?

Terry Duffy:

Well, I think we went to the bar and started laughing. He got a cigar and I had a cigarette. No, I had quit smoking by then. A guy took one of his cigars and we just sat at the bar and started laughing. I said, "What a gong show this is."

Josh King:

But you didn't stop talking.

Terry Duffy:

No.

Josh King:

Because one of the wrinkles that would eventually come in that deal was March 2007 at FIA Boca, the event that many of the leaders of the industry are going to be heading to in a couple of weeks, back then, this upstart, Jeff Sprecher of ICE, tries to get in the middle of the deal that you're talking about.

Terry Duffy:

That's right.

Josh King:

Here's what Jeff told me that moment when we talked about it a couple of years ago.

Business was up for sale. It's March 15, 2007. You're in Boca Raton, Florida, what do you do?

Jeff Sprecher:

We were at an industry convention where the CEOs of all major exchanges around the world were in attendance. And I had orchestrated with our bankers and lawyers to slip under the door of the CEO of the Chicago Board of Trade, an offer to buy the company. And it was a very, very public offer in the sense that everyone in our industry was all in the same hotel.

Josh King:

At that time, Terry, Jeff puts up this bid for $9.9 billion for the CBOT, edging out I think what you had is $8.96 billion on the table at the time. How did ICE's bid for the CBOT make CME a better company over the long run?

Terry Duffy:

Well, I don't know if his bid made CME a better company in the long run. He cost... I'm looking around here to see what I could take with me because he owes me a few bucks from that deal by running me up a little bit.

But listen, I understand what Jeff was doing. At the time, the emotions were high. Again, we just became a public company. The Board of Trade had just become a public company, 506 or whatever it was, so they just had a new valuation. You got this new upstart that's coming in, throwing hammers around, and I thought, "What the hell is this guy doing? Can he do this? You don't even understand the way some of this stuff worked."

So CME, and I tell people all the time, if we didn't do the deal at Chicago Board Trade, I sit in a room with people, I said, "We wouldn't be sitting here today because it was that important." And if CME stayed on its own, the Board of Trade stayed on its own, then NYMEX stayed on its own and COMEX stayed on its own, if Coffee, Cocoa, Sugar Exchange, what ICE bought, stayed, all these institutes stayed alone, none of them would be here. They all would've got picked off by somebody, mostly international, and for a lot less than the money that we're talking about.

So I think putting them together allowed the United States to stay such a dominant force in the futures industry because we were able to create the efficiencies for the products for the clients and cheapen up the cost for it. So I think it was a very important pivotal moment in the history of futures trading here in the US and globally.

Josh King:

I mean, you needed the strength and you needed the efficiencies really for what was coming just down the pike from there.

Let's fast-forward a year from that time that you and Jeff were trying to outbid one another to the Lehman Brothers collapse, 2008. For there, Terry, the Lehman became known as the day before the launch, I think, of your game-changing conference for CME, the Global Financial Leadership Conference, where you'd been meeting with many of the world's leading business leaders.

What was going through your mind at that conference knowing what was happening right up here in New York?

Terry Duffy:

It was frightening because Lehman was actually our banker back then, and I went and met with Dick Fuld just a week or two prior to the collapse and everybody appeared to think everything was going to be okay, and I think everybody thought it was going to be okay. They thought they were going to have foreign money come in and it was going to bail them out and nobody knew what was about to happen.

It was literally weeks before that we just got to the conference and all of a sudden all of our guests are dropping like flies and our speakers are dropping too. So it was very interesting, how we were going to do it. We actually had a reporter from your floor, Maria Bartiromo, that was going to MC a big part of the conference. Well, she had to bail because she was here and there was so many different things going on.

So at the time, you're thinking about your conference, but also, you're thinking about what does this mean for our country? What does this mean for the world? This is a global meltdown. Where is this going? It kind of reminded me then of the pandemic there in 2020, where is this going? What's going to happen here?

So those events are very disturbing to say the least. And so really what was going through my mind wasn't so much the conference, it was really what happens next now? What's the next domino to fall? Because you could start to see that they were falling.

Josh King:

In some respects, we could play it as you said, from 2008 to 2020 in the pandemic, but we have all of these major crises that this industry and the country and the world have faced in the intervening periods. And while Lehman was a defining event for so many people, one could argue that the default of MF Global in late October of 2011 was even more impactful for futures exchanges like CME and ICE.

I want to hear from Jeff Glor of CBS News.

Jeff Glor:

Ahead of the bankrupt securities firm, MF Global, Jon Corzine has resigned turning down a $12 million golden parachute, he says. Corzine, the former Governor of New Jersey and former CEO of Goldman Sachs, has been under fire for weeks now. His firm filed for bankruptcy on Monday. More than $600 million in customer money is missing.

Josh King:

So you've been described as an ags trader at heart who traded tons of hogs and cattle back in the day. You sponsored and then attended a lot of state fairs throughout the Midwest to rebuild confidence after MF Global's collapse. You wanted to regain the trust of farmers and ranchers.

What did you learn on that tour through the Heartland of America that we forget looking at numbers on a screen that really represent all of the labor that they're putting into their products?

Terry Duffy:

Yeah, I think two folds with MF Global. First of all, it was extremely disturbing what happened, and I didn't take it personal. I took a very aggressive stance because our reputation was on the line like we lost the money, and I had to remind Congress, remind everyone that the $2.3 billion that we were holding, we still had. It was the $1.6 in excess that we did not require them to put with us that was missing. And that's the part where Corzine was using it for his own personal foreign bond trading.

And for me, we're coming out of the '08 crisis, trying to get some confidence back in it. Now, you got to remember some of the makeup of MF Global. There was people that were opening accounts that never traded commodities at MF Global because they knew that the clearinghouse of the CME has never had a default. They just saw banks dropping like flies. They say, "Well, we'll put money at an MF Global because it's secured at CME." Well, we just take the money and give it to a bank anyway. It's the same thing.

But the point was when they went belly up, there was a lot of people that had $5 and $10,000 accounts there that didn't trade the market. Now they're going, "Wait a minute, where's my money? I thought you guys never had a default." Well, we didn't have a default. We still haven't had a default.

So that's when I realized, I said, "Okay, we got to get out there and go back to our roots. And that is agriculture." And I was very committed to this. And so I didn't go to New York, I didn't go to LA. I was in the middle of the country for months. And what I learned was for people who ever wanted to underestimate the value and intelligence of people who grow the food for the United States and the world, you're making a big mistake. These are much smarter than a lot of people I know in New York or LA or any other place. These are very sophisticated people.

So we created some new programs for the ag participants to give them just a little bit more safety and security that they wanted, such as segregated accounts separate from the clearing firms. Now, they knew that there was going to be an additional cost, and most of them didn't take us up on that, but the National Grain and Feed, they were curious about what could they do for their members. They just wanted some different alternatives, even though they didn't decide to go forward with it. I think they started to really understand how this thing unfolded with MF Global.

But I still today have a committee that's co-chaired with myself and the Former Secretary of Ag, Dan Glickman, who sits on my board, and the two of us do it. We have the largest ag industry participants in the United States on this committee. We meet twice a year. We've got another meeting coming up the next month in Washington. And we always bring in interesting speakers, but we listen to their issues. And I think that's critically important. So don't ever forget where you come from and that's how we approach it.

Josh King:

Dan Glickman, the great Representative for Kansas.

Terry Duffy:

Yes.

Josh King:

I mean, you used a lot of references to that farmer that might find their positions liquidated overnight if the FTX proposal had gone through. Do you still always try to look through a farmer's eyes as you think about the implications of things like this?

Terry Duffy:

I try to look through everyone's eyes. I think the lens is important to have a broad view of it. And the whole thing about a liquidation, I met with the ag groups as this was going on to bring it to their attention that, listen, if there's a direct model approved by the CFTC, there's no guarantees that it won't go outside of crypto. Matter of fact, even Sam Bankman-Fried, in a congressional testimony sitting next to me, would not say he would keep it segregated into crypto only.

So I met with these folks and I said, "Listen, you're going to be out on some Saturday night thinking that your position is hedged up and just fine. And I'm going to have no choice but to have an auto liquidator just to be competitive for whatever this new world is, that there's not even any rules written to it."

All the rules written under the Commodity Exchange Act had a futures commission merchant in mind when they were written. Now all of a sudden, we're going to make an amendment to this to allow a different margin methodology without writing rules for it. I just found it absolutely amazing that our government was going to go down this path. And so I very aggressively fought it, but I went and met with these ag groups to remind them what could happen. And they are a very powerful group of individuals.

So, thank God it didn't go through. And if it ever was to go through, I think there will be proper rules that everybody can participate in, not just FTX and not just a handful of people who are paid off by FTX.

Josh King:

We're going to get more into that in the second half of our conversation, Terry.

But sticking with the present day, at least for the last year, Russia's invasion of Ukraine has led to a complete upending of the grain markets and raised the public's awareness of the interconnectedness of commodities. How has the market responded, do you think, and what should we take away from Eastern Europe from a global commodities perspective?

Terry Duffy:

Well, I think it's interesting because you're talking about the bread basket down there. That's really where all the bread... They call it the bread basket for a reason because that wheat is what goes into all the bread, the pastries, all the things that we consume on a daily basis. And the other wheat that we produce is mostly feed wheat and things of that nature.

So it's a very important part of the world, and I think people forget about that and I think people just... It's like turning the lights on in the building. People walk in, just assume they're going to be turned on. I think people in our country just assume that there's going to be food. And that's a tough assumption because there's other parts of the world that don't have that assumption. And those are the ones that could be severely affected right now, especially some of the countries throughout Africa. They rely on that part of the world for all their staples of food.

So it's a big deal, what's going on right now, and I'm hoping that cooler heads prevail and at least have that smoother flow, which we're starting to see with the wheat market coming out of the Ukraine there.

Josh King:

Cooler heads prevailing.

After the break, Terry Duffy, the Chairman and CEO of CME Group, and I are going to talk about the regulatory process a little more and the unintended consequences of trying to fix something that isn't broken. That's all coming up right after this.

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Josh King:

Welcome back. Before the break, I was talking to Terry Duffy, Chairman and CEO of CME Group, about his career, his city, his company, and some of the market shocks he's led them through. Let's now pivot to some of the issues that we're all reading about in the headlines and on the tickers.

Back on our Episode 308 here, Chris Edmonds, ICE's Chief Development Officer and I talked about the benefits of central clearing in derivatives markets and why it's so important for investor protections in the broader financial markets. As you're sitting in a hearing on Capitol Hill explaining to elected officials who may not know the difference between Brent and WTI, can you explain to listeners how futures trading employees leverage and margin and how the central clearing component really is the linchpin to make sure that the folks on both sides of the trade can cover their bets?

Terry Duffy:

Yeah. So we won't call them bets.

Josh King:

Sure.

Terry Duffy:

And let me just say one thing about Mr. Edmonds. He did a masterful job at that hearing, Chris. I was more emotional because of what was going on, and I was so dumbfounded that people were participating in this nonsense. Chris was very measured, and I told him afterwards, I said, "Thank God you're here." I said, "I would;ve completely lost it."

Josh King:

He stepped through it piece by piece by piece.

Terry Duffy:

He did, he did a really good job. And here I am at the other end of the table, ready to strangle Bankman-Fried, and it was crazy.

But here, central clearing is pivotal. We act as the buyer for every seller and the seller for every buyer. We have no interest which way the market goes. And I think that is the critical point. We don't participate in the market as a central clearing organization. We manage the risk for the participants who bring the risk to the products.

So I think that is something, when you don't have an interest in anything other than to make sure the sellers get paid from the buyers and the buyers get paid from the sellers, you can set margins at a proper level to make sure that with all your years of experience and your programs and algorithms, that your runway is plenty so that no one is impacted if there's a precipitous move and the market moves against them. So we have all these different tools in place to make certain that we don't have the defaults that could happen, especially on an auto liquidation model that was being presented by FTX.

So central clearing is essential, and it's so essential that as you know, in 2010 under the Dodd-Frank Act, they made it part of the law to make swaps part of central clearing. And whether it's the best thing or not, you would have to ask, why is it a one-day margin for a cleared swap versus five-day margin for an uncleared swap? Because central clearing plays a pivotal role in mitigating that risk.

I've heard Gary Cohn and others talk before, "Are we just taking all the risk and putting it at the clearing house?" If you were, it wouldn't make a difference because if we had it all at Goldman Sachs, they're trading it. You put it all at me, I'm not trading it. I don't care. So whether I have one contract open or 100 million, it's the same risk.

So, I think that's where the misdirect is a little bit by some participants not understanding all the benefits of central clearing. If we were to be participating in the market, that's a different story. We do not.

Josh King:

Which, as we found out late last year, FTX was both participating and assuming it was the middle of it.

Terry Duffy:

And they were also, in their proposal, they were part of the... Alameda was listed on the default management about how if a default happened, Alameda would step in. Well, now that the covers have been pulled back, we could see where Alameda fit in this whole setup.

That could have been so detrimental if that would've went through because I've said this forever, they weren't going after crypto. They were going after every product in the world and they were going to deploy that model. And if it did not blow up, and it did, and if it was to go through, I can't imagine what the catastrophic event could have been on a blow up in the future because what if they had the US Treasury market and blew that up? What if they had the US energy market and blew that up? There's a whole host of things here that could have been really catastrophic.

So I'm very pleased with the leadership of Jeff Sprecher and Chris Edmonds. From their viewpoint, I think the FIA was very much understanding that this was not a smart proposal. And of course, you had me losing my mind. So you knew where I was at.

Josh King:

Down at the end of the table.

Terry Duffy:

You knew where I was at.

Josh King:

Long before you were in play, Terry, back in 1848, the Chicago Board of Trade created the world's first futures exchange. They were offering soybean, frozen meat, agriculturals, contracts. Now fast-forward 175 years, CME announced the launch of event contracts on Bitcoin futures beginning this March.

How will the rapid rise of retail trader further impact the established system do you think?

Terry Duffy:

Well here, I think you have to define what's a retail trader? And with the way we define it because futures are margin products versus the retail who participate in, and even some of NYSE's cash options, they put up so much money and if they lose it, they lose it and that's the end of it. They don't have any more exposure than what they put up on certain strategies. Where with futures, there's endless gains and endless losses. So, there's margin associated with it.

So the retail that we have is more of the professional retail, people who trade every single day, not just the guy who's betting on the Minnesota Vikings one minute and then deciding to trade in S&P futures the next. That's not the retail that we have.

So the proliferation of especially crypto at CME, you're seeing right now after what happened in the last year primarily in that space, you're seeing the regulated platforms like CME explode in the crypto space. And we only list two products for trade, which is Bitcoin and Ether, and they have both really escalated significantly over the last several months because people are coming back into some of these cryptocurrencies, but they're coming into the regulated market. I think they've seen enough of what could happen when they're trading outside the US on some of these products and it didn't end well.

So for us, I think the retail trader is important and they're growing, but primarily when you look at the commercials and the producers in our asset classes, they are what's truly making the markets move forward and have a purpose to them.

Josh King:

We talked a little bit about Jeff. We talked a little bit about Terry. One of my other colleagues, Trabue Bland, who's our Head of Exchanges, spoke at FIA in Chicago last year talking about the needs for futures contracts to actually serve an underlying economic purpose, as in what risk does this contract allow the markets to manage?

I think you've echoed a lot of these similar sentences over the years. Would it be fair to treat a MEM stock the same way as a wheat contract where a farmer's livelihood is at risk?

Terry Duffy:

Well, I don't know if it's fair to treat them the same. A MEM stock, to me, is a temporary event. Now, they can last longer, just like we saw with AMC and some of the other MEM stocks, but eventually, they fizzle out I think, and they fizzle out for different reasons. Where a wheat contract, it may go up or down, but they're ultimately going to go up and down by fundamentals because there's a use case for them.

So I think it's hard to compare those two as it relates to, is it the same? I don't see them as the same.

I believe, and I've said this publicly especially about crypto, everything needs to have a use case. And if it doesn't have a use case, eventually you're going to have to look at yourself saying, "Is this just a casino game and that's all we're running here?" Well, that's not what CME is all about. I don't believe that's what the ICE is all about and your colleague was correct. Everything needs to have a use case. If it doesn't, then you have to reevaluate it.

So I think there's products that you list like crypto that they're very new and the use case is being made as we move forward and that's fine, but there'll become a day, if it's not there, you have to make a decision if you still want to participate in them.

Josh King:

Yeah. I mean, talking about a casino game Terry, only six months ago, but it seems wistful and quaint to remember that Fortune Magazine, their cover story by Jeff John Roberts from August 1, 2022, pictured Sam Bankman-Fried in his trademark black t-shirt and mop of hair with his headline and bold, "The Next Warren Buffet?"

I mean, Fortune hedged a little bit with a question mark at the end of that sentence, but one of those hearings that we've been talking about, which you and Chris Edmonds were at the table, was entitled, "Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models." Just want to listen into a clip from that hearing.

Representative Alma Adams:

Okay. So let me ask Mr. Bankman-Fried, if your company's proposal is accepted, can you tell us how you plan to protect consumers who use your platform?

Sam Bankman-Fried:

Absolutely. Thank you, Congresswoman.

We, to start off with, have all of the customer protections that are typically found in DCOs and DCMs, in addition to all of the protections that are typically found in FCMs because we acknowledge that because there is a disintermediated option, we have a duty to provide all of those controls. And so we have done deep analyses, both of the rules and regulations and of existing FCMs, to ensure that we have similar sets of transparency, of suitability, of disclosures.

Josh King:

So we've all come to admire, Terry, Steve Jobs in his jeans and black mock-neck turtleneck. But I've heard you talk a couple of times about Sam's emblematic brand and shorts and flip-flops. Sam Bankman-Fried, you're no Steve Jobs. How could he pull the wool over so many people's eyes for so long?

Terry Duffy:

It's a really good question and I've asked myself that many a times. I had the opportunity to meet Sam for the first time exactly one year ago, and it was in March in Boca, and I didn't really care to meet him. I'd seen his picture. He said he was going to buy CME, he was going to buy Goldman Sachs. And I thought, "Oh man, I wonder how he's going to pay it. That's interesting. I hope he's got a lot of dough."

And so I read about this kid and then his beliefs in effective altruism and things of that nature. So he has to meet with me.

So I came from a business dinner, I sat down with him and he's all over the map. And just like the comment he just made to the Congresswoman, can you tell me one thing that he said that made sense? Because there is nothing that he said that made sense in that comment. He talks in circles, he just goes around and around till you get worn out and he pretends like he's the smartest guy in the room and that's what he does. He uses buzzwords and he talks fast and he tries to talk about FCMs and he tries input words into phrases that make him sound like he's extremely smart and knowledgeable about the industry. He hasn't a damn clue.

So when I met him for the first time, I asked him, I said, "You're worth $26 billion?" I said, "I thought you were an altruist. Why don't you give some of that money away?" And I said, "Why don't you give $5, $10 billion away to a charity or something if you've got that kind of money you don't need it. You supposedly drive some crappy Toyota for your first car. Well, why don't you give it away? Cute outfit you got on here. You're not spending money on clothes, so what are you doing?"

So he didn't say much and I knew right away, I said, "There's something wrong with this guy." So I said to Sam, I said, "Sam, what do you want to do?" He says, "Well, I want to compete with you." I said, "Well, great. I've been competing with people my whole life. That's fine. What do you want compete in?" He says, "Well, crypto futures." I said, "Well, great."

I said, "I got one for you. How about if I give you my crypto futures franchise so you don't have to compete with me?" He says, "Well, what do you want?" I said, "You know what I want." I said, "I'm going to manage your risk for you and I'm going to clear it for you properly."

He goes, "Well, you won't use my model." I said, "Why would I use a flawed model that you are proposing that could blow up the system? I'll give you this franchise. I'll clear it for you." Sounded like a fair trade to me. And it made sense.

He says, "Well, I can't do that." I said, "The reason why you can't do it is because you know what you're proposing is BS." And I said, "You know what? You're a fraud. You're a complete fraud."

And I could smell it a million miles away. I could see, at that time, he was using other people's money pretending like it was his. And to me, it was just nonsensical.

So we go into the hearing, and so you can imagine my frustration to hear some of these questions asked by members of Congress, and I thought to myself, this man has spent a ton of dough and a ton of time with the people he has hired to get his message out on his behalf. I didn't know whether to be impressed by it or disgusted by the way he got his message out.

So, it is what it is. But he had a lot of people concerned. I even met with Senator Stabenow, Chairwoman of the Senate Ag Committee, and I don't mind saying this stuff because I believe in just saying it like it is. And I said, "I don't..." She goes, "Well, Terry, why don't you try to understand what he's proposing." I said, "Great, I'll bring him into Chicago," because he opened an office there for a hot second and a cup of coffee, then he closed it. But we brought him in. I sat him down with my team, literally talked like that for two hours, left. I looked at my team, I go, "Did anybody pick anything up out of that conversation?"

The answer was no, and I got some smart people sitting around my table. You could just see that this was going amuck.

But remember who he's traveling with you. You mentioned earlier about, I don't know, a picture of him on a magazine. He was in Vogue with Tom Brady's wife. He's hanging out with Tom Brady. His credibility is coming from other people. That's why people were... They fall victim to this because you hear it over and over enough, you relish Tom Brady, being a Patriot fan like you are, Josh, he is the greatest of all time. So when you're hanging out with that, he's talking about buying a football team at the time for him and Tom, like their best buds.

Josh King:

And you'd have to bring back a huge money bag to affect Tom and Gisele, a much smaller money bag to affect the thoughts of lawmakers and regulators looking for campaign contributions to keep their political lives going.

And Terry, you've spent a large chunk of your career in Washington advocating for financial transparency as regulators flesh out everything from the Dodd-Frank Act, which you mentioned earlier, to crypto regulation. And we were talking about your place at the end of that witness table. I feel for you, as you and Anita prep for exchanges like this with Representative Alma Adams of North Carolina

Representative Alma Adams:

Exchange FTX offers equitable access and the current model that gives us data for free, so what's your philosophy on that sort of user-friendliness and how does your company prioritize financial inclusion?

Terry Duffy:

Yeah, it's an interesting question. And Mr. Bankman-Fried is commenting on things that are outside of his application. So I can only comment on his application, but when we talk about-

Representative Alma Adams:

You've got three seconds. I'm about out of time.

Terry Duffy:

Well, then we have equitable access to everybody, ma'am. That's about what I can tell you. The model has worked for hundreds of years. We've amended it throughout time and it continues to be a time-tested model and it's open to everyone.

Representative Alma Adams:

Thank you so much. Mr. Chairman, I'm out of time. I yield back. Thank you.

Terry Duffy:

Yeah, we don't accept credit cards though.

Josh King:

Three seconds, Terry, but you got in the fact that you don't accept credit cards. You've said that in over 25 years of testifying to Congress, you've never seen Washington or Congress like it was during that hearing. Can it get any worse? Can we make it any better?

Terry Duffy:

Yes, and yes. You have to have the faith, but I'll go back to what I said earlier. I think that social media has destroyed a lot of things, and I think that we have a race to the bottom as far as elected leaders go in our country today because no one wants the jobs.

You got to remember, the coveted jobs of a city like Chicago, I mean, that was huge. Now we have nine participants that no one's ever heard of before for any degree. And now when you look at the United States Congress, and you have a gentleman here from New York that, if I would've told you he was going to be a representative from one of the districts here in New York 10, 20 years ago, you'd say, "You got to be kidding me." And we all know that the name that I'm referring to, but you think about the debt ceiling and how that's going to play out come June, think about some of these people who are sitting in elected positions who are going to make that decision on behalf of 335 million people. That's pretty frightening.

So again, I think the quality of people, and probably not a popular statement for me to say, I think it's gone down. Are there still some good ones? Yes, there are. And there's good ones on both sides of the aisle. So I'm hopeful that they will rise up and bring the dignity back to the chambers that is so desperately needed and do things for the people instead of doing things for the partisan side of the equation.

Because partisan politics is part of our life and we get it, and that's okay. I think what people don't see, and I've had the opportunity to see it through my career, is when you're with both sides of the aisle outside of the public view, these people are a lot different. So I think a lot more gets done than you see on TV or you see on other media outlets. But unfortunately, with the dissemination of information that is less and less because people are, like I am right now, being scrutinized for every word I'm saying. And unfortunately, that happens a lot more than it did with just a TV camera. Now we have these phones, we have computers, and nothing's sacred anymore.

Josh King:

We've been focusing a lot on domestic US politics, Terry, but the involvement of politicians in financial markets is nothing new. And in Europe, last year we witnessed the intervention of the European Union into natural gas markets with an artificial price ceiling. A price cap goes against the very purpose of exchanges, Terry, which operate to find the equilibrium between supply and demand, a recent example being ICE and CME's participation in a Global Markets Advisory Hearing last week to warn about the pitfalls of CFTC's intervention in the commodities markets.

As someone who has acted as a bridge between the government and financial markets, how do you balance that fine line between the purpose of the public and the private sectors?

Terry Duffy:

Well, I think it's critical that first of all, markets need to go or that markets need to go. And any type of restraint on price is a bad idea. April 20, 2020, you're at the height of the announcement of the pandemic, when the lockdowns were coming into place, West Texas Intermediate went to -37.50. We had priced, we had options. We went to the CFTC weeks ahead of time with negative pricing just in case that happened. We always believe it's important for people to express their sentiment no matter what the price is, and even if you don't like it.

And a lot of people said, "How could it be worth less than zero?" Well, it's real simple how it could be worth less than zero. There's no demand for it. We're all going to be locked up and there's nowhere to put it. So there's a carrying cost to this stuff, so someone's going to have to pay for that. You look at New York Harbor, all the tankers were full. There was nowhere to put this stuff.

So that happens. So I'm not a supporter anytime that the government wants to get in and fix prices at certain levels or to put in caps on either side of the marketplace. I think free markets are critically important to everyone going forward in all products.

Josh King:

You mentioned earlier that you're working on a new piece. As we begin to wrap up our conversation, Terry, 10 years ago in 2013, you penned an op-ed in the Wall Street Journal about Wall Street suffering from this brain drain as the best in the brightest began heading to Silicon Valley. And since then, tech has certainly dominated luring in those who might have been destined to become the next generation of leaders in finance.

Has your opinion changed since you wrote that piece? I mean, John Lothian reported this morning of your announcement that the CME Group Foundation's Scholars program is now accepting applications for the next year awarding up to $20,000 per year in renewable scholarships to underserved students majoring in finance, technology and applied math at your partner schools. What would you say to a young person now thinking about a career in finance and trading?

Terry Duffy:

First of all, when I look at finance over the last 20 years, you could see why people's attitudes are what they are. You saw a lot of bad behavior in finance, whether it was the Enron debacle, whether it was the Sarbanes-Oxley legislation, and then you went into a housing crisis and people lost their jobs throughout the financial crisis and people over-leveraged. And so young people saw their parents getting battered around. And it goes back to what I said earlier about Main Street and Wall Street. Everybody pointed towards Wall Street, like it was Wall Street's fault that all this was happening.

But my point is the reputation wasn't very good for people in our industry because of bad behavior. You had the Madoff scandal, you had all these different things going on. So why would anybody in this new world want to go into this thing called finance? They all wanted to be part of the tech boom.

And so do I still feel that way today? To a degree. I think it's starting to come back. I think people are starting to understand what finance is, how important it is, and why do I say that's starting to change? Because they're more in control of their own destiny in finance today than they ever have been in the history of finance.

So you have applications like Robinhood out there, you have all these discount retail brokers out there. Access to the market is so much easier at the Intercontinental Exchange, at CME and other platforms today than it ever has been. So people now can control their destinies to a certain degree, and that gives them a better understanding of finance where that was not the case as little as 10 years ago.

Josh King:

Looking ahead to the future, on your last earnings call, you talked about your excitement about the partnership that you've launched with Google, talking about tech, developing data products in the cloud. It may be a bet that ICE is on the other side of. As an optimist at heart, where do you see the future heading in our industry with things like the cloud?

Terry Duffy:

I think that ICE has a different viewpoint on this when they acquired IDC for their data business and technology needs, and they have other proprietary technology just like CME does.

From my standpoint, I look at the cost of all this stuff continues to escalate, and I'm a big believer in the umbrella theory, meaning that when it rains, you better get a little bit bigger umbrella because maybe two of us need to fit under it. It gets more expensive is my point. So I'm a believer that moving into the cloud becomes much more cost-effective. The biggest issue facing the world today is cybersecurity. The cloud providers, in my opinion, probably have a better setup than some proprietary system as it relates to cloud security from the hackers. The bad guys are much better than the good guys, unfortunately. And so I think that's another feature that will drive more and more people into this.

When you look at, especially my deal with Google, when I want to bring products to market, I can do it much faster than I can in-house, and that's the objective for the future. So there's a lot of benefits that go into this. They were prepared to invest in me, which they did, and I thought that showed a lot of commitment by Google to understand that finance is going to be a big part of the cloud business.

So I like where it's going. At the same time, the reason why I said it's going to be over a 10-year period because I don't want to push it into something when it's not ready to go forward.

Josh King:

As we wrap up, the 2023 LPGA season got underway a couple of weeks ago with the Hilton Grand Vacations Tournament of Champions at Lake Nona in Orlando. That season, Terry, is a long grind ending with a CME Group Tour Championship at Tiburón in one of my favorite spots, Naples, Florida.

What's the state of the game that you really helped to grow? I mean, you had some pointed comments at the end of last season.

Terry Duffy:

Well, here, I think the game has grown and I think it's really good. I'm a big proponent of equality, especially throughout my organization, but women's sports, I think, has been underserved for way too long. And I don't like the idea that a woman should make less than a man, no matter what it is. So I was trying to continually push the envelope with CME to put the purses higher for the LPGA, which we have the largest first place prize, which is higher than several of the men's tournaments now. We pay the winner over $2 million, which is more than most men's tournaments, even though their purses are higher. That's just what the winner gets at CME.

So I think the growth is critically important. Young women should understand that they have opportunities. They can see this, that might help them in their future careers in business or whatever they want to do, but nobody should be compensated differently because of the sex that they are. And so I just don't... It troubles me. It's always bothered me.

So I think that trying to be a leader in that field is good. And when you look at the US Open, the US Open's total purse was $4.5 million two years ago. When I put CME to $7, they went to $10 because they couldn't have the CME be bigger than the US Open. Well, I shouldn't have had to go to $7 for them to go to $10.

So I like pointing stuff out like that subtly.

Josh King:

Or not so subtly.

Terry Duffy:

Or maybe not so subtly. But I think that you don't want to have the women's tour also take for granted that how hard everybody's worked together to take steps backwards. So the thing that they have is they have a very open tour, they're very good with their fans. They're just so good at all that. I hope they never lose that because that personal touch is what I think helps them grow as much as CME.

Josh King:

Way back in the beginning of our conversation, we were talking about the meal that you and Charlie brought your teams to at Sullivan's Steakhouse. You are a big fan of the classic Chicago steakhouse. A lot of us got to know a different kind of Chicago beef watching The Bear on Hulu set in the River North neighborhood with scenes actually shot at Mr. Beef at 666 North Orleans Street.

Like the old New York Times feature, if you had 36 hours in Chicago, what spots can you not miss?

Terry Duffy:

Oh, boy. Well, I have not watched The Bear. That's the young man from Shameless, I believe, is the star of that. Lip, or whatever his name was in Shameless. Funny show. I think it's a take off on Al's Beef in Chicago, I think, which Al's Beef is a... You definitely have to go to Al's Beef. Mr. Beef is another one that's really good in Chicago.

Obviously, Chicago Cut and Gibsons are staples in Chicago. Excellent spots. Got to be on your list.

Two of my other favorites. Gene and Georgetti's. Been around for a million years and they haven't changed decor in a million years, so you really know. It's right underneath the L tracks on Franklin. Really cool place. And then if you want to have Italian, they got to go to La Scarola over on Grand Avenue. Those are the can't misses.

Josh King:

We got our list made. Terry, thanks so much for joining us inside the ICE House. The Mike Ditka Hall of Fame Coach of the Exchange League. It was great to talk to you.

Terry Duffy:

Thank you, Josh. Appreciate it very much and all of you, the folks here at the NYSE.

Josh King:

Let's go out with the great Jon Bernthal as Mikey Berzatto in episode six, season one of The Bear on Hulu, telling the story of Ceres, the Roman Goddess of agriculture whose art deco masterpiece statue stands 600 feet above LaSalle Street atop the Chicago Board of Trade.

Mikey Berzatto:

All right, so you guys want to hear the story or what?

Carmy Berzatto:

Yeah, yeah.

Richie Jerimovich:

Let's go.

Mikey Berzatto:

Hmm? Hmm?

Richie Jerimovich:

Let's go, let's go.

Mikey Berzatto:

All right, here we go. Here we go, here we go.

So we're at Ceres, right? Which was the bar at the bottom of the Board of the Trade building, right? Just this little bar in the lobby, right? The thing is, the place opened at like 6:30 in the morning so that when traders, when they lost their ass when the market opened, they could just, you know, they could walk over and just get fucking hammered in this little fucking bar.

Anyway, the name Ceres, it was named after the Goddess of Agriculture. Sorry.

Sugar Berzatto:

You and your fucking stories.

Mikey Berzatto:

Somebody's jealous they weren't invited, huh?

Sugar Berzatto:

I would not have gone.

Mikey Berzatto:

You would've fucking gone. Hey, Carmy, do some parm.

Carmy Berzatto:

Yeah, I got you. I got your parm.

Mikey Berzatto:

Anyway, on top of the building, there was like a statue of Ceres and her back, for all of you historians, was facing towards the east, and that's because all the trading had just moved to the Midwest. So the architect, John Storrs, legend has it, he built this statue as like a...

Josh King:

And that's our conversation for this week. Our guest was Terry Duffy, Chairman and CEO of CME Group.

If you like what you heard, please rate us an iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us [email protected] or tweet us @ICEHousePodcast.

Our show is produced by Damon Lavelle, Isabella Bizone, Jess Tatham, and Pete Ash, with production assistance and editing from Ian Wolff. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.

Speaker 1:

Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.

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