Kevin McPartland:

Hi, I'm Kevin McPartland, head of market structure and technology research at Coalition Greenwich. I'm excited to be here today in the content studio at the New York Stock Exchange with Chris Edmonds. How are you?

Chris Edmonds:

I'm very well. Welcome to the New York Stock Exchange and thanks for having me on the show.

Kevin McPartland:

Never stops being exciting to come here. I've been coming here really since my career started in the '90s. So yeah, always excited to be back. Chris is the president of fixed income and data services at ICE. Which covers a lot, so it's great. We get to talk about a lot of different things today.

Chris Edmonds:

We have a big catalog and I'm happy to share as much as you'll allow me to.

Kevin McPartland:

Great. So let's start off with some of the hot topics in the industry now. Prediction market, talk seems to be everywhere. I know ICE made a big investment in Polymarket. Can you talk a little bit about that, your rationale, and what your thinking is about prediction markets in the months ahead?

Chris Edmonds:

Look, it's a bit about disruption story. And it gives us an opportunity to be a part of that story, while not necessarily doing anything to our traditional markets. You can create instability along the way. Here, we have a great partnership, it's a great team, they're doing some very innovative things along the way. If you look at what we've done with the New York Stock Exchange listed Retik and the sentiment data there. We have sentiment data from other sources like Dow Jones. Those are all opportunities, at the end of the day, for people to have consensus and then to be able to express a view and manage any risk that they deem appropriately.

Nirvana, for us, I think along the way will be you see consensus develop through the Retik sentiment data that comes through our feeds. And then all of a sudden, now you're seeing a market being made over here, and then the feedback loop of that market back to the Retik community will be interesting. Or any of the communities that we have. But certainly, that's one I think that's easy for people to get their head around of how things can begin and germinate, and then actually then into a market where people have the opportunity to express their own view.

Kevin McPartland:

So the users of your products and services, you have a good mix of retail and institutional. I think that's acutely prominent in prediction markets in general and access to that kind of sentiment you mentioned, Retik. Can you talk a little bit about how you see that moving forward? Prediction markets feel very retail, but there's obviously some very institutional use cases as well.

Chris Edmonds:

Right. I had this conversation yesterday in Chicago with someone who sat there and said, "The interesting part about what you get in sentiment data is that retail, where is it going." What you get in the institutional market is the confirmation of that signal. So the better we can provide or package that signal for the institutional markets to react to that, I believe the better market integrity becomes over the longer period.

So yes, I agree with you, it has been very retail focused in that because that's how those products were originally envisioned. Now there's a much wider ... You could say the same thing about crypto. If you look at the opportunity where it was a very retail-oriented transaction, varying individuals. Cab drivers on this, they're all trading crypto, things like that. And now, where has the conversation gone? Now the conversation is how does it become an institutional product to have offered in there. I don't know that we're going to see anything necessarily different here, but it's how those two work together and collaborate to make a more seamless overall experience.

Kevin McPartland:

How has sentiment data changed? That's been part of the conversation for the better part of a decade when it was very focused on Twitter in the early days.

Chris Edmonds:

Right.

Kevin McPartland:

But it's changed a lot. So where do you see that going and what have you built out here?

Chris Edmonds:

I think it's become more standard. As technology has evolved, our ability to actually make sense from all the noise that's out there. You see a lot of things, lots of conversations on social media platforms around bots and what do they do. How do you filter that out? Where do you get to the consensus of what the actual issue is and how people want to react to that? I believe we're getting better as the technology has gotten better for us to be able to process, because you're talking about massive, massive reams of data at the end of the day that people have to figure out how to ingest, profile and react to. It's better now than it was before. So for us, it's really about how we package that and deliver it in an efficient manner.

Kevin McPartland:

And I have to imagine AI has played a part in that transformation because that's what AI does. It processes massive amounts of unstructured data.

Chris Edmonds:

We have a long history here of taking unstructured datasets and putting those into a structured product that you can then use. Same way with AI, we agree with you wholeheartedly, it is helping us get to that point. But then what are other people doing that? How are you making sure that that isn't creating the hallucination if you think about it from an inference perspective? And that's why the packaging of it is such an important conversation to have.

Kevin McPartland:

Right. So pivot slightly to the bond market.

Chris Edmonds:

Sure.

Kevin McPartland:

Which I know you know and love. You own, again, a good number of pieces of that market infrastructure now, from data, to trading, clearing. The ecosystem has gotten even broader, I think the role of ETFs has become more and more prominent as time goes on. And again, retail, institutional, the role of retail traders in the bond market are also growing, again, as ETFs grow.

So very big, broad question, but what's top of mind for you in corporate bonds? And then we'll dig a little bit under the surface.

Chris Edmonds:

I looked up this morning, in preparation for this, I went to SuperGrok to ask it a question. I'll ask you the same question and see what you come out. What percentage of the bond market today trades as a direct result of movement in an ETF or an index through passive? Any idea?

Kevin McPartland:

Oh, it must be considerable, 40, 50 percent.

Chris Edmonds:

So in equities, it's 31%.

Kevin McPartland:

Okay.

Chris Edmonds:

In the bond market, it's single digits.

Kevin McPartland:

Wow.

Chris Edmonds:

Less than three. So if you think about the normal construction of a portfolio over time, where 60-40 equities to fixed income products, you would think there would be closer to parity, but that's the opportunity we have in order to infect the right level of technology and put that in front of the users of that. So that opportunity for the market to grow and be much more widely distributed into instruments that folks can understand, and have a different liquidity profile and things of that nature, that's the opportunity that excites me. It's not just my opinion, BlackRock's spoken effectively out there about this, where they see their growth coming from that opportunity to put in ETFs and the index play into the bond market.

Kevin McPartland:

Yeah, it's fascinating to me it's not more. The role of ETFs, which then have driven portfolio trading, which then have arguably driven overall turnover and improved liquidity, if we're only at 3%, you're right. There's so much more room to go there.

Chris Edmonds:

I believe at the end of the day that will bring more investors into the space because it looks, walks and talks like how they manage their equity portfolio, and gives us the opportunity to use a wide array of services for that. Whether it's our index creation, it is our opportunity of end of day valuations, all of these things that we do along the way become important parts of that wheel.

Kevin McPartland:

Yeah. So investment-grade corporate bonds, about half or so trade electronically today. It's about a third of high yield. What's next? Is there still growth? Do you feel like we're getting to the point where the market's just mature now?

Chris Edmonds:

It's interesting you throw that statistic out because, depending on how you look at the market, I might challenge you on that statistic.

Kevin McPartland:

Sure.

Chris Edmonds:

Because we're pricing 3.2 million bonds every day around the globe. If you look at those that are actively traded, you're probably looking somewhere in the neighborhood of, call it 25 to 40,000 bonds that actively trade on a day. Less than if you get to other slices of it. So yes, I think that realtime piece of it, that's where everyone's focused on. But if you look at some of the portfolios that are being managed out there across a wide diverse of participants, it's so much larger than that, which is opportunity for us and others in the space in order to provide that. So you get a lot of opportunity, it's a big sea to go fishing in if you will, to put together that right construction.

I do believe the more of that we do, the more of those other bonds will expand the trading of that because people will be able to see it. And you're already seeing that in some of the other products, like mortgages as an example. People are really starting to look at that because more information is now available to them to be a much better consumer and risk manager of those products in order to achieve the yield.

Kevin McPartland:

No, great segue. Let's talk about mortgages. That market is incredibly fascinating. We think back to 2007 and nobody knew what was in the MBS. Today that data, you own that data, there's reams and reams. You can literally find the exact house that's somewhere buried in a big MBS, which is incredibly fascinating and goes back to the big data challenge. What's the progression been here? And then, yeah, let's take that into electronic trading of the MBS, where are we getting there?

Chris Edmonds:

Ironically enough, we're now at a point with our geospatial team as part of my world where we have mapped every mortgage to every MBS and every MBS ... I'm sorry. Every mortgage to every MBS and every MBS to every muni. So think about that from an information play. Think about that in relationship to the Palisades Fire, the floods in North Carolina, or into the hurricanes that hit last year in Tampa and south of Tampa. We now, within hours, where before it a long, can show you the impacted muni bonds and MBS' in those zip codes. Before, you were worried about prepayment risk. Now, you're worried climate, and hazard and all of the things that go into that. Now you're a much more informed trader in that and you have an opportunity to participate in that market, which is far greater than what's been there before.

In my opinion, without our ability to have that data, we don't put any of our personally identifiable information in there, this is all trend and using better innovative technologies in order to put that out there in a packaged product, you're now able to see it. And if you look at our bond execution platform and our climate risk piece, we're actually putting the climate risk right on the screen where you can see what the bid offer is. You're making a much more informed decision than you were before, but it's only because we've been able to put all of that data in one place that is easy for us to take advantage of.

Kevin McPartland:

And those risks obviously were always there, I guess it's just there was no way to track them or to measure them before.

Chris Edmonds:

Right, but think about before. You lived in Florida, you knew you had to have hurricane insurance if you lived in certain zones. Well now, the question is can you even get it? You look at the insurance affordability or what insurance has done to the affordability of a home along the way, you had no way to see that. You pick up the phone and you call, there's maybe one, maybe two providers if you were lucky in some places. Now you're able to see that, exactly what that impact is on your affordability score.

Kevin McPartland:

So do you take your depth of data knowledge and move it into the trading space for mortgages?

Chris Edmonds:

I believe we have to in order for that market to grow. And the more that grows, I believe the opportunity for new homeownership will increase because there's more folks taking the other side of that on the risk.

Kevin McPartland:

Right, which is already ... Obviously increasing has become challenging right now, so the more transparency even on the institutional side should then make it hopefully easier to borrow again.

Chris Edmonds:

Right. If the institutions can't get that information at the end of the day, they're not going to make that investment, and that's what we're trying to help facilitate by bridging the two datasets together. Institutional risk management tools along with some data coming from the homeowners.

Kevin McPartland:

Yeah, it's amazing, it's amazing. And you're right at that point of sitting in those lawyers' offices and signing those papers, which I find fascinating. It's really the whole supply chain.

Chris Edmonds:

It has been a great accumulation of technology along the way. Not sure that everyone understood why or when we were doing it. Jeff had a great vision of what that would look like. Ultimately, the scorecard is can we drive down the price of homeownership and that's really what we stay focused on each day.

Kevin McPartland:

Yeah, it's been fascinating to watch. So somewhat similar vein, let's talk a little bit about the CDS market.

Chris Edmonds:

Okay.

Kevin McPartland:

Something else that ICE has been in for a very long time. We remember when CDS moved to clearing over a decade ago now. It feels like that's come up in the conversation a lot lately. The SEC made some movement on security-based swaps over the last couple of years. Where is that market now? Is it more mature? Does it feel transparent and efficient, or are there more opportunities there as well?

Chris Edmonds:

Well, I'll give you a funny personal story on this. My first job here at ICE in 2010, my first assignment was running the credit default swap clearing house, ICE Clear Credit. At that time, it was actually a bank, a limited purpose trust vehicle. I call my mom who lives in Alabama whose now a retired school principal and said, "Hey, Mom, I'm going to move the family to Chicago, I'm going to work in the credit default swap." And the only thing she knew was that Warren Buffet called them a "weapon of mass destruction." And, "You can't take that job because of it." And I'm like, "I think we'll be okay."

So fast-forward to where we are today. At that moment in time, if you think about all the history of credit default swaps, and the things like tranches and CMOs on it, those were just ugly, dirty words. No one wanted to be associated with that. "Oh, I never did that." Complete disclaimers around what I did or didn't do and the parameter. What we're seeing now because of what's happened with central clearing, what's happened with the ability to take that information is those products are actually making a bigger comeback and the interest in those products. So I think there's a long runway for us to continue to apply the very sound risk management techniques that central clearing provided, and in order to capture other parts of that market in a manner much, much different than what was done before the great financial crisis, and that's the exciting part of it.

Kevin McPartland:

It is. And you can see futures coming into that ecosystem perhaps as well?

Chris Edmonds:

I can. Again, that's a bigger distribution pool to see where people want to take that. But the more we distribute that risk, the less risky it becomes over time. We'll find where those points are, people will make their own decisions about how they want to allocate risk funds against that. But certainly, everything we can do to expand the base of users is better for the market overall and that's what we strive to do every day.

Kevin McPartland:

Hopefully you told your mom you were here to reduce the risk than to manage the risk.

Chris Edmonds:

I tried to explain to her what compression meant, and what a multilateral netting facility would be and there are only certain ways you can do that. I had lost her there.

Kevin McPartland:

Yeah, that's right.

Chris Edmonds:

Hopefully, I've gotten better at that over time.

Kevin McPartland:

Yes. Yes, you've certainly helped make the market more efficient there.

Chris Edmonds:

Yeah.

Kevin McPartland:

So in that vein, our new clearing conversation is treasuries and repo.

Chris Edmonds:

Yeah.

Kevin McPartland:

Obviously, ICE had put itself forward to be part of that market and to help clear there. Can you talk a little bit about where we are? There's definitely been some debate as to what the next steps are as the administration has changed.

Chris Edmonds:

Certainly, a big priority for the previous administration. Don't see any path of the mandate being eliminated. Will we see maybe some opportunity for the timeframes to be adjusted for the market to be able to digest that at the proper time? Probably. That's happened in every part of legislation like that. It even happened when Dodd-Frank came out. We had to move timelines around in order for preparation to be equal.

For us, every time there's been a catalyst driven by regulatory change where we have a specialty to that, we tend to respond pretty well. We look forward to the opportunity to compete in that space. I don't believe without the regulatory catalyst that we would have made the decision to enter that. But if you look at our portfolio that we have now across CDS, across what we're doing in fixed income, we're much better prepared to provide a quality service that is robust, capital efficient to the marketplace because of that regulatory change that's requiring it. And for the first time in quite some time, there will be choice, and customers will ultimately make that decision along the way, and we look forward to making our case.

Kevin McPartland:

And what do you think customers should look at when they make that decision when the time comes?

Chris Edmonds:

So certainly, their ability to access the market I think will be most important. Their ability to access the market on their terms versus the terms that are being dictated to them because they're part of a particular client base somewhere. They will have much greater freedom in the solution that we've put forward than what others have provided over the years, and we'll see where other changes from our competitors in the space will make. That'll be the fun part of it. Historically, ICE has done pretty well each and every time we see these regulatory catalysts change and we look forward to making our case.

Kevin McPartland:

Do you feel like once all said and done or implemented, will this provide some of the positive influence that we've seen as we clear at CDS and IRS in the past? Will it add liquidity, add transparency, increase electronic trading?

Chris Edmonds:

I believe yes in all of the above. But let me tell you, it's not because of what I believe, it's the way the movies played out. Every single asset class that has come across this say, we've seen those asset class grow. So you may make less per transaction, but you do incredibly more transactions along the way which creates a lot of opportunity. There's no argument I have heard yet, and willing to hear one from you today, of why this movie will be different than any other chapter that we've seen so far.

Kevin McPartland:

Yeah. No, I agree. And in this case, we are talking about one of the deepest and most liquid markets in the entire world. Why should it not grow even more if we improve the infrastructure?

Chris Edmonds:

Well, the only way I can see it not growing more is if the US pays off all its debt. So if you want to make a wager, maybe we can get Polymarket to make a wager when we're going to be debt-free in the US and have surpluses being kicked around, but I don't see that happening.

Ironically enough, we do have one stress test in our CDS clearing house that you may find interesting that assumes what happens to the clearing house if all of the debt on every bond that we have CDS listed on is paid off on the same day.

Kevin McPartland:

Wow.

Chris Edmonds:

Crazy that you would ever think about that, but it is a testament to how robust we went in both directions. You can assume everyone's going to default or you can assume that everyone completely paid everything off. You need to have both ends of the barbell in order to have that right picture.

Kevin McPartland:

Well, we've all learned over the last 20 years to never say never to almost anything.

Chris Edmonds:

Right.

Kevin McPartland:

So those are the right tests.

Chris Edmonds:

Yeah. Just have to ask the right questions and keep asking the questions to yourself.

Kevin McPartland:

So on that note, my last question. You obviously oversee a lot of different markets, different areas, different technologies. How do you consume your news? What do you look at when you get up in the morning? Because I'm always interested to how people keep up when there's so much going on.

Chris Edmonds:

Probably see X first. Flip on a TV to see what's being confirmed along the way. I get in the office typically pretty early, I'll take a look at Reddit. I have some communities there that I track along the way. Not a lot of mainstream TV other than the financial news between CNBNC or Bloomberg, or things of that nature. Most to see if there's a division between the stories that are being reported, I'm looking for the delta more than anything else. But we get a lot of realtime feed. We can see the pricing information, I have the opportunity to see that in realtime on my desktop, so I'm making my own opinions along the way. And then you tell me how your consume your news of what comes out of Washington or London, or any other capital city, all of those are important at the moment because that's moving policy and certainly moving rates along the way.

Kevin McPartland:

It is, and consuming multiple sources seems to be the answer these days.

Chris Edmonds:

I assume everyone is wrong, I just need to know what they're going to be wrong about.

Kevin McPartland:

Right, right. Looking at everything, understanding what you're reading and what the source is, and then hopefully making some informed decisions from there.

Chris Edmonds:

I fear a world where there's only one opinion. That's probably not a great outcome for any of us.

Kevin McPartland:

No. No, definitely not. We need robust debate, it sure does move things forward.

Chris Edmonds:

Indeed.

Kevin McPartland:

Great. Well, with that, thank you so much for having me. This has been great.

Chris Edmonds:

Thanks for being here, and thanks for the opportunity to spend some time with you.