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 in global business, the dream drivers that have made the NYSE an indispensable institution for global growth for more than 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's 12 exchanges and seven clearing houses around the world.
Speaker 1:
Now here's your host, Josh King, head of communications at Intercontinental Exchange.
Josh King:
If you work anywhere in politics, almost everyone's morning routine involves reading Mike Allen, whether it was at the old POLITICO Playbook or now at Axios AM. But if you work in futures, making bets on future prices to hedge risk, you wake up with John Lothian. Since 2000, when he first started aggregating news on commodities to today, 18 years later, he and his team have assembled all the news that's fit to print for an industry making huge bets on where the economy is headed. John has also become a fixture at FIA Boca, the International Futures Industry Conference, where we recorded this conversation at its 43rd annual gathering. John's vantage point on what's going on at this event and in this industry has never been more expansive. He joins us now here in the Florida headquarters of the ICE House. Welcome John.
John Lothian:
Thanks for having me.
Josh King:
First, your take on what's happening at this year's conference, the innovations, the problem solving the speeches, the deals, what are you seeing?
John Lothian:
Well, it's a great conference and it's never been more important because there's so many different aspects of the industry that come together here. Even beyond futures, whether it's the investment bankers here, the prop traders here, the FinTech companies here, the new crypto exchanges are the ones that are showing up this year as well. So there's lots of different players from peripheral industries around futures that have come together.
John Lothian:
And it's also a tremendous time of the year. We're sick of winter. We want to come down to Boca, get into the warm sun. And the people from Europe, the same thing, they look forward to it every year, coming here in the warm Florida sun and seeing their colleagues in industry and collaborating and also perhaps rocking the boat with potential deals here and there.
Josh King:
Any deals that you're particularly aware of? Whispers around the hallways?
John Lothian:
Oh, I've heard whispers, but nothing that I can repeat. So it's... But there's a lot of history of deals here. Whether it's the original electronic trading deals or some of the exchange mergers or attempts to break up exchange mergers. So there's a great history for deals, but ICE did such a tremendous job years ago when they bid for the Board of Trade to try to break up the CME deal that nothing has topped that since then.
Josh King:
I want to get into the details of that in a few minutes. This is the 43rd annual gathering. I don't think John that you've been to all 43, but how is conference changed since you first started coming? When was your first year?
John Lothian:
So I started coming in about 2001, and at the time single stock futures were the big new thing that we were concerned about. This-
Josh King:
What was the single stock future?
John Lothian:
Single stock futures were futures on individual shares of stock. And they had been blocked from trading for many years by the Shad-Johnson Accord, and with the passage of the commodity futures modernization act in 2000, they'd come up with a regulatory solution to be able to trade these. It was single stock futures at the time, but it was still a time when there was open outcry trading and a lot out of different products.
Josh King:
The nostalgia for open outcry is still alive and well?
John Lothian:
I actually had lunch yesterday with a group of former NIMEX and COMEX traders. And one of them said to a man, they would all go back and trade in the pits if they had the opportunity.
Josh King:
Why was that?
John Lothian:
It was just the camaraderie, the adrenaline flow, the testosterone, whatever it was. And it was the opportunity for anybody to come into the marketplace and buy their talents, be able to succeed or fail.
Josh King:
You've seen it all, John Lothian. So in your view, are the markets better off for more electronification and less open outcry? Or have we lost something?
John Lothian:
It's a combination of both. I mean, I am a big fan of electronic trading because they democratize the markets and they allowed more people to directly participate in it. There's a level of transparency that's with the electronic markets today, but there's also a level of transparency that we lost when we moved from open outcry to electronic trading. And that's some of the color of who's doing what in the market. And the people that fought electronic trading from an open outcry standpoint, they missed the opportunity to really shape the direction and of electronic trading in a way that more open outcry trading and some of the values that it had.
John Lothian:
So yes we've missed some things. Certainly the community of people on the trading floors and knowing each other and sharing that common experience was tremendous. And so now the industry is more dispersed because you're in satellite offices here and there or whatever. Firms are more protective of their people in terms of wanting to keep them away from the competition so they don't get picked off, which was always something that happened on the trading floor. And so it's a different industry today.
Josh King:
Of all the summer jobs that you could have had when you were 17-years-old, John Lothian, how did you end up driving a soybean trader every day from Wisconsin to Chicago?
John Lothian:
So Tom Cashman, part of a very legendary trading family at the Chicago Board of Trade, was a neighbor of mine in Wisconsin. He'd been a neighbor of my uncle's in Wisconsin, and then he moved across the Bay closer to us. And so we knew him. He'd actually had coached my older brother in little league. He'd been on the village board with, with my uncle and all.
Josh King:
What town was this?
John Lothian:
Williams Bay, Wisconsin, right on Geneva Lake. And so my older brother had a friend who had a summer job with Tom driving him into Chicago. And then Tom got him a job with a trading firm downtown. And so he couldn't do it anymore. So as a 17-year-old kid, I walked over and I knocked on the door and I said, "Hey, I understand you need a new driver. I've got a license." And I did that for four years, five years while I was going through finishing up high school. And then into college.
Josh King:
The round trip drive time was how long?
John Lothian:
About an hour and a half, depending on traffic.
Josh King:
You pick up a lot of pointers about the features industry?
John Lothian:
Well, we would pick up some different traders on the way in, and some other people as well. There was a seminary student that was going in with this. My uncle who taught at the University of Illinois Chicago would go in with us sometimes. But on the way back, there was the Irish Mafia. And there was a guy from the wheat pit, or a couple guys from the wheat pit, and a guy from the corn pit that would come and we would drive him about three quarters of the way back to the train station, and then they'd get in their cars and go from there. So just being in that environment and listening to these people talk about the Marcus was just a tremendous learning opportunity.
Josh King:
In my short time in this industry, I'm struck by how fast people that we work with consume as much information and journalism as they can and spread things around as virally as they can. Certainly nothing like what the John Lothian Newsletter does every morning. But before your product came to life, you saw a real connection between trading markets and journalism. What was the epiphany?
John Lothian:
So when I was working for Tom, sometimes he would have me run some errands during the day, but many days I just had the trading day, the short agricultural trading session to myself. And so I would read four or five newspapers a day. And so I fell in love with journalism. I fell in love with markets at the same time. And I fell in love with how the markets consume information and then give us this really important thing called price.
John Lothian:
And so when I was going off to college, I had a couple of different things that I wanted to pursue. Actually, one of my thoughts was to go into the seminary and to become a minister, but I also wanted to pursue the markets. And so I was getting a finance degree from Purdue University, and then I started to write for the college paper and I really liked it. And so I started to pursue a degree in journalism as well. And so I put those two things together. So my training is in mass communications and finance and I've always put those together. My first job out of college was working for Knight Ridder, Commodity New Service, an old wire service that covered the industry. The day after I took my final exam, I was in the office of Bob Bogda saying, "I want to work for you"
Josh King:
For those of us who don't remember or have no conception of what an agriculture wire news service is, what kind of content would you create? How important was it to the markets and where is it gone?
John Lothian:
So it was very similar to what you'd see in Associated Press. For example, it's a wire service. So it didn't necessarily have its own paper that it was put in, but would go into a lot of different papers. We would cover the price movement of the markets. We'd do a pre-opening comment, a post opening comment midday, and then a closing comment. We'd also write features stories about what was going on. There was a weekly column called Grain Instant News or Gin that we would do, but I would also cover the export markets, what was going on there. I would cover some of the domestic markets in terms of what cash prices were. I'd literally call around from elevator to processor to exporter and ask them what their prices were and any of the actions that were going on. So we kind of had this comprehensive view of what it was. B.
John Lothian:
But the output of that was when I came in was basically a toilet paper roll of thermal paper, well actually is more like a paper towel roll. Reuters was more of a toilet paper in terms of its width. And so because we were a little bit wider, we were actually able to print weather maps onto this, which Reuters couldn't do. And so this machine would constantly be going, the traders would be coming out of the pits, they'd be looking at the updates and what was going on and reading.
John Lothian:
So later Knight Ridder developed a product called the DQ-7, which was a dedicated terminal. It had a chiclets, like a keyboard for it, very kind of flimsy, but that was before we had personal computers or at least personal computers were very, very expensive. And so the first product that they developed that actually ran on a personal computer was run on what was then called a PCjr, and this was a little bit less expensive computer. And ultimately by the time they got the product to market, IBM had stopped production of the PCjr. And what that taught me was that content is king. And that the platforms upon which that content is delivered will constantly change.
Josh King:
Right now, while we're sitting in Florida, there's a third Nor'easter in March hitting the Northeast, certainly allows people who are speculating in oil prices and thinking about supply chains to wonder how the Northeast could be disrupted again. Have Americans lost touch? And so they're very focused on sort of weather and oil, but less focused on the things that you used to report on in the grain report. Do Americans care enough? Are they focused enough anymore on how our agricultural output is continuing and being reported?
John Lothian:
Well, I think transparency in marketplaces is very important always to the public and to the participants. There is concern about concentration of power within certain markets, because you have some huge, huge players that dominate elements of the food market. But it's very much less transparent in some ways as to where all of the food comes to. There was a story today about most fruit in the United States, doesn't come from the United States anymore. But that's the international scope of the markets. These are global markets and that's the way they work. If one nation has a shortage, another nation has a surplus and they find a way to make a trade to make that happen. And that's the beauty of global markets through history.
Josh King:
Intercontinental Exchange, toward the end of the year, put out a new contract called FANG+ on your Twitter feed, John Lothian, you have pinned your tweet, "FANG+ the ooph back into the market set exchange competition." Why is that sitting up there?
John Lothian:
Well, it was a very significant story at the time because we hadn't had a new product in a long time. And I really liked this new product. I thought that some people should take a look at this product to trade. And so I wanted to give it the most exposure I could. I did get a tremendous amount of hits on it through my Twitter Feed and on my LinkedIn or whatever.
Josh King:
You really are an internet pioneer. We're talking about your Twitter Feed, but if you go back to the formative days of the John Lothian Newsletter, you were trying to be both a broker and a journalist at the same time.
John Lothian:
Yes. So as a broker, I had the experience of going back to my college, Purdue University, for a weekend, and a former roommate of mine had taken me on a tour of campus. And he showed me this new dormitory where the kids not only had suites where they had their own rooms and bathrooms and everything, but they had a internet connection and a phone line. And this was during the early 90's, before there was dial up services and AOL or even browsers. And I could see where these kids were going to come out of school. And my feeling was they were just going to steal our jobs. So I had to learn this whole internet thing and was doing it even before, like I said before, before dial up. And then as soon as dial up came, I got on the internet and I used to do a lot of writing on the internet. And I found a lot of customers through that and it helped me grow my business.
John Lothian:
But then I wanted to know my audience a little bit better. And I'd read some things about viral marketing. There was a great example about viral marketing of a firm National Discount Broker. There was an email that was going around and it said, "Call this number. This is hilarious and press number seven or listen to all the offerings and then press number seven." And you listen to various things about National Town Broker, and then hit number seven to hear a duck quack. And it was picked up by a lot of radio stations and all. And it really reinforced the idea that viral marketing using email could work.
John Lothian:
And so the John Lothian Newsletter was a viral marketing project. I also had competitors. I was running an electronic trading operation at the time for the price features group. And I had competitors who had massive budgets for advertising. And so I needed to find a way to compete that was cost effective. And this viral marketing experiment was a tremendous way to compete, very cost effective. And it created tremendous relationships with various brokers or traders or individuals who are interested in trading and helped me grow my business.
Josh King:
Erika Olson begins her book Zero Sum Game at the rise of the largest derivatives market on July 11th, 2006. As she writes, she's interviewing for a job, I think, at the Chicago Board of Trade with a guy named Chris Malo, who is then the CBOT's head of business development and marketing. And she thinks she's wise by dropping she's been reading you, but what happens next in Malo's view?
John Lothian:
Well, he was rather shocked that she was reading me and it seemed to be a bad thing. But she had called me up and said, "Hey, I want to, I'd like... I've been reading your newsletter. I'm starting this new job. I'd like to talk to you." And I said, "I think that would be a really bad career move." Because I was kind of in the freezer with the Board of Trade at that point, because I had opposed then chairman Charlie Carey and some of the moves that he had made proceeding the sale of the Chicago Board of trade to the CME, including firing the chief of staff and the general counsel of the Exchange, Carol Burke.
Josh King:
How did you express your opposition to this?
John Lothian:
I wrote about it in my newsletter repeatedly, and I knew it was going to harm my relationship with the Board of Trade, but I knew it was the right thing to do. And quite frankly, to this day, the women of this industry have expressed their great admiration for me, for standing up for probably then the most powerful women in the industry, or one of them, who was really being attacked by the old boys club at the Board of Trade.
Josh King:
You're putting your views in your newsletter. Is that getting picked up by mainstream media and actually having a bigger effect or is it just, Lothian continuing to sort of be a thorn in their side?
John Lothian:
Well, it's funny in the early days of the John Lothian Newsletter as a broker, I would get information from the exchanges before sometimes before it was available to the reporters. And I remember that the CME, the head of PR used to be, or corporate communications, used to be kind of upset about that because I would have tidbits in the newsletter about new products or regulations or technologies or whatever. But quite frankly, many of the other media looked at me as a source as opposed to a competitor. And I've always had a very collaborative relationship with them. There's one major news publication that you would know that says that I'm their, that reporter's best distribution channel, because most people don't have a terminal for his product.
Josh King:
I mean, putting together your current email today. I mean, it comes in what time in the morning does it usually get?
John Lothian:
We send it out about 8:00 central time.
Josh King:
And when do you start producing it?
John Lothian:
Well, all through the day I'm tweeting stories that I find either on the web or that are being sent to me by email, including many reporters that sent me either their stories and asked that for them to be tweeted or included in the newsletter. But I get up about 5:30 in the morning and start assembling the newsletter. And then about 7:00, some of my colleagues get on the newsletter as well. We just do it all via a Google Doc and collaborate from our homes, sitting there in our pajamas, as it were.
Josh King:
One of the big fights that you reported on and that you were intimately familiar with happened right here, FIA Boca. It was 2006 or 2000. And you were very vocal about the sale of the CBOT to the CME. And here at this event, Intercontinental Exchange makes a bid. What's your memories of that day?
John Lothian:
Well, I was working on the newsletter that morning, aggregating all the various stories from my hotel room. And there was lot of press releases out the first day. And so I was including all that, but there were a lot of stories about this Board of Trade-CME merger. And then all of a sudden, I got the press release from ICE that they were making a bid. I erased everything else from the newsletter because it didn't matter anymore. It was yesterday's news.
Josh King:
That's a lot of work to throw away.
John Lothian:
It was, but I just put out this special report. And then I headed down to the conference to see what was going on. And it made a... The people learned about it. Many people learned about it through my newsletter. In fact, that morning, the CBOT was supposed to have a press breakfast. And Bernie Dan called the head of corporate communications, Maria Gemski, and said to cancel the press breakfast or at least that the Board of Trade wouldn't be showing up. They could still serve the press breakfast, but nobody from the Board of Trade was going to be there because of the ICE bid. And she asked, "Who has it?" And he said, "Well, it's been in Lothian and it's been on CNBC." And most people at the conference read it through my newsletter.
Josh King:
One of the big themes I'm hearing at FIA Boca 2018 is the comparisons rolling back the clock to 2008, exact 10 years ago, the fall of Bear Stearns. And then after that, the bankruptcy of Lehman Brothers. In your view, having watched this industry so closely, and what's happening with futures trading and clearing, generally, you think the system has worked and performed?
John Lothian:
Yes. As a matter of fact, the system performed very, very well in back in 2008, from a futures perspective. Most of the other problems were on the over the counter side or equities, or whatever. And many of the changes that occurred to the regulation and market structure really were mirrored after the futures' market structure. And so more things have moved into clearing houses. More things are traded on exchanges or trading-like facilities like SAPS.
John Lothian:
And so the features industry is more resilient today than it's ever been. The recent volatility that we saw, we saw some hiccups with some different FCMS. Some of that just had to do with the new residual interest reports and the fact that you've got a large part of the industry using software that does batch processing. And so you kind of have to do estimates on where you are relative to your residual interest, and you might end up with a mistake where you don't have enough coverage, and then you got to report it.
Josh King:
The futures industry storming boldly into the future at Boca 2018. So much conversation about Bitcoin cryptocurrencies and the underlying blockchain technology. Something that the John Lothian needs to keep abreast of?
John Lothian:
Yes. So, I mean, there's so much news that is coming out from this, and it has the feel of a couple of different ways. It has a feel like it was in the early 70's when there was a big change in the industry with the introduction of financial futures. Because there was a wave of youth that came into the markets at that time, the people in the bond room or in the currencies were, were generally much younger than those in the traditional ag-markets. And then the other thing is it feels a little bit like when electronic trading was taking over for open outcry, when you saw a tremendous amount of new technologies come to the forefront and solutions and the like. And so it's kind of a combination of things that are going on there.
John Lothian:
We also have the rise of a press out there that is very promotional on the part of the crypto world. And so we introduced, or announced yesterday, the beginning of a project called CryptoMarketsWiki, modeled after a project I announced 10 years ago, or started 10 years ago, with some meetings right here at Boca. And so we used the software from Wikipedia and we're building a knowledge base for anybody that wants to come in about the crypto markets and related FinTech and RegTech information. And it will be kind of integrated with MarketsWiki, our existing Wiki. MarketWiki in 2017, passed the 100 million page view mark, and we're at 122 million paid views. We had 25 million page views in 2017. And so the growth of this Wiki is exponential and the like. And so we thought that this was the right solution, not only from an information standpoint, but from a commercial standpoint for the industry to provide a good venue for advertising, marketing for the new firms and the established firms that are getting into this area.
Josh King:
CryptoMarketsWiki. Where else John Lothian should people be following you and understanding what you're doing and seeing and reporting?
John Lothian:
Yeah, so JohnLothainNews.com is our main site for news. Marketswiki.com of course is our Wiki site. We also have MarketsReformWiki, if you're interested in the regulatory reform after the last financial crisis, whether stuff here in the states or overseas.
John Lothian:
We also have MarketsWikiEducation.com. We run a program the last several years helping the industry educate and inform interns and young people that are interested in the industry. We've held sessions in Chicago, New York, London, and Stockholm. We use a Ted Talk format. And so you get to hear some of the leading experts and executives within the industry talk about the industry, the opportunities, their career path, and other subjects that... There's really some good advice in there. So I encourage people to check that out.
John Lothian:
And then last is just simply CryptoMarketsWiki. We expect to launch that in late 2018. Right now, if you to the site, you'll see our Bitcoin page that's under construction there. So it's a pretty lengthy page about the history of Bitcoin, but we'll start to rotate some different pages up front. So you can see some different examples of the work that we're doing there.
Josh King:
John Lothian, founder of the John J Lothian company. Newest product out in the market, the CryptoMarketsWiki.com. Thanks a lot for joining us in the ICE House.
John Lothian:
Thank you for having me.
Josh King:
If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a question or a comment, you'd like one of our experts to tackle in a future show, email us at [email protected] or tweeted at us @NYSE. Our show is produced by Pete Ash and Ian Wolf with production assistance from Ken Abel and Steven Porter. I'm Josh King, your host signing off from the library of the New York Stock Exchange. Thanks for listening. See you next week.
Speaker 1:
Information and containing 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 this information and do not sponsor approve or endorse any of the content hearing. All of which is presented solely for informational and educational purposes. Nothing here constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.