Bloomberg Talks
00:00:02 · Scarlet Fu, Scarlet Fu, Terry Duffy
[00:00:02] S0: Bloomberg Audio Studios. Podcasts, radio, news. [00:00:07] S1: Meantime, operators like the CME argue that market integrity is at stake. So I'm pleased to welcome CME Group CEO and Chairman Terry Duffy to Bloomberg Crypto. Terry, always a pleasure speaking with you. Thank you for sitting down with us from the Ripple Swell Conference. I'd like to start with you breaking it down for us and explaining the CME's perspective on why Kalshi's proposed perpetual oil futures is a risk, while the 24-7 oil contracts that The CME proposed and then shelved are not a risk. [00:00:39] S0: Well, I think so. [00:00:40] S2: What you got to do is break it down and suggest what is a swap and what is a future. Perpetuals are swaps. They're not futures. And that is my argument. It has been ever since. It's not product specific, Scarlet. I'll make the same argument about Bitcoin. And it's because the CFTC approved it as a future. [00:01:00] S0: It doesn't mean it's not a swap. [00:01:01] S2: And that is basically my litigation against the CFTC and Chair Selig. [00:01:06] S0: So there's a complete difference. [00:01:09] S2: Swaps, as you know, Scarlet, have different requirements than futures, different tax treatment, different margin requirements, registration requirements that futures do not. [00:01:20] S0: They're all different. [00:01:21] S2: And I think it's important for the investors that are using these products to have the clarity on what. [00:01:26] S0: They are, what they are not.
00:01:26 · Scarlet Fu, Terry Duffy, Scarlet Fu
[00:01:26] S0: They are, what they are not. [00:01:28] S2: That's why they're going to go to hopefully the court to make that decision very shortly. [00:01:33] S1: Thank you for explaining that, because there is an argument that Kalshi is coming for oil and that is a direct challenge to one of your core businesses and that your objection to these perpetual oil futures is more about protecting your franchise rather than market integrity. How would you respond to that kind of argument? [00:01:52] S2: Well, again, Scarlet, I mean, it's not about the product. It's about the nature of the structure of the product. It's a perpetual product, which means it's a swap. [00:02:01] S0: It's not a future. [00:02:03] S2: So when you look at oil in general, we'll focus on oil and how it works. [00:02:08] S0: Oil trades out on a curve, Scarlet. [00:02:11] S2: Perpetuals trade to a spot market tied to a funding rate. And that funding rate is funded between the longs and the shorts, depending on if the market goes up or down. The one side of the party pays the other side of the party to keep it tied to the spot. [00:02:26] S0: That is deemed a swap contract. [00:02:28] S2: Second of all, there is no expiration to a perpetual. And there's funding, there's borrowing costs associated with some of these products. Also, 40 to 50 percent of every single trade, Scarlet, especially in oil, you might be buying an April contract and selling a June contract against that. [00:02:51] S0: That's how people manage risk. You cannot do that in a perpetual.
00:02:51 · Scarlet Fu, Terry Duffy, S3
[00:02:51] S0: That's how people manage risk. You cannot do that in a perpetual. [00:02:55] S2: So 94 percent of my business is institutional driven. What they are creating is strictly, strictly retail-focused contracts, and they don't have a natural buyer or a natural seller. They are just retail-driven contracts for speculation and speculation only. [00:03:13] S3: Terry, what about the Commodity Markets Council, the CMC? They've asked the CFTC to crack down on U.S. retail traders using VPNs to access offshore exchanges, but oil perps are already trading at a significant volume in the likes of Binance and Hyperliquid. Do you think that prices on those offshore contracts are influencing maybe the price discovery on CME? [00:03:34] S2: Well, I don't think it's having an impact on the price discovery right now, but who's to say it can't? These contracts in the United States, first of all, you're not supposed to be allowed to trade these offshore contracts on a VPN, and there's nobody to police it. So if there is, they haven't explained to us how they are policing it, and people are getting access to these offshore markets. Now, these offshore markets that trade on these DeFi platforms, they also carry with them leverage that is. [00:04:03] S0: Absolutely extraordinary leverage where you.
00:04:03 · Scarlet Fu, Terry Duffy, Scarlet Fu
[00:04:03] S0: Absolutely extraordinary leverage where you. [00:04:06] S2: Could have a cascading of events, Scarlet, whether it's up or down, depending on which way the market's going, because of the auto liquidation process that happens associated with these DeFi markets. And also in a DeFi market, if there is a default, what they do is they tear up the winning side of the trade to pay off for the losing side of the trade. There is no waterfall associated with these contracts. So again, these contracts are small to begin with. They're 100% retail focused. [00:04:35] S0: I'll say it again. [00:04:36] S2: My business is 94% institutional business. The question is, why are we allowing these contracts to trade with U.S. [00:04:44] S0: Participants trading them? [00:04:45] S2: And if so, why are you not allowing me to have a 24-7 oil contract, even though it's a small 10-barrel oil contract, in order to move forward? So eventually I pulled that contract, as you know. I talked to my commercial participants. They didn't think it was worth it. listing it. [00:05:01] S0: But again, the CFTC was an obstacle in that process. [00:05:06] S1: I know that you are troubled by people in the U.S. trading on markets through a VPN that is illegal for U.S. participants to trade on. What would a crackdown on U.S. traders who are using VPNs to access offshore trading look like from where you sit? [00:05:21] S0: I don't know. [00:05:22] S2: I think that's up to the United States government to make that decision. I didn't make the rules. [00:05:25] S0: They did.
00:05:25 · Scarlet Fu, Terry Duffy, S3
[00:05:25] S0: They did. [00:05:27] S2: So, again, this is not a CME rule. This is not a rule from the New York Stock Exchange or NASDAQ. [00:05:34] S0: This is a government rule. So they have to. [00:05:36] S2: Tell me what it's going to look like because I don't know. So I'm curious as much as you ask the question. I'm curious about the answer myself. I don't know the answer to it. [00:05:47] S3: Definitely a tricky situation. Terry, thank you so much for joining us. That's CME Group CEO and Chairman Terry Duffy.