Odd Lots – "Terry Duffy on the CME's Big Push into Retail Trading"
Host: Bloomberg’s Joe Weisenthal & Tracy Alloway
Guest: Terry Duffy, Chairman & CEO, CME Group
Date: October 2, 2025
Overview: Main Theme and Purpose
This episode centers around the CME Group’s new partnership with FanDuel, exploring the intersection of legacy finance, speculative retail trading, and the rise of event-based contracts. Terry Duffy provides insight into the changing landscape of market participants, regulatory challenges, and the CME's evolving approach to retail engagement. The conversation examines the proliferation of prediction markets, the potential merging of sports betting and traditional finance, and the implications for market structure, regulation, and the future of trading.
Key Discussion Points and Insights
Chicago’s Place in Trading History
- Chicago celebrated as a historic and modern hub for trading, maintaining its relevance in the evolution of financial markets.
[01:23–02:00]
The Blurring Line: Finance and Speculation
- Joe Weisenthal and Tracy Alloway discuss how boundaries between gambling/speculation and legacy financial markets are dissolving.
- Exchanges once criticized for "enabling gambling" now considering sports betting partnerships.
[02:20–03:14] - “Will I be trading cotton futures on my sports app or will be the opposite? Will I be going to a traditional brokerage to place bets on a Raiders game?” — Joe Weisenthal [02:33]
CME x FanDuel: Event Contracts and Retail Revolution
- CME partnering with FanDuel to launch “event contracts”—simple, binary wagers on price outcomes (e.g., gold futures above/below a level after 60 minutes).
- Access and democratization: Technology enables retail traders with small accounts (as little as $500–$1,000) to access sophisticated tools previously reserved for institutions.
Terry Duffy:
“Today the guy that would never be able to trade futures … now we’re able to give him the technology that Goldman Sachs may or may not have.” [06:18]
- Anticipation of a massive wealth transfer to younger, app-savvy generations.
[06:35–07:18]
Structure and Mechanics of Event Contracts
- Dedicated FanDuel Markets app (powered by CME).
- Three to four one-hour-long events per day for each asset class (e.g., gold, crude, S&P 500, Treasuries).
- Event outcome: Binary—will the asset settle above or below a pre-set level after 60 minutes?
- Multiple market makers ensure liquidity; contracts are centrally cleared by CME.
- Market makers can hedge exposures in the primary CME markets.
Terry Duffy:
“Small contracts can be small, Tracy, but as you know, you trade enough of anything that’s small, turns into something big.” [10:58]
Technology, Regulation, and the Culture Shift
- Tech Levelling: Retail now has can access the same tech as institutional traders, spurring convergence.
- Regulatory evolution: The “rules of the road” are lagging the pace of innovation in event and prediction markets.
- Duffy cautions against the "Wild West"—regulatory credibility is essential to protect market participants.
- "Speculation" isn’t a dirty word; investors need speculators to provide liquidity.
Duffy:
“Regulation breeds credibility to any product. And if it’s not regulated to a point and it’s the Wild West, somebody’s going to get hurt.” [12:18]
- Duffy advocates education and transparency, especially given the proliferation of crypto and event markets.
- CME is deliberately taking a measured approach, “walking before running” with FanDuel.
Tax Treatment, Political Betting, and the Gray Zone
- Futures contracts (except for political/sports) enjoy favorable 1256 tax treatment (60/40 blended capital gains).
- Event contracts on non-financial outcomes (sports, politics) are ordinary income.
[16:15–17:39]
- Duffy is cautious about political event markets, citing concerns about manipulation, societal impact, and regulatory ambiguity.
“I don’t believe right now that event markets on politics are a good thing … There are some political events that are so small that could be deemed readily manipulable.” — Terry Duffy [18:28, 24:46]
The Role of Regulation and New Entrants (Kelshi, Polymarket)
- Discussion of prediction market platforms self-certifying contracts with the CFTC. Duffy warns that “not objected to” is not the same as “approved.”
Memorable Moment:
“They are not CFTC approved products. What they are is they have not been opposed by the CFTC. There’s a big difference there.” — Terry Duffy [22:19]
- Duffy presses for full disclosure and urges improved regulatory processes.
Retail Trading’s Evolution: Risks, Education, and the Amazon vs. Sears Analogy
- Major differences: Ease of access, risk management (auto-liquidation), and need for user education.
- Illegal/unregulated gambling still dwarfs legal markets partly because of complexity and privacy concerns in legal onboarding.
- Duffy underscores danger of institutional complacency, referencing the decline of Sears versus rise of Amazon; innovation and adaptation are critical.
"If you want to be a gigantic institutional player, I think that’s great … But we have to make sure that we can move laterally left and right.” — Terry Duffy [28:15]
Competition, Pricing Power, and Market Structure
- CME’s business model compared to Walmart: Lower price per contract, higher volume.
- Duffy refutes suggestions that CME is anti-competitive; stresses importance of transparency, eyes-wide-open regulation, and ongoing innovation (e.g., FanDuel partnership).
“If we still did nothing around innovation, we’d be trading pork bellies. We’d be trading onions, which are illegal.” — Terry Duffy [33:00]
- [Fun Fact: Onions are the only commodity banned from futures trading by Congress.]
Treasury Futures and Global Competition
- Duffy critiques Howard Lutnick’s UK-cleared US treasury futures, calling it a risk to US sovereign debt oversight.
- CME offers substantial margin and capital efficiency for participants, fulfilling US regulatory requirements.
[34:14–39:18]
Perpetual Futures, Product Innovation, and Legality
- Discussion of “perpetual futures contracts” popularized in crypto.
- US law requires futures to be settled at a “later date”; perps (e.g., 50-year duration) fail the “HAHA test.”
- Perpetuals unlikely for deliverable commodities or treasuries; even for cash-settled assets, legal issues remain.
Big Picture: Proliferation of Event Markets, Macro Risks, and the Importance of Demand
- Economic event markets (e.g., jobs reports, car sales) could serve genuine hedging needs, but adoption depends on real user demand and tradable liquidity.
- Duffy: Not every contract deserves a marketplace—example: “lobster futures.”
- Institutional and retail lines are blurring; sources of capital are converging; both will increasingly look alike.
- Innovation must be matched with caution and regulatory responsibility.
AI and the Future of Finance
- CME, in partnership with Google, is using AI/ML but hasn’t yet drastically cut headcount/descaled tasks; technology tends to shift roles rather than eliminate them.
Market Volatility and Risk Management
- Past market events (e.g., “Liberation Day,” 2008 crisis, pandemic) have set playbooks for risk management.
- Any potential risk factor (e.g., government shutdowns) is taken seriously, but experience helps contextualize the impact.
- Duffy’s forward-looking leadership style: Lean into innovation, learn from history without getting trapped by it.
Notable Quotes
- “Technology has enabled the participant from all levels to be on a level playing field.” — Terry Duffy [04:19]
- “Regulation breeds credibility to any product ... if it’s the Wild West, somebody’s going to get hurt.” — Terry Duffy [12:18]
- “You trade enough of anything that’s small, turns into something big.” — Terry Duffy [10:58]
- “Anti-competitive [behavior] is good for the short term, but really bad for the long term because you want that ecosystem ... to continue to grow.” — Terry Duffy [32:11]
- “Every political event is not a presidential election ... There are some political events that are so small that could be deemed readily manipulable.” — Terry Duffy [24:46]
- “If we still did nothing around innovation, we’d be trading pork bellies. We’d be trading onions, which are illegal.” — Terry Duffy [33:00]
Structurally Important Timestamps
- [03:44] Guest introduction: Terry Duffy
- [04:19] CME’s FanDuel partnership explained
- [07:55] Mechanics of event contracts on FanDuel
- [10:20] Market structure details
- [12:18] Regulation and credibility in market offerings
- [16:15] Tax treatment for event contracts vs. betting
- [18:28, 24:46] Political prediction markets and manipulation risks
- [22:19] “Not objected to” vs. “CFTC approved” contracts
- [26:05] Differences in retail vs. institutional trading experience
- [28:15] The Amazon–Sears analogy: importance of innovation
- [34:14] Treasury futures and global competition
- [40:06] Why “perpetual futures” don’t fit US law
- [43:30] Use cases and market justification for new event markets
- [47:46] Blurring lines between retail and institutional participation
- [49:05] AI, CME’s partnership with Google
- [51:06] Reflections on major volatility events and risk management
- [53:30] Duffy: “Everything worries me” — forward-looking risk view
Memorable Moments
- Duffy’s literal/figurative “haha test” for perpetual futures, illustrating legal definitions with humor. [40:19]
- Lobster contract analogy signaling the difference between theoretical markets and actual demand. [45:30]–[46:52]
- CFTC contract approvals: The distinction between “not objected to” vs. true regulatory sign-off. [22:19]
Final Takeaways
The CME’s partnership with FanDuel is a bold move to capture the next wave of retail traders, harnessing the democratizing force of technology while maintaining CME’s commitment to regulatory rigor and market integrity. Terry Duffy’s nuanced, future-focused leadership stresses adaptation, transparency, and caution—a blend that aims to position CME at the forefront of financial innovation while acknowledging real risks in the wild new world of betting, trading, and prediction markets.