Odd Lots

Terry Duffy on the CME's Big Push into Retail Trading

October 2, 2025

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  • The CME Group is actively pursuing the retail trading revolution through partnerships like the one with FanDuel to offer short-duration, binary event contracts, aiming to bridge the gap between traditional finance and speculative/gaming platforms. 
  • Terry Duffy argues that speculation is necessary to increase liquidity for investors, but stresses that the CME's expansion into new markets, especially prediction markets, must be underpinned by robust regulation and clear participant education to maintain credibility. 
  • The CME views the blurring lines between retail and institutional participants as an ongoing trend, necessitating continuous innovation to avoid becoming obsolete, similar to how Sears failed to adapt to the rise of Amazon. 
  • The CME Group's strategy suggests that being second to market in new areas, like crypto, can be acceptable if it allows the exchange to leverage its institutional strength and avoid costly early mistakes, contrasting with first-mover advantages seen in failed entities like FTX. 
  • The conversation highlights a perceived blurring and transformation in financial markets, where the line between traditional hedging/investment and speculative betting platforms is dissolving, exemplified by the CME's partnership with FanDuel. 
  • The hosts emphasize the importance of market logic, noting that while entities might want to hedge specific risks (like a left-tailed jobs report), the absence of sufficient volume means that a contract's theoretical utility does not guarantee a sizable, viable market, referencing the hypothetical lobster futures example. 

Segments

CME/FanDuel Partnership Details
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(00:04:31)
  • Key Takeaway: The CME/FanDuel partnership involves offering binary, 60-minute event contracts on core asset classes like gold and S&P 500 within a dedicated FanDuel Markets app.
  • Summary: These event contracts will be binary (e.g., gold above or below a set price) and last for a 60-minute window, with multiple sessions running daily. The trades will be cleared through the CME’s clearinghouse, utilizing multiple market makers to ensure deep liquidity, unlike some competitors who use a single market maker. Market makers can hedge their exposure seamlessly in the CME’s primary markets.
Investing vs. Speculation Norms
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(00:12:02)
  • Key Takeaway: Speculation is essential for creating liquidity that benefits investors, and regulatory credibility is crucial for any new product entering the market.
  • Summary: Terry Duffy posits that speculation is necessary to provide the opposite side of trades for investors, thus increasing overall market liquidity. He emphasizes that regulation breeds credibility, warning against the ‘wild west’ approach seen in unregulated spaces. The CME’s approach to new products, like the FanDuel events, involves walking before running to ensure sound business practices.
Tax Treatment of Event Contracts
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(00:17:35)
  • Key Takeaway: CME anticipates that its financial asset event contracts (gold, equities) will qualify for favorable 1256 tax treatment (60/40 blended rate), while sports and entertainment events will be taxed as ordinary income.
  • Summary: Futures contracts often receive 1256 treatment, resulting in a blended tax rate of approximately 27%. CME believes its financial event contracts will be treated as event futures, qualifying for this favorable treatment. Conversely, event contracts based on entertainment or sporting outcomes will be treated as ordinary income.
Political Prediction Market Caution
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(00:19:39)
  • Key Takeaway: Duffy is cautious about listing political prediction markets beyond major national elections due to the risk of manipulation in smaller races, citing the Commodity Exchange Act’s ‘readily manipulable’ clause.
  • Summary: Duffy expressed personal reservations about event markets on politics, preferring to observe the FanDuel partnership’s performance first. He highlighted that while presidential elections involve massive participation, smaller local races could easily be deemed readily manipulable under existing law. He stressed the importance of clear disclosure, noting that self-certified CFTC products are ’not objected to,’ which is different from being ‘CFTC-approved.’
Retail Access and Ecosystem Growth
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(00:27:31)
  • Key Takeaway: The biggest difference in retail trading is the ease of access, which the CME is addressing by simplifying onboarding and leveraging technology like auto-liquidation to manage risk for smaller clients.
  • Summary: Historically, signing up to trade futures was too difficult for retail participants, contributing to the size of unregulated markets. The CME must innovate and adapt to new client bases to avoid the fate of companies like Sears, which failed to evolve. The partnership with FanDuel, which has 13 million active accounts, provides immediate access to a new constituency.
Treasury Futures Competition Concerns
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(00:38:10)
  • Key Takeaway: Duffy’s primary concern with Howard Lutnick’s UK-cleared Treasury futures offering is the application of UK bankruptcy law to U.S. sovereign debt, arguing that U.S. debt should be governed by U.S. law.
  • Summary: Duffy argues that futures contracts expiring into cash U.S. Treasuries should be regulated under U.S. law, not UK law, citing the risk of trade busting seen in other markets. He asserts that CME already provides significant capital efficiencies ($24 billion daily in the interest rate complex) by offsetting futures with domestic swaps. He welcomes competition if it occurs within the U.S. regulatory framework.
Perpetual Futures Applicability
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(00:43:32)
  • Key Takeaway: Perpetual futures models emerging from crypto are legally incompatible with deliverable commodity or Treasury futures contracts because the legal definition of a futures contract requires a set future price determination date.
  • Summary: A futures contract is legally defined as being priced for a later date, which perpetuals, by nature, lack. Furthermore, products requiring physical delivery, such as livestock or grain, cannot function as perpetuals because delivery must eventually occur. Even cash-settled products would not fit the statutory definition of a futures contract.
Concluding Remarks and Guest Farewell
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(00:57:41)
  • Key Takeaway: The interview concludes with expressions of appreciation for Terry Duffy’s insights.
  • Summary: The hosts express enjoyment in speaking with Terry Duffy. They thank him for returning to the show. The segment ends with final acknowledgments between the participants.
CME’s Market Positioning
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(00:58:08)
  • Key Takeaway: CME’s long-term value creation model accepts being late to emerging markets like crypto, prioritizing institutional strength over first-mover advantage.
  • Summary: The intersection of prediction betting markets and traditional CME markets is noted as a key area of interest. The CME’s approach of entering the crypto game late (2017) is viewed as a successful, deliberate strategy. Institutional strength is highlighted as a counterbalancing advantage to first-mover status, which proved costly for entities like FTX.
Nature of Betting vs. Investing
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(00:59:08)
  • Key Takeaway: Traditional financial assets are fundamentally tied to income generation or appreciation, contrasting with the observed activity on betting platforms where the destination of generated money is unclear.
  • Summary: Traditional investing is defined by the expectation of an income stream or asset appreciation. The hosts observe significant money generation on betting and market-making platforms without a clear understanding of where that capital is ultimately directed. This activity suggests a complete transformation and blurring of market lines is occurring.
Caution vs. Acceleration
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(01:00:19)
  • Key Takeaway: The CME’s partnership with FanDuel, a sports betting company, accelerates the trend of trading on everything, despite the exchange’s expressed caution regarding new markets.
  • Summary: The CME’s cautious approach to new financial products is contrasted with its partnership with FanDuel. This partnership is seen as an accelerating event for the normalization of trading on any concept via any app. The hosts acknowledge this trend provides ample content for future episodes of Odd Lots.
Market Viability and Volume
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(01:01:01)
  • Key Takeaway: The hypothetical example of lobster futures illustrates that the logical desire for hedging does not guarantee sufficient volume to create a sizable, functional market.
  • Summary: Terry Duffy’s joke about lobster futures is considered a telling example of market constraints. While an entity might want to hedge specific risks, like a left-tailed jobs report, the market logic must align with sufficient volume. The hosts question whether niche prediction markets, like one for lobster outcomes, would face the same volume limitations.
Episode Wrap-up and Credits
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(01:01:55)
  • Key Takeaway: The hosts conclude the episode, provide contact information for themselves and producers, and direct listeners to subscription and community channels.
  • Summary: The hosts agree to potentially start a prediction market for a future Odd Lots series. They provide their social media handles and direct listeners to the Odd Lots newsletter and Discord channel. Listeners are encouraged to leave positive reviews and subscribe to Bloomberg for ad-free listening.