All right. Good afternoon. Welcome, everyone. Thanks for being here. My name's Ben Budish. I cover the brokers, asset managers, and exchanges at Barclays. For our next session, very pleased to have Terry Duffy, CEO of CME Group. Terry, welcome. Thanks so much for being here.
Thank you, Ben. Appreciate it very much.
Maybe just to start off, it's been a very interesting year from a macro perspective. Expectation for rates have swung meaningfully throughout the year. The political environment continues to evolve. Can you talk a bit about, you know, how that has been impacting the different segments at CME?
It impacts everything, and it's fairly interesting when you talk about the impact of rates and what it means to the world, and there's so many different factors. I think one thing that's not being priced in, not only on rates but on equities, is the geopolitical concerns. I think there's a lot of people that have looked at geopolitical over the last year, and we've kind of gotten used to tanks being on the ground. We're fighting a ground war in Europe for the first time since World War II, troops on the ground.
We just haven't seen this before, but the market seems to dismiss it, so rates have a big impact because, you know, obviously, that's all they talk about. What's the equity market gonna do when the Fed finally starts to move? So we've had a big impact across all of our asset classes because there are people managing risk. And why is that? Well, when you start to see things like duration risk, which happened over the last year or so with SVB and some of the other banks, people need to understand, they need to mitigate and manage that risk.
So it's been a very active year at CME Group that we're seeing, not only in our rates complex, but across all the different asset classes. It's the first time in I've been at CME for 42 years now, that I've ever seen all six asset classes have record open interest across every single asset class. So it tells me that people are mitigating and managing risk throughout the complex.
Good. Well, let's talk about the rates comp.
Yeah.
Your biggest markets are now pricing in meaningful Fed cuts over the next 12 months, you know, and one thing that investors tend to worry about is that declining rates could be a headwind for your business.
Right.
You guys have disagreed. So in your opinion, why is this view incorrect, and what do you think the key, like, longer-term drivers are for growth in the rates futures business? What should investors be looking at here?
Yeah, and I think when you look at rates today, and people have said historically, that if, in fact, we have a rate cut, that that means that the volumes on the rates business is going to go down. Okay, so that was a study done by Raymond James in 2009. And if Raymond James is here, I apologize, but you know what? I don't know who the hell made that study up, but they i f that philosophy or that logic was to hold true, then why is Macy's smaller than Amazon? What happened then has nothing to do with today. So in 2024, we're sitting at $35 trillion of debt in this country. We're sitting at a deficit spending of $1.9 trillion.
Everything's got a borrowing component associated with it, so whether the price of oil does X, Y, or Z is irrelevant because there's a cost to borrow across all these different asset classes. So from our perspective, we've seen an entire year, an entire year of literally no movement by the Fed and seeing record business. So that doesn't jive with saying that if rates go down, then volumes are gonna be associated with it. So I think that no matter what happens, I mentioned duration risk a moment ago. You know, you cannot manage duration risk in the cash market of the U.S. Treasury.
You need to manage it in the derivative market. So I think, again, people are gonna be out there managing that risk, whatever the rates do. So I, I disagree with the premise that if rates go down, volumes go down. I just don't see it. I think it's a different world, and I think there's a lot of more different factors than what was going on in 2009 than versus where we're at today. So I, I'm very optimistic about the future volumes of the U.S. Treasury complex.
Got it. Maybe talking about competitive dynamics now. So you've got a competitor launching their U.S. rates platform this month. They think that they're gonna be able to take market share. You know, you faced new entrants before. So maybe before we dig a bit deeper, just kind of remind us around the moats of your rates franchise, and maybe touch on the latest developments with your expanded DTCC.
Yeah, and I think it. Listen, we're one of those shiny objects. People look at, you know, 69%-70% operating margins over the projected period of years. I took CME public back in 2002, and we've been continuing to take the market up and to the right, and we've been very blessed to do so. So when you have those kind of operating margins, it appears very attractive to want to compete with it. But you have to remember all of the steps that we've taken, not just now, but historically, to where we're at today.
Whether it's doing a transaction with the Chicago Board of Trade to put both the long and the short end of the curve together to create those efficiencies. So these efficiencies that we created, working with DTCC, that took us five years to get that through.
It wasn't because DTCC is owned by a certain constituency or components. You have to get approval from the government, not just from DTCC. So I know that whoever is looking to compete with me suggests that they'll do it in a year or two because these are his partners. Well, that's great. Is the SEC his partner, too? I don't think so. So the SEC determines how long that's gonna take before that goes forward, and that took us five years to get the offsets against our cash versus futures. We've done that. Again, these moats, $20 billion a day in efficiencies.
So if you're thinking that you're going to just go ahead and launch a product and replicate those efficiencies overnight, I, I think that's a bit of a stretch. I gotta also ask, why would people want to give up the efficiencies they're achieving today for their portfolios? Leverage markets are so difficult. They're so tight. Money, you have to make sure you can make it extend longer without extending risk, and I think people have been able to do that in CME. If you look at just our futures and options business, there's over $10 billion a day in efficiencies.
You look at our swaps portfolio versus our futures, that's another $7 billion-$8 billion a day. And then our offsets with DTCC, which we just launched, just got approval for, since 2018, has now exceeded over $1 billion a day. We're about $20 billion a day in efficiency. That's a very strong moat, and we didn't do it over a 3 or 6-month process. We did this over a tremendous amount of years, and also, what's extremely important, is the technology associated with it. I'm sure some of your investors know that we did a deal with Google to transition all of CME's business onto Google's platform.
This. We're the only exchange in the world that's gotten to this point. Google invested $1 billion into CME. They saw what I saw as far as the future goes. This is gonna allow my clients to do so many different things with that technology, whether it's rates-related or any other products, foreign exchange, to test those products in a simulated situation, so they can better manage their risk and get those products out there for development. So it's an exciting time for us. The moat that we've built, people also don't talk about, is the options business.
Options on futures, those are strategy trades associated with risk trades. When you do strategy trades, this is large pools of open interest that don't normally traditionally move very easily. So again, I think this is a big part of the moat of CME, but this is years and years in the making.
I know people have talked about, "Well, that means CME needs to lower the rates to their competitor." Okay, so we have done so many things, as I've just referenced, to make sure as competitors come, and they do come all the time, that we are prepared. We're not just prepared because of this announcement. We've been prepared for years, and we'll continue to be prepared.
Got it. I want to ask you some more on this kind of topic, but maybe just on the DTCC, you mentioned a billion.
Yeah
In savings. Where are you in the process? What does that look like in two, three, four years? Is there a lot more kind of room to go there as more partners kind of join that partner or more of your, you know, customers join that partnership? How does that evolve?
I think it continues to evolve. We've had probably 10-15 participants who are enjoying that $15 billion of efficiencies today. I think many more will be continuing to get signed up and, again, achieve the efficiencies. Where that ultimately goes to, as far as the number, I'm not quite sure. So I would be just guesstimating at best to see where it's at. But to show that a handful of participants can generate $1 billion a day is very powerful, and we haven't even gotten some of our largest clients on this yet. So it's coming a long way.
Got it. Okay, so maybe move back to the competitive discussion.
Yeah.
So, your competitors talked about having cross-margining agreements, allowing investors to cross-margin futures with LCH-cleared interest rate swaps. So, to what extent is that perhaps a threat, the sort of pool of swaps collateral at LCH? And maybe could you talk a little bit about the nature of futures trading? So, as you see it, you know, how much futures trading is related to the hedging of interest rate swaps versus broader portfolio and risk management, speculation on Fed activity, you know, things of that nature?
Okay. First of all, I think when you look at the hedging of swaps, he's referring to the London Clearing House's dollar-denominated swaps portfolio versus CME's dollar-denominated swaps portfolio. And we achieve, as I said earlier, you know, $7 billion-$8 billion a day off that. We just transitioned, as everyone in this room knows, from one benchmark being LIBOR, to another benchmark in the U.S. being SOFR, or the Secured Overnight Financing Rate. Very difficult, hundreds and hundreds of trillions of dollars benchmark to LIBOR that needed to get moved to something else because it was going away.
And we've achieved those efficiencies with our SOFR futures and our dollar swaps portfolio offering to that number. So I guess I would ask the question, as I said earlier, in a very capital-intensive world that we live in, why in the world would you not take advantage of portfolio margining or, or margin offsets between swaps and futures and not have... If you have a swaps position or a futures position open today, why would you not move your swaps that you have to offset that? And that's what we're seeing. So to say that the swaps portfolio is larger at LCH falls under, "No kidding, we get it."
But it doesn't mean that you need to have the largest swaps portfolio in order to create the efficiencies. You need to have the size of whatever that futures market is, to create the efficiencies for those swaps. Not how big this is, is gonna manage how big the futures get. It doesn't work that way. There's so many futures contracts that it will get the efficiencies, and the market is what it is. And I think people are achieving that today as this market is growing to the largest market in the world. So we are seeing that today. So we have those offsets.
So I think when my competitor says that they're going to have this gigantic, large swaps book at LCH, which gives them an inherent advantage, I would have to ask the person in this room who's managing an interest rate portfolio: Why are you not achieving that portfolio margining at CME today? The answer is, they are. And if there's another futures contract that needs to be opened tomorrow, they will also be doing it at CME to benefit that risk offset, because it's the only place in the world you can get it. So it doesn't go by the size of the swaps book, it goes by the size of the futures book to get the offsets.
Got it.
The second part of your question was?
I think you've
Okay.
You've covered it. Yeah.
Good.
The other question, sort of same topic. You mentioned earlier the thoughts on competition around price. So again, your competitors indicated they're willing to compete aggressively on price, tick size. So how do you think about responding in that regard? We've talked about, you know, the inherent moats of the business. What about, and again, I'm sure you're not going to disclose any ongoing conversations, but how do you, you know, high level, think about responding tactically?
Again, doing what I'm doing, what I said just a moment ago, I think we create efficiencies for our participants, and I think that's critically important in the world that we live in today. Being around for 180-plus years or 160-170 plus years when the Board of Trade started, and CME in 1898, we have had a lot of experience going through this. The Board of Trade started a U.S. Treasury futures market. Again, we are going to continue to monitor, work with clients.
I think we're one of the more customer-focused institutions as far as exchanges go, and as far as tick sizes go, if you're gonna compete on that, tick sizes move all the time. I mean, that might be the easiest thing in the world to do, is to move a tick size. So that's not a competitive advantage for anybody, and if someone says that it is, they just don't understand the market. Because we can move ticks. We move tick sizes all the time. It goes by what the client wants. There are certain constituent clients that want a smaller one, some want a bigger one.
You have to find the sweet spot that meets everyone's needs, and that's what we try to do each and every day. So we don't compete on that because it's so easy to move. So that's not a competitive advantage. The other advantage on pricing, again, I'll say it, and I'll say it again, the smallest cost to any participant is the cost you pay for that transaction. The largest cost is when in the bid offer.
If the bid offer starts to widen, that cost is dramatically higher than whatever you're going to charge a participant to trade on CME Group or most other exchanges, so that's a fool's errand to say that you can charge less and do better, because if the spread's wider, I guarantee you're going to pay multiples of whatever the exchange cost is for that trade.
Maybe one last question on competition, just on the broker tech side. You know, as a business, you've lost some shares since you've acquired NEX several years ago. And how would you describe, you know, what's happened there? What's your view on the importance to broker tech to the broader CME franchise?
It's important, but when I did the transaction with Michael Spencer at NEX, you know, I was looking at having cash and treasury and futures on a single platform, seeing the benefits of it. But to be brutally honest, one of the things that I saw that I still believe in today, and I have not hidden this, is I truly believe that more and more people are looking from the cash markets into the futures markets for the efficiencies that futures give them today and the ease that they can transact in, the openness, the central limit order book, things of that nature.
So yes, we have lost some market share on our cash platform, but look where we gained the market share. We gained it in our futures contracts on the treasury side. So to me, it goes to show that where we were looking at the futurization of cash to futures, has actually panned out dramatically. And it's been happening ever since. If you look, go back to Dodd-Frank, when Dodd-Frank was passed in 2010 , and the futurization in the futures from the cash markets continued to accelerate. So to me, this was just another acceleration into our futures complex.
Again, we lost some of the business, to be brutally honest, to streaming, because the market got, a s we all know, the market was very, static, for lack of a better term. The volatility was not there, so the streaming platforms did quite well. We were integrating the platforms at the time, and we did not have the streaming like others did. So I think, FMX and some others, in the streaming side did better than we did, obviously. We lost some, but we lost some to ourselves, which is not a bad thing. As I said, we lost it to our futures complex, and I think that's important because I think it'll continue on down that path.
Okay, maybe one last question on the rates franchise, and we'll talk about.
Yeah
The other parts of the business. But just on the cash Treasury side, you know, you filed an application to centrally clear Treasuries. Probably it's going to be some time before we know the outcome of that process. But maybe just talk a little bit about why, what, why you did this and what advantage CME might have, what role you could play here.
I never like to forgo an opportunity. I don't know... When I filed for this application, I don't know what's going to happen come 2026 in this marketplace, and I'm certainly not going to wait for my participants to find out, come 2026 , if I should have an application in place or not. So I was the first one to raise my hand, saying, "I am going to file an application." The second thing I did was I called DTCC, and I reminded them how much I appreciate the partnership that we have today, creating the efficiency we have, and I think they will be the incumbent, and they are the incumbent, and I think they will prevail in this marketplace.
But I don't know if they're going to, and if they're not, I want to make sure that I'm in a strong position to do so. Right now, the investment into this is very small for CME, very, very small. So to me, it's a free option, but I really believe that the benefits is what I am achieving today. You asked me about the growth of the offsets with FICC or DTCC earlier. I think that's going to continue to grow, and I think ultimately, DTCC will be the prevailing clearinghouse to clear cash Treasuries. It doesn't mean that the rest of us won't open these up, and we are.
So again, what, what's the opportunity? Not sure. I think, again, it's a free option for CME, but I'm going to make sure that I'm not doing it come 2026. I'm doing it now, so I am ready once the mandate goes into place, which is in 2026 by the SEC. So I didn't write the rules. I didn't, I didn't push for the rules. I didn't do any of the above, but at the same time, I want to make sure that we're always prepared.
Understood. Okay, let's move to some other parts of the business.
Sure.
The energy complex is growing quite nicely. It was up, I think, 22% year- over- year in August. Maybe just high level again, what's sort of been driving the strength here?
You know, I think the energy complex, as I referenced earlier, I don't think we've ever seen some of the geopolitical factors we have, but we'll talk about what's going on in Russia and Ukraine. But I mean, that's got everybody really nervous. And then you look at what's going on politically, domestically here.
Right.
Between policies, with President Biden and what his policies were when he first became president, and maybe where Vice President Harris' policies are today. They seem to be a little bit different than where they're at. And then you look at where President Trump is, where he's been all along, which is to become more and more energy independent here in the United States. We are one of the best producers of energy in the world already today.
So again, I think we are in a very strong position with our energy businesses. I think the volatility, I think there's people that got it priced at $120, there's people that are priced at $40 and unfortunately for energy, we've been sitting between $70 and $80 for almost two years now. We started to break out to the downside just last week when we ticked down, I think, 66 or 67 on WTI. Brent might have got just below 70, and then it upticked a little bit today.
I think it's pretty interesting right now because we're doing a lot of volume in a very, very small range, where traditionally you don't do that in that tight of a range with no vol. I think the market's looking to find a place where policies will dictate what the new price levels are. Are they much higher? Are they much lower? I don't know. But I know one thing, they don't stay static forever. I think they're going to continue to move, and we continue to distribute our products around the world.
Got it. Maybe honing in specifically on WTI. So can you talk a bit about what you've seen since WTI was added to the Brent Index? And I think the last quarter you talked about WTI trading from European customers, and particularly, I think, up over 40%. So, you know, how do you see that continuing to evolve, and how would you describe your kind of ongoing sales efforts in Europe? I have a bunch of questions, but I think all are kind of related to each other.
Yeah, you know, Europe is strange right now. I mean, I think that, putting it in the basket was good. It gave European producers the opportunity to take a deeper look at CME's West Texas Intermediate contract, which is the deepest, most liquid West Texas Intermediate contract. Intercontinental Exchange also has a contract, but they've been pretty static since 2008 , when we acquired NYMEX.
So we see that market, but it's given us an opportunity to get some European clients. I think what's disturbing a little bit is, when you look at Europe, just in general, energy included, how are they going to continue to get their energy? Who are they going to get their energy from? Then when Brexit happened, you know, this is a classic situation where one on one might have made three with the Union. Now, when you've taken these two apart, with the Union and UK, I think it's hurt both the Union and the UK. So the question is: What does that mean for energy prices? What does that mean for a lot of things over there?
So I, I find that really interesting as far as the dynamic that's set up over in Europe. The least is probably the energy, but where they get it from, where they continue to get it from, what, what's Russia's role in this? How do people treat that? You know, you get cold, your mind changes. You know, when it warms up, maybe your mind feels differently. So I, I don't know. It's going to be really fascinating to see how this all plays out.
Interesting. What about on the Henry Hub side? You know, you kind of mentioned, where's the gas, or the energy coming from in Europe? You know, the U.S. is becoming an increasingly important exporter of natural gas. You know, how do you think about, you know, the correlation between production, consumption, and hedging? Like, how does it all translate into, you know, volumes on CME? What's kind of the outlook for that product?
Again, I think the hedging component, you know, you always think, well, what does it mean for future volumes? You have to look at the open interest. Right now, CME has about 80% of the Henry Hub market, and then we've been very dominant in that, and that's been a static number between 83% and, say, 79% over the years. It's sitting around 81% today, and the options is up, you know, significantly, 66% up in the options growth on Henry Hub options. Again, these are strategy parts of the trade, which I think are really fascinating.
People are looking at this natural gas and what does it mean for the future, not just for the United States, but for the world. So, you know, we got the LNG contracts that are. You know, listen, these are interesting contracts, but they're difficult to move. You know, they're very expensive to set these ports up there in order to ship this and to liquefy it and to ship it across. But again, I think hedging is going to continue because of the volatility in natural gas, because it seems like we're shifting more and more into natural gas.
And then when you look at some of the policies, as I said earlier, geopolitical, for the folks that live in Pennsylvania, I mean, we've already seen the fracking argument getting switched around a little bit, so it'll be pretty interesting to see how this all plays out.
Speaking of demand for natural gas, you know, AI has been such a big story this year, and, you know, we're hearing on our side from, like, electric utilities talking about increased annual demand growth over the next five to 10 years versus flat for the last 20 years, driven by demand for electricity from data centers, which a lot of which is going to be powered by natural gas. So how do you think about that as an opportunity? You know, do you think this could be a material factor in terms of at least demand for energy products, which again, could.
Yeah.
Relate into hedging?
If it is, Ben, I think it, you know, it benefits us because, as I said earlier, the percentages that CME enjoys today with natural gas. The question is, why I think hedging is going to be really critical on natural gas is with AI, is because we don't know what it means yet. We don't know what the capacity is going to look like for AI. We all hear about it. We watched NVIDIA go up for, you know, 12 months and then down for three days, which was pretty teeth-rattling to watch that little game.
But the point is, we don't know what AI capacity means yet, which tells me that you need to hedge this more now than ever, if you believe that the data centers are going to be driven with AI by natural gas. And if that is truly the case, we haven't seen the regulations. We haven't. No one, I don't know if anybody really even understands this stuff from a congressional standpoint, what kind of regs are they going to create?
And as we all know, when Washington talks, the market goes this way, then it goes that way really quick because the ideas are so far crazy both ways, and then they got to work themselves into a middle, and that takes quite a long time. So I think when you look at what AI is going to mean as it relates to the power associated with it, I would not want to be unhedged in that marketplace, because I think the volatility could be fairly dramatic, back and forth.
So I, I think it's an interesting story, and I think, you know, it bodes well for people that are in the business of managing risk and nat gas. But I think when you talk about it as far as AI, again, it's going to be really hard to predict, because I'm not quite sure. People are saying AI is going to be 10 times bigger than the internet, or it's going to be 10 times smaller than the internet. I think you could argue either side of that equation, but the point is the regulations. We don't even have the good regulations on internet yet, and we're going to have regulations for artificial intelligence?
That's going to lead to what the capacity issues look like. How much do you want to invest? Right now, data centers are, you know, they're popping up all over. People want to invest in them. I get it. We have a huge one. We're building a new one with Google right now. This is the bespoke data center just for CME. These things are expensive, and they're big. I don't know what the future's gonna look like. Maybe technology says we don't need the data centers for AI. Who knows? Maybe AI will tell us we don't need them.
Be a very self-serving AI.
There you go. They'll talk to us.
All right, perhaps shifting maybe quickly to the metals complex-
Yeah.
You've also seen very strong growth here. Now, what's driving the strength there? It looks like there's certainly been some share gains versus competitor, but do you think this strength can continue? It looks like it's been happening in kinda your core products, as well as some newer ones.
I'm not a gold bug, but I own gold. I think this stuff's fascinating. And I'm not a Bitcoin person, and I don't own Bitcoin, but we list it. I think, as I said earlier, with so much uncertainty, what's going on with our debt, and when you look around about how do you protect your assets, whatever those assets may be, people are looking for multiple different hedging vehicles to do so. And I think metals has finally got people's eyes on them to a point where they become a little bit more mainstream.
I think people were very distracted with crypto over the last couple of years, as that was the replacement for gold as a hedge against not only inflation, but a whole host of other issues, including if the U.S. was never the reserve currency, what would that mean for us? There's a whole host of issues out there. So I think metals, I don't think that trade's going away for a while, and I'm not saying the price is going up or down.
I just think people are gonna keep a very close watch on both gold, the precious, especially gold and silver. And then, as it relates to the other market we have, which is Bitcoin, I don't know if you're gonna talk about Bitcoin, but I'll just make one reference about it. When you look at Bitcoin, and I was sitting in my office the other day, and I'm thinking about the whole premise around crypto. And, you know, after I had that run-in with Sam Bankman-Fried several years ago, I mean, quite an interesting character.
But I will say that since Bitcoin, and we've all gotten to know it a little bit more, it seems like the story has always been: What's next? What's next? So what's next is CME lists futures on Bitcoin in 2017. Bam, validated. Okay, what's next? We're going to have, potentially, an ETF on Bitcoin. Great. Bam, what's next? It seems like the price is trying to be accelerated by the distribution of the product to the masses, to whether it's Fidelity or whoever is offering it today at more of a mainstream.
So I like to ask the question, what's next, if that's the case? It's kind of, it's kind of bizarre because it seems to me, if you look at the pattern of what's next, as far as a hedge, it's been about the access to the product. Where's the use case for the product? Give me the use case like you gave me the access case. The access approval case has been proved out now over the last eight years. Give me the use case now for everybody in this room on a daily basis. Is it truly a hedge like gold is, and silver, or is it something separate?
So I think it's an interesting dynamic going on with those three. So I think why I tied in Bitcoin to your question, because I think it ties in with the metals trade.
Interesting. Well, if you feel like sticking around till tomorrow, we've got, Mike Novogratz from Galaxy Digital, if you wanna.
Yeah.
Hear him give his view, but,
That's the use case.
Certainly will. You talked about increasing access. I've heard you say in the past, too, you think there's a meaningful opportunity, to engage with retail traders, for retail traders to increasingly engage with futures. Now, can you expand on this a little bit? You know, how do you think the potential launch of, features on Robinhood could impact the business later this year? And what does the product roadmap look like for CME? Does this sort of necessitate the evolving of more, like, E-minis products? You know, how do you guys kinda think about approaching this?
We're underlining Robinhood there, 'cause I wanna get back to that, and I don't wanna forget it, 'cause I think it's important. So let's talk about retail real quick here, and what does retail look like going forward? 'Cause I think this is the most fascinating topic that I've seen in a long time. Traditionally, we've all looked at retail as whatever the fad of the day is. So whether they're bell-bottoms, now we're gonna go to skinny jeans 'cause bell-bottoms are out, so retail is done again. It'll come back. Just wait a little while, and it'll come back again, and that's kind of been the dynamic of retail, right?
The way everybody. We talk about retail, then it goes away, and we talk about retail, it goes away. You look at the proliferation of technology today, and if you look at the people who are gonna be controlling the financial system as we know it over the last 10 years, over the next 10 years, those people are probably anywhere between the age group of 25 and 40 at max right now. They're gonna be controlling that.
They've been born and raised with different tools than what I was born and raised with, and I think that they are going to continue to take the tools they've learned and apply them themselves at a different cost basis than hiring somebody to do it. No disrespect to all the money centers out there and the investment firms, but it's just a fact that when you can pick up your phone and you can have access to anything you want, and artificial intelligence, we talked about it a moment ago, everybody's gonna have access to the same information in the same time.
The only difference is going to be how much money do you have? So if I'm running $1 billion and you're riding your bike delivering a pizza, we're gonna have the same damn information. The only difference is, I'm gonna be able to outlast your ass because I got more money, but the information flow is truly amazing. I think the future for retail, and when you look at institutional, it's gonna become blurred at some point, and it's gonna be an even larger financial system because of that. We lost so many people after 2008 in the financial world because, you know what?
Nobody wanted to be in financial services because we were looked at as a bunch of criminals. The market has now evolved into a different place, and I think that retail and institutional are going to clash, and I think they're going to grow, and I think people are going to be the masters of their own domain, and they're gonna drive this. And I think it's a massively exciting component of the financial market, and the market, in general, is retail. Hence, Robinhood. Let's talk about Robinhood now.
They're gonna open up roughly, you know, probably 125,000 futures accounts to trade these futures. Why is that? Well, you look at their business plan today. Robinhood has a couple things that they do. They obviously have payment for order flow, which people buy their flow, and then they make money on the vig. Everything else is hence the name, right? Robinhood is free. Well, it's really not free because you're selling your the flow to somebody, so you're making money, but how are they making money? So we can all surmise that.
But the point is, Robinhood is a very interesting proposal going forward. The question is: What are they going to do to be sustainable for the future, and we've seen the volatility in their own stock going forward. So I think they're gonna look at, when they look at my world of futures, and I think they're starting to understand it better, and I think they're seeing greater opportunities in that world, compared to either making money on the VIX or making money on payment for order flow. Those are two things that could fluctuate dramatically, and they have on them.
So I think they're gonna continue to grow, and that bodes well for the retail story, then, which I was referring to earlier. So I kinda tie all that together and just say, this is where the world wants to go, and I think it's really. You know, I, I'm speaking at Georgetown next week, and I love speaking at universities because every time I do so, you know, I don't like to go up there and talk to them as a 66-year-old guy that's been in the business for forty-two years and say, "This is how it should be done, damn it, and you should do it, too." I like to get ideas from these people, and I've been doing this for years.
I absolutely find it fascinating because every generation thought the next generation's a bunch of idiots. But if you look at the world the way it's at today, we've gone up and to the right forever. And that's a really strong point. And I think these younger people today, whether they're going through Robinhood today or doing different retail participants, they're gonna take this world up and to the right. The problem is, there's gonna be bumps along the way, just like there has with every other generation. But a fascinating time for Robinhood, fascinating time for retail.
Very interesting. All right, maybe switching topics, M&A capital allocation. So, you know, there's some, I think, media reports a few weeks ago that CME and S&P might be exploring the sale of the Osttra JV. I don't know if that's something you can speak to, but is there, is there anything you could share about that? And then maybe any broader thoughts on M&A, potential divestitures, you know, pieces you'd like to add?
So real quick, just so you folks know, Osttra, which is the dumbest name ever, but whatever. I didn't come up with the name. Osttra is a combination of our back office services that we acquired from the NEX businesses. So all the different TriOptima and Tri's and all that, we put them together with IHS, and we created a joint venture. This was one of those situations where it was a very commoditized business. When we acquired NEX, we were not looking at these TriOptima and the rest of the Osttra business.
So we were looking at the cash businesses, as I said earlier. But anyway, these are good businesses, but they're fairly commoditized. But when we did the deal with IHS, and then subsequently, they were acquired by S&P Global, one-on-one. I go back to my European and Brexit example. One-on-one with this business turned into three. And it was the first time I actually could see these businesses starting to come alive again when we put them together. So the efficiencies have even got greater and greater. So there's been some speculation that we may be looking to sell these businesses.
I'd sell it, if the price is right, but I don't have to sell it. So I don't normally talk like that about anything as a public company CEO, but I'll be brutally honest with you. We don't need to have them, but they're actually doing fine, and we don't need to sell them. So I think it's pretty interesting, but there was reported that we were looking to sell them, so that, that's where that's at. Not doing either one right now. As far as capital allocation goes, you know, listen, CME has been a dividend-paying stock.
When I took CME public, not knowing what I was doing in 2002, and I said I wanted to pay a dividend, everyone says, "You're not a growth stock." I said, "Well, why? Why am I not a growth stock if I'm paying a dividend?" "Well, you can't be both." I said, "Okay, I think we can, but okay." We've walked our dividend up to a point, as you know, and we've paid a tremendous amount of billions of dollars of dividends over the years. Got a variable dividend that's been quite successful on free cash flow.
We also did it during the time, as we all know. I talked about it a moment ago, during Dodd-Frank, and the interest rates sitting at zero for a very, very long period of time. So to get the yield off CME made a tremendous amount of sense. Does it always make sense to have the same structure? I think you have to look at the market in general. So you know, I think with the rates where they're at today and, you know, we are evaluating how we should be returning capital to our shareholders.
You know, we like our dividend policy, but it doesn't mean that we're not entertaining or talking about some kind of conversion into a bit of a, a potential share repurchase to some degree or not. Don't know. We haven't made that decision. I'll walk through it with my board, when the time is right, but, we're open to that type of discussion, and the only reason I'm open to it because I think the rate market is different than where it was over the last 10 years, and I think that would make prudent sense for the people who own CME, and that's my job, is to do the right thing on behalf of my shareholders.
Understood. We pivoting again to the technology aspects of the business, which you kind of weaved throughout the conversation. So on the Q2 call, you talked about taking the next step forward with the Google partnership, building this new co-location facility in Aurora, Illinois. Maybe talk a little bit about this project and, you know, the long-term benefits for CME from a cost-saving and innovative perspective.
Yeah. Interesting, interesting proposal. Google has never built a bespoke data center for anybody. They're building one for me. And I, when I say bespoke, it's gonna fit CME's needs, which is really interesting to think a company the size of Google, who traditionally builds the cookie-cutter type data centers for all their clients to come in there and do business with, they're building a bespoke one that fits my needs and my clients' needs for co-location and things of that nature that fit markets.
I think they really are starting to understand markets quite well, and I think they're looking at this as an opportunity to be introduced into a whole host of new clients through the financial services industry by partnering with CME and bringing this bespoke data center. We're excited about it. It's literally right next door to our existing one, so the cost will be basically nothing to move it over. We said from the beginning, when we did this transaction with Google, that we would help facilitate any type of transition for our clients.
That was part of why Google invested in us. We're gonna use some of those monies to do so. So we think we're also, with the way the markets are moving so fast and technology is moving so fast, to have proprietary technology and not have the capabilities and abilities of the cloud and Big Tech, is almost going to be potentially a thing of the past. So we need to make sure that we are on the cutting edge. We think Google is. We love our partnership with them, and I think it's gonna be an exciting time because they are really embracing markets.
We're gonna be able to go to market with new products in a matter of days, where it could be a matter of months in today's world on your own proprietary technology. It's exciting, and you'll know if things are working or not pretty quick. And I think having Google as our partner will bring dividends to CME for many years to come, and I think we'll be bringing dividends to Google as well.
Maybe just weaving AI.
Yeah
Back into it. Uses within CME, how is Google gonna help? Is it a cost save, top line? How do you think about deploying it internally?
We're using it now. We're using it very discreetly now with a handful of our people, just on a test basis, with Google's technology of AI. It's fairly fascinating, according to my folks, and we only have, like, six or eight people that we've got authorized to use it. But the things that you'll be able to do as it relates to markets, I think will create massive efficiencies for the users. And, and listen, I keep saying this, in a capital-intensive world, you have to figure out how to take a dollar, make it look like five, and take the risk of $0.75 .
Because you cannot introduce more risk into the system, but you have to introduce risk or leverage into the system that goes further because of the advancements you can do by risk management and technology. This is another example how I believe that Google can do that with us, with our risk people, and that's the beauty of the model that we have at CME.
Fascinating. Well, with just less than a minute left.
Sure
Maybe one more kind of last random topic. Just coming back to kind of your product suite, the S&P 500 futures. You know, we talked about kind of energy, we talked about rates. Kind of coming back there, a similar question: What are you seeing more recently? One of the other kind of concerns we've heard about is competitive dynamics with the options franchise.
Yeah
That, your other Chicago neighbor, you know, thoughts there?
Cboe's done a great job. Done a great job. I don't know if Fred Tomczyk's here or not. He was here this morning. Fred Tomczyk, good guy. And I think that when you look at the zero-dated options, is what you're referring to, you know, zero-dated options are not something that are new. It's been a very retail-attractive, driven product, and I think when we compete, with that product, zero-dated options at Cboe, just so we all know, they, they settle into a cash settlement, where CME's zero-dated options settle into a futures contract.
We've heard loud and clear that some of our clients would like to see that go into, a cash product, and that is more retail-focused versus institutional-focused, 'cause the institutional focus, they would rather have the futures contract. So we're looking to have both, and we will apply to, to make sure that we can have that. But it's basically, you know, I think when you look at the market share today, it ebbs and then it flows, you know, and I talked about it earlier, retail is continuing to grow, so we want to make sure we're a part of that.
We want to make sure we can offer it to them, but at the same time, I don't ever want to lose my way as far as my vertical goes with my institutional client base. And we'll continue to focus on that, build on it, at the same time, get our retail going. So