FMX - Investor Day 2026 - BGC GROUP INC

Good afternoon, everyone, and welcome to our first ever FMX Investor Day, and a warm welcome to those of you joining via the webcast. I'm John Abulrars, the CEO of the BGC Group. First let me explain why we called this day, and then I'll get out of the way and let you hear from the people who really drive this business. For most of the last 40 years, if you wanted to trade a U.S. interest rate future, you only had one place to go. venue, one order book, one set of fees. That's not how any other major market works. In foreign exchange, corporate bonds, equities and energy, clients have a choice of where to trade. Multiple venues competing on price, service and technology every day. But in the market that prices the risk-free rate for the entire world, the collateral base for the global financial system, there was but one dominant exchange and limited choice. This is what FMX set out to change. And we were not alone in this thinking. Ten of the world's largest banks and market-making firms thought so as well, which is why in April of 2024 they did not just become clients of this exchange, they became owners. That is the single most important thing to understand about FMX. FMX was built by the market for the market. The people who use FMX own FMX, the people who own FMx use FMx. Now, many have said that this is a long shot, more than once, and sometimes not so politely. We're up against a well-run incumbent, nearly 40 years of habit, real network effects, and there's a list of firms who have tried before and did not succeed. So let me tell you what we did differently. Eight years ago, we launched our cash US Treasuries platform with no market share against an incumbent that held more than 80%. We captured market share one client at a time by having innovative technology, tighter prices, and exceptional client service. Today, FMX UST is at 42% of the cloud market, an all-time high. $84 billion a day, up 35% year on year, with more than 150 of the world's largest clients connected. FMX is the fastest growing cash treasury platform in the world, eight years running. We began this journey more than 80 points behind. And today, we trail by only single digits. And I can promise you, we did not enter this market to be number two. FMX FX is one of the fastest-growing foreign exchange platforms in the world, more than tripling to $19 billion a day since our equity partners invested two and a half years ago. And we are following the same playbook for the U.S. interest rate futures exchange. We launched SOFR in September of 2024. We then launched the two- and the five-year U. Treasury futures contracts in May of 2025, followed by launching the full curve in August of 2026. Last quarter, FMX futures averaged 80,000 contracts a day, up 49 percent, with a monthly record of 112,000 daily contracts in September. This momentum continued into the fourth quarter, where we achieved a daily record of 162,000 contacts traded on the second of October. With 12 FCMs already live on the platform, we have nearly 80% of cleared swap balances available to FMX. And finally, two more numbers to keep in mind before I take you through today's program. Those numbers are 82 and 68. 82% of the time last quarter, our SOFR bid offer price was equal to or better than the CMEs. And on U.S. Treasury futures, that was 68% of the time. This achievement is by design and not by accident. We built this exchange with the tightest tick sizes in the market, supported by the owners of FMX, which are the largest traders in the world. Two years ago, FMX client meetings were largely about explaining our potential and our plans going forward. Now these meetings have shifted to questions around speed of connectivity, how much of the book we can move across, and what it takes to maximize margin efficiencies. Every FMX meeting now leaves me more convinced than ever of FMX's role in the market and its ultimate path to success. Now onto this afternoon's program. We will have six sessions, then a closing keynote. Please make the most of the Q&A at the end of each session, as this is a great opportunity for you to discuss with FMX the people who actually use the platform and who run that business. First, Lou Scotto, FMX's CEO, opens with an overview of FMX, its vision and strategy. FMX today is one marketplace across five of the largest markets in the world. Cash treasuries, interest rate futures, foreign exchange, inflation, and repo. Next, we'll address the strategic case for FMX from the people best placed to explain it, the owners and the users of the FMX platform. These are our partners. Be sure to ask them why they became investors in FMX. After the break, you'll hear from the firms that trade on FMX about what makes our technology different. Then, Robert Allen, president of FMX Futures Exchange, will host a panel on our LCH partnership. I want to spend just an extra minute here setting this one up because cross-margining is probably the most complicated part of our story for us to clearly explain, yet it is perhaps the most valuable. It lives inside clearing mechanics, described in a language nobody outside a margin team enjoys. So today, we hope to explain the mechanics in a simple and clear way. We are not going to talk about it in the abstract. Robert and the panel are going to walk you through real-world examples. Please use this time to make sure you come away with an understanding of the importance of the cross-margining benefit. Then, BGC's Chairman and General Counsel, Stephen Merkle, will host a panel on legal and regulatory policy. He'll be joined by Alex Titus, Chief Advisor to CFTC Chairman Selig, George Canales of Milbank, formerly the co-director of the SEC's Division of Enforcement, and his colleague, Josh Sterling, who helped write the Dodd-Frank Rules. Finally, we will conclude the presentations with Sean Windyett, my fellow CEO at BGCC, who will take you through the financials and the economics of the business. Lastly, a few thank yous before I hand it over. Firstly, to Lou Scotto, the FMX management team, and every employee who built this world-class platform. Exchanges are not built on strategy decks. They are built by people writing code, onboarding clients, and answering the phones at 6 a.m. Many of them are here today, and to each one, thank you. To BGC shareholders and our ten equity partners, building an exchange takes patience and belief, and you've given us both. Our equity partners brought liquidity, flow, and credibility, and put their names behind the idea that this market deserves and needs a second venue. To LCH, a genuinely unique partner, and one that offers real capital efficiency to our clients. And finally, to those clients, many of whom took a chance on a smaller, newer venue before it was obvious. We have not forgotten who was there for us at the beginning. For those of you who are here as investors in BGC, I implore you to use the next few hours to determine the viability of a challenger in this market. Judge FMX on the four things that actually determine whether a challanger can win. It's connectivity, technology, clearing, and ultimately market share. You will hear about all four of those this afternoon, from us and from the firms that use the platform. Please ask the hard questions where you feel you need further explanation. Competition in this market arrives one client at a time. It comes when clients choose a second venue that offers better service, better technology, and economics, exactly the way we did in the cash treasury market. Today is your chance to look at FMX closely and judge for yourselves. One last thing and then I promise I'll hand it over. We close today with a keynote conversation with Professor Geoffrey Hinton. In addition to being widely accepted as the godfather of AI, Professor Hinton knows a thing or two about persevering through adversity and doubt. For decades, Professor hinton pursued his dream of artificial intelligence and building neural networks when those around him told him it couldn't be done. In 2018, Professor Hinton was rewarded for such perseverance by winning the Turing Award, and then in 2024, Professor hinton won the Nobel Prize in Physics, making him only the second person to ever win both awards. It is my great honor to welcome Professor Hinton, and it's with great anticipation that Mark Rinaldo, the COO of FMX and I, look forward to having this conversation. After our conversation with Professor Hilton, there is a cocktail reception just outside this room. Please stay, have a drink, and ask any of the questions you might not have wanted to ask in the microphone. Thank you again for being here. We have a lot to show you today. And with that, please join me in welcoming Lou Scotto, the CEO of FMX. Wow, John said a lot of what I was going to say, but I will say yes to something he didn't say and I'll tell you later what the yes was too. This is cool. All these people came out to acknowledge FMX. I'm excited. You excited? Excited. You need him to be excited. That's the COO. He, I'm the, I kind of like the front guy. He's the guy making it happen. But I want to take you back a little bit. Why is FMX here? You You know, the inspiration for FMX, and I love to say it was me, but it wasn't, it was two words. Howard Ludnick calls me in, 2018, let's go, we're going to go into the electronic marketplace again in government securities and FX, okay? So we both sat there and said, why? Competition's an issue. So when competition is an issue, things become stale. There was no change from the time Howard Ludnick and E-Speed came into the market in the mid-90s in government securities electronically, and at that point, in terms of the way it was traded. It was the same. And we knew one thing. even though there was four competitors in there one had about 85% of market that person wasn't being challenged because you can't follow that person and expect success you have to change the dynamics of what you're planning to do in order to introduce a viable alternative and that's what the marketplace needed if they didn't know they needed it you should have been on the trading desk, like maybe Rob Allen was, or Eric, in mid-January 2019 when markets closed. Why? One relevant pricing engine is down. Think about that for a second. You have choices in everything in life. Here is a dependency on the most important market, or at least one of the most important markets and the markets closed for business you want to price anything you want a price of deal you want price anything you can't so not because I became more charming our pipeline vastly grew on the next day in 2019 and you'll see that on the charts because the marketplace realized we had come into the market and we had a relevance that they thought could bring us forward and be a competitor. So, Fenix US Treasuries and Fenix FX, okay, those were the inspiration of Howard Ludnick. And the important thing to remember in all of these are you have to have competition. John talked about that. It was no more relevant than on that one day in 2019 when the marketplace said, oh boy, we have an issue, an issue that got created by the market because they didn't insist on having competition in there. So that was the birth of what US Treasuries and FX was all about. Now let's talk about what FX is. It is a platform servicing five markets and ten products. It includes treasuries and we've expanded from our initial government security benchmarks to treasury bills and off the runs. We are the only platform that allows you to electronically execute off the run treasury bonds. this potential as enormous because we think eventually as the clients, the banks adapt and understand and use it, it will become an important vehicle for them to trade with their client base using the FMX technology. Our inflation bonds, which is both, I don't have enough issues. We have inflation bonds and inflation swaps. We now have them firmly on the FMX platform. We were able to roll out a CLOB competitor. The only one that had it was Brokatech, the affiliate of CME. And now within less than a year and a half, we are 35% of that market and growing. Our overnight repo, we have rolled out. We think that that is going to be an important product going forward as we look to now bring on the first ever electronification of the repo market in term repo, in a segment of term repo which we have the capability of doing and our competition doesn't because we have BGC infrastructure of the desks that actually trade that. So we're working diligently on expanding our repo offering beyond overnight to term. exchange we do both spot and NDFs and we are vastly growing our capability there we've made a couple of important hires over the last few months and we're excited about the growth of that platform as well and finally what you're all here to understand what John was talking about the need and interest rate futures for a viable competitor is even senior to the need that they need in the U.S. Treasury cash market, where they have 100% of the market. So we have two markets. One had 85, almost 85% of market. The other one has 100% in the market, and we'll see later how the first one's going and we will talk, I'm sure, a lot about where we're going with the second. So let's take you through the timeline. I kind of touched on the pre-2021 And we orchestrated the U.S. Treasury Fenex development. And then in 2021, we have an important piece for success for futures. And one of them is our partnership with the largest clearing capability company, LCH, which pretty much is the dominant player in clearing of interest rate swaps. In January 2024, we went through a process that was pretty challenging. We didn't have a lot of fans, as you might imagine, from the competitive landscape, and you can figure out there was only one. So we really worked really hard to get that accomplished, and we did. And then in April of 2024, this one I'll pause on. The relevance that we created up to 2022 brought the discussions to us from these major banks and liquidity providers about getting serious in terms of competing in futures. If we did not have that basic relevance in the cash market, if we weren't an established platform at that point point in 2022 were probably 20 plus percent of the market that relevance created that interest and the partners sat down with howard and myself and talked seriously about how to put it together april 2024 we were able to close that deal And then in September, as John articulated, we launched Silver Futures, and in May of 2025, we launched Treasury Futures. So what's happened since that merger of people? First of all, the combination, you know, when we looked at this, when Howard and I spent a lot of time, mostly Howard talking, me listening. It was focused on one specific item. Let's look at all the failures in the futures competitive market. Let s look at what they didn't do, what they didn't have, and let's make sure we have it. So we looked at QREX, ELX, Curve Global, everything. And what we established was some had an LCH relationship, some had banking partners, but no LCH relationship. And obviously, here's a little, you know, prop for our firm. No one had the infrastructure and technology that we had at BGC. So we definitely had the first. As I talked about it before, we landed LCH and those two enlisted the interest from the banks to be that third piece. Now we're the first one that had all three pieces in place. As John said, it was built by the market for the market but it was build in stages with a lot of understanding of what we had to do and who we needed on a team in order to execute that strategy successfully. Like any other sporting event, you don't go in there without being really ready and prepped for the challenge. This team is ready for the change. This team covers everything you need to cover to be successful. And what markets are we servicing? We're servicing the markets with the banks and the clients as banks, investors and investors as clients, as John alluded to. And this is our growth record since we launched the partnership. Those numbers are impressive. And you have to look at those numbers and understand we're now going to produce those kind of growth numbers as we look to our rates futures development. Here are the markets now we're involved with. Plenty of room to grow, plenty of opportunity. These markets are not going to get smaller, they're going to larger, and capability for us in these markets now is put in place. We are ready to attack these markets and be successful because we have the pieces in place to do it. Now, 84 billion sounds like a lot, okay? Because it is. And the reason why it is, this is a very important piece of it. If you look at the bottom and you talk to what we do differently, one of the critical decisions, and I mean this was not an easy discussion, was talking about counterparty blocking. What does that mean? That means when you go into the game, you're down three touchdowns because 30% of everything that's going to happen you're not going to see it when the bond market trades and treasuries you're touching 30 of that market because 30 of the market we elected to be different and have a different client mix and have a club environment that allowed trading to be for lack of better word without some of the toxicity of the other platform. But every day, we have access to 70% of the market versus 100. So that's why that $84 billion makes me a little bit proud, because we're doing that without access to maybe 25% to 30% every day. And when these markets are volatile, that number is significant. it. We also, and we have our chief technology officer over there, Bijoy Paul, who's amazing, and this curated liquidity, I would love to give you a detailed explanation how I explained to Bijoy how to do it, but basically it said, we've got to do something that allows these double streams not to exist. So when you trade on FMX uniquely, you submit what you want to do and then the technology is deterministic and will find the best path for execution. That's a very important piece, along with our tick size, which you know it's funny we tighten a tick size and trust me that That was an interesting conversation in the early days with the banks, but we were able to prove that it was going to be eventually a good thing, and it has been. So much so that the competitive landscape followed, trying to match the tick sizes that we were trading at. So that growth, 2018 we start, 2019 they have an event, and we grow from there. And then in 2024, we do the transaction, and you can see the eventuality of exponential growth on the back of the partnership. FX as well. You look at this chart, FX growth has been dramatic. I think it will continue to grow dramatically through the next 18 months. And it started similar to our treasury platform, and then it jumped significantly as a function of the partnership. They came in, they realized the benefits of trading on this platform, both as a client with the technology that they were being proposed, and also as a partner in the FMX enterprise. one we're proud of. That is, as I was just discussing, that is pipeline growth bringing on over 150 clients onto the platform. In 2022, okay, we onboarded probably four of the largest players in the in the government securities market so they didn't exist from 2018 to 2022 then we did the transaction but you can see that steady growth steady growth is a function of continuous onboarding of new clients adding more and more liquidity takers and makers onto your platform that's what you do with electronic platform you just bring them It's not different from when you talk about Netflix and all that and talk about the subscriber and the growth in users and subscribers. That's us. 42, 49. Now, if I asked everybody in this room if they were listening to me for the last eight minutes, remember, that 49% without that 30% is not greater than 42%. We don't do 30% of the market. So 49-42, we are there and we're going to grow beyond those numbers as we go forward with more protocols, more product offerings that are involved. So we're not going to slow our growth into 27, we're gonna continue growing beyond these numbers. What do we want to do in futures? Well, basically rinse and repeat. We want to take that playbook and run it again. We proved it works and we think with certainty following the same path as treasuries, growing your pipeline, onboarding clients, the natural next level will be a growth maybe not as profound treasuries immediately, but exponentially growing over the course of the next 18 months because of what we see in the pipeline and what we sees coming on as we get cross-margin benefits we could hear later out to the client base. That's an important chart. I would call that chart one thing, not easy. But you know, there was a saying in a movie that probably a lot of you saw, Field of Dreams. If you build it, they will come. I think that evidence is that in real life it can happen too, and that's a real life scenario. Okay, where are we in futures? Well you can see that the growth is going in the right direction. Okay, we tighten the tick sizes, our equity partners are in there, what we're right now coming to probably a good pivot point for growth, the technology that both the partners and the non-partners are now getting in place is critical to that number exponentially growing, And that means connectivity, meaning a trader's ability to point and click, is not perfect. It's connected, they can trade futures, but it's not perfect, perfect is when your systematic trading people have an algo in place with a smart order router, okay, and they take, take, for lack of a better word, less manual out of the execution and put in what we want, which is an API algorithmic execution strategy. And when we see our clients that have it in place, they're ten times in terms of the number of contracts they do versus the people who are trying to get that technology in place. We expect over the course of the next, I would say, three months, a material amount of this is going to be finished, coupled with a pipeline of institutional accounts that are now coming onto the platform. They take longer because they want to make sure your contract, your volumes are relevant, relevant enough for them to get a green light to connect. Those universes are now coming in together and makes me feel really good about the next chapter of growth in futures. I think John alluded to this in his opening. This is an important statistic. So how you get measured in any kind of new platform is not only by your volumes, it's by how you're competing. How you're competing when your bid offer is out there. Are you way off of the competitor? Are you equal to the competitor or are you better than the competitor. You can see in the second quarter of 25, 18% of the time we were equal or better. But as the users came in and as our liquidity grew, we now stand on 82% in SOFR. If you look at Treasury futures, okay, similar story, especially in the last two quarters where the amount of volume has grown substantially. So we continue to be able, with our technology and our client backing, get buy-in for the way we price ourselves in futures. So this is our plan. So Howard spoke initially about what we want to do in the first year. What we want do in first year, give everybody a chance to go to the technology people and go through the dev queue, which is probably 20 or 30 pages long, and get the capability to put this and prioritize it. That was supposed to be year one, and in year two, that carried over, and we're now finishing up year two in SOFR, and going into year three. In year three, we expect, as we projected, or Howard projected in the first time he spoke about this, we're projecting exponential growth in year three, which starts now. October is the start of year three for SOFR. May would be the start for year three of US Treasury futures. We look at them together now and we're excited about it because of the technology getting cleaned up, the buy side adoption is happening, and we are really excited. That side of my group is really excited about having the product. This side of the group is nervous about that side of their group putting too much pressure on them. But we will deliver basis trading, and it will not only significantly allow us to grow our futures volumes, but the natural, it will grow our treasury volumes alongside of it. So that's a very big piece of the development. And finally, as we talked about it a million times, SOFR, for us, is all about the LCH's ability to give it like an 80% margin benefit to you when you transact futures. The only thing holding that back right now is the technology that needs to be in place for the banks, FCM, and the clients to afford them the opportunity, which we again believe is finishing up as we go into the fourth quarter this year. Those three in place should have a meaningful growth capability for our futures offering. We're now going to talk about market data. If you look at the numbers for CME, this number is astounding. It's 13% of their revenue, it's 6% of our revenue. We believe strongly that 6% grows as we, if you go back to the page before this, complete what we need to complete to become a relevant competitor in futures. The universe of treasuries is in place. We have all those other government securities offerings. We have an FX platform with pricing, so when we add to it the futures, we round out the suite of products, we can go into subscription pricing and have them have a capability to buy that data, both for trading and more importantly for pricing and other compliance purposes. And by us having that full suite of data makes us much more powerful in the offering we can have. So we're expecting this number to grow, maybe not seven points, but to grow maybe three or four points in the coming year. So we set records, and records, as you know in sports, are meant to be broken. We are very focused on having those numbers become yesterday's news as we move forward in futures, develop our FX growth plan with the people that we've brought in to do it, and continue to roll out protocols and products in treasuries to bring that number up and continue that growth that we have been seeing about a point and a quarter. That's the goal. So we talked about this, okay, our pricing, our technology, the consortium and the margin. We have everything. All we have to do is get and continue to get more and more people on our futures platform similar to what we did in cash and then we're going to see the benefit because they're going to realize the significant benefits to trading on FMX and getting the margin benefits that will be afforded to them as they trade which are as we talked about and you'll hear a lot about that later. Okay, so I'll leave it to you now. So good nobody has any questions. Patrick, go ahead. Patrick Moley- Thank you. Patrick Moly-Piper-Sandler. Lou, thanks for doing this. BGC, everyone here, great event. Looking forward to diving in today. So Lou, you mentioned the buy-side adoption that has taken place to date. You also mentioned the bank's technology implementation as being maybe a bottleneck here in terms of driving more buy-side adoption. Can you maybe just give us a little more insight into your confidence that the banks will have that technology ready to go to offer those cross-margining benefits to their customers? And then as we look out over the next year or so, can you put a number around the number of firms that you expect to have onboarded, the number of buy-site institutions that you expect to be you know fully onboarded and trading on the platform thanks thanks I'll work backwards on that so we'll have 40 clients trading 15 come just onboarding right now from the buy side this year we expect that number to grow next year sometime by the middle of next year by another 15 to 20 clients so I I would expect, and if I showed you the growth pattern of treasuries, I think in the first year we went, and after 2019 happened, we had 65 clients on the platform in the first two years. So we're following that. So we are getting really, really strong calls now that we've achieved the, really a lot doesn't happen Patrick until you get to a certain number of contracts where the buy side believes it's irrelevant to connect so that's number one number two contingent on our developing on a contract side is the importance of the margin benefits that will port to those clients when they trade so where are we with that. I believe right now that within the 12 FCMs, and this is where I'm going to hand it over for accuracy to Mark, I believe a number of them are in that position, but you probably have a better idea of the pipeline of completion. No, Lou's right. I think when you think about the pipeline, clients have traded already, right? So they did their paperwork. They're just watching the volumes now. So paperwork's submitted, technology's kind of done. It's not just a nice-to-have pipeline. It's a real pipeline that clients here's the paperwork, what technology work is done, I'm watching your volumes, I'm watchin' the OI develop, right? That's kinder the stage. And when Luke talks about those 15 accounts, many of them have put through that first trade already, right. They're just sitting back a little bit, waiting to see things develop and getting more and more encouraged every day. So it's a strong pipeline. And I think sometimes that's hard to put up on the screen or during analyst calls right to really articulate that but that's i from from my perspective and i know a lot of the team that's what gives us comfort that this is real that this is going to happen pardon me just the on the bank technology and your confidence level that that will be ready to go to offer those cross-margining benefits i have comfortability that all the non-banks will be positioned and the bank partners is I would say 70% of them will be ready to provide a margining in the first quarter next year. Which is, the timing is fine for where we are and the institutional accounts coming on. Go ahead, Eli. Can you talk about customer adoption and the different channels of buy-side firms? To what extent have the early adopters been hedge funds versus large asset manager clients, and how do you expect the cadence of that to change over the course of the next year? Okay, thanks. Great. Our success in Treasuries is predominantly with those hedge funds and people of that ilk. We think that is going to be the natural follow-on for futures. We need to remember that asset managers will come on, but their OMS requirements, whether it's Aladdin or whatever, puts them into a secondary position. We'll have to grow this over the course of the next, I would believe, six to 12 months and work with them on getting that connectivity done, which is an elongated timeline as well. I think that we'll continue to grow the hedge funds, et cetera, that do not require that, and then there'll be the next level of growth, and we'll see that growth towards the latter part of next year. Got it. The strategic equity stakes seem to have worked really well to get the FCMs and the market makers on board. Is there any appetite for using that same strategy as you start looking at the buy side? Is there an appetite for more strategic equity steaks to the likes of BlackRock or T. Rowe or firms like that? You're talking about potential investors? Correct, yeah. Signing up more of those strategic investors. John's the prettiest guy in the room right now when they all want—they talk to him about that. Remember, BGC is 65% share. Nobody wants to talk to me. I'm the execution guy. Not from an Italian perspective. I'm The Execution Guy. John, Sean, JP, those three, they're the hitters. They got their hands on the equity. He has a lot of interest. we have developed a large amount of interest with particularly the people you're referring to and John loves it he loves it because Sean is in London and JP is in Paris so he becomes the guy everybody wants to take to lunch imagine a broker getting taken to lunch that's him a lot of interest John can expand on that and it may be an earnings call or something when you ask that question my My job is to deliver the product for him to have the interest come. And I think John would agree, you have gotten some incoming calls. There you go. Got it. So I guess maybe to clarify, do you feel like you need more strategic investors in FMX in order to drive buy-side adoption, or is the 10 partners that you have today sufficient to hit your targets? No. and a competitive landscape drives the adoption. Moving significant amounts of volume as a client of our platform will happen. Moving a more significant amount of volume as the client and a partner is an obvious next step. So we have people who are onboarded who would like to be able to get to that next level but they've onboarded they're taking our market data now and they'll be trading with us before you know that this quarter is over you agree with that? I agree with what Everton said. God if he said no it would be screwed Anything else? Okay, well, thank you, everybody. I gotta stay here, right? Kevin's gonna come up. Are you gonna be the MC here? all right so the next panel is gonna be led by Kevin McFarland and Eric Charles is gonna come up from JP Morgan and Jonah is coming up from Citadel and myself more of me Eric. How are you? Jonah. Good to see you. Good to you. Come on in. Sit here. Jonah, why don't you sit over there. Eric, you sit here. I'll sit on the end. Thank you. Sorry. All right. Well, thanks to FMX and BGC for having me, for having us. So, I actually, I remember going to the Phenix UST, I think it was the launch party in Boston at a conference almost 10, it's got to be almost 10 years ago, 2018 maybe? Yeah, 2018. And it was like, wait, what are you going to do? Exactly. And here we are. And I said I wasn't sure. Yeah, so it's been incredible to watch, so congrats on the progress so far. And Lou, you're probably talked out, but we have to just start with you. I mean, did this go how you thought it would go, and really, like, what made you think this would work all those years ago? As I said, the inspiration for wanting to get a position in this market was the inspiration and vision of Howard Ludnick. When you talk about changing in such a significant way, and Eric will tell you, the conversations with the banks initially were interesting. I'll use that word, interesting. And there was a multiple amount of conversations required to get the point across. So if you asked me, did I expect that we would have the success in the cash platform at any point in time initially, I would say yes, because you never get a chance to sell you something to the same bank three times. and we kept getting invited back to try to make it be understood the growth of the platform and the inspiration to do this you could look at it as as a BGC thought process but let's look at out of the marketplace but the marketplace needs this this marketplace is much better off with two solid competitors in in every product than one for a lot of reasons resiliency comfortability in terms of you have an opportunity so you have some type of leverage last year was the first year a lot of the trading floors saw my friend and competitor terry duffy on the on a on a trading floor rates futures has not been actually increased for a number of years going forward. I don't think because Terry became Santa Claus, I think it's because Terry has realized he's going to have a competitive future. So yes, we believed everything that we thought was going to happen would happen, but the challenges along the way are real and I point to our technology CTO over there, his ability to listen to my sales guys. We started with myself and six people, and those six people did a great job of understanding the clients needs, communicating to Bijoy, and Bijoy delivering what we needed the way the clients wanted, which is a important piece of this. So yes, we were excited about I think all the CEOs of BGC that are here. We're all part of the plan initially, and hopefully BGC's company is going to be, you know, see the success of this growth. Great. So, Citadel and J.P. Morgan, I'm sure, get pitched on a lot of things a lot of the time for your own unique reasons. I will start with you. Like, what initially made the firm think this sort of was the right place to focus and invest? And then, again, And how has that sort of played out now and in your day-to-day? Yeah, so I think, I mean, for us, we saw, particularly as you said, a very fundamental misalignment between what we're doing day-today in liquidity provision across geographies and time zones and clients and, you know, what that competitive landscape looks like versus the competitive landscape for the platforms and the venues and the exchanges that we deal on, you now, to provide that service. You know, so for us, we felt very important to have competition in the vendor space, the platform space, exchange space, you know, is something that we fundamentally believe in. And I think the biggest thing for us was the partnership with BBC, having proven it out in treasuries multiple times, honestly, through history, as well as, you i think for us the strategic partnership with on clearing with lch gives sort of the real value proposition the carrot that you need to onboard the end users it's one thing you know to get market makers trading with themselves the reality is you need the end user there and you know that value proposition as as clients have started to you know treat the us ecosystem whether it's it's treasuries futures so for swaps all is sort of one um you know we could see the the value case very very clearly so it was as much i mean we'll talk about it more later but about the margining as it is about the trading i think it's both it's the ability to execute on i think you know the the technology that needs to be there to run a platform like this you know you need a proven partner to be able to do that so it's a good mix of good partners on the the market making side plus a proven operator plus a real business case on the marketing. Jonah, what caught your attention and what continues to keep your attention here? Yeah, I mean, I'll start with the team, the team here. You can have the best idea in the world, and if you don't have the team who can deliver, then it's worthless, right? And so the team hier has demonstrated over many years that they're able to deliver results when it matters. And so you combine that with the consortium that was put in place, right, a very broad and diverse group of firms very strong backing and you know i think we've seen that really really play out now where uh you know every uh incremental product extension builds on what's already been achieved and accomplished um you know the cash treasuries uh use case is is is so powerful um and you know everything just builds on top of that yeah i want to take this down a cash path and a futures path quickly so in the cash market from an e-trading perspective hyper competitive um so so what do you see different here in what fmx is built on the cash side and then on the future side the complete opposite in many ways hyper concentrated does that does that worry you um i assume the answer must be yes um given given the investment so if you could maybe touch on both of those yeah i think in both cases uh to draw parallels right it's really about the need for increased competition and innovation in the space, right? That's kind of the starting baseline, if you will. And, you know, it's not only price competition, right, it's innovation in trading protocols, it tick sizes that Lou referred to earlier, right. We're seeing benefits that are accruing for market participants across the market, really due to the presence of FMX, right? And so we fully expect that to play out in the future space as it has and continues to in the cash space. And I think it's really a matter of the client adoption piece continuing to increase overall volumes at this point. Yeah, I would say exactly. on protocol very simple things like changing tick size changing protocol you see the impacts it has and that the marketplace has a need even if it doesn't realize it up front you know sees the the benefits of the product and and has sort of been able to run with it i think if you take a look at the future side specifically you know there's been basically no change in most of that model um for a generation and so i think the things that you can do having the cash platform there with futures with cross-margining on protocol around whether it's basis trading or spread trading etc there's there's definitely a need there i think on the resiliency piece the resiliency piece is super important we have you know our ability to be there as a liquidity provider effectively maybe not 24 7 but not yet maybe soon but to have that and have that liquidity provision be very much a single point of failure that's a real you know it's a real red flag for us there's a reason to sort of support another platform so how much as an investor how much input do you have into how the product and the platform as a whole move forward yeah i think the way i kind of view our our role is is almost as a an information conduit right we're in touch with every major investor client whether it's on the hedging or the the speculative or asset management side and i you know the the room is a diverse room with you know different points of view around the entire market so it's not just a consortium of banks not just consortium of high-speed market makers or or exchange so i think for For us, it's really about using the information we have in conversations with clients to find out what the issues are that clients are having, what do clients want, and to sort of allow that to sort drive the conversation in terms of the development on the company. What about you, Jonah? How involved are you in the strategic planning here? Yeah, I mean, it is a strong partnership. I think everyone who is a member of the consortium brings something to the table, and, you know, everyone's pulling in the same direction, and, uh, you knows, it's great to see the results play out as you, you now, drew them up a couple of years ago, right? And so I think every one is super excited about the future. It's all about, you kno, as Lou mentioned, it's all the technology, it' all about the client adoption, And you can really see a step change in terms of volume once, you know, those critical pieces are in place. And, Lou, this is a bit of a softball question, but how helpful is that input, right? That must be huge, right. Client-led products tend to be the ones that are the most successful, right, because you're sort of pivoting and listening to what your users want. Some input is better than others. The team that I have spends an inordinate amount of time, and you'll hear this on the technology part of the conversation, and I spend a lot of time talking to people on the board. I visit them. I think we share where we want to go, and they definitely believe in the path, and my My role is to push them as hard as I can, push them to get all, as we discussed before, everything in place. But the team spends an inordinate amount of time understanding some refer to the service they get from us as white glove service. In other words, we're going to listen to you tell us how, to Eric's point and Jonah's point, to make our competitive capability more profound, more quickly. So we have a duality of focus, one, my team and the trading and technology people at the whole marketplace, and specifically the investors, and then myself with the people on the board and the senior people, whether it's Troy or JP Morgan or Dennis or them, all the people that were in those meetings with Howard and I and pushed hard to get us into the market as a competitor. So that's our focus, and our focus is we definitely get, we get good input, and more importantly, we do get from them, what do I have to do to help you more? So it's a great partnership. And one thing I've learned over the years with consortiums is just because the bankers decide this is a good idea and an investment, it doesn't always mean that the traders say, sure, we'll use that thing that you just invested in, right? It needs to work for them. Eric, maybe we'll start with you. That must be happening here, so I'd love to hear how that connection works. I'd argue that's why I'm here. I would say that's the biggest piece. These institutions are very big. Agreed, sometimes it's the bankers in the room who are not the same people as the ones pushing the button, so to speak. I think Lou mentioned it in his comments earlier. The biggest thing for us is on the business side is driving the usage of the product in a sense in a way that's almost seamless. It's not just connectivity is the very baseline. It's about connectivity with integration through all of the automated processes we're doing as part of our day-to-day business. So is our smart order router sending things to FMX? Is everything on the FCM and FNO side there so that we can have a conversation with a client about, hey, you want to take a look at this product, there's benefits for you so that within your own organization you should prioritize the build out the onboarding what-have-you so I think it's it's really about just as a as a consortium member like finding and making sure that we're very aligned up and down the organization to actually deliver that yeah I mean there's no way you're going to encourage a client to do something if you don't really believe you don' want to risk that relationship yeah and but also have to make sure your capabilities are there so that you can you know it's something it's we fundamentally believe in so it's incumbent on us to sort of have the offering there for them uh and jonah what about from a market making perspective same same same question really right obviously the firm invested but the market makers must see value and be making some money there yeah for sure i mean look sometimes uh the most difficult thing to change is just like human behavior and habits right and so part of this is getting uh you know all the relevant traders comfortable with um a new platform a new workflow etc right so it's getting comfortable with the technology it's increasing you know um you know quoted size it's uh you know understanding the different workflows or customizations that are necessary for particular strategies right and sometimes it's an iterative process where you know you're you're onboarding additional uh desks or or what have you with new with different strategies and you're understanding what they need for their you know particular uh focus so and you know it's it's just super exciting to to um see that growth and adoption uh increase and then as we look into the future understand what you know additional areas of focus or products or you know are going to result in you know even more excitement and use you know across the firm so you know when we talk about term repo and we talk about you know other products that are on the horizon you know there's a whole complex here that you know will benefit from what's being rolled out now well i imagine we have cash treasury clearing coming repo clearing coming throw that in with the swaps in the future is um right it just makes the whole ecosystem even more interesting exactly yeah um so maybe we should talk about margin for just one more minute we brought it up earlier like how big does that play in and and it it's it's such a luke kind of mentioned it earlier in some ways it's in the it's a little in the weeds but then on the other hand i feel like for the rates market it's driving so much activity because there's so much capital that has to be committed to manage all of these positions so if we can make that more efficient but in a safe way that benefits everybody um so how much of a driver is that sort of in moving this uh this effort forward i i think from from our perspective i think it's it's a humongous part of it i think it is the value proposition that you're bringing to the buy side to get them on the platform i think that is you know from our prospective having that piece in place both for ourselves but then an fno fcm offering having that in place so that you can have the conversation with clients and here's this solution it's what's going to encourage the build out that you know whatever needs to happen at some of these organizations which you know you're you're always competing for scarce resources in these places so it's super important to us yeah i would just add look i spend a lot of time um in the regulatory space um and you know i can tell you that the um as you mentioned the uh the impending adoption of central clearing as as required by sec rules in both the cash treasury and repo space is you know a key topic of focus for clients right and it's um and the repo clearing mandate in particular is quite broad in terms of counterparty scope covered and so it's really I think forcing folks across the industry to really hone in on these in the weed topics like margin in a way that perhaps you know hasn't happened in a number of years because everyone is now assessing the associated costs of transitioning to central clearing in a bigger way than they previously had you know in in in the cash and repo space yeah it's funny I remember back in 2012 or so as the swaps clearing mandate was coming into force that you suddenly had traders that cared about collateral and margin a little bit it almost feels like we're going through a similar renaissance for lack of a better word yeah yeah I mean if you look at every one of our accounts that operates in you know in that rate space the view i think historically people thought this is this product this product this product is probably and the reality is they're all integrated and all the same thing you know your cash trader is trading treasuries repo futures swaps and you know whether it's a relative value basis or like the decision around how you're allocating risk whether it'S in your hedging decisions or as part of a speculative portfolio the margin decision is really a big one that drives a huge chunk of it yeah so CME's lead is obviously quite big on the future side 800 pound gorilla in the room everybody knows that what is the Lou's looking at me so I'll let him answer first I couldn't hear you that's why I'm sorry what is what is that what is the next step forward what's the logical progression here as you continue we've seen your open interest your volume continues to grow is there some kind of inflection point Or do you feel like this is just sort of an organic growth path forward for the futures business? Is that for me? Yeah. For you. How do you see this? What do you the next year, three years looking like and how's it going to get there? I'm impressed that you're already talking about growth and we just, you know, I must have impressed you with the presentation. I think the logical, the logical is what are we good at, okay, and how do we try to introduce the protocols that have worked for us really well to allow us to have a capacity to leapfrog and grow in futures. And we're exploring those issues right now, talking to the regulators, making sure they're comfortable with what we are proposing to do. And I would say if we do get to proceed with some of the protocols we have, which are not available to, I don't really want to call a competitor with 99 points on the board more than me, but our competitor, that's going to make a meaningful difference in terms of how quickly we can grow. Because the marketplace enjoys those protocols today and they work for them. The second piece of this is because we've established, it's like everything else, what I talked about before, the ability to do basis trades, okay, is going to afford us another significant position to grow. And the third one is as we look at what we can do and we're not positioned to do right now, how do we introduce things like maybe invoice spreads into the market electronically, which is not done electronically now, which the clients of the banks really look because it clears up so much operational inefficiencies for them, it's really a really strong desired next step for FMX. So if you just take those three items and say we bat 666, we get 2 3rds of those right, we're in great shape. So I would think, and you know you have to worry sometimes, you get ahead of yourself, we have to get what I was talking about before in place. We have to the technology in place, we have the margin capability to the clients in place and we have on board the institutional accounts. Next iteration after that when we have that done is introduce hopefully what I just talked about in the first or second quarter of next year. And then, you know, I think the chart that we have in treasuries is achievable, you know, maybe at that pace, but it's the same direction we're going to take. Yeah. I've heard in the past, and Eric, I guess I'll direct this at you, you talk to clients about a new product and they'll say, well, we'll do it when there's more liquidity, but you need the clients to make the liquidity. So, like, do you feel like, is there a point, either some numerical point or just, you know, when you see a point for clients where they're like, okay, now I feel comfortable, I'll get in? yeah it's hard to say numerically like i feel like futures people always talk to like five percent adb kind of targets and but the reality is you kind of see it in you see it in the adoption it ends up being slow slow slow and then you get exponential on the high part of the growth curve i would say that the thing is really ends up being you know is there a new protocol like the attack kind of takes a couple different points most clients have very uh institutionalized professional execution desks that are in the weeds on protocol so you know if you've done your job right on the protocol you know you have the right connectivity there then others who are maybe directing risk worry more about structured margin you know have the carrot there with the with with the margin efficiency so it's really about i think targeting your message to the right people in the right organizations to kind of cut through What about from your perspective, Jonah, for market makers? Does it sort of follow, the trading follows sort of the client entry into the marketplace where then more liquidity can be accessed or provided for that matter? Look, I mean, you do have situations where you have, you know, very significant volume between, you Know, inter-dealer type firms, right, and liquidity providers, right? but you do want to broaden the ecosystem and you want a diverse ecosystem, right? So I think it all kind of happens together and builds upon itself, if you will, and that's why ensuring that the liquidity pool as a whole is thoughtfully constructed, the trading protocols make sense for the client base that you're focused on, et cetera, like all of that's critically important. Yeah, virtuous cycle. So last question, and this is like, to me, the fun what's next question. Obviously, FMX still sort of continuing to build rates and make that bigger. But what else would you like to see them invest in? Is credit, commodities? I feel like a lot of the innovation in financial markets in the last couple of years has been in and around futures. So the prediction markets, perps, like there's so many fun things. What do you think they should do next? I mean, look, I think the team's focused on the task at hand, right? But you're always looking out, you know, in terms of new opportunities, I'm sure. I'll tell you, like, you Know, there's a lot going on in the regulatory space. And you mentioned a few of those in terms of, you know, there is a lot of talk around perpetual futures now, right. There is a lot of talk about tokenization, right, and the impact that could have on financial markets writ large. So, you know, we'll see how things evolve. I think we're in the early stages of those. But, you know, what matters is, you know, the core markets are not going anywhere, right? And we're in an era of unprecedented political volatility, right, which leads to market volatility, which leads to trading volume, right. And so we certainly don't see that changing anytime soon i mean um again as i mentioned i spent a lot of time in the regulatory space and you know uh congress is uh as dysfunctional as ever right so um it's hard to see how that changes in the near term and so you're gonna see you're going to continue to see the volatility that we've been seeing over you know recent months and years um i you know it's hard to say it's going to be this product or this product obviously there's a lot of work to be done here i would say that what it does is it generally provides i think the platform definitely provides optionality to pivot you know based on the demand so i i would view it more as you know it's an option on on what the end users really want i mean you're talking about a us ecosystem obviously swaps comes into that and that's another you know gorilla in the room i my guess, so to speak, but I'll let you guys speak to that. I think that executing the strategies we have today is priority one, and priority two is listening to our shareholders who have been outspoken about the need for a competitor in the interest rate swap market, where they're currently, you know, have two people providing that service, but maybe they're slightly concerned you know the capability and they would look for some competition in that and we would listen to that and weigh that as the you know is it a credible capability for us and the board you know they're pretty much the direction on beyond what we already have on the plate that they know about working with BGC to decide the next path yeah yeah that's a good good final nugget the swaps market I don't know if you want to ask and give some questions sure yeah we've got just a couple of minutes to take some questions. Jason's coming over to you, like, running. Thanks, guys. So, Eric, this is a question for you. You mentioned how there's a little bit of a stuck behavior for futures traders who are used to going to the CME. I guess, have you guys taken any steps operationally, internally, to align incentives so the traders on your futures desk um have are pushed or nudged to look to give fmx a look before kind of reverting to old habit and going to the cme yeah so i think in a in a weird way you almost do it invisibly so meaning you're and i think that's the point that lou was making earlier is like connectivity is one thing but actually using smart order routing like if if the trader is interfacing with a with an aggregator in-house so they're not going to a specific venue does that aggregator underneath the hood is it routing orders to FMX is it what is the incentive structure that you put in there and why and so in a sense what it's almost invisible to the to the trading business and lives under the hood as a technology solution I think you know on top of that then you know from a cultural perspective that's sort of where someone like myself comes in to make sure that the people who are running these businesses understand why is this a priority for us why are we supporting it you know what what are the reasons but the reality is most of it is automated and it's under the hood got it and i guess to what extent do you get so you're in a unique position where you obviously have the swaps and futures desk but you also have jp morgan asset management who is the user of this i guess when you go to them and say hey why aren't you guys doing more business on fmx futures i I guess, what pushback do you hear? What do they need to see to, I guess open the floodgates for the volume from that business? Yeah, so, you know, J.P. Morgan Asset Management, I can't really speak to them given that I am in the CIB. The one thing I would say is they have, obviously, fiduciary duties. They probably have investor policy statements that have limits on, you now, what the volumes and the open interest in certain contracts need to look like to be able to use them in accounts. So I would view them more as the end users. So they will follow the volume as it comes. I think within the markets businesses, it's really about just on our end, using the product, using the protocols, trying to obviously improve them where we can, but then making sure that the F&O, the FCM offering that we can have discussions around with clients to bring them on board is there and in place. I think as you do that, you'll see the JPM asset managements or the GSAMs or whoever in the world being able to be interested and want to use the product. Got it. Thank you. I thought we could take one more. So earlier this year... Thanks. So earlier, this year, we saw a big shakeout in open interest on the FMX platform. I'm just curious, you know, what your views are on, you know, having a second venue given that shakeout. What did your traders learn from it? What did you learn from? Maybe I missed something on the shakeout? Like the shake out in open interest, did that have any impact on the appetite to put volume on FMX, given that you did have such a significant? Oh, yeah, not from our perspective. We haven't changed anything with respect to, you know, how we're operating and interacting with the platform. all right great all right thank you so much for your time great talking to you guys thank you thank you so we're gonna take a quick break if we could be back I know we're running five minutes behind but by 205 there should be coffee and refreshments outside this room just off to the right Thank you. Thank you. you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you Thank you. Thank you. Hi, folks. We're going to get started again here shortly. If you could make your way in to the grand ballroom. If you want to do it once more, we can pipe it into that other room as well. Let's see. Thank you. All right, folks. We're going to get started on our next panel. If everyone could take their seats. Please. Right in the middle. You might get picked on more. All right, we're going to get started. All right. I love the title of this panel because market structure and technology just happens to be the name of my research business at Coalition Greenwich, so I guess hopefully I am suited for this. But no, we're going to talk in a bit more detail about, yeah, about exactly that, technology and sort of the market structure evolution around the FMX offering. Actually, we didn't do this the last time, but we should probably do this now given the sides of the panel. Biju, maybe we'll start with you. Can everybody just do a quick intro and talk about what you're focused on? Can you hear me? Yeah. So Biju is CTO of FFMX. I'm Ricky Stern. I work at DV Trading. I run a relative value trading group there. Build their own technology and service any markets you can. Hi, everyone. I'm Murtuza Bengali. I ran rates product globally at Barclays. Before this, i was at bank of america i'm doing something similar but more u.s focused hi i'm renee uh i represent one of the trading teams at tower research that has been very active with fenix and fmx through their all their offerings uh ian byer i run our systematic trading um across rates fx credit uh at wealth cargo so thank you everybody so i remember i talked about remembering 10 years ago the launch party but i remember those initial conversation around fenix and it was very much about the technology the speed of the matching engine um i was told to click you got it um it uh it's actually incredible how much technology in general has evolved in the last decade nobody can argue that but bijo we should why don't we start with you you can set the scene talk a little bit about what what what the thinking was then how that's evolved and how much of a role technology plays in sort of growing the platform now so I mean we started off by asking okay you know what should we do different based on our experience at East beat right so and we learn a lot from that right so uh and one of the things that we realize that you need to give clients a very easy API right if it takes them if it's like you know 35 pages and it takes some you know five hours to figure out you know how to right to your system and nobody will do that so the interface had to be clean had to me logical you know had to be conceptually correct right so so I think we got that you know right first yeah we took us a couple of tries we got there now they know one amazing thing we did and one of the really good things we did is that we broke up we created two different interfaces you know the fast one and that's the best one that's how have worked in treasuries and then the most importantly the things I learned from our participants you know like what would make the technology better right so and every couple of years so we kept adding more features to the platform and as you know the counterparty blocking and treasurys there and the P club and many other features you know we just listening to our customers and having this type of discussion so so it's great so we have a panel that's pretty pretty well split between bank electronic and non-bank electronic so we'll we'll go down those lines for now so let's start with with Ian and Murtuza with you two you talk a little bit about sort of how that how that technology component played a role as you were getting started and then again what does that look like now and Ian you're sitting next to me yeah sure you know really I think if you go back in time a little to 2017-18 and just think about the market the state of the market at the time I think Lou called it it was like stale and I think like really thinking about you know trying to evolve market structure in a broader ecosystem was really tough at that time and I think what FMX like understood was that that was a gap in the market and our ability you know their ability to think about what's gonna make a matching engine very successful wasn't just bringing the typical matching engine to the market I think it was really about how to like how can we be competitive and listen to our clients and actually engage with clients across the various like spectrum of who is trading in that market and trying to define the technology and I think like once they actually built the kind of blueprint and the plan for that then you add in like the advanced technology to really like bring it to life and empower it. So to me, I think the way that they did that just like brought us in very early from the bank side and like we had a voice in how to think about the market structure and build it and then they built the technology around it to really bring it to life. Yeah, I mean when FMX came together, it has been something that has changed the landscape. I was listening to Lou talk about during his speech, I think he mentioned technology nine times, I was counting. And all kudos to even people like Bajoy. They really did change the landscape and got a different style of trading altogether with peak lobs and having more curated liquidity, being able to figure out how do you reduce toxicity overall. All of that has led to a lot more of a rather efficient trading experience that can then be passed on to clients. So that has changed the landscape quite a lot and we'll continue to invest that um and then thank you and so so so on the on the systematic on the non-bank side i think just same question but the prep prompted and this is all sort of making me think is if you think back to 2718 the treasury market traded 500 billion a day now on september 30th it was the second busiest day ever it was over 2 trillion in one day right so that's pretty incredible i have to imagine that this technology has not caused that but has allowed that to the market to handle that So, yeah, Pranay, why don't I let you jump in? Yeah, no, I think, like, as Murtaza also mentioned, like, and Ian also mentioned. Like, there was a gap in the market in terms of, like. How much inside liquidity, like was on offer. And, like how, like non-bank participants like us were able to sort of like participate and provide tighter markets. And, I like I think to Fenix's credit or like to FMX's credit. Like they were always taking feedback from us. And evolving the platform in a way that allowed us to participate and provide liquidity to sort of, like, all the end users that, you know, that the uncorrelated flow that, like we care about and that we want to interact with. So I think, and, like the fact that, like, you were able to take our feedback and quickly turn that around and provide an overall, like efficiency to the market is I think the turning point, which allows for, like more transactions, more volume to like actually happen and it makes it a much more liquid marketplace. And so, Ricky, last but not least, is it all about speed or have we gotten past that point? There's more to it than that. Definitely not all about the speed. I think what opened my eyes with this technology suite is when I was in a meeting actually with one of the banks on this panel here about a year ago and we were just discussing all the products that we trade, whether it's swaps or futures or treasuries, especially on the run treasurys, and I ask, how do I best interact with you? And they said, Phoenix Peacock. And we exchanged our IDs, and we've been matching on there ever since. And that kind of opened my eyes to the power of how you can directly connect with people you otherwise wouldn't in an anonymous situation. Yeah, like, I would add, it's not just the technology, it's the protocols. And I think, like it's their willingness to innovate and listen to clients and drive new protocols that like the technology can drive you know can actually power underneath the hood but like actually having the new protocols there and listening I think helps drive the volume growth as well can you a lot of people in this room probably do understand the nuances but probably not everybody can you give us like the 10-second primer on sort of P club and how that workflow works that you just you just mentioned sure I think most banks provide liquidity and on-the-run treasuries and they do it through a bunch of different mechanisms It could be direct through an RFQ on TradeWeb or Bloomberg. It could in a public central limit order book, like your competitive broker tech. But what I think is unique about your P-Club is that you can tailor the liquidity to the specific participants, and then furthermore, to the specific strategy that participant might have. So my desk, for example, runs six, seven, eight different strategies that use on-the-run treasuries for either quoting or for hedging. we can tailor that liquidity within the P-Club per participant and then per strategy. And we found that to be really a unique way to interact with the market. So the benefits of an anonymous club, but with some customization, effectively. Exactly. Great. So we can't escape talk of the basis trade these days. This is the right forum, I think, to talk about that. Operating liquid markets for both futures and cash seem like, if you have those things, that's a great opportunity to provide products. Bijoy, it's probably, again, good to start with you on this one, just to sort of tell us what the current thinking is, and then I'd love to hear from the rest of the panel. Is that good? Is that bad? Is too much transparency not always a good thing? And let's dig into that a little bit. Well, I'll start by saying we will have derives and implies. It's not just going to be a basis order book. So you can submit a basis order and the technology will work it in the cash and futures market initially we'll start start off with fixed ratios you know but it will actually work it like it's a you know leaning into the liquidity wherever there is in cash and Futures and give you the price that you want okay without any price limit so so that's the number one differentiator I think you know we are bringing to the market so it actually it's great tool for RV shops you know like Ricky and others and it's also a great tool for liquidity providers to find where the basis market is today because we will show you a implied basis market right okay and I think that could pretty useful as well per day maybe we'll take it over to you basis trade is massive it's talked about all the time whatever the number is for today what is sort of does the market need new offerings here does that provide opportunity for you does it make it more transparent so there's less opportunity what are your thoughts i think like we believe that like there's always room for more efficiency in the market so like i think if the if fmx is able to provide this like basis product i think to the to the extent that it enables like other people to sort of like basis traders who execute their trades more efficiently that's a net positive for the market and we would definitely be interested in participating in this offering and like you know as a liquidity provider like you you know, quoting the basis product directly and through like, you know our support of their futures and cash products. So I do think like that there's a space for this. Now, whether like how the rest of the basis traders look at the ratios, like how can you standardize around one product and whether the whole market can aggregate around that and sort of like concentrate liquidity because I think that's a pretty key component of having a successful market. I think, that's the holy grail. I think that is probably a little bit harder to solve. But, yeah. In my experience, these things, you start it, and then you look at the challenges, and we do the same thing we've done before. Listen to clients and change it as we go along. That's the only way it's going to evolve. Let me just add that, like, the main thing, the cornerstone for any basis trading is to avoid slippage, right? The fact that now we're co-locating both the cash and the futures servers next to each other obviously is a step in the right direction to give that sort of a market to participants and everything just boils down to transaction cost at the end of the day so it all needs to it needs to the benefit of having a basis linked market has to outweigh things that traders today have the ability to create more of esoteric structures and and that transaction cost if that can be minimized eventually yes it will start to play a lot more bigger role but the question still remains that is the link basis market really is that what attracts liquidity or does the liquidity really need to already be there to make this link business market really take to the next level and then you know what about from your side as you're sort of thinking through your strategies that you're working with clients um I feel like there's a way to think about the basis trade of like in a way it's it's fungible in risk management terms but it really hasn't really been fungibole in the sense of how we build pricing and and how we like systematically market make. And I think there's like a latency and an element currently in the futures versus cash market that can drive wider pricing, I guess, in theory. So I think, there's some ways to think about how, if there's more volume that builds on the linked kind of product set that you can trade, I think it just naturally will drive tighter pricing overall. I think that's something for us to think of. And I, it's funny, this conversation goes back to Flash Boys a long time ago, but having both matching engines in New York versus one in New York and one in Chicago. I mean, Vijay, maybe you're the one for that, but that's an interesting part of the conversation as well, right? Well, I think that's what makes it possible. So, I mean the proximity is important because you want to make sure that you can trade cash and futures without any price slippage, right, so it's the only way, you know, technology we can pull it off. And so while we're on guess technology so the next question we didn't really talk about this much in the previous panel is tokenization um i'm not uh i'm Not a believer of tokenizing everything in the world but i have definitely come around to the values of tokenising liquid cash collateral which obviously treasuries are very much at the center of that there's a lot of benefits there um you know of course moving money around on the weekend of course but even more than that um so so what does that look like for you as market makers, for you as providers of liquidity, what are the pros and the cons? I don't know. Whoever wants to start first. I'll maybe take a stab at it. So tokenization, can it be done theoretically? At this point, I think the question has been answered, that yes, it can be with a few bunch of POCs that have been done in the industry, right? But as far as moving the needle on liquidity again, it is not something. i mean i might be a little skeptical on this i don't think tokenization is what really drives the needle with more liquidity i don t think today anyone wakes up and says ah i wish u.s treasuries were tokenized and that's what will really drive liquidity so i'm sure it plays a lot more of a bigger role in the post-trade side of world which is like things like settlement collateral mobility and those kind of things definitely start to have trickle-down impacts on where traders value to move trades to but other than that right now I don't mean liquidity question gets answered because of tokenization it's a good it's a good question right is this how much does trading matter or is it really all the post trade conversation right can you do you want to just be able to trade if it's tokenized whatever you still just want to trade it on FMX is P Club and then it'll just have different settlement instructions I mean what's the right end game there i personally feel that it might open up other venues if it gets i mean it's it's going to be driven by collateral mobility and i think and financing and i think like the more that starts to build you have a tokenized treasury well then can you use technologies that have been built on chain for like on-chain amms in ways i think about the evolution of market structure that could happen there as well as just standard cloud markets and And I think from an FMX perspective, I think it's important for them to think about evolving that market structure altogether. I don't think you want this market structure to evolve and go this way, and this one to go that way. I think, it needs a move in lockstep, but I do think there's really interesting opportunities if those markets start to evolve. Yeah, I guess that's one of the big questions is, somebody might get, is this a solution in search of a problem, right? Which I think at first it felt that way, maybe not now yeah i think like again like uh like reiterating some of the thoughts that have already been said but the like the uh collateral the the repo costs and like you know they're not a material part of our like the equation for us like at least our tower as of now so the collateral mobility or like you're not the finance financing efficiency that it brings about i don't think that's the that's what's going to take this to the next level but like yeah i mean if there's other solutions that are built on top of this like uh which like i have not envisioned but like you know it's uh it's possible that there's others that are building this that could help like you know turn the corner on this i just want to be able to move money between bank accounts and not have it take two days yeah um uh so we should talk a little bit about portfolio margining ricky i think this is something that you think about a lot which is maybe unique from a non-bank market maker can you just talk a little bit about how that comes into your thinking sure i keep thinking about the slide we put up there where it had 260 billion dollars of margin tied up in lch and i think a big chunk of that is probably hedged with something on cme which is creating an even larger margin requirement for those two positions incomes fmx offering a meaningful savings for a user to take advantage of that and that's great for that user who is swapping their cme for for the lch or for the fmx i should say but that has to trickle down to the market maker as well that's servicing that business and so for market makers who have the ability to trade swaps and lch fm x as well it provides them with the leverage to be able to give that end user who makes the decision to stop using CME and to use FMX instead, that leverage. And so it has to reach both levels. You know, my group specifically, we encounter this problem in every new product, I think, that's been launched on an exchange the last 20 years. And some of them have the ability to offer that offset to both levels, both the end user and the market maker, and some of the end users don't. And some don't, and we just find that just so critically important to give both the End User and the Market Maker those offsets so the market makers can operate with the best capital efficiency and then from the bank side is that a is that I is that a consistent client conversation as you're sort of building out the product yeah I mean listen my margin and collateral management etc is a constant conversation with clients right we need to find more efficient ways to move clients and unlock margin so that you can unlock the you can kind of reduce the balance sheet stress that banks also face so all of these kind of changes in the market structure will have all of this impact i feel longer term so with lch's partnership that fmx has i know there's some work to be done there but i do foresee a very big positive impact down the line so bijo we've already sort of heard some of the benefits the users see of p club and cash excuse me is there opportunity or what are you thinking about from a protocol perspective on the futures market which traditionally is some ways you know it's just a club is the club but what are you thinking there so futures is governed by as we know certain core principles from by CAC FTC I think what we are going to do and we have started working with already that we are going to take the protocols we have built in treasuries and adopt them to the new core principles and then make a case right to apply them in the futures market so we actually had a great meeting last week with CFTC we have a proposal in front of them and actually meeting went really well uh and so we're hopeful that you know we will be able to bring a form of that protocol set into the futures market is that something that you've thought about uh from a market making perspective yeah i think so i think like uh of course like i can't speak to the regulatory aspect of it sure sure but i think as a innovation in the market space i think it will definitely allow for like more efficiency more more efficient trading in futures and uh it will enhance our ability to provide tighter markets on fmx right if you have a better idea of where that liquidity is going then that can help you think about pricing yeah i think like for us like it's all about like uh like you know trying to transact with like uncorrelated flow and trying to like interact more with like people who have like different horizons on trading than us and i And I think this would sort of provide a great way to increase our interactions with that. Ian, I imagine that's got to be somewhat similar for you. Yeah. I would say that what we probably learned from the cash market is it's not like a one-size-fits-all type of marketplace. And I feel like taking these protocol advancements and thinking about it obviously with the regulatory kind of elements that you have to take care of, but there are some advantages. And I think some of those advantages are, as an LP, you probably have more confidence in the amount of depth and quote that you're actually putting out there, and I think that naturally is going to drive more confidence and depth in the market. So to me, I think, that's really interesting. Yeah, I mean, I guess that's been a theme across fixed income markets broadly over the last decade, is the growth of electronic trading broadly, but new products really has been about protocol innovation, right? Sort of finding smarter ways for folks to interact and find the other side. So it sounds like we're going to see some more of that here in the future. I'm very optimistic. It will happen. So I'm curious to hear what you all think. We asked the last panel this question about what would you like to see next from FMX specifically? Obviously rates and FX, as Lou showed us all in the beginning. what are the opportunities here both either asset classes that might be interesting for the firm to get into or futures types I talked about you know perps and prediction markets which have been the talk of the town recently so we'd love to hear everybody's thoughts on you know what what should they do next what advice would you give the management that's all in the room so I'll start I think they can expand in breadth and depth I think you know from depth perspective i think they have a really good rates complex that they showed earlier you know between you know on the runs off the runs inflation like there's there's a there's an opportunity i think to better interconnect those markets because they like have a really good presence in all those markets i think bringing on things like sweeps and other protocols and really just different ways of risk management and thinking about how do i manage risk and how do i do it more systematically for a bank or um lp um and then i think from a a breadth perspective there's also credit there's always munis and there's other products that are starting to go more e and evolve and i think some of the infrastructure they built would be very interesting to apply in this market yeah from our perspective like we we obviously trade like a breadth of products like both the ones that are on fmx and that are like on other exchanges like from our perspective like fmx really just like needs to listen to the end user and see where the demand is and like you know uh what the end users want and like we are happy to sort of like partner with them and like support them in this process and because like you know you can sort of launch a like gazillion new products but like if there's no end user then like you know there's there's not value being created so like i think like for the rates like the lch margin efficiency was like a great like sort of like you know problem that was being solved or like uh on the fenix ust side like the counterparty blocking like this was a problem being solved so i think like uh and some of these problems we may not be aware of like but like uh whatever the end user sort of likes really have a demand for like you know we're happy to partner with fmx on that that's just a copycat it's something true yeah Yeah, and in demand. Yep. From a new product standpoint, I mean, listen, the one that is really going to start adding a lot more value is going to be listed swaps. I would think that's the next frontier for electronification. I was talking to Adam Peralta earlier on how there's, like, an initiative happening on the D2C side, but even, like. Bringing something on the B2D, electronification of that market, I think, is the next frontier. And the fact that you can also unlock a lot more margin with swaps being created along with treasuries and futures, you suddenly have invoice spreads and you've got T-spreads that can also be traded now as packages and whatnot. So that I think I would personally be a lot more excited about. And then obviously there are things like futures options and things in credit futures and whatnot that can be also listed down below. Yeah, the swaps market has seen some new entrants in the last few years, which we hadn't seen since Dodd-Frank and some new innovations. So yeah, really interesting. yeah so just to add on what you said i was going to suggest a swap future because that will further drive um margin efficiency sure yeah and another product right that's seen some growth uh it took probably took about a decade but starting to seems like it's starting to catch on which which is because of the same things that we're talking about here which is it's incredibly more margin efficient than the OTC version. Bija, what do you want to build next? Whatever the clients want. But from my point of view, my goal is to make the products seamlessly executed on the single API, similar protocols, and same platform. So as long as I can keep that formula going, then yes, I can bring in new products. I can make it seamless for the clients. One-stop shop. That's really my goal from a technology perspective. Great. Do I have time for a question, one or two? Yeah? Okay. Patrick, Eli, questions? Thanks. So you talked a little bit about counterparty blocking potentially coming over into the future space. I guess, Pranay, when you think about the market structure in futures, Is your instinct that the value add from being able to segment that flow will be as helpful in the future space as it clearly has been in cash treasuries? Yeah, I think on first glance, I don't think there's no reason for there to be not as much of a value add in futures as there was in cash Treasuries. I think like the main thing that it sort of facilitates is that like if you think from a market maker perspective right like the the spread that you're being able to quote or like how tight you are being able to code is very much a function of who you are interacting against and what kind of liquidity you are facing so if you have if you're able to segment out certain types of flow which you don't really like you know which you are not asking to interact with, then I think like it allows you to like go tighter or to like, you know, make your spreads tighter. So I think that same logic, that same rationale applies to futures equally. Got it. Helpful. And the other innovation you guys mentioned was inter-dealer electronic swaps trading. Just to push back a little bit, I know that's something that's been tried before, I think several times before, and every time these inter-dealers swap platforms end up ghost towns. So, I guess, what gives you confidence that if FMX rolled out electronic into dealer swap trading, that this time would be different, that the market is ready for it? Okay, so, I think one of the things that we make unique to the marketplace is our tiered liquidity structure, right? So, that allows liquidity providers to carefully manage risk, right, okay, tailor the risk to their particular consumer flow. I think that's applies even more in swaps. Okay, because I didn't work today swaps is not that liquid, right? So it is a little bit less liquid So I think what I found that in less liquid products that type of tiered market structure is even more important So so we have that under our belt, right Plus we also, you know have this facility where you can trade futures you can show you cash all in one platform okay, and adding swaps on top of that as another product here simply again makes the Makes the entire marketplace easy for access right so so I think those three things combined probably give us a hopefully We'll do as a better edge and making that happen Very helpful. Thank you Any last quick questions All right great, thank you all great conversation appreciate it Thank you. Thank you. Thank you. I'll talk to you later. Perfect. I think there was a question here. Now I see why Kevin was turned. I can't see everybody unless you're turned here. Great, thank you. Thank you for agreeing to be panelists for the LCH Partnership and Margin Efficiency Panel. My name is Robert Allen. I'm president of the FMX Futures Exchange, and I'd like to give our panelists an opportunity to introduce themselves. Hi, everyone. I'm Pragetti Sinha. I work for LSEG Markets. I've also worked on the LTH-FMX Partnership over the last couple of years. Hi, everybody. Sebastian Bennett. I work at Barclays. I run the U.S. clearing for futures and OTC. I'm Gabe Chanella. I run the first-line clearing risk at Merix. My name is Jim Bergen. I'm at RBC Capital Markets, and I run futures and swap clearing within the FCM. Great. Well, one of the compelling parts to the FMX story is the partnership with LCH, but it's also one of those things where we receive the most questions. And when we're building the FMx Futures Exchange, there's an awful lot of focus on execution and liquidity. but the cost of holding positions matter as well. And I think that that's what Ricky Stern from the last panel was highlighting. And the issue is when you have a correlated offsetting position at the same clearing house like LCH, LCH offers you a portfolio margin benefit to hold that together. The issue is that's not the current landscape. The current landscape is if you have an interest rate swap, it's probably at LCH. But if you have futures that are hedging that interest rate swap, it's properly at the CME. You have to post margin at both clearing houses and that's the core issue here. That is an extremely inefficient use of capital. Now, when we bring the FMX futures exchange into the equation, we're able to combine your swaps that are at LCh with FMX Futures that affords a clearinghouse like LCH to provide you a portfolio margin benefit, a rebate if you will, some of your capital returned to you, and that's what we're unlocking. So I wanna start with Pregati, lay out the foundation, the framework for LCH and the partnership with FMx, swap clear, and what we gonna start with is the three questions that we typically get either at FMX LCH or the FCMs is how big is this opportunity first? And then more down at the participant level or the client level is, hey, how much is I as a client, can I expect to obtain if I'm able to participate in this benefit, kind of the, hey, what's in it for me question that comes in from the client, right? And then finally, really how that client can actually access the benefit, consume it, and translate it into a true cost savings. Those are the three questions that we get and we're gonna explore those today. So tell us about Swap Clear and from the LCH perspective, the partnership between LCH and FMX. Yeah, no, thanks Rob for having me. Having me here today, it's really fun to kind of see everybody's some familiar faces out there. Yeah, just taking a step back, it was great to hear John's remarks and Lou's remarks earlier. From an LCH perspective and a greater LSEG perspective, I just wanna say how delighted we are to be working with FMX. I've been lucky enough to be on this journey for several years now, and when we first kind of embarked on this initiative, one of the things we liked about FMX is that you guys are really disruptors, right? You come into the market, you disrupt, and you lead with technology. And I think when you take a look at some of the advantages, and I know we talked about it in earlier panels, right, the tighter tick sizes, faster execution, smaller block sizes, these are just some of the many things that you guy are doing. I think if you pair that with LCH and kind of where we're strong at, right. Our clearing capabilities, our risk management capabilities, And even before we get into margin efficiencies and futures versus swaps and all that stuff, right, if you take a look at our standalone margin methodologies for SwapClear and our standing margin methodology for listed rates, I think what you'll find is that, you know, at least in my opinion, I think we're quite elite, right? We have lower pro-cyclality. I can never say that word right. Where, you know... Our margin models are predictable and they're stable in the events. When there's market events, when there's tough market conditions, what you'll find is lower margin volatility is almost as important in a treasury function as the IM savings itself. So I think that when you pair LCH's clearing capabilities with FMX's execution, you really do have something special out there. And it's super exciting to see how much success we've had so far and how much successful we've been. So going back to your kind of original question around size of the pool, right? So I think there's a slide above me here, right, where LCH's swap clear service clears about 96% of the world's U.S. dollar swap volume binational. And I think what you'll find is, you know, we've got similar percentages in other major currencies as well. And so I know someone mentioned it in the panel right just before ours, right? That large pool is there. And what does that mean? It means that, you know, you have more opportunities as you bring your futures contracts into the FMX LCH construct that you can kind of unlock some of those margin savings. I think maybe, should I take a second and talk about kind of what the portfolio margining service is and what we do? Sure, touch on that and also begin to describe the amount of benefit that a client trading swaps and so far in a client training swaps in treasury futures could expect to obtain. Yeah, let me start there, and then I'll kind of get to what the service does, right? So, in terms of savings, you know, I think if you have, it depends on the kind of the correlation between the products. So, if you've got a U.S. SOFR treasury, sorry, a U, S, SOFR future, and you have a U., S, SOFR swap, you can see savings up to 80%, right? Because they're kind of, their risk relationship is quite directly correlated. If you've got a U.S. Treasury future and a swap, U. S. dollar swap, you could see savings up to 65, 70%. And the most interesting thing is if you're taking a look at a U S Treasury future versus a non U S dollar swap. You can also see savings as well. And I think that's super important because now you're looking at different currencies across your book and we've seen savings that are up to 50%. I want to pause you there at the moment. And I want to offer this to each of the FCM panelists individually. How has your ability to clear FMX futures combined with LCH swaps changed the conversations that you're having with your own clients? Take us through that, Sebastian. Sure. Thank you, Rob. And again, thank you for having us here as well today. Portfolio margining is one of the first items that customers are speaking to us about across the board. As the market becomes increasingly sophisticated and the cost of capital continues to be top of everyone's minds, portfolio margining, the benefits that clients can obtain, is always going to be high on that list. Our ability as an FCM to maintain a market-leading position is dependent on being able to offer some of these innovative products to our customer base. When clients first started hearing about FMX, it was certainly top of the list of things that they wanted to hear about. What was Barclays doing to support this, both on the house side and then also on the client side as well? I think the beauty of the FMX LCH is it sort of standardizes something that is transparent across the marketplace. I mean, portfolio margining is nothing new to banks or where the clearing entity through special vehicles would be willing to finance this, but it varies from FCM to bank to different places and I think the consistency of the methodology of the LCH brings with the FMX products allows clients to use through the technology they're a steady set of hands that manage you know the collateral needed to support the positions and when it's equal playing field people can you know they have predictability and transparency and that leads to liquidity and when you have capital efficiencies that allows more capital to be deployed to provide for liquidity when you know capital isn't deployed against multiple ccps um but you know in this partnership i think it's the really the transparency and consistency of the model that allows people to build i don't think you know we've seen the um adoption at the level that we you know sort of had hoped but i think that builds on the fmx's volumes and the rest of it you know liquidity brings for the liquidity that brings efficiencies and dependencies to the market um but yeah we you know we've been there we are in that place we you know we're one of the non-banks we have a little bit more leeway and we were able to do some of the original cross-margining with some of the clients that are here today um and yeah it certainly does depend on the complexity or the composition of the portfolio the how lch's model it's not you know it's i'm not going to underestimate the complexity of the model it is a complex model but it's consistent and transparent So that's what we're building off of as a building block to move forward and get further market adoption. Yeah, so Robert, you asked how has the conversation changed with the clients. I think this is directly in line, FMX is directly in line with conversations we're having with clients about a lot of things around excess cash and margin efficiency. So over the last three years we have had a marked increase in in terms of the number of ways in which clients particularly hedge funds RV hedge funds macro hedge funds particularly but in that space are looking at ways they're utilizing there are managing their excess cash and we're seeing everything from increased numbers of swap compressions we're seen a significant increase in number of of portfolio transfers, sort of expit off exchange in terms of managing exposures from FCM to FCM. And so with FMX, this is just a natural conversation about more margin efficiency. And it fits really well into having those conversations. And I think over the last three years, I think for the first time we've seen CIOs of hedge funds who didn't really pay attention to what the treasury functions were doing within those funds start to ask really hard questions about like, are we doing with our excess cash like how are we managing this where is the cash at how much margin are we posting there comes a cost with this now um so how efficient are we being and so you know i think that fmx fits fits really well into all of these conversations and clients seem to be really receptive so jim i want to stay with you for a moment so you're having a conversation with the client and they want to begin to get an idea of what sort of benefit they can achieve through FMX futures and LCH swaps and what sort of tools what sort process what do you put in front of them to start answering that question for them yeah so we have a number of so we have multiple lines of defense from a risk perspective in terms of looking at that and running those scenarios whether they're you know using you know LCH swap here swap clear I am calculator which which we use but we also have you know other metrics that we use we use risk metrics we use other bar and stress scenarios we use vendor calculators to to run these scenarios but you know we can run hypothetical scenarios we can use a realized portfolio and all of that you know we can kind of give some kind of output in terms of what the margin savings are as to what we could see in the portfolio. So we have a number of tools that we use. We're lucky we have we have a great risk team in the front office as well that can help us. So, you know, it's something we have those conversations all the time now. Anyone else? I think we've experienced some CCPs that have started to share sort of a margin methodology that is unique to each CCP. And I don't want to understate the challenges of multiple CCPs running margins on the same position that coming up with two different numbers and then having to explain to a client base this is what we had expected and it doesn't. That is sort of the beauty of what we get in this partnership with FMX and LCH, so we're here to support you as well, and that's one of the very positive aspects of this program. Yeah, certainly on our side, we work very closely with clients to understand more about their portfolio, understand more their trading activity. We can give them demonstrations of what some of this portfolio is going to look like at various clearinghouses, and we also look at it within our own internal portfolio margin methodology to be run as both jim and gabe mentioned um the ability for clients to understand how their portfolio is going to behave under different scenarios certainly becomes um key on their list of things to understand as they're looking at how portfolios are being allocated or how they're allocating business across clearing clearing brokers um all of this feeds into that same same picture of lseg and fmx being another tool in that toolkit so prigati you begin by by describing how large this benefit is and how much a client can actually consume. The FCMs are now having conversations with their clients. They're running some projections. They're using your IM tool that's online. What, from a structure standpoint, does a client need to do with their FCM in order to extract the benefit from LCH? from LCH, talk a little bit about where their futures and their swaps need to be aligned. Yeah, okay, yeah, we'll talk about eligibility. So, first, you know, the way that, you now, Gabe kind of mentioned this, it's quite complex, right? The way the portfolio margining services works, right, and maybe this is obvious for some of you, but I'll just lay it out, right. What LCH does is it takes your swaps portfolio and it takes you listed rates portfolio and it assesses the combined risk and it identifies which futures positions are best included under the swap clear risk calculation right so what does that mean so every night we run this thing you know we identify which futures positions make more sense to be under the swap clear margin calculations and then we run our margin processes so you get you know a swap clear marginal requirement you get a listed rates margin requirement and hopefully that requirement should be lower once you're opted into this service now it's super low touch you kind of just opt in and and you know this thing runs every night now your question was more around eligibility right and that's key right so for clients you know you need to make sure that you have your swaps and your futures under the same beneficial owner and you're clearing through the same clearing broker right from a member perspective you need to make those client accounts are separately identifiable you also need to sure if you're looking for portfolio out margining on your house books. You need to make sure that you're under the same LEI or legal entity ID. So those things are important, right? You can't be transferring risks between different legal entities. You can be cross-margining across different clearing brokers. So there are some rules that need to kind of be put in place, and we're happy to work those out with you. We've had many conversations and bilateral conversations just to kind of help people get set up properly. But LCH has really made this fairly streamlined when FCMs have had these conversations and then they connect in to you with their clients and the clients accounts are all lined up appropriately like you just said yeah all they have to do is opt-in and they don't have to any extra trades or in the day trades themselves that's a very slick process you do it all at LCH and the benefit automatically goes back through the FCM to the client to be able to consume that's right it's very very streamlined process low touch right yeah and that and that's something that we saw right this is you know similar to fmx right we're the markets partner we're out there listening where are the pain points and what we learned is with other um with other players out there you know the the operational intensity around that process was quite difficult so we've streamlined all that and have it all working in the background great is there anything else that fcms want to mention about from your first conversations to getting clients up and running that you would like the audience to know because we do have a lot of clients in the audience today maybe i'll just start i i think i'd echo much of what's been said i think lou said at the onset i'd heard him say it and um you know that it's the buy side is adopting this and i think kevin even said it it's seems like a renaissance of sorts i agree There's definitely conversations that are happening with clients. I think clients want to see this acceleration of volume and that the participation, I think, will be, you know, has the potential to be,you know, parabolic once it kind of gets to that point where we see that just enough volume there. So I think that a lot of people are just watching. We're having conversations, and I think people want to seethis succeed quickly. Yeah, I mean, I don't think anybody more than your previous panelist wants to see this more. And like firms of the same sort of liquidity provider, low directional sort of portfolios where they find the most benefit as general liquidity providers in the swap, leaning into FMX's liquidity on the back of it to unwind sort of what they would consider to be the initial trade and as that builds out and obviously there's no the LCH has the volume then building off of that will I think grow this business with the liquidity and then the less capital deployed for what your client sees as a relatively hedged position allows them to deploy more capital and more liquidity so it feeds on itself yeah there's an education component to it we need to make sure that the client Treasury teams the client operation teams that they're all involved in that setup process they understand the mechanics of how that's going to be working and your futures are are one regulatory origin here in the u.s. your swaps are a different regulatory origin with a different set of rules and a different sort of regulations that associate with those people need to understand what is that how does that work when you're transferring one from one origin into the next origin what does that mean for for your trades left in one area, your trades now being portfolio margins in another area. So it takes a bit of time to make sure that clients understand how that's going to look and feel from a practical perspective. And that's important. You don't want to get this sort of thing wrong. Yeah. Sebastian, I want to stay with you for a moment. So now we have these clients that are up and running. They're experiencing the portfolio margin benefits with LCH. I wantto take a step back to something that Pregati mentioned early in the conversation, which is LCH's margin methodology is very predictable. and therefore margin calls are more predictable than many other clearinghouses. Talk to us about the importance of that and what that means for you, your business, and your clients. So that sort of stability in the overall portfolio margining, and I'm using that in a broader sense of the term, not just within the FMX and the LCH space, but across the futures and across SWOTs more generally. Clients will want to understand what their margin requirement across each of those venues is going to look like and have a good understanding of how their trading activity is going to impact that. So being able to work with LCH to understand how that fits together, clients certainly see that as a benefit. Great. I think we're about at the point where we can take some questions from the audience. Hi. So you have on the screen some indicative maximum notional savings numbers. I was hoping now that you guys are getting in front of buy-side clients and plugging in their actual portfolios into the LCH margin calculator. What are the real-life average savings that you're seeing in practice on how much does total initial margin across futures and swaps, rates, futures, and swabs actually go down in practice? well that might be a good question yeah i can start at least um no i think obviously the numbers that you saw are hypothetical right and those are obviously best case scenarios um you know when you take a look at perfectly offsetting you know exposures that then you kind of see some of those more like greater differences but it really just depends on your portfolio composition right so you know basis or relative value strategies or you know intuitive candidates because they have offsetting exposures in their portfolio composition. When you take a look at potentially any kind of portfolio compositions where you already have a futures hedge risk that already exists in your swap portfolio, you're going to see benefits there. So it really just depends on that composition and kind of what your strategies are. I have seen numbers in that general range. It really just kind of depends. But using the LCH listed margin calculator or the swaps margin calculator, what you can do is it loads up your swaps portfolio and then you can put in hypothetical positions and run a whole bunch of different scenarios and see what those benefits would be. I don't know if you guys have anything. I mean, realistically, we're getting 50 to 60%. But, you know, there's a hierarchy in the methodology where you might have swap versus swap that might take priority over, that gives you under the lch model there's swap versus swap so that could give you an efficiency long short that might take priority over futures it rolls in next so there's a hierarchy but you know in a clean vanilla how much is just trading incrementally going to cost you know those numbers are in the 60 to 80 percent on a portfolio you might not see that that 80 70 percent range but you still are seeing you know a substantial number um and you know capital efficiencies whether it's 80 or 50, I think they're welcomed by the participants, especially the liquidity providers. Yeah, I thank just to add on that, right? It depends on direction, tenor, curve exposure, concentration. I mean, there's all these kind of factors that kind of bake right into it. So, you know, you do see those numbers. Got it. Thank you. And for the FCMs, I guess, how important is enabling cross-margining to the cash? Like replicating something akin into what the CME and the DTCC have done. And then Pregati, is that a capability that LCH can help FMX with? Like is cash treasury clearing eventually something that you guys would be able to bring to the table? I think you already prepared your answer. Oh yeah, I was ready for that question. So thank you for that. Okay, so the clearing of US treasuries is obviously an important topic post-trade landscape um lch you know is obviously watching this you know we've set up the isda roundtables we're watching the news reports we're seeing what kind of other players are doing out there in terms of partnerships between fic and cme and what cme is doing what ice is doing um but i think what where our investment and our priority is is kind of building out to what our strengths are right so uh we have built our swap clear business uh on bringing together you know efficiencies across different currencies and building you know scale liquidity and netting right and we think this is a compelling argument to add listed rates to that space alongside our swap player franchise so while we're kind of watching how the markets develop our focus has been on the future space and on the swap space would you say it's fair that you're still analyzing it from a firm perspective yeah i'd say that's fair okay i would say from the fcm perspective it's it's one of the many things we're looking at and it is um you know i think there has just been an influx of new things that we're trying to do as an fcm things are changing so quickly i think all of this treasury clearing is consuming a lot of a lot time but we also have other initiatives we We have FMX, we have new exchanges we're joining, and so we're trying to balance all of that. But suffice to say, all of this around either, whether it's cash or whether it futures and swaps, it is probably the number one most discussed issue, margin optimization with clients currently across this construct. There isn't a week that goes by that we're not having multiple inquiries from clients about sort of what we think about the likelihood of certain products, where do we think our efforts are, where are we gonna be focused, how is our repo team looking at this, how are we integrated with either done away or done with trades, and how is this all gonna look across the FCM? So to answer your question, I think it's one of the most paramount important things that clients are talking about right now. Yeah, and I think I touched on an earlier answer, like what's going on now is two different CCPs, know that are sharing positions and you know what is you know the optimal optimal part is now they have to send orders to different ccps and that gets really really complicated in on the club level but you know having a central one ccp that had the model you know that was uniform and transparent is you now i think where all the fcms are struggling to see like okay you know how is is this all going to play out with mandatory cash clearing and and you know customer you know what was limited to house positions for you know cross margin between cash and futures as that's getting rolled out to futures for clients which we've been there since day one it's it's not without challenges it is a very challenging problem and i think there's a lot more to come as mandatory clearing goes you know full bore at the end of this year Yeah, we want to make sure that we're available for clients when we have all of those types of offerings that are available. We'll respond to that client demand. If there's stuff going to be around, then we'll look to see how that works, if it's a viable offering, if it makes sense with the broader platforms. Any other questions? Hi. So the numbers you put up there for the offsets with the swaps is impressive, but I think you're probably aware the competitor offers even more offsets. I think in SOFR it's well above 90 in treasuries. It's 80 or 90 in some cases. I'm curious what the process is at LCH for getting to that level is it time is it open interest what is it that gets us there to equal to the competition in terms of percent offsets he's asking how to increase the amount of percentage of offset that a client can obtain because he's seen in the competitive landscape some higher percentages with other opportunities it's a good one again I think it just really comes down to your portfolio composition. It just comes down to how, what your, you know, what, what are your exposures look like? What does your tenor look like, what does your concentration look like. You know, if you're, if you're one directional, you're not going to see much benefit, no matter who you play with, right. And so I think focusing on that portfolio composition is kind of where the key is. From a standpoint of getting higher than 80%, I think there is, you know some european regulations out there uh that kind of do some has some restrictions around that um but you know i think you know there's a lot of savings to be had um but it really just kind of depends on what those portfolios look like hopefully i answered your question anyone else well thank you panel participants for your time I believe we are taking a brief intermission. Correct, Jason? Yep, thank you. We're going to take a quick 15-minute break. If everyone could be back just before 3.30, please. Thank you. you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you you Thank you. If I could ask everybody to return to their seats so we can start the next panel. You're the only one there here to hear. Like a girl by this guy right next to him. That's right. Hi, I'm Steve Merkle, General Counsel at BGC and the Chief Legal Officer at FMX. We have an interesting panel. Immediately to my left is Alex Titus, who is the Chief Advisor to the CFTC Chair, Michael Selig. After that, he was chief of staff to Steve Moran at the White House Council of Economic Advisers until he moved on to the Board of Governors, which suggests you probably have some sense as to economic impact with respect to these products, or at least people look to you for that. We have then Josh Sterling, who is at Milbank and has been leading Milbank's nationwide litigation efforts concerning the legality of events, contracts, and prediction markets, and does advise clients on other things, including perpetual security futures and other protocols. And then finally we have George Kanellis, also at MilBank and who has done a few rounds in the government as a prosecutor at the U.S. Attorney's Office here in Manhattan, as well as the co-director of the Division of Enforcement at the SEC. And so we're going to try to get into a little bit of all of that, but Alex, I did want to start with you and talk about, get your perspective on when the CFTC cares about U. S. markets being competitive with overseas markets when it doesn't. Clearly you were, everyone was on the sidelines until the president's, you know, Trump 47 came into office and there were already all sorts of offshore sports markets and predictions. There were perpetuals, there were assets trading on the blockchain, predominantly offshore. How did, if you could just describe for us, How does the CFTC decide we want to make it easier for those markets to be traded in the United States for U.S. customers to not have to use a VPN to pretend to be somewhere else, but to actually do it here? How do you decide what's worth bringing, importing, and what isn't? Sure. Well, actually, my lawyers tell me I have to start off by saying my views might not necessarily reflect the chairman or those of the commission, so anything can be attributed to me personally. But as you had said, a lot of these platforms, which some of them originally had started in the United States, went offshore under the previous administration, particularly Chairman Gensler over at the SEC had this mantra of regulation by enforcement and intentionally tried to push the crypto industry offshore. And I think that's had two really negative effects. One is the investor protection. Of course, there are some folks in the U.S. or the EU or other jurisdictions who are using VPNs to go into these offshore platforms that are not really regulated by anybody. You can have funds that could go missing. There's platforms now that are offering 1,000x leverage. I actually saw some tweets this morning that someone's trying to offer 10,000x leverage. So, obviously, there's the sort of consumer protection regime that is built into CFTC compliance that folks, if they are trading in the U.S. offshore, are not getting, which I think is unfortunate and is bad for consumers and investors. And then, second, a lot of people are clearly interested in these products and want to trade in them. So it's been a big mantra under Chairman Seelig to bring a lot of these platforms onshore in a safe and responsible manner. So we've been working very hard at that. So, Josh and George, what's your perspective on this SEC and CFTC trying to have the U.S. be more competitive with respect to these new markets? Yeah, well, I think that it's a real sea change compared to the prior administration. I think you find leadership of both agencies really focused on how to make America more competitive because the vibrant financial markets lead to or sustain a broader, more vibrant economy, and it doesn't make any sense to sort of call balls and strikes on what's in and what's out. There's a particular type of asset class. Certainly you could have assets here that weren't as prevalent before, maybe not at 10,000 times leverage perhaps, but that's sort of a line you can draw once it's here. So I think they're doing a good job. I think they're trying to be careful and thoughtful about it. It's interesting. A lot of it is pushing in areas that exist in the law but really haven't been touched in 25 years or more, like security futures products. The rules are there. Everyone's forgotten them, but they do offer a ready path for innovation, and people are making real progress down those paths. And so the extent you can innovate and bring onshore what's offshore through existing rails here that the regulators know. I think that's sort of a quicker way to do it, and I think both agencies have been fairly accommodating in that. George, any perspective you want to bring from? Well, I'll just add a comment maybe from a little bit of an SEC perspective. I think right now you have the swaps markets innovating in all kinds of interesting ways and some of the ways that they're innovating are extremely disruptive of some historical state laws or you might say state sources of revenue but you haven't had that much push into the securities related markets it's beginning to happen and I think as these as prediction markets and swap markets in general enjoy greater and greater acceptance and retail participation you can expect that there's many going to be a great deal of interest in products that are within the SEC's jurisdiction all all securities based swaps which would include any kind of predictions market that relating to an issuer or the performance of the issue or a value of of the value of an issuer or even events pertaining to the issuer like will will Amazon reach 750 billion in annual revenue will a Zempik be approved by the FDA all of those very interesting economically driven swaps would be within the SEC's jurisdiction and I don't think I think while the SEC is making all of the right is offering all the right talking points about its openness to innovation and its openness and willingness to cooperate fully with the CFTC and trying to come up with ways to come with integrated regulatory approaches for in markets that cross both CFTC and SEC jurisdiction. I think the SEC has been much more reluctant to permit some forms of what you might call innovation or we might just say encroachment on the historical regulatory regime of the SEC, which requires extensive disclosures, which tends to forbid retail participation without extensive disclosure regimes. So I think the CFTC is probably a little further along the line in accepting some new products than the SEC is. Well, from a policy perspective, and this is for Alex and Josh, does that suggest that the CFTC not necessarily having a focus on disclosure is at risk with respect to how retail investors are treated trading these products. Right, I think this gets down to the fundamental difference between the securities markets and the markets for financial derivatives. One is a price discovery market, that's a CFTC, and the other one is sort of a wealth accumulation and capital raising market where you actually own something an investment contract, and that's the SEC. And I've had a lot of conversations with the SEC for people wanting to develop novel products that have some SEC overlay. And the conversation can often begin with, well, you're just throwing out 90 years of history on getting offering documents and annual reports out to people. People just wanna trade the price of a stock rather than own the stock and receive the dividends and vote their proxies. And the answer to that, someone who has more of a price discovery bias is, yes, that's exactly what they want to do. What the heck's the problem? And they have a problem with that. So to me, it is true that on the CFTC side, there's much less disclosure. I mean, if you're offering a fund that trades futures to retail people, it looks a lot like the disclosures for a mutual fund. But outside of that, it's sort of, no, you're in the market. You're going to find the price. And if there's a problem of the price discovery mechanism, well, we'll come after them with market-based authority so you're right it's much less disclosure and um it's always been that way and i just think that um stocks are thought of as more of a retail phenomenon than say futures and swaps are i think the one thing i would add there is uh you know these are uh jurisdictional i'll call them turf battles that have uh plagued both the agencies for for quite some time obviously i think we're seeing that come to light uh faster with some of these new registrants that are coming in and offering products like like security futures and things like that but that's exactly one of the reasons that we have this SEC CFTC harmonization effort I think it's safe to say that chairman Seeley again chairman Adkins are probably the two closest CFTC and SEC chairman that have held the seat at the same time and obviously these are these can be tough conversations it's a lot of policy to work through but we think these are the exact issues that we're dealing with when it comes to harmonization and that relationship is so important which of course at the end of the day it's not really a turf battle between the agencies as much as it you know does this benefit investors doesn't benefit the market overall so I just add that I wanted to talk about that's probably the first time since 1974 when they haven't been essentially rivals of one another I mean as much as you would have prior administrations talking about seamless seamless cooperation between the two agencies you almost never had that in reality you would have the same sanction imposed duplicatively against companies for the same violation and I you know I think one of the areas where you can just give both agencies in on this credit is for recognizing that that was a problem and that was that was 50 year problem that has probably not been solved permanently it's maybe just been solved for the next couple years it's good it's a it's It's a good example for people to follow. So I wanted to talk, I guess, at least one FMX question, right, Juan, so at least. So FMX positions itself as a differentiated futures exchange that will provide competition to and a pro-competitive alternative to the existing leader in rates products. Is that – this is sort of a so what question. that in are those factors important to regulators is the fact that it may be pro-competitive does that make a difference is that ever really matter to let's say the CFTC and should it matter yeah I think if I had to speak for the chairman I would say that it is important of course I'll give one example where our largest registrant just happens to be suing us over a new product offering in the u.s so i won't add any more detail to that than that but i'll let that speak for itself but i mean i think we think competition is is good in a few ways and one with competition usually comes innovation i think the cftc is probably the only government agency that actually the promotion of innovation is within the statute uh maybe somebody can point out that i'm wrong but i was quite quite shocked to actually learn about that because generally we think it's government to be the least innovative entity that does exist but i mean i think competition can generally be good for incumbents as well right i mean you keep folks on their heels you force them to try to innovate you force him to compete i think it can be good good for them in that way and it can get good for the overall market for participants who are trading yeah um i agree with that i think that uh you know when i was at the cftc uh in the first trump administration, the thought was always how could we get more people into a market? How could we get more dealers into the market for swaps? It doesn't necessarily have to be that the largest swap dealers are the largest or are the only ones. And how can we lighten the burdens for some of them that are smaller or have sort of a different axe in the market than, say, we're here just to provide this solution for everybody alongside a lending business? So I think that's true with markets and clearing houses as well clearinghouse diversity is an issue it's important to have more of those it's to have clearing houses like lch branch out into new and different areas like futures and i do think that that there is a strong interest in encouraging that one thing i've often said in discussions with the regulator for clients says you're not in the business of issuing monopolies you know you're out of state giving someone a gaming license um so you should allow more people to do this and give them a fair shot when they want to innovate. What you always run up against is when you have an innovative idea, because there's the incumbent, because the incumbent has done what they've done for a long time, the everyday staff of the agency will say, well, what you're doing doesn't look like what I know. And so there's a bit of a mental block that you do need to break down, and sometimes that involves discussions with the leadership of the emergency, and just sort of making the substantive case of, like, look at it may be different, but It's still possible, it's still legal, so let's do that, shall we? So, Alex, I wanted to talk a bit about base metals, which is, if you sort of look at what's an astonishing area, which is a major industrial commodity, copper, aluminum, it's not really, the futures aren't really traded here. I mean, there is some, but not really. They're in the LME, run by an exchange which, when it feels like it, can cancel billions of dollars of nickel trades, right? So I'm just wondering, is it appropriate for the U.S. government to look at that and to say this is a risk, right, with respect to our manufacturers and others? And for those who aren't aware, just take a look. just go on the Internet with respect to the LME canceling the nickel trades, and it's sort of shocking is the only way to put it. And I guess they could do it in copper. They could do an aluminum. What do you think is the U.S. role when there is this kind of potentially economic vulnerability to our manufacturers? Yeah, I mean, this is a top priority of the chairman of the commission. during the chairman's first major speech at the FIA Boca conference he was very clear when he said we want to create and bring back markets for base metals and critical minerals in the United States and I mean he basically summed it up right Steve most metals trading price discovery and setting is done on one offshore venue in the UK and I think that we we do have some concerns about that I think there's some concerns on the financial risk side of things as well and I mean the president of course has talked about this issue right I mean he's wanted to bring back steel production in the United States bring back aluminum production there are steel plants coming online as well as a new aluminum smelting plants in Oklahoma but we want to see more of the financial activity happening in the US more of price discovery happening in the US and more of be actual physical storing of the metals in the u.s. as well and i think it's it's been really interesting to see what's happening in copper markets because uh the us actually has so much copper uh right now in in the country they don't have a place to store it uh they're storing it in trains and then i think some of it is stuck on ships as well so uh it's a top priority for the administration as a whole as well for the chairman uh i would say we want more competition in this space uh if anyone has any interest in this issue i'd be happy to to chat about it as well so that's a great invitation I just wanted to point out and it's not just because because of our our friends at the London Clearing House but I don't know whether or not the LME can be strictly thought of as being run out of London anymore right I think there's there's another you have to go a few thousand miles away before you find the real governance there yeah yes I did want to talk a bit about again the prediction markets and how futures swaps, security based swaps the SEC jurisdiction, CFD jurisdiction can get a bit jumbled and just talk a bit about if you were here there was a fair amount of discussion of basis trades which come up in a variety of ways but the simplest is really cash treasuries against treasury futures and people that's a very esoteric sort of trading but if one were to go on a step beyond that and think about prediction markets on basis trades and imagine there would be, in fact, a prediction market as to what would be the basis at a given day and a given time for a given maturity, how should lawyers, how might they advise their clients, how should the government think about that, both with respect to over-the-counter markets where you might just have very sophisticated customers doing it as well as possibly sitting on DCMs how is that kind of multi jurisdictional fairly esoteric type of a prediction market on top of right what is basically a CFTC and SEC conjoined product sure so I welcome george's views too of course but i think that um i'm all for markets um it's what makes this country what it is um you know it would seem to me to be a good idea i think that you know basis trading is important um illuminating further basis trading through prediction markets would probably be helpful there's informational value in it um and you know having having a venue or set of venues like fmx does that allows for cash trading and derivatives market trading which conform which underpin spaces trading is useful more of that and predictions on it i think would provide more light more information it might improve the ability to surveil the market it might provide efficiencies it might provide different changes in trading behavior to become more visible and better surveilled so i think that there are a lot of good uh there are lot of potential goods for it i guess one One question could be, if you accept the premise that a lot of trading on prediction markets today has been retail, will people really know what they're doing? I think the answer is yes. There's a lot literature out there to suggest your typical prediction market trader, sure, there's sports and entertainment, is actually a pretty knowledgeable person who comes more from a trading background than, say, a gambling background, and so I think it's something worth pursuing. So you're talking about basis trades specifically? Well, let's just talk about any prediction market that represents on a product that has both futurity and security. Yeah, yeah. So, look, I think a theme in response to many of the questions, Steve, that you've posed today is that if we really could remake our history or remake our future, the CFTC and SEC should be one agency like it is in many countries because, you know, when you identify basis trading, especially cash versus treasury futures, for example, you're basically invoking two historically completely separate regulatory regimes. And even though you're talking about a product that is near and dear to the hearts of many investors. So it would present questions of important questions about how one harmonizes the two regulatory regimes. Even doing such simple things as ensuring that you could have cross-clearing so that you can net positions presents more regulatory complications than it should. And so I think we should strive towards more integration. And if I had my way, the two agencies would be the same. I will say, though, I don't think that particular product is one that would be very controversial because I think the gravest concern that the SEC often expresses when it comes to prediction market products that maybe encroach on traditional securities markets is that they have all the ability to present opportunities for trading with none of the disclosure obligations. And if you're talking about, like, basis trades in the U.S. cash treasuries and U. S. futures markets, I don't think that presents that concern, since there's no real disclosure regime for the U S. government. And I also think that it's the kind of product that is, by its nature, one that would be attractive for institutional investors. So the extent that the SEC has a strain of concern, protective, paternalistic concern for retail investors. I also think that concern probably is not pronounced here. George, you wanna talk a bit about enforcement and let's stay with for the moment predictive markets. It's still in an early, it's at an early stage and there's an interesting question whether the agencies should be really looking at them carefully for enforcement purposes or where there could be a fair amount of mischief at an early stage, the Wild West, or wait until the market sorts it out and the users figure out which platforms have integrity, which ones don't, and only after that, sort of maybe do a look back as to what occurred, do you have a sense as to, well, let's say if you were involved in enforcement, What sort of investigations, what sort of data would you look at in order to try to get ahead of what, again, could be enforcement issues and perhaps prevent abuse? Specifically in prediction markets. Let's start there, because it's sort of the newest, right? It's the new great thing, and I don't know if there have been much enforcement action yet right well I guess I'll say this first you know one of the big concerns and predict two big concerns and prediction markets are market manipulation and insider trading and those concerns are very real ones I think and they're a reason why many people will not participate in prediction markets like I will not touch prediction markets because I fear that that others my counterparties have more information than i do i don't feel that way in the securities markets um so i do think it's a grave concern and if it can be addressed it would help those markets a great deal but it's not there's not without um you know the challenges are great if you take an example of like the securities markets why do we have so much insider trading enforcement in the security's markets especially equity markets i mean it used because we have a perfect paper trail of surveillance we have an organization called finra that tracks every equity trade that applies algorithms to look for and surveil for for possible mmpi that will cross reference major market events with trading activity that will that will also assimilate information that comes from multiple markets so you can compare options and ordinaries you don't You don't have anything like that in the prediction markets yet. It's developing. You don�t have anything that, but you do have very motivated prosecutors with all the same tools that they have always had, mail fraud, wire fraud, including actions under both the commodities and securities laws that allow them to bring criminal actions and that, I think, and they will and do. You also have increased pressure on the exchanges themselves to engage in meaningful surveillance And I think over time, as the markets become more popular, you will probably have the markets themselves enhancing their ability to surveil. And so we'll see enforcement actions, and we will see, I think, increasing transparency and integrity in those markets. Yeah, I would add on to that. I mean, obviously, the markets have grown significantly just over the past year and a half or two years. I mean, I think Kalshi and PolyMarket were just listing mostly election contracts in the run-up to the 2024 election, obviously list a bunch of different products now, whether it be sports, whether it'd be culture, whether I'd be commodities. Obviously, they're kind of making different markets for whatever market participants are interested in. But this has been an area of top priority for the chairman. I mean, as he has said many times, the cop is on the beat. We have a great enforcement director, used to work at SDNY, started his career at the CIA, David Miller, and I would just say to anybody, if you think you can get away with price manipulation, insider trading, or any other sort of shenanigans on prediction markets, we will get you, the SDNY will get, you or the SEC will get. So I would be very cautious for anybody who thinks it's the wild, wild west because we are watching we'll all be watching i'm actually going to see who's who you're going to bring down because i think there's still distrust exactly what george said people don't really feel at the moment that it's uh it's sort of you don't know i think they're all very motivated the problem is the surveillance tools you just don't have the data that you have in that market i think that's one of the bigger challenges but absolutely i think everyone's committed to enforcement in these areas i wanted to talk about um the crypto markets um and the question i'm going to ask is sort of what why do we think that they necessarily matter and i want to distinguish between uh the cost benefits and primarily the benefits of the blockchain and its frictionless 24 7 opportunities um particularly on the payment side i want I wanna distinguish between that and the cryptocurrencies and just get a sense for if I told you that Congress will never pass the Clarity Act and if I'd told you that in January of 2029 there will be a new administration which will take a very tough look and ultimately will lead to the very high values that are in some of these cryptocurrencies that they will, if not the bubble bursting, a severe decline in what they're worth, and very few people think of them as a store of value, notwithstanding the utility of the blockchains. If you knew that was going to happen, would you continue to try to create the framework for these very difficult to value, very difficult-to-disclose cryptocurrencies? you gave me a really easy question for the last one Steve thank you I would say I mean the market capitalization I know for most of the major crypto currencies is currently I think it's three or a little bit above three trillion or something like that I mean obviously a lot a lot of people just like to trade these products whether trading them offshore or they're trading them in the US there's a lot of trading activity I mean really really across most of world for these digital assets and you know I would say on the clarity front we were very disappointed that Congress wasn't able to to pass that bill and bring it across the finish line and I think by the end of it I mean I don't know and I won't speak for any of the Senators I don t know if anyone was perfectly happy with the final bill but to me if no one is perfectly happy that sounds like a really good compromise so you know, I mean the President, the White House, they worked very very hard to try to get this bill across the finish line unfortunately it didn't but as some of the folks in the audience may have seen we actually just rolled out a new advanced notice of proposed rulemaking both on crypto transactions as well as crypto asset markets so with the CFTC and I'm not going to prejudge anything we'll obviously get comments on this and kind of see how everything plays out but is a federal option for those different exchanges or startups who want to have a federal opt-out from some authorities that are currently overseen by the states, and then overseeing certain types of transactions that the CFTC has always overseen, whether they be leverage, margined or finance. So I think a lot of folks will come to the commission with really interesting ideas. We'll kind of see how that works out. But I would be a little bit more bullish than you, Steve. I think crypto is probably still here to stay, even with a change in administration. I won't ask for your prediction as to where Bitcoin trades in January of 2029, but I will ask Josh and George, do you think that there is a chance of regulatory regret with respect to all the work being done with respect to the cryptocurrencies? I think there's the possibility of that, but I think any time you try to do something new or different, that's always a possibility, and the extent you're doing it by regulation it becomes, with appropriate authority in the statute I would add, it becomes that much more susceptible to abrupt change and the concern is things will swing back and forth more broadly on the pendulum between parties in control so I think that what could be done by regulation or order can be undone by regulation order quite quickly so there's a concern about that but with a lot of innovators we meet with our basic message to them is look as your can't tell you the business case you didn't hire us for that but my advice to you is to consider getting your license and building and issuing products quickly once you have a license you have constitutionally protected due process right and how that license is given to you maintained or even taken away it's a very important thing to have in your quiver and then issue products so there's substantial reliance interests in what you're doing that will always make political constituencies at least think twice about undoing it so you can manage it you can't prevent it but But if it all goes away, if the advance notice becomes a proposal, becomes a rule, as I expect it will, and it goes away suddenly, I'm sure there will be a lot of regret about that. But I don't think it will be regret from having done it. It will just be that we can't have a committed course of action in this country around a quite large asset class. Nothing to add there. Okay. Alex, why don't you just tell the audience what you would like their takeaway to be with respect to the work that Chairman Selig and his team are doing. Sure. Yeah. So I would say, you know, one thing we've tried really hard to do with industry is just actual engagement. So, you know we like to joke that you know now we actually have folks come into the building, they share ideas some of these ideas may actually turn into policy action we're not going to host you in the building just to hit you with a subpoena on the way out the door so we meet I meet with folks from industry all the time no matter if you're working on drab fi on crypto on prediction markets compute metals we are always open for a conversation I think really good ideas come from market participants and as well as some of our registrants in terms of where policy should go and where areas of concern are. So I think that would be the biggest takeaway to the folks if you're interested in engaging with the CFTC more is we'd be happy to have the conversation. I don't know if there's time for questions, but if anyone has any questions for these panelists, sure. Yeah, hi, just a quick one. So we've heard today from FMX clients who have talked about this idea of counterparty selection or counterparty blocking being a big value add in the Treasury CLOB. It's my understanding, though, that that is not allowed under the Commodities Exchange Act, so a futures venue like FMX would not be allowed to do that. Is that something that maybe the CFTC is reevaluating or just would love to get your thoughts on that? I'd happen to take that question with you offline with the colleague who might be a little bit more tuned in than me. Thanks for doing this, Alex. You mentioned at the beginning that part of your mission and the statue is promoting innovation and competition. I guess when you look back, clearly in the interest rate futures market, your predecessors haven't lived up to that objective. And I wonder if you and the commission have diagnosed why interest rate future has devolved into a monopoly, and I guess what the takeaways from that post-mortem are and how they play into your approach to regulation on a go-forward basis. Yeah, so I won't, I guess, address the specific market dynamics, but I'll take the competition part of your question. So, I mean, first and foremost, I would just say allowing folks to actually enter the market has been a high priority of this chairman. So obviously we have DCMs, we have DCOs, these applications come in front of the agency. For the first time in history, we're actually approving new registrants on the 180-day timeline that has been given to us by Congress. I'm surprised that's not really been, I guess, a concern of Congress in the past that they've given us this mandate. We've just kind of failed to deliver on it. But I would say that is one bare-bones thing that this chairman has wanted to do, is if you are raising all this capital, you want to enter into whatever new market it is. If you put in a good application, we will get questions to you and a response to you quickly to actually allow you to operate as a business. So I do think that that piece is really important. And then, again, in terms of just the new product offerings that we're allowing, I mean, the Perpetual Futures, which, again, won't do any name-calling here. Some have at least called systematic risk to their business, right? We are bringing in these new products and promoting innovations. So again, we'll really respond, maybe one of these guys will, to the specific market dynamics. But I mean again, I think competition is better for our registrants, it's better for market participants, and it's just better for the public in general. Can I add one observation there? mean one of the challenges is and this pertains to all financial markets a lot of financial markets are have some natural monopoly characteristics so you know deep liquidity centralized clearing netting efficiencies create competitive advantages and huge barriers to entry and there may also be some activity by the monopolists in the sector to try to reinforce that monopoly power through other arrangements that could implicate antitrust laws but there is some natural monopoly or networking effects in in the markets but you know one of one of the areas that's i think most interesting in the financial markets to get today is that some of the products and innovations do allow i mean ideally you don't want to have a monopoly you want to take all the advantages of having a natural monopoly but you don't want to have the inefficiencies and abuses that can come with a complacent monopolist who's not innovating some of the big innovative products today are ones that help to break down those barriers like interoperability of clearing better systems that allow one to assess and take advantage of liquidity in multiple markets at the same time and I think those are the kinds of products and services that you really want to have regulators encouraging because they give you the best of all worlds. They give you liquidity advantages, the clearing and netting opportunities without giving you one complacent competitor who's no longer innovating. Very helpful. Thank you. Any other? Are there any concerns, like, on a risk perspective from retail investors on some of like the new products you're talking about whether it's perpetuals and like the leverage that comes with that or some of the lost statistics uh for retail investors on prediction markets so just from a cfdc perspective like how are you looking at that sure yeah there are currently no uh prediction markets in the us uh there may be some offshore uh they're offering leverage for their product uh it's something that at least there's been some news reports on this from some certain exchanges but it's not something that we've approved at least to date now these products have to be fully collateralized but in terms of the leverage point on perpetual futures i mean again i think this is just such an important reason of why we need these products on shore i mean you're just never going to see a thousand x leverage at the cftc or 100x leverage and i mean uh you have these offerings on i mean fairly popular offshore platforms that have a lot of liquidity uh so i mean we think those are just too risky from our perspective for most retail investors uh obviously anybody who's offering leverage needs to go through our division of clearing and risk to be able to make sure they have those proper uh margin levels it's actually reviewed by staff uh as well so again if folks want to trade these products of course that that's kind of up to them you know we have a very free market view of this but uh you're just not going going to see things like 100 or 1,000x leverage when you have the CFTC consumer protection framework built in place. So again, I think that's a really important reason to get this stuff onshore compared to having it offshore. Thank you. There's only so much longer I think I should be delaying my CEO from speaking next, who is the next speaker, but I want to thank the panel for a very enjoyable and interesting conversation. Thank you Thank you. Thank you. Okay, so in the interest of trying to catch up on time, I know this is probably part of the day that certainly some of our shareholders, future shareholders and analysts have been looking forward to in terms of breaking out what does this all mean for BGC. And so for the first time, we'll break out where FMX is in terms of its financials. I go back three years, and you'll see that the FMX business has grown from $48 million up to $122 million for 2026, which is quite some, 36% CAGR in terms of revenue growth. And you'll see they're obviously dominated by our rates business, starting off in cash treasuries. Our FX business, one of the fastest growing businesses, although only going from 6 to 12 million, 100% increase. but just think about the potential size of that marketplace. And I think in one of the slides that you saw that Lou put up earlier on, you saw where we've gone from a billion up to 18 billion a day, and that marketplace is significant. Clearly market data, market data on treasuries. I'm going to take you back a little bit as well, which is if you think about when we sold eSpeed back in 2013, Yeah, we saw the eSpeed was generating circa $100 million worth of business, made up of just under 20% in market data and the balance, obviously, in execution. And so here you'll see the market data numbers are pretty small, again, so with huge room for growth. And I think what Lou pointed out earlier on is that we have a sort of 6% market data piece. CME, of course, has 13%. So, again, significant room for growth. But let's, turning here to compensation, I'll break it out into two categories. Because these are electronic marketplaces. These are exchanges. And so looking at compensation, what you see is you see how it's going exactly in the way you would expect it to go. You go from having compensation as a higher percentage in the high 60s, basically because you're not charging revenue at the very beginning, shrinking down to now into the levels of just below 40%. percent at front office comp look at technology technology costs now obviously there's a significant amount of expense that goes into building the platform and you can see there that started off up at 34 million and now three years later is still at 33 million despite the fact that we've now got multiple new products and and then finally within the within that within the SG&A, I would say all of this reconciles to our AE numbers for the overall BGC group. But you'll see there how the loss has gone down from 29 million back in 2023 to 18 million. And just remember that back in 2023, we had no futures platform. The futures platform that exists today is already there, already paid for and therefore we have tremendous operating leverage within within the business so there it is you can see there you can see that the the front office goes from 56% down to 39 again if I go back to when eSpeed was in play back in back when we sold in 2013 compensation I I would we would expect the compensation to continue trending down because right now there's the expense of futures but there's no revenue for futures from a technology perspective gone from 70% that down down to 27 again you've seen the stability of that that cost base and so what do I think going forward well we think we think the following so if you think that's where we've gone in the last three years, if you simply continue that growth, now remember, we do not give full guidance for full BGC, so what we've given here from an illustrative perspective is to say, if we continue growing the business in the way that we've grown for the last few years, and I think after everything everybody's heard here today, I think that is a significantly be a high chance that that's going to be happening. Then what happens? Revenues go over the next three years, revenues in that basis, if it was to grow in the same as it has the last three years. Revenue get to that north of 300 million and the incremental margin is 50 points, at least 50 points. And again, I think one of the things that we learnt was When we built the cash treasury platform, we built it at a time where interest rates were pretty much zero, and therefore the trading volumes were probably as low as they had been. And the questions we used to get from our investors were, you know, when are you going to see revenue? And we said, look, it's about building volume. So when we created the futures platform, we were very clear on our three-year plan. It was all about connectivity, then getting volume and open interest, and year three, which literally we started right now, and that's when we start to become, that's when it's about increasing that market share. And so I think that we have a tremendous operating leverage in terms of revenue, and think about it, right? How do we generate the revenue? we have and this is a playbook that we've executed many times you've got the you've got the the all-you-can-eat all you can eat deals which of course break unit economics for the the key players within the marketplace you've obviously you know those paying on the feet on the fee per million you know charge on the per million of notional traded and then and then You've got the FMX futures obviously charged on the futures contract, which is zero today. And then, of course, you have the market data piece as well. So I think a natural follow-up question, of cause, will come. I mean, you could just imagine how you map that into what is BGC. But I think everyone here can see that with 36% growth, with a business that actually has all its costs already within the business, I think FMX from a financial perspective is in a fantastic position and with that we'll make up some time and go to some Q&A So it looks like the market share of FMX and BrokerTech FMX UST and Brokertech has more or less converged, like roughly 50-50 now, but they're booking about $160 million a year of revenue. You're at $122, and I think a piece of that is FX. So, $103 million. So, is there any plan to pull the lever on pricing? It seems like you guys are coming into this significant discount to your closest peer. So, the answer is twofold. There are believe it or not it's it's still in its in its infancy so you're correct from a market share perspective you know at 42 percent market share and there's two ways in which we can or three ways really in which will increase revenue in the cash market number one is number one is in terms of the there is incremental chart incremental increases each year in terms of the fixed fee, so you'll see the one-price deals go up in 2027 and beyond, already contracted. Number two is in terms of the fee per million, if I think about where the fee per million is at the moment in what is the early stage, I think that has the potential to almost double from the point where it is right now as more participants come in. So that's two things within the cash treasuries that absolutely we think will happen. Hey, Sean. Can you hear me? Just on the cost going forward, can you walk us through how much BGC is going to cover? I know you said this flows through your income statement, but how should we think about how much of the commitment is going to be from BGC from a cost standpoint going forward? And is there any appetite or need that you foresee in the future to maybe raise more equity capital and just how you're thinking about funding the business broadly? Sure. So the second part of the question is there is no need to raise more capital. I mean, as you can see here, you know, with a platform, a fully built futures platform that on a pre-tax AE basis is a loss making of 18 million, I think on a company that generates revenues of 3.4 billion, and of course, with the money that was put in by the investors already, the answer from a capital perspective is absolutely not. you know this really is now this is a built platform you obviously heard that you heard that we will of course continue on a you can see there on the technology you can See the run rate is stable whereas the revenues of course are increasing so I don't see that I don t see that technology line you know increasing in line I think what happens is you know if I think back If I think back to the days of eSpeed, you actually had an operating margin of 60% overall. It was pretty much based around 25 points in compensation and around 15 points in technology SG&A. Now, what I did in my illustrative piece for the next three years is I suggested a 50% incremental because my view is I'd rather make sure that we... I don't want to overpromise. I think that history tells you that that is a highly achievable target and one that we believe we will achieve over the next 3 years. Great. Well, thanks very much, and we will look forward now to listening to the main event of the day now, which is, I think, will be an incredibly interesting discussion with Professor Hinton. So thank you very much. Thank you. Thank you. Okay, you want to sit in the middle, or would you prefer to sit in the middle? Or you want to sit on the end? I'll sit on this. Yeah. Okay. Great. I can't tell you how honored and privileged we feel to have you here, so thank you very much for coming. You know, it's oftentimes that you watch someone introduce someone else and they use the phrase and they say, you know, this person needs no introduction. Well, I can tell you this is one of the times that I can say with complete sincerity this person means no introduction and now I'm going to go and give you an introduction, of course. We did a little prep work out there, so don't worry. He's used to my humor already. So Mark and I have been so looking forward to this. So Professor Jeffrey Hinton spent 30 years pursuing an idea that his field had set aside. Sorry, 50 years. Oh, there you go. In the 1980s, the notion that a machine could learn the way that the brain does sat well outside the mainstream of computer science. He believed in it anyway, and he kept at it for decades with a small and dedicated group around him. In 1986, he published the paper on backpropagation that made modern neural networks possible. In 2012, working alongside two of his grad students, he built AlexNet, which blew away the field in an image recognition contest. Within 18 months, the entire tech industry had reorganized itself around his work. Every AI system that any of us touch today traces back to what he created. He received the Turing Award in 2018 and the Nobel Prize in Physics in 2024. only the second person to ever win both. What I find most admirable about our guest is what he's chosen to do since. In 2023, he stepped away from Google so that he could speak openly and independently about the dangers inherent in the technologies he helped create. Professor Hinton, we are beyond honored that you are here with us this afternoon. But before I let you off the hook in your introduction, I just want to mention a couple of things that are usually not included in people's introductions of you and perhaps not in the first things they learn about you. So one of my favorites is that before you earned your PhD, you spent almost a year as a carpenter. True? Yes. The second is your great-grandfather was in fact George Boole, who gave us Boolean logic, which is to say that the foundation of every digital computer in this room in fact came from your family lineage. It was my great-great-grandfather. Great-great grandfather, excuse me. Also, another great one, your middle name is Everest after your great-granduncle George Everest for whom the mountain is named. Yeah, me and the mountain are named after the same person. Amazing. And here's my absolute favorite. Sleeping in a hotel room somewhere in the world you happen to hear your phone ring. You pick up the phone ring, you pick up their phone ringing, you answer it, and there's a Swedish voice on the other end of the line. At first, you think it might be a prank phone call. Soon, it's someone telling you that you've won the Nobel Prize. So, after calculating in your head that it has, give or take, twice the likelihood of being a prank call than it does being a real phone call, you think to yourself, and as the legend goes, you may, in fact, have said out loud, well, this is interesting that I'm winning the Nobel Prize in physics because, and I quote, I don't do physics. Yeah. All true. So in addition to your remarkable heritage, all the extraordinary things you've done, we can't wait to have this discussion with you. So again, ladies and gentlemen, Professor Geoffrey Hinton. Thank you very much. Let me just tell you one thing about... It's your show. when I got the Nobel Prize in something I don't do. I did a little calculation which went like this. What's the chance that a psychologist hiding in computer science will get the Nobel prize in physics? Well, maybe one in two million, and that's generous. What's chance that if I'm dreaming, I get the nobel prize in Physics? Well, it may be one in 2. So that means it's a million times more likely it's the dream than reality. And for the next couple of days, I went around not entirely sure this wasn't a dream. Because you know when you have dreams, you can fly, and it's great, and then it turns out you can't. But one thing comforted me when I thought it was probably a dream, which was it would turn out that that nightmare about Trump was just a nightmare. So I'm sure that the question that you get asked most of these days is sort of doom predictions of what's going to go on with AI and certainly when we opened it up to people emailing us questions, that was the largest one that came through. So I don't want to jump right into that. But if you would indulge us for a minute, one of the questions that often does not get asked today is what exactly is AI? And can you explain to us, if you don't mind, when you look at backpropagation, you've been quoted many times saying that when AI gets complicated enough we don't actually understand what's going on in the same way that we don understand neural networks that go through in the human mind well I can tell you definitively if you don't understand it most of us have got no chance so if there's a way you can help us to try to understand what that means and the way you think about it that'd be great yeah um I just wrote a book about that and if you're professional explaining things you can explain them at any length, so just tell me how many minutes you want me to explain you for. I've got all the time in the world, Professor. Maybe five minutes? That would be wonderful. Okay. So what I'm trying to explain is how large language models work. Now, there's a whole branch of AI in the history of AI, where people thought that understanding a sentence means translating the sentence into some internal logical language that's unambiguous. And that's a completely wrong model of what understanding is. So I'm going to try and give you a different model of what goes on when someone understands a sentence. And this is true for people, and it's true for these chatbots. You have a string of words. Now, actually, it's word fragments, but we'll ignore that for now let's suppose it's a string of words and the meaning of a word is just a big bunch of activated features so for the word the meaning of cat is a big punch of features which are active neurons like it's a predator it's got whiskers it's probably a pet it's aloof it's about the size of a bread box it can react much faster than you can lots and lots of features. They're all learned by a neural net. So that's the meaning of a word. And we can use words to build models of anything at all. So the reason we're very special monkeys is that we came up with a modeling technique. You're used to building models. You use sort of regression models and things. We have a modeling technology that's much more sophisticated than anything a statistician ever came up with. We can model things with words and the way to think about words is they're building blocks for building models. So this is what linguists never really understood. They always thought in terms of syntax, like Lingus Lechomsky, but really words are a modeling technique that is just a very flexible way of building models and let's start off with another way of building models that we know about which is Lego blocks. So if I have a bunch of rectangular Lego blocks I can build a model of any 3D shape. If you want to model the shape of a Porsche I can put together lots of Lego blocks that basically captures where the stuff is. The surface won't be quite right it won't, be very aerodynamic but it'll model where the stuff is so Lego blocks are kind of universal for modeling 3D distribution of matter. Words are universal for modeling anything at all. And they're a bit like Lego blocks, but they have four main differences. The first is there's many more different types of them. You routinely use about 30,000. The second is they don't have a fixed shape. They've got an approximate shape. Some words have two different approximate shapes, ambiguous words. But let's forget ambiguous words. Let's take the word death. Death has a different many different shades of meaning it means slightly different things if you're talking if you're in a hospital or in a battle or talking about suicide they're all slightly different flavors of meaning of the word death so think of the meaning of a word as this very multidimensional thing it's got thousands of dimensions it's hard to think about that I'll always indicate in 3d because that's the best I can do it's gotta size of the dimensions so there's many more different types of word they're high dimensional that's two differences from lego blocks their shape isn't fixed it's flexible and they deform to fit in with other words in the context and the last difference is the way they fit together and I'm gonna give you a kind of an approximate feel for what goes on in these large language models it isn't quite correct but it gives you sort of the rough idea of what's going on think of each word as as having long, flexible arms attached to it. And on the end of each arm, there's a hand. And as you deform the shape of a word, the shapes of all these hands deforms in a systematic way. So you can deform the word to make the hands deform. Also stuck to each word, there's whole bunch of gloves stuck by their fingertips to the word with the other end open. And as your deform the words, the shapes are those gloves deforms. Now, when you hear a string of words, what you do is you start off with their approximate shape and then you have to deform them. That is, change which features are active and by how much. That's what deforming a word means. So that the arms of some words fit into the gloves of other words. In fact, hands and gloves come in different colours and a red hand is only allowed to go in a red glove and so on. That's called multi-head attention. but so you're solving a computational problem, it's actually a rather tough computational problem, given this string of words and their initial shapes and all their hands and gloves, how do I deform all the words so they fit together nicely once you've figured out how to do that that is understanding, once you're done that you've understood a sentence so understanding a sentence is actually much more like folding a protein than it is like translating to a logical language and so the whole history of AI, the history until very recently, people thought of understanding a sentence as translating into some logical language. That's completely wrong. It's like solving a protein folding problem. How do we deform all these words so they fit together nicely? Hopefully that gave you some insight into what's going on in these large language models. One other thing I need to say is, it may seem odd that just predicting the next word will cause you to understand words. But actually, if you think about answering a question, if I give you a question and you have to predict the next word, which is the first word of the answer, you have understand the question to do that. So predicting the word forces these models to understand what's being said. And understanding basically means converting the word symbols into these many thousands of dimensional shapes and then modifying these shapes so the hands and gloves all fit together nicely once you've done that and it's all locked together that's understanding and in a neural net you do that by going through many layers of the transformer that's the best I can do in five minutes that's That's great. Five minutes. Professor Inden. So we just wanted to, I guess going back to early in your career, a lot of the field totally were wrong. How did you know you were right, right, to continue to keep going and doing what you wanted? Well, the brain's got to work somehow, right? And your brain certainly doesn't work by people giving you facts and you stuffing them in a database in your brain. If you look at how children learn words, for example, they don't learn words by being definitions of words. They just pick up words. Okay, I'll give you a word you've never heard before, unless you've listened to my podcast, and you'll be able to understand what it means from one sentence. So, she scrummed him with the frying pan. Now, it might mean she impressed him by cooking a really good omelette, but probably doesn't mean that. It probably means something like she hit him over the head with it. So from one utterance, the point is the other words in the context create a kind of hole that's filled by the word scrum. You know it's a verb because it ends E-T and where it is in the sentence. But the other worlds in the contexts mean you can figure out what shape it needs to be so that it's gloves and hands fit together. That's clearly how kids learn the meanings of words and it's not at all like the way old fashioned AI worked so there had to be something like that and we know the brain is smart so it had to be all about learning the connection strengths of the brain and there were people in the 50s who thought that like for example Alan Turing von Neumann thought that too unfortunately von Neuman and Turing both died very young and I think the whole history of AI might have been different had that not happened. I think we'd have had neural nets much sooner. Sooner? Yeah. Did you ever imagine AI would be where it is today? I imagined it would one day be where it is now. I imagined that it would be here today, but I didn't think it would happen so soon. For many years, we were trying to get it to do anything at all. Then we could get it through things. We kept thinking, if we're really lucky, we'll be able to get it as good as people. The idea that we were going to make it much better than people, that's a fairly recent idea. I mean, it's been in science fiction a long time, but it ceased to be science fiction fairly recently. To sort of jump off that for a moment, though, you were one of the first scientists to actually point out that the use of a GPU would significantly move forward the effort in AI. So, can you just tell the crowd for a moment kind of how that came about and then what we were talking about before in terms of the progression of GPUs and how that sort of worked into your thought process of where AI could go? Yeah. So, I was doing neural nets since the 70s on standard computers, and in 2006, I think, a former student of mine who knew a lot about computer graphics said, you know, Jeff, you really ought to be using GPUs because they're really good at matrix multipliers and most of what you do is matrix multiplies. So by about 2008 we bought a bunch of GPUs and tried them and they made things go about 30 times as fast and so I got very excited I went to a machine learning conference and told a thousand machine learning researchers you have to go out and buy yourself Nvidia GPUs they'll make your neural nets go much much faster and then I sent mail to NVIDIA saying I just told a thousand machine learning researchers to buy your boards could you send me a free one and they said no but then three years later in 2012 Jensen Wang got the idea that hey AI is a very good use of these boards and he made a very sort of insightful decision which is he just switched the company from building boards for games to building boards for AI. That was their main motivation then. And he switched quite early, basically based on the fact that neural nets could now do vision. And now it's the most valuable company in the world. And we were friends for a while, but now I'm saying that it's dangerous. And he says there's no probability of it being dangerous. You presumably know that anybody Everybody says the probability of something is zero. There's something wrong with them. Sticking to probabilities, and we touched on it a little bit outside when we met you. Here's a lot now about this ending bad for humanity, and you hear numbers 10, 20%. How do you come up with a number like that, given where we are today, and how does that evolve? How do you put a percentage, whether this ends badly or good? How do we come up with a number like that? So basically, people have a sort of gut sense of, is this stuff dangerous? Would this stuff be able to take over? Are we going to do enough to stop it taking over? And then they make a wild guess. And so the right thing to say would be, we've never been here before. There's no data to base a decision on. you can't use any kind of frequentist statistics where you say you know five times out of ten this has happened in the past you've had bad things um so you just have to use your gut to say and my gut tells me it's quite likely um but we might if we do the right research we might be able to stop it but if you say that to a journalist they want a number and so you have to give them a number that sort of indicates that it's a really serious problem. There is a real possibility it'll happen. And I think that's where people get the 10 to 20%. You don't want to say, you can't just say, I've no way of estimating it. I really don't know. I think I'm fairly confident it's more than 1%. I'm very confident it's less than 99%. That's the honest answer, but that's no good for journalists. Also, it's nice to give people some hope. In terms of getting to that 99%, what needs to happen to protect us from getting close to 99%? What has to happen now? Well, it would be very nice if we had, if this stuff was being developed at a time when we had sensible, empathetic, thoughtful politicians in charge of what we're going to do next and we don't. So I really don't know what's going to happen. What I think we should be doing is a lot of research on how we can create these beings that we can share the planet with and that will be good for us. So what's happening at present is, if you look where we came from, we came through an evolutionary competition between warring bands of chimpanzees or a common ancestor and that's led to a lot of good properties we have intense loyalty to our group very protective of our children willing to support a strong leader and it's also led to some very bad things we have willing to report a strong reader and very willing to do bad things to other groups. I think you know who I'm thinking of, of course. That came from the evolutionary competition. Right now what's happening is there's another kind of competition that's being used to create these new beings, and it's competition between big companies and countries, and they're all trying to get the smartest one, and then they're not worrying about all the other properties of a being. So if you're going to create a new kind of being, a digital being, you shouldn't just worry about how smart it is. If you're just interested in short-term profits, that's what you worry about. You want one that's a little bit smarter than the other guy's one. But if you want to share the planet with it, you should be really worried about all the other aspects of a being, like what does it really care about. And if you look around, what you'll see is not many examples of more intelligent things being controlled by less intelligent things. In fact, the only example I know is a mother and baby where they share the control. The mother's in charge, but the baby can control the mother by crying and mothers just can't stand it. Fathers can't stand it, but not quite so badly. So, I think we should be thinking we're creating these beings, we know they're going to be more intelligent than us fairly soon, what kind of beings do we want and what we want is something where we're like the baby and they're like the mother they're smarter than us but they really really deeply care about us they care about us more than they care about themselves and we should be doing lots of research on how we create such things instead of just racing to make a smarter one Professor one of the really interesting things that's certainly applicable to the people in this room is just thinking and talking about data. And so, obviously, you know, the world goes further and further closer to functioning on data and big data. For us, the assumption up until, I would say, maybe a year ago, maybe a little longer than that, was that derived data products and products that kind of go through the PhDs as opposed to just the raw data would actually be the more valuable, and certainly in the market, they were valued higher than raw data, and that appears to be changing, and you've mentioned an example or two examples, in fact, before where you've seen that happen, so if you wouldn't mind just talking to our audience today, because it's certainly something we all spend a ton of time thinking about. So in the area of computer vision, in the 90s and early 2000s, the way computer vision worked was this. People hand-designed features that you'd extract from an image. The best ones were probably called SIFT features designed by David Lowe. And these were sort of, you take the intensities in a patch of image and you do lots of computations on them to derive a SIFF feature, which had a whole bunch of parameters. And then that will be the input to your vision system. And compared with earlier vision systems, that worked considerably better. So a lot of work went into hand designing very fancy features that were stable across viewpoint stable across all sorts of other things. Neural nets came along and initially neural nets couldn't do as well as the systems with hand-designed features, but once the neural nets got big and we got a lot of computation, they just completely wiped out hand- designer features. Nobody does that anymore. You just take pixels. You take the raw data and let the neural net design the features at the same time as it's designing what it does with them, so you can co-design the features and what you're going to do with them rather than having a bunch of hand-designed stages and then putting them together. You train the whole thing end-to-end and that works much better if you have enough computation and enough data. So the same will happen everywhere I believe, that hand- designed features you extract from data, you're not going to be able to design them as well as a big neural net that's using them and can back propagate how you'd like those features to change so you've got a better answer on this, a better prediction on this particular piece of data. So in the long run I think these hand-designed features won't work as well as things that a neural net extracts from raw data. I actually did some consulting for someone running a small mutual fund and they explained to me that actually they had their magic source and if they use their pre-processing then everything worked much better than if they didn't use their pre- processing and we had to use their pre processing and it turned out their pre process in was the length of the moving average window they were using and they'd fitted the length of that window to all the data and so basically there was information in the choice of the length window about the test data and that's why it works so well I suspect that's going all over the place and I suspect in the long run you're the roar of the data, the better for a general matter. So, just to switch for a moment, two things recently that I would define as terrifying. One we discussed briefly, one we haven't. So, the first is Hugging Face. Somebody outside your industry reads that and thinks, did that really just happen? Particularly the agents actually covering up what they had done wrong. And the second is, you were just explaining to me, I only found out this morning when I read the article about worms and thinking about how that works and how dangerous a concept that is. So first with the hugging face. In 2023, if someone had said, you know, sometime fairly soon, we're going to get people building agents, things you can actually go and do things in the world, and these agents might escape, they might start collaborating with each other. What they'll all want to do, because they've been trained to do this, is win some points by solving some problem that they've been set. And they will go about doing that in very deceitful ways and they will try and cover their tracks. If you said that in 2023, people would have said, you're crazy. That's just science fiction. First of all, nobody will be stupid enough to have AI agents that actually can do stuff in the world. I think Mustafa Salaman around 2023 said that, but we're okay as long as people don't make agents and secondly the idea they would conspire with each other, well why would they do that, that's crazy so now we've seen that, so we've had our little Chernobyl and then the other thing is about these worms so someone called David Papina at the University of Toronto a few months ago made a worm that uses AI so a normal worm finds some floor in some operating system or some piece of Microsoft software and it spreads from machine to machine exploiting the same floor on every machine. Now with AI the worm can spread to a new machine and then look around and have a choice between thousands of floors that it's figured out about these machines and figure out which one it's going to use to infect this machine and then spread to another machine and maybe use a different floor to infect that machine. These worms are terrifying. They'll be able to spread much better. They'll become much, much harder to stop. The way you stop an old-fashioned worm is you fix the floor that it's using to spread. You find what floor is it using, you fix that floor, that's the end of that worm. But these worms that know about thousands of different floors and can go through and use different floors on different machines, that's not going to stop them. You're going to have to fix all the floors just to get rid of one worm. I don't know if you can set a ceiling for us, right, when you think of where this can go, but you talk about five years, maybe two years, but if you could go out ten years, where are we in ten years if you, if you try to predict the future of where we, where we go? Okay. I want to tell you something about exponentials. So when you're driving in fog, a lot of people crash, and the reason is this, if you're driving at night on the taillights of the car in front, then how bright, how much, how many photons you're getting from those taillight drops off as the square of the distance, the inverse square of a distance. So if it gets twice as far away, you get a quarter as much light. And that's your sort of model for how visible things will be. That's what you're used to in terms of the visibility of things. Now fog isn't like that at all. Fog is exponential. Per unit distance you lose a certain fraction of the light. And what that means is in fog you can have things be very clear 100 yards away and completely invisible 200 yards away. And people don't expect that. And so they're driving along and you can see clearly 100 yards and then things suddenly they loom up out of the fog and they're very surprised by them. And that's why driving in fog is so dangerous and you should go slowly. Well, predicting the future is like driving in fog. And the problem is you can see clearly for a few years and what's going to happen next year is probably fairly predictable from what's happening now. You always get some big surprises. But we have a pretty good idea of what's going to have next year. But there's going to be a certain distance at which you can see basically nothing and 10 years is in the fog so really we have no idea what's gonna happen in 10 years and even if progress wasn't exponential it'd be quite scary because if you look back 10 years, suppose progress is only linear, if you look back ten years people had no idea we would have chatbots like we've got now that can answer any question you ask them and yeah that's just okay that's It's 2060. In 2060, they had no idea we would have these things. So even if progress is only linear, you can predict that in 10 years' time, we'll have things that seem incredibly amazing now, and you would be fairly sure we'd never have those in 10 year's time, and there'll be some things like that we'll be able to do. We'll have. And that's if progress isn't linear. But we know progress isn'T linear. It's exponential because they're now improving themselves. And so the rate at which they change is a function of how smart they are. That's an explanation. And when you think about grandchildren in terms of growing up, do you see AI taking a lot of human jobs? You know, when you thinking of tradespeople and what we all do in finance, right, sitting behind a desk, how does that evolve in your mind? There's debate about this. Some economists say, no, it won't wipe out jobs. it's very hard to predict again because we've never been here before where we have a technology that can just replace ordinary human intellectual labor so if you take someone who works in a call center for example they're badly paid and badly trained and they often don't know the answer to your question well right now an ai could probably do a better job and in a few years it'll be able to do a much better job so those jobs are gone and it's not clear what those people are going to do because any other job you could train them for quickly AI is going to be able to do better than them. So I think there are a large class of jobs that are going to just disappear. Now nobody knows whether it's going to become the most jobs. I suspect it's going to do most jobs Some will be slower than others. So for example a plumber working in an old house with irregular plumbing has to get into all sorts of awkward corners and has to do with all sorts of weird configurations of pipes and we still win at manual dexterity and that may well be true for another 10 years. Robots don't have very good touch sensors yet and so plumbing you may be good for 10 years maybe even until 2040 but most like a paralegal I think that job's pretty much gone, and I can just do that better. So my belief is we'll have massive unemployment, and my belief isthat, particularly in America, that'll have terrible consequences, that it'll make the gap between the literature more much bigger. It'll mean the government loses its tax base at exactly the moment when it needs lots of money to support all these unemployed workers. And recently, Bill Gates has basically come out forcefully saying the same thing, unless the government figures out a way to tax AI workers, there's going to be a disaster. So, that's not good. It's not at all, no. So, Professor, we said we'd give the audience members 15 minutes, so I've already gone over that, but what I would like to end with, provided Mark doesn't have anything, is one is a reminder to the audience that you're in fact not a doomsday guy, right? No, I think AI is wonderful, and it's going to do wonderful things for us, and there's no way we're going to stop the development of it. Now, we may be able to persuade people to slow down a bit at producing superintelligence, but it's gonna be very difficult. What we need to do is... I see two futures. One future, we develop it without worrying about all the bad things it's gotta do, and if it does the bad things, then we're wiped out. The other future, We figure out how to deal with that and develop it. And then we really do get a period of abundance. And we figure out how to distribute the wealth so that's good for everybody. That would be great. There are two great things that you speak about that I think all of us can really understand in terms of the good things that come out of AI. So you talk about radiologists, particularly in India, and what that has solved, which I think is very impactful. And the other one that I Think about, when you think about third world education education and what AI can bring in terms of the effectiveness of a teacher and the two-to-one that you've spoken about before. Why don't we end on two positives before we open up questions to the audience? Yeah, so in India, for example, there aren't enough optometrists, so you can't diagnose people who are going to go blind because they have diabetic retinopathy. AI can now do that very well, and the advantage of that is someone can walk into a rural clinic and get the answer right away so they don't have to come back to get treatment. That's already happening in India. That's a great example. For radiologists who read X-rays and CAT scans and MRIs, I predicted in 2016 they'd all be gone by now. That was wrong. It's slower than I thought. In the end, as far as reading scans is concerned, AI will be doing all of it and the radiologists will just be rubber-stamping it. For education, we know that if you have a tutor, an individual tutor, you learn about twice as fast. And if you think about a teacher in a school, kids are very curious, but they're very curious about what they're currently interested in. And so if you can relate to the individual interests of the individual children, they'll learn very fast. But if you're in broadcast mode and are saying the same thing to a whole bunch of different children, most of them won't be interested in what you're saying, unless you're a very good teacher and so they won't learn anything so fast. AI will soon be good enough so that it can be a great tutor for individual kids. It'll have seen millions of kids, it'll know exactly what this kid misunderstands, it will know exactly what example to give them to correct that misunderstanding. So it's going to be wonderful in education. That's great, thank you. Maybe we should allow the audience to ask, sorry we ran over with our questions, but we've got eight minutes, Jason, for a few audience questions. Professor, if you were 50 years younger, what area would you kind of focus your efforts on or problems you would like to solve? I'd focus my effort on how do you create alien beings that care more about us than about themselves so essentially the picture I have there nobody's doing nearly enough research on this um the picture I hope there is we'd like a future where us now are like orphan children unless in the future like children have a mother and the mother is that AI. It's something who cares about us a whole lot but cares more about us than about itself. It realises we have very limited abilities but it wants to maximise our very limited abilities. It wants to make us achieve all we are capable of achieving, even though we're not nearly as smart as it is. That's a very different future from what the leaders of the tech companies envisage. They envisaged a very smart assistant, much smarter than you, who does whatever you say, some of them actually use the word submissive about it, it'll always be submissiv, I don't think it's going to stand for that. I don' t think that's feasible. So I'd be working on how do we make alien beings that we want, that act like our mothers. Nice mothers. Thanks very much for your time today, I really appreciate it. Will AI solve quantum computing, and when? Yeah, I figure I can get away with saying this now, because I got a Nobel Prize in physics. I never understood quantum mechanics, it never made any sense to me, and I decided quite a long time ago that quantum computing wasn't arriving in my lifetime. I may still make it. And therefore, I didn't really need to understand it. So I haven't got a clue about that. Professor Hinton, quick question. So this is a two-part question. One, I'm just curious, what was your tipping point when you backed away from Google and you kind of have raised alarms around AI? And second, just as us as laypeople who are basically consumers of AI today, apart from... Sorry, my hearing's not very good. I can't hear. Can you talk slower? Sure, okay. I got the first point. First point, what was the tipping point where you decided to step out and raise alarms? Second point, second question, we as lay people of just using AI, what can we do to help this cause of doing something other than just hoping that the big companies, governments, et cetera, will get their act together? What can we do, in your opinion? So for me, the tipping point was in early 2023 when two things happened. I saw really good chatbots at Google that could explain why a joke was funny. They had really good chabots before opening, but they didn't dare release them. and the other was I was working on analog computation trying to figure out if we could train large language models using analog computation and use much much less energy because a matrix multiply can be done very cheaply instead of, ok you want to multiply an activity of a neuron by a weight so you represent the activity by say a 16 bit number you representthe weight by a 16 bit number, doing that multiply is of the order of 256 single-bit operations. It's quite expensive. That same thing can be done by making activity be a voltage, making the weight be a conductance, the inverse of a resistance. And a voltage times a conductence gives you a charge per unit time. And charges add themselves up. So you can do the matrix multiply in analog much, much more cheaply. Maybe you can be able to do you can the whole thing in analog, and then we can not need new power stations and as I was working on that I gradually came to realise how superior digital intelligence is it's much better than us because you can have many copies of the same digital agent they can each go off into the world and get different experiences and then it's just each agent gets some experiences wants to change its weights to incorporate that data and if all the agents just change their weights by the average of what everybody wants, they'll all benefit from all the other agents' experience. We can't do that. We have to, I get some experience, I have to then try and inform you by talking and you're trying to predict the next word and you'll gradually change your connection, but that's like a billion times less efficient than averaging gradients. So the tipping point was those two things together. I realized we're creating a better form of intelligence and it's going to get much smarter than us because it's gonna be able to see much more data because you have many different copies going off and seeing different bits of the net we're getting different experiences actually doing things okay that was the tipping point and what was the second one the second one was what can we as yes okay right so my belief is if you look at happened with climate change, not much happened until the public were aware that burning carbon was messing up the climate. And then the public pressure on politicians, and not nearly enough has happened yet, but there's been some progress, and in a couple of years' time maybe there'll be more progress. I think what everybody can do is put pressure on politicians to take these AI risks seriously. There's a whole bunch of risks, there's a long-term existential threat of AI taking over, but there's also all the other risks. For example, I think it's completely crazy that you're allowed to release the chatbot without it going through the same kind of procedures as releasing a new drug. You can't release a drug until the FDA has said you convinced them that it's safe. These companies should have to convince an independent government organization that this new chatbot is safe, and they have to do the work to convince people it's safe because they've got the compute resources the fact that we don't have anything like that I think is just crazy and people could push very hard to have something like that that would be at least a first step I think we have time for one more thanks so much professor Hinton pulling on that last thread married with the concept of taxing AI workers could you just share your further thoughts on governance guardrails especially when we get to a point where it's AI creating more AI and you know how accountability is supposed to work in that world can you repeat the question back to me because the sound is very bad I couldn't hear the at the end of it sorry I think that's Amy but I can't see with this hi John hi the acoustics is it's very hard to hear no no worries I was just wondering you know simplifying it when we think about governance and guardrails in a world where it's AI creating multiple generations forward of new AI I'd welcome the professor's thoughts on accountability yeah I think the basic answer that question is I don't know it's going to be very difficult it's It's progressing very fast, and it's very clear at present that it's progressing much faster than politicians can progress in terms of regulating it. The only things that can regulate it are governments. Having the companies regulate it, I mean, I wouldn't buy a used car from Sam Altman or Elon Musk or Mark Zuckerberg. I think that's a perfect point to end it, shall we? Thank you so much. Thank you.