Lunch with the New CME Chairman Terrence Duffy

John Lothian

John Lothian

Executive Chairman

Before the CME went public in 2002, there was a change in leadership at the top. Terry Duffy ran for the job of chairman of the board against the incumbent, Scott Gordon. I was a fan of Gordon’s and then CME  CEO Jim McNulty. McNulty was one of the reasons I started the John Lothian Newsletter. He had helped me find a job when I first graduated from Purdue University. He was for a short time one of my mentors. But then I started my career and he started traveling the world as an investment banker and I lost track of him.

After he was named CEO of the CME in 2000, I did not want to lose track of people like Jim McNulty anymore, so the newsletter was the way to keep in contact. 

Back to Terry Duffy. I have known Terry Duffy since I was 18 years old. He was a bartender at Chuck’s in Fontana, Wisconsin, along with his best friend Pat Kenny. Terry had done very well for himself after becoming a member of the exchange and board of directors. 

Forces on the CME board wanted to protect the trading floor from the threat of electronic trading. Duffy was deemed more sympathetic to this view since he had been a hog pit broker for many years and the floor trusted him. Gordon had been a brokerage executive, who also happened to be a neighbor of my one-time employer Bill Mallers, Sr. I only met Gordon once I started the newsletter, but had heard about him from Mallers and his family.

When Duffy was elected, this was big news in the battle between the floor and the screen. I was invited to a lunch with the press at the CME to meet the new chairman and this is the commentary I wrote about that event.

One other quick story. At that lunch I was seated next to Orion Samuelson, the famed radio voice of agriculture on WGN radio. I had listened to Samuelson for years, particularly when I was a driver for CBOT member Tom Cashman in my teens, driving him from Wisconsin to the Chicago Board of Trade and back. I said to Orion, “It is nice to see you again.” He asked, “When was the last time we would have seen each other?”

I told him we both spoke at the memorial service for Bud Frazier at the Chicago Board of Trade back in 1993.

Here is my commentary from 2002 titled “Lunch with the new CME Chairman Terrence Duffy” by John J. Lothian

Lunch with the New CME Chairman Terrence Duffy

The new CME Chairman of the Board, Terry Duffy, was introduced to the media yesterday at a luncheon sponsored by the CME and held in their boardroom.  Duffy and CME President and CEO Jim McNulty, with a handful of CME media relations staff, hosted the luncheon for newspaper, magazine, wire service, radio and newsletter reporters, including yours truly. 

The new chairman answered questions from reporters about the events that led to his becoming chairman and the future of the CME.  Duffy presented himself as a good communicator with the liquidity providers of the exchange and as an independent chairman who has never worked for anyone else at the exchange but himself.  He brings an impressive resume of service to the CME, including having served as the vice chairman for the last four years. 

He is a floor broker in the hog pit and said he has been working for 10 to 15 years to bring the CME and CBOT together under a common organization.  In fact, in one of his most passionate statements during the luncheon, he said, “I believe the time is right” for a CME and CBOT merging.  

He also said he embraces technology and supports President and CEO Jim McNulty, whom he helped select as part of the CEO search committee two and a half years ago.  

Duffy pledged to pay attention to the FCM community and in fact had a meeting after the luncheon with representatives of the Futures Industry Association, which had expressed some concern over the lack of FCM representation on the reconfigured CME board. 

There were questions posed about why the CME would want to change its chairman now, ahead of an Initial Public Offering, knowing that Wall Street frowned on such signs of instability. 

I asked myself why he would want to be chairman now, after all the success the CME has had under the leadership and chairmanship of Scott Gordon.  To put it in market terms, It is as if Terry Duffy were setting himself up for failure by buying life of commodity highs in the market. Everyone looking at the chart is figuring the market will turn over.  Things are too good; they can only get worse, right? But he sees something else. And so do I, as I have written about here. 

I believe he sees a CME that is poised to continue the historic growth of the last few years.  I believe he sees a CME that is optimizing its current product and trading platform offerings, innovating by creating new contracts demanded by the participants of the markets and poised to help consolidate the U.S. futures industry. 

There is much talk around the CME about when Globex is going to have a 1 million-contract day, with records now being set in the 700,000 range.  While 1 million contracts in one day on Globex will be a significant milestone for the exchange, it is but a stepping-stone for the potential the CME holds.  Two million contracts on Globex in one day will not be that far behind the one million record, in my opinion.  

To achieve that type of growth and create the market opportunities necessary will mean continuing to offer new electronically traded contracts, as well as optimizing existing markets, both open outcry and electronic.  

There is concern in some quarters that because a hog pit broker is now the chairman of the CME that the CME will slow the evolutionary process towards a total electronic trading future.  I don’t think this is a realistic concern. The evolution has not stopped with the ascension of Terry Duffy to the chairmanship. And whether the process goes slower or faster, it is because of the tremendously complex task it is.  Terry Duffy offers himself as someone that will be able to communicate better or differently than the previous chairman and the CME members and board vote showed that this is important to them. And they are right. Efficient, open and responsive communication during a time of change is extremely important.  This newsletter itself is based on the ideal of helping people manage the historic level of change in the futures and securities industry through the dissemination of information and commentary. So if there is anyone who understands the importance of communication to manage change in these industries (or at least pretends to) it is me. 

The CME is a customer-focused organization and their customers on the floor, their members, have expressed what their needs are at this point of the evolutionary process.  That expression has taken the form of Terry Duffy’s chairmanship. It is capitalist democracy at work. 

One challenge for the new chairman is to understand the changing nature of the stakeholders in the exchange.  The members are the current shareholders, but there are lots of people and organizations who are stakeholders.  I consider myself a stakeholder in the CME. A good percentage of my income comes from my customers trading CME products, so I have a great interest in the CME being the very best marketplace it can.  

And when the CME changes to a public company, after completing the IPO, they will have new investors with other interests outside of the existing member/liquidity providers to contend with.  This is a hugely complex transformation. Communicating with all stakeholders will be a tremendous challenge, and Terry Duffy pledged to do just that. 

But this is not a challenge for the chairman alone.  It is a challenge for the entire CME organization. This organization has a new chairman, but largely the same leadership.  It has a very strong board, a tremendously talented staff and a plan for the future to make it the world’s premiere futures exchange.  The new chairman is not going to stand in the way of this, rather he is going to continue to make it happen. That is what he pledged and that is what I believe he will do.  

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