“Complete misunderstanding … or try[ing] to baffle people”; Lutnick counters Duffy

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Howard Lutnick, chairmans and CEO, BGC Group
Howard Lutnick, chairmans and CEO, BGC Group

BGC Group’s Q2 earnings call this week wasted no time at all before addressing the ongoing spat between CEO Howard Lutnick and CME CEO Terry Duffy.

“I couldn’t figure out whether it was just a complete misunderstanding or just a confusing sort of set of statements to try to baffle people as we open,” Lutnick said on Duffy’s recent comments.

The CME CEO has repeatedly suggested that not only does FMX’s exchange offer nothing new, but it could put US sovereign debt at risk by clearing US Treasury futures through the London Clearing House (LCH), and that the process lacks regulatory approval.

Before the call even began, head of investor relations Jason Chryssicas followed the standard preamble with an address to those listening in.

“Before opening the call, I would like to address some recent inaccurate statements made by FMX by the CME. Duffy, the CEO of the CME, mistakenly spoke of FMX seeking to clear US treasuries in the UK. We are not,” he stated. “FMX UST, identically like the CME’s BrokerTec, clears US treasuries at the FICC in the United States.”

By using LCH, which has a collateral pool that CME does not have access to, “over time, we expect our cross margin efficiencies to be many multiples of theirs”, he affirmed. “They have $37 billion in collateral and they offer $20 billion of efficiencies.”

Lutnick said later in the call, “LCH has $225 billion […] any way you compare it, LCH has the opportunity to offer vast amounts of capital efficiencies and gross margin.”

BGC Group reported significant growth over the quarter, reporting revenues of US$550.8 million – up by 11.7% year-on-year (YoY), and constituting a Q2 revenue record for the firm. FMX was highlighted as a particular area of success by global chief operating officer Sean Windeatt, who stated that it was “challenging the CME’s monopoly in US interest rate futures and its leading position in cash US treasuries and spot foreign exchange”. FMX UST claimed a reported 30% of market share in the second quarter, he noted, with average daily volumes improving by 37% YoY and hitting a record of US$47 billion.

Unsurprisingly, the Q&A portion of the session was heavily weighted towards discussions of the upcoming FMX futures exchange rather than BGC’s record results.

Lutnick rebutted Duffy’s remarks, stating that “FMX and the LCH have all approvals necessary for us to open in September with SOFR futures that will clear with the LCH – which is a fully approved CFTC derivatives clearing organisation. [We’re approved], no ands ifs or buts, and our expectation is: we’re opening in September.”

“This is a marathon, not a sprint,” he added, outlining the group’s plans for the future of the exchange. However, the path begins with high ambitions. “It’s our expectation that we will have record open interest for a new exchange ever,” he affirmed, “Year two, we are going to build volume [and] connectivity. We are going to make sure every client is trading, [and] all volumes are there. Year three is going to be full on, everybody ready, everybody connected. We would expect [a] full on competitive position of FMX and the CME in year three.” 

This is a stark contrast to Duffy’s comments on the CME results call last week that “the efficiencies are zero and they’ll stay zero” for the nascent exchange.

“We had great performance last year. We’ve had excellent performance so far this year. I expect that the company is going to continue to perform going forward,” Lutnick concluded. “We’ll see you for the opening of FMX in September.” 

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