Terry Duffy is the Executive Chairman and President of CME Group, which is hosting its annual Global Financial Leadership Conference next week in Naples, Fla. Mr. Duffy chatted with SmartBrief and shared more background on the GFLC.
1. The Global Financial Leadership Conference is now in its 7th year … How has the event evolved?
The GFLC has come a long way in its short history. Our goal in developing the conference was to provide a venue for some of the brightest minds in business, economics, media and politics to have a dialogue about current issues and risk in our global economy. To do that, we created an event that brings together decision makers from the world’s leading financial institutions to discuss emerging geopolitical trends, debate critical economic issues and provide perspectives on future developments in the global marketplace – those decision makers have included Presidents George W. Bush and Bill Clinton; British Prime Ministers Tony Blair and Gordon Brown; and Secretaries of State Hillary Clinton, Condoleezza Rice and Madeline Albright just to name a few. We set out to make this event the “Davos of Derivatives.” We’ve done that, and it’s becoming one of the most important events for the leaders of our industry.
2. Ben Bernanke and Lord Mervyn King were obviously on the front lines of policy-making during the financial crisis. What are you hoping they will share about their experiences during their appearance at GFLC?
Dr. Bernanke and Lord King were critical to navigating our global economy through one of the worst financial crises in history. Certainly their perspective on that time will be incredibly insightful.
But what I’m also looking forward to is their take on the current global economy and how far we have come since 2008. We’ve moved from a time when new policy tools were used in an attempt to get the economy back on track to now where we see equity markets surging. Now we’re waiting for a normalized rate environment, which many think will come soon. The question is what is a more normalized rate environment? Is it 5 or 6 percent like it has been historically, or is it something new we haven’t seen yet? I think a more normalized rate environment today would look more like 1 to 3 percent, but I’m looking forward to their thoughts on that.
3. The end of the Federal Reserve’s quantitative easing will surely be a big topic at this year’s GFLC. How do you think the markets have handled the Fed’s tapering?
The end to quantitative easing is certainly on the minds of many investors. I think it is good that the Fed has ended QE. They were being overly cautious, and that was not good for baby boomers, who have a tremendous amount of wealth, but have been afraid of the equity markets and were getting nothing on Treasuries. It is important for investors to see what the market will do on its own. I believe that a more normalized-rate environment would be better for the economy and I believe we’ll see rates move sooner rather than later.
As far as our markets, we saw participants reduce their trading activity earlier this year, and we saw an impact with lower than anticipated volumes in the second quarter after a good start to the year. Now with QE ending, we’ve seen the market react again, and volumes picked up considerably in October. Taking all of it together, I think it’s fair to say the markets have responded positively so far to the end of QE.
4. This year’s GFLC offers a diverse array of international politicians and it comes on the heels of mid-term elections here in the U.S. that will change the landscape on Capitol Hill. Are financial markets and geopolitical affairs around the world becoming more interconnected or less interconnected?
That is a good question and something I’ve been focused on lately. We see all these geopolitical events going on around the world, as well as economic factors like equity markets at all-time highs, rates at zero, oil dropping to low levels, and we don’t see a whole lot of answers coming out about these issues. So, clients are looking for ways to manage their risk.
Macro-events that would have moved the markets a few years ago now barely register. You look at the Ukraine crisis, war in Syria, ISIS – these barely moved markets. In fact, they tamped down volatility. With the U.S. midterm election now over, the market is getting a bit more certainty around what the next year holds, and what actions the new Congress may or may not take. We saw volatility return in October ahead of the election, and I think we’ll see more volatility when we get more certainty on geopolitical events.
5. How has the interaction between industry and the CFTC changed since Timothy Massad took the reins as chairman of the commission?
We work very closely with Chairman Massad, the Commissioners and their staff. There are a lot of moving parts right now at the CFTC and the new make-up of the commission is a breath of fresh air for the industry. I think they are looking at the big picture of what is critically important to the participants in the marketplace and what they need. The Chairman has done a nice job hitting the ground running, and we commend him for his leadership.