CME's Terry Duffy on the Disconcerting State of Finance Regulation

Terry Duffy · CME GroupBearish

Hyperliquid's no-KYC, high-leverage model is risky and violates US law if it seeks US access.

Duffy says Hyperliquid has no KYC, so the platform does not know who is trading and cannot police the market, and it claims users, not deployers, should be regulated. He cites auto-liquidation and leverage of up to 250% on some products, so a small price move can take out positions and cascade into market-moving events. He argues this breaches core principle nine, which requires an institution operating a market to police it, not just the user. He says that if Hyperliquid wants to compete in the US, as the president has suggested, it must comply with US law, and that its current model does not. He calls its founder, Jeff Yan, brilliant but says the argument that the platform is only plumbing does not hold. Duffy says CME lists oil contracts to compete with overseas platforms that US users reach via VPN.

“there's no KYC or know your client. That's an issue. ... There's highly leveraged products. These things can cascade and create market moving events because of the high leverage and the small amount of dollars in there.”at 20:07

Terry Duffy · CME Group

Financial regulation is in a 'ready fire aim' phase, with agency rules easily reversed by the next administration.

Duffy says the regulatory landscape is disconcerting and that anything can go. He notes that the CFTC began in 1973 as a principles-based agency for agricultural products and has since had to cover financial futures, equity indexes and crypto. After 2008 and Dodd-Frank, he says regulators are still working out parts of Dodd-Frank sixteen years later. He argues the current agencies are circumventing acts of Congress through rules and regulations at the CFTC and SEC. Those can be wiped away by one executive order when the next administration arrives, so they are not sustainable. He says regulation is essential for strong markets, though some of it is ridiculous.

“It does feel a bit of a ready fire aim strategy going on right now where anything can go. And so it's very disconcerting.”at 5:43

Terry Duffy · CME Group

CFTC has approved every prediction-market self-certification; some contracts are manipulable and should be blocked.

Since the second Trump administration took office, 2,500 self-certifications have been submitted to the CFTC and none has been denied. Duffy argues that contracts such as a Nathan's hot dog-eating contest and a George Santos State of the Union attendance bet are readily susceptible to manipulation, which violates core principle three of the Commodity Exchange Act, so they should not have been listed. He says sports predictions are gambling, and that most legitimate contracts need a natural buyer, seller, commercial and producer whose economic exposure the contract hedges. He does not oppose all prediction markets, only contracts that breach the CEA's manipulation standard.

“Since the second Trump administration's come into place, there's been 2,500 self certifications that have been submitted into the Commodity Futures Trading Commission. Not one of them has been denied.”at 5:50

Terry Duffy · CME Group

Crypto perpetual futures are swaps in disguise that circumvent Congress and should not be listed as futures.

Duffy says CME did not list its 24/7 oil perpetual because perpetuals are swaps, not futures, which is the basis of CME's litigation with the CFTC. The CFTC approved Kalshi listing Bitcoin perpetual futures. Futures get 60/40 long-term/short-term tax treatment, while swaps are taxed as ordinary income. Swaps also carry five-day margin to clear, a ten-day requirement if not cleared, and swap-dealer registration. Duffy testified over 30 times during Dodd-Frank about the swap-versus-future distinction. Perpetuals pay funding rates between longs and shorts that pay each other, which the Dodd-Frank definition of a swap captures, and he argues the CFTC has circumvented Congress. He also objects that perps lack an expiration date, which makes it hard for institutions to manage risk and to fund large positions, and that the funding-rate timing is decided by someone unclear. He says the product is really being pushed for leverage, not for the funding-rate mechanism.

“We didn't list the twenty fourseven PERP contract because PERPs are swaps, they're not futures. And that's the whole premise behind our litigation with the CFTC. ... So they circumvented congress. That's why I have a problem with perpetuals.”at 15:46

Terry Duffy · CME Group

GPU futures are an emerging asset class that will be multiples of crypto's size by 2030; holding them back is unjustified.

Duffy argues GPU futures are already a market of over $1 trillion in size, while crypto, which is deemed an asset class, is under $3 trillion. He expects the GPU market to be multiples of crypto's size by 2030. He says the administration is holding the product back by citing national security, which he cannot identify, and argues that if the US wants to lead in AI and data centers, it needs a risk-offset tool for GPUs and other components. He notes that Kalshi lists a compute prediction market, which he says was not taken down, and calls the holdup inconsistent with other approvals.

“The GPU market will be multiples of the size of crypto by 2030. For sure. And for that industry and for the administration to be holding this back right now, they're saying it's for the national security issues, which I have no idea what they're referring to.”at 27:10

Terry Duffy · CME Group

24/7 trading is inevitable, but equities cannot trade around the clock until the banking system does.

Duffy has long said 24/7 trading is inevitable and that risk does not keep business hours. The biggest obstacle is the banking system, which is closed on weekends. Funding a US equity market worth about $76 trillion over a weekend is not feasible while banks are closed, and rates products are similarly constrained. Crypto can trade 24/7 because the market is small enough to pre-fund. Duffy spent an hour and a half with Fed Chair Atkins discussing real-time payments and other measures, but says they are not enough without a true 24/7 banking system. He expects 23.5-hour cash equity trading by year-end, with Nasdaq preparing to go, and acknowledges that pockets of illiquidity will appear.

“twenty fourseven is inevitable. ... The biggest problem with twenty fourseven is the banking system. The banking system needs to be available 20 fourseven.”at 28:29