Cantor's Lutnick Is Ready to Take on the CME

How do you take on a giant today? With the help, frankly, of every major Wall Street bank. All right, So BGCBGC Group public Company owns this exchange, right? And so we are the wholesaler of the world. So you think when Fidelity or PIMCO, when they wake up in the morning and they want to buy something they call a big bank, who do those banks call? Like what do they do? So BGC Group is the broker in between. So we’re sort of the exchange for everything in the world that doesn’t trade on an exchange. And everybody always asked me, if you’re the exchange for everything that doesn’t trade on an exchange, why don’t you become an exchange? So BGC set up FMX to build a futures exchange to compete with the incredible monopoly of in America, the Chicago Mercantile Exchange, which is awesome. It’s worth $80 billion and stands alone did 99% of futures in America last year. It seems like a monopoly to me. So all these banks came in as our partner. Ten of the greatest trading firms, one through 10. JP Morgan, Goldman Sachs, Citigroup. Morgan Stanley, Wells Fargo, Barclays. I don’t even know I’m going to leave someone else’s credit. Bank of America, Citadel. You know, Jump trading. The number one futures trader in the world. Tower #1, Treasury traders. These all are together, all coming behind this exchange to make this exchange so fun and so amazing. Well, here’s the question of CME, as you say, has 99% of the volume here. How come these banks have supported you in this? What is the outcome that you and them are looking for? Well, look, when you’re alone like the CME, they do as I say, they serve a they have a great product and they charge, they charge a great price like Holy Moly and sort of like every Christmas they just raise their price. You know, hey, it’s a Christmas present. Let’s just raise our price. So the the banks want an alternative, they want a competitor and what else they want is innovation. So we have the fastest system, right, the tightest spreads and we did this in U.S. Treasury. So we started with the US Treasury. Now the CME had when we announced that we were going to be in the US Treasury market like an exchange, they had 85% market share, the CME. So I call them the heavyweight champ, right. And there was 15% by other players. So we went in, We now have 28% and they’re in the mid 60s. So if someone thinks we can’t get a glove on the champ, they’re wrong. They’re not watching. So the treasury business was one. Now we’re going to do treasury futures, you might say, well, why shouldn’t you win in that as well. And the answer is, I think we’re going to and we’re going to do so for futures, which are like interest rate swaps. And that’s going to be amazingly cool as well. You’ve been talking about this interest rate business, treasuries in particular as well. Are there other markets that you would look to break into that you’re not currently in? Well, we’re going to start with the interest rate world. But when you’ve got the world’s creative trading firms as your partner, they’re going to say what’s next? And I would think other futures exchanges to start, will be a classic move as we go around the world. Equities, bonds, it’s a futures exchange. You can do anything. So it’s really fun. We have the technologies already in place. See, the thing about BGC Group is it already has the connection to all these people. We don’t have to start building it today. We’re going to open in September, right? And we’re going to start and you know, with that futures exchange, you just want everybody to connect. So the first year we’re going to get everyone to connect. Second year we’re going to get everyone trading and in the third year it’s going to be full blown, full on competition for the $80 billion heavyweight change. We’ll talk about that timeline in a second. But you had mentioned the Christmas present of higher fees from the exchanges. Do you plan to lower trading costs on this new venue with the word for certain, be helpful? Yes, absolutely, absolutely, absolutely. The the concept of being much more efficient, much faster and much cheaper will create more volume, will be innovation. We’ll do all sorts of things we’ll build. As an example, if you want to trade one futures contract against another futures contract, it’s built into the trading system so you can’t miss. It’s atomically built in rather than two different systems sort of trying to figure it out. I mean, you can just be innovative clever, smart and faster And and the banks are all behind us, the greatest traders in the world behind us, the greatest technology that’s already installed. I think we’re I’m really I’m if I don’t seem like I’m having fun, you just haven’t spent time with me. This is so much fun for us, Howard. Today it’s valued at $667,000,000. With the new backers that you’ve bought on board, you’ve kind of mentioned a three-year timeline to expand the business. What is this company valued at in three to five years? Well, it’s sort of like one of my favorite thoughts is when George Clooney tasted some tequilas, right, and he bought a tequila company. How much was that tequila company worth? I think he bought it for like $7,000,000 and then he sold it for 700 million. So these banks are Mike George Clooney. You know, I see them. I’m like these guys are just so these men and women are just so handsome. Do you have a target on how big you want to get? I think we want to gain market share like we’ve done in U.S. Treasuries. Our U.S. Treasury business, which competes with the Chicago Mercantile Exchange grows one to two points market share every single quarter. So we were 26% at the end of the year. We just put out this morning with you guys 28% this quarter, so 2% per quarter. I think we’re going to keep growing. We’ll get to half, and I think our futures exchange will just keep growing and eventually we’ll get to half. And I think that eventually will become enormously valuable for us for competition. It’ll drive down costs. It’ll drive up volumes. It’ll be great for America. It’s interesting to hear you come in and talk so much about growth because when you look across Wall Street right now, it’s hard to find a lot of growth, particularly when it comes to headcount and expansion. What does this mean for all of your companies, Cantor Fitzgerald, BDBGC in terms of what you want to be able to do, bring more people on board? Is that possible for you? Sure. I mean to be when you’re innovative you can create new things. So we’re hiring tech people up a storm. You know, BGC is growing amazingly. A stock was up, BGC Group was up 90% last year and it’s on a tear again and it’s going to be imagined. You have this exchange where all these banks born in at a a $667 million valuation, but that was yesterday. What do you think it’s worth today with all these banks as your partners, multiples and multiples higher. I’m sure private equity firms would love to invest at three or four times that much. We aren’t sellers. We’re going to build a great business. BGC is growing up a storm and and so is Cantor. So I think there’s lots of growth ahead. So let’s talk about the markets now too because you’re in the treasury business of course we have the two two year about to touch 5%. Once again a lot of expectations changing in this market, Treasury auctions coming at really a record clip almost across the curve. What kind of volatility does that create and where do you think the Treasury market really goes from here this year? All right, so you have two things that are incredible to think about. The Fed’s balance sheet is $7.5 trillion, and that’s got to come down. So that means they’re not going to buy the Treasuries, They need someone else to buy them. That coupled with our beautiful government running deficits of 1.8 trillion a year. So you’ve got just huge supply, huge supply coming. That’s got to keep rates higher for longer. It has to keep rates higher for longer. I view it as steady, right. When I was here in January with you, with you guys, I said rates would be steady and where have they been since then? Steady. They would remember people were talking about six or seven cuts. I was like ha ha, well who’s cutting six or seven times. I think the Fed is going to stay steady. I think inflation is stubborn. We’re hanging in there. You sing at the two year note, think about this, the market is saying two years at 5%. So what’s the core market really saying? They’re saying we’re not really going anywhere, right where I mean what short term rates are at 5 and a quarter. So if you said the average for the next two years was going to be 5%, right, what you’re saying we’re going to stick around here and we are. So the Fed has the ability to cut a little because remember, if they let go of their balance sheet, that’s tightening, right? I’m not buying any more. You’re going to buy. That’s going to take money out of the system. When the Fed stops buying and cuts its balance sheet, that’s a tightening. So the Fed can cut a little bit of interest rates. When’s that first cut? I think right before the election. Not that the Fed is involved in elections but September, I’m thinking. I’m thinking September. And it’s not really to move the economy. It’s to show off a little bit help a little bit. You know the guy who’s employing you today, maybe he’ll give you your job again if he gets elected. Can’t hurt. So I think September 1 cut that’s it. Just show it off. Not really doing it. Really curious about your views on the election here too. Earlier this month you hosted A fundraiser for Donald Trump alongside John Paulson in Palm Beach. What would a potential Trump presidency Trump two point O what would that mean for the markets again He last time if you remember there was a lot of consternation when he was elected and my view was it will be good for business. It will be good for the banks and it was the banks traded incredibly well. You know the the Republican Party is a less regulatory party right. You saw the Federal Trade Commission just came out and said non competes are something they want to do away with. That’s not really business friendly, right? So a, a, an administration that’s more business friendly probably is good for stocks, although you can’t say lately Joe Biden’s not good for stocks. The markets doing perfectly fine and stocks are doing perfectly fine. So I think it’s not going to be as much as people think, but I think a, a Trump administration is just less regulatory which businesses like less like the Federal Trade Commission saying non competes, you know they got sued right away. So it just seems over broad less regulation is good for markets, good for business and I think businesses like that better. Well, what do you think this means in terms of the attitudes from the business community around Donald Trump? Do you think that there’s any changes that you’ve seen, particularly given that you have such a close ear to the ground? I think it’s you feel more coming. I think they were, they were afraid in the beginning, I think when when it was still during the primaries. But you feel more and more people coming. Surprisingly, people who would never have said that before come up to me and say, you know, I’m I’m thinking about it because they really don’t like immigration. I mean they just immigration is just something like who talks about immigration at dinner parties? The answer is these days everybody talks about, I mean you have it in New York everywhere, you have it in San Francisco everywhere. So immigration matters and and just the things like today with the Federal Trade Commission, I mean it’s just you know, it’s just big regulatory push. So I think, I think business is moving more towards the Republican side, surprisingly more towards the Republican side than they were before. But I think it’s going to be a tough Ford election. I really think it’s going to be dead heat close, dead heat close. How do you think that translates to volatility into the markets throughout the year and into next even given the challenges you’re seeing around the world and given the challenges you’re seeing in EU s s own economy starting to come up, I think big volatility come the end of September going into the election. I mean the the uncertainty, well investors tend to put their hands in their pockets when they don’t know what’s going on, right. When you have a good confidence of where you’re going in, you go investing. So I think volumes will decline a bit and volatility will rise because people won’t know which way they’re coming or going. So I think October is going to be just a crazy time because people won’t know what the heck is going on. And the election, you know what’s amazing about elections in America, once it’s settled, markets go right back to normal. So I think once it’s settled, I think you’re going to have a much better market than you’re going to feel in October. Another volatile asset, Bitcoin. You have been very vocal in your kind of constructive view about Bitcoin, particularly as it’s used around the world. Interesting though, you did say that it would be benefiting and rebounding this year, but you didn’t say that the ETF would necessarily bring it there. Would you be a buyer of Bitcoin at these levels? I think so. Bitcoin just halved, right, which means that the work you do to get a Bitcoin, the price is twice as high. So that is theoretically a benefit for the next four years for Bitcoin. So I think over time Bitcoin will rally even from here over the next four years. So you bring me back four years from today, I think the market will be will be higher and I think these these things it has a place in the world and and it’s not going away. So I think that’s sort of the the way to think about it. You’ve spoken about your optimism around tether as well. I’m curious about your view on this because recently S&P analysts have said if the latest US stable coin bill passes that U.S. companies would no longer be able to hold or transact and tether because it’s run by a non-us entity. How do you prepare for something like that? I think, First off, Americans, stable coins in general. There’s two big ones. There’s tether and there’s circle. OK? And Americans should have nothing to do with these things. I have dollars in my pocket. I have dollars in my bank account. I have a credit card in dollars. I can Venmo, you, PayPal, Zelle, these are all simple things for Americans. We have no business being near stable coins. But I tell you what, Argentina, Turkey, Venezuela, if our money, right, if our bank account we woke up at with the, you know, the Turkish lira, which was down 65% last year, we’d be doomed. So you want to hold the digital dollar. So that’s where Tether really flourishes. It’s in the emerging markets. So the concept of trading stable coins in America, I I just don’t get it. So I don’t think it has anything to do with America. I think what we care about as Americans is that the dollar is all powerful in the world. Do you worry ever that there could be the use of Bitcoin or tether being used to evade U.S. sanctions given the use of it around the world, particularly coming out of Russia? I think, I think the key to digital is that it’s always digital. You know, dollars. You remember when we went into Iraq, they found like rooms of $4 billion on pallets that you can’t trace, but digital money you can trace. I think the firms like Circle and Tether have to work deeply closely with law enforcement and grab it because remember these are digital money. All they can do is move around and the blockchain always keeps track. So think of the AI and think of the tools the government is going to have. They are going to get better and better. The way I describe it is government moves reasonably slowly, but it always gets there. Sooner or later it’ll get there. So they’ll have great AI tools. They’re going to use their AI tools. Any criminal he wants to use Circle or Tether is going to get caught. It’s going to get seized because it’s digital. So it means you can’t really hide it. It’s on the blockchain. You can follow it from here to here to here to here. So I think it’s good for news to say, oh, they’re using it like this and this, but they’re all going to get caught. They’re all working. Tether and Circle are working closely with law enforcement, and these crooks are just it’s so much worse than a regular dollar. At least a dollar in their pocket they can hide. How do they hide A digital dollar? That’s a joke.