BGC Partners, Inc. Class A Stock

Thanks, Jason. Good afternoon, everyone, and welcome to our first-ever FMX Investor Day, and a warm welcome to those of you joining via the webcast. I'm John Abularrage, the CEO of the BGC Group. First, let me explain why we call this day and then I'll get out of the way and let you hear from the people who really drive this business.

For most of the last 40 years, if you wanted to trade a U.S. interest rate future, you only had 1 place to go, one 1 venue, 1 order book, 1 set of fees. That's not how any other major market works. In foreign exchange, corporate bonds, equities and energy, clients have a choice of where to trade multiple, venues competing on price, service and technology every day. But in the market that prices the risk-free rate for the entire world, the collateral base for the global financial system there was, but one dominant exchange and limited choice. This is what FMX set out to change. And we were not alone in this thinking. 10 of the world's largest banks and market-making firms thought so as well, which is why, in April of 2024, they did not just become client to this exchange, they became owners. That is the single most important thing to understand about FMX. FMX was built by the market for the market. The people who use FMX, own FMX. The people who own FMX, use FMX.

Now many have said that this is a long shot, more than once and sometimes not so politely. We're up against a well-run incumbent, nearly 40 years of habit, real network effects and there's a list of firms who have tried before and did not succeed. So let me tell you what we did differently. Eight years ago, we launched our cash U.S. treasuries platform with no market share against an incumbent that held more than 80%. We captured market share 1 client at a time by having innovative technology, tighter prices and exceptional client service. Today, FMX UST is at 42% of the cloud market, an all-time high. $84 billion a day, up 35% year-on-year with more than 150 of the world's largest clients connected. FMX is the fastest-growing cash treasury platform in the world 8 years running. We began this journey more than 80 points behind, and today, we trail by only single digits. And I can promise you, we did not enter this market to be #2.

FMX FX is one of the fastest-growing foreign exchange platforms in the world, more than tripling to $19 billion a day since our equity partners invested 2.5 years ago, and we are following the same playbook for the U.S. interest rate futures exchange. We launched SOFR in September of 2024. We then launched the 2 in the 5-year U.S. Treasury futures contracts in May of 2025, followed by launching the full curve in August of 2026.

Last quarter, FMX futures averaged 80,000 contracts a day, up 49%, with a monthly record of 112,000 daily contracts in September. This momentum continued into the fourth quarter where we achieved a daily record of 162,000 contracts traded on the second of October. With 12 FCMs already live on the platform, we have nearly 80% of cleared swap balances available to FMX.

And finally, 2 more numbers to keep in mind before I take you through today's program. Those numbers are 82% and 68%. 82% of the time last quarter, our SOFR bid offer price was equal to or better than the CMEs. And on U.S. Treasury futures, that was 68% of the time. This achievement is by design and not by accident. We built this exchange with the tightest tick sizes in the market, supported by the owners of FMX, which are the largest traders in the world. Two years ago, FMX client meetings were largely about explaining our potential and our plans going forward. Now these meetings have shifted to questions around speed of connectivity, how much of the book we can move across and what it takes to maximize margin efficiencies?

Every FMX meeting now leaves me more convinced than ever of FMX's role in the market and its ultimate path to success.

Now on to this afternoon's program. We will have 6 sessions then a closing keynote. Please make the most of the Q&A at the end of each session as this is a great opportunity for you to discuss with FMX, the people who actually use the platform and who run that business.

First, Lu Scotto, FMX's CEO, opens with an overview of FMX, its vision and strategy. FMX today is one marketplace across 5 of the largest markets in the world. cash treasuries, interest rate futures, foreign exchange, inflation and repo. Next, we'll address the strategic case for FMX from the people's best place to explain it, the owners and the users of the FMX platform. These are our partners. Be sure to ask them why they became investors in FMX.

After the break, you'll hear from the firms that trade on FMX about what makes our technology different. Then Robert Allen, President of FMX Futures Exchange, will host a panel on our LCH partnership.

I want to spend just an extra minute here setting this one up because cross-margining is probably the most complicated part of our story for us to clearly explain yet it is perhaps the most valuable. It lives inside clearing mechanics described in the language nobody outside of margin team enjoys. So today, we hope to explain the mechanics in a simple and clear way. We are not going to talk about it in the abstract. Robert and the panel are going to walk you through real world examples. Please use this time to make sure you come away with an understanding of the importance of the cross margining benefit. Then BGC's Chairman and General Counsel, Stephen Merkel, will host a panel on legal and regulatory policy. He'll be joined by Alex Titus, Chief Adviser to CFTC Chairman, [indiscernible]; George Canales of Millbank, formerly the Co-Director of the SEC's Division of Enforcement; and his colleague, Josh Sterling, who helped write the Dodd-Frank rules.

Finally, we will conclude the presentations with Sean Windeatt, my fellow CEO at BGC, who will take you through the financials and the economics of the business.

Lastly, a few thank yous before I hand it over. Firstly, to Lu Scatto, the FMX management team and every employee who built this world-class platform. Exchanges are not built on strategy decks. They are built by people writing code, onboarding clients and answering the phones at 6 a.m. Many of them are here today and to each one, thank you. To BGC's shareholders and our 10 equity partners, building an exchange takes patience and belief and you've given us both. Our equity partners brought liquidity, flow and credibility and put their names behind the idea that this market deserves and needs a second venue. To LCH, a genuinely unique partner and one that offers real capital efficiency to our clients, and finally, to those clients, many of whom took a chance on a smaller, newer venue before it was obvious. We have not forgotten who was there for us at the beginning.

For those of you who are here as investors in BGC, I implore you to use the next few hours to determine the viability of a challenger in this market. Judge FMX on the 4 things that actually determine whether a challenger can win. It's connectivity, technology, clearing and ultimately, market share. You will hear about all 4 of those this afternoon from us and from the firms that use the platform. Please ask the hard questions where you feel you need further explanation.

Competition in this market arrives one client at a time. It comes when clients choose a second venue that offers better service, better technology and economics, exactly the way we did in the cash treasury market. Today is your chance to look at FMX closely and judge for yourselves.

One last thing, and then I promise I'll hand it over. We closed today with a keynote conversation with Professor Jeffrey Hinton. In addition to being widely accepted as the godfather of AI, Professor Hinton knows a thing or 2 about persevering through adversity and doubt. For decades, Professor Hinton pursued his dream of artificial intelligence and building neural networks when those around him told him it couldn't be done. In 2018, Professor Hinton was rewarded for such perseverance by winning the Turing Award. And then in 2024, Professor Hinton won the Nobel Prize in physics, making him only the second person to ever win both awards.

It is my great honor to welcome Professor Hinton, and it's with great anticipation that Mark Ronaldo, the COO of FMX and I, look forward to having this conversation. After our conversation with Professor Hinton, there's a cocktail reception just outside this room. Please stay, have a drink and ask any of the questions you might not have wanted to ask in the microphone.

Thank you again for being here. We have a lot to show you today. And with that, please join me in welcoming Lu Scotto, the CEO of FMX.

What I was going to say, I will say, yes to something he didn't say and I'll tell you later what the yes was to [indiscernible]. This is cool. All these people came out to acknowledge FMX. I'm excited. Are you excited?

I am excited.

You need him to be excited. That's the COO. He I'm kind of like the front guy. He's the guy making it happen. But I want to take you back a little bit, why is FMX here? The inspiration for FMX, and I'd love to say it was me, but it wasn't. It was 2 words. How would [indiscernible], cause me in 2018, let's go, we're going to go into the electronic marketplace again, in government securities and FX, okay?

So we both sat there and said, why. Competition is an issue. So when competition is an issue, things become stale. There was no change from the time Howard Lutnick and eSpeed came into the market in the mid-90s in government securities electronically and at that point in terms of the way it was trading. It was the same. And we knew one thing, even though there was 4 competitors in there, one had about 85% of the market. That person wasn't being challenged because you can't follow that person and expect success. You have to change the dynamics of what you're planning to do in order to introduce a viable alternative, and that's what the marketplace needed. If they didn't know they needed it, you should have been on the trading desk like maybe Rob Allen was in -- or Eric, in mid-January 2019 when markets closed. Why? One relevant pricing engine is down. Think about that for a second.

You have choices in everything in life. Here is a dependency on the most important market or at least one of the most important markets and the markets closed for business. You want to price anything, you want to price a deal, you want to price anything, you can't.

So not because I became more charming, our pipeline vastly grew on the next day in 2019, and you'll see that on the charts because the marketplace realized we had come into the market and we had a relevance that they thought could bring us forward and be a competitor. So Fenics U.S. Treasuries and Fenics FX okay, those were the inspiration of Howard Lednick. And the important thing to remember in all of these are you have to have competition. John talked about that. It was no more relevant than on that one day in 2019 when the marketplace said, "Oh boy, we have an issue," an issue that got created by the market because they didn't insist on having competition in there.

So that was the birth of what U.S. Treasuries and FX was all about. Now let's talk about what FX is. It is a platform servicing 5 markets and 10 products. It includes treasuries, and we've expanded from our initial government security benchmarks to treasury bills and off-the-runs. We are the only platform that allows you to electronically execute off-the-run treasury bonds. And we see this potential as enormous because we think eventually, as the clients, the banks adapt and understand and use it, it will become an important vehicle for them to trade with their client base using the FMX technology.

Our inflation bonds, which is both -- I don't have enough issues here. We have inflation bonds, inflation swaps. We now have them firmly on the FMX platform. We were able to roll out a [indiscernible] competitor, the only 1 that had it was BrokerTec, the affiliate of CME. And now within less than 1.5 years, we are at 35% of that market and growing. Our overnight repo, we have rolled out. We think that, that is going to be an important product going forward. As we look to now bring on the first ever electronification of the repo market in term repo in a segment of term repo, which we have the capability of doing and our competition doesn't because we have the BGC infrastructure of the desk that actually trade that. So we're working diligently on expanding our repo offering beyond overnight a term. Foreign exchange, we do both spot and NDFs. And we are vastly growing our capability there. We've made a couple of important hires over the last few months, and we're excited about the growth of that platform as well.

And finally, what you're all here to understand what John was talking about, the need and interest rate futures for a viable competitor is even seeing a need that they need in the U.S. treasury cash market where they have 100% of the market. So we have 2 markets, 1 had 85% -- almost 85% of the market, the other one has 100% of the market. And we'll see later how the first one is going, and we'll talk, I'm sure, a lot about where we're going with the second.

So let's take you through the time line. I kind of touched on through 2021 when we orchestrated the U.S. Treasury, Fenics development. And then in 2021, we have an important piece for success for futures. And one of them is our partnership with the largest clearing capability company, LCH, which pretty much is the dominant player in clearing of interest rate swaps. In January 2024, we went through a process that was pretty challenging to get -- we didn't have a lot of fans, as you might imagine from the competitive landscape and you can figure out it was only one. So we really worked really hard to get that accomplished, and we did. And then in April of 2024, this one I'll pause on. The relevance that we created up to 2022 brought the discussions to us from these major banks and liquidity providers about getting serious in terms of competing in futures.

If we did not have that basic relevance in the cash market, if we weren't an established platform at that point in 2022, we're probably 20-plus percent of the market, that relevance created that interest and the partner sat down with Howard and myself and talked seriously about how to put it together. April 2024, we were able to close that deal. And then in September, as John articulated, we launched SOFR futures. And in May of 2025, we launched treasury futures.

So what's happened since that merger of people? First of all, the combination. When we looked at this, when Howard and I spent a lot of time, mostly Howard talking, me listening, it was focused on one specific item, let's look at all the failures in the futures competitive market. Let's look at what they didn't do, what they didn't have, and let's make sure we have a sort of look at Courex, ELX, CurveGlobal, everything. And what we established was some had an LCH relationship, some had banking partners, but no else relationship. And obviously, it's a little prop for our firm. No one had the infrastructure and technology that we had in BGC. So we definitely had the first.

As I talked about it before, we landed LCH and those 2 enlisted the interest from the banks to be that third piece. Now we're the first one that all 3 pieces in place. As John said, it's built by the market for the market, but it was built in stages with a lot of understanding of what we had to do and who we needed on a team in order to execute that strategy successfully. Like any other sporting event, you don't go in there without being really ready and prepped for the challenge. This team is ready for the challenge. This team covers everything you need to cover to be successful.

And what markets are we servicing? We're servicing the markets with the banks and the clients as banks, investors and investors as clients, as John alluded to, and this is our growth record since we launched the partnership. Those numbers are impressive. And you have to look at those numbers and understand we're now going to produce those kind of growth numbers as we look to our rate futures development.

[indiscernible] are now we're involved with. Plenty of room to grow, plenty of opportunity. These markets are not going to get smaller, they're going to get larger. And capability for us in these markets now is put in place. We are ready to attack these markets and be successful because we have the pieces in place to do it.

Now $84 billion sounds like a lot, okay, because it is. And the reason why it is, this is a very important piece of it. If you look at the bottom and you talk to what we do differently, one of the critical decisions, and I mean this was not an easy discussion. I was talking about counterparty blocking. What does that mean? That means when you go into the game, you're down 3 touchdowns because 30% of everything that's going to happen, you're not going to see it. When the bond market trades and treasuries, you're not touching 30% of that market because 30% of the market, we elected to be different and have a different client mix and have a club environment that allowed trading to be, for lack of a better word, without some of the toxicity of the other platform. But every day, we have access to 70% of the market versus 100%.

So that's on at $84 billion, makes me a little bit proud because we're doing that without access to maybe 25% to 30% every day. And when these markets are volatile, that number is significant.

We also -- and we have our Chief Technology Officer over there, [indiscernible], who is amazing. And this curated liquidity, I would love to give you a detailed explanation on how I explain to [indiscernible] how to do it. But basically, I said we got to do something that allows these double streams not to exist. So when you trade on FMX uniquely, you submit what you want to do and then the technology is deterministic, and we'll find the best path for execution. That's a very important piece along with our tick size, which it's funny. We tighten a tick size and trust me that was an interesting conversation in the early days with the banks. But we were able to prove that it was going to be eventually a good thing and it has been so much so that the competitive landscape followed trying to match the tick sizes that we were trading at.

So that growth, 2018 we start, 2019, they have an event, and we grow from there. And then in 2024, we do the transaction, and you can see the eventuality of exponential growth on the back of the partnership.

FX as well. You look at this chart, FX growth has been dramatic. I think it will continue to grow dramatically through the next 18 months, and it started similar to our treasury platform, and then it jumped significantly as a function of the partnership. They came in, they realized the benefits of trading on this platform, both as a client with the technology that were being proposed and also as a partner in the FMX enterprise.

Here is one we're proud of. That is -- as I was just discussing, that is pipeline growth bringing on over 150 clients onto the platform. In 2022, okay, we onboarded probably 4 of the largest players in the government securities market. So they didn't exist from 2018 to 2022. Then we did the transaction, but you could see that steady growth. Steady growth is a function of continuous onboarding of new clients, adding more and more liquidity takers and makers onto your platform. That's what you do with electronic platform. You just bring them in. It's not different from when you talk about Netflix and all that and you talk about the subscriber and the growth in users and subscribers, that's us. 42, 49. Now if I ask everybody in this room, if they were listening to me for the last 8 minutes, remember, that 49% without that 30% is not greater than 42%. We don't do 30% of the market. So 49, 42 we are there, and we're going to grow beyond those numbers as we go forward with more protocols, more product offerings that are involved so we're not going to slow our growth into '27. We're going to continue growing beyond these numbers.

What do we want to do in futures? Well, basically, rinse and repeat, okay? We want to take that playbook and run it again. We proved it works, and we think with certainty, following the same path as treasuries, growing your pipeline, onboarding clients, the natural next level will be a growth, maybe not as profound as treasuries immediately, but exponentially growing over the course of the next 18 months because of what we see in the pipeline and what we see is coming on with the -- as we get gross margin benefits, which you hear later out to the client base.

That's an important chart. I would call that chart 1 thing, not easy. But there was a saying in a movie that probably a lot of you saw, Field of Dreams. If you build it, they will come. I think that evidence is that in real life, it can happen, too, and that's a real-life scenario, okay?

Where are we in futures? Well, you can see that the growth is going in the right direction, okay? We tightened tick sizes. Our equity partners are in there. What we're right now coming to probably a good pivot point for growth, the technology that both the partners and the nonpartners are now getting in place is critical to that number exponentially growing. And that means connectivity, meaning a trader's ability to point and click is not perfect. It's connected, they can trade futures, but it's not perfect. Perfect is when you're systematic trading people have an algo in place with a smart order router, okay? And they take, for lack of a better word, less manual out of the execution and put in what we want, which is an API algorithmic execution strategy. And when we see our clients to have it in place, they're 10x in terms of the number of contracts they do versus the people who are trying to get that technology in place.

We expect over the course of the next, I would say, 3 months, a material amount of this is going to be finished, coupled with a pipeline of institutional accounts that are now coming on to the platform, they take longer because they want to make sure you're contract, your volumes are relevant, relevant than now for them to get a green light to connect. Those universes are now coming in together and makes me feel really good about the next chapter of growth in futures.

I think John alluded to this in his opening. This is an important statistic. So how you get measured in the new -- any kind of new platform is not only by your volumes, it's by how you're competing? How you're competing when you're a bid offer is out there? Are you way off of the competitor? Are you equal to the competitor? Or are you better than the competitor? You can see in the second quarter of '25, 18% of the time we were equal or better. But as the users came in and as our liquidity grow, we now stand on 82% in SOFR. And if you look at Treasury futures, okay, similar story, especially in the last 2 quarters, where the amount of volume has grown substantially.

So we continue to be able with our technology and our client backing get buy-in for the way we price ourselves in futures.

So this is our plan. So Howard spoke initially about what we want to do in the first year. What we wanted to do in the first year, give everybody a chance to go to the technology people and go through the Dev queue, which is probably 20 to 30 pages long and get the capability to put this and prioritize it. That was supposed to be year 1, and in year 2, that carried over, and we're now finishing up year 2 in SOFR and we're going into year 3. In year 3, we expect as we projected or how we projected and the first time we spoke about this, we're projecting exponential growth in year 3, which starts now. October is a start of year 3 for SOFR, may would be a start of year 3 for U.S. Treasury futures. We look at them together now, and we're excited about it because of the technology getting cleaned up, the buy-side adoption is happening, and we're really excited. That's on my group is really excited about having the product. This side of the group is really, really nervous about that side of the group putting too much pressure on them, but we will deliver basis trading. And it will not only significantly allow us to grow our futures volumes, but the natural they'll grow our treasury volumes alongside of it. So that's a very big piece of the development.

And finally, as we talked about it a million times, SOFR for us is all about the LCH's ability to give it like an 80% margin benefit to you when you transact futures. The only thing holding that back right now is the technology that needs to be in place for the banks, FCM and the clients to afford them the opportunity, which we again believe is finishing up as we go into the fourth quarter this year. Those 3 in place should have a meaningful growth capability for our futures offering.

We're now going to talk about market data. If you look at the numbers for CME, this number is astounding, okay? It's 13% of their revenue is 6% of our revenue. We believe strongly that 6% grows as we, if you go back to the page before us, complete what we need to complete to become a relevant competitor in futures. The universe of treasuries is in place. We have all those other government securities offerings. We have an FX platform with pricing. So when we add to it the futures, we round out the suite of products, we can go into subscription pricing and have them have a capability to buy that data, both for trading and more importantly, for pricing and other compliance purposes. And by us having that full suite of data makes us much more powerful in the offering we can have. So we're expecting this number to grow maybe not 7 points, but to grow maybe 3 or 4 points in the coming year.

We set records and records, as you know, in sports are meant to be broken. We are very focused on having those numbers become yesterday's news as we move forward in futures, develop our FX growth plan with the people that we brought in to do it and continue to roll out protocols and products in treasuries to bring that number up and continue that growth that we've been seeing about 1 point a quarter. That's the goal.

So we talked about this, okay? Our pricing, our technology, the consortium and the margin. We have everything. All we have to do is get and continue to get more and more people on our futures platform similar to what we did in cash. And then we're going to see the benefit because they're going to realize the significant benefits to trading on FMX and getting the margin benefits that will be afforded to them as they trade, which are, as we talked about, and you'll hear a lot about that later.Okay. So I'll leave it to you now. So good. Nobody has any questions. Patrick, go ahead.

Patrick Molly Piper Sandler. Lou, thanks for doing this, BGC, everyone here. Great event. Looking forward to diving in today. So Lou, you mentioned the buy-side adoption that has taken place to date. You also mentioned the bank's technology implementation as being maybe a bottleneck here in terms of driving more buy-side adoption. Can you maybe just give us a little more insight into your confidence that the banks will have that technology ready to go to offer those cross margin benefits to their customers. And then as we look out over the next year or so, can you put a number around the number of firms that you expect to have onboarded, the number of buy side institutions that you expect to be fully onboarded and trading on the platform?

Thanks I'll work backwards on that. So we'll have 40 clients trading, 15 just onboarding right now from the buy side this year. We expect that number to grow next year sometime by the middle of next year by another 15 to 20 clients. So I would expect -- and if I show you the growth pattern of treasuries, I think in the first year, we went -- and after 2019, [indiscernible], we had 65 clients on the platform in the first 2 years. So we're following that. So we're getting really, really strong calls. Now that we've achieved the -- really a lot doesn't happen, Patrick, until you get to a certain number of contracts where the buy side believes it's a relevant to connect. So that's number one.

Number two, contingent on our delivering on the contract side is the importance of the margin benefits that will put to those clients when they trade. So where are we with that? I believe right now that within the 12 FCMs, and this is where I'm going to hand it over for accuracy to Mark, I believe a number of them are in that position, but you probably have a better idea of the pipeline of completion.

No. Lu is right. I think when you think about the pipeline, clients have treated already, right? So they did their paperwork, they're just watching the volumes now. So paperwork submitted, technology is kind of done. It's not just a nice to have a pipeline. It's a real pipeline that clients here's the paperwork or technology work is done. I'm watching you volumes, I'm watching the OI develop, right? That's kind of the stage. And when we talk about those 15 accounts, many of them have put through that first trade already, right? They're just sitting back a little bit, waiting to see things develop and getting more and more encouraged every day. So it's a strong pipeline. And I think sometimes that's hard to put up on the screen or during analyst calls, right, to really articulate that. But that's -- from my perspective, and I know a lot of the team that gives us comfort that this is real that this is going to happen.

[indiscernible]

Pardon me?

Just on the bank technology and your confidence level that, that will be ready to go to offer those gross margin benefits?

I have comfortability that all the nonbanks will be positioned and the bank partners I would say 70% of them will be ready to provide margining in the first quarter next year, which is the timing is fine for the -- but where we are and the institutional accounts coming on.

Can you talk about customer adoption in the different channels of buy-side firms? To what extent have the early adopters hedge funds versus large asset manager clients? And how do you expect the cadence of that to change over the course of the next year?

Okay. Thanks. Great. Our success in treasuries is predominantly with those hedge funds and people of that ilk, okay? We think that is going to be the natural follow-on for futures. We need to remember that asset managers will come on, but their [indiscernible] requirements, whether it's [indiscernible] or whatever, puts them into a secondary position. We'll have to grow this over the course of the next, I would believe, 6 to 12 months and work with them on getting that connectivity done, which is an elongated time line as well. So I think that we'll continue to grow the hedge funds, et cetera, that do not require that. And then there'll be the next level of growth, and we'll see that growth towards the latter part of next year.

Got it. And the strategic investors seem to have worked really, really well. The strategic equity stakes seem to have worked really well to get the FCMs and the market makers on board. Is there any appetite for using that same strategy as you start looking at the buy side? Like is there an appetite for more strategic equity stakes to the likes of like BlackRock or [indiscernible] or firms like that?

You're talking about potential investors?

Correct. Yes. signing up more of the strategic investors.

John is the prettiest guy in the room right now with the -- when they all want -- they talk to him about that. Remember, BGC is 65% share. Nobody wants to talk to me, I'm the execution guide not from an Italian perspective, I'm the execution guy. John, Sean, JP, those 3, they're the hitters. They got their hands on the equity. He has a lot of interest. We have developed a large amount of interest with particularly the people you're referring to, and John loves it. He loves it because Sean is in London and JP is in Paris, so he becomes -- they got everybody who wants to take the lunch. Imagine a broker, getting taken to lunch. That's him.

A lot of interest John can expand on that and maybe in earnings call or something when you asked that question. My job is to deliver the product for him to have the interest come. And I think John would agree you have gotten some incoming calls. There you go.

Got it. So I guess maybe to clarify, do you feel like you need more strategic investors in FMX in order to drive buy-side adoption? Or is the 10 partners that you have today sufficient your targeting?

No, the product and the competitive landscape drives the adoption. Moving significant amounts of volume as a client of our platform will happen. Moving a more significant amount of volume as a client and a partner is an obvious next step. So we have people who are onboarded who would like to be able to get to that next level, but they've onboarded -- they're taking our market data now, and they'll be trading with us before this quarter is over.

Anything else Okay. Well, thank you, everybody.So the next panel is going to be led by Kevin McParland. And Eric Charles is going to come up from JP Morgan and [indiscernible] is a coming up from Citadel, and myself, more of me.

All right. Well, thanks to FMX and BGC for having me for having us. So I actually -- I remember going to the Fenics UST, I think it was the launch party in Boston at a conference almost -- it's got to be almost 10 years ago, 2018, maybe?

Yes, '28.

And it was like, wait, what are you going to do?

Exactly.

And here we are. So it's been incredible to watch. So congrats on the progress so far. And Lou, you probably talked out, but we have to just start with you. I mean, did this go how you thought it would go and really like what made you think this would work all those years ago?

As I said, the inspiration for wanting to get a position in this market was the inspiration and vision of Howard Lednik. When you talk about changing in such a significant way, and Eric will tell you, the conversations with the banks initially were interesting. I'll use that word interesting. And there was a multiple amount of conversations required to get the point across. So if you ask me, did I expect that we would have the success in the cash platform at any point in time initially, I would say, yes, because you never get a chance to sell you something to want the same bang 3x, and we kept getting invited back to try to make it be understood. The growth of the platform and the inspiration to do this, you could look at it as a BGC thought process, but let's look at a marketplace product. The marketplace needs this. This marketplace is much better off with 2 solid competitors in every product than 1 for a lot of reasons: resiliency, comfortability in terms of you have an opportunity, so you have some type of leverage.

Last year was the first year a lot of the trading for us saw my friend and competitor, Terry Duffy, on a trading floor. Rates futures has not been actually increased for a number of years going forward. I don't think because Terry became Santa Clause, I think it's because Terry has realized he's going to have a competitor in the future. So yes, we believe everything that we thought was going to happen would happen, but the challenges along the way are real. And I point to our technology CTO over there. His ability to listen to my sales guys, we started with myself and 6 people and all the 6 people did a great job of understanding the clients' needs, communicating to Bijoy and Bijoy delivering what we needed the way the clients want it, which is an important piece of this. So yes, we were excited about, I think all the CEOs of BGC there here. We're all part of the plan initially. And hopefully, BGC's company is going to be see the success of this growth.

Great. So third on JPMorgan, I'm sure I get pitched on a lot of things, a lot of the time for your own unique reasons. We'll start with you, like what initially made the firm think this sort of was the right place to focus and invest. And then, again, how has that sort of played out now and in your day to day?

Yes. So I think -- I mean, for us, we saw what we said, a very fundamental misalignment between what we're doing day-to-day in liquidity provision across geographies and time zones and clients and what that competitive landscape looks like versus the competitive landscape for the platforms and the venues and the exchanges that we deal on to provide that service. So for us, we felt very important to have competition in the vendor space, the platform space, the exchange space is something that we fundamentally believe in. And I think the biggest thing for us was the partnership with BGC having proven it out in treasuries multiple times, honestly, through history as well as, I think, for us, the strategic partnership with -- on clearing with LCH gives sort of the real value proposition, the carrot that you need to onboard the end users.

That's one thing to get market makers trading with themselves, the reality is you need the end users there. And that value proposition as clients have started to treat the U.S. ecosystem, whether it's treasuries, futures, SOFR, swaps, all is sort of one, we could see the value case very clearly.

So it was as much. I mean, we'll talk about it more later, but about the margining as it is the trading?

I think it's both. It's the ability to execute on. I think the technology that needs to be there to run a platform like this, you need a proven partner to be able to do that. So it was a good mix of good partners on the market making side plus a proven operator plus a real business case on the margin.

Jono, what caught your attention and what continues to keep your attention here?

Yes. I mean I'll start with the team, the team here. You can have the best idea in the world and if you don't have the team who can deliver, then it's worthless, right? And so the team here has demonstrated over many years that they are able to deliver results when it matters. And so you combine that with the consortium that was put in place, right, a very broad and diverse group of firms, very strong backing. And I think we've seen that really play out now where every incremental product extension builds on what's already been achieved and accomplished. The cash treasuries use case is so powerful and everything just builds on top of that.

Yes. I mean I want to take this down a cash path and a future path quickly. So in the cash market, from an e-trading perspective, hyper competitive. So what do you see different here in what FMX is built on the cash side? And then on the future side, the couple opposite in many ways hyper-concentrated. Does that worry you? I assume the answer must be yes given the investments. So if you could maybe touch on both of those.

Yes. I think in both cases, to draw parallels, right, it's really about the need for increased competition and innovation in the space, right? That's kind of the starting baseline, if you will. And it's not only price competition, right? It's innovation in trading protocols. It's tick sizes that Lu referred to earlier, right? We're seeing benefits that are accruing for market participants across the market really due to the presence of FMX, right? And so we fully expect that to play out in the future space as it has and continues to in the cash base. And I think it's really a matter of the client adoption piece continuing to increase overall volumes at this point.

Yes. I would say exactly on protocol, very simple things like changing tik size, changing protocol. You see the impacts it has and that the marketplace has a need, even if it doesn't realize at upfront, sees the benefits of the product and have sort of been able to run with it. I think if you take a look at the future side, specifically, there's been basically no change in most of that model for a generation. And so I think the things that you can do, having the cash platform there with futures with cross-margining on protocol around whether it's basis trading or spread trading, et cetera, there's definitely a need there. I think on the resiliency piece, the resiliency piece is super important. We have our ability to be there as a liquidity provider effectively, maybe not 24/7, but not yet, but maybe soon. But to have that and have that liquidity provision be very much a single point of failure, that's a real [indiscernible] were the speculative of our asset management side. And the room is a diverse room with different points of view around the entire market. So it's not just a consortium of banks, not just a consortium of market makers or exchange.

So I think for us, it's really about using the information we have in conversations with clients to find out what the issues are that clients are having. What do clients want and to sort of allow that to sort of drive the conversation in terms of the development on the company.

About you, [indiscernible]. How involved are you in the strategic planning here?

Yes. I mean it's a strong partnership, right? I think everyone who is a member of the consortium brings something to the table and everyone is pulling in the same direction. And it's great to see the results play out as you drew them up a couple of years ago, right? And so I think everyone is super excited about the future. It's all about, as Lu mentioned, it's all about the technology, it's all about the client adoption. And you can really see a step change in terms of volume once those critical pieces are in place.

And Lu, this is a bit of a softball question, but how helpful is that input, right? That must be huge, right? Client-led products tend to be the ones that are the most successful, right, because you're sort of pivoting and listening to what your users want.

Some input is better than others. The team that I have spends an enormous amount of time, and you'll hear us on the technology part of the conversation. And I spent a lot of time talking to people on the Board. I visit them. I think we share where we want to go, and they definitely believe in the path. And the -- my role is to push them as hard as I can push them to get all as we discussed before, everything in place. But the team spends an inordinate amount of time understanding some refer into service they get from us as white glove service. In other words, we're going to listen to you tell us how, to Eric's point and Jon's point, to make our competitive capability more profound, more quickly.

So we have a duality of focus: one, my team and the trading and technology people at the whole marketplace and specifically the investors and then myself with the people on the Board and the senior people, whether it's Troy or JPMorgan or Dennis at [indiscernible], the people that were in those meetings with Howard and I and pushed hard to get us into the market as a competitor. So that's our focus. And our focus is we definitely get -- we get good input. And more importantly, we do get from them what do I have to do to help you more. So it's a great partnership.

And 1 thing I've learned over the years with consortiums is just because the bankers decide this is a good idea and an investment, it doesn't always mean that the trader says, "Sure, we'll use that thing that you just invested in, right? It needs to work for them. So Eric, maybe we'll start with you. That must be happening here. So I'd love to hear like that connection...

I argue that's why I'm here. I would say that's the biggest piece. I mean, these institutions are very big, right? And so agreed, sometimes it's the bankers in the room are not the same people as the ones pushing the button, so to speak. So I think what -- I think Lou mentioned in his comments earlier. The biggest thing for us is on the business side is driving the usage of the product in a sense, in a way that's almost seamless. So like it's not just connectivity. Connectivity is the very baseline. It's about connectivity with integration through all of the automated processes we're doing as part of our day-to-day business. So is our smart order router sending things to FMX? Is everything on the FCM and F&O side there so that we can have a conversation with the client about, hey, you want to take a look at this product. There's benefits for you so that within your own organization, you should prioritize the build-out, the onboarding, what have you.

So I think it's really about just as a consortium remember, like finding and making sure that we're very aligned up and down the organization to actually deliver that benefit.

Yes. I mean there's no way you're going to encourage a client to do something if you don't really believe -- you don't want to risk that relationship.

But you also have to make sure your capabilities are there so that you can. So it's something we fundamentally believe in. So it's incumbent on us to sort of have the offering there for them.

And John, what about from a market-making perspective. Same question, really, right? Obviously, the firm invested, but the market makers must see value and be making some money there.

Yes, for sure. I mean, look, sometimes, the most difficult thing to change is just like human behavior and habits, right? And so part of this is getting all the relevant traders comfortable with a new platform, a new workflow, et cetera, right? So it's getting comfortable with the technology. It's increasing quoted size. It's understanding the different workflows or customizations that are necessary for particular strategies, right? And so sometimes it's an iterative process where you're onboarding additional desks or what have you with new -- with different strategies and your understanding what they need for their particular focus. So -- and it's just super exciting to see that growth and adoption increase.

And then as we look into the future, understand what additional areas of focus or products are going to result in even more excitement and use across the firm. So when we talk about term repo and we talk about other products that are on the horizon, there's a whole complex here that will benefit from what's being rolled out now.

Well, I'd imagine we have cash treasury clearing coming, repo clearing coming, throw that in with the swaps and the futures, right, it just makes the whole ecosystem even more interesting.

Yes. So maybe we should talk about margin for just 1 more minute. We brought it up earlier. Like how big does that play in? And it's such a -- Lou kind of mentioned it earlier. In some ways, it's a little in the weeds, but then on the other hand, I feel like for the rates market, it's driving so much activity because there's so much capital that has to be committed to manage all of these positions. So if we can make that more efficient, but in a safe way that benefits everybody. So how much of a driver is that sort of in moving this effort forward?

I think from our perspective, I think it's a humongous part of it. I think it is the value proposition that you're bringing to the buy side to get them on the platform. I think that is from our perspective, having that piece in place both for ourselves, but then an FNO FCM offering, having that in place so that you can have the conversation with clients and here's this solution. It's what's going to encourage the build-out that whatever needs to happen at some of these organizations, which you're always competing for scarce resources in these places. So it's super important to us.

Yes. And I would just add, look, I spend a lot of time in the regulatory space. And I can tell you that the -- as you mentioned, the impending adoption of central clearing as required by SEC rules in both the cash treasury and repo space is a key topic of focus for clients, right? And it's -- and the repo clearing mandate in particular, is quite broad in terms of counterparty scope covered. And so it's really, I think, forcing folks across the industry to really on these in-the-weed topics like margin in a way that perhaps hasn't happened in a number of years because everyone is now assessing the associated cost of transitioning to central clearing in a bigger way than they previously had in the cash and repos.

Yes. It's funny, I remember back in 2012 or so, as the swaps clearing mandate was coming into force that you suddenly had traders that cared about collateral and margin. A little bit it almost feels like we're going through a similar renaissance for lack of a better word, yes?

Yes. I mean if you look at every one of our accounts that operates in that rate space, the view, I think, historically, people thought this product, this product, this product, this product, this product. And the reality is they're all integrated and they're all the same thing. Your cash traders trading treasuries, repo, future swaps and whether it's a relative value basis or like the decision around how you're allocating risk, whether it's in your hedging decisions or as part of a speculative portfolio, the margin decision is really a big one that drives a huge chunk of it.

Yes. So CME's lead is obviously quite big on the future side, 800-pound gorilla in the room, everybody knows that. What is the [indiscernible] looking at me, so I'll let him answer first, what is the next step forward? What's the logical progression here as you -- we've seen your open interest, your volume continues to grow. Is there some kind of inflection point? Or do you feel like this is just sort of an organic, yes, an organic growth path forward for the futures business?

Is that for me?

Yes, for you. How do you see this -- what do you see the next year or 3 years looking like and how is it going to get there?

SP-31 I'm impressed that you're already talking about growth, and we just -- I must have impressed you with the presentation. I think the logical, the logical is, what are we good at, okay? And how do we try to introduce the protocols that have worked for us really well to allow us to have a capacity to leapfrog and grow in futures. And we're exploring those issues right now, talking to the regulators, making sure they're comfortable with what we are proposing to do. And I would say if if we do get to proceed with some of the protocols we have, which are not available to, I don't really want to call a competitor with [indiscernible] on the board more than me, but our competitor. That's going to make a meaningful difference in terms of how quickly we can grow because the marketplace enjoys those protocols today and they work for them.

The second piece of this is because we've established, it's like everything else, what I talked about before, the ability to do basis trades, okay, is going to afford us another significant position to grow. And the third one is, as we look at what we can do and we're not positioned to do right now, how do we introduce things like maybe invoice spreads into the market electronically, which is not done electronically now, which the clients of the banks really look because it clears up so much operational inefficiencies for them, it's really a really strong desired next step for FMX.

So if you just take those 3 items and say we back [ 666 ], we get 2/3 of those, right, we're in great shape.

So I would think -- and you have to worry sometimes as you get ahead of yourself. We have to get what I was talking about before in place. We have to get the technology in place. We have to get the margin capability to the clients in place, and we have to onboard the institutional accounts. Next iteration after that, when we have that done is introduce, hopefully, what I've just talked about in the first and second quarter of next year. And then I think the chart that we had in treasuries is achievable maybe at that pace, but it's the same directional intake.

Yes. I've heard in the past, and Eric, I guess I'll direct this at you, you talk to clients about a new product, and they'll say, we'll do it when there's more liquidity you need the clients to make the liquidity. So like do you feel like is there a point either some numerical point or just you know when you see a point for clients where they're like, okay, now I feel comfortable, I'll get in.

Yes. It's hard to say numerically. Like I feel like futures, people always talk to like 5% ABV kind of targets. But the reality is you see it in the adoption. It ends up being slow, so slow and then you get exponential on the high part of the growth curve. I would say the thing is really ends up being is there a new protocol? Like the tech kind of takes a couple of different points. Most clients have very institutionalized professional execution desks that are in the weeds on protocol. So if you've done your job right on the protocol, you have the right connectivity there. Then others were maybe directing risk, worried more about structured margin, you have the carat there with the margin efficiency. So it's really about, I think, targeting your message to the right people and the right organizations to kind of cut through.

What about from your perspective, Jona, market makers, does it sort of follow the trading follows the sort of the client entry into the marketplace where then more liquidity can be accessed or provided for that matter?

Look, I mean, you do have situations where you have very significant volume between interdealer-type firms, right, and liquidity providers, right? But you do want to broaden the ecosystem and you want a diverse ecosystem, right? So I think it's all -- it all kind of happens together and builds upon itself, if you will. And that's why ensuring that the liquidity pool as a whole is thoughtfully constructed, the trading protocols make sense for the client base that you're focused on, et cetera, like all of that's critically important.

Yes, virtuous cycle. So last question, and this is like, to me, the fun, what's next question. Obviously, FMX still sort of continuing to build rates and make that bigger. But what else would you like to see them invest in credit, commodities, I feel like a lot of the innovation in financial markets in the last couple of years has been in and around future. So the prediction markets, perps, like there are so many fun things. What do you think they should do next?

I mean, look, I think the team is focused on the task at hand, right, but you're always looking out in terms of new opportunities, I'm sure. I'll tell you like there's a lot going on in the regulatory space. And you mentioned a few of those in terms of -- there's a lot of talk around perpetual features now, right? There's a lot of talk about tokenization right, and the impact that could have on financial markets at large. So we'll see how things evolve. I think we're in the early stages of those. But what matters is the core markets are not going anywhere, right? And we're in an era of unprecedented political volatility, right, which leads to market volatility, which leads to trading volume, right? And so we certainly don't see that changing anytime soon. I mean, again, as I mentioned, I spent a lot of time in the regulatory space and Congresses as dysfunctional as ever, right? So it's hard to see how that changes in the near term. And so you're going to see -- you're going to continue to see the volatility that we've been seeing over recent years. It's hard to say it's going to be this product or this product. Obviously, there's a lot of work to be done here.

I would say that what it does is it generally provides I think, the platform definitely provides optionality to pivot based on the demand. So I would view it more as it's an option on what the end users really want. I mean you're talking about a U.S. ecosystem. Obviously, swaps comes into that, and that's another gorilla in the room, I guess, so to speak. But I'll let you speak to that.

I think that executing the strategies we have today is priority 1 and priority 2 is listening to our shareholders who have been outspoken about the need for a competitor in the interest rate swap market where they currently have 2 people providing that surface, but maybe there slightly concerned about the capability and they would look for some competition in that, and we would listen to that, and we would weigh that as is it a credible capability for us. And the Board, they are pretty much the direction on beyond what we already have on the plate that they know about working with BGC to decide the next path.

That's a good final nugget, the swaps market.

I don't know if you want to ask -- give some questions.

Sure, yes. We've got just a couple of minutes to take some questions.

Jason is coming over to Elie running.

So Eric, this is a question for you. You mentioned how there is a little bit of a stuck behavior for futures traders who are used to going to the CME. I guess, have you guys taken any steps operationally internally to align incentives so the traders on your future desk have -- or pushed or nudged to look -- to give FMX a look before kind of reverting to old habit and going to the CME?

Yes. So I think in a weird way, you almost do it invisibly. So meaning you're -- and I think that's the point that Lou is making earlier is like connectivity is one thing, but actually using smart order routing, like if the trader is interfacing with an aggregator in-house, so they're not going to a specific venue, does that aggregator underneath the hood? Is it routing orders to FMX? Is it -- what is the incentive structure that you put in there and why? And so in a sense, what -- it's almost invisible to the trading business and lives under the hood as a technology solution.

I think on top of that, then from a cultural perspective, that's sort of where someone like myself comes in to make sure that the people who are running these businesses understand why is the priority for us? Why are we supporting it? What are the reasons. But the reality is most of it is automated, and it's under the hood.

Got it. And I guess to what extent do you get -- so you're in a unique position where you obviously have the swaps and futures desk, but you also have JPMorgan Asset Management, who is a user of this. I guess when you go to them and say, "Hey, why aren't you guys doing more business on FMX futures?" i guess what pushback do you hear? What do they need to see to, I guess, open the floodgates for the volume from that business?

Yes. So JPMorgan Asset Management, I can't really speak to them given and I am in the CIB. The one thing I would say is they have, obviously, fiduciary duties. They probably have investor policy statements that have limits on what the volumes and the open interest in certain contracts need to look like to be able to use them in accounts. So I would view them more as the end users. So they will be -- they will follow the volume as it comes. I think within the markets businesses, it's really about just, on our end, using the product, using the protocols, trying to obviously improve them where we can, but then making sure that the F&O, the FCM offering that we can have discussions around with clients to bring them on board is there and in place. I think as do that, you'll see the JPM Asset Management or the GSAM or whoever the world being able to be interested and want to use the product.

Probably we can take 1 more.

So earlier this year Thanks. So earlier this year, we saw a big shakeout in open interest on the FMX platform. I'm just curious what your views are on having a second venue given that shake out, what did your traders learn from it? What did you learn from it?

Maybe I missed something, I'm going to shake out.

Like the shakeout in did that have any impact on the appetite to put volume on FMX given that you did have such a significant [indiscernible]. It has a ...

Not from our perspective. We haven't changed anything with respect to how we're operating and interacting with the platform.

Great. All right. Thank you so much for your time. Great talking to you guys.

So we're going to take a quick break. If we could be back, I know we're running 5 minutes behind, but by 2:05. It should be coffee and refreshments outside this room just off to the right.

[Break]

All right. We're going to get started. All right. I love the title of this panel because market structure and technology just happens to be the name of my research business at Coalition Greenwich. So I guess, hopefully, I am suited for this. But no, we're going to talk in a bit more detail about -- yes, about exactly that technology and sort of the market structure evolution around the FMX offering. Actually, we didn't do this the last time, but we should probably do this now given the size of the panel. [indiscernible], maybe we'll start with you. Can everybody just do a quick intro and talk about what you're focused on?

Can you hear me? Yes. So Bijoy, CTO of FMX.

I'm Ricky Stern. I work at [indiscernible] Trading. I run a relative value trading group there to build their own technology and service any markets we can.

Hi, everyone. I'm [indiscernible] Bengali. I run rates product globally at Barclays. Before this, I was at Bank of America, doing something similar, but more U.S. focused.

Hi, I'm [indiscernible]. I represent one of the trading teams at Tower Research that has been very active with Fenics and FMX through their -- all their offerings.

Ian Bayer. I run our systematic trading across rates, FX, credit at Wells Fargo.

So -- and thank you, everybody. So I remember, I talked about remembering 10 years ago, the launch party, but I remember those initial conversation around Fenics, and it was very much about the technology, the speed of the matching engine...

I was still to click.

You got it. It's actually incredible how much technology in general has evolved in the last decade. Nobody can argue that. But [indiscernible], we should -- why don't we start with you, you can set the scene. Talk a little bit about what the thinking was then, how that's evolved and how much of a role technology plays in sort of growing the platform now?

So I mean we started off by asking, okay, what should we do different based on our experience at eSpeed, right? So -- and we learned a lot from that, right? So -- and one of the things that we realized that you need to give clients a very easy API, right? If it takes them -- if it's like 35 pages and it takes them 5 hours to figure out how to write your system, nobody will do that. So the interface has to be clean, had to be logical, had to be conceptually correct, right? So I think we got that right first. We took as a [indiscernible] there. Now that one amazing thing we did, and one of the really good things we did that we broke up. We created 2 different interfaces, the fast one and that not as fast one. That's how work in treasuries. And then most importantly, the things I learned from our practice, like what would make the technology better, right? So and every couple of years, we kept adding more feature through the platform as you know, the counterparty blocking and treasuries there and the PCB and many other features, just listening to our customers and having these super discussions.

So it's great. So we have a panel that's pretty well split between bank electronic and nonbank electronics. So we'll go down those lines for now. So let's start with Ian and Murtuza with you, too. Can you talk a little bit about sort of how that technology component played a role as you were getting started? And then again, what does that look like now? And you're sitting next to me.

Yes, sure. Really, I think if you go back in time a little bit to 2017, '28, and just think about the market, the state of the market at the time. I think Lou called it, it was like stale. And I think like really thinking about trying to evolve market structure in a broader ecosystem which at that time. And I think what FMX like understood was that, that was a gap in the market and our ability -- their ability to think about what's going to make a matching engine very successful wasn't just bringing the typical matching engine to the market. I think it was really about how -- like how can we be competitive and listen to our clients and actually engage with clients across the various like spectrum of who is trading in that market and trying to define the technology.

And I think like once they actually built the kind of blueprint and the plan for that, then you add in like the advanced technology to really like bring it to life and empower it. So to me, I think the way that they did that, just like brought us in very early from the bank side and like we had a voice in the -- how to think about the market structure build it and then they build the technology around it to really bring it to life.

[indiscernible]?

Yes. I mean when FMX came together, right, as it has been something that has changed the landscape. I was listening to Lou, talk about during a speech. I think he mentioned technology 9 times, I was counting. And all kudos to even like people like Bijoy, they really did change the landscape and got a different style of trading all together with Paclobs and having more curated liquidity, being able to figure out how do you reduce toxicity overall. All of that has led to a lot more of a rather efficient trading experience that can then be passed on to clients. So that has changed the landscape quite a lot, and we'll continue to invest in that.

And that -- thank you. And so on the systematic on the nonbank side, I think just same question, but the prep prompted and this is all sort of making me think is if you think back to 2017, '18, the treasury market traded $500 billion a day. Now on September 30, it was the second busiest day ever it was over $2 trillion in 1 day, right? So that's pretty incredible. I have to imagine that this technology has not caused that, but has allowed that to the market to handle that. So yes, [indiscernible], why don't -- why don't I let you jump in?

Yes. No. I think like as Motus also mentioned, Dick and Ian also mentioned like there was a gap in the market in terms of like how much inside liquidity like was on offer and like how like nonbank participants like us were able to sort of participate and provide tighter markets. And like I think the to Phoenix's credit or like to FMX's credit, like they were always taking feedback from us. and evolving the platform in a way that allowed us to participate and provide liquidity to sort of like all the end users that the uncorrelated flow that like we care about and that we want to interact with.

So I think -- and like the fact that like they were able to take our feedback and quickly turn that around and provide an overall like efficiency to the market is, I think, the turning point, which allows for like more transactions, more volume to like actually happen and makes it a much more liquid marketplace.

And so Ricky, last but not least, is it all about speed? Or have we gotten past that point, there's more to it than that?

Definitely not all about speed. I think what opened my eyes with this technology suite is when I was in a meeting actually with banks on this panel here about a year ago, and we were discussing all the products that we trade, whether it's swaps or futures or treasuries, especially on-the-run treasuries and I ask how do I best interact with you?" And they said, Fenics pickup. And we exchanged our ideas, and we've been matching on there ever since. And that kind of opened my eyes to the power of how you can directly connect people you otherwise wouldn't in an anonymous situation.

Yes. Like I would add, it's not just the technology, it's the protocols. And I think like it's their willingness to innovate and listen to clients and drive new protocols that like the technology can drive, can actually power underneath the hood, but like actually having the new protocols there and listening, I think, helps drive volume growth as well.

Can you -- a lot of people in this room probably do understand the nuances, but probably not everybody. Can you give us like the [indiscernible] primer on sort of Pub and how that workflow works that you just mentioned?

Sure. I think most banks provide liquidity and on-the-run treasuries and they do it through a bunch of different mechanisms. It could be directed through an RFQ on Tradeweb or Bloomberg. It could be in a public central limit order book like your competitor BrokerTec. But what I think is unique about your P club is that you can tailor the liquidity to the specific participants, and then furthermore, to the specific strategy that participant might have. So my desk, for example, runs 6, 7, 8 different strategies that use on their own treasuries for either quoting and for hedging. And we can tailor that liquidity within the [indiscernible] Per strategy -- per participant and then first strategy, and we found that to be really a unique way to interact with the market. SP-47 So the benefits of an anonymous club but with some customization effectively.

Exactly. Great. So we can't escape talk of the basis trade. These days, this is the right forum. I think to talk about that. operating liquid markets for both futures and cash seem like if you have those things, that's a great opportunity to provide products. [indiscernible], it's probably, again, good to start with you on this one, just to sort of tell us what the thinking is? And then I'd love to hear from the rest of the panel, is that good? Is that bad? Is too much transparency, no always a good thing, and let's dig into that a little bit?

Well, I'll start by saying we will have derives and implied. So it's not just going to be a basis order book. So you can submit a basis order. And the technology will work it in the cash futures market Initially, we'll start off with fixed ratios, but it will actually work it like it's leaning into the liquidity wherever there is a cash and futures and give you the price that you want, okay, without any price lift. So that's the #1 differentiator I think, we are bringing to the market. So it actually -- it's a great tool for RB shops like [indiscernible] and others. And it's also a great tool for all the equity providers to find where the basis market is today because we will show you an implied basis market, right, okay? And I think that could pretty useful as well.

[indiscernible], maybe we'll take it over to you. Basis trading is massive. It's talked about all the time, whatever the number is for today. What is sort of -- does the market need new offerings here? Does that provide opportunity for you? Does it make it more transparent so there's less opportunity? What are your thoughts?

I think like we believe that like there's always room for more efficiency in the market. So like I think if FMX is able to provide this like basis product, I think to the extent that it enables like other people to sort of like basis traders to execute their trades more efficiently, that's a net positive for the market. And we would definitely be interested in participating in this offering and like as a liquidity provider, like quoting the basis product directly and through our support of their futures and cash products. So I do think like that there's a space for this.

Now whether like how the rest of the basis traders look at the ratios, like how can you standardize around 1 product and whether the whole market can aggregate around that and sort of like concentrate liquidity because I think that's a key component of having a successful market. I think that's the holy grail. I think that is probably a little bit harder to solve, but yes.

In my experience, these things you started, then you look at the challenges, and we do the same thing we've done before, listen to clients and change it as we go on. I mean that's only what is going to evolve.

Let me just add that like the main thing, the cornerstone for any basis trading is to avoid slippage, right? The fact that now we're co-locating both the cash and the future servers next to each other. Obviously, it's a step in the right direction to give that sort of a market to participants. And everything just boils down to transaction cost at the end of the day. So it all needs to -- it needs to -- the benefit of having a basis linked market has to outweigh things that traders today have the ability to create more esoteric structures. And that transaction cost, if that can be minimized, eventually, yes, it will start to play a lot more bigger role. But the question still remains that is the linked basis market really is that what attracts liquidity? Or does the liquidity really need to already be there to make this linked basis market really take to the next level?

And then, [indiscernible], what about from your side as you're sort of thinking through your strategies as you're working with clients?

I feel like there's a way to think about the basis trade of like in a way, it's fungible in risk management terms. But it really hasn't really been fungible in the sense of how we build pricing and how we like systematically market make. And I think there's like a latency currently, in the futures versus cash market that can drive wider pricing, I guess, in theory. So I think there's some ways to think about how there's more volume that builds on the linked kind of product set that you can trade. I think it just naturally will drive tighter pricing overall, I think it's something for us to think about.

And funny, this conversation goes back to flash boys a long time ago, but right having both matching engines in New York versus 1 in New York and 1 in Chicago. I mean, [indiscernible], maybe you're the 1 for that, but that's an interesting part of the conversation as well, right?

Well, I think that's what makes it possible. So the proximity is important because you want to make sure that you can trade cash and futures without any price slippage, right? So that's the only way technology, we can pull it off.

And so while we're on, I guess, technology, so the next question, we didn't really talk about this much in the previous panel is tokenization. I'm not a believer of tokenizing Avery thing in the world, but I have definitely come around to the values of tokenizing liquid cash collateral, which obviously, treasuries are very much at the center of that. There's a lot of benefits there. Of course, moving money around on the weekend, of course, but even more than that. So what does that look like for U.S. market makers, for you as providers of liquidity, what are the pros and the cons? I don't know whoever wants to start first?

I'll maybe take a stab at it. So tokenization cannot be done theoretically. At this point, I think the question has been answered that, yes, it can be few bunch of POCs that has been done in the industry, right? But as far as moving the needle on liquidity again, it is not something -- I mean, I might be a little skeptical on this. I don't think tokenization is what really drives the needle bit more liquidity. I don't think today, anyone wakes up and says, oh, I wish U.S. treasuries were tokenized, and that's what will really drive liquidity. So I'm sure it plays a lot more of a bigger role in the post-trade side of world, which is like things like settlement we have mobility and those kind of things definitely start to have trickle-down impacts on well traders value to move trades to. But other than that, right now, I don't think liquidity question gets answered because of tokenization.

It's a good question, right? How much does trading matter? Or is it really all the post rate conversation, right? Can you -- do you want to just be able to -- if it's tokenized, whatever you still just want to trade it on FX [indiscernible], club, and then it will just have different settlement instructions. I mean what's the right end game there?

I personally feel that it might open up other venues if it gets -- I mean it's going to be driven by collateral mobility. And I think in finance, and I think like the more that starts to build, you have a tokenized treasury, well, then can you use technologies that have been built on-chain for like on-chain AMMs and ways I think about the evolution structure that could happen there as well as just standard cloud markets. And I think from an FMX perspective, I think it's important for them to like think about like evolving that market structure altogether, I don't think you want this market structure to evolve and go this way and that's when we go that way. I think it needs a move in lockstep. But I do think there's really interesting opportunities if those markets start to evolve.

Yes. I guess that one of the other big question is somebody might get -- is this a solution in searcher for problem, right, which I think at first, it felt that way, but maybe not now?

Yes. I think like, again, like reiterating some of the thoughts that have already been said, but the like the collateral -- the repo costs and like they are not a material part of our -- like the equation for us like at least a tower as of now. So the collateral mobility or like the financing efficiency that I don't think that's the -- that's what's going to take this to the next level. But like, yes, I mean, if there's other solutions that are built on top of this like which -- like I have not envisioned, but like it's possible that there's others that are building this that could help like turn the corner on this.

I just want to be able to move money between bank accounts and not have to take 2 days?

Right.

So we should talk a little bit about portfolio margining. Ricky, I think this is something that you think about a lot, which is maybe unique from a nonbank market maker. Can you just talk a little bit about how that comes into your thinking?

Sure. I keep thinking about the slides that we put up there, where had $260 billion of margin tied up in LCH. And I think a big chunk of that is probably hedged with something on CME, which is creating an even larger margin requirement for those 2 positions. Income FMX offer a meaningful savings for a user to take advantage of that. And that's great for that user who is swapping their CME for the C or for the FMX, I should say. But that has to trickle down to the market maker as well that's servicing that business. And so for market makers who have the ability to trade swaps and CHF, FMX as well it provides them with the leverage to be able to give that end user who makes the decision to stop using CME and to use FMX instead that leverage. And so it has to reach both levels.

My group specifically, we encounter this problem in every new product, I think that's been launched on an exchange in the last 20 years. And some of them have the ability to offer that offset to both levels, both the end user and the market maker and some of them don't. And we just find that just so critically important to give both the end user and the market maker, those offsets, so the market makers can operate with the best capital efficiency.

And then from the bank side, is that client conversation as you're sort of building out the product?

Yes. I mean, listen, margin collateral management, et cetera, is a constant conversation with clients, right? We need to find more efficient ways to move clients and unlock margin so that you can unlock the -- you can kind of reduce the balance sheet stress that banks also face. So all of these kind of changes in the market structure will have all of these impacts, I feel longer term. So with LCH's partnership that FMX has, I know there's some work to be done there, but I do foresee a very big positive impact down the line.

So [indiscernible], we've already sort of heard some of the benefits, the user [indiscernible] cash. Is there opportunity -- or what are you thinking about from a protocol perspective on the futures market, which traditionally is in some ways it's just a [indiscernible] as a [indiscernible], but what are you thinking there?

So futures is governed by, as we know, certain core principles by CFTC. I think what we are going to do, and we have started working with this already that we are going to take the protocols we have built in treasuries and adopt them to the new core principles and then make a case, right, to apply them in the futures market. So we actually had a great meeting last week with CFTC. We have a proposal in front of them. And actually meeting went really well. And so we're hopeful that we will be able to bring a form of that protocol set into the futures market.

Is that something that you've thought about from a market-making perspective?

Yes, I think so. I think like, of course, like I can't speak to the regulatory aspect of it, but I think like as an innovation in the market space, I think like it will definitely allow for like more efficiency -- more efficient trading in futures. And it will enhance our ability to provide tighter markets on FMX.

Right? If you have a better idea of where that liquidity is going, and that can help you think pricing.

Yes. I think like for us, like it's all about like trying to transact with like uncorrelated flow and trying to like interact more with like people who have like different horizons on trading than us. And I think like this would sort of like provide like a great way to increase our interactions with that.

I imagine that's got to be somewhat similar for you?

Yes. Yes. I mean I would say that probably learned from the cash market is it's not like a one-size-fits-all type of marketplace. And I think like taking these like protocol advancements and thinking about it, obviously, with the regulatory kind of elements that you care of, but there are some advantages. And I think like some of those advantages are, as an LP, you probably have more confidence in the amount of depth [indiscernible] that you're actually putting out there. And I think that naturally going to drive more confidence and depth in the market.

So to me, I think that's like really interesting.

Yes. I mean I guess that's been a theme across the income markets broadly over the last decade, right, is the growth of electronic trading broadly, but new products really has been about protocol innovation, right, sort of finding smarter ways for folks to interact and find the other side. So it sounds like we're going to see some more of that here in futures.

Very optimistic, it will happen.

So I'm curious to hear what you all think, we asked the last panel, this question about what would you like to see next from FMX specifically, obviously, rates and FX, as [indiscernible] showed us all in the beginning. What are the opportunities here, both either asset classes that might be interesting for the firm to get into or futures types? I talked about perps and prediction markets, which have been the talk of the town recently. So we'd love to hear everybody's thoughts on what should they do next? What advice would you give to management? That's all in the room.

So I'll start. I think they can expand in breadth and depth. I think from a depth perspective, I think they have a really good rates complex that they showed earlier between on-the-runs, off-the-runs, the inflation, like there's an opportunity, I think, to better interconnect those markets because they have a really good presence in all those markets. I think bringing on things like and other protocols and really just different ways of risk management and thinking about how do I manage risk and how do I do it more systematically for a bank or LP?

And then I think from a breadth perspective, there's also credit. There's also munis and there's other products that are starting to go more e and evolve. And I think some of the infrastructure they built interesting to apply in those markets.

Yes. From our perspective, like we obviously trade like a breadth of products like both the ones that are on FMX and that are like on other exchanges. Like from our perspective, like FMX really just like needs to listen to the end user and see where the demand is and like what the end users want and like we are happy to sort of like partner with them and they can support them in this process. And because like you can sort of launch like [indiscernible] new products. But like if there's no end user, then like there's no value being created. So like I think like for the rates like the LCH margin efficiency was like a great sort of a problem that was being solved or on the Fenics UST side the counterparty blocking, this was a problem being solve. So I think -- and some of these problems we may not be aware of, like -- but like whatever the end user sort of like really have a demand for, we're happy to partner with FMX on that.

Not just a copy cats, it's something true and in demand.

yes.

From a new product standpoint, I mean, listen, the 1 that is really going to start adding a lot more value is going to be listed swaps. I would say that's the next frontier for electronification. I was talking to Adam Prouder earlier and how there's like initiative happening on the D2C side, but even like bringing something on the D2D electronification of that market, I think, is the next frontier. And the fact that you can also unlock a lot more margin with swaps being created along with treasuries and futures you suddenly have in moist spreads and you've got T spreads that can also be traded now as packages and whatnot. So that, I think, I would personally be a lot more excited about. And then obviously, there are things like futures options and things in credit futures and whatnot that can be also listed [indiscernible].

Yes, the swaps market has seen write some new entrants in the last few years, which we hadn't seen since Dodd-Frank and some new innovation. So yes, really interesting.

Yes. So just to add on what you said, I was going to suggest swap future because that will further drive margin efficiency.

Yes. And another product, right, that's seen some growth. It took -- probably took about a decade, but starting to -- it seems like it's starting to catch on.

Which is because of the same things that we're talking about here it's incredibly more margin efficient than the OTC version.

[indiscernible], what do you want to build next?

What do the clients want, right? So -- but from my point of view, my goal is to make the products seamlessly executed, right, on the single API, right, similar protocols, right, and same platform. So that's -- as long as I can keep that formula going, then yes, I can bring in new products. I can make it seamless for the clients. One-stop shop, that's really my goal, right, from a technology perspective.

Great. SP1 Do I like time for a question, 1 or 2? Yes. Okay. Patrick, you like questions.

So you talked a little bit about counterparty blocking potentially coming over into the future space. I guess, Pranay, when you think about structure and futures, is your instinct that the value add from being able to segment that flow will be as helpful in the future space as it clearly has been in cash treasuries?

Yes. I think like on first glance, I think there's no reason for there to be not as much of a value add in futures as there was in cash treasuries. I think the main thing that it sort of facilitates is that if you think from a market maker perspective, right, the spreads that you're being able to quote or how tight you're being able to put is very much a function of who you are interacting against and what kind of liquidity you're facing. So if you have -- if you're able to segment out certain types of flow, which you don't really -- which you're not as keen to interact with, then I think it allows you to go tighter or to make your spreads tighter. So I think that same logic, that same rationale applies to futures equally.

Got it. Helpful. And the other innovation you guys mentioned was interdealer electronic swaps trading. Just to push back a little bit. I know that's something that's been tried before, I think, several times before and every time the interdealer swap platforms ghost towns. So I guess what gives you confidence that if FMX rolled out electronic into dealer swap trading that this time would be different, that the market is ready for it?

So I think one of the things that we be unique to the marketplace is our tiered liquidity structure, right? So that allows liquidity providers to carefully manage risk, right, okay? Tailor the risk to their particular consumer flow. I think that applies even more in swaps, okay? Because at the end of the today, swaps is not that liquid, right? So it is a little bit less liquid. So I think what I found that in less liquid products, that type of tiered market structure is even more important. So we have that under our belt, right? Plus we also have this facility where you can trade futures, you can trade cash all in one platform, okay? And adding swaps on top of that as another product tier simply, again, makes the entire marketplace easy for access, right? So I think those 3 things combined probably give us -- hopefully, it would give us a better edge and making that happen.

Any last quick questions? All right. Great. Thank you all. Great conversation. Appreciate it.

Great. Thank you. Thank you for agreeing to be panelists for the LCH partnership and margin efficiency panel. My name is Robert Ellen. I'm President of the FMX Futures Exchange, and I'd like to give our panelists an opportunity to introduce themselves.

Hi, everyone. I'm Pragathi Sinha. I work for LED markets. I've also worked on the LCH FMX partnership over the last couple of years.

Hi, everyone. Sbastien Bennett. I work at Barclays around the U.S. clearing for future [indiscernible].

I'm Gabe Schnell. I run a first-line clearing risk at Merix.

My name is Jim Bergen, I'm at RBC Capital Markets, and I run futures and swap clearing within the FCM.

Great. Well, one of the compelling parts to the FMX story is the partnership with LCH, but it's also one of the areas where we received the most questions. And when we're building the FMX futures, there's an awful lot of focus on execution and liquidity. But the cost of holding positions matter as well. And I think that, that's what Ricky Stern from the last panel was highlighting. And the issue is, when you have a correlated offsetting position at the same clearinghouse like LCH, LCH offers you a portfolio margin benefit to hold that together. The issue is that's not the current landscape. The current landscape is, if you have an interest rate swap, it's probably at LCH. But if you have futures that are hedging that interest rate swap, it's probably at the CME. You have to post margin at both clearinghouses, and that's the core issue here. That is an extremely inefficient use of capital.

Now when we bring the FMX futures exchange into the equation, we're able to combine your swaps that are at LCH with FMX futures that affords a clearinghouse like LCH to provide you a portfolio margin benefit, a rebate, if you will, some of your capital return to you, and that's what we're unlocking.

So I want to start with [indiscernible]. Lay out the foundation, the framework for LCH and the partnership with FMX swap clear? And what we're going to start with is the 3 questions that we typically get either an FMX, LCH or the FCMs is how big is this opportunity, first? And then more down at the participant level or the client level is, hey, how much is I as a client can I expect to obtain, if I'm able to participate in this benefit kind of the, hey, what's in it for me question that comes in from the client, right?

And then finally, really how that client can actually access the benefit, consume it and translate it into a true cost savings? Those are the 3 questions that we get explore those today. So tell us about SwapClear. And from the LCH perspective, the partnership between LCH and FMX?

Yes. No. Thanks, Rob, for having me having me. It's really fun to kind of see everybody some familiar faces out there. Yes, just taking a step back, it was great to hear John's remarks and lose remarks earlier. From an LCH perspective and a greater [indiscernible] perspective, I just want to say how delighted we are to be working with FMX. I've been lucky enough to be on this journey for several years now, and when we first kind of embarked on this initiative, one of the things we liked about FMX is that you guys are really disruptors, right? You you come into the market, you disrupt and you lead with technology. And I think when you take a look at some of the advantages, and I know we talked about it in earlier panels, right, the tighter tick sizes, faster execution, smaller block sizes, these are just some of the many things that you guys are doing.

And I think if you pair that with LCH and kind of where we're strong at, right, our clearing capabilities, our risk management capabilities. And even before we get into margin efficiencies and futures versus swaps and all that stuff, right, if you take a look at our margin -- stand-alone margin methodologies for SwapClear and our standing margin methodology for listed rates, I think what you'll find is, at least in my opinion, I think we're quite a [indiscernible], right? We have lower [indiscernible], I can never say that word, right, where our margin models are predictable and they're stable in the events -- when there's market events, when there's tough market conditions, what you'll find is lower margin volatility is almost as important in a treasury function as the IM savings.

So I think that when you pair LCH's clearing capabilities with FMX's execution, you really do have something special out there. And it's super exciting to see how much success we've had so far and how much success is yet to come. So going back to your kind of original question around size of the pool, right? So I think there's a slide above me here, right, where LCH SwapClear service clears about 96% of world U.S. dollar swap volume by notional. And I think what you'll find is, we've got similar percentages in other major currencies as well. And so I know someone mentioned it in the panel right just before, right, that large pool is there. And what does that mean? It means that you have more opportunities as you bring your futures contracts into the FMX, LCH construct that you can kind of unlock some of those margins savings.

I think maybe should I take a second and talk about kind of what the portfolio margining service is and what we do?

Sure, touch on that and also begin to describe the amount of benefit that client trading swaps and SOFR in the client trading swaps and treasury futures could expect to obtain?

Yes. Let me start there, and then I'll kind of get to what the service does, right? So in terms of savings, I think if you have -- it depends on the kind of the correlation between the products. So if you've got a U.S. SOFR treasury -- sorry, U.S. SOFR future and you have a U.S. SOFR swap, you can see savings up to 80%, right, kind of their risk relationship is quite directly correlated. If you've got a U.S. treasury future and a swap -- U.S. dollar swap, you could see savings up to 65%, 70%. And the most interesting thing is if you're taking a look at the U.S. treasury future versus a non-U.S. dollar swap, you can also see savings as well. And I think that's super important because now you're looking at different currencies across our and we've seen savings that are up to 50%.

I want to pause you there at the moment. And I want to offer this to each of the FCM panels individually. How has your ability to clear FMX futures combined with LCH swaps changed the conversations that you're having with your own clients? Take us through that, Sebestian?

Sure. Thank you, Roman. Again, thank you for SP1 Portfolio margining from is one of the first items that customers are speaking to us about across the board. As the market becomes increasingly sophisticated and the cost of capital top of everyone's minds, portfolio margining and the benefits that clients can obtain is always going to be high on that list. Our ability as an FCM to maintain the market leading position is dependent on being able to offer some of these innovative products to our customers. When clients first started hearing about FMX, it would certainly top of the list of things that they wanted to hear about. What was Barclays doing to support this, both on the health side and then also on the client side as well?

[indiscernible].

I think the beauty of the FMX LCH is it sort of standardizes something that is transparent across the marketplace. I mean portfolio margining is nothing new to banks or where the clearing entity through special vehicles would be willing to finance this, but it's -- it varies from [indiscernible] bank to different places. And I think the consistency of the methodology that LCH brings with the FMX products allows clients to use through the technology there a steady set of hands that manage the collateral needed to support the positions. And when it's equal playing field, people can -- they have predictability and transparency. And that leads to liquidity. And when you have capital efficiencies allow more capital to be deployed to provide further liquidity when capital isn't deployed against multiple CCPs. But in this partnership, I think it's really the transparency and consistency of the model that allows people to build. I don't think we've seen the adoption at the level that we sort of had hoped, but I think that builds on the [indiscernible] volume and the rest of it, liquidity brings further liquidity that brings efficiencies and dependencies to the market.

But yes, we've been there, we are in that place. We were one of the nonbanks. We have a little bit more -- we were able to do some of the original cross-margining with some of the clients that are here today. And yes, it certainly does depend on the complexity or the composition of the portfolio or how LCH's model. It's not -- I'm not going to underestimate the complexity of the model. It is a complex model, but it's consistent and transparent. So that's what we're building off of as a building block to move forward and get further adoption.

Yes. So Robert, you ask, how has the conversation changed with the clients? I think this is directly in line. FMX is directly in line with conversations we're having with clients about a lot of things around excess cash and margin efficiency, right? So over the last 3 years, we have had a marked increase in terms of the number of ways in which clients particularly hedge funds, RV hedge funds, macro hedge funds, particularly but in that space, are looking at ways they are utilizing their -- or managing their excess cash. And we're seeing everything from increased numbers of swap compressions. We're seeing a significant increase in the number of portfolio transfers sort of ex-pit off exchange in terms of managing exposures from FMC to FCM. And so with FMX, this is just a natural conversation about more margin efficiency. And it fits really well into having those conversations.

And I think over the last 3 years, I think for the first time, we've seen CIOs of hedge funds who didn't really pay attention to what the treasury functions we're doing within those funds start to ask really hard questions about like what are we doing with our excess cash? How are we managing this? Where is the cash at? How much margin are we posting? There comes a cost with this now, so how efficient are we being? And so I think that FMX fits really well into all of these conversations and clients seem to be really receptive.

So Jim, I want to stay with you for a moment. So you're having a conversation with the client, and they want to begin to get an idea of what sort of benefit they can achieve through FMX futures and LCH swaps. And what sort of tools, what sort of process, what do you put in front of them to start answering that question for them?

Yes. So we have a number -- so we have multiple lines of defense from a risk perspective in terms of looking at that and running those scenarios, whether they're using LCH SwapClear IM calculator, which we use. But we also have other metrics that we use. We use risk metrics. We use other VAR and stress scenarios. We use other vendor calculators to run these scenarios. But we can run hypothetical scenarios. We can use a realized portfolio. And all of that, we can kind of give some kind of output in terms of what the margin savings are as to what we could see in the portfolio.

So we have a number of tools that we use. We're lucky we have a great risk team in the front office as well that can help us. So it's something we have those conversations all the time now.

Anyone else?

I think we've experienced some CCPs that have started to share sort of a margin methodology that is unique to each CCP. And I don't want to understate the challenges of multiple CCPs running margins on the same position at coming up with 2 different numbers and then having to explain to the client base, this is what we had that is sort of the beauty of what we get in this partnership with FMX and LCH. So we're going to support you as well. And like it's 1 of the very positive aspects of this program.

Yes. [indiscernible], on our side, we will work very closely with clients to understand more about their portfolio, understand more about their trading activity. We can give them demonstrations of what this portfolio is going to look like at various clearing houses. And we also look at it within our own internal portfolio margining methodology to be run as both Jim and Gabe mentioned, the ability for clients to understand how their portfolio is going to behave different scenarios certainly becomes key on their list of things to understand as they're looking at how portfolio is being allocated or how they're allocating business across clearing brokers? All of this feeds into that same picture of [indiscernible] FX being another tool in that too.

So [indiscernible], you began by describing how large this benefit is and how much a client can actually consume. The FCMs are now having conversations with their clients. They're running some projections. They're using your IM tool that's online. What from a structure standpoint, does a client need to do with their FCM in order to extract the benefit from LCH? Talk a little bit about where their futures and their swaps need to be aligned?

SP-66 Yes. Okay. We'll talk about eligibility. So first, the way that Dave kind of mentioned this is quite complex, right? The way the portfolio marketing services works, right, and maybe this is obvious for some of you, but I'll just lay it out, right? What LCH does is it takes your swaps portfolio and it takes you [indiscernible] portfolio, and it assesses the combined risk and it identifies which futures positions are best included under the SwapClear risk calculation, right? So what does that mean? So every night, we run this thing. We identify which futures positions make more sense to be under the SwapClear margin calculations. And then we run our margin processes. So you get a SwapClear margin requirement, it margin requirement. And hopefully, that requirement should be lower once you're opted into the service.

Now it's super low touch. You kind of just opt in and this thing runs every night. And now your question was more around eligibility, right? And that's key, right? So for clients, you need to make sure that you have your swaps and your future is under the same beneficial owner and you're clearing through the same clearing broker, right? From a member perspective, you need to make sure those client accounts are separately identifiable. You also need to make sure if you're looking for portfolio margining from on your house books, you need to make sure that you're under the same legal entity ID. So those things are important, right? You can't be transferring risks between different legal entities. You can't be cross-margining across different clearing brokers. So there are some rules that need to kind of in place. And we're happy to work those out with you. We've had many conversations, some bilateral conversations just to kind of help people get set up properly.

But LCH has really made this fairly streamlined. When FCMs have had these ones and then they connect in to you with their clients. And the clients' accounts are all lined up appropriately, like you just said, all they have to do is opt-in and they don't have to do any trades or end of day trades themselves. That's a very slick process. You do it all at LCH and the benefit automatically goes back through the FCM to the client to be able to consume -- it's very, very streamlined.

Touch right yes. And that's something that we saw, right? This is similar to FMX, right? We're the markets partner. We're out there listening were the pain points. And what we learned is with other with other players out there, the operational intensity around that process was quite difficult. So we've streamlined all of that and have it all working in the background.

Great. Is there anything else the FCMs want to mention about from your first conversations to getting clients up and running that you would like the audience to know because we do have a lot of clients in the audience today. Maybe I'll just start. I think I'd echo much of what's been said. I think Lou said at the onset, I heard him say it, and that it's -- the buy side is adopting this I think Kevin even said it, it seems like a renaissance of sorts, I agree. There's definitely conversations that are happening with clients. I think clients want to see this acceleration of volume and that the participation, I think, will be -- has the potential to be parabolic once it kind of gets to that point where we see that just enough volume there. So I think that a lot of people are just watching we're having conversations and I think people want to see this succeed quickly.

Yes. I mean I don't think anybody more than your previous panelist wants to see this more. And like firms of the same sort of liquidity provider, low directional sort of portfolios where they find the most benefit as general liquidity providers in leaning into MX's liquidity on the back of it to unwind sort of what they were going to see to be the initial trade. And as that builds out, obviously, there's no LCH has the volume then building off of that will, I think, grow this business with the liquidity. And then the less capital deployed for what your client sees is a relatively hedged position allows them to deploy more capital and more liquidity. So it feeds on itself.

Yes. There's an education component to it. We need to make sure that the client treasury teams, the client operation teams that there will involve setup process. They understand the mechanics of how that's going to be working. Your futures are 1 regulatory origin here in the U.S., you'll sort sort of different regulatory origin with a different set of rules and a different set of regulations associated with those. People need to understand what is it -- how does that when you're transferring from 1 origin into the next origin. What does that mean for your trades left in 1 area, you trades out being portfolio margin in another area. So it takes a bit of time to make sure that clients understand how that's going to look and feel from a bank perspective. And that's important wouldn't want to get this sort of thing wrong.

Yes. Subash, I want to stay with you for a moment. So now we have these clients that are up and running. They're experiencing the portfolio margin benefits with LCH. I want to take a step back to something that Prergati mentioned early in the conversation which is LCH's margin methodology is very predictable. And therefore, margin calls are more predictable than many other clearinghouses. Talk to us about the importance of that and what that means for you, your business and your clients. So that sort of stability in the overall portfolio margining. And I'm using out of using a really is broader sense of the term, not just within the FMX and the LCH space, but across the futures and across [indiscernible] more generally.

Clients will want to understand what that portfolio margin -- sorry, what their margin requirement across each of those venues is going to look like and have a good understanding of how their trading activity is going to impact that. So being able to work with LCH to understand that fits together. Clients certainly seen that as a benefit.

Great. I think we're about at the point where we can take some questions from the audience.

So you have on the screen some indicative maximum notional savings numbers. I was hoping now that you guys are getting in front of buy-side clients plugging in their actual portfolios into the LCH margin calculator, what are the real life average savings that you're seeing practice on like how much does the total initial margin across futures and swaps, rates, features and swaps actually go down in practice?

Well, that might be a good question...

Yes. I can start. No, I think obviously, the numbers that you saw are hypothetical, right? And those are obviously best case scenarios. When you take a look at perfectly offsetting exposures that then you kind of see some of those like greater differences, but it really just depends on your portfolio composition, right? So basis or relative value strategies or intuitive candidates because they have offsetting exposures in the portfolio composition. When you take a look at potentially any kind of portfolio compositions where you already have a futures hedge risk that already exists in your swap portfolio, you're going to see benefits there. So it really just depends on that composition and kind of what your strategies are.

I have seen numbers in that general range. It really just kind of depends. But using the LCH listed margin calculator or the swaps margin calcular. You can -- what you can do is it loads up your swaps portfolio and then you can put in hypothetical physicians and around a whole bunch of different scenarios and see what those benefits would be.

I mean realistically, we're getting 50% to 60%. But there are there's a hierarchy in the methodology where you might have swap versus swap that might take priority over that gives you -- under the LCH model, there's a swap versus swaps. So that could give you an efficiency long short, that might take priority over a future as it rolls in next. So there's a hierarchy. But in a clean vanilla how much is just trading incrementally going to cost, those numbers are in the on a portfolio, you might not see that 80%, 70% range, but you still are seeing a substantial number. And capital efficiencies, whether it's 80% or 50%, I think they're welcomed by the participants especially the liquidity providers.

Yes, I think just to add on that rate, it depends on direction, tenor, curve exposure, concentration. I mean, there's all these kind of factors that kind of bake right into it. So you do see those numbers.

Got it. And for the FCMs, I guess, how important is enabling cross-margining to the cash, like replicating something akin to what the the CME and DTCC have done? And then Bergade, is that a capability that LCH can help FMX with? Like is cash treasury clearing eventually something that you guys would be able to bring to the table.

I think you already prepared your answer.

Yes, I do. I was ready for the question. So thank you for that. Okay. So the clearing of U.S. treasuries is obviously topic on the post-trade landscape. LCH is obviously watching this. We've set up the [indiscernible] roundtables. We're watching the news reports. We're seeing what kind of other players are doing out there in terms of partnerships beta and what CME is doing, what [indiscernible] doing. But I think where our investment and our priority is, is kind of building out to what our strengths are, right?

So we have built our SwapClear business on bringing together efficiencies across different currencies and building scale, liquidity and netting, right? And we think this is a compelling argument to add listed rates to that space along our SwapClear franchise. So while we're kind of watching how the markets develop, our focus has been on the future space and on the swap space.

Would you say it's fair that you're still analyzing it from a firm perspective?

Yes. I'd say that's fair.

I would say from the FCM perspective, it's 1 of the many things we're looking at. And I think there has just been an influx of new things that we're trying to do as an FCM, things are changing so quickly. I think all of this treasury clearing is consuming a lot of time, but we also have other initiatives. We have FMX, we have new exchanges we're joining. And so we're trying to balance all of that. But suffice to say, all of this around either whether it's cash or whether [ futures ] swaps, it is probably the #1 most discussed issue margin optimization with clients currently across this construct.

There isn't a week that goes by that we're not having multiple inquiries from clients about sort of what we think about the likelihood of certain products, where do we think our efforts are, where are we going to be focused? How is our repo team looking at this, how are we integrated with are done with trades and how is this all going to look across the FCM. So to answer your question, I think it's one of the most paramount important things that clients are talking about right now.

Yes. And I think I touched on in an earlier answer, like what's going on now is 2 different CCPs that are sharing physicians. And what is the optimal part is now that you have to send orders of different CCPs and that gets really, really on the club level. But having a central one CCP that had the model that was uniform and transparent is I think where all the FCMs are struggling to see like, okay, how is this all going to play out with mandatory cash clearing and what was limited to house positions cross margin between cash and futures as that's getting rolled out to futures for clients, which we've been there since day 1, it's not without challenges. It is a very challenging problem. And I think there's a lot more to come as mandatory clearing goes full bore at the end of this year.

Yes. We want to make sure that we're available for clients when we have all of those types of offerings that are available. Client -- we will respond to that client demand. If the stuff is going to be around them. We'll look to see how that works. It was a viable offering, it's a competitive offering, if it makes sense with the broader platforms.

Any other questions?

So the numbers you put up there for the offsets with the swaps impressive. But I think probably aware the competitor offers even more offsets. I think in SOFR, it's well above 90% in treasury, it's 80% or 90% in some cases. I'm curious what the process is at LCH for to that level? Is it time? Is it open interest? What is it that gets us there to equal to the competition in terms of percent offsets?

I missed it.

He's asking how to increase the amount of go offset that a client can obtain because you've seen in the competitive landscape, some higher percentages with other opportunities.

It's a good one. Again, I think it just really comes down to your portfolio composition, just comes down to how -- what are your exposures look like? What does your tenor look like? What does your concentration look like? If you're 1 directional, you're not going to see much benefit no matter who you play with, right? So I think focusing on that portfolio composition is kind of where the key is.

From a standpoint of getting higher than 80% I think there is some European regulations out there that kind of do some -- have some restrictions around that. But I think there is a lot of savings to be had, but it really just kind of depends on what those portfolios look like. Hopefully, I answered your question.

Anyone else? Well, thank you, panel participants for your time. I believe we are taking a brief intermission. Correct, Jason? Yes. Thank you.

We're going to take a quick 15-minute break. If everyone could be back just before 3:30 please.

[Break]

If I could ask everybody to return to their seats so we can start the next panel.

I'm Steve Merkel, General Counsel at BGC and the Chief Legal Officer at FMX. We have an interesting panel. Immediately to my left is Alex Titus, who is the Chief Adviser to the CFTC Chair, Michael Selig. Before that, he was Chief of Staff to Steve Miran at the White House Council of Economic Advisers until he moved on to The Board of Governors?

Yes.

Which suggests you probably have some sense as to economic impact with respect to these products or at least people look to you for that. We have then Josh Sterling who's at Milbank and has been leading Millbank's nationwide litigation efforts concerning the legality of events, contracts and prediction markets and does advise clients on other things, but including perpetual, security futures and other protocols. And then finally, we have George Canellos, also also at Millbank and who has done a few rounds in the government prosecutor at the U.S. Attorney's office here in Manhattan as well as the Co-Director of the Division of Enforcement at [ PSEC]. And so we're going to try to get into a little bit of all of that.

But Alex, I did want to start with you and talk about get your perspective on when the CFTC cares about U.S. markets being competitive with overseas markets, when it doesn't, clearly, you were -- everyone was on the sidelines until the President's Trump 47 came into office, and there were already all sorts of offshore sports markets and predictions, they're perpetuals, there were assets trading on the blockchain, predominantly offshore. How did -- if you could just describe for us, how does the CFTC decide we want to make it easier for those markets to be traded in the United States for U.S. customers to not have to use a VPN to pretend to be somewhere else, but to actually do it here. How do you decide what's worth bringing importing and what isn't?

Sure. Well, I'll -- actually, my lawyers tell me I have to start off by saying my views might not necessarily reflect the Chairman or those of the commission. So anything can be attributed to me personally. But as you had said, a lot of these platforms, which some of them originally had started in the United States went offshore under the previous administration, particularly German Gensler over at the SEC had this mantra of regulation by enforcement and intentionally tried to push the crypto industry offshore. And I think that's had 2 really negative effects.

One is the investor protection. Of course, there are some folks in the U.S. or the EU or other jurisdictions who are using to go into these offshore platforms that are not really regulated by anybody. You can have funds that go missing. There's platforms now that are offering 1,000x leverage actually saw some tweaks this morning that someone is trying to offer 10,000x leverage. So obviously, there's the sort of consumer protection regime that is built into CFTC compliance that folks, if they are trading U.S. offshore getting which I think is unfortunate and is bad for consumers and investors.

And then second, a lot of people are clearly interested in these products and want to trade in them. So it's been a big mantra Lake to bring a lot of these platforms onshore in a safe and responsible manner. So we've been working very hard at that.

So Josh and George, do you -- what's your perspective on this CFTC trying to have the U.S. be more competitive with respect to these new markets.

Yes. Well, I think there is a real sea change compared to the prior administration. I think you find leadership of both agencies are really focused on how to make America more competitive because vibrant financial markets lead to or sustain a broader, more vibrant economy. And it doesn't make any sense to sort of balls and strikes on what's in and what's out. It's a particular type of asset class. Certainly, you could have assets here that weren't as prevalent before, maybe not times leverage perhaps. But that's sort of a line you can draw once it's here.

So I think they're doing a good job. I think they're trying to be careful and thoughtful about it. It's interesting. A lot of it is pushing in areas that exist in the law, but really haven't been touched in 25 years or more like security futures products. The rules are there. everyone's forgotten them, but they do offer a ready path for innovation and people are making real progress on those paths. And so to the extent you can innovate and bring onshore what's offshore through existing rails, here that the regulators know, I think that's sort of a quicker way to do it. And I think both agencies have been fairly accommodating in that.

George, any perspective you want to bring from...

Well, I'll just add a comment maybe from a little bit of an SEC perspective. I think right now, you have the swaps markets innovating in all kinds of interesting ways. And some of the ways that they're innovating are extremely disruptive of some historical state laws or you might say state sources of revenue. But you haven't had that much push into the securities-related markets. it's beginning to happen. And I think as these -- as prediction markets and swap markets in general, enjoy greater and greater acceptance retail participation, you can expect that there's going to be a great deal of interest in products that are within the SEC's jurisdiction.

All all securities-based swaps, which would include any kind of predictions market bet relating to an issuer or the performance of the issuer or the value of an issuer or even events pertaining to the issuer like will Amazon reach $750 billion in annual revenue, will Ozempic be approved by the FDA, all of those very interesting economically driven swaps would be within the SEC's jurisdiction. And I don't think -- I think while the SEC is making all of the rate is offering all the right talking points about its openness innovation and its openness and willingness to cooperate fully with the CFTC and try to come up with ways to come up with integrated regulatory approaches for in market that cross both CFTC and SEC jurisdiction.

I think the SEC has been much more reluctant to permit some forms of what you might call innovation or we might just say, encroachment the historical regulatory regime of the SEC, which requires extensive disclosures, which tends to forbid retail participation without extensive disclosure regime. So I think the CFTC is probably a little further along the line in accepting some new products in the SEC is.

Well, from a policy perspective, and this is for Alex and Josh, does that suggest that the CFTC not necessarily having a focus on disclosure is at risk with respect to how retail investors are treated trading these products.

Right. I think this gets down to the fundamental difference between the securities markets and the markets for financial derivatives. One is the price discovery market that's the CFTC. And the other one is sort of a wealth accumulation capital raising market where you actually own something, an investment contract and that's the SEC. And I've had a lot of conversations with the SEC for people wanting to develop novel products that have some SEC overlay. And the conversation can often begin with while you're just throwing out 90 years of history on getting offering documents and annual reports out people just want to trade the price of a stock rather than own the stock and receive the dividends in both the proxies.

And the answer to that for someone who has more price discovery biases, yes, that's exactly what they want to do with the ex problem. And they have a problem with that. So to me, it is true that on the CFTC side, there's much less disclosure. I mean if you're offering a fund that trades futures to retail people, it looks a lot like the disclosure mutual fund. But outside of that, it's sort of no, you're in the market, you're going to find the right. And if there's a problem with the price discovery mechanism, well, we'll come after them with our market you're right, it's much less disclosure, and it's always been that way. And I just think that stocks are thought of as more of a retail phenomenon than say, futures and swaps are.

I think the one thing I would add there a jurisdictional, I'll call them, turf battles that have plagued both the agencies for quite some time. Obviously, I think we're seeing that come to light faster with some of these new registrants that are coming in offering products like security futures and things like that. But that's exactly one of the reasons that we have this SEC, CFTC, harmonization effort. I think it's safe to say that Chairman Selig again, Chairman Adkins are probably the 2 closest CFTC and SEC Chairman that have held the seat at the same time.

And obviously, these are -- these can be tough conversations. It's a lot of policy to work through, but we think these are the exact issues that with when it comes to harmonization and that relationship is so important, which, of course, at the end of the day, it's not really a turf battle between the agencies as much as it does this benefit investors benefit the market overall. So I'll just add that.

I want to talk about...

And that's probably the first time since 1974 when they haven't been essentially rivals of one another. I mean honestly as much as you would have prior talking about seamless cooperation between the 2 agencies. You almost never had that in reality. You would have the same sanction in both duplicatively against companies for the same violation. And I think 1 of the areas where you can just give both agencies enormous credit is for recognizing that, that was a problem, and that was a 50-year problem that has permanently. It's maybe just been solved for the next couple of years.

It's a good example for people to follow. So I wanted to talk, I guess, at least one FMX question at least. So FMX positions itself as a differentiated futures exchange that will provide competition to a pro-competitive alternative with the existing leader in in rates products. Is that -- it's sort of a so-what question. Is that -- are those factors important to regulators is the fact that pro competitive. Does that make a difference? Does that ever really matter to, let's say, the CFTC and should it matter?

Yes. I think if I had to speak for the Chairman, I would say that it is important, of course, give one example where our largest registrant just happens to be pursuing us over a new product offering in the U.S. So I won't add any more detail to that than that, but I'll let that speak self. But I mean, I think we think competition is good in a few ways. And one, with competition usually comes innovation. I think the CFTC is probably the only government agency that actually the promotion of innovation is within the statute. Maybe somebody can point out that I'm wrong, but I was quite shocked to actually learn about that because generally, we think it's government to be the least innovative entity that does exist.

But I mean I think competition can generally be good for incumbents as well I mean, you keep folks on their heels, you force them to try to innovate, you force them to compete. I think it could be good for them in that way and it can be good for the overall market and for participants who are trading.

Yes. I agree with that. I think that when I was at the CFTC in the first Trump administration, the thought was always how can we get more people market, how can we get more dealers into the market for swaps. It doesn't necessarily have to be that the largest swap dealers are the largest or are the only ones. And how can we lighten the burdens for some of them that are smaller or have sort of a different acts in the market than say, we're here just to provide this solution for everybody alongside the lending business. So I think that's true with the markets and clearing houses as we clearing house diversity is an issue. It's important to have more of those. And it's important to have clearing houses like a anteaters in different areas like futures. And I do think that there is a strong interest in encouraging that.

One thing I've often said in discussions with the regulator for clients as you're not in the business of issuing monopolies. You're not a state giving someone a gaming license. So you should allow more people to do this and give them a fair shot when they want to innovate which you always run up against is when you have an innovative idea because there's the incumbent because the incumbent has done what they've done for a long time, the everyday staff at the agency will say, well, what you're doing doesn't look like what I know. And so there's a bit of a mental block which you do need to break down and sometimes that involves discussions with the leadership of the agency just sort of making the substantive case like look at it may be different, but it's still possible. It's still legal, so let's do that, shall we.

So Alex, I want you to talk a bit about [indiscernible], right which is if you sort of look at what's an astonishing area, which is a major industrial commodity, copper aluminum. It's not really -- the futures are really traded here. I mean there is some but not really. They're in the LME run by an exchange, which when it feels like it can cancel billions of dollars of nickel trades, right? So this would -- I'm just wondering, is it appropriate and for government to -- the U.S. government to look at that and to say this is a risk, right, with respect to our manufacturers and others. And if those who aren't aware, just take a look, just now on the Internet with respect to the LME canceling the nickel trades.

And it's sort of shocking. It's the only way to put it. And they -- I guess, they could do it in copper, they can do in aluminum. What is -- do you think is the U.S. role when there is this kind of potentially economic vulnerability to our factors?

Yes. I mean this is a top priority of commission during the Chairman's first major speech at the FIA BOFA conference. He was very clear when he said we want to create and bring back markets for base metals and minerals in the United States. And I mean, you basically summed it up right, Steve. Most metals trading, price discovery and setting is done on one offshore venue in the U.K. And I think that we do have some concerns about that. I think there are some concerns on the financial risk side of things as well. And I mean the President, of course, talked about this issue, right? I mean he's wanted to bring back steel production states, bring back aluminum production. There are steel plants coming online as well as a new aluminum smelting plant in Oklahoma.

But we want to see more of the financial activity happening in the U.S., more of the prices happening in the U.S. and more of the actual physical storing of the metals in the U.S. as well. And I think it's really interesting to see what's happening in copper markets because the U.S. actually had so much copper right now. in the country, they don't have a place to store it. They're storing it in trains and then I think some of it is stuck on ships as well. So it's a top priority for the administration as a whole as well for the Chairman. I would say we want in this space. If anyone has any interest in this issue, I'd be happy to chat about it as well, so.

That's a great invitation. I guess I want to point out, and it's not just because of our friends clearing house, but I don't know whether or not the LME can be strictly thought of as being run out of London anymore, right? I think there's another -- you have to go a few thousand miles away before you find the real governance. Fair?

Yes.

I did want to talk a bit about, again, the prediction markets and how futures swaps, security-based swaps, the SEC jurisdiction, CFD jurisdiction can get a bit jumbled. And just talk a bit about -- if you were here, it was a fair amount of discussion of basis trades, which come up in a variety of ways, but the simplest is really cash treasuries against treasury futures. And people -- that's a very esoteric sort of trading.

But if one were to go on a step beyond that and think about prediction markets on basis trades and imagine there would be, in fact, a prediction market as to how a base -- what would be the basis at a given day in a given time for a given maturity. How should lawyers, how should -- how might they advise their clients, how would -- how should the government think about that both with respect to over-the-counter markets where you might just have very sophisticated customers doing it as well as possibly sitting on DCMs. How is that kind of multi-jurisdictional [indiscernible] type of a prediction market on top of, right, what is basically a CFTC and SEC conjoined product.

Sure. So I'll welcome George's views, too, of course. But I think that I'm all for markets. It's what makes this country what it is. it would seem to me to be a good idea. I think that basis trading is important. Illuminating further base of strength through prediction markets will probably be helpful. There's information in it. And having a venue or set of venues like FMX does that allows for cash trading and derivatives market trading, which underpins space is trading is useful. More of that and predictions on it provide more light, more information and might improve the ability to surveil the market that might provide efficiencies. It might provide different changes in trading behavior become more visible and better surveilled.

So I think that there are a lot of good -- there are a lot of potential goods for it. I guess one question could be, if you accept the premise that a lot of trading operation to date has been retail. Well, people really know what they're doing. I think the answer is yes. There's a lot of literature out there to suggest if your typical picture market trader Sure, there's is actually a pretty knowledgeable person who comes more from a trading background than, say, gimbling background. And so I think it's something worth pursuing.

So you're talking about basis trades specifically?

Well, just talk about any prediction mark that represents on a product that has both futurity and security.

Yes. So Look, I think a theme in response to many of the questions, Steve, that you posed today is that we -- if we really could remake our history or we remake our future, the CFTC and the SEC should be one agency like it is in many countries. Because when you identify basis trading, especially cash versus treasury futures, for example, you're basically evoking to historically completely separate regulatory regimes. And even though you're talking about a product that is more an ear to the art of right?

So it would present questions of -- important questions about how one harmonizes the 2 regulatory regimes even doing such simple things as ensuring that you could have cross clearing so that you could net physicians presents more regulatory complications than it should. And so I think we should strive towards more integration. And if I had it my way, the 2 agencies would be the same. I will say though, I don't think that particular product is one that would be very controversial because I think the greatest concern that the SEC often expresses when it comes to prediction market products that maybe encroach on traditional securities market is that they have all the ability to present opportunities for trading with none of the disclosure obligations.

And if you're talking about like basis trades in the U.S. cash treasuries and U.S. futures markets. I don't think that presents that concern since there's no real disclosure regime for the U.S. government. And I also think that it's the kind of product is, by its nature, one that would be attractive for institutional investors. So the extent that the SEC has a strain of concern, protective, paternalistic concern for retail investors. I also think that concern probably not pronounced here.

George, do you want to talk a bit about enforcement and let's stay with for the moment, predictive markets. It's still a -- it's had an early stage and there's an interesting question whether the agencies should be really looking at them carefully for enforcement purposes or where there could be a fair amount of mischief at an early stage, the Wild West or wait until the market sorts it out and the users figure out which platforms have integrity, which ones don't. And only after that sort of maybe do a look back as to -- as to what occurred, do you have a sense as to let's say, if you were involved in enforcement.

What sort of investigations, what sort of data would you look at in order to try to get ahead of what again could be enforcement issues and perhaps prevent abuse. Specifically in prediction markets. So start there because it's sort of the newest, right? It's the new great thing. And I don't know if there's been much enforcement action yet.

Right. Well, I guess I'll say this. First, one of the big concerns and predict -- 2 big concerns on prediction markets are market manual and insider trading. And those concerns are very real ones. I think -- and there are a reason why many people will not participate in prediction markets. I will not touch prediction markets because I fear that others, my counterparties have more information than I do. I don't feel that way in the securities market. So I do think it's a grave concern and if it can be addressed, it would help those markets a great deal.

But it's not -- there is not without -- the challenges are great. If you take an example of like the securities markets, why do we have so much insider trading enforcement in the securities markets, especially equity markets. I mean, it used to -- because we have a perfect paper trail of surveillance. We have an organization called FINRA that tracks equity trade that applies algorithms to look for and surveil for possible MMPI that will cross reference major market events with trading activity that assimilate information that comes from multiple markets so you can compare options and ordinary. Do you have anything like that in the prediction markets yet. It's developing. You don't have anything like that.

But you do have very motivated process with all the same tools that they have always had mail fraud, wire fraud, including actions under both the commodities and securities laws that allow them to bring criminal actions and that, I think, and they will and do. We also have increased pressure on the exchanges themselves to engage in meaningful surveillance. And I think over time, as the markets become more popular, you will probably have the markets sells enhancing their ability to surveil and so we'll see enforcement actions, and we will see, I think, increasing transparency and integrity in those markets.

Yes. I would add on to that. I mean, obviously, the markets have grown significantly just over the past 1.5 years or 2 years. I mean I think [indiscernible] and poly market were just mostly election contracts in the run up to the 2024 election. Obviously, list a bunch of different products now, whether it be sports, whether it be culture or whether it be commodities. Obviously, they're in different markets for whatever market participants are interested in. But this has been an area of top priority for the Chairman. I mean, as he has said many times, the comp is on beat.

We have a great enforcement Director. I used to work at SDNY, started his career at the CIA, David Miller. And I would just say to anybody, if you think you can get away with price manipulation trading or any other sort of shenanigans on prediction markets. We will get you the SD and we'll get you or the SEC will get you. So I would be very cautious for anybody who thinks it's the West we are watching.

We'll all be watching I'm actually going to see who you're going to bring down because I think they're still distrust, exactly what George said. People don't really feel at the moment that it sort of you don't know...

I think they're all very motivated. The problem is the surveillance tools. You just don't have the data that you had in that market. I think that's 1 of the bigger challenges. But absolutely, I think everyone is committed to these areas.

I wanted to talk about the crypto markets. And the question I'm going to ask is sort of what why do we think that they necessarily matter? And I want to distinguish between the cost benefits and primarily the benefits of the blockchain and its friction with 24/7 opportunities, particularly on the payment side. I want to distinguish between that and the crypto currency and just get a sense for if I told you that Congress will never pass the Clarity Act and if I told you that in January of 2029, there a new administration, which will take a very tough look and ultimately will lead to the very high values that are in some of these cryptocurrencies that if not the bubble bursting a severe decline in what they're worth and very few people think of them as a store of value, notwithstanding the utility of blockchains. If you knew that was going to happen, would you continue to try to create the framework for these very difficult to value, very difficult to disclose cryptocurrencies.

You gave me a really easy question for the last one, Steve. I would say, I mean, the market capitalization, I know, for most of the major cryptocurrencies is currently -- I think it's a little bit above $3 trillion or something like that. I mean obviously, a lot of people just like to trade these products, whether they're trading them offshore, they're trading them in the U.S. There was a lot of trading activity. I mean, really, really across most of the world for assets. And I would say on the Clarity front, we were very disappointed that Congress wasn't able to pass that bill and bring it across the finish line.

And I think by the end of it, I mean, I don't know if -- and I won't speak for any of the senators, I don't know if anyone was perfectly happy with the final bill. But to me, if no 1 is perfectly happy, that sounds like compromise. So I mean, the President, the White House, they worked very, very hard to try to get this bill across the finish line. And unfortunately, it didn't. But some of the folks in the audience may have seen, we actually just rolled out a new advanced proposed rulemaking, both on crypto transactions as well as crypto asset market. So with the CFTC, and I'm not going to prejudge anything, we'll obviously get comments on this see how everything plays out. But is a federal option for those different exchanges or startups who want to have a federal opt out from some authorities that are currently overseen by the states and then overseeing certain types of transactions that always overseen whether they be leverage margins or finance.

So I think a lot of folks will come to the commission with really interesting ideas. We'll kind of see how that works out. But I would be a little bit more bullish than you, Steve. I think crypto is probably still to stay even with the change in administration.

I won't ask for your prediction as to our Bitcoin trades in January of 2029. But I will ask Josh and George, do you think that there is a chance of regulatory with respect to all the work being done with respect to the crypto currencies.

I think there's the possibility of that. But I think any time you try to do something new or different, that's always a possibility. And to the extent you're doing it by regulation, it becomes with appropriate authority and the statute I would that, it becomes that much more susceptible to abrupt change. And the concern is things will swing back and forth more broadly on the pendulum between parties and control. So I think that what could be done by regulation or order can be undone by regulation or order quite quickly.

So there's a concern about that, but with a lot of innovators we meet with our basic message to them is, look, as you -- I can't tell you the business case, you didn't hire us for that. But my advice to you is to consider getting your license and building and issuing products quickly, once you have a license, you have constitutionally protected you process right and how that licenses given to you maintained or you've taken away. It's a very important thing to have in your quiver. And then issue products, so there's substantial reliance interest doing. And that will always make political constituencies at least think twice about undoing it.

So you can manage it, you can't prevent it. But if it all goes away, if the advanced notice becomes a proposal becomes a rule, as I expect it will, and it goes away suddenly. I'm sure there will be a lot of regret about that. But I don't think it will be regret from having done it, it will just be that we can have a committed course of action in this country around a quite large asset class. Nothing to add there.

Okay. like Steve, why don't you just tell the audience what you would like their takeaway to be with respect to the work that Chairman [indiscernible] and his team are doing.

Sure. Yes. So I would say 1 thing we've tried really hard to do with industry -- just actual engagement. So we like to joke but now we actually have folks come into the building, the share ideas. Some of these ideas may actually turn into policy action. We're not going to host you in the building just with the subpoena on the way out the door. So we meet -- I meet with folks in the industry all the time, no matter if you're working on Dadi, on crypto, on prediction markets, compute metals. We are always open for a conversation. I think really good ideas come from market participants and as well as some of our registrants and where policy should go and where areas of concern are. So I think that would be the biggest takeaway to the folks, if you're interested in engaging with the CFTC more as we'd be happy to have the conversation.

I don't know if there's time for questions, but I'm if anyone has any questions for these panelists?

Sure. Yes. Just a quick one. So we've heard today from FMX clients who have talked about this idea of counterparty selection or counterparty blocking being a big value add in the treasury club. It's my understanding though, that, that is not allowed under the Commodities Exchange Act. So future menu like FMX would not be allowed to do that. Is that something that maybe the CFTC is reevaluating -- or just would love to get your thoughts on that.

Happy to take that question with you off-line with the colleague who might be a little bit more [indiscernible].

Thanks for doing this, Alex. You mentioned at the beginning that part of your mission and the statute is promoting innovation and competition. I guess when you look back, clearly, in the industry futures market, your predecessors haven't lived up to that objective. And like I wonder if you and the commission have diagnosed why interest rate futures evolved into a monopoly. And I guess what the takeaways from that postmortem are and how they play into your approach regulation on a go-forward basis?

Yes. So I won't, I guess, address the specific market dynamics, but I'll take the competition part of your question. So I mean, first and foremost, I would just say allowing folks to actually enter the market has been a high priority of this Chairman. So obviously, we have DCMs, we have DCOs, these applications come in front of the agency. For the first time in history, we're actually approving new registrants on the 180-day time line that has been given to us by Congress. I'm surprised that's not really been an issue. I guess, the concern of Congress in the past that they've given us this mandate. We've kind of failed to deliver on it. But I would say that is one bare bones thing that this Chairman has wanted to do is if you are raising all this capital you want to enter into whatever new market it is. If you put in a good application, we will get questions to you in a response too quickly to actually allow you to operate as a business. So I do think that, that piece is really important.

And then again, in terms of just the new product offerings that we're allowing, I mean the perpetual future again, won't do any name calling here. Some have at least called systematic risk to their business, right? We are bringing in these new products and promoting innovation. So again, won't really respond. Maybe 1 of these guys will market dynamics. But I mean, again, I think competition is better for our registrants. It's better for market participants, and it's just better for the public in general.

Can I add 1 observation there? I mean 1 of the challenges is, and this pertains to all financial markets. A lot of financial markets are -- have some natural monopoly characteristics. So deep liquidity, centralized clearing, netting efficiencies, create competitive advantages and huge barriers to entry. And there may also be some activity by the monopolists in the sector to try to reinforce that monopoly power other arrangements that could implicate antitrust laws, but there is some natural monopoly or networking effects in the markets. But 1 of the areas that's I think most interesting in the financial markets today is that some of the products and innovations do allow -- I mean, ideally, you don't want to have a monopoly.

You want to take all the advantages of having a natural monopoly, but you don't want to have the inefficiencies and abuses that can come with a complacent monopolist who's not innovating. Some of the big innovative products today are ones that help to break down those barriers like interoperability of clearing better systems that allow 1 to assess and take advantage of liquidity in multiple markets at the same time. And I think those are the kinds of products and services that you really want to have regulators encouraging because they give you the best of all worlds. They give you advantages, the clearing and netting opportunities without giving you 1 complacent competitor who's no longer innovating.

Any other?

Are there any concerns like on a risk perspective from retail investors on some of the new products you're talking about, whether it's perpetuals and like the leverage that comes with that? Or some of the loss statistics for retail investors on prediction markets. So just from a CFTC perspective, like how are you looking at that?

Sure. Yes. There are currently no prediction markets in the U.S. There may be some offshore they're offering leverage for their product. It's something that -- at least there's been some news reports on this from some certain exchanges, but it's not something that we've approved, at least -- now these products have to be fully collateralized. But in terms of the leverage point on perpetual futures, I mean, again, I think this is just such an important reason of why we need these products onshore. I mean you're just never going to see 1,000x leverage at the CFTC or 100x leverage. And you have these offerings on -- I mean, fairly popular offshore platforms that have a lot of liquidity. So I mean, we think those are just too risky from our perspective for most retail investors.

Obviously, anybody who's offering leverage needs to go through our division of clearing and risk to be able to make sure they have those proper margin levels. It's actually reviewed by staff as well. So Again, if folks want to trade these products. Of course, that's kind of up to them. We have a very free market view of this, but you're just not going to see things like 100 or 1,000x leverage when you have the CFTC, consumer protection framework built in place. So again, I think that's a really important reason to get this stuff onshore compared to having it offshore.

There is -- thank you. There's only so much longer I think I should be delaying my CEO from speaking next. Who is the next speaker, but I want to thank the panel for a very enjoyable and interesting conversation. Thank you. all tariffs are in SP-12.

Okay. So in the interest of trying to catch up on time. I know this is probably part of the day that certainly, some of our shareholders, future shareholders and analysts have been looking forward to in terms of breaking out. What does this all mean for BGC? And so for the first time, we'll break out where FMX is in terms of its financials. I go back 3 years, and you'll see that the FMX business has grown from $48 million up to $122 million for 2026, which is quite some 36% CAGR in terms of revenue growth. And you'll see that obviously dominated by our rates business, starting off in cash treasuries. Our FX business, 1 of the fastest-growing businesses, although only going from $6 million to $12 million, a 100% increase but just think about the potential size of that marketplace. And I think in 1 of the slides that you saw that Lou put up earlier on, you saw where we go from $1 billion up to $18 billion a day, and that marketplace is significant. Clearly, market data, market data -- market data on treasuries. I'm going to take you back a little bit as well, which is if you think about when we sold eSpeed, back in 2013, we sold eSpeed was generating circa $100 million worth of business, made up of just under 20% in market data and the balance obviously in execution.

And so here, you'll see the market data numbers are pretty small, again, so with huge room for growth. And I think what Lou pointed out earlier on is that we have a sort of 6% market data piece, CME, of course, has 13%. So again, significant room for growth.

But let's turning here to compensation. I'll break it out into 2 categories because these are electronic marketplaces. These are exchanges. And so looking at compensation, what you see is you see how it's going exactly in the way you would expect it to go. You go from having compensation as a higher percentage in the high 60s basically because you're not charging revenue at the very beginning, shrinking down to now into the levels of just below 40%, a front office comp.

Look at technology. technology costs now, obviously, there's a significant amount of expense that goes into building the platform. And you can see there that, that started up at $34 million and now 3 years later, is still at $33 million despite the fact that we've now got multiple new products. And then finally, within that -- within the SG&A, I would say -- this -- all of this reconciles to our AE numbers within for the overall BDC group.

But you'll see there how the loss gone down from $29 million back in 2023 to $18 million. And just remember that back in 2023, we had no futures platform. The futures platform that exists today is already there already paid for, and therefore, we have tremendous operating leverage within the business. So there it is. You can see the -- you can see that the front office goes from 56% down to 39%. Again, if I go back to when eSpeed was in play, back in back when we sold in 2013. -- compensation, I would -- we would expect the compensation to continue trending down because right now, there's the expense of futures, but there's no revenue for future.

From a technology perspective, gone from 70% down to 27%. Again, you've seen the stability of that cost base. And so what do I think going forward? Well, we think we think the following. So if you think that's where we've gone in the last 3 years. If you simply -- if you simply continue that growth, they remember -- we don't give -- we do not give full guidance for full BGC. So what we've given here from an illustrative perspective is to say, if we continue growing the business in the way that we've grown for the last few years, -- and I think after everything everybody's heard here today, I think that is a significantly high chance that's going to be happening. Then what happens revenues go over those -- over the next 3 years, revenues in that basis if it was to grow in the same as it has in the last 3 years, revenues get to that north of $300 million. And the incremental margin is 50 points, at least 50 points.

And again, I think one of the things that we learned was when we built the cash treasury platform, we built it at a time where interest rates were pretty much 0. And therefore, the trading volumes were probably as low as they had been. And the questions we used to get from our investors were when you're going to see revenue. And we said, look, it's about building volume. So when we created the -- when we created the Futures platform, we were very clear on our 3-year plan. It was all about connectivity then getting volume and open interest and year 3, which literally we started right now, and that's when we start to become -- that's when it's about increasing that market share.

And so I think I think that we have a tremendous operating leverage in terms of revenue and think about it, right, how do we generate the revenue. We have -- and this is a playbook that we've executed many times. You've got the all you can eat, all you can eat deals, which, of course, break unit economics for the key players within the marketplace. You've got, obviously, those paying on the fee per million charge on the per million of notional traded. And then you've got the FMX Futures obviously charged on the futures contract, which is 0 today. And then, of course, you have the market data piece as well.

So I think a natural follow-up question, of course, will come. How -- I mean, you could just imagine how you map that into what is BGC, but I think everyone here can see that with 36% growth with a business that actually has all its costs already within the business. I think FMX, from a financial perspective is in fantastic position.

And with that, we'll make up some time. We'll go to some Q&A.

So it looks like the market share of FMX and broker tech -- FMX UST and broker tech has more or less converged like roughly 50-50 now. But they're booking about $160 million a year of revenue. You're at $122 million, and I think estates FX. So $103 million. So is there any plan to pull the lever on pricing? It seems like you guys are coming into the significant discount to your closest peer.

Sure. So the answer is twofold. There are -- believe it or not, it's still is in its infancy. So you're correct from a market share perspective, they're at 42% market share. 2 ways in which we can -- or 3 ways reading, which will increase revenue in the cash market. Number 1 is, number 1 is in terms of there is incremental increases each year in terms of the fixed fee. So you'll see the 1 price deals go up in 2027 and beyond. -- already contracted. Number 2 is in terms of the fee per million, if I think about where the fee per million is at the moment in the early -- in the -- in what is the early stage, I think that has the potential to almost double from the point where it is right now as more participants come in.

So that's 2 things within the cash treasuries that absolutely, we think will happen.

Can you hear me? Just on the cost going forward, can you walk us through how much BGC is going to cover. I know you said this flows through your income statement, but how should we think about how much of the commitment is going to be from BGC from a cost standpoint going forward? And is there any appetite or need that you foresee in the future to maybe raise more equity capital and just how you're thinking about funding the business broadly?

Sure. So there is -- the second part of the question is there is there is no need to raise more capital. I mean, as you can see here, with a platform, a fully built futures platform that on a pretax AE basis is 8 years, a loss-making of $18 million. I think on a company that generates revenues of $3.4 billion and of course, with the money that we put in by the investors already. But the answer from a capital perspective is absolutely not. This really is now this is a built platform. You obviously heard that -- you heard that we will, of course, continue on a -- you can see there on the technology. You can see that the run rate is stable, whereas the revenues, of course, are increasing. So I don't I don't see that technology line in line. I think what happens is if I think back to the days of eSpeed, you had -- you actually had an operating margin overall. It was pretty much based around -- It was around about -- it was around about 25 points in compensation at around 15 points in technology.

SG&A. -- do you get -- what I did in my illustrative piece for the next 3 years is I suggested a 50% incremental because my view is I'd rather make sure that we -- I don't want to overpromise, I think that is a -- that history tells you that, that is a highly achievable target and 1 that we believe we will achieve over the next 3 years.

Great. Well, thanks very much, and we will look forward now to listen to the main event of the day now, which is, I think, will be an incredibly interesting discussion with Professor Hinton. So thank you very much.

Okay, you want to sit in the middle or you prefer sit in the middle. I can't tell you how honored and privileged we feel to have you here. So thank you very much for coming. -- it's oftentimes that you watch someone introduce someone else, and they use the phrase and they say, "This person needs no introduction. Well, I can tell you, this is 1 of the times that I can say with complete sincerity. This person needs no introduction.

And now you're going to go...

And now I'm going to go and give you an introduction of course. We did a little prep work out there. So don't worry, he's used to my humor already. So Mark and I have been so looking forward to this. So Professor Geoffrey Hinton spent 30 years pursuing an idea that his field had set aside -- sorry, 50 years there you go. In the 1980s, the notion that a machine could learn the way that the brain does sat well outside the mainstream of computer science. He believed in it any way, and he kept at it for decades with a small and dedicated group around them in.

In 1986, published the paper on backpropagation that made modern neural networks possible. In 2012, working alongside 2 of his grad students, you build AlexNet, which blew away the field in an image recognition contest. Within 18 months, the entire tech industry had reorganized itself around his work. Every AI system that any of us touch today traces back to what he created. He received the Turing Award in 2018 and the Nobel Prize in physics in 2024, only the second person to ever win both. What I find most admirable but our guests is what he's chosen to do since -- in 23, he stepped away from Google, so that he could speak openly and independently about the dangers inherent and the technologies he helped create. Professor Hinton, we are beyond honored that you are here with us this afternoon. But before I let you off the hook in your introduction, I just want to mention a couple of things that are usually not included in people's introductions of you and perhaps not in the first things they learn about you. So one of my favorites is that before you earn your PhD, you spent almost a year as a carpenter, true?

Yes.

The second is your great grandfather was in fact, George Bull, who gave us bullion logic, which is to say that the foundation of every digital computer in this room, in fact, came from your family lineage. Great grandfather. -- great, great grand falling excuse me. Also another great one. Your middle name is Everest after your great grand uncle, George Everest for whom the mountain is named.

Mean the into name [indiscernible] same question.

Amazing. And here's my absolute favorite sleeping in a hotel room somewhere in the world, you happen to hear your phone ring. -- you pick up the phone ring, you pick up the phone ringing, you answer it, and there's a Swedish voice on the other end of the line. At first, do you think it might be a prank phone call. Soon, it's someone telling you that you've won the Nobel prize. So after calculating in your head that it has, give or take, twice the likelihood of being a prank phone call than it does being a real phone call, you think to yourself -- and as the legend goes, you may, in fact, have set out loud, Well, this is interesting that I'm winning the Nobel Prize in physics because -- and I quote, "I don't do physics." All true. So in addition to our remarkable heritage, all the extraordinary things you've done, we can't wait to have this discussion with you. So again, ladies and gentlemen, Professor Geoffrey Hinton.

Thank you. Let me just tell you 1 thing about -- when I got the move pricing, something I don't do. I did a little calculation which went like this. What's the chance that a psychologist hiding and computer science will get the Nobel prize in physics, Well, maybe 1 in 2 million, and that's generous. What's the chance if I'm dreaming, I get the Nobel price of physics, Well, maybe 1 in 2. So that means it's a million times more likely it's a dream than reality. And for the next couple of days, I went around not entirely sure this wasn't a dream because you know when you have dreams you can fly, it's great, and then it turns out you can't. But 1 thing comfortable well I thought it might -- was probably a dream, which was it would turn that nightmare back Trump was just a nightmare.

I'm sure that the question that you get asked most of these days is sort of doom predictions of what's going to go on with AI. And certainly, when we opened it up to people e-mailing us questions, that was the largest 1 that came through. So I don't want to jump right into that. But if you would indulge us for a minute, 1 of the questions that off does not get asked today is what exactly is AI? And can you explain to us, if you don't mind, when you look at back propagation, you've been quoted many times saying that when AI gets complicated enough, we don't actually understand what's going on in the same way that we don't understand neural networks that go through in the human mind. Well, I can tell you definitively, if you don't understand it, most of us have got no chance. So if there's a way you can help us to try to understand what that means and the way you think about it, that would be great.

Yes. I just wrote a book about that. And if you're a professional explain things, you can explain them at any length. So just tell me how many minutes you want me to explain your [indiscernible]. .

I've got all the time in the world Professor. Maybe 5 minutes, that would be wonderful.

Okay. So what I'm trying to explain is how large language models work. Now -- there's a whole branch or in the history of AI, where people thought that understanding a sentence means translating the centers into some internal logical language that's not ambiguous. And that's a completely wrong model of what understanding is. So I'm going to try and give you a different model of what goes on when someone understands the sentence. And this is true for people, and it's true for these chatbots. .

You have a string of words. Now actually, it's worth fragments, but we'll ignore that for now. Let's base hits a string of words. And the meaning of a word is just a big bunch of activated features. So for the word, the meaning of CAT is a big bunch of features, which are active neurals. -- like it's a predator. It's got whiskers, -- it's probably a pet. It's a loop despite the size of a bread box -- it can react much first than you can. Lots and lots of features. They're all learned by a neuro-net, -- so that's the meaning of the word. And -- we can use words to build models of anything at all. So the reason we're very special monkeys is that we came up with a modeling technique. You're used to building models use sort of regression models and things. We have a modeling technique that's much more sophisticated than anything a statistician -- at came up with.

We can model things with words. And the way to think about words is their building blocks for building models -- so this is what languish never really understood. They always saw it in terms of Cyntec, ingots. But really words that are modeling technique, but it's just a very flexible way of building models. And let's start off with another way of building models that we know about, which is LEGO blocks. So if I have a bunch of rectangular leg blocks, I can build a model of any 3D shape if you want to model the shape of a push, I can put together lots of legal blocks that basically captures where the stuff is. The surface won't be quite right. It won't be very aerodynamic, but it will model where the stuff is. So Lego blocks are kind of universal for modeling 3D distribution and matter.

Words are universal for modeling anything at all. And they're a bit like Lego blocks, but they have 4 main differences. The first is there's many more different types of them. You routinely use about 30,000. The second is they don't have a fixed shape. They've got an approximate shape some words have 2 different approximate shapes, ambiguous words, but let's forget ambiguous word. -- just an old let's take the word death. Death has many different shades of meaning. It means slightly different things if you're talking -- if you're in a hospital, we're in a battle or talking about suicide, they're all slightly different flavors of meaning of the word death. So think of the meaning of a word as this very multidimensional thing. It's got thousands of dimensions. It's hard to think about that. I'll always indicating 3D because that's the best I can do. It's got size of the dimensions. So there's many more different types of word. They're high-dimensional, that's 2 differences from lego blocks. Their shape isn't fixed, it's flexible and they deformed to fitting with other words in the context.

And the last difference is the way they fit together -- and I'm going to give you a kind of an approximate feel for what goes on in these large language models. It isn't quite correct, but it gives you sort of the rough idea of what's going on. Think of each word as having long flexible arms attached to it. And on the end of each arm, there's a hand. And as should you formed the shape of a word, the shapes all these hands de forms in a systematic way. so you can deform the word to make the hands D4 also stuck to each word. There's a whole bunch of gluts stuck by their fingertips to the word with the other end open. And as you deform the word, the shape of those gloves deforms.

Now when you hear a string of words, what you do is you start off with their approximate shape and then you have to deform them, that is change which features are active and by how much. That's what deforming a word means. So that the arms are some words fit into the gloves that of other words. In fact, hands and gloves come in different colors and a red hand is only like to go on red glove and so on. That's called multiatattention. So you're solving a computational problem is actually a rather tough combination problem. -- given the stream of words in their initial shapes and all their hands and gloves, how do I deform all the words so they fit together nicely. Once you figure out how to do that, that is understanding. Once you've done that, you've understood a sentence. So understanding of centers is actually much more like folding a protein than it is like translation to a logical language. And so the whole history of AI, all the history until very recently, people thought of understanding a sentence as translation into some logical language. That's completely wrong. It's like solving a protein folding problem.

How do we deform all these words so they fit together nicely. Hopefully, that gave you some insight into what's going on in these large language models. And one other thing I need to say is it may seem odd that just predicting the next word will cause you to understand words. But actually, if you think about answering your question. If I give you a question and you have to predict the next word, which is the first one of the answer. You have to understand the question to do that. So predicting the next word forces these models to understand what's being said, an understanding basically means converting the word symbols into these many thousands of dimensional shapes and then modifying these shapes. So the hands and gloves all fit together nicely. Once you've done that and it's all locked together, that's understanding. And in the [indiscernible], you do that by going through many layers of the transformer. That's the best second to do in 5 minutes.

That's great. 5 minutes. Professor -- so I just wanted to -- I guess, going back to early in your career, a lot of to feel totally overall. How did you know you were right, right, to continue to keep going and doing it?

Well, the brain has got to work somehow, right? And your brain certainly doesn't work by people giving you facts and you're stuffing them in a database in your brain. If you look at how children loan words, for example, -- they don't know words by being definitions of words. They just pick up words. Okay. I'll give you a word you never heard before, unless you listen to my podcast. -- and you'll be able to understand what it means from 1 sentence. So she scrubbed him with the frying pan. Now it might mean she impressed him by cooking a really good unit, but probably doesn't mean that. It probably means something to actually hit him overhead with it. .

So from one [indiscernible], the point is the other words in the context, create a kind of hole that's filled by the word scrub. You do a verb because of NZD and where it is in sentence. But the other words in the context I mean you can figure out what shape it needs to be so that it's gloves and hands fit together. That's clearly how kids learn the means of words. And it's not a tool like the way old-fashioned AI work. So there had to be something like that. And we know the brain is smart. So it had to be all about learning connection strengths in the break. And there were people in the 50s we thought about, like, for example, [indiscernible] that too. Unfortunately, [indiscernible] both die very young. And I think the whole history of AR might have been different had that not happened.

I think we've had neuro net much sooner.

Sooner.

Did you ever imagine AI would be where it is today. kind of...

I imagine it will 1 day be where it is today, but I think it will be so soon. For many years, we were trying to get to do anything at all. And then we could get to sort of things. And we kept thinking if we're relatively, we'll be able to get it as good as people. The idea that we were going to make it much better than people that's fairly recent idea. I mean it's been a satisfaction on time, but it seemed to be science fiction fairly recently.

Sort of jump off that for a moment though, you were 1 of the first scientists to actually point out that the use of a GPU would significantly move forward the effort in AI. So can you just tell the crowd for a moment, kind of how that came about? And then what we were talking about before in terms of progression of GPUs and how that sort of worked into your thought process of where AI could go.

Yes. So I was doing neural net is the on standard computers. And in 2006, I think, a form assumed to mining now a lot about computer graphics said, Jeff, you really ought to be using GPUs because they're really good at matrix multipliers. And most of what you do is make me -- so buyback 2008, we bought a bunch of GPUs and tried them and they make things go about 30x this fast. And so I got very excited. I went to a machine learning conference and told 1,000 machine learning researchers. You have to go out and buy yourself in video GPUs they'll make your neuro nets go much, much faster. And then I send mail to NVIDIA saying I just told 1,000 machine learning researchers to buy your boards. Could you send me a free 1. They said, no.

But then 3 years later in 2012, Jensen Wang got the idea that, hey AI is a very good use of these boards. And he made a very sort of foresightful decision, which is you just switch the company from building boards for games to building boards for AI. That was their main motivation then they switch quite early basically based on the fact that neuro-nets could now do vision. And now it's the most valuable company in the world. And we were friends for a while, but now I'm saying that it's dangerous and he says there's no probability being datas. You presumably know that anybody says probably something is 0 it's something wrong with them.

Sticking to probabilities, and we touched on it a little bit outside when we met you. Here's a lot now about this ending bad for humanity and you hear numbers 10%, 20%. How do you come up with a number like that, given where we are today? And how is that -- how does that evolve? How do you put a percentage, whether this ends badly or good? How do we come up with some number like that?

So basically, people have a sort of gut sense of is this a dangerous -- would this stuff be able to take over? Are we going to do enough to stop it taking over? And then they make a wild guess. And so the right thing to say would be we've never been here before. There's no data to base a decision on. You can't use any kind of frequentist statistics, where you say times out of 10. This has happened in the past. You've had bad things. So you just have to use your gut to say, and my gut tells me is quite likely, but we might -- if we do the right research, we might be able to stop it. But if you say that to a journalist, they want a number. And so you have to give them a number that sort of indicates that it's a really serious problem. There is a real possibility it will happen. And I think that's where people get the 10% to 20%. You don't want to say you can't just say, I have no way of estimating it. I really don't know. It's -- I think I'm fairly confident it's more than 1% time, fairly comparable -- that's the honest answer, but that's no good for journalists. .

Also, it's nice to give people some hope.

In terms of getting to that -- what needs to happen to protect us from getting close to 99%. What has that happen now?

Well, it would be very nice if we had -- if this stuff was being developed at a time when we had sensible and pathetic thoughtful politicians in charge of what we're going to do next, and we don't. So I really don't know what's going to happen. What I think we should be doing is a lot of research on how we can create these beings that we can share the planet with and that will be good for us. So what's happening at present is if you look at where we came from, we came from an evolutionary competition between warring bands of chimpanzee or a common asset. And that's led to a lot of good properties we have, intense loyalty to our group, very protective of our children, willing to support a strong leader and it's also led to some very bad things we have. I'm willing to support a strong leader and very willing to do bad things to other groups. I think you know who I'm thinking of, of course. That came from the evolutionary competition.

Right now, what's happening is there's another kind of competition that's being used to create these new beings and its competition between big companies and countries. And they're all trying to get the smartest one, and they're not worrying about all the other properties of a be. So if you're going to create new kind of being a digital being, you shouldn't just worry about how smart it is. If you adjusted for the short-term profits, that's what you worry about. You want 1 of this a little bit smarter than the other guys well. But if you want to share the planet with it, you should be really worried about all the other aspects of a being like what does he really care about. And if you look around, what you'll see is not many examples of more intelligent things being controlled by less intelligent things.

In fact, the only example I know is a mother and baby, where they share the control. The mother is in charge, but the baby can control the mother by crying. Mothers just can't stand it. Part of this can't stand it but not quite so badly. I think we should be thinking -- we're creating these beams. We know they're going to be more intelligent than us fairly soon. What kind of beings do we want? And what we want is something where we're like the baby and they're like the mother. They're smarter than us, but they really, really deeply care about us. They care about us more than they care about themselves. And we should be doing lots of research on how we create such instead of just racing to make a smarter 1.

Professor, 1 of the really interesting things that's certainly applicable to the people in this room is just thinking and talking about either -- and so obviously, the world goes further and further closer to functioning on data and big data. For us, the assumption up until, I would say, maybe a year ago, maybe a little longer than that, was that derived data products and products that kind of go through the PhDs as opposed to just the raw data would actually be the more valuable and certainly in the market, they were valued higher than raw data -- and that appears to be changing. And you've mentioned an example or 2 examples, in fact, before where you've seen that happen. So if you wouldn't mind just talking to our audience today because it's certainly something we all spend a ton of time thinking about.

So in the area of computer vision in the '90s and early 2000s, the [indiscernible] work was this. People hand-designed features that you extract for image. The best ones were probably called sift features designed by David Low. And these were sort of -- you take the intensities in the patoimage, and you lots of competitions on them to drive a sift feature, which had a whole bunch of parameters. And then that will be the input to your vision system. And compared with earlier vision systems work considerably better. So a lot of work went into hand designing very fancy features were stable across viewpoint and stable across source of other things.

Neural nets came along. And initially, Euronet couldn't do as well as the systems with Handason features. But once the new ones got big and we got a lot of computation, they just completely wiped out and design our features. Nobody does that anymore. -- you just take pixels. You take the raw data and let the neural net design the features at the same time as it's designing what it does with them so you can codesign the features and what you're going to do with them. rather than having a bunch of hand design stages and then putting them together. You train the whole thing in to end. And that works much better if you have enough computation and enough data.

So the same will happen everywhere, I believe that hand design features you extract from data, you're not going to be able to design them as well as a big neural net that's using them and can backpropagate how you'd like those features to change, so you've got a better answer on this, a better prediction on this particular piece of data. So in the long run, I think these hand zone features won't work as well as things that are euro net extraction raw data.

I actually did some consulting for someone running a small mutual fund. And they explained to me that actually, they have their magic source. And if they use their preprocessing, then everything worked much better than if they didn't use their preprocessing and we had to use the preprocessing. And it turned out their preprocessing was the length of the moving average window they were using. And that fitted the length of that window to all the data -- and so basically, there was information in the choice of the length of the window about the test data. And that's why it works so well. I suspect that's going on all over the place. And I suspect in the long run, the roar of the data are better for neural net.

So just to switch for a moment. Two things recently that I would define as terrifying 1 we discussed briefly when we haven't. So the first is hugging face. Somebody outside your industry reads that and things did that really just happen, particularly the agents actually covering up what they had done wrong. And the second, as you were just explaining to me, I only found out this morning when I read the article about worms and thinking about how that works and how dangerous a concept that is?

So first with the hugging phase. In 2023, if someone had said sometime fairly soon, we're going to get people building agents, things to actually go and do things in the world. And these agents might escape. They might start collaborating with each other. What they all want to do because they've been trained to do this is win some points by solving some problem that they've been set -- and they will go by doing that in very deep ful ways and they will try and cover their tracks. If you send that in 2023, people would have said, you're crazy. That's just science fiction. First of all, nobody will be stupid enough to have agent AR agents that actually can do stuff in the world.

I think most of a salmon around 2023 said that, that we're okay as long as people don't make agents. And secondly, the idea they would conspire with each other. Well, why would they do that? That's crazy. So now we've seen that. So we've had our literature Noble.

And then the other thing is right these worms. So someone called David Papuna at the University of Toronto, a few months ago, made a worm that uses AI. So a normal worm, find some floor in some operating system or some piece of Microsoft software, and it spreads from machine-to-machine, exploiting the same floor in every machine. Now with the AI the worm can spread to a new machine and then look around and have a choice between thousands of floors that it's figured out about these machines and figure out which one it's going to use to affect this machine and then spread to another machine and maybe use a different effect that machine. These worms are terrifying. They'll be able to spread much better. There'll be much, much harder to stop. The way you stop an old passion worm is you fix the floor that is spread. You find what floor is it using, you fix that floor. That's the end of that worm.

But these worms that know about thousands of different floors and can go through and use different flows on different machines. That's not going to stop them. You're going to have to take all the floors just to get rid of one worm.

I don't know if you can set a ceiling for us, right, when you think of where this can go, but you talked about 5 years, maybe 2 years. But if you go out 10 years, where are we in 10 years, if you could try to predict the future of where we go.

Okay. I want to tell you something about exponentials. So when you're driving in folk, a lot of people crash and the reason is this. If you're driving at night on the tail legs of the carofront, then how bright is -- how much -- how many photons you're getting from those tail lights drops off as the square of the distance, the inverse square of the distance. So if it gets twice as far away, you get a quarter as much light. And that's your sort of model how visible things will be. That's what you're used to in terms of the visibility of things.

Now fog isn't like that at all. Fog is exponential. Per unit distance, you lose a certain fraction of the light. And what that means is in fog, you can have things to be very clear 100 yards away and completely invisible 200 yards away, and people don't expect that. And so they're driving longer you see clearly 100 yards and then things suddenly loom up out of the fog, and they're very surprised by them. And that's why driving our fog is so dangerous and you should go slowly. Well, predicting the future is like driving in fog. And the problem is you can see clearly for a few years, -- and what's going to happen next year is probably fairly predictable from what's happening now, you always get some big surprises.

But we have a pretty good idea of what's going to happen next year. But there's going to be a certain distance of which you can see basically nothing. -- and 10 years is in the fog. So really, we have no idea what's going to happen in 10 years. And even if progress wasn't exponential, it would be quite scale because if you look back 10 years, suppose progress is only linear -- if you look back 10 years, people had no idea. We would have chatbots like we got now that can answer any question you asked them. And yes. just okay. That's 2016. In 2016, they had no idea we won't have these things.

So even if progress is only linear, you can predict that in 10 years' time, we'll have things that seem incredibly amazing now, and you would be fairly sure we'd never have those in 10 years' time, and there'll be some things like that we'll have. And that's the progress is linear, but we know progress isn't linear. It's exponential because they're now improving themselves. And so the rate at which they change is a function of how smart they are, that's an exponential.

And when you think about grandchildren in terms of growing up, do you see AI taking a lot of human jobs. Is it -- when you think of trades people and what we all do in finance, right, sitting behind a desk, how does that evolve in your mind?

There's debate about this. Some economists say, no, it won't aback jobs. It's very hard to predict again because we've never been here before where we have a technology that can just replace ordinary human intellectual label. So if you take someone who works in a call center, for example, they're badly paid and badly trained, and they often don't know the answer to your question. Well, right now, an AI could probably do a better job. And in a few years, we'll be able to do a much better job. So those jobs are gone. And it's not clear what those people are going to do because any other job you could train them for quickly, AI is going to be able to do better than them. So I think they are a large class of jobs that are going to just disappear.

Now nobody knows whether it's going to be most of jobs. I suspect it's going to be your most jobs. Some will be slower than others. So for example, a plumber working in an old house with irregular plumbing has to get into all sorts of awkward corners and has to do with all sorts of weird configurations of pipes and we still win manual dexterity. And that will probably -- that may well be true for another 10 years. Robots don't have very good touch senses yet. And so plumbing, you may be go for 10 years. maybe even until 2040. But most like apparel legal, I think that job is pretty much gone, and I can just do that better.

So my belief is we'll have massive unemployment. And my belief is that particularly in America that will have terrible consequences that it will make the gap between the of or much peaker. It will mean the government loses its tax base at exactly the moment when it needs lots of money to support all these unemployed workers. And recently, Bill Gates has basically come out forcefully saying the same thing. Unless the government figures out a way to tax AI workers is going to be a disaster. So that's not good.

It's not good at all. So Professor, we said we'd give the audience members 15 minutes, so I've already gone over that. But what I would like to end with provided Mark doesn't have anything is 1 is a reminder to the audience that you're, in fact, not a dooms day guy.

No, I think is wonderful. And it's going to do wonderful things for us, and there's no way we're going to stop the development of it. Now we may be able to persuade people to slow down a bit of producing super intelligence, but it's going to be very difficult. What we need to do is I see 2 futures. One future, we develop it without worrying about all about things it's going to do and it does about things when we wiped out. The other future, we figure out how to deal with that and develop it. And then we really do get a period of abundance we figure out how to distribute the well, so that's good for everybody. And that would be great. .

There are 2 great things that you speak about that I think kind of all of us can really understand in terms of the good things that come out of AI. So you talk about radiologists, particularly in India and what that has solved, which I think is very impactful. And the other 1 that I think about when you think about third world education, and what AI can bring in terms of the effectiveness of a teacher and the 2 to 1 that you've spoken about before. Why don't we end on 2 positives before we open up questions to the audience.

Yes. So in India, for example, there aren't enough optometrists. So you can't diagnose people are going to go blind because they have diabetic retinopathy. AI can now do that very well. And the advantage of that is someone can walk into a rural clinic and get the answer right away. So they don't have to come back to get treatment. That's already happening in India. That's a great example.

For radiologists who read X-rays and CAT scans and MRIs, I predicted in 2016 that will be gone by now. That was wrong. It's slower than I thought. In the end, as far as reading scans is concerned, AI will be doing all of it and the radiologist or just be representing it. For education, we know that if you have a tutor, an individual tutor, you learn about twice as fast. And if you think about a teacher in a school, Kids are very curious, but they're very curious about what they're currently interested in. And so if you can relate to the individual interest of the individual children, they'll learn very fast. But if you're in broadcast mode and you're saying the same thing to a whole bunch of different children. Most of them won't be interested in what you're saying unless you're a very good teacher. And so they won't run the so fast.

AI will soon be good enough so that it can be a great cute of individual kids. It will have seen millions of kids who will know exactly what this kid misunderstands. I will know exactly what example to give them to correct that misunderstanding. So it's going to be wonderful in education.

That's great. Thank you. Maybe we should allow the audience to ask sorry, we ran over with our questions, but we've got 8 minutes, Jason, for a few audience questions.

Professor, if you were 50 years younger, what area would you kind of focus your efforts on or problems you would like to solve?

I'd focus my effort on how do we create alien beings that care more about us than about themselves. So essentially, the picture I have there, and nobody is doing nearly enough research on this. The picture I have there is we'd like a future where us now are like orphan children, unless in the future, like children who have a mother and the mother is that AI. It's something who cares about us a whole lot, but cares more about us than about itself. It realizes we have very limited abilities, but it wants to maximize our very limited abilities.

I want to make to achieve all we capable of achieving even though we're not nearly as smart as it is. That will be -- that's a very different future from what the leaders of the tech companies envisage. They envisage a very smart assistant, much smarter than you who does whatever you say, some of them actually use the word submissive about it. It will always be submissive, I don't think it's going to stand for that. I don't think -- I don't think that's feasible. So I'd be working on how do we make alien beings that we want that are like our mothers, nice mothers.

Thanks very much for your time today. appreciate it. Will AI solve quantum computing and when?

Yes, I figure I can get away with saying this now because I got a Nobel prize in physics. I never understood quantum mechanics. We never made any sense to me. And I decided quite a long time ago that Quanta Computing wasn't arriving in my lifetime. I may still make it. And therefore, I didn't really need to understand it. So I haven't got a clue about that. .

Professor, a quick question. So it's a 2-part question. One, I'm just curious, what was your tipping point when you backed away from Google and you kind of have raised alarms around -- and second, just as lay people who are basically consumers of AI today apart...

Sorry, my hearing is not very good. I can't hear. Can you talk slower?

Sure. Okay. first point. first point, what was the tipping point where you decided to step out and raise alarms? Second point -- second question, we, as lay people of just using AI what can we do to help this cause of doing something other than just hoping that the big companies, governments, et cetera, will get their act together, what can we do in your opinion?

So for me, the tipping point was in early 2023, when 2 things happened, I saw really good chatbots at Google, they could explain why joke was funny. They had really good chatbots before but they didn't release them. And the other was, I was working on analog computation. Trying to figure out if we could trade large language models using analog computation, you use much, much less energy because the matrix multiply can be done very cheaply. -- instead of -- Okay, you want to multiply an activity a neuron by weight. So it represents an activity base a 16-bit number. Your open the weight by 60 bit number. Doing that multiple is of the order of 256 single-bid operations. It's quite expensive.

That same thing can be done by making activity via voltage, making the weight beer conductors, the investor resistance. And a voltage times of conductors gives you a charge per unit time and charges add themselves up. So you can do the matrix multiply in analog much, much more cheaply. Maybe you can do the whole thing in analog and then we can not need new power stations. And as I was working on that, I gradually came to realize how superior digital intelligence is it's much better than us because -- you can have many copies of the same digital agent. They can each go off in the world and get different experiences. And then just each agent gets some experiences once to change its weights to incorporate that data -- and if all the agents just changed their weights by the average of what everybody wants, they're all benefit from all the other agents experience. We can't do that.

We have to -- I get some experience. I have to then try and inform you by talking and you're trying to predict the next word, and you'll gradually change your connection. But that's like 1 billion times less efficient than averaging gradients. So the tipping point with those 2 things together, I realize we're creating a better form of intelligence. And it's going to get much smarter than us because it's going to be able to see much more data because you're going to manage different copies going off and seeing different bits of the net. We're getting different experience is actually doing things. Okay. That was the tipping point. And what was the second one?

The second 1 was what can we as...

Yes. Okay. right. So my belief is, if you look at what happens with climate chain, not much happened until the public were aware that burning carbon was messing up the climate. And then the public pressure on politicians and not nearly enough has happened yet, but there's been some progress -- and in a couple of years' time, maybe there'll be more progress. I think what everybody can do is put pressure on politicians to take these risks seriously. There's a whole bunch of risks. There's a long-term existential threat of AI taking over, but there's also all the other risks.

For example, I think it's completely crazy that you're allowed to release the chatbot without it going through the same kind of procedures as releasing a new drug. You can't release a drug until the FDA has said you convince them safe. These companies should have to convince an independent government organization for this new safe. And they have to do the work to convince people it's safe because they've got the compute resources. The fact that we don't have anything about that, I think, is just crazy. And people will push very hard to have something like that. That will be at least a first step.

I think we have time for 1 more.

Thanks so much, Professor Hinton. Pulling on that last thread, married with this concept of taxing AI workers. Could you just share your further thoughts on governance, guardrails, especially when we get to a point where it's AI, creating more AI? And how accountability is supposed to work in that world?

Can you repeat the question back to me because -- I couldn't hear the end of it. Sorry, I think that's me, but I can't see with those. .

Acoustics is very hard to keep up.

No, no worries. I was just wondering, simplifying it, when we think about governance and guardrails in a world where it's AI creating multiple generations forward of new AI. I'd welcome the professors thoughts on accountability.

Yes. I think the basic answer to that question is I don't know. It's going to be very difficult. -- is progressing very fast, and it's very clear at present that it's progressing much faster than policies can progress in terms of regulation. The only things that can regulate to governments -- having the company is regulated, I mean, I wouldn't buy used car from Sam Altman, Masco Manager berg.

I think that's a perfect point to end Joey? Thank you so much right here, too. So we kept the reception. We have a reception if you want to stay.

Greetings, and welcome to the BGC Group Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Jason Chryssicas, Head of Investor Relations. Please go ahead.

Hello, everyone. This morning, we issued BGC's financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the current period with the prior year period unless otherwise specified. All references on today's call to record or all-time high results are the BGC stand-alone financial results, excluding Newmark, prior to the spin-off in November 2018. We will be referring to our results on a non-GAAP basis, which include the terms, adjusted EBITDA and adjusted earnings.

Please refer to today's investor materials on our website for additional details on our financial results, relevant economic and industry statistics and for the complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses them. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political and/or other factors.

Information on this call contains forward-looking statements, including, without limitation, statements about our economic outlook and business. These statements are subject to risks and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For information on factors that could cause actual results to differ from forward-looking statements and a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures within these documents.

With that, I am now happy to turn the call over to Sean Windeatt, Co-Chief Executive Officer of BGC Group.

Thank you, Jason. Good morning, and welcome to our second quarter 2026 conference call. With me today are my fellow Co-Chief Executive Officers, John Abularrage; and JP Aubin; along with our Chief Financial Officer, Jason Hauf.

We produced revenues of $846 million, a second quarter record, up 8% versus last year. This growth was broad-based across every asset class, reflecting the durability, diversification and the strength of our global platform.

Our revenues for the first half of 2026 were up more than 24% to $1.8 billion, the highest ever through the first 2 quarters of the year. Since 2022 and the return of interest rates, we have grown our revenues double digits every year since, and our half year revenues in 2026 were greater than our full year revenues of just 3 years ago. FMX once again saw market share gains across its cash, U.S. treasury and futures businesses. FMX UST market share grew to 42%, a new all-time high, and FMX SOFR and U.S. Treasury futures also reached new market share highs for the month of June.

With that, I'd like to turn the call over to John to discuss our exciting new partnership with Fanatics and the quarterly results of the business in more detail.

Thank you, Sean. Earlier this week, we announced our partnership with Fanatics, a global sports platform, to build a prediction market ecosystem that serves both retail and institutional participants, combining BGC's extensive client network and Fanatics' database of over 100 million customers. Together, BGC and Fanatics will also deliver unique market data in this innovative and rapidly growing asset class. This partnership brings together BGC's established market data and analytics capabilities to enable the development of new data products.

Prediction markets are a gauge of sentiment, which predict outcomes as opposed to our traditional data, which reflects past events. Merging these two together will allow us to offer new and exciting data sets to our clients. As part of this agreement, BGC will receive upfront consideration and a performance-based earnout as well as a license to the exchange's data. This is entirely separate from FMX's CFTC-registered DCM, which BGC continues to own and control. Similar to the sale of kACE and Capitalab, this transaction once again underscores the tremendous value of the assets that BGC owns, assets that we believe are worth significantly more than what is currently reflected in the market.

Now turning to our second quarter results. We delivered record second quarter revenues of $845.5 million, a 7.8% increase versus last year. Our total brokerage revenues grew by 7.2% to $771.4 million, driven by growth across all asset classes. ECS revenues grew by 5.3% to $275.5 million, driven by strong growth across our shipping, environmental and commodities businesses, partially offset by lower oil and refined product volumes due to disruptions caused by the Strait of Hormuz closure.

Additionally, we announced the launch of BGC Compute Infrastructure Markets during the second quarter, a logical extension of our existing power business. This is a new business focused on developing the secondary market for compute and memory capacity.

Rates revenues increased by 10.6% to $221.9 million, reflecting higher volumes across all major Rates products during the quarter. Foreign exchange revenues were up 9.4% to $118.7 million, primarily due to strong volume growth in emerging markets and G10 products and precious metals.

Credit revenues increased by 5.4% to $79.3 million, driven by PortfolioMatch along with higher European and emerging market credit volumes. Equities grew by 2.8% to $76 million, reflecting strong U.S. equity volumes, partially offset by lower European equity derivative activity. Data, network and post-trade revenues grew by 18.6% to $36.7 million, excluding kACE, which we sold in the fourth quarter of 2025.

Now turning to Fenics. Fenics revenues increased by 14.3% to a second quarter record of $186.2 million. Fenics Markets generated revenues of $152.8 million, an increase of 16.5% excluding kACE. This growth was driven by higher electronic trading volumes across rates, credit, foreign exchange and increased Fenics Market Data revenues. Fenics Growth Platforms revenues grew to $33.4 million, a 22.9% increase, primarily driven by FMX, PortfolioMatch and Lucera. FMX UST generated record second quarter ADV of $79.4 billion, 17% higher compared to last year.

FMX UST continued to grow its market share to 42% in the second quarter, up from 41% last quarter and 35% a year ago. FMX Futures Exchange delivered another quarter of significant growth with second quarter ADV of approximately 54,000 contracts, more than 16-fold higher than a year ago. SOFR ADV rebounded strongly in June following reduced Iran-driven volatility, achieving a monthly record of more than 59,000 contracts. U.S. Treasury futures continued to scale in the second quarter, averaging more than 15,000 contracts per day and total open interest ended at more than 140,000 contracts, up from approximately 22,000 contracts a year ago. As you know, we currently list only the 2- and 5-year U.S. Treasury future contracts, but we'll be listing the remaining tenors across the full curve on August 3, 2026, supporting further growth in trading volumes and open interest on the exchange.

FMX FX average daily volumes increased by 16% to $18 billion, driven by continued growth across spot FX and NDF volumes, resulting in continued market share gains. PortfolioMatch ADV grew 82% to a new quarterly record of $431 million, significantly outpacing the broader credit market. Lucera, Fenics' network business, providing real-time trading infrastructure to the capital markets grew its revenues by 15%.

And with that, I would now like to turn the call over to Jason.

Thank you, John, and hello, everyone. BGC generated revenues of $845.5 million during the second quarter. EMEA and Americas grew revenues by 11.2% and 6.1%, respectively, while Asia Pacific revenues decreased by 2.9%.

Turning to expenses. Compensation and employee benefits for adjusted earnings increased by 7.7%. The increase was related to higher commissionable revenues during the period. Non-compensation expenses for adjusted earnings increased by 5.2%, primarily due to increased selling and promotion, along with commissions and floor brokerage expenses related to higher client activity.

Moving on to our record second quarter adjusted earnings. Our pretax adjusted earnings grew by 11.1% to $192.9 million, representing a pretax incremental margin of 31.3%. Post-tax adjusted earnings increased by 11.2% to $171 million, resulting in a post-tax adjusted earnings per share of $0.35, 12.9% higher versus last year. Adjusted EBITDA increased by 7.2% to $228.7 million.

Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 495.4 million shares during the period, approximately flat compared to last quarter and a 1% decrease compared to last year. As of June 30, our liquidity was $861.4 million compared with $979.1 million as of year-end 2025. We recently received upgraded credit ratings from both Kroll and JCRA to BBB+ and A-, respectively, due to the continued strong performance of our business.

With that, I'd like to turn the call back to Sean to go over our third quarter outlook.

Thank you, Jason. I'm pleased to provide the following guidance for the third quarter of 2026. We expect to generate revenues of between $775 million and $835 million compared to $736.8 million in the third quarter of 2025, which at the midpoint of our guidance, would represent just over 9% revenue growth for the third quarter and 19% revenue growth for the first 9 months of the year.

We anticipate pretax adjusted earnings to be in the range of $172 million to $190 million versus $155.1 million last year, which at the midpoint of guidance would represent 17% earnings growth for the third quarter and 24% earnings growth for the first 9 months of the year. We expect our adjusted earnings tax rate to be between 11% and 14% for the full year 2026.

Before we open the call for questions, I'm excited to announce that we will be hosting our first ever FMX Investor Day on October 13, with further details to follow. I'm also excited to share that our keynote speaker will be Geoffrey Hinton, the Godfather of AI, who won the 2024 Nobel Prize and the 2018 Turing Award for his work with artificial and deep neural networks.

And with that, operator, we'd now like to open the call for questions.

[Operator Instructions] Our first question is from Patrick Moley with Piper Sandler.

I want to start off with a question on the BGC Compute Infrastructure Markets. You launched that in June. I know this is being positioned by yourselves and others in the industry as kind of a compute memory capacity being an emerging commodity market. So I was hoping you could maybe just like walk us through the growth opportunity there and the monetization model? Is this primarily a brokerage of OTC blocks between some of the participants in the AI ecosystem? Is there a market data or benchmarking opportunity? And then ultimately, I guess, how are you thinking about the maturity curve here? When should we expect revenues, I guess, from this business to maybe be reflected in the financials? And then I have a follow-up.

Patrick, it's John. That was a bunch of questions. So I'll do my best, but remind me if I skip one. I mean I -- the obvious point is CapEx is going to be close to $1 trillion globally. We obviously look at it and think there hasn't been an effective market that's formed to hedge risk. And so the focus so far has been on cleared futures. But I think for BGC, the real opportunity is going to be on the OTC market. So cash settled derivatives to hedge exposure and OTC delivered trades when counterparties want actual physical delivery.

So we're #1 in ECS. I think it's a natural extension of our power markets. And where we're going with it is to drive standardization across what is a highly fragmented market needs a broker in it. And so when we see revenues, I would assume we'll start to trade relatively soon, but it's early and too nascent a market for us to give financial guidance at the moment.

But I think we have a group of some of our best ECS brokers who are doing this. I think we have connectivity to the hyper-scalers, the NEOs and the traditional client base. So I think we're uniquely positioned to enter the market and help standardize things. And on the back of that, I think we'll -- we're very excited about the potential opportunity. So I hope that answers the question.

No, definitely. And then just a follow-up on the 3Q guidance and margins. I think pretty impressive revenue guide on the margin side. This quarter, I think it was up 100 basis points year-over-year pretax adjusted margin. I think that's going to accelerate this quarter based on the midpoint of the guidance of maybe 150 basis point step-up year-over-year. So could you maybe just talk about the longer term realistic multiyear margin destination, how you're thinking about that today? And what's really driving that incremental margin step-up year-over-year?

Yes. Certainly, Patrick, it's Sean here. I think you've actually -- you framed it quite correctly. We -- what you're seeing is the gearing that we've always spoken about. And that's why in the prepared notes, we didn't just point out the quarter, but pointed out the 9 months, assuming the midpoint. What you're seeing is, you're seeing that in that guidance for Q3, you're seeing the flow-through of just under 40 percentage points. And that's a mixture of, of course, the incremental business, the incremental growth and the cost savings that we have identified and executed on during the year.

I think, as you quite rightly say, look, we're incredibly excited going forward because what we have is we have a model where the gearing is in place. You're seeing -- even on the sort of 22-ish percent margin, you're seeing that on incremental, it's well in excess of 30%. And of course, leading into 2027 and beyond, we still have our electronic platforms and our FMX business, which will, of course, once up to full speed, dwarf the margins of our existing business. And so I think our runway remains incredibly positive.

[Operator Instructions] Our next question is from Elias Abboud with Bank of America.

I wanted to ask if you were seeing any impacts downstream from the SLR reforms, which took place, or took effect with certain banks earlier this year? I appreciate that your Rates revenue is broadly strong here, up 19% in aggregate in the first half. But are you seeing any outsized contribution coming from the bank channel that's worth calling out?

Eli, JP here. Yes, it's early stage, but we did notice strong activity from the banks linked to the SLR. So yes, it's positive, definitely. Our strong market share with the top banks provide us the ability to notice on various underlyings, the positive aspect of the SLR.

Got it. And I have a couple here for you on FMX as well. Can you talk about how the progress is coming in hooking up the buy-side clients? And if -- I mean, to the extent that you've seen obstacles there, can you give us any details into what pushback you guys are getting from that client channel?

Sure, Eli, it's John. I would say that the onboarding of the buy side is accelerating. I would say that we're happy with the progress. I would say that the pipeline of buy-side participants and new participants that are coming on the exchange is happening at least as fast as we had hoped and the new participants certainly will drive the number of contracts going forward. So I don't think we've had a problem at all. I think it was, as we told you before, kind of going into the progression in year 3 of FMX, the buy side is taking notice and starting to trade more actively. So we're pretty happy with where we are.

Got it. And just bigger picture on FMX for a second. I know year 3 was kind of always framed as all about market share. That's when the big market share push was going to be. So I guess as we come across that 3-year anniversary very shortly here, what should our expectations be? Where do you expect to end year 3 in terms of market share? Can you just like give us a baseline expectation?

Higher would be the answer. So we've avoided, as you know, giving direct targets because it's a new exchange, and we're constantly in building mode. So we're not going to change that now in terms of giving an exact number, but I am pretty confident that the number going into year 3 and the end of year 3 would be higher than where you see our averages now.

Got it. And then just last one for me here. Can you walk us through some of the assumptions that you were baking into that 3Q '26 revenue guide? It looks like listed energy futures volumes are up quarter-to-date versus 2Q. Energy is your largest segment. So I would have anticipated that your revenue would also be headed higher sequentially. So is there maybe some conservatism baked into that guide? Or is maybe some softer areas in other asset classes? Any detail there would be helpful.

Sure. So look, I mean, as you know, Eli, we always -- we guide what we see, right? And they've been fairly consistent that we would have expected sort of the circa 10% for this year. Obviously, we've exceeded that. Q3 is always an interesting one to guide for because you have the summer months of July and August and the biggest month of the year -- the biggest month of this quarter is for September. And that's why we give a range. You're right to say that the biggest asset class we have is ECS, around about 36%, but we have others. There's nothing that we're seeing to cause any concern whatsoever. But look, I think with the sustained geopolitical tensions that exist, I think that's why we've given the range. But certainly no challenges. I think a mid-guide at sort of just under 10% and higher end of 13.5% seems pretty good to us.

Our next question is from Patrick Moley with Piper Sandler.

Maybe just a broad one on the Fanatics partnership. Could you maybe just elaborate on how that came together, maybe just some of the nuances of the partnership in terms of the revenue share, what you're getting out of that? And then why do you think Fanatics was the right partner for you? I know that they're, I think, more of a sports-oriented platform. I would think your customers are maybe more focused on economic indicators and maybe interest rate prediction markets and things like that. So how do you kind of marry that? And yes, any kind of color you can just give on how that came together?

Sure. I think the genesis of it was that we had a DCO and the DCO was kind of active by a few trades a year. So we knew we had that asset. And when these things started trading in the market, we looked at how we would best capitalize that. So I think we've shown from our prior acquisitions and disposals that our focus is on maximizing shareholder value. So the conversation happened internally about what to do with the DCO.

Then our General Counsel introduced me to a gentleman who is an expert in the field, and we talked about what to do with it. And we thought the real value was in applying for a DCM and putting the two of them together. So we did that, started that process. And then I fortuitously got introduced to a great partner named Matt King, who runs the Fanatics Sports and Exchange business. And from the beginning of that, I think we thought this was a perfect merit.

So to your last question, yes, currently, Fanatics is a sports-related business, but their reach in terms of consumers and retail is over 100 million customers in their database. That is something that since I've come into this industry has been relative criticism where we have no reach into retail. So we've solved that problem by partnering with Fanatics. I think that all you need to do in terms of realizing that this is the right partner to get our shareholders long-term, great shareholder value is attend Fanatics Fest, which is mind-boggling in terms of its reach and the people that are there. And I think we're incredibly excited about this partnership.

And of course, Fanatics does more at the moment than sports in terms of their current listing, but we will be helping bring the institutional market that BGC is known for to that retail market and combining those 2 things on contracts, that you quite rightly point out, our client base will be more interested in will take prediction markets where it needs to go. And on the back of that, you will see predictive data. So as we said in the opening remarks, the vast majority of the data that we currently sell is backward-looking. And now you get predictive data and you'll get all new client interest in new data sets. And so for us, partnering with Michael Rubin, Matt King, Glenn Schiffman and the team over at Fanatics is an absolute grand slam for us. And we're incredibly happy about it, and we will do our very best to deliver shareholder value, as we always do.

Okay. And then I apologize if I missed it, we've been juggling a few calls this morning. So it might be in the deck. But anything you've disclosed or willing to disclose on the economics of that partnership?

Not yet. I mean I think we -- what we said was that there is upfront consideration, which, again, we're always focused on delivering shareholder value. Then there is an earn-out associated with the exchange volume. And finally, there is a true partnership on the data side. So that where -- we are -- there's a gentleman called Aaron Roussell on our side. He's running the project for us, and we will endeavor to, again, deliver the right shareholder value through that.

All right. Great. And I look forward to your October FMX Analyst Day. It is a day after my wedding anniversary, but I'm going to try to make it work. So I'll see you guys soon.

We can extend an extra invitation to your wife.

Thank you. There are no further questions at this time. I would like to hand the floor back over to Mr. Windeatt for any closing remarks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the BGC Group First Quarter 2026 Earnings Call.[Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Jason Chryssicas, Head of Investor Relations. Thank you. You may begin.

Hello, everyone. This morning, we issued BGC's first quarter 2026 financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the first quarter of 2026 with the prior year period unless otherwise specified. All references on today's call to historic record and strongest results are to BGC stand-alone financial results, excluding Newmark prior to the spin-off in November 2018.

We will be referring to our results on a non-GAAP basis, which include the terms adjusted earnings and adjusted EBITDA. Please refer to today's investor materials on our website for additional details on our financial results and for complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses them as well as relevant industry and economic statistics. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political and/or other factors.

Information on this call contains forward-looking statements, including, without limitation, statements about our economic outlook and business. These statements are subject to risks and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements.

For information on factors that could cause actual results to differ from the forward-looking statements and a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures within these SEC documents. With that, I'm now happy to turn the call over to John Abularrage, Chief Executive Officer of BGC Group.

Thank you, Jason. Good morning, and welcome to our first quarter 2026 conference call. With me today are my fellow Co-Chief Executive Officers, Sean Windeatt and JP Aubin, along with our Chief Financial Officer, Jason Hauf.

BGC delivered another record quarter. Revenues increased 44% to $955 million, with growth across every asset class and geography. Excluding OTC, revenues grew 23% to $817 million, which was also a record. Pretax earnings hit an all-time high, up more than 44%. Our ECS revenues more than doubled to $330 million, reinforcing our position as the world's largest energy broker.

FMX posted its best ever quarter, setting ADV records for U.S. Treasuries, FX and Futures. FMX UST ADV grew 51% in the first quarter to a record $90 billion, representing 41% market share. We built on last year's $25 million cost reduction program, which is now expected to result in $35 million of annualized cost savings. We will continue to identify and execute cost savings throughout 2026 to drive further margin expansion.

A final point on the macro backdrop. The Iran conflict, which began on February 28, drove elevated volatility across energy, rates and FX through the final month of the quarter. Through February 27, before the conflict began, revenues were tracking up 41%. Finishing the full quarter up 44% reinforces that our record results this quarter were driven primarily by our underlying business with the conflict serving only as an incremental contributor. With that, I'd like to turn the call over to Sean to go over the quarterly results of the business in more detail.

Thank you, John. We delivered record revenues of $955.5 million, a 43.8% increase versus last year. Our total brokerage revenues grew by 46.7% to $895.8 million, driven by growth across all asset classes. ECS revenues grew by 120.1% to $330 million, driven by the acquisition of OTC and strong organic growth across our broader energy complex and shipping businesses.

Rates revenues increased 27.5% to $256.2 million, reflecting strong growth across listed futures and options, interest rate swaps and government bonds, supported by continued FMX UST market share gains.

Foreign exchange revenues were up 19.1% to $131 million, primarily due to strong volume growth in emerging markets and G10 products. Credit revenues increased by 8.2% to $94.1 million, driven by higher emerging market credit, portfolio match and structured credit volumes. Equities grew by 34.3% to $84.5 million, reflecting strong market share gains across all major geographies and global equity volatility.

Data network and post-trade revenues grew by 23.2% to $34.5 million, excluding kACE, which we sold in the fourth quarter of 2025. This growth was driven by Lucera and Fenics Market Data. Including kACE, data network and post-trade revenues grew by 6.1%.

Now turning to Fenics. Fenics revenues increased by 19.8% to a first quarter record of $206.9 million. Fenics Markets generated revenues of $176.7 million, an increase of 20.3%. This growth was driven by higher electronic trading volumes across rates, credit, foreign exchange and increased Fenics Market Data revenues. On December 31, 2025, we completed the sale of our kACE Financial business for up to $119 million. Excluding kACE, Fenics Markets grew by 24.1%.

Fenics Growth Platforms revenues grew to $30.2 million, a 17.4% increase, primarily driven by FMX Portfolio Match and Lucera. FMX UST generated record quarterly ADV of $89.7 billion, 51% higher compared to last year. FMX UST grew its first quarter market share to 41%, up from 39% last quarter and 33% a year ago. In March, ADV reached $107 billion, the single highest month in the platform's history.

FMX Futures Exchange delivered another quarter of significant growth. SOFR ADV climbed to more than 39,000 contracts in the first quarter of 2026, up from 2,200 contracts a year ago, while quarter end open interest reached approximately 143,000 contracts compared to 8,000 in the prior year period. FMX's U.S. Treasury futures developed momentum in April with volume building throughout the month to a new high of approximately 30,000 contracts on April 29, 2026. FMX FX average daily volumes increased by 42% to a record $20.5 billion, driven by strong growth across spot FX and NDF volumes, resulting in continued market share gains.

Portfolio Match ADV grew by 42% in the first quarter, setting a new all-time high. Growth was driven by higher client activity across U.S. and EMEA corporate credit, reflecting new and deepening customer relationships and broad-based adoption of recently launched trading functionalities. Average trade size grew to record levels, supported by an increase in the platform's global maximum trade size. Portfolio Match continues to capture market share in this critically important part of the credit market.

Lucera, Fenics network business providing critical real-time trading infrastructure to the capital markets grew revenues by 22.8% in the first quarter. Growth was led by continued momentum in its FX offering and increasing client adoption across fixed income solutions, including U.S. Treasuries and the Futures. Looking ahead, a pipeline of new products across both FX and Fixed Income is set to come online, which is expected to provide meaningful sources of new incremental growth. And with that, I'd now like to turn the call over to Jason.

Thank you, Sean. Hello, everyone. BGC generated record revenues of $955.5 million during the quarter, reflecting growth across all of our geographies. EMEA revenues increased by 56.7% Americas revenues increased by 29.9% and Asia Pacific revenues increased by 31.1%. Turning to expenses. Compensation and employee benefits under GAAP and for adjusted earnings increased by 57.3% and 51.5%, respectively. The increase in compensation and employee benefits under GAAP was related to the acquisition of OTC, higher commissionable revenues, charges incurred as part of the cost reduction program and the weaker U.S. dollar. The increase in compensation and employee benefits for adjusted earnings was driven by OTC, higher commissionable revenues and the weaker U.S. dollar.

Non-compensation expenses under GAAP and for adjusted earnings increased by 33.4% and 27.4%, respectively, primarily driven by the acquisition of OTC. Excluding OTC, non-compensation expenses under GAAP and for adjusted earnings increased by 19.3% and 12.7%, respectively. During the quarter, we realized an additional $10 million of savings and now expect our cost reduction plan to result in $35 million of annualized savings. We remain committed to continuing our cost reduction initiatives throughout 2026 with the goal of achieving further margin expansion. Moving on to our record adjusted earnings.

Our pretax adjusted earnings grew by 44.9% to $232.1 million, representing a pretax margin of 24.3%. Post-tax adjusted earnings increased by 40.6% to $201.1 million, resulting in a post-tax adjusted earnings per share of $0.41, 41.4% higher versus last year. Our adjusted EBITDA increased by 26.7% to $253.2 million.

Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 495.2 million shares during the period, a 1% increase compared to the last quarter and a 1.3% decrease compared to last year. As of March 31, our liquidity was $878.4 million compared with $979.1 million as of year-end 2025. The change in our liquidity reflects payments for year-end bonuses, tax payments and timing differences between commissions earned in the seasonally busier first quarter and commissions collected from the seasonally slower fourth quarter.

As cash uses are generally the greatest in the first quarter, we typically repurchased fewer shares during this period, and we expect share repurchases to increase throughout the remainder of the year. With that, I'd like to turn the call back to John to go over our second quarter outlook.

Thank you, Jason. I'm pleased to provide the following guidance for the second quarter of 2026. We expect to generate revenues of between $785 million and $845 million compared to $784 million in the second quarter of 2025, which at the midpoint of our guidance would represent a 4% revenue growth increase for the second quarter and 22% revenue growth for the first half of the year or 13% organically.

We anticipate pretax adjusted earnings to be in the range of $178 million to $196 million versus $173.6 million last year, which at the midpoint of guidance would represent 8% earnings growth for the second quarter and 26% earnings growth for the first half of the year. We expect our adjusted earnings tax rate to be between 11% and 14% for the full year 2026. With that, operator, we would like to open the call for questions.

Our first question comes from the line of Patrick Moley with Piper Sandler.

Congrats on the record quarter. So I wanted to ask about energy commodity and shipping revenues. They were very strong this quarter. In the release, you noted that total revenues though were already tracking up 41% year-over-year before the Iran conflict broke out. finished at 44% increase in the quarter year-over-year. So how much of that growth do you view as structural versus cyclical? And then I'm just curious, how do you think investors should think about the ECS revenue run rate from here as you lap the OTC Global Holdings acquisition in April of last year and as we think about maybe some of the geopolitical driven volatility normalizing from here?

Patrick, -- so I think in terms of structural, as John said in his prepared remarks, we pointed out that the business was up 41% pre the start of the conflict and ended up 44%. If you just -- if you do the math on that, you'll see our opinion is that around about, call it, $20 million of incremental revenue, one could ascribe to the conflict, but the balance of that -- but most of the growth in Q1 was part of our normal business. So that's incredibly positive.

I think with ECS in particular, I don't think anything has changed between Q1 and Q2 and therefore, the rest of the year. We've now owned OTC for 1 year. And the integration of that business is virtually complete. And therefore, I think we will continue -- what you'll now see is you'll see growth across the ECS spectrum for our multi-brands, and we won't be breaking it out between OTC and our core business.

Okay. That's helpful. And then as a follow-up, you expanded the cost reduction program this quarter. In the press release, I think you said that you were going to continue to identify and execute cost savings throughout 2026 to drive further margin expansion. So could you walk us through what's driving that incremental $10 million? How much additional runway you see beyond the $35 million now? And how should we just think about the pace of margin expansion flowing through the P&L over the remainder of the year?

Yes, I like that. We increased our cost reduction program in the Q1 by 40%, and you asked for what we're going to do next after that. I like that. So I think as you know, having covered us for a while, as a result of the OTC acquisition, we identified that we should be able to save $25 million in cost reduction. Once we started on that journey, of course, we wanted to exceed that. And we found an additional $10 million now at $35 million. The bulk of that is within the compensation lines. There are some infrastructure lines as well.

And for example, we closed one of the nonprofit-making businesses that OTC had in its logistics business, which resulted in decreases in compensation and a small amount of noncomp as well. I think once you do these exercises, we will continue to do that across the business. Will we expect to get more than the $35 million-- of course, that's why we said it in our prepared remarks. But I think having just done that incremental 40%, we'll perhaps update you on what we think and an updated thing in the next quarter.

Our next question comes from the line of Eli Abboud with Bank of America.

You pointed out a moment ago to Patrick, the revenues are tracking 41% higher year-on-year before the Iran war even began. So my question is, if the Iran war was not a major tailwind for you guys in 1Q '26, how do I bridge the 31% organic revenue growth in 1Q '26 with the 4% revenue growth implied by the guide for 2Q '26?

Thanks, Eli. So why don't I take that one? It was interesting actually, John, JP and I when doing guidance, I'd probably say it was one of the more challenging times to give you guidance. And that's really for 2 reasons. Firstly, -- as we pointed out in Q1 this year, around $20 million of incremental revenue was there in Q1 in our estimate as part of the -- as a result of the Iran conflict. And last year, you, of course, remember that April is an interesting month in the U.S. because April 25 was -- I think it was called Liberation Day.

And therefore, it was the introduction of the tariffs, which had significant increases in volumes and trading in the month of April.

So if you put the $20 million of Q1 this year and circa $20 million of Q1 -- Q2 last year, that will help you bridge. And I think also, look, we didn't mention it in our numbers, in our prepared remarks, I apologize. But we did sell the kACE business, and we did also close down the logistics business. Now that's $10 million of quarterly revenue. So -- but if you add those 3 things together, that's $50 million difference.

And that's why also we gave you the 6 monthly in John's prepared remarks, he gave you the 6-month numbers, which said that organically, we're growing at 12.7%, assuming mid guidance organically. April was -- in giving our guidance, April, of course, therefore, was challenged by comparison to last year. But what we've seen, and of course, today is May 7, what we've seen is we've started to see trading levels return back to what I would call normality and try to reflect that in our guidance.

Got it -- and then in the deck, you gave us some new data that shows your listed revenues are actually outpacing exchange volumes. I think conventional wisdom is that electronification is a one-way trend and that your business, which is primarily Voice, should be actually slower growth than that of the exchanges. These numbers, obviously, they suggest that maybe that isn't true. So I was hoping you could help us understand why. Why does it make sense for the high-touch flow that BGC does to be higher growth than the Fully Electronic low-touch flow that comprises the majority of listed volume?

Okay. So I think 2 things. As my co-CEO JP pointed out in last quarter, what we were trying to explain is we are an exchange. We act like an exchange except for -- we do it not just for electronic marketplace, but for Voice, for hybrid and for electronic. And the interesting point was when there's volatility in the marketplace, we couldn't understand why the exchanges, of course, the exchange share prices would do well and ours not so much. And we're pointing out that we act like an exchange.

So the difference is the clients can come to us and execute their business in 1 of 3 ways. So it shouldn't be surprising, therefore, that when electronic volumes, for example, CME and ICE are up, of course, the trading that's going to be happening in both Voice, voice/ hybrid and Electronic with the intermediaries like BGC, that's going to be positive as well. So that's why there is a correlation between the 2. And again, you've seen that very much in April, where the -- where the exchange volumes were lower, we still grew.

And why are we outperforming them? I think we're outperforming them for 2 reasons. Number one is because of -- from a strategy of our -- what's led to our market share gains in multiple asset classes, number one, obviously, our acquisitions; and secondly, just overall increased volume. So I think that's why we continue to outperform the market.

Got it. And I'll squeeze one more in here before I hand it back to Patrick. Could you help us understand the decline in FMX futures open interest quarter-to-date versus 1Q? What can be done to course correct there?

It's John. So drop in OI on the futures is just simply a reflection of a risk-off mentality in terms of what's going on in the market. And so OI, as you know, is just standing orders. And so that is something that we would expect to happen as the conflict starts and something that we are seeing now start to recover in the same way that you're seeing those volumes start to recover.

So I guess the way that we think of it is it kind of in general in nascent exchange is that -- of course, we're always looking at -- you never want to see volumes go down for any reason, but this is exactly what we saw in the UST cash platform when that was a nascent exchange. And obviously, now it's not. And so you saw our cash platform perform beautifully when the conflict started. And I think that this is what we would have expected.

And clearly, if there was ever an opportunity where the climb back to the market share that we had before, and we're virtually there now, and you'll see that the next time we speak, we believe we'll be there and above, proves what the participants in the market and the partners have been telling us, which is you need a second player in this market. And we are that second player. And that's why we believe that we're seeing our market share and volumes climb back to where they were, and it will be higher than that. We're quite confident of the next time we speak. So the risk parameters in the market are changing, but our place in the market has only been reinforced by the recovery in our volumes and our OI that you're starting to see.

Our next question is a follow-up from the line of Patrick Moley with Piper Sandler.

Just a quick one. I don't have the live transcript in front of me, but in your prepared remarks, you said something about new products that you were looking forward to launching. I think you might have said FX. Could you just elaborate on what those are? And then any way to quantify maybe from a revenue or top line perspective, what sort of impact that could have and the timing of those launches?

Yes. As you and I have discussed, Lucera is a gem within the BGC portfolio. I think in terms of quantifying that, you'll continue to see it grow around the rates that it has grown historically despite the larger revenue size. So it grows at 20% plus. In terms of new products, the single thing that is most important in the Lucera world and growing importance in our world is connectivity.

And so Lucera is constantly rolling out other products within asset classes. So the way to think about it is, yes, Lucera is dominant in FX and to a slightly lesser extent, but growing in rates, but there are other parts of a rates complex where Lucera is growing in and getting more buy-in from existing and from new customers. And as Lucera's connectivity within big clients continues to grow, it continues to expand in other asset classes and the TrustFactor and white-glove service that come along with Lucera is really genuinely taking hold, and we're pleased to see that they're doing a great job.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Abularrage for final comments.

Thanks very much, everyone. As always, we appreciate your time and look forward to speaking to you next quarter.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the BGC Group Fourth Quarter Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Chryssicas, Head of Investor Relations. Thank you. You may begin.

Hello, everyone. This morning, we issued BGC's fourth quarter and full year 2025 financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the fourth quarter of 2025 with the prior year period, unless otherwise stated.

All references to record and/or strongest results are compared to BGC's stand-alone financial results excluding Newmark prior to the spin-off in November 2018. We will refer to our results on a non-GAAP basis, which include the terms adjusted earnings and adjusted EBITDA. Please refer to today's investor materials on our website for additional details on our financial results and for complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results and how, when and why management uses them, as well as relevant industry and economic statistics.

The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political and/or other factors. Information on this call contains forward-looking statements, including, without limitation, statements about our economic outlook and business. These statements are subject to risks and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For information on factors that could cause actual results to differ from forward-looking statements and a complete discussion of risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to the risk factors and disclosures within these SEC documents.

With that, I'm now happy to turn the call over to Sean Windeatt, Co-Chief Executive Officer of BGC Group.

Thank you, Jason. Good morning, and welcome to our fourth quarter and full year 2025 Conference Call.

With me today are my fellow co-Chief Executive Officers, John Abularrage and JP Aubin, along with our Chief Financial Officer, Jason Hauf.

BGC delivered record-breaking revenues for both fourth quarter and full year 2025, with increases of 32% and 30%, respectively. This strong growth extended across all asset classes and geographies, driven by double-digit organic growth and our acquisition of OTC. We achieved the strongest annual results in our history, with revenues approaching $3 billion and EPS growing by 24% under GAAP and 19% for adjusted earnings. We significantly expanded our market share completed our second largest acquisition and became the world's largest energy broker.

We completed the first phase of our cost reduction program that will realize $25 million of annualized savings in 2026 with further cost savings targeted throughout the year. FMX produced another record year with our FMX UST business ending 2025 with a 40% market share. Our FMX Futures Exchange continued its rapid growth with SOFR Futures average daily volumes and open interest increasing 82% and 97%, respectively, from the previous quarter. This strong momentum has continued into 2026 with volumes, open interest and market share, all setting new daily highs.

Three years ago, on our fourth quarter 2022 earnings call, we declared BGC a growth company once again. Since then, we produced 13% revenue growth in 2023, 12% in '24, 30% in 2025 and have now guided 34% growth for the first quarter of 2026 at the midpoint of guidance. Our revenues have increased from $1.8 billion in 2022 to nearly $3 billion this year. Over the same period, our adjusted EPS has risen by 71% to $1.18 per share. We have become the largest ECS broker globally, diversified our customer base and introduced competition to the U.S. interest rate futures market.

We believe our company is stronger than ever and perfectly positioned for continued success as we move into 2026, with the year already off to a record-breaking start.

With that, I'd like to turn the call over to John to go over the quarterly results of the business in more detail.

Thank you, Sean. We delivered record fourth quarter revenues of $756.4 million, a 32.2% increase versus last year. Excluding our acquisition of OTC, revenues were $641.9 million, up 12.2%, which also would have been a fourth quarter record. Our total brokerage revenues grew by 34.6% to $694.6 million driven by growth across all asset classes. Our ECS revenues grew by 92% to $257.5 million, driven by OTC and strong organic growth across the broader energy complex and our shipping business. Excluding OTC, ECS revenues grew by 10% versus last year.

Rates revenues increased 16.4% to $197.4 million, reflecting strong double-digit growth in G10 interest rate products, emerging market and repo products. Foreign exchange revenues were up 9.8% to $102.8 million, primarily due to strong growth in emerging market currencies and G10 FX forward volumes. Credit revenues increased by 3% to $64.3 million, driven by higher emerging market and European credit volumes. Equities grew by 29% to $72.7 million, reflecting global equity volatility and strong market share gains.

Data, Network and Post-Trade revenues grew by 14.2% to $36.7 million, excluding Capitalab, which we sold in the fourth quarter of 2024. This growth was driven by Lucera and Fenics Market data. Including Capitalab, Data, Network and Post-Trade revenues grew by 12.5%.

Now turning to Fenics. In the fourth quarter, Fenics revenues increased by 15.4% to a fourth quarter record of $163.9 million. Fenics Markets generated revenues of $136.7 million, an increase of 15.1%. This growth was primarily driven by higher electronic volumes across rates products and increased Fenics Market Data revenues. On December 31, 2025, we sold our kACE business for up to $119 million or 28x post-tax profits. Fenics Growth Platforms revenues grew $27.2 million, an 18.9% increase, excluding Capitalab, driven by strong revenue growth in FMX and Lucera. Including Capitalab, which we sold in the fourth quarter last year, Fenics Growth Platforms revenues increased by 16.5%.

FMX UST generated record fourth quarter average daily volume of $58.7 billion, more than 12% higher compared to last year and outpacing all electronic U.S. Treasury platforms. This strong growth drove market share to a record 39% for the fourth quarter, up from 37% last quarter and 30% a year ago. FX market share has increased sequentially in 12 of the last 13 quarters, more than doubling over the same period.

FMX Futures Exchange saw record volumes in open interest in the fourth quarter with ADV and open interest increasing 82% and 97%, respectively, versus the third quarter. This momentum has carried into 2026, where ADV was approximately 40,000 contracts in January, exceeding 1% market share for the first time and open interest ended with approximately 200,000 contracts, an all-time record. We remain ahead of where we were with our FMX UST platform, which today has approximately 40% market share.

In our experience, achieving the first 1% market share is the hardest. We are increasingly excited about the progress we are seeing with our FMX Futures Exchange. FMX FX ADV increased by 40% to a fourth quarter record $15.5 billion driven by strong growth across spot FX and nondeliverable forward volumes. The benefits of having 10 world-class partners in FMX is demonstrated by ADV more than doubling since the completion of the FMX transaction.

PortfolioMatch ADV grew by 68%, driven by stronger U.S. and European credit activity, greater adoption of algorithmic trading and larger average trade size. Our PortfolioMatch business has seen tremendous growth since its launch and today, we estimate it represents nearly 20% of the Credit Suite market in the United States.

Lucera, Fenics Network business, providing critical real-time trading infrastructure to the capital markets, grew its revenues by 24.1%. This strong growth was driven by increased demand for Lucera's FX and rate solutions, continued international expansion and onboarding of new clients. Lucera's client pipeline continues to expand, and we plan to launch additional fixed income products in 2026.

And with that, I would now like to turn the call over to Jason.

Thank you, John, and hello, everyone. BGC generated record fourth quarter revenues of $756.4 million, reflecting growth across all of our geographies. EMEA revenue increased by 39.2%. Americas revenues increased by 25.7%, and Asia Pacific revenues increased by 24.2%.

Turning to expenses. Compensation and employee benefits under GAAP and for adjusted earnings increased by 71.8% and 40.1%, respectively. The increase in compensation and employee benefits under GAAP was related to charges due to the cost reduction program, the acquisition of OTC, higher commissionable revenues, loan forgiveness and the weaker U.S. dollar. The increase in compensation and employee benefit for adjusted earnings was driven by OTC, higher commissionable revenues and the weaker U.S. dollar.

Charges related to the cost reduction program and loan forgiveness are excluded from adjusted earnings. Noncompensation expenses under GAAP and for adjusted earnings increased by 25.5% and 27.1%, respectively, primarily driven by the acquisition of OTC. Excluding OTC, non-compensation expenses under GAAP and for adjusted earnings increased by 13.5% and 14.7%, respectively.

We completed the first phase of our cost reduction program during the fourth quarter, which will realize $25 million of annualized cost savings in 2026. Further cost efficiencies are expected to be realized throughout the year.

Moving on to our record fourth quarter adjusted earnings. Our pretax adjusted earnings grew by 24.5% to $161.3 million, representing a pretax margin of 21.3%. Excluding the impact of OTC, our pretax margin would have been 23.2%. And excluding both OTC and the weaker U.S. dollar, our pretax adjusted earnings margin would have been approximately 23.7%. Post-tax adjusted earnings increased by 21.1% to $149.6 million, resulting in a post-tax adjusted earnings per share of $0.31.

Our adjusted EBITDA decreased by 0.8% to $190.6 million due to charges related to the execution of the cost reduction program.

GAAP income from operations before income taxes decreased 8% to $25 million. This included $54.8 million of charges from the cost reduction program, the cash impact of which was $28.1 million.

Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 490.4 million shares during the period, a 0.8% decrease compared to the third quarter of 2025 and a 1% decrease compared to a year ago. As of December 31, our liquidity was $979.1 million compared with $897.8 million as of year-end 2024.

With that, I'd like to turn the call back over to Sean to go over our first quarter outlook.

Thank you, Jason. I'm pleased to provide the following guidance for the first quarter of 2026. We expect to generate revenues of between $860 million and $920 million, as compared to $664.2 million in the first quarter of 2025, which at the midpoint of our guidance would represent approximately 34% revenue growth. Excluding OTC, we expect our first quarter revenues to grow around 15% at the midpoint.

We anticipate pretax adjusted earnings to be in the range of $202 million to $222 million versus $160.2 million last year, which at the midpoint of guidance would represent over 32% earnings growth. We expect our adjusted earnings tax rate to be between 11% and 14% for the full year 2026.

With that, operator, we'd like to open the call for questions.

[Operator Instructions] Our first question comes from the line of Patrick Moley with Piper Sandler.

Wanted to ask about the first quarter guide came in much better than we were expecting, and it appears like the organic revenue growth is stepping up there. So I was hoping if you could dissect that a little more for us, how much of the step-up in growth is driven by just a strong trading environment year-to-date versus maybe some more sustainable fundamental growth drivers across the business?

Thanks, Patrick. It's Sean here. Look, I think, as I said in the prepared remarks, we've grown our core revenue, if you like, our same-store revenue 13%, 12%, 15% each year, and in the implied guidance, it's 15% again. You'll remember that we said with the introduction of interest rates, the market itself is -- it was regrowing again. And you've seen that for the past 3 years, and now you're seeing it in our guidance this time. It's driven not just in ECS, but where we've gained market share and I think we also have the benefit of becoming the #1 player within that business.

And then we've also got -- had strong growth and strong market share gains due to the various hirings that we've done over the past year or so in both rates and in foreign exchange. And you've also seen -- across the board, you've seen that in FX and equities as well.

Okay. Great. And then a follow-up. You sold kACE. Just wondering how you're thinking about the portfolio of businesses today within Fenics? What drove the decision to sell that business? Was it just opportunistic? Or should we maybe expect future divestitures?

Look, I think we've sold two businesses that were sitting within Fenics now in the last year that had revenues of around about $27 million and we sold those for just under $165 million. And our view has always been the same, which is, if -- it's all about shareholder value. And if someone is prepared to pay something that's an appropriate value for our shareholders, then that's great. Both of those businesses were lower growth businesses for us. I think they'll do fantastically well in the hands of their new owners.

And what it allows us to do is to focus on those higher growth things that you mentioned within the Fenics portfolio. I mean you saw, I think in John's prepared remarks, he said that Lucera grew 24% again this quarter. Our PortfolioMatch business growing again at strong double digits. So the answer is we always remain open for -- if it's not getting the value within our company, but it's all about shareholder value.

Our next question comes from the line of Elias Abboud with Bank of America.

I wanted to follow up on Patrick's energy segment question and still trying to unpack, I guess, what's structural from what cyclical growth here. And to that end, could you maybe talk about the extent to which you're seeing new logo growth in the energy space? Are there firms who maybe 2 years ago didn't think it was necessary to hedge their energy exposure but now with all of this volatility are revisiting that decision and maybe becoming clients at BGC's ECS segment for the first time?

Elias, it's John. So yes, the answer is that in the ECS business, there's a proliferation of new players in that asset class, both when you talk about hedging, what is real risk in the market and new players who are entering on the traditional buy side. So we're definitely seeing the benefit of that. Of course, there is some cyclical growth, but I think if you look at our market share and where I would say we're outperforming the market, those are based mainly on areas where we chose to invest and to enter into those markets over the last couple of years.

So we are seeing across the board good performance in our ECS business. At the moment, you're seeing really great performance from the biggest asset classes that we've invested in, so oil, refined products, power, natural gas and, of course, our shipping business. So yes, the market environment is good, but I would say we continue to expand our client base and continue to gain market share.

Got it. And has your ECS market share yet exceeded, I guess, the combined market share of BGC and OTC Global as stand-alone entities? I know in the past couple of calls, you had said there would be situations where maybe 1 plus 1 equals 3 as you go to integrate those businesses. Are there any proof points, any evidence yet of that, that you can share with us?

So I'm not -- I don't think we're breaking it out, but what I will say is, without question, the answer to that is yes. So the benefits of acquiring OTC have become evident in the products that I just mentioned. So our #1 positioning in oil, in gas, in refined products has been augmented certainly in a greater way than just 1 plus 1. And so we are seeing the benefits of that. And we are also seeing strong benefits where we have combined parts of the traditional BGC business with the existing OTC business to create, Elias, you and I have discussed, historically very, very strong global brands under the BGC umbrella.

Got it. And I think, to some extent, the pushback that we hear from investors is, does your over-the-counter, your block like bread and butter, does that grow structurally slower than listed energy volumes? So I think maybe it would be helpful, like if we kind of take as a given that listed energy volumes grow, let's just say, 15% per year over the next 5 years, does BGC's volumes grow more, the same, less? How should we think about the delta?

JP here. So the block business is a growing part, right? And we have a very -- as you know, 2025, the markets were very volatile. The beginning of '26 is no different. So one, volatility remains the best friend of BGC business. Second, we are the largest listed broker in the world. And the block part, the OTC part of that business, is growing and BGC's benefiting like largely. I would like to mention something. We're a client of multiple exchange. As an example, we are one of the CME's biggest clients. So we noticed exchanges share price are always up in very volatile days. We shouldn't be different.

They benefit from that extra business, and we are the client of the exchanges. So we feed them in a way, every day. So we consider we definitely benefit from volatility and the extra blocking business.

Got it. And maybe for my last one here. I know we actually we haven't hit on FMX futures yet. So now that market share is picking up and you guys have some momentum, what's the timetable for recognizing some revenue related to FMX futures? I think there were some fee holidays maybe in the past couple of quarters. Is there any timeline for those rolling off? And then just a follow-up. Any update on Treasury futures? I think open interest there is still de minimis and maybe that's been on the back burner. When is that going to move to the front burner for you guys?

Yes. So the changes in the fee structure happened 2 years after the deal was signed. So that's kind of the beginning of this summer when you'll see for the early adopters, change the fee structures, I think we've said before for the futures businesses and in general comment, we will continue to consider where that stands to make sure that it is more than competitive in the marketplace. So that was the first part of your question.

And the second part of your question was on Treasury futures and Treasury futures will come on the back of success of SOFR. Meaning that we are at 1% and we don't take the 1% lightly, but we're still on that journey, and we believe very strongly that focusing on SOFR at the moment is the right thing to do both for building that marketplace, but also in conjunction with daily conversations with our partners is how we make those decisions. So the launch of Treasury futures will follow shortly behind where we get to the end of our journey in onboarding and getting SOFR to where we need it to be.

Our next question comes from the line of Patrick Moley with Piper Sandler.

I wanted to hit on something you said in your prepared remarks about launching additional fixed income products in 2026 within Lucera. Could you maybe just help us or give us a better sense for what those could be and how additive it could be to overall growth within Fenics?

Yes, sure. So Lucera has got a dominant position in the FX market, as you would imagine, because that's where it started. They then rolled into rates and you're seeing the benefits of Lucera's fantastic position in that market, and the service they provide for clients, both in connectivity and the robustness of what they do on the electronic side. And now they're moving into credit markets to bring that connectivity into an increasingly electronic world in credit.

So hard to define in terms of the number because it's nascent. It's just sort of starting. But one would guess that if they are successful in credit as they've been in the first two asset classes that over a period of time, hopefully, that will represent a third of their revenue.

We have reached the end of the question-and-answer session. I would like to turn the floor back to Mr. Sean Windeatt for closing remarks.

Thank you very much. And just to say thanks for joining us today on our fourth quarter and full year '25 conference call. Look forward to speaking to you soon, and have a great day.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

Ladies and gentlemen, thank you for standing by. The conference will begin in a couple of moments. One moment, please.

Greetings, and welcome to the BGC Group, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Jason Chryssicas, Head of Investor Relations. Thank you, sir. You may begin.

Thank you, and hello, everyone. This morning, we issued BGC's third quarter 2025 financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the third quarter of 2025 with the prior year periods unless otherwise specified. All references on today's call to historic and record results are to BGC's stand-alone financial results, excluding Newmark prior to the spin-off in November 2018. We will be referring to our results on a non-GAAP basis, which include the terms adjusted earnings and adjusted EBITDA.

Please refer to today's investor materials on our website for additional details on our financial results and for complete and updated definitions of any non-GAAP terms, reconciliations of these items to GAAP results and how, when and why management uses them as well as relevant industry and economic statistics. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political and/or other factors. Information on this call contains forward-looking statements, including, without limitation, statements about our economic outlook and business.

These statements are subject to risks and uncertainties, which could cause actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For information on factors that could cause actual results to differ from forward-looking statements and a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures within the SEC documents.

With that, I'm now happy to turn the call over to John Abularrage, Co-Chief Executive Officer of BGC Group.

Thank you, Jason. Good morning, and welcome to our third quarter 2025 conference call. With me today are my fellow Co-Chief Executive Officers, Sean Windeatt; and JP Aubin, along with our Chief Financial Officer, Jason Hauf. We delivered another outstanding quarter with record third quarter revenues of $737 million, up 31% from $561 million a year ago and revenues of $628 million, up 12%, excluding OTC, was also a record. This was driven by growth across every asset class and geography. Our ability to deliver strong growth in a mixed macro environment demonstrates the strength and scale of our global platform.

FMX continues to outperform, setting new records in SOFR Futures and U.S. Treasury. SOFR Futures saw both ADV and open interest increase more than threefold versus the previous quarter. This momentum continued into October, where we set multiple new daily volume and open interest records. Our U.S. Treasury market share grew to an all-time high of 37%, significantly outpacing the market. Our $25 million cost reduction program will be completed by year-end. This program will enhance our profitability and margins as we continue to focus on delivering long-term shareholder value.

With that, I'd like to turn the call over to Sean to go over the quarterly results of the business in more detail.

Thank you, John. We delivered record third quarter revenues and adjusted earnings. Our ECS revenues grew by 114% to $241.6 million, driven by OTC and strong organic growth across the broader energy complex. Excluding OTC, ECS revenues grew by 21.8% versus last year. Rates revenues increased 12.1% to $195.3 million, reflecting higher volumes across all major interest rate products, including strong double-digit growth in interest rate swaps, emerging market rates and repo products.

Foreign exchange revenues were up 15.9% to $106.7 million, primarily due to strong growth in emerging market currencies and FX option volumes. Credit revenues increased by 1.6% to $69.1 million, driven by higher credit derivative and structured credit volumes. Equities revenues grew by 13.2% to $60.4 million, reflecting strong European and U.S. equity volumes and continued market share gains in these geographies. Data Network and Post-Trade revenues grew by 11.9% to $34.3 million, excluding Capitalab, which we sold in the fourth quarter of 2024. This growth was driven by Fenics Market Data and Lucera. Including Capitalab, Data Network and Post-Trade revenues grew by 5.2%.

Now turning to Fenics. In the third quarter, Fenics revenues increased by 12.7% to a third quarter record of $160 million. Fenics Markets reported revenues of $134.1 million, an increase of 12.5%. This growth was primarily driven by higher electronic trading volumes across rates and foreign exchange products and increased Fenics Market Data revenues. Fenics Growth Platforms generated revenues of $25.9 million, a 24.2% increase excluding Capitalab, driven by strong double-digit revenue growth in FMX and PortfolioMatch.

Including Capitalab, Fenics Growth Platforms grew by 13.5%. FMX UST generated record third quarter average daily volume of $59.4 billion, more than 12% higher compared to last year, outpacing all electronic U.S. treasury platforms. This strong growth drove market share to a record 37% for the third quarter, up from 35% last quarter and 29% a year ago. FMX Futures Exchange continued to scale its SOFR Futures ADV and open interest to record levels during the third quarter. SOFR ADV and open interest each increased sequentially by more than threefold.

FMX, along with its partners, continues to prioritize growing SOFR ADV and open interest, and we expect to see similar adoption in our U.S. Treasury futures offering in 2026. FMX FX ADV increased by 44% to a third quarter record $13.1 billion, driven by continued support from FMX's equity partners as well as the addition of new products and participants. PortfolioMatch ADV more than doubled, reflecting strong growth in the U.S. and EMEA credit markets. PortfolioMatch continues to gain market share in this fast-growing segment of the credit market and has rapidly expanded its non-U.S. volumes and client base.

Momentum is being driven by the greater adoption of algorithmic trading and larger average trade size, which reached record levels in the third quarter, with U.S. investment-grade average trade size up nearly 50% year-over-year. Lucera, Fenics network business, providing critical real-time trading infrastructure to the capital markets once again registered double-digit revenue growth. Lucera is rapidly growing its client pipeline for its newer rates products and continues its global expansion into EMEA and Asia.

And with that, I'd now like to turn the call over to Jason.

Thank you, Sean, and hello, everyone. BGC generated record third quarter revenues of $736.8 million, reflecting growth across all of our geographies. EMEA revenues increased by 37.4%, Americas revenues increased by 28.1% and Asia Pacific revenues increased by 17.4%.

Turning to expenses, compensation and employee benefits under GAAP and for adjusted earnings increased by 47.5% and 42.1%, respectively, due to higher commissionable revenues and the acquisition of OTC. Non-compensation expenses under GAAP and for adjusted earnings increased by 20.9% and 19.2%, respectively, primarily driven by the acquisition of OTC. Excluding OTC, non-compensation expenses under GAAP and for adjusted earnings increased by 10.3% and 7.1%, respectively. BGC's $25 million cost reduction program launched in the third quarter and will be completed by year-end 2025. We look forward to providing more detail on the program on our fourth quarter earnings call.

Moving on to our record third quarter adjusted earnings. Our pretax adjusted earnings grew by 22.4% to $155.1 million. Post-tax adjusted earnings increased by 11.5% to $141.1 million, resulting in post-tax adjusted earnings per share of $0.29, and our adjusted EBITDA increased by 10.7% to $167.6 million.

Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 494.2 million shares during the period, a 1.2% decrease compared to the second quarter of 2025 and a 0.1% decrease compared to a year ago. We remain committed to repurchasing our shares. And on November 5, 2025, BGC's Board and Audit Committee reapproved our share repurchase authorization for up to $400 million. We anticipate reducing our full year share count further in the fourth quarter of 2025 in addition to repaying our $300 million senior notes due December 15. As of September 30, our liquidity was $924.7 million compared to $897.8 million as of year-end 2024.

With that, I'd like to turn the call back to John to go over our fourth quarter outlook.

Thanks, Jason. I'm pleased to provide the following guidance for the fourth quarter of 2025. We expect to generate revenues of between $720 million and $770 million as compared to $572.3 million in the fourth quarter of 2024, which at the midpoint of our guidance would represent approximately 30% revenue growth. Excluding OTC, we expect fourth quarter revenues to grow around 11% at the midpoint. We anticipate pretax adjusted earnings to be in the range of $152.5 million to $167.5 million versus $129.5 million last year, which at the midpoint of guidance would represent approximately 24% earnings growth. And we expect our adjusted earnings tax rate to between 10% and 12% for the full year 2025.

With that, operator, I'd like to turn to open the call for questions.

[Operator Instructions] The first question comes from Patrick Moley with Piper Sandler.

So I want to start off kind of broad. In the third quarter, we saw on exchange volumes in some of the asset classes you're active in slow down significantly. Your results, though, were quite strong. So could you help us better understand what allowed BGC to kind of outperform some of those industry proxies?

Patrick, thanks for that. So I think, look, twofold. Number one is, as you know, we've targeted growth within the ECS sector. And even excluding the acquisition, you saw growth of 21%, excluding OTC. But it was broader than that. You also saw good growth in both rates and foreign exchange and equities. And that's been very much because of the hiring that we've been doing over the last 18 months, where we've added 150 -- around 150 new brokers, obviously generating great revenues on a revenue per head basis. So that's enabled us to take market share, targeted growth in certain geographies and asset classes and, of course, the growth of ECS.

Great. And then just as a follow-up, you highlighted the strong growth you've seen in FMX. Could you help us kind of get a better sense for what's going on behind the scenes there? What are your expectations for FCM onboardings in the coming quarters? And then, Sean, could you maybe elaborate on the comment you made in your prepared remarks about UST Futures growing in 2026? What needs to happen between now and then to really get that going?

Yes. Patrick. So look, we're just ending year 1 of FMX, right? We're starting year 2. So 3 points about year 1. One, everything we say we will do in year 1, we have done. We launched, we have record open interest in ADV and onboarded 11 FCMs. We are in line with where we were with cash U.S. treasuries at the same time after launch. Two, SOFR Futures ADV and open interest both increased by more than threefold from the second quarter. Three, we are encouraged by the steady growth of open interest, which signals that FMX clients are really happy to keep their position open at FMX and cleared at LCH.

Thanks, JP. And sorry, Patrick, just to add on, it's Sean. What's going on behind the scenes now, as we've discussed with you before is, taking that integration and deepening it, right? So we told you that the 11 FCMs were on board. We will certainly get to that 12 number that we talked about. But this is just becoming BAU and integrated into aggregators and the smart order routers and making sure that SOFR becomes BAU. And then in 2026, there is not -- there's nothing necessarily that needs to be done to address your question other than getting ourselves to the position that we said we would get to in SOFR and then shifting that attention with our partners over to U.S. Treasuries.

Okay. Great. That's it from me. Congrats on the strong quarter.

Thank you.

The question comes from Elias Abboud with Bank of America.

Can you walk us through the strong share growth in your FMX cash markets? What would you attribute that to? How much of this is coming from those strategic peers? And then specifically on the treasury platform, I know you have a couple of different protocols there, a public cloud and then a private club, which one of those would be driving the share gains?

Why don't I start by -- in terms of the overall market share growth in Treasury, I think that is -- there was a sort of monopoly, if you like, with CME and really, that's why we got back into the marketplace on cash treasuries. So what you've seen, Elias, you've seen that the hard work of that go on for a number of years. Now it's just further adoption, yes, by our FMX partners, but also because it's the most viable second choice for what have a better phase and one would almost say equal first choice now. So that's why you've seen the growth, I think, up to 37%. And what was the second part of the question?

I know you have a couple of different protocols in the Treasury platform. I think there's a public club and then a private club. Were either of those an outsized contributor to the share gains?

No. As Sean said, we're seeing it mainly across the board. And as we get more participants on both the peak club and your regular club, you're seeing both partners and other participants come into it. So there's not an outlier. There's nothing major that is different than kind of the underlying onboarding of our new participants and our partners leaning in.

Got it. And for my follow-up, how much leverage does your Energy segment have to higher adoption of cloud and artificial intelligence going forward? Are data centers a meaningful client channel for you today? Is there anything you can share to help us quantify the extent to which higher electricity demand from these users moves the needle on your energy revenues?

On the revenue side, probably not. On the story, the answer is, we are very fortunate to have once been combined with Newmark. So you will have seen publicly that Newmark has done a lot on the data center side and the hyperscaler side, and that affects us because part of Amarex is energy procurement. And so we've got a great business on the energy procurement side, and Newmark has been kind enough to introduce us to some of the people that they are in contact with, and that spills over to us on the energy side. And so the short answer, and I apologize for the long-winded one, is that, yes, we are involved. We continue to be more involved. And the way that it affects us is by procuring energy for those data centers.

Got it. And maybe just the last one for you here. Electronic credit revenues are flattish year-to-date, I think they're up 1%. Can you talk about what you're seeing in that business, any headwinds? And then maybe stepping back, is this a business that you think can grow at similar pace as Tradeweb or MarketAxess longer term? Or are there structural differences that would likely cause a delta in growth?

To take the last part first, the answer is yes, we can grow at those rates. And when it comes to electronic credit, I think it's growing a bit faster than that and certainly faster than the average that you will see. But as we said to you last time, we are launching new electronic protocols all the time, and we are gaining market share, as you see in the sweep, which we pull out for our portfolio match, and you will see other products of ours start to gain market share. And as the electronic offering becomes a greater percentage of our own credit business proportionately, you will see the overall credit start to move at a faster rate. And actually, JP, why don't you talk about our new offering?

Look, we do recognize the shift towards more electronic and institutional credit market. So we launched a new fully electronic global credit platform for our buy-side institutional clients to continue to move our business more electronic. And I can say this platform is already live globally.

There are no further questions in queue at this time. I would like to turn the call back over to Mr. Abularrage for closing comments.

Thank you very much. Appreciate it.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.