Road Trip to IDX: CME Group's Sammann Optimistic Amid Market Volatility

Fresh off his panel at the International Derivatives Expo in London, Derek Sammann, Senior Managing Director and Global Head of Commodities Markets at CME Group, joins the show to discuss how markets are handling recent volatility events. CME Group has seen record volumes in energy markets and has also seen growth across agricultural and metals, with significant increases in EMEA and APAC regions. Sammann emphasized CME Group's dual focus on risk management and price discovery, and notes how retail participation -- particularly in gold -- is surging, driven by inflation hedges.

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Transcript

(Note: This transcript was created using AI. It has not been edited verbatim.)

Sean McMahon  0:00  
Hello everyone, and welcome to the Modern Money SmartPod. I'm your host, Sean McMahon, and today we're coming to you from day two of the International Derivatives Expo. We're here in London gathering insights from some of the brightest minds in the financial services industry. So joining me right now is Derek Sammann, Senior Managing Director and Global Head of Commodities Markets for CME Group. Derek, how you doing? 

Derek Sammann  0:32  
I'm doing great, man. It's been a great event so far.

Sean McMahon  0:35  
Yeah, I think everyone's been talking about how vibrant this year's IDX is. So what's your take? 

Derek Sammann  0:40  
Well, first of all, it's sunny, which is rare for London, so I get that going for us. Second of all, it's, it's, there's definitely a sense of optimism like we I've been here in 2020 I was here in 2009 after some of the big, dislocating market events in in previous years. And this has a very different feel to it. We see very much a risk on environment in our markets right now, despite the fact that we had that market moving event in energy markets on Friday with the turmoil in the Middle East, yet our markets set at all time volume record level in energy markets that day, and commodities overall, in fact. So what we're seeing is not a risk off. Oh my gosh. I'm not sure what to do, but very much. Okay, this is happening, and I'm in the markets every day, and I'm looking for continuous liquidity, and they're getting that on our exchanges, and that's exciting. So it feels less like a Oh my gosh, things are scary around me, and I'm not sure what to do. It's very much that things are scary. I know exactly what to do, and it's a risk on environment. We've got a lot of data that supports that, and we're excited to see that.

Sean McMahon  1:38  
That seems like that's a change, right? I think when we were all got together at Bucha, there was a little bit risk off. People were still on. There's some uncertainty. Liberation Day hadn't happened yet. People were uncertain. What kind of positions to have. Have you noticed that changed in the last couple months? 

Derek Sammann  1:49  
Yeah, and I think that was maybe a little bit of the darkest before the dawn moment. I think that weren't exactly sure where those initial policies from the new US administration would go. I think now that we've got what, four months under our belts of seeing the US administration move forward and take decisions. We've seen the market take those decisions in stride. The Liberation Day and tariff impacts were not small by any measure, but we've seen our markets continuously trade through them. We've seen and I'll throw some stats at you real quick. We're seeing our commodities business this year, which are probably the most tumultuous and disrupted by some of the tariff talk. We've seen record levels of activity across agricultural markets, metals markets and energy markets. We set an all time record on Friday in our energy markets, the day of the Middle East disruption. We are seeing every one of our client segments grow, retail, commercial, end user, buy, side prop, and we're seeing every one of our regions grow, most importantly, EMEA and APAC, and that, coupled with open interest, steady or growing, that's the very definition of risk on So customers are adapting to and managing the unknowns around this new US administration in a way that's like, Okay, now I know what I'm dealing with. Let's get on with it. And we're seeing that in our volumes, and that's why we're putting up record volumes at CME Group right now.

Sean McMahon  3:08  
I mean, I got to say, with all these record volumes, it also contradicts the panel. You just got the headwinds in the commodity sector, so it sounds like there's not a lot of headwinds, maybe some tailwinds.

Derek Sammann  3:18  
Well, you know, I have a tendency to turn frowns upside down. I'm an optimistic, glass half full kind of guy, and I think when you look I would say it's less headwinds, it's more disruptions and then. But you have to then ask the question, disruptive commodities markets. So what? And the so what is so customers are adapting, and customers are responding, as I said, very differently than post 2020, and post 2008 2009 they're responding with known, deterministic market regulatory behavior on exchanges. They're putting more business and more risk on in environments where they know they can enter and exit trades as efficiently as possible. They're moving into options and adding those non linear products as an additional risk management tool in their toolbox. And so I think for me, where I tried to take the panel was one of, hey, this is this headwinds implies risk off. This is anything but risk off for the reasons I just mentioned. So that's, I think, feeding into the vibe. And I think that kind of came out in the panel. And hopefully that was some of the takeaways from the folks in the audience. 

Sean McMahon  4:15  
Yeah, it certainly was. And I got it, I was being a little bit facetious there. I think the headwinds and tailwinds, I think, you know, part of the reasons headwinds is the name because of it's the nature of these disruptions. Yeah, totally. No one wants to talk about conflict in Middle East as being a tailwind. Yeah. What else are you taking away from not only other panelists there or just what you're hearing around IDX?

Derek Sammann  4:32  
I would say, Listen, we pay a lot of attention to what we do and how we're operating and how our customers are interacting. And again, we're just seeing growth in every one of our sectors. What's really encouraging? Talking to my peers, other exchanges, they're seeing growth as well. And for us, it's not a surprise, and I'm encouraged to see that what we're seeing record levels of activity in our products in European and Asian time zones, the regional European exchanges are also seeing growth. And that tells me that there's a broader desire to really engage. And the risk in this market, and move forward and push through it. So I'm encouraged by that. I would say, also, there's a lot of folks that I see year after year, and it's very encouraging to see those folks come back year after year, because it means they're experienced people at the helm, people that have been there, done that, and I think a group of folks that are just so dedicated to this industry, and it's fun to be part of an industry where it's, it's a big family. We're competitors, we're peers, we're colleagues. Sometimes we get annoyed with one another, but we're a family. And it's, it's a it's a what I like about these events, and Bucha is the same way. We've got the shared passion for risk management and helping customers manage around certain times, and that just comes through in events like this. We're all talking about the same kinds of things, and this isn't the function of have and have nots right now, the business is going well. We're all listening to our customers, and I think we're all benefited, and most importantly, our customers are benefiting.

Sean McMahon  5:52  
So speaking of that interaction with customers, what is CME Group working on to provide the products that these customers need to navigate these volatile markets?

Derek Sammann  6:00  
Great question, I think we think about, and I mentioned this on the panel. We think about the exchange and CME Group overall. It's having a dual mandate on one side, risk management, the other side, price discovery. So we're focusing on equal measures, on doing both of those things with excellence. On the risk management side, we continue to be, I think, is world class and the leader in things like twice daily variation margin runs. So we're collecting and sending funds to those positions that are up and those positions that have lost money on the day, not allowing any unaccrued P and L to exist for more than just a couple hours in a given trading day. We have a very clear set of market regulatory rules that everybody understands and operating operate exactly as they are explained on our website. So for things like velocity, logic or dynamic circuit breakers, position limits, we think about it. Those are all kind of portions that we call real time risk management. So we know at all points in time what the risk is in our market, the health of our customers, and that just breeds the confidence on the risk management side of the ledger. On the other side, the price discovery side, that's, you know, as a commercial guy, that's where I spend most of my time, and that's product development, rolling out new products, whether it's product extensions, like Monday, Tuesday, Wednesday, Thursday and Friday options in every asset class, those have been a huge hit as we've seen more customers engage in trading of options, particularly in those shorter dated products. We just rolled those Monday to Friday out in AGS. This year we rolled out micro products in ag, which is our sixth and final asset class to roll out those products into. We're seeing growth in retail there. We are seeing services around, whether it's data distribution analytics capabilities that we're building, not just on our own front end CME direct, but also on our website to educate more customers and bring them into the derivatives markets, which we think is the safest place and the best place for any investor to be managing their risk because of the known, proven safeguards of a central counterparty. And so for us, we spend as much time trying to attract new clients and extol the benefits of Exchange Traded derivatives. That's something that we all share in this building. But we also want to make sure that for CME Group customers, we are specifically catering to their needs. So the product development piece of that is only successful if you're predicating products developed based on client need, and that's the fun part of that. So we've rolled out probably more ag products in the last three months than we have in the last five years combined, because we're in a growth channel in AGS right now, and that's a really important business for us, whether it's Black Sea wheat or whether it's rapeseed oil or oil share contract or the Horde hard red spring wheat contract, micro short, dated, those are just ag products, not to mention everything we've rolled out in our metals and energy products as well. So it's good product development starts and ends with the customer. Build what the customer wants, and they're going to trade that product in your Exchange, and that adds value to the reasons why they should be managing risk with you. And that's, that's the really fun part of this job. 

Sean McMahon  8:51  
So you mentioned retail, and you know, I got to ask you some of the growth, you know, particularly in ag, or some of those other products, is that is retail driving that? Or is that institutional or a mix?

Derek Sammann  9:00  
So I would say every client segment across the commodities portfolio as a whole, in aggregate, every client segment is double digits up right now, retail among those. Now it's a little bit asymmetric. We're seeing retail growth in metals, and that's almost exclusively in gold, not surprisingly, given goals at $3,400 inflation hedge, you know, flight to quality. Those are all things that we've seen to be significant drivers of end user, self directed traders in the gold market. We are doing record levels of our micro gold contract, and that, I think, just reflects the nature of what customers want to be in and what risk they want to manage. And we've actually launched a one ounce contract which is 1/10 the size of our micro which is 100 the size of our main contract. And that's also getting some good traction. That's doing maybe 10,000 a day, but our micro contract is doing close to 200,000 contracts a day, and the main GC contract is doing about 250,000 contracts a day, and that is specifically focused on a risk level and a risk appetite that's appropriate for your small. Self Directed trader, we are seeing increased levels of retail in our ag markets, and I would say that's probably more a function of very kind of ranchers and farmers and small individual traders. So retail, yes, is actively participating in all three asset classes, commodities. Overall, it's up growing fastest in gold, and that's a fun part of what we get to do, because that's we partner with distribution partners who touch the end customer. We don't touch that end customer directly, but we basically prepare and provide all the tools and resources to the Robin Hoods of this world, the Interactive Brokers of this world, the E trades of this world, the schwabs of this world, to bring that customer base and educate them and bring them safely into our marketplace.

Sean McMahon  10:39  
Okay, now I want to ask you, you know, are there any products out there that maybe aren't generating high volumes right now?

Derek Sammann  10:45  
 Oh, there's a load.

Sean McMahon  10:48  
I know there are a load, but you've been in this industry a long time. Yeah? And is there any you're kind of sitting in the back your mind. You're like, that's gonna pop in the next couple of months? Yeah, you got anything you got an eye on. You want to make any bold predictions?

Derek Sammann  11:00  
As much as I'd love to get my crystal ball out, Donal will kick me in the teeth if I do, I would say that we are patient, and when we get to the point to launch a product, trust me, it's gone through multiple rounds of client validation. So we try not to just think up good ideas and then thrown up against the wall and see what sticks. We did that 15 years ago. That is a failed product development strategy. So there is a point, however, where you launch products, and maybe it's not right at the time, but it picks up steam later on. I'd use battery metals as a great example of this. We don't launch battery metals until, I think, 2018, 2019, and it was a slow burn, but over the last two and a half years, that market is now sitting at record levels of open interest, record levels of volume, and that product has never been as relevant as it is today. So were we early? Yes. Did we not get a lot of traction when we first launched? Yes, but we launched it based on the product spec and the need of the end user, customer, commercial firms, energy companies. But we stuck with that, and then it paid dividends. Once the market was ready for it, it adopted it. So sometimes we're a bit early, and sometimes it just requires some traction to generate behind but we do have a lot of products that we launched that are not as liquid as our most liquid. That said, we think about the products we launch as being part of a broader portfolio of products. So we might have very, very low trades in, say, the black seaweed contract we first launched, but that reinforces the portfolio of our Kansas City week contract and our Chicago beat contract and the newly launched hard run spree week contract. So we don't look at individual product launch as a standalone but how does it complete a portfolio that helps our customers manage risk?

Sean McMahon  12:35  
Well, I mean, it sounds like the you know, diversity of your offerings is what makes you know, CME Group such a, you know, a popular venue for traders. Derek, I really appreciate your time this week.

Derek Sammann  12:44  
Sean, appreciate the time. Good luck, and I hope you enjoy the rest of the conference.

Sean McMahon  12:48  
Okay, well, that's all for now. Be sure to follow this podcast feed for more episodes from the International Derivatives Expo hosted by the Futures Industry Association.