This is Craig Siegenthaler from Bank of America, and I'm joined on stage by Eli Abboud who covers the exchanges with me, and we're pleased to introduce Howard Lutnick. Howard is the chairman and CEO of both Cantor Fitzgerald and the BGC Group, and today Cantor Fitzgerald is a leading U.S. investment bank and BGC houses its brokerage arm which it spun out in 2004. BGC is not only one of the largest interdealer voice brokers in the United States, but its Fenics platform is rapidly becoming a leader in electronic treasury trading. Fenics has doubled its volume in the past five years, and electronic trading now accounts for a quarter of BGC's revenues. Howard has spent his entire career at Cantor and BGC. After joining the firm out of college in 1983, he quickly rose through the ranks and became CEO in 1991. Howard, thank you for joining us. Great to see you. Maybe we'll start with a quick question on background, but you spent 40 years at the company. This included 9/11, which was a horrible period for the company and the country, but you bounced back stronger. Can you spend a minute on how BGC got to where it is today and how busy you must be being the CEOs of two separate companies? So BGC is the wholesale marketplace for financial services and commodities in the world. So pre-9/11, we were the dominant player in that space, then obviously got crushed on 9/11, and then since then we've rebuilt the business and we're back to being the most valuable wholesale player in the world. So BGC, which is Bernie Cantor's initials, spun out of Cantor Fitzgerald, and it is the wholesale market for financial services and commodities everywhere in the world. Think of it as an exchange for everything that doesn't trade on an exchange. So you'd say government bonds, foreign exchange, corporate bonds, interest rate swaps, credit, all those kind of things. Those are our markets. We sell market data the same way. It's pretty similar intellectually. And so we rebuilt it after 9/11, and it really has the most extraordinary assets because it's an exchange, but the world doesn't really understand it yet as an exchange. But they're going to now because we've announced and we're going to talk about it that we're going to compete with the Chicago Mercantile Exchange, and we are competing with them now. We have our treasury business which you've said. It's called FMX, and it now has 26% market share in U.S. Treasuries. It's taken over 20 points off the CME over the last two years. So it's really been very successful against the CME, and we've said we're going to launch FMX futures, opening this summer. Got full approval from the CFTC, done and dusted, full exchange, full approval, all in the bag, done, finished, announced. We're going to open this summer, and we plan to announce who our partners are between now and the next quarter, and we're going to announce all the banks and trading firms who are going to be our partners, and there's going to be a whole slew of them, we expect, and then we're going to launch a competitor to the Chicago Mercantile Exchange. So it should be really, really fun, and then people will truly deeply understand who we are in the marketplace, and I think it'll be really helpful to understanding our growth and our scale and how successful we are. So you have a lot of exciting things you're working on in terms of the long term or the secular, but let's talk about the cyclical for a second. How do you see the macro backdrop unfolding with potentially rates coming down, maybe equity markets moving higher in volumes, and how do you see this impacting BGC? So we had very strange 14 years from 2008 to 2022. Interest rates going to zero is really bad for secondary market trading. Imagine I call you up and say, "Do you want to trade?" and you'd say, "Well, where are rates?" I'd say, "Zero." "Where are they going to be next year?" "Zero." "Where are they going to be the next year after that?" "Zero." "How about the year after zero?" So everybody who's young, like Eli, has never actually seen a rate their whole life. So I said on television a couple of weeks ago that the odds of the Fed cutting rates six or seven times in the next year was fanciful. I mean, that's just young people who've never seen a rate think, "Oh my God, it's 5.25. It's been zero my whole life. We're going to cut." Okay, I find that silly, but let's go to BGC for a second. When interest rates were zero, that is bad for secondary market trading. It broke the natural relationship between issuance and secondary market trading volume. The ratio has always historically been 60%, which means if I double the issuance size, secondary market trading will grow 60%. Just a bigger issue. If you do a billion-dollar IPO, the secondary market trading is going to be bigger. If you do a $2 billion IPO, it's just simply bigger, bigger secondary market trading. That broke when interest rates were zero. So now if you compare to 2008, credit issuance is three times the size. Rates issuance is five times the size, and secondary market trading is about flat to 2008. And so what you're going to see happen is core fundamental growth of BGC's business, every business, every quarter going forward. I said that in June of 2022, and it's nominal rates. Do we care if they're 5.25, 6.25, 4.25? Don't care. In fact, I like when people are uncertain where they're going because that's just good for trading. But the fact is, a notional rate means our business is good. Less than 1%, really bad. Some number bigger than 1%, really good. So where are we now? Really good. What does really good mean? 5% growth in the first quarter, top-line revenue growth, then 10%, then 12%, last quarter, 18% top-line revenue growth of our core business, just our regular business. Which divisions are growing? All of them. Really? All of them? Well, how could they not? Credit was only up a little bit last quarter, and they said, "Well, why is that?" I said, "Well, this quarter will be up 10%." So 10% is our outlook. It was our outlook last quarter. We grew 18%. So the macro model is very positive. It changed, and I understand why people haven't gotten comfortable with it yet. We had 14 years of zero interest rates. That's a really, really, really, really long time, but that is not true anymore. And our core growth, our fundamental growth across all of our businesses is now repairing, growing, and it will continue to grow as we go forward. So it's an interesting world that we've changed, and everyone can understand that at zero interest rates is gone, but they just don't realize they should go look to BGC because they haven't seen the business in 14 years, and now the business is back, and it's growing based on issuance and repairing the broken relationship between issuance and trading volume. Got it. Moving on to the secular themes, could you maybe walk us through the impact of electronification on your business? I think there might be some misconceptions there. Sure. So we take marketplaces that are messy, voice-based, and make them pretty and electronic. So we turn straw into gold. Now, when the business is voiced, compensation ratios are high. They're in the 50s, and as they go electronic, it drops into the 30s because we would then have the best salespeople in the world, and so they'd go in the 30s, and we pick up between 20 and 25 points as the market electronifies. And then every once in a while, we'll sell something to an exchange at a very high multiple and create enormous value for our shareholders. So we've done that twice. We sold eSpeed for the market cap of the company, and then we sold Trayport for $650 million. And so each of them were north of 10x revenues, and our company trades at 9x earnings. So these are just wildly different values. So we convert voice businesses into electronic. We're about 25% of our business. So of our $2 billion in revenues, about $500 million is electronic, and those points are we earn 20 points more of bottom-line earnings when it's electronic, 15-20 points more, and the rest of the business. So we're moving that over, and that Fenics business is one of the largest electronic platforms in the world with $500 million in annual revenues. So that is completely undervalued in a nine times think about it. In a world where I take pieces of it and sell it at 10 times revenues, it's trading inside a nine times earnings company whose core non-electronic revenues are growing strong double digits. So it's really an extraordinary opportunity that as the company grows, Fenics is going to continue to grow. Fenics is wildly more valuable in the overall business, and its margins are, as I said, 15-20 points higher. Howard, let's move on to the probably most exciting part of the business now, the launch of the futures exchange. So you're in the process of launching FMX which, in addition to offering cash treasuries and FX, includes a rate futures exchange which will go to head-to-head with CME's monopoly. How do you plan to take share from that? Okay. So what's required to be successful in a competitive futures exchange is you need two things. You need to have a fully integrated front-office electronic system because you can't build one from scratch. You can't start calling the Bank of America and say, "Can I install this now?" And then imagine calling J.P. Morgan and Goldman Sachs and Morgan Stanley. I mean, it would take forever. And so you need to have a fully installed, operationally superb front-end trading system in place now which we have in U.S. Treasuries. And so it's rates already installed, and our rates platform, our Treasury platform, is growing either 1% or 2% market share sequentially per quarter. So every quarter, like last quarter, we grew 1%. The quarter before that, we grew 2%. So now we're 26%. Two quarters ago, we were 23% market share, and we just keep growing, and that is continuing. I would say I expect that to continue this quarter as well. I see nothing in the horizon that would stop that. So you have an installed front-end trading system, and to do futures competition, you need to have an adequate clearing mechanism that will give cross margin because you can't have someone long the CME and short FMX, and they have to post margin on both. So by having an arrangement with the LCH as our one-pot clearer, SOFR contracts, which is the number one contract of the CME, will have its natural perfect offset in cash, which is interest rate swaps, which clear at the LCH. So it is a superior model to trade SOFR contracts on FMX with its perfect cross margining to cash swaps than it would be on the CME. And so if you couple that together with the cross margining to treasuries and their cross margining SOFR to treasury futures and their two-pot system with the DTCC, what you end up with is we are competitive and adequate on the first day of cross margining. And so if you have those two things together, you have all of the ingredients to build a competitor. Now, if you said, "Okay, but the CME is an extraordinary enterprise, incredibly successful, how do you expect to take market share?" Well, when we launched our U.S. Treasury platform, the CME had 85% market share. Tradeweb, Dealerweb was called, and Nasdaq had eSpeed, had 15%. So 85%, and what I call cats and dogs have 15%. Today, we have 26. The CME has 64. Cats and dogs have 10. So if someone says, "How do you take it off of them?" We have proven quarter after quarter sequentially that having a faster system, pricing it for your clients, and having a tighter spread are the three components necessary to grow market share. So if they're at a quarter, we're at an eighth. If they were to say they're going to react and go to an eighth, I'm really good at math. Seriously, I am amazing. When I graduated the eighth grade, I killed it. So if you go to an eighth, I'll go to a 16th. And if you go to 16, 32, and 32 is 64, and 128, 256, and 512, I'm so good at that stuff, really. So I'm going and we have said we will be at a tighter spread than you are. And so it doesn't matter if they were to react. We'll just go to the next notch lower. And all of our banks and market-making trading firms understand that, and they are all built and integrated to be able to do that, whereas the CME would have to announce it a year in advance to get people to write software that will allow them to change the spread. Ours was natively built to do that. And so I think these are the advantages we have. This summer, we're going to open for business, and I think over the course of the next three years, just like we did in treasuries, we will become a very, very capable, competent, and valuable competitor to the CME, and you can attribute $10s of billions in market value to that. But we're between a $3.5 billion -$4 billion franchise, growing our core business 18% last quarter, having FMX, which is, think about it, right now. We have a fully approved futures exchange waiting at the starting line, costing us money. How much nicer is it when you open? It's like revenue and market data. And so I think the business coming for BGC is very, very attractive. I want to follow up on that, Howard. How do you think about the market share trajectory drift or the volume pickup? Because it might take years for some of this to develop. So just so we don't get ahead of ourselves, how should we think about that kind of share grab? And also, on that last point, what are the incremental margins as volumes and revenue goes up? Well, okay. So the incremental margins for BGC are perfect. When you're eating all the expense, and they're already in your numbers today, fully integrated on our numbers today, we lost the money. We spent the money setting up this futures exchange. It's ready to go. The first time someone pays us $1 million, shoo to the bottom line. I mean, you're still losing money. You're just losing way less. But our margins, which seem ordinary, are not ordinary. They are better than that because we're spending this big investment over here. So from an incremental margins standpoint, that was just too easy. Thanks for the softball. That was really kind of you. Market share. In our treasury business, it was 3%-5% the first year, 10%-12% the second year, and now at the end of the third year, 26, 25, 27. So that's what we've done. So I don't think that is out of the question that should be the goals that we have. Whether we can get there, we'll see. But that would be—I mean, imagine if we had 25% market share in cash treasuries and futures, and we'll have more than that in cash treasuries because we have that now in cash treasuries, and now we're going to have all these partners. Imagine what value you'd attribute to that exchange. Another way to look at it, when we do a deal with all the banks, what value do you attribute to the exchange post-investment of all the major market participants strategically investing in the futures contract? It wouldn't be the value you put on it the first day, which was the strategic value. It would be multiples higher, kind of like when George Clooney invested in a tequila company. Casamigos became way more valuable after George Clooney. So I think Bank of America is like George Clooney. He might be a little cooler. I don't know. To me, Bank of America is so cool. Now, Howard, you are, of course, the first person to electronify the U.S. Treasury markets with eSpeed. Could you talk a little bit about that experience and maybe how those lessons learned have helped your efforts with Fenics and now FMX? Yeah. I think the model started capturing data and getting it into a system, then making the system able to transact as well, if not better, than the way the prior market operated. And that model was really interesting and different then because it was the beginning when people were uncomfortable with that model. Now, everybody's comfortable with the model. So it's really how do you do it faster, and how do you do it better? And one of the ideas is we always have to have the fastest system. So remember, we don't build what to buy. We just build how to buy it, or what's the fastest system you can build, and we operate the fastest system in U.S. Treasuries in the world so that if a trader puts in an order, we time it from the time they put it in the order to us and back to them with whatever network and connection they have in between, just outcome-based, not, "Oh, I do it really fast, but you do it really slow." No, no. It's just outcome point A to point A, period. So that has to be the fastest. And then imagine building into the system the spread between cash and futures so that naturally, you can put into the system buy A and sell B, and the system can execute that spread trade without regard to the outside world. It can do it faster. It could do it more perfectly, and it can never make a mistake. So having a native-built system to do that is what is special and extraordinary. You can't do that from some other place. The CME has BrokerTec, which is excellent and has mid-60s market share, and they have the CBOT U.S. Treasury system, and then they have the CME SOFR futures system. Imagine having one system built native to go back and forth to all three built into the matching engine and to be able to say if A, then B, if A, then B, then C, put them all together, do it in any combination you want, and it'll never miss, and it'll exactly operate at as fast as humanly technologically possible. That would be what you'd want to roll out, and that is what we are rolling out. And that's why our treasury system works really, really well. It gives people. I'll give you another example. Let's say you're a big professional trading firm, market maker, and you're just making prices all the time, and you keep matching with another professional market-making firm, and neither of you are getting the right outcomes you were hoping for. So you dial back your volume because you're not getting the outcomes you're hoping for because you keep matching with another sharp-edged sword. So we allow them to mathematically determine, "Is there a counterpart you're having a bad experience with?" And you can mark them out. And so then you can come in with bigger size because you're not afraid, and therefore, our average trade size is larger. How do you do that? You either know to build it that way, or you can't. You cannot modify your system to do that. That is not a modifiable event. That's a complete and total utter rewrite from scratch or not. So I don't think the CME can come up with that. That's just sort of a shrug because even if they wanted to come up with it, it would take them years to make it. And then you'd have to reinstall it to everybody and get everybody to rewrite every connecting system. Oh my God. But that's what we did over this period of time. And someone says, "Well, why is your treasury business successful?" Well, if I can say to you, "If you're having a bad experience, we can do a mathematical calculation and see, is it someone who looks like you? And if it is, let's mark them out. They won't trade with you. You won't trade with them. You'll both be happier." And therefore, you both can come in with bigger volume to do business with everybody else. And that's just good for the system. It doesn't present our market share as high as it could be because if I let these guys trade with each other, we'd do more volume. So think about it. We have 26% market share without letting big professional trading firms trade with other big professional trading firms because they don't want to. Once they're owners and they say, "We don't mind. Let's just do it and gain market share," because that's probably 20%-25% of the market we don't do now at all. Just interesting nuance of how do we get there. Remember, I've lived and breathed and our company has lived and breathed the deep understanding nuance of having built the best treasury system in the world, got knocked out on 9/11, sold it with the number one business, sold it. Granted, it was a variety of problems with it done by the new owners, and then we went back into business, and now we're back again. So we clearly understand it, and I think you would all put some real good, reasonable probabilities on our success across the REITs franchise. Got it. Backing up a minute, could you maybe talk about the differences between your dealer-to-dealer market and the D2C treasury market and how that market structure has evolved over time? Sure. So we are wholesale, meaning pros. So if your trader were to leave and go to Millennium or Citadel, they'd still be doing business with us, and you'd be doing business with us and anyone else who wants to act like a pro who knows what they're doing. But the buy side is used to having service. So let's say our market is we have a really tight market on the five-year, $52 million bid, $87 million offered. PIMCO is going to call the Bank of America and say, "Offer me $500 million." And you're going to offer to them on the offered side. So they get perfect offer at the offered side for free. So that's a good business that is slightly different. So that's the buy side to the sell side. That's what we'd say business to customer. But it's not really customer. It's really institutional investor. And that's a business that Tradeweb and MarketAxess, MarketAxess and Credit, and Tradeweb in REITs have automated. So you can ask a buy-side firm can ask three or four banks to make a price on X. Everybody wants to trade wholesale because in that market, you can just be a taker. If a buy-side firm wants to hire a maker who says, "I don't want to pay on the offered side. I'll put a bid in," then they need to trade with us. But they are then forgoing the business of calling you and saying, "Offer me $500 million." So you're happy to have someone ask you, but sort of the fair balance with the banks are, "If you ask me to provide you with liquidity, I don't want to see you on the playing field. If you're on the playing field, just tell me you're on the playing field like Millennium or Citadel, and we'll form whatever relationship we want, but at least we know who each other are." So that's the model. So the buy side would like to do business with us, but we provide a different product than the sell side provides them, which is, "I'll make you happy on your size at a fair price." So that's Tradeweb and MarketAxess's B2C business. But when you try to go all to all, it's not going to work because that's why I just told that story. Then the bank says, "So I don't understand. So am I providing you liquidity, or am I seeing you on the playing field? If I'm seeing you on the playing field, don't ask me for liquidity. And I'm happy to see you on the playing field. Go bid and offer like everybody else, but don't ask me to provide you nice liquidity so I can see the other side of your trade, and I can use it in my business." So all-to-all, I think eventually, everyone's going to figure out it's just not a winning model because it just goes in the face of customer service for money in exchange for something. And it has to be because you're my client. So all-to-all, you're going to watch. It's not important. Wholesale is important. B2C is important. We do a little B2C when a buy-side firm hires a trader. They can do a little D2D. They can't really do D2D because the dealers would say, "Listen, you do business with my clients. Which is it?" And so there's that separation. And I think it's a great business. Everybody wants to trade wholesale. If you wanted to buy a car, you would like to buy it from the wholesale. So I'm very popular with the buy side. They all chat with me, and they all talk to me. But the answer is, when they say, "Should I do business with you?" The answer is, "Do you buy and sell 500 at a clip?" Yes. No. I want to have a product that makes you happy. I have 82 offered. If buying 82 works for you, great. But if you want 500 while you're asleep, call the bank. And that's why we have such a good, positive relationship with all the banks. They know that each step we take is one that is logical to them. And we would never just say, just bring it all to all. It's just dumb. But that takes such deep, fundamental understanding and nuance of the business that to someone who doesn't deeply understand it is trying to say, "I'm going to say something nice to you two so I can move my stock up. We're doing all to all." No, no, no, no. You're not. You're just saying it, but you're not actually going to do all to all because all to all is not in the best interests of the market participants. If you understand it, you will just pound forward the way we do with a great relationship with all the banks who then want to be your partners in everything you do because they understand, "Sure, parts of the business should be with customers, and you know which ones to do, and we're going to talk about it together, and we're going to do that together." That's what's very exciting about our business. I guess a quick counterpoint would be in equities. You've seen Direct Market Access and the D2C model kind of coexist, and MarketAxess has Open Trading, which has gained some popularity. I guess why is REITs different in that sense? Because the banks provide huge liquidity without charge. So if in equities, I could call a bank, and you would offer me 1 million shares of the stock at the offered side, but you wouldn't. You would say, "I'm not offering you 1 million shares. I need a 5%-6% premium because of the risk." So once I put a price premium on it, then the model changes. But because of the scale of liquidity in REITs, the banks can offer a great service at too low a price in exchange for customer business. And that's the difference. Howard, with that, I just want to look at the audience and see if we have any questions. So please raise your hand. We can get you a mic if there's any questions. It used to be a pretty nice dividend payer a few years ago. Just curious what your thoughts are there? So, capital return policy. If our stock is going to trade at six or seven, which it was before REITs moved, and now it's 9x earnings, we're going to buy back shares because it's a good capital return policy, which is, "Let's buy back shares. Let's buy back lots of shares." And that's what we have been doing. We've bought back over 15% of the shares of the company, and we're going to continue to buy back shares. And then the company earns lots of cash, and it doesn't need the cash to operate its business. So therefore, we'll do share buybacks until such time as the stock is more balanced in price, and then we'll reinstitute a dividend that's healthy. But the cash flow remains beautiful. So it's really a matter of you would say, "At 9x earnings, with the story we just told, buy back as many shares as you can." And the answer is, "Yes. I agree with that. We're going to buy back as many shares." In fact, I had a bunch of my shareholders we had at dinner, and they said, "If you have a couple of divisions that are in Fenics that you can sell at 10x revenues, would you be willing to consider selling them at 10x revenues and buy back shares at 9x earnings?" And I'd said, "That sounds smart." So that's why I said on the last call, "That sounds smart." And when I say stuff like that, that's not because I'm just talking. The company is thinking about that we have some divisions that are smaller that we could sell at, we think, at 10x revenues, and we could buy back shares at 9x earnings. It sounds deeply accretive in the understatement of the week for my show. Any other questions in the crowd? I have one more operating margin question up here. So your margin's depressed. You're investing a lot into FMX. But strategically, how do you think about investing for growth versus operating leverage on a longer-term basis? I think we're just opportunistic. I think the right answer is if acquisitions are really easy for us, bite-size acquisitions, meaning non-strategic sort of plug-and-play kind of acquisitions or bolt-on acquisitions. Because if you think about it, we find a company, let's say it does $100 million in revenues and makes $10 million. And we can buy it, let's say they'd say, "I'll sell it to you, and you're multiple 9x." I go, "Get lost. You're not us. We'll pay you 7x." So we buy the company for $70 million. We immediately take out their tech spend and their back-office spend. So all of a sudden, it makes $20 million, and we bought it at 3.5. Okay. That's pleasant. How often are you going to do that? As many times as I can. So we're always buying little companies. It's sort of the big fish eating little fish kind of model. So we do that all the time. Example, we just went back into Japan. We have all our licenses. We kept everything going. But come on. Interest rates were zero or negative in Japan for 25 years. So I'm glad we exited when we did because it's just too painful for 25 years. But now that we think REITs are going to come back, it's time to get back in. And so we'll invest. We'll hire lots of people. I think they will be profitable in the fourth quarter. So they're a drag today, but they'll be profitable in the first quarter, fourth quarter, and thereafter. And then when REITs come back, we think it'll be a $100 million business. So we're going to do things like that. We're going to invest in electronifying interest rate swaps, building an interest rate swaps options business. Those are good businesses for us. But when I say they're near-term investments, which means they may be a drag on earnings for two quarters, but then that's it. By the end of the year or three, four quarters, it turns profitable, and then we never discuss it again. I don't discuss those as drags. They're just explanations to why we didn't have the full gearing we expected to have. But that's it. I don't talk about foreign exchange. These things, this company is going to outgrow all of it. So it doesn't actually matter year-over-year. I guided that we expect our top-line revenue growth to exceed 10%. We should have nice gearing, which means at least 15% earnings growth or north of that, maybe between 15%-20%, let's say. And we expect that to continue because there are nominal interest rates that the issuance and credit and the issuance of rates are so big that we will continue to grow, that our commodities business, which grew 40% the last couple of quarters, will continue to grow because it is undersized as compared to how big it can be. It's our second largest business, so it's not small. But it's just the scale by which the world is gigantic in commodities. We can grow for the long-distant future at very high rates. And so all of these things combined really mean we're in a wonderful business. The reason we're not more popular is because there was 14 years where there were zero interest rates, which was weird and strange and tortured us. But that's hope for it. And so we've had a beautiful year. We're going to have a beautiful we just guided 10% revenue growth. So we're feeling very positive. And we think things are very, very good going forward. Great. Well, I think, Howard, with that, we are out of time. We will wrap it up. Howard, thank you very much for participating in the conference. Thank you for having me. I appreciate it.