SEC Filing | CME Group Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

cme-20200930

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________________________

FORM 10-Q

_________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

- OR -


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-31553

CME GROUP INC.

(Exact name of registrant as specified in its charter)

Delaware

36-4459170

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

20 South Wacker Drive

Chicago

Illinois

60606

(Address of principal executive offices)

(Zip Code)

(312) 930-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Class A Common Stock	CME	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of each of the registrant’s classes of common stock as of October 14, 2020 was as follows: 358,987,459 shares of Class A common stock, $0.01 par value; 625 shares of Class B-1 common stock, $0.01 par value; 813 shares of Class B-2 common stock, $0.01 par value; 1,287 shares of Class B-3 common stock, $0.01 par value; and 413 shares of Class B-4 common stock, $0.01 par value.

Table of Contents

CME GROUP INC.

FORM 10-Q

INDEX



		Page

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	5

	Consolidated Balance Sheets at September 30, 2020 and December 31, 2019	5

	Consolidated Statements of Income for the Quarters and Nine Months Ended September 30, 2020 and 2019	6

	Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2020 and 2019	7

	Consolidated Statements of Equity for the Quarters and Nine Months Ended Sept ember 30, 2020 and 2019	8

	Consolidated Statements of Cash Flows for the Nine Months Ended Septem ber 30, 2020 and 2019	12

	Notes to Unaudited Consolidated Financial Statements	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	34

PART II. OTHER INFORMATION		34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	35

SIGNATURES		36

Table of Contents

PART I. FINANCIAL INFORMATION

Certain Terms

All references to “options” or “options contracts” in the text of this document refer to options on futures contracts.

Further information about CME Group and its products can be found at http://www.cmegroup.com. Information made available on our website does not constitute a part of this Quarterly Report on Form 10-Q.

Information about Contract Volume and Average Rate per Contract

All amounts regarding contract volume and average rate per contract are for CME Group's listed futures and options on futures contracts unless otherwise noted.

Trademark Information

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. NEX, BrokerTec, EBS, TriOptima, and Traiana are trademarks of various entities of NEX Group Limited (NEX). Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

Forward-Looking Statements

From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and verbal statements, we discuss our expectations regarding future performance. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “intend,” “may,” “plan,” “expect” and similar expressions, including references to assumptions. These forward-looking statements are based on currently available competitive, financial and economic data, current expectations, estimates, forecasts and projections about the industries in which we operate and management's beliefs and assumptions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that might affect our performance are:

•increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities;

•our ability to keep pace with rapid technological developments, including our ability to complete the development, implementation and maintenance of the enhanced functionality required by our customers while maintaining reliability and ensuring that such technology is not vulnerable to security risks;

•our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services, including our ability to provide effective services to the swaps market;

•our ability to adjust our fixed costs and expenses if our revenues decline;

•our ability to maintain existing customers at substantially similar trading levels, develop strategic relationships and attract new customers;

•our ability to expand and globally offer our products and services;

•changes in regulations, including the impact of any changes in laws or government policy with respect to our products or services or our industry, such as any changes to regulations and policies that require increased financial and operational resources from us or our customers;

•the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others;

•decreases in revenue from our market data as a result of decreased demand or changes to regulations in various jurisdictions;

•changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure;

Table of Contents

•the ability of our credit and liquidity risk management practices to adequately protect us from the credit risks of clearing members and other counterparties, and to satisfy the margin and liquidity requirements associated with the BrokerTec matched principal business;

•the ability of our compliance and risk management methods to effectively monitor and manage our risks, including our ability to prevent errors and misconduct and protect our infrastructure against security breaches and misappropriation of our intellectual property assets;

•our dependence on third-party providers and exposure to risk through third-parties, including risks related to the performance, reliability and security of technology used by our third-party providers;

•volatility in commodity, equity and fixed income prices, and price volatility of financial benchmarks and instruments such as interest rates, credit spreads, equity indices, fixed income instruments and foreign exchange rates;

•economic, social, political and market conditions, including the volatility of the capital and credit markets and the impact of economic conditions on the trading activity of our current and potential customers;

•the impact of the COVID-19 pandemic and response by governments and other third parties;

•our ability to accommodate increases in contract volume and order transaction traffic and to implement enhancements without failure or degradation of the performance of our trading and clearing systems;

•our ability to execute our growth strategy and maintain our growth effectively;

•our ability to manage the risks, control the costs and achieve the synergies associated with our strategy for acquisitions, investments and alliances, including those associated with the acquisition of NEX;

•our ability to continue to generate funds and/or manage our indebtedness to allow us to continue to invest in our business;

•industry and customer consolidation;

•decreases in trading and clearing activity;

•the imposition of a transaction tax or user fee on futures and options transactions and/or repeal of the 60/40 tax treatment of such transactions;

•our ability to maintain our brand and reputation; and

•the unfavorable resolution of material legal proceedings.

For a detailed discussion of these and other factors that might affect our performance, see Item 1A. of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 28, 2020 and Item 1A. of this Quarterly Report on Form 10-Q.

Table of Contents


ITEM 1.			FINANCIAL STATEMENTS

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions, except par value data; shares in thousands)


	September 30, 2020		December 31, 2019
	(unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	1,332.1	$	1,551.4
Marketable securities	92.4		83.2
Accounts receivable, net of allowance of $4.8 and $3.4	490.9		491.8
Other current assets (includes $4.5 and $4.3 in restricted cash)	350.1		364.4
Performance bonds and guaranty fund contributions	88,083.8		37,077.0
Total current assets	90,349.3		39,567.8
Property, net of accumulated depreciation and amortization of $931.9 and $867.5	547.2		544.0
Intangible assets—trading products	17,175.3		17,175.3
Intangible assets—other, net	4,893.8		5,117.7
Goodwill	10,755.8		10,742.5
Other assets (includes $0.7 and $0.9 in restricted cash)	2,037.4		2,068.0
Total Assets	$	125,758.8	$	75,215.3

Liabilities and Equity
Current Liabilities:
Accounts payable	$	99.5	$	61.9

Other current liabilities	448.0		1,384.8
Performance bonds and guaranty fund contributions	88,083.4		37,075.8
Total current liabilities	88,630.9		38,522.5
Long-term debt	3,442.2		3,743.2
Deferred income tax liabilities, net	5,620.8		5,635.2
Other liabilities	1,054.5		1,155.1
Total Liabilities	98,748.4		49,056.0



Shareholders’ Equity:
Preferred stock, $0.01 par value, 10,000 shares authorized at September 30, 2020 and December 31, 2019; none issued	—		—
Class A common stock, $0.01 par value, 1,000,000 shares authorized at September 30, 2020 and December 31, 2019; 358,030 and 357,469 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	3.6		3.6
Class B common stock, $0.01 par value, 3 shares authorized, issued and outstanding as of September 30, 2020 and December 31, 2019	—		—
Additional paid-in capital	21,157.2		21,113.2
Retained earnings	5,775.1		5,008.7
Accumulated other comprehensive income (loss)	43.7		3.4
Total CME Group Shareholders’ Equity	26,979.6		26,128.9
Non-controlling interests	30.8		30.4
Total Equity	27,010.4		26,159.3
Total Liabilities and Equity	$	125,758.8	$	75,215.3

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues
Clearing and transaction fees	$	835.4	$	1,040.7	$	3,054.4	$	3,045.1
Market data and information services	139.4		129.8		405.6		388.2
Other	105.9		106.8		325.1		296.3
Total Revenues	1,080.7		1,277.3		3,785.1		3,729.6
Expenses
Compensation and benefits	216.4		223.5		640.9		681.1
Technology	48.1		52.7		144.9		148.4
Professional fees and outside services	48.4		43.2		141.3		124.3
Amortization of purchased intangibles	78.3		79.8		232.2		236.6
Depreciation and amortization	39.7		41.4		111.7		120.6
Licensing and other fee agreements	57.7		45.6		187.0		130.9
Other	67.1		105.9		204.7		272.9
Total Expenses	555.7		592.1		1,662.7		1,714.8
Operating Income	525.0		685.2		2,122.4		2,014.8

Non-Operating Income (Expense)
Investment income	23.6		172.3		151.6		490.3
Interest and other borrowing costs	(41.7)		(42.8)		(124.5)		(136.0)
Equity in net earnings of unconsolidated subsidiaries	44.0		48.0		144.0		132.3
Other non-operating income (expense)	(14.4)		(139.5)		(106.4)		(435.9)
Total Non-Operating Income (Expense)	11.5		38.0		64.7		50.7
Income before Income Taxes	536.5		723.2		2,187.1		2,065.5
Income tax provision	125.0		86.9		505.5		418.7
Net Income	411.5		636.3		1,681.6		1,646.8
Less: net (income) loss attributable to non-controlling interests	0.2		—		(0.4)		0.2
Net Income Attributable to CME Group	$	411.7	$	636.3	$	1,681.2	$	1,647.0

Earnings per Common Share Attributable to CME Group:
Basic	$	1.15	$	1.78	$	4.70	$	4.61
Diluted	1.15		1.78		4.69		4.60
Weighted Average Number of Common Shares:
Basic	357,791		357,211		357,669		357,054
Diluted	358,590		358,369		358,492		358,201

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(unaudited)


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income	$	411.5	$	636.3	$	1,681.6	$	1,646.8
Other comprehensive income (loss), net of tax:
Investment securities:
Net unrealized holding gains (losses) arising during the period	—		(0.2)		0.8		1.5
Reclassification of net (gains) losses on sales included in investment income	—		(0.1)		—		(0.2)
Income tax benefit (expense)	—		—		(0.2)		(0.4)
Investment securities, net	—		(0.3)		0.6		0.9
Defined benefit plans:
Net change in defined benefit plans arising during the period	—		—		(2.0)		(2.7)
Amortization of net actuarial (gains) losses included in compensation and benefits expense	1.2		1.3		3.5		3.7
Income tax benefit (expense)	(0.3)		(0.4)		(0.4)		(0.3)
Defined benefit plans, net	0.9		0.9		1.1		0.7
Derivative investments:
Net unrealized holding gains (losses) arising during the period	—		0.5		—		0.3

Reclassification of net unrealized (gains) losses to interest expense and other non-operating income (expense)	(0.3)		(0.3)		(2.4)		(0.9)
Income tax benefit (expense)	0.2		(0.1)		0.6		—
Derivative investments, net	(0.1)		0.1		(1.8)		(0.6)
Foreign currency translation:
Foreign currency translation adjustments	56.0		(35.5)		39.8		(38.5)
Reclassification of net currency (gains) losses from foreign entities to other expenses	—		—		0.6		—
Income tax benefit (expense)	—		(3.0)		—		—
Foreign currency translation, net	56.0		(38.5)		40.4		(38.5)
Other comprehensive income (loss), net of tax	56.8		(37.8)		40.3		(37.5)
Comprehensive income	468.3		598.5		1,721.9		1,609.3
Less: comprehensive (income) loss attributable to non-controlling interests	0.2		—		(0.4)		0.2
Comprehensive income attributable to CME Group	$	468.5	$	598.5	$	1,721.5	$	1,609.5

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Nine Months Ended, September 30, 2020
	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity		Non-controlling Interest		Total Equity
Balance at December 31, 2019	357,469	3	$	21,116.8	$	5,008.7	$	3.4	$	26,128.9	$	30.4	$	26,159.3
Net income					1,681.2				1,681.2		0.4		1,681.6
Other comprehensive income (loss)							40.3		40.3		—		40.3
Dividends on common stock of $2.55 per share					(914.5)				(914.5)				(914.5)
Impact of adoption of accounting standards updates on credit losses					(0.3)				(0.3)				(0.3)
Exercise of stock options	108		6.0						6.0				6.0
Vesting of issued restricted Class A common stock	419		(37.1)						(37.1)				(37.1)
Shares issued to Board of Directors	17		2.9						2.9				2.9
Shares issued under Employee Stock Purchase Plan	17		2.9						2.9				2.9
Stock-based compensation			69.3						69.3				69.3
Balance at September 30, 2020	358,030	3	$	21,160.8	$	5,775.1	$	43.7	$	26,979.6	$	30.8	$	27,010.4

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (continued)

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Quarter Ended, September 30, 2020
	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity		Non-controlling Interest		Total Equity
Balance at June 30, 2020	357,727	3	$	21,152.5	$	5,668.5	$	(13.1)	$	26,807.9	$	31.0	$	26,838.9
Net income					411.7				411.7		(0.2)		411.5
Other comprehensive income (loss)							56.8		56.8		—		56.8
Dividends on common stock of $0.85 per share					(305.1)				(305.1)				(305.1)

Exercise of stock options	41		2.2						2.2				2.2
Vesting of issued restricted Class A common stock	262		(17.7)						(17.7)				(17.7)
Shares issued to Board of Directors			—						—				—
Shares issued under Employee Stock Purchase Plan			—						—				—
Stock-based compensation			23.8						23.8				23.8
Balance at September 30, 2020	358,030	3	$	21,160.8	$	5,775.1	$	43.7	$	26,979.6	$	30.8	$	27,010.4

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (continued)

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Nine Months Ended, September 30, 2019
	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity		Non-controlling Interest		Total Equity
Balance at December 31, 2018	356,824	3	$	21,057.9	$	4,855.3	$	5.3	$	25,918.5	$	46.8	$	25,965.3
Net income					1,647.0				1,647.0		(0.2)		1,646.8
Other comprehensive income (loss)							(37.5)		(37.5)				(37.5)
Dividends on common stock of $2.25 per share					(805.0)				(805.0)				(805.0)
Impact of adoption of standards updates on leasing					6.9				6.9				6.9
Changes in non-controlling interest due to measurement period									—		(16.5)		(16.5)
Exercise of stock options	195		13.7						13.7				13.7
Vesting of issued restricted Class A common stock	399		(36.8)						(36.8)				(36.8)
Shares issued to Board of Directors	16		3.1						3.1				3.1
Shares issued under Employee Stock Purchase Plan	13		2.5						2.5				2.5
Stock-based compensation			70.8						70.8				70.8
Balance at September 30, 2019	357,447	3	$	21,111.2	$	5,704.2	$	(32.2)	$	26,783.2	$	30.1	$	26,813.3

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (continued)

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Quarter Ended, September 30, 2019
	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity		Non-controlling Interest		Total Equity
Balance at June 30, 2019	357,143	3	$	21,112.8	$	5,336.8	$	5.6	$	26,455.2	$	29.7	$	26,484.9
Net income					636.3				636.3				636.3
Other comprehensive income (loss)							(37.8)		(37.8)				(37.8)
Dividends on common stock of $0.75 per share					(268.9)				(268.9)				(268.9)

Changes in non-controlling interest due to measurement period											0.4		0.4
Exercise of stock options	33		6.7						6.7				6.7
Vesting of issued restricted Class A common stock	271		(22.7)						(22.7)				(22.7)


Stock-based compensation			14.4						14.4				14.4
Balance at September 30, 2019	357,447	3	$	21,111.2	$	5,704.2	$	(32.2)	$	26,783.2	$	30.1	$	26,813.3

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash Flows from Operating Activities
Net income	$	1,681.6	$	1,646.8
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	69.3		70.8
Amortization of purchased intangibles	232.2		236.6
Depreciation and amortization	111.7		120.6
Net losses on impaired assets	27.4		61.1
Net (gain) loss on derivative contracts	(1.5)		17.9
Net realized and unrealized losses on investments	4.9		20.4
Undistributed net earnings of unconsolidated subsidiaries	(9.7)		(41.1)
Deferred income taxes	(18.6)		(23.7)
Change in:
Accounts receivable	(0.8)		7.4
Other current assets	(37.7)		(106.5)
Other assets	45.1		(10.5)
Accounts payable	37.6		(54.4)
Income taxes payable	(27.0)		(94.5)
Other current liabilities	(39.6)		91.9
Other liabilities	(26.2)		1.0
Other	6.6		9.3
Net Cash Provided by Operating Activities	2,055.3		1,953.1

Cash Flows from Investing Activities
Proceeds from maturities of available-for-sale marketable securities	9.4		13.0
Purchases of available-for-sale marketable securities	(8.7)		(9.8)
Purchases of property, net	(127.5)		(179.2)

Investments in privately-held equity investments	(5.5)		—
Proceeds from sales of investments	8.9		39.3
Net Cash Used in Investing Activities	(123.4)		(136.7)

Cash Flows from Financing Activities
Issuance of commercial paper, net of maturities	(304.6)		38.9

Repayment of debt	—		(569.2)
Cash dividends	(1,805.7)		(1,427.8)

Settlement of derivative contracts	—		16.0
Employee taxes paid on restricted stock vesting	(37.1)		(36.8)
Other	(3.8)		1.4
Net Cash Used in Financing Activities	(2,151.2)		(1,977.5)

Table of Contents

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in millions)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Net change in cash, cash equivalents and restricted cash	$	(219.3)	$	(161.1)
Cash, cash equivalents and restricted cash, beginning of period	1,556.6		1,377.2
Cash, Cash Equivalents and Restricted Cash, End of Period	$	1,337.3	$	1,216.1

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,332.1	$	1,210.1
Short-term restricted cash	4.5		5.1
Long-term restricted cash	0.7		0.9
Total	$	1,337.3	$	1,216.1

Supplemental Disclosure of Cash Flow Information
Income taxes paid	$	553.2	$	550.6
Interest paid	109.4		122.4

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements consist of CME Group Inc. (CME Group) and its subsidiaries (collectively, the company), including Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX) and NEX Group Limited (NEX). The clearing house is operated by CME.

The accompanying interim consolidated financial statements have been prepared by CME Group without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position of the company at September 30, 2020 and December 31, 2019 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in CME Group’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (SEC) on February 28, 2020.

2. Accounting Policies

Newly Adopted Accounting Policies. The company adopted the following accounting policies during 2020:

Credit Losses. In June 2016, the FASB issued guidance that changes how credit losses are measured for most financial assets measured at amortized cost and certain other instruments. The standard requires an entity to estimate its lifetime expected credit loss and record an allowance, that when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. This forward-looking expected loss model generally will result in the earlier recognition of allowances for losses. The standard also amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available for sale debt security is a credit loss. Severity and duration of the unrealized loss are no longer permissible factors in concluding whether a credit loss exists. Entities will recognize improvements to estimated credit losses on available for sale debt securities immediately in earnings rather than as interest income over time. The company implemented this standard on January 1, 2020 by recognizing an immaterial cumulative-effect adjustment to the beginning balance of retained earnings.

The company has not experienced significant levels of underpayment or nonpayment by customers and does not expect changes to this trend over the payment terms of our receivables. Exposure to losses on receivables for clearing and transaction fees and other amounts owed by clearing and trading firms is dependent on each firm's financial condition. With respect to clearing firms, the company's credit loss exposure is mitigated by the memberships that collateralize fees owed to the company. The allowance for credit losses on accounts receivable is calculated by evaluating the aging of the company's billings by revenue stream: clearing and transaction, market data, and other. This aging assessment, as well as contemplation of current and anticipated economic factors, including the interest rate environment and pricing levels are the primary considerations that most significantly impact the collectibility of accounts receivable. The allowance for accounts receivable is $4.8 million at September 30, 2020.

Income Taxes. In December 2019, the FASB issued an accounting update that is intended to reduce cost and complexity related to accounting for income taxes. The update removes specific exceptions to the general principles for accounting for income taxes. Specifically, it eliminates the need for an entity to analyze whether the following exceptions apply in a given period: incremental approach for intraperiod tax allocation, accounting basis differences when there are ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The update also simplifies the accounting for the following: franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. This update is effective for reporting periods beginning after December 15, 2020. The company has early adopted this standard on January 1, 2020. The impact of adoption of this standard was immaterial to the consolidated financial statements.

Recently Issued Accounting Pronouncements. In August 2018, the FASB issued a standards update that modifies the disclosure requirements for employers that sponsor defined pension or other postretirement plans. The guidance clarifies certain existing disclosures and expands the requirements for others. Disclosures that are not considered cost beneficial are removed by the update. Also, there is a new disclosure requirement to include an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for reporting periods beginning in 2021. Early adoption is permitted. The company plans to update the disclosures for these changes upon adoption of the guidance in 2021.

Table of Contents

3. Revenue Recognition

The company generates revenue from customers from the following sources:

Clearing and transaction fees. Clearing and transaction fees include electronic trading fees and brokerage commissions, surcharges for privately-negotiated transactions, portfolio reconciliation and compression services, risk mitigation and other volume-related charges for trade contracts. Clearing and transaction fees are assessed upfront at the time of trade execution. As such, the company recognizes the majority of the fee revenue upon successful execution of the trade. The minimal remaining portion of the fee revenue related to settlement activities performed after trade execution is recognized over the short-term period that the contract is outstanding, based on management’s estimates of the average contract lifecycle. These estimates are based on various assumptions to approximate the amount of fee revenue to be attributed to services performed through contract settlement, expiration, or termination. For cleared trades, these assumptions include the average number of days that a contract remains in open interest, contract turnover, average revenue per day, and revenue remaining in open interest at the end of each period.

The nature of contracts gives rise to several types of variable consideration, including volume-based pricing tiers, customer incentives associated with market maker programs and other fee discounts. The company includes fee discounts and incentives in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee reduction. These estimates are based on historical experience, anticipated performance, and best judgment at the time. Because of the company's certainty in estimating these amounts, they are included in the transaction price of contracts.

Market data and information services. Market data and information services represent revenue from the dissemination of market data to subscribers, distributors, and other third-party licensees of market data. Pricing for market data is primarily based on the number of reportable devices used as well as the number of subscribers enrolled under the arrangement. Fees for these services are generally billed monthly. Market data services are satisfied over time and revenue is recognized on a monthly basis as the customers receive and consume the benefit of the market data services. However, the company also maintains certain annual license arrangements with one-time upfront fees. The fees for annual licenses are initially recorded as a contract liability and recognized as revenue monthly over the term of the annual period.

Other. Other revenues include certain access and communication fees, fees for collateral management, equity membership subscription fees, and fees for trade order routing through agreements from various strategic relationships. Access and communication fees are charges to customers that utilize various telecommunications networks and communications services. Fees for these services are generally billed monthly and the associated fee revenue is recognized as billed. Collateral management fees are charged to clearing firms that have collateral on deposit with the clearing house to meet their minimum performance bond and guaranty fund obligations on the exchange. These fees are calculated based on daily collateral balances and are billed monthly. This fee revenue is recognized monthly as billed as the customers receive and consume the benefits of the services. We also have an equity membership program which provides equity members the option to substitute a monthly subscription fee for their existing requirement to hold CME Group Class A common stock. Choosing to pay this fee in lieu of holding Class A shares is entirely voluntary and the client's choice. Fee revenue under this program is earned monthly as billed over the contractual term. Pricing for strategic relationships may be driven by customer levels and activity. There are fee arrangements which provide for monthly as well as quarterly payments in arrears. Revenue is recognized monthly for strategic relationship arrangements as the customers receive and consume the benefits of the services.

Table of Contents

The following table represents a disaggregation of revenue from contracts with customers by product line for the quarters and nine months ended September 30, 2020 and 2019:


	Quarter Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Interest rates	$	172.0	$	347.9	$	811.5	$	998.1
Equity indexes	181.8		153.9		631.4		447.9
Foreign exchange	40.5		39.2		124.6		119.7
Agricultural commodities	112.8		104.2		339.2		350.7
Energy	138.8		178.7		554.6		523.0
Metals	69.1		74.3		197.5		183.4
Cash markets business	105.6		124.9		342.4		368.5
Interest rate swap	14.8		17.6		53.2		53.8
Total clearing and transaction fees	835.4		1,040.7		3,054.4		3,045.1
Market data and information services	139.4		129.8		405.6		388.2
Other	105.9		106.8		325.1		296.3
Total revenues	$	1,080.7	$	1,277.3	$	3,785.1	$	3,729.6

Timing of Revenue Recognition
Services transferred at a point in time	$	827.3	$	973.3	$	2,919.8	$	2,854.3
Services transferred over time	250.3		301.6		856.6		861.2
One-time charges and miscellaneous revenues	3.1		2.4		8.7		14.1
Total revenues	$	1,080.7	$	1,277.3	$	3,785.1	$	3,729.6

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the consolidated balance sheets. Certain fees for transactions, annual licenses, and other revenue arrangements are billed upfront before revenue is recognized, which results in the recognition of contract liabilities. These liabilities are recognized on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. For annual licenses and upfront fee arrangements, the company generally bills customers upon contract execution. These payments are recognized as revenue over time as the obligations under the contracts are satisfied. Changes in the contract liability balances during the nine months ended September 30, 2020 were not materially impacted by any other factors. The balance of contract liabilities was $48.2 million and $42.6 million as of September 30, 2020 and December 31, 2019, respectively.

4. Performance Bonds and Guaranty Fund Contributions

Performance Bonds and Guaranty Fund Contributions. At September 30, 2020, performance bonds and guaranty fund contribution assets on the consolidated balance sheets include cash as well as U.S. Treasury securities and U.S. government agency securities. U.S. Treasury securities and U.S. government agency securities are purchased by CME, at its discretion, using cash collateral. The benefits, including interest earned, and risks of ownership accrue to CME. Interest earned is included in investment income on the consolidated statements of income. These debt securities are classified as available-for-sale. At September 30, 2020, the amortized cost and fair value of the U.S. Treasury securities were both $800.0 million. At September 30, 2020, the amortized cost and fair value of the U.S. government agency securities were both $195.0 million.

CME has been designated as a systemically important financial market utility by the Financial Stability Oversight Council and is authorized to establish and maintain a cash account at the Federal Reserve Bank of Chicago. At September 30, 2020, CME maintained $70.6 billion within the cash account at the Federal Reserve Bank of Chicago. The cash deposit at the Federal Reserve Bank of Chicago is included within performance bonds and guaranty fund contributions on the consolidated balance sheets.

Clearing House Contract Settlement. The clearing house marks-to-market open positions for all futures and options contracts twice a day (once a day for CME's cleared-only interest rate swap contracts). Based on values derived from the mark-to-market process, the clearing house requires payments from clearing firms whose positions have lost value and makes payments to clearing firms whose positions have gained value. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure related to positions other than cleared-only

Table of Contents

interest rate swap contracts would be one half day of changes in fair value of all open positions, before considering the clearing house's ability to access defaulting clearing firms' collateral deposits.

For CME's cleared-only interest rate swap contracts, the maximum exposure related to CME's guarantee would be one full day of changes in fair value of all open positions, before considering CME's ability to access defaulting clearing firms' collateral.

During the first nine months of 2020, the clearing house transferred an average of approximately $5.1 billion a day through its clearing systems for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained value. The clearing house reduces its guarantee exposure through initial and maintenance performance bond requirements and mandatory guaranty fund contributions. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at September 30, 2020. The company does not have a history of significant losses recognized on performance bond collateral as posted by our clearing members, and management currently does not anticipate any future credit losses on its performance bond assets. Accordingly, the company has not provided an allowance for credit losses on these performance bond deposits, nor have we recorded any liabilities to reflect an allowance for credit losses related to our off-balance sheet credit exposures and guarantees.

5. Intangible Assets

Intangible assets consisted of the following at September 30, 2020 and December 31, 2019:

September 30, 2020

December 31, 2019

(in millions)

Assigned Value

Accumulated
Amortization

Net Book
Value

Assigned Value

Accumulated
Amortization

Net Book
Value

Amortizable Intangible Assets:

Clearing firm, market data and other customer relationships

5,806.7

(1,555.5)

4,251.2