Quarterly Report (10-q)

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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 001-36198

INTERCONTINENTAL EXCHANGE, INC.

(Exact name of registrant as specified in its charter)


Delaware			46-2286804
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification Number)

5660 New Northside Drive, 30328

Atlanta, Georgia (Zip Code)


(Address of principal executive offices)

(770) 857-4700

Registrant’s telephone number, including area code

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


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	ICE	New York Stock Exchange

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 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 ☑

As of October 26, 2020, the number of shares of the registrant’s Common Stock outstanding was 561,283,772 shares.

INTERCONTINENTAL EXCHANGE, INC.

Form 10-Q

Quarterly Period Ended September 30, 2020

TABLE OF CONTENTS




PART I.	Financial Statements
Item 1.	Consolidated Financial Statements (Unaudited):
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	2
	Consolidated Statements of Income for the nine and three months ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income for the nine and three months ended September 30, 2020 and 2019	5
	Consolidated Statements of Changes in Equity and Redeemable Non-Controlling Interest for the nine and three months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	65

PART II.	Other Information
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	67
SIGNATURES		69

PART I. Financial Statements

Item 1. Consolidated Financial Statements (Unaudited)

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)


	As of		As of
	September 30, 2020		December 31, 2019
Assets:
Current assets:
Cash and cash equivalents	$	610	$	841
Short-term restricted cash and cash equivalents	993		943
Customer accounts receivable, net of allowance for doubtful accounts of $25 and $8, respectively	1,310		988
Margin deposits, guaranty funds and delivery contracts receivable	85,900		64,987
Prepaid expenses and other current assets	324		220
Total current assets	89,137		67,979
Property and equipment, net	1,693		1,536
Other non-current assets:
Goodwill	21,243		13,342
Other intangible assets, net	14,507		10,258
Long-term restricted cash and cash equivalents	408		404
Other non-current assets	1,092		974
Total other non-current assets	37,250		24,978
Total assets	$	128,080	$	94,493

Liabilities and Equity:
Current liabilities:
Accounts payable and accrued liabilities	$	594	$	505
Section 31 fees payable	53		138
Accrued salaries and benefits	274		291
Deferred revenue	267		129
Short-term debt	2,463		2,569
Margin deposits, guaranty funds and delivery contracts payable	85,900		64,987
Other current liabilities	135		197
Total current liabilities	89,686		68,816
Non-current liabilities:
Non-current deferred tax liability, net	3,567		2,314
Long-term debt	14,869		5,250
Accrued employee benefits	187		198
Non-current operating lease liability	315		281
Other non-current liabilities	310		270
Total non-current liabilities	19,248		8,313
Total liabilities	108,934		77,129
Commitments and contingencies
Redeemable non-controlling interest in consolidated subsidiaries	94		78


Equity:
Intercontinental Exchange, Inc. stockholders’ equity:
Preferred stock, $0.01 par value; 100 shares authorized; none issued or outstanding at September 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value; 1,500 shares authorized; 628 and 607 issued at September 30, 2020 and December 31, 2019, respectively, and 561 and 554 shares outstanding at September 30, 2020 and December 31, 2019, respectively	6		6
Treasury stock, at cost; 67 and 53 shares, respectively	(5,198)		(3,879)
Additional paid-in capital	13,804		11,742
Retained earnings	10,682		9,629
Accumulated other comprehensive loss	(273)		(243)
Total Intercontinental Exchange, Inc. stockholders’ equity	19,021		17,255
Non-controlling interest in consolidated subsidiaries	31		31
Total equity	19,052		17,286
Total liabilities and equity	$	128,080	$	94,493

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)


	Nine Months Ended September 30,				Three Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Transaction and clearing, net	$	3,726	$	2,698	$	1,155	$	929
Data services	1,727		1,652		589		553
Listings	334		336		111		114
Other revenues	224		194		75		67
Total revenues	6,011		4,880		1,930		1,663
Transaction-based expenses:
Section 31 fees	465		274		145		105
Cash liquidity payments, routing and clearing	1,181		702		374		222
Total revenues, less transaction-based expenses	4,365		3,904		1,411		1,336
Operating expenses:
Compensation and benefits	849		768		298		261
Professional services	100		97		37		35
Acquisition-related transaction and integration costs	90		1		76		—
Technology and communication	388		346		131		126
Rent and occupancy	59		52		19		17
Selling, general and administrative	132		116		43		33
Depreciation and amortization	494		473		180		158
Total operating expenses	2,112		1,853		784		630
Operating income	2,253		2,051		627		706
Other income (expense):
Interest income	9		27		1		8
Interest expense	(245)		(214)		(89)		(72)
Other income, net	75		30		44		(2)
Other income (expense), net	(161)		(157)		(44)		(66)
Income before income tax expense	2,092		1,894		583		640
Income tax expense	512		387		189		103
Net income	$	1,580	$	1,507	$	394	$	537
Net income attributable to non-controlling interest	(17)		(22)		(4)		(8)
Net income attributable to Intercontinental Exchange, Inc.	$	1,563	$	1,485	$	390	$	529
Earnings per share attributable to Intercontinental Exchange, Inc. common stockholders:
Basic	$	2.85	$	2.64	$	0.71	$	0.95
Diluted	$	2.83	$	2.62	$	0.71	$	0.94
Weighted average common shares outstanding:
Basic	549		563		548		559
Diluted	552		566		551		563

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)


	Nine Months Ended September 30,				Three Months Ended September 30,
	2020		2019		2020		2019
Net income	$	1,580	$	1,507	$	394	$	537
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax expense of $1 for both the nine and three months ended September 30, 2020 and tax benefit of $1 for both the nine and three months ended September 30, 2019	(30)		(32)		48		(39)
Change in equity method investment	—		(1)		—		—


Other comprehensive income (loss)	(30)		(33)		48		(39)
Comprehensive income	$	1,550	$	1,474	$	442	$	498
Comprehensive income attributable to non-controlling interest	(17)		(22)		(4)		(8)
Comprehensive income attributable to Intercontinental Exchange, Inc.	$	1,533	$	1,452	$	438	$	490

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity and Redeemable Non-Controlling Interest

(In millions)

(Unaudited)


	Intercontinental Exchange, Inc. Stockholders’ Equity												Non- Controlling Interest in Consolidated Subsidiaries		Total Equity		Redeemable Non-Controlling Interest
	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)
	Shares	Value		Shares	Value
Balance, as of December 31, 2019	607	$	6	(53)	$	(3,879)	$	11,742	$	9,629	$	(243)	$	31	$	17,286	$	78
Impact of adoption of ASU 2016-13, net of tax	—	—		—	—		—		(10)		—		—		(10)		—
Other comprehensive loss	—	—		—	—		—		—		(30)		—		(30)		—
Stock consideration issued for acquisition	18	—		—	—		1,895		—		—		—		1,895		—
Exercise of common stock options	1	—		—	—		26		—		—		—		26		—
Repurchases of common stock	—	—		(14)	(1,247)		—		—		—		—		(1,247)		—
Payments relating to treasury shares	—	—		—	(72)		—		—		—		—		(72)		—
Stock-based compensation	—	—		—	—		105		—		—		—		105		9
Issuance under the employee stock purchase plan	—	—		—	—		33		—		—		—		33		—
Warrants issued to minority interest holders	—	—		—	—		3		—		—		—		3		2
Issuance of restricted stock	2	—		—	—		—		—		—		—		—		—

Distributions of profits	—	—		—	—		—		—		—		(31)		(31)		—
Dividends paid to stockholders	—	—		—	—		—		(500)		—		—		(500)		—
Redeemable non-controlling interest	—	—		—	—		—		—		—		—		—		10
Issuance of non-controlling interest	—	—		—	—		—		—		—		9		9		—
Net income (loss) attributable to non-controlling interest	—	—		—	—		—		(17)		—		22		5		(5)
Net income	—	—		—	—		—		1,580		—		—		1,580		—
Balance, as of September 30, 2020	628	$	6	(67)	$	(5,198)	$	13,804	$	10,682	$	(273)	$	31	$	19,052	$	94


	Intercontinental Exchange, Inc. Stockholders’ Equity												Non- Controlling Interest in Consolidated Subsidiaries		Total Equity		Redeemable Non-Controlling Interest
	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)
	Shares	Value		Shares	Value
Balance, as of June 30, 2020	609	$	6	(65)	$	(5,050)	$	11,856	$	10,462	$	(321)	$	41	$	16,994	$	95

Other comprehensive income	—	—		—	—		—		—		48		—		48		—
Stock consideration issued for acquisition	18	—		—	—		1,895		—		—		—		1,895		—
Exercise of common stock options	1	—		—	—		4		—		—		—		4		—
Repurchases of common stock	—	—		(2)	(148)		—		—		—		—		(148)		—

Stock-based compensation	—	—		—	—		32		—		—		—		32		1
Issuance under the employee stock purchase plan	—	—		—	—		17		—		—		—		17		—




Distributions of profits	—	—		—	—		—		—		—		(16)		(16)		—
Dividends paid to stockholders	—	—		—	—		—		(170)		—		—		(170)		—


Net income (loss) attributable to non-controlling interest	—	—		—	—		—		(4)		—		6		2		(2)
Net income	—	—		—	—		—		394		—		—		394		—
Balance, as of September 30, 2020	628	$	6	(67)	$	(5,198)	$	13,804	$	10,682	$	(273)	$	31	$	19,052	$	94

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity and Redeemable Non-Controlling Interest — (Continued)

(In millions)

(Unaudited)


	Intercontinental Exchange, Inc. Stockholders’ Equity												Non- Controlling Interest in Consolidated Subsidiaries		Total Equity		Redeemable Non-Controlling Interest
	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)
	Shares	Value		Shares	Value
Balance, as of December 31, 2018	604	$	6	(35)	$	(2,354)	$	11,547	$	8,317	$	(315)	$	30	$	17,231	$	71
Other comprehensive loss	—	—		—	—		—		—		(33)		—		(33)		—
Exercise of common stock options	1	—		—	—		22		—		—		—		22		—
Repurchases of common stock	—	—		(14)	(1,120)		—		—		—		—		(1,120)		—
Payments relating to treasury shares	—	—		—	(64)		—		—		—		—		(64)		—
Stock-based compensation	—	—		—	—		109		—		—		—		109		3
Issuance under the employee stock purchase plan	—	—		—	—		28		—		—		—		28		—
Issuance of restricted stock	2	—		—	—		—		—		—		—		—		—

Distributions of profits	—	—		—	—		—		—		—		(29)		(29)		—
Dividends paid to stockholders	—	—		—	—		—		(467)		—		—		(467)		—

Net income attributable to non-controlling interest	—	—		—	—		—		(22)		—		23		1		(2)
Net income	—	—		—	—		—		1,507		—		—		1,507		—
Balance, as of September 30, 2019	607	$	6	(49)	$	(3,538)	$	11,706	$	9,335	$	(348)	$	24	$	17,185	$	72


	Intercontinental Exchange, Inc. Stockholders’ Equity												Non- Controlling Interest in Consolidated Subsidiaries		Total Equity		Redeemable Non-Controlling Interest
	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)
	Shares	Value		Shares	Value
Balance, as of June 30, 2019	606	$	6	(45)	$	(3,194)	$	11,651	$	8,961	$	(309)	$	31	$	17,146	$	72
Other comprehensive loss	—	—		—	—		—		—		(39)		—		(39)		—
Exercise of common stock options	1	—		—	—		5		—		—		—		5		—
Repurchases of common stock	—	—		(4)	(340)		—		—		—		—		(340)		—
Payments relating to treasury shares	—	—		—	(4)		—		—		—		—		(4)		—
Stock-based compensation	—	—		—	—		36		—		—		—		36		1
Issuance under the employee stock purchase plan	—	—		—	—		14		—		—		—		14		—


Distributions of profits	—	—		—	—		—		—		—		(15)		(15)		—
Dividends paid to stockholders	—	—		—	—		—		(155)		—		—		(155)		—

Net income attributable to non-controlling interest	—	—		—	—		—		(8)		—		8		—		(1)
Net income	—	—		—	—		—		537		—		—		537		—
Balance, as of September 30, 2019	607	$	6	(49)	$	(3,538)	$	11,706	$	9,335	$	(348)	$	24	$	17,185	$	72

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2020		2019
Operating activities:
Net income	$	1,580	$	1,507
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	494		473
Stock-based compensation	105		100
Deferred taxes	67		(52)
Other	(48)		(34)
Changes in assets and liabilities:
Customer accounts receivable	(228)		(97)
Other current and non-current assets	(43)		22
Section 31 fees payable	(85)		(70)
Deferred revenue	120		114
Other current and non-current liabilities	(147)		(81)
Total adjustments	235		375
Net cash provided by operating activities	1,815		1,882

Investing activities:
Capital expenditures	(114)		(87)
Capitalized software development costs	(154)		(116)
Cash paid for acquisitions, net of cash acquired	(9,439)		(352)
Return of capital from equity method investment	—		44
Proceeds from investments, net	5		(1)


Net cash used in investing activities	(9,702)		(512)

Financing activities:
Proceeds from debt facilities, net	9,606		11
Repayments of debt facilities	(1,258)		—
Proceeds from/(redemption of) commercial paper, net	1,149		367
Repurchases of common stock	(1,247)		(1,120)
Dividends to stockholders	(500)		(467)
Payments relating to treasury shares received for restricted stock tax payments and stock option exercises	(72)		(64)



Other	31		22
Net cash provided by (used in) financing activities	7,709		(1,251)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	1		(2)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	(177)		117
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period	2,188		1,872
Cash, cash equivalents, and restricted cash and cash equivalents, end of period	$	2,011	$	1,989

Supplemental cash flow disclosure:
Common stock issued for acquisition	$	1,895	$	—
Cash paid for income taxes	$	558	$	457
Cash paid for interest	$	209	$	214

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1.Description of Business

Nature of Business and Organization

We are a leading provider of marketplace infrastructure, data services and technology solutions to a broad range of customers including financial institutions, corporations and government entities. Through our markets, clearinghouses, listings, data and technology offerings, we provide comprehensive workflow solutions that enable our customers to manage risk, raise capital and operate their businesses more efficiently. We operate regulated marketplaces for listing, trading and clearing of a broad array of derivatives contracts and securities across major asset classes including: energy and agricultural commodities, metals, interest rates, equities, exchange-traded funds, or ETFs, credit derivatives, digital assets, bonds and currencies. In addition, we offer comprehensive data services to support the trading, investment, risk management and connectivity needs of customers around the world and across asset classes. We also offer technology solutions that support the United States, or U.S., residential mortgage industry from application and loan origination, through to final settlement. We operate marketplaces and provide data services in the U.S., United Kingdom, or U.K., European Union, or EU, Canada and Singapore, and offer technology and data solutions to the U.S. mortgage industry.

2. Summary of Significant Accounting Policies

Basis of Presentation

We prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2019. The accompanying unaudited consolidated financial statements reflect all adjustments that are, in our opinion, necessary for a fair presentation of results for the interim periods presented. We believe that these adjustments are of a normal recurring nature.

Preparing financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the amounts that are reported in our consolidated financial statements and accompanying disclosures. Actual amounts could differ from those estimates. The results of operations for the nine and three months ended September 30, 2020 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

These statements include the accounts of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions between us and our wholly-owned and controlled subsidiaries have been eliminated in consolidation. For consolidated subsidiaries in which our ownership is less than 100% and for which we have control over the assets and liabilities and the management of the entity, the outside stockholders’ interests are shown as non-controlling interests. Where outside owners hold an option to require us to repurchase their interests, these amounts are shown as redeemable non-controlling interests and are subject to remeasurement when repurchase is probable.

Recently Adopted Accounting Pronouncements


Standard/Description	Effective Date and Adoption Considerations	Effect on Financial Statements
ASU No. 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, applies to all financial instruments carried at amortized cost including held-to-maturity debt securities and accounts receivable. It requires financial assets carried at amortized cost to be presented at the net amount expected to be collected and requires entities to record credit losses through an allowance for credit losses on available-for-sale debt securities.	We adopted on January 1, 2020 on a modified retrospective basis.	We evaluated this guidance to determine the impact on our consolidated financial statements. Based on our assessment, we concluded the impact of adoption of this guidance was not material. Further disclosures and details on our adoption are discussed below.
ASU 2017-04, Simplifying the Test for Goodwill Impairment, removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation if the fair value of a reporting unit is less than its carrying value. Goodwill impairment will now be measured using the difference between the carrying value and the fair value of the reporting unit, and any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.	We adopted on January 1, 2020 on a prospective basis.	We evaluated this guidance to determine the impact on our consolidated financial statements. Based on our assessment, we concluded the impact of adoption of this guidance was not material. The fair values of our reporting units have been greater than their corresponding carrying values in recent years. Changes in future projections, market conditions, and other factors may cause a change in the excess of fair value of our reporting units over their corresponding carrying values.
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, helps entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when an arrangement includes a software license and is solely a hosted service. Customers will now apply the same criteria for capitalizing implementation costs as they would for a software license arrangement. The guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures.	We adopted on January 1, 2020 and apply the rules prospectively to eligible costs incurred on or after the effective date.	We evaluated this guidance to determine the impact on our consolidated financial statements. Based on our assessment, we concluded the impact of adoption of this guidance was not material.
ASU No. 2019-12, Simplifying the Accounting for Income Taxes, eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It clarifies that single-member limited liability companies, and other similar disregarded entities that are not subject to income tax, are not required to recognize an allocation of consolidated income tax expense in their separate financial statements. Further, it simplifies the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill.	Effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We elected early adoption and adopted on January 1, 2020.	We evaluated this guidance to determine the impact on our consolidated financial statements. Based on our assessment, we concluded the impact of adoption of this guidance was not material.

Adoption of ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments

On January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. This standard requires the application of a current expected credit loss, or CECL, impairment model to financial assets measured at amortized cost, including accounts receivable and certain off-balance-sheet credit exposures. The standard also amends the impairment model for available-for-sale debt securities requiring entities to record credit losses through an allowance account. The CECL model 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. Adoption of the standard requires more timely recognition of credit losses and credit loss estimates are required to use historical information, current information and reasonable and supportable forecasts of future events.

We adopted ASU 2016-13 using the modified retrospective approach through a cumulative-effect adjustment to retained earnings on January 1, 2020. ASU 2016-13 primarily impacted the calculation of our allowance for doubtful accounts on accounts receivable utilizing the expected credit losses model. Our adoption of ASU 2016-13 was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements and the impact of our adoption was not material. We do not currently hold available-for-sale debt securities, off-balance-sheet credit exposures, or other material financial assets impacted by the standard, besides those mentioned below.

We considered our material financial assets within scope, including our cash equivalents, short-term and long-term restricted cash equivalents as well as our clearing members' cash equivalent and reverse repurchase receivables, and determined that such assets have a de minimis risk of credit loss. We invest our cash and clearing members' cash by placing it in highly-rated government securities, primarily U.S. Treasury securities and other sovereign debt with original maturities of less than three months which we consider to be cash equivalents, or into reverse repurchase agreements, referred to as reverse repos, with primarily overnight maturities. Reverse repos are valued daily and are subject to collateral maintenance provisions whereby the counterparty must provide additional collateral if the value of the underlying securities lose value, in an amount sufficient to maintain collateralization of at least 102%. Therefore, as of and for the nine months ended September 30, 2020 we have not recorded a credit loss for these financial assets.

Based on the high turnover and collectability of our accounts receivable, as well as the monthly billing process for the majority of revenue, we did not experience a significant increase in the loss provision recognized upon adoption of the CECL model. Accounts receivable in our futures and clearing businesses have minimal credit risk as all clearing members are pre-screened, collection periods occur within one month and the services to customers are completed almost instantaneously. Our accounts receivable related to revenues from market data, cash trading, listings, technology services, mortgage technology, CDS transactions and bilateral OTC energy transactions subject us to credit losses, but we expeditiously limit our risk of credit loss by taking action such as terminating trading or transaction access, terminating public listings or ceasing to distribute data for entities with delinquent accounts. The concentration of risk on our accounts receivable is also mitigated by the high quality and the large number of entities comprising our customer base.

We estimated our allowance for doubtful accounts using an aging method, disaggregated based on major revenue stream categories as well as other unique revenue stream factors. The factors for pooling our accounts receivable balances were specific to each revenue stream based on our risk assessment, past patterns of collectability, our knowledge of the business, and customer-specific situations. We apply estimated reserve percentages to the risk pools identified, which are derived from historical write-off factors that are based on the accounts receivable balance’s delinquency status and adjusted as appropriate for our reasonable and supportable estimates of current and future economic conditions. We believe that historical write-off trends provide a basis for estimating future patterns of losses because there have been no significant changes in the mix or risk characteristics of the accounts receivable revenue stream pool populations from the risk pools used to calculate our historical write-off rates. At each measurement date we reassess whether our accounts receivable pools continue to exhibit similar risk characteristics. We then determine if assets need to be isolated further as part of their own specific line item reserve due to specific events, such as a customer’s inability to meet its financial obligations (i.e. customer disputes, highly unresponsive customers, delinquency of the receivable, or other indicators of credit deterioration of customers). Lastly, the CECL standard is forward-looking and requires us to factor reasonable and supportable economic expectations into our allowance estimate for the asset's entire expected life, which is generally less than one year.

A reconciliation of the beginning and ending amount of allowance for doubtful accounts is as follows for the nine months ended September 30, 2020 (in millions):


	Allowance for Doubtful Accounts
Beginning balance as of December 31, 2019	$	8
Impact of adoption of ASU 2016-13	13
Bad debt expense	11
Charge-offs	(7)
Ending balance as of September 30, 2020	$	25

The impact of adoption of ASU 2016-13 was $10 million, net of tax. We recorded this impact as an adjustment to retained earnings on January 1, 2020 as shown in our Consolidated Statement of Changes in Equity and Redeemable Non-Controlling Interest. We have included in our allowance assessment the impact of and our responses to the coronavirus, or COVID-19, pandemic. Our bad debt expense in the table above includes that assessment, the impact of which was not material for the nine and three months ended September 30, 2020. We will continue to review our accounts receivable and may incur future charge-offs as better estimates become available in future periods. Charge-offs in the table above represent the write-off of uncollectible receivables, net of recoveries. These amounts also include the impact of foreign currency translation adjustments.

3. Acquisitions

Ellie Mae

On September 4, 2020, we acquired Ellie Mae Intermediate Holdings I, Inc., and its indirect wholly owned subsidiary, Ellie Mae, Inc. (collectively, Ellie Mae), for aggregate consideration of $11.4 billion from private equity firm Thoma Bravo. Ellie Mae is a cloud-based technology solution provider for the mortgage finance industry. Through its digital lending platform, Ellie Mae provides technology solutions to participants in the mortgage supply chain, including over 3,000 customers and thousands of partners and investors who participate on its open network. Originators rely on Ellie Mae to securely manage the exchange of data across the mortgage ecosystem to enable the origination of mortgages while adhering to various local, state and federal compliance requirements. Ellie Mae is a part of ICE Mortgage Technology and is included in our Trading and Clearing segment as of September 30, 2020. From the acquisition date through September 30, 2020, Ellie Mae revenues of $75 million, which are included in our transaction and clearing revenues, and operating expenses of $56 million were recorded for the nine and three months ended September 30, 2020.

The purchase price consisted of $9.5 billion in cash, as adjusted for $335 million of cash and cash equivalents held by Ellie Mae on the date of acquisition, and $1.9 billion, or 18.4 million shares of our common stock, based on our stock price on the acquisition date. ICE funded the cash portion of the purchase price with net proceeds from our offering of new senior notes in August 2020, together with the issuance of commercial paper and borrowings under a new senior unsecured term loan facility (Note 8).

We are currently reviewing the impact of this acquisition under Accounting Standards Codification 805- Business Combinations. Any additional disclosures would not be practical for the nine and three months ending September 30, 2020. Such disclosures, if any, will be included in our Annual Report on Form 10-K for the fiscal year ending December 31, 2020.

The purchase price has been allocated to the net tangible and identifiable intangible assets and liabilities based on the preliminary respective estimated fair values on the date of acquisition. The excess of purchase price over the net tangible and identifiable intangible assets has been recorded as goodwill. Goodwill represents potential revenue synergies related to new product development, various expense synergies and opportunities to enter new markets. The preliminary purchase price allocation is as follows (in millions):


	Preliminary Purchase Price Allocation
Cash and cash equivalents	$	335
Property and equipment	151
Goodwill	7,688
Identifiable intangibles	4,431
Other assets and liabilities, net	54
Deferred tax liabilities on identifiable intangibles	(1,241)
Total preliminary purchase price allocation	$	11,418

In performing the preliminary purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of the Ellie Mae business. We have not yet obtained all of the information related to the fair value of the acquired assets and liabilities.

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of the identifiable intangible assets, income taxes, and certain other tangible assets and liabilities. The allocation of the purchase price will be finalized upon the completion of the analysis of the acquired assets and liabilities within one year of the date of acquisition.

The following table sets forth the components of the preliminary intangible assets associated with the acquisition as of September 30, 2020 (in millions, except years):


	Acquisition-Date Preliminary Fair Value		Accumulated Amortization		Net Book Value		Useful Life (Years)
Customer relationships	$	3,125	$	(11)	$	3,114	10 to 20
Backlog	300		(3)		297		5 to 7
Trademark/Tradenames	200		(1)		199		5 to 20
Developed Technology	739		(8)		731		7
In-process Research & Development	67		—		67		N/A
Total	$	4,431	$	(23)	$	4,408

Bridge2 Solutions

On February 21, 2020, we acquired Bridge2 Solutions, a leading provider of loyalty solutions for merchants and consumers. Bridge2 Solutions enables some of the world’s leading brands to engage customers and drive loyalty. It powers incentive and employee perk programs for companies across a wide spectrum of industries. The purchase price has been allocated to the net tangible and identifiable intangible assets and liabilities based on the respective estimated fair values on the date of acquisition. The excess of purchase price over the net tangible and identifiable intangible assets has been recorded as goodwill. Identified intangible assets primarily consist of customer relationships and developed technology, which have been assigned useful lives of twelve years and seven years, respectively. Bridge2 Solutions is included in our Trading and Clearing segment as part of the Bakkt ecosystem.

To fund the acquisition of Bridge2 Solutions, Bakkt completed a capital call for $300 million in funding by ICE and the minority investors. This acquisition-related capital call triggered a market condition of certain Bakkt equity incentive awards, and as a result, during the nine months ended September 30, 2020 we incurred a $10 million compensation expense related to these awards which has been recorded as an acquisition-related cost.

4.Investments

Our equity investments, including our investments in Euroclear plc, or Euroclear, and Coinbase Global, Inc., among others, are subject to valuation under ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. See Note 14 for a discussion of our determination of fair value of our financial instruments.

Investment in OCC

We own a 40% interest in the Options Clearing Corporation, or OCC, which is regulated by the SEC and the Commodity Futures Trading Commission, or CFTC, that we treat as an equity method investment. As of September 30, 2020, the OCC is our only equity method investment and is included in other non-current assets in the accompanying consolidated balance sheet. We recognized $84 million and $51 million during the nine months ended September 30, 2020 and 2019, respectively, and $49 million and $15 million during the three months ended September 30, 2020 and 2019, respectively, of equity earnings as our share of the OCC's estimated profits, which is included in other income. Included within the amounts recognized during the nine and three months ended September 30, 2020, is a $36 million cumulative adjustment to increase our equity earnings for our share of the OCC's estimated profits due to an increase in the OCC’s 2020 transaction revenues.

On February 13, 2019, the SEC disapproved the OCC capital plan that had been established in 2015. Following the SEC disapproval, the OCC also announced that it would not be providing a refund to clearing members or declaring a dividend to shareholders for the year ended December 31, 2018, which resulted in higher reported OCC 2018 net income than we

had estimated. Therefore, during the nine months ended September 30, 2019, we adjusted equity earnings in the OCC by $19 million in other income to reflect our share of the OCC's 2018 net income. Refer to Note 4 to our consolidated financial statements included in our 2019 Form 10-K for additional details on our OCC investment.

Investment in BIDS

We hold a 9% ownership interest in BIDS Trading, LP, or BIDS, which we treat as an equity investment subject to valuation under ASU 2016-01 (Note 14). BIDS is a registered broker-dealer and the operator of the BIDS Alternative Trading System. In October 2020, Cboe Global Markets announced its intent to purchase BIDS. Details have not been made publicly available, other than that the sale is expected to close in 2021, at which time we will record our financial statement impact.

5.Revenue Recognition

Substantially all of our revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in our balance sheets as customer accounts receivable. We do not have obligations for warranties, returns or refunds to customers, other than rebates, which are settled each period and therefore do not result in variable consideration. We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our deferred revenue. Deferred revenue represents our contract liabilities related to our annual, original and other listings revenues as well as certain data, clearing and mortgage services and other revenues. See Note 7 for our discussion of deferred revenue balances, activity, and expected timing of recognition. We have elected not to provide disclosures about the transaction price allocated to unsatisfied performance obligations if contract durations are less than one year, or if we are not required to estimate the transaction price. For all of our contracts with customers, except for listings and certain data, clearing and mortgage services, our performance obligations are short term in nature and there is no significant variable consideration. In addition, we have elected the practical expedient of excluding sales taxes from transaction prices. We have assessed the costs incurred to obtain or fulfill a contract with a customer and determined them to be immaterial.

Certain judgments and estimates are used in the identification and timing of satisfaction of performance obligations and the related allocation of transaction price. We believe that these represent a faithful depiction of the transfer of services to our customers. Refer to Note 5 to our consolidated financial statements included in our 2019 Form 10-K where our primary revenue contract classifications are described in detail.

The following table depicts the disaggregation of our revenue according to business line and segment (in millions). Amounts here have been aggregated as they follow consistent revenue recognition patterns, and are consistent with the segment information in Note 15:


	Trading and Clearing Segment		Data and Listings Segment		Total Consolidated
Nine Months Ended September 30, 2020:
Transaction and clearing, net	$	3,726	$	—	$	3,726
Data services	—		1,727		1,727
Listings	—		334		334
Other revenues	224		—		224
Total revenues	3,950		2,061		6,011
Transaction-based expenses	1,646		—		1,646
Total revenues, less transaction-based expenses	$	2,304	$	2,061	$	4,365

Timing of Revenue Recognition
Services transferred at a point in time	$	1,982	$	—	$	1,982
Services transferred over time	322		2,061		2,383
Total revenues, less transaction-based expenses	$	2,304	$	2,061	$	4,365


	Trading and Clearing Segment		Data and Listings Segment		Total Consolidated
Nine Months Ended September 30, 2019:
Transaction and clearing, net	$	2,698	$	—	$	2,698
Data services	—		1,652		1,652
Listings	—		336		336
Other revenues	194		—		194
Total revenues	2,892		1,988		4,880
Transaction-based expenses	976		—		976
Total revenues, less transaction-based expenses	$	1,916	$	1,988	$	3,904

Timing of Revenue Recognition
Services transferred at a point in time	$	1,653	$	—	$	1,653
Services transferred over time	263		1,988		2,251
Total revenues, less transaction-based expenses	$	1,916	$	1,988	$	3,904


	Trading and Clearing Segment		Data and Listings Segment		Total Consolidated
Three Months Ended September 30, 2020:
Transaction and clearing, net	$	1,155	$	—	$	1,155
Data services	—		589		589
Listings	—		111		111
Other revenues	75		—		75
Total revenues	1,230		700		1,930
Transaction-based expenses	519		—		519
Total revenues, less transaction-based expenses	$	711	$	700	$	1,411

Timing of Revenue Recognition
Services transferred at a point in time	$	595	$	—	$	595
Services transferred over time	116		700		816
Total revenues, less transaction-based expenses	$	711	$	700	$	1,411


	Trading and Clearing Segment		Data and Listings Segment		Total Consolidated
Three Months Ended September 30, 2019:
Transaction and clearing, net	$	929	$	—	$	929
Data services	—		553		553
Listings	—		114		114
Other revenues	67		—		67
Total revenues	996		667		1,663
Transaction-based expenses	327		—		327
Total revenues, less transaction-based expenses	$	669	$	667	$	1,336

Timing of Revenue Recognition
Services transferred at a point in time	$	578	$	—	$	578
Services transferred over time	91		667		758
Total revenues, less transaction-based expenses	$	669	$	667	$	1,336

The Trading and Clearing segment revenues above include $209 million and $188 million for the nine months ended September 30, 2020 and 2019, respectively, and $57 million and $66 million for the three months ended September 30,

2020 and 2019, respectively, for services transferred over time related to risk management of open interest performance obligations. A majority of these performance obligations are performed over a short period of time of one month or less.

Beginning in the second quarter of 2019, we have reflected amounts owed under certain third-party revenue share arrangements as technology and communication operating expenses rather than as had been previously recorded net within transaction and clearing revenues. These are included within our Trading and Clearing segment.

6.Goodwill and Other Intangible Assets

The following is a summary of the activity in the goodwill balance for the nine months ended September 30, 2020 (in millions):


Goodwill balance at December 31, 2019	$	13,342
Acquisitions	7,907
Foreign currency translation	(11)
Other activity, net	5
Goodwill balance at September 30, 2020	$	21,243

The following is a summary of the activity in the other intangible assets balance for the nine months ended September 30, 2020 (in millions):


Other intangible assets balance at December 31, 2019	$	10,258
Acquisitions	4,498
Foreign currency translation	(13)

Amortization of other intangible assets	(236)

Other intangible assets balance at September 30, 2020	$	14,507

We completed our acquisitions of Ellie Mae and Bridge2 Solutions during the nine months ended September 30, 2020 (Note 3). Foreign currency translation adjustments result from a portion of our goodwill and other intangible assets being held at our U.K., EU and Canadian subsidiaries, whose functional currencies are not the U.S. dollar. The change in other activity, net, primarily relates to adjustments to the fair value of the net tangible and intangible assets relating to acquisitions, with a corresponding adjustment to goodwill. We have performed an analysis of impairment indicators, including the economic impact of and our responses to the COVID-19 pandemic, and did not recognize any impairment losses on goodwill or other intangible assets during the nine and three months ended September 30, 2020.

7.Deferred Revenue

Our contract liabilities, or deferred revenue, represent consideration received that is yet to be recognized as revenue. Total deferred revenue was $360 million as of September 30, 2020, including $267 million in current deferred revenue and $93 million in other non-current liabilities. The changes in our deferred revenue during the nine months ended September 30, 2020 are as follows (in millions):


	Annual Listings Revenues		Original Listings Revenues		Other Listings Revenues		Data Services and Other Revenues		Mortgage Technology		Total
Deferred revenue balance at December 31, 2019	$	—	$	19	$	94	$	88	$	—	$	201
Additions	384		9		34		367		25		819
Amortization	(288)		(15)		(31)		(326)		—		(660)
Deferred revenue balance at September 30, 2020	$	96	$	13	$	97	$	129	$	25	$	360

The changes in our deferred revenue during the nine months ended September 30, 2019 are as follows (in millions):


	Annual Listings Revenues		Original Listings Revenues		Other Listings Revenues		Data Services and Other Revenues		Total
Deferred revenue balance at December 31, 2018	$	—	$	25	$	100	$	92	$	217
Additions	387		11		30		300		728
Amortization	(289)		(17)		(30)		(277)		(613)
Deferred revenue balance at September 30, 2019	$	98	$	19	$	100	$	115	$	332

Included in the amortization recognized during the nine months ended September 30, 2020 is $92 million related to the deferred revenue balance as of January 1, 2020. Included in the amortization recognized for the nine months ended September 30, 2019 is $94 million related to the deferred revenue balance as of January 1, 2019. As of September 30, 2020, the remaining deferred revenue balance will be recognized over the period of time we satisfy our performance obligations as described in Note 5. Deferred revenue for mortgage technology is related to Ellie Mae and has been included as of September 30, 2020 following our September 2020 acquisition of Ellie Mae.

8.Debt

Our total debt, including short-term and long-term debt, consisted of the following as of September 30, 2020 and December 31, 2019 (in millions):


	As of September 30, 2020		As of December 31, 2019
Debt:
Short-term debt:
Commercial Paper	$	2,460	$	1,311
2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020)	—		1,248
Other short-term debt	3		10
Total short-term debt	2,463		2,569
Long-term debt:
2022 Term Loan	747		—
2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022)	498		497
2023 Senior Notes (floating rate senior unsecured notes due June 15, 2023)	1,244		—
2023 Senior Notes (0.70% senior unsecured notes due June 15, 2023)	994		—
2023 Senior Notes (3.45% senior unsecured notes due September 21, 2023)	398		398
2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023)	795		794
2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025)	1,245		1,244
2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027)	496		496
2028 Senior Notes (3.75% senior unsecured notes due September 21, 2028)	593		592
2030 Senior Notes (2.10% senior unsecured notes due June 15, 2030)	1,231		—
2032 Senior Notes (1.85% senior unsecured notes due September 15, 2032)	1,481		—
2040 Senior Notes (2.65% senior unsecured notes due September 15, 2040)	1,229		—
2048 Senior Notes (4.25% senior unsecured notes due September 21, 2048)	1,230		1,229
2050 Senior Notes (3.00% senior unsecured notes due June 15, 2050)	1,219		—
2060 Senior Notes (3.00% senior unsecured notes due September 15, 2060)	1,469		—
Total long-term debt	14,869		5,250
Total debt	$	17,332	$	7,819

Credit Facilities

On August 21, 2020, we agreed with the lenders under our $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, to extend the maturity date of the Credit Facility to August 21, 2025, among other items. We also exercised our option to increase the amount of the Credit Facility to $3.7 billion which reduced our future capacity to increase our borrowings under the Credit Facility to $650 million, subject to the consent of the lenders funding the increase and certain other conditions. We incurred new debt issuance costs of $9 million relating to the Credit Facility and these costs are represented in the accompanying consolidated balance sheet as other non-current assets and will be amortized over the

remaining life of the Credit Facility. The commitments under the Credit Facility will automatically reduce to $3.6 billion on August 9, 2023. No amounts were outstanding under the Credit Facility as of September 30, 2020.

As of September 30, 2020, of the $3.7 billion that is currently available for borrowing under the Credit Facility, $2.5 billion is required to back-stop the amount outstanding under our U.S. dollar commercial paper program, or the Commercial Paper Program, and $171 million is required to support certain broker-dealer and other subsidiary commitments. The amount required to back-stop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $1.0 billion is available for working capital and general corporate purposes including, but not limited to, acting as a back-stop to future increases in the amounts outstanding under the Commercial Paper Program.

On August 21, 2020, we entered into a $750 million 18-month senior unsecured delayed draw term loan facility with a maturity date of February 21, 2022. We borrowed in full under the facility on September 3, 2020. Interest on borrowings under the term loan facility initially bear interest on the principal amount outstanding at the London Interbank Offered Rate, or LIBOR, plus an applicable margin, currently equal to 1.125%. We have the option to prepay the facility in whole or in part at any time. The proceeds from borrowings under this term loan facility were used to fund a portion of the purchase price for the Ellie Mae acquisition.

Our ICE India subsidiary maintains a $20 million line of credit for its general corporate purposes. As of September 30, 2020, ICE India had borrowed $3 million, which is reflected as “other short-term debt” in the table above.

Commercial Paper Program

Our Commercial Paper Program is currently backed by the borrowing capacity available under the Credit Facility, as described above. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates, which fluctuate due to market conditions and as a result may impact our interest expense. During the nine months ended September 30, 2020, we had net issuances of $1.1 billion under the Commercial Paper Program that were primarily used to fund a portion of the purchase price for the Ellie Mae acquisition.

Commercial paper notes of $2.5 billion with original maturities ranging from one to 358 days were outstanding as of September 30, 2020, with a weighted average interest rate of 0.39% per annum, and a weighted average remaining maturity of 53 days.

Senior Notes Issued in August 2020

On August 20, 2020, we issued $6.5 billion in aggregate principal amount of new senior notes, comprised of $1.25 billion in aggregate principal amount of floating rate senior notes due in 2023, $1.0 billion in aggregate principal amount of 0.70% senior notes due in 2023, $1.5 billion in aggregate principal amount of 1.85% senior notes due in 2032, $1.25 billion in aggregate principal amount of 2.65% senior notes due in 2040, and $1.5 billion in aggregate principal amount of 3.00% senior notes due in 2060 (collectively, the August 2020 Notes). We used the net proceeds from the offering to fund a portion of the purchase price for the Ellie Mae acquisition.

We incurred debt issuance costs of $55 million relating to the issuance of the August 2020 Notes and these costs are presented in the accompanying consolidated balance sheet as a deduction from the carrying amount of the related debt liability and will be amortized over the remaining term of each series of the August 2020 Notes. The August 2020 Notes contain affirmative and negative covenants, including, but not limited to, certain redemption rights, limitations on liens and indebtedness and limitations on certain mergers, sales, dispositions and lease-back transactions.

Senior Notes Issued in May 2020

On May 26, 2020, we issued $2.5 billion in aggregate principal amount of new senior notes. The senior notes comprise $1.25 billion in aggregate principal amount of 2.10% senior notes due in 2030 and $1.25 billion in aggregate principal amount of 3.00% senior notes due in 2050 (collectively, the May 2020 Notes).

We used the net proceeds from the offering of the May 2020 Notes for general corporate purposes, including to fund the redemption of our $1.25 billion aggregate principal amount of 2.75% senior notes due in December 2020, which were redeemed in accordance with their terms on June 25, 2020, and to pay down a portion of our commercial paper outstanding. In connection with our issuance of the May 2020 Notes and our early redemption of the 2.75% senior notes due in December 2020, we recorded an extinguishment payment of $14 million that includes both a make-whole redemption payment and duplicative interest. These costs are included in interest expense in our consolidated statements of income for the nine months ended September 30, 2020.

We incurred debt issuance costs of $23 million relating to the issuance of the May 2020 Notes and these costs are presented in the accompanying consolidated balance sheet as a deduction from the carrying amount of the related debt liability and will be amortized over the remaining term of each series of the May 2020 Notes. The May 2020 Notes contain affirmative and negative covenants, including, but not limited to, certain redemption rights, limitations on liens and indebtedness and limitations on certain mergers, sales, dispositions and lease-back transactions.

9.Share-Based Compensation

We currently sponsor employee and director stock option, restricted stock and employee stock purchase plans. Stock options and restricted stock are granted at the discretion of the Compensation Committee of our Board of Directors, or Board, based on the estimated fair value on the date of grant. The fair value of the stock options and restricted stock on the date of grant is recognized as expense over the vesting period, net of forfeitures. The non-cash compensation expenses recognized in our consolidated statements of income for stock options, restricted stock and under our employee stock purchase plan, net of amounts classified as capitalized software, were $105 million and $100 million for the nine months ended September 30, 2020 and 2019, respectively, and $32 million and $36 million for the three months ended September 30, 2020 and 2019, respectively. This includes the expense related to the Bakkt Incentive Units, described below.

Stock Option Plans

The following is a summary of our stock option activity:


	Number of Options (in thousands)	Weighted Average Exercise Price per Option
Outstanding at December 31, 2019	3,501	$	51.87
Granted	413	92.63
Exercised	(592)	43.11
Forfeited	(13)	67.00
Outstanding at September 30, 2020	3,309	58.48

Details of stock options outstanding as of September 30, 2020 were as follows:


	Number of Options (in thousands)	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (In millions)
Vested or expected to vest	3,309	$58.48	6.1	$138
Exercisable	2,407	$49.62	5.1	$121

Details of stock options exercised are as follows:


	Nine Months Ended September 30,				Three Months Ended September 30,
Options exercised:	2020		2019		2020		2019
Total intrinsic value of options exercised (in millions)	$	29	$	25	$	7	$	7

As of September 30, 2020, there were $10 million in total unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted average period of 1.6 years as the stock options vest.

We use the Black-Scholes option pricing model to value our stock option awards. During the nine months ended September 30, 2020 and 2019, we used the assumptions in the table below to compute the value:


	Nine Months Ended September 30,
Assumptions:	2020	2019
Risk-free interest rate	1.46%	2.49%
Expected life in years	5.8	5.9
Expected volatility	20%	20%
Expected dividend yield	1.30%	1.44%
Estimated weighted-average fair value of options granted per share	$16.65	$15.45

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the date of grant. The expected life is derived from historical and anticipated future exercise patterns. Expected volatility is based on historical volatility data of our stock.

Restricted Stock Plans

Restricted shares are used as an incentive to attract and retain qualified employees and to increase stockholder returns with actual performance linked to both short and long-term stockholder return as well as retention objectives. We issue awards which may contain a combination of time, performance and/or market conditions. The grant date fair value of each award is based on the closing stock price of our stock at the date of grant. For time-based restricted stock, we recognize expense ratably over the vesting period, which is typically three years, net of forfeitures.

In February 2020, we reserved a maximum of 0.9 million restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares ultimately granted under this award will be based on our actual financial performance as compared to financial performance targets set by our Board and the Compensation Committee for the year ending December 31, 2020, and will also be subject to a market condition reduction based on how our 2020 total stockholder return, or TSR, compares to that of the S&P 500 Index. The maximum compensation expense to be recognized under these performance-based restricted shares is $82 million if the maximum financial performance target is met and all 0.9 million shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $41 million if the target financial performance is met, which would result in 0.5 million shares vesting. For these awards with performance conditions, we recognize expense on an accelerated basis over the three-year vesting period based on our quarterly assessment of the probable 2020 actual financial performance as compared to the 2020 financial performance targets. As of September 30, 2020, our best estimate is that the financial performance level will be above target for 2020. Based on this assessment, we recorded non-cash compensation expense of $21 million and $8 million for the nine and three months ended September 30, 2020, respectively, related to these awards and the remaining $33 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $8 million which will be recorded over the remainder of 2020.

We also issue awards with a market condition but no performance condition. The fair value of these awards is estimated based on a simulation of various outcomes and includes inputs such as our stock price on the grant date, the valuation of historical awards with market conditions, the relatively low likelihood that the market condition will affect the number of shares granted (as the market condition only affects shares granted in excess of certain financial performance targets), and our expectation of achieving the financial performance targets.

The following is a summary of nonvested restricted shares under all plans discussed above for the nine months ended September 30, 2020:


	Number of Restricted Shares (in thousands)	Weighted Average Grant-Date Fair Value per Share
Nonvested at December 31, 2019	3,728	$	68.87
Granted	1,464	93.18
Vested	(1,986)	64.94
Forfeited	(83)	77.04
Nonvested at September 30, 2020	3,123	82.55

Performance-based restricted shares have been presented in the table above to reflect the actual shares issued based on the achievement of past performance targets, also considering the impact of any market conditions. Nonvested performance-based restricted shares granted are presented in the table above at the target number of restricted shares that would vest if the performance targets are met.


	Nine Months Ended September 30,
	2020		2019
Time-based restricted stock units granted (in thousands) (1)	891		975
Total fair value of restricted stock vested under all restricted stock plans (in millions)	$	180	$	166

(1) The remaining shares granted are performance-based.

As of September 30, 2020, there were $143 million in total unrecognized compensation costs related to time-based and performance-based restricted stock. These costs are expected to be recognized over a weighted-average period of 1.5 years as the restricted stock vests. These unrecognized compensation costs assume that a target performance level will be met on the performance-based restricted shares granted in February 2020.

Bakkt Incentive Units

We sponsor the Bakkt Equity Incentive Plan under which Bakkt issues various Bakkt preferred, common and phantom, or participation, equity unit awards. These awards were made to certain employees and board members of Bakkt. The units are unvested at the issuance date, are subject to the vesting terms in the award agreements and upon vesting are converted into Bakkt equity or cash. During the nine months ended September 30, 2020, we issued additional preferred, common and participation unit awards as well as converted certain existing participation unit awards into common unit awards.

During the nine months ended September 30, 2020, the $300 million capital call related to the acquisition of Bridge2 Solutions triggered a market condition of certain of these Bakkt equity incentive awards. The market condition is based on numerous possible Bakkt transaction or event scenarios established on the original date of grant, each of which have a fixed fair market value. Over the life of these awards, we are required to estimate the most likely outcome and reflect the cumulative financial statement impact of any changes between outcomes. As a result, during the nine months ended September 30, 2020, we incurred a $10 million compensation expense related to these awards that has been recorded as an acquisition-related cost.

10. Equity

Stock Repurchase Program

In December 2019, our Board approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2020. The $2.4 billion replaced the previous amount approved by the Board. During the nine months ended September 30, 2020, we repurchased 10.4 million shares of our outstanding common stock at a cost of $948 million under our Rule 10b5-1 trading plan and 3.2 million shares at a cost of $299 million on the open market during an open trading period. As of September 30, 2020, up to $1.2 billion capacity remains from the Board authorization for repurchases of our common stock. We fund repurchases from our operating cash flow or borrowings under our debt facilities or our Commercial Paper Program. Repurchases may be made from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with all applicable securities laws, rules and regulations. We may discontinue stock repurchases at any time and may amend or terminate a Rule 10b5-1 trading plan at any time or enter into additional plans. Prior to early August 2020, we had a Rule 10b5-1 trading plan that governed some of the repurchases of our shares of common stock, but in connection with the Ellie Mae acquisition, we discontinued stock repurchases and terminated our Rule 10b5-1 trading plan. The approval of our Board for the share repurchases does not obligate us to acquire any particular amount of our common stock. In addition, our Board may increase or decrease the amount available for repurchases from time to time.

Dividends

During the nine months ended September 30, 2020 and 2019, we declared and paid cash dividends per share of $0.90 and $0.825, respectively, for an aggregate payout of $500 million and $467 million, respectively. During the three months ended September 30, 2020 and 2019, we declared and paid cash dividends per share of $0.30 and $0.275, respectively, for an aggregate payout of $170 million and $155 million, respectively. The declaration of dividends is subject to the discretion of our Board, and may be affected by various factors, including our future earnings, financial condition, capital requirements, levels of indebtedness, credit ratings, our current and future planned strategic growth initiatives and other considerations that our Board deem relevant. Our Board has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the Board or the Audit Committee, taking into account such factors as our evolving business model, prevailing business conditions and our financial results and capital requirements, without a predetermined annual net income payout ratio.

Accumulated Other Comprehensive Income (Loss)

The following tables present changes in the accumulated balances for each component of other comprehensive income (loss) (in millions):


	Changes in Accumulated Other Comprehensive Income (Loss) by Component
	Foreign currency translation adjustments		Comprehensive income from equity method investment		Employee benefit plans adjustments		Total















Balance, as of December 31, 2019	$	(177)	$	1	$	(67)	$	(243)
Other comprehensive income (loss)	(29)		—		—		(29)
Income tax benefit (expense)	(1)		—		—		(1)
Net current period other comprehensive income (loss)	(30)		—		—		(30)
Balance, as of September 30, 2020	$	(207)	$	1	$	(67)	$	(273)


	Changes in Accumulated Other Comprehensive Income (Loss) by Component
	Foreign currency translation adjustments		Comprehensive income from equity method investment		Employee benefit plans adjustments		Total















Balance, as of June 30, 2020	$	(255)	$	1	$	(67)	$	(321)
Other comprehensive income (loss)	49		—		—		49
Income tax benefit (expense)	(1)		—		—		(1)
Net current period other comprehensive income (loss)	48		—		—		48
Balance, as of September 30, 2020	$	(207)	$	1	$	(67)	$	(273)


	Changes in Accumulated Other Comprehensive Income (Loss) by Component
	Foreign currency translation adjustments		Comprehensive income from equity method investment		Employee benefit plans adjustments		Total















Balance, as of December 31, 2018	$	(227)	$	2	$	(90)	$	(315)
Other comprehensive income (loss)	(33)		(1)		—		(34)
Income tax benefit (expense)	1		—		—		1
Net current period other comprehensive income (loss)	(32)		(1)		—		(33)
Balance, as of September 30, 2019	$	(259)	$	1	$	(90)	$	(348)


	Changes in Accumulated Other Comprehensive Income (Loss) by Component
	Foreign currency translation adjustments		Comprehensive income from equity method investment		Employee benefit plans adjustments		Total















Balance, as of June 30, 2019	$	(220)	$	1	$	(90)	$	(309)
Other comprehensive income (loss)	(40)		—		—		(40)
Income tax benefit (expense)	1		—		—		1
Net current period other comprehensive income (loss)	(39)		—		—		(39)
Balance, as of September 30, 2019	$	(259)	$	1	$	(90)	$	(348)

11.Income Taxes

Our effective tax rate was 24% and 20% for the nine months ended September 30, 2020 and 2019, respectively, and 32% and 16% for the three months ended September 30, 2020 and 2019, respectively. The effective tax rates for the nine and three months ended September 30, 2020 are higher than the effective tax rates for the comparable periods in 2019 primarily due to U.K. tax law changes enacted in July 2020, partially offset by favorable state apportionment changes as a result of our acquisition of Ellie Mae, as well as favorable changes in certain international tax provisions as part of the U.S. Federal Tax Cuts and Jobs Act, or TCJA, during the three months ended September 30, 2019.

In 2015 and 2016, the U.K. enacted corporate income tax rate reductions from 19% to 17% to be effective prospectively on April 1, 2020 and we recorded associated deferred tax benefits in those years. In July 2020, the U.K. enacted a reinstatement of the U.K. corporate income tax rate back to 19%, effective April 1, 2020. As a result, we revalued our U.K. deferred tax assets and liabilities back to the rate of 19% and recorded an additional $65 million deferred tax expense during the three months ended September 30, 2020. We also reflected the rate change in our estimated annual effective tax rate during the three months ended September 30, 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted and certain income tax related relief was provided under the CARES Act. There is no material impact of the CARES Act on our income tax provision for the nine and three months ended September 30, 2020.

12.Clearing Operations

We operate six clearing houses, each of which acts as a central counterparty that becomes the buyer to every seller and the seller to every buyer for its clearing members or participants, or Members. Through this central counterparty function, the clearing houses provide financial security for each transaction for the duration of the position by limiting counterparty credit risk.

Our clearing houses are responsible for providing clearing services to each of our futures exchanges, and in some cases to third-party execution venues, and are as follows, referred to herein collectively as "the ICE Clearing Houses":

Clearing House

Products Cleared

Exchange where Executed

Location

ICE Clear Europe

Energy, agricultural, interest rates and equity index futures and options contracts and OTC European CDS instruments

ICE Futures Europe, ICE Futures U.S., ICE Endex and third-party venues

U.K.

ICE Clear U.S.

Agricultural, metals, and FX index futures and options contracts, equity futures contracts, and digital assets futures contracts

ICE Futures U.S.

U.S.

ICE Clear Credit

OTC North American, European, Asian-Pacific and Emerging Market CDS instruments

Creditex and third-party venues

U.S.

ICE Clear Netherlands

Derivatives on equities and equity indices traded on regulated markets

ICE Endex

The Netherlands

ICE Clear Singapore

Energy, metals and financial futures products and digital assets futures contracts

ICE Futures Singapore

Singapore

ICE NGX

Physical North American natural gas, electricity and oil futures

ICE NGX

Canada

Original & Variation Margin

Each of the ICE Clearing Houses generally requires all Members to deposit collateral in cash or certain pledged assets. The collateral deposits are known as “original margin.” In addition, the ICE Clearing Houses may make intraday original margin calls in circumstances where market conditions require additional protection. The daily profits and losses to and from the ICE Clearing Houses due to the marking-to-market of open contracts is known as “variation margin.” With the exception of ICE NGX’s physical natural gas and physical power products discussed separately below, the ICE Clearing Houses mark all outstanding contracts to market, and therefore pay and collect variation margin, at least once daily.

The amounts that Members are required to maintain are determined by proprietary risk models established by each ICE Clearing House and reviewed by the relevant regulators, independent model validators, risk committees and the boards of directors of the respective ICE Clearing House. The amounts required may fluctuate over time. Each of the ICE Clearing Houses is a separate legal entity and is not subject to the liabilities of the others, or the obligations of Members of the other ICE Clearing Houses.

Should a particular Member fail to deposit its original margin or fail to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge the defaulting Member's open positions and use their original margin and guaranty fund deposits to pay any amount owed. In the event that the defaulting Member's deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses will first use their respective contributions to the guaranty fund, often referred to as Skin In The Game, or SITG, to pay any remaining amount owed. In the event that the SITG is not sufficient, the ICE Clearing Houses may utilize the respective guaranty fund deposits, or collect limited additional funds from their respective non-defaulting Members on a pro-rata basis, to pay any remaining amount owed.

As of September 30, 2020 and December 31, 2019, the ICE Clearing Houses had received or had been pledged $162.1 billion and $126.0 billion, respectively, in cash and non-cash collateral in original margin and guaranty fund deposits to cover price movements of underlying contracts for both periods.

Guaranty Funds & ICE Contribution

As described above, mechanisms have been created, called guaranty funds, to provide partial protection in the event of a Member default. With the exception of ICE NGX, each of the ICE Clearing Houses requires that each Member make deposits into a guaranty fund.

In addition, we have contributed our own capital that could be used if a defaulting Member’s original margin and guaranty fund deposits are insufficient. Such amounts are recorded as long-term restricted cash and cash equivalents in our balance sheets and are as follows (in millions):


	ICE Portion of Guaranty Fund Contribution		Default insurance
Clearing House	As of September 30, 2020	As of December 31, 2019	As of September 30, 2020	As of December 31, 2019
ICE Clear Europe	$237	$233	$75	$75
ICE Clear U.S.	103	103	25	25
ICE Clear Credit	50	50	50	50
ICE Clear Netherlands	2	2	N/A	N/A
ICE Clear Singapore	1	1	N/A	N/A
ICE NGX	15	15	100	100
Total	$408	$404	$250	$250

Of our total contribution to ICE Clear U.S. above, $35 million is solely applicable to any losses associated with a default in Bitcoin contracts and other digital asset contracts that ICE Clear U.S. may clear in the future. In April 2020, we increased our contribution to ICE Clear Europe’s guaranty fund by $4 million.

In September 2019, we added a layer of insurance to our Member default protection. The default insurance has a three-year term for the following clearing houses in the following amounts: ICE Clear Europe - $75 million; ICE Clear U.S. - $25 million and ICE Clear Credit - $50 million. The default insurance layer resides after and in addition to the ICE Clear Europe, ICE Clear U.S. and ICE Clear Credit SITG contributions and before the guaranty fund contributions of the non-defaulting Members.

ICE

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