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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 June 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 July 15, 2020 was as follows: 358,623,764 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.
1

 CME GROUP INC.
FORM 10-Q
INDEX
    Page
3
Item 1.
5
5
6
7
8
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.
2

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;
3

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.
4

ITEM 1. FINANCIAL STATEMENTS
CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except par value data; shares in thousands)
June 30, 2020 December 31, 2019
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,405.4    $ 1,551.4   
Marketable securities 88.1    83.2   
Accounts receivable, net of allowance of $5.2 and $3.4 532.1    491.8   
Other current assets (includes $4.4 and $4.3 in restricted cash) 319.2    364.4   
Performance bonds and guaranty fund contributions 79,441.4    37,077.0   
Total current assets 81,786.2    39,567.8   
Property, net of accumulated depreciation and amortization of $894.4 and $867.5 538.6    544.0   
Intangible assets—trading products 17,175.3    17,175.3   
Intangible assets—other, net 4,931.7    5,117.7   
Goodwill 10,742.5    10,742.5   
Other assets (includes $0.7 and $0.9 in restricted cash) 2,040.5    2,068.0   
Total Assets $ 117,214.8    $ 75,215.3   
Liabilities and Equity
Current Liabilities:
Accounts payable $ 88.0    $ 61.9   
Other current liabilities 672.5    1,384.8   
Performance bonds and guaranty fund contributions 79,440.9    37,075.8   
Total current liabilities 80,201.4    38,522.5   
Long-term debt 3,440.9    3,743.2   
Deferred income tax liabilities, net 5,607.3    5,635.2   
Other liabilities 1,126.3    1,155.1   
Total Liabilities 90,375.9    49,056.0   
Shareholders’ Equity:
Preferred stock, $0.01 par value, 10,000 shares authorized at June 30, 2020 and December 31, 2019; none issued —    —   
Class A common stock, $0.01 par value, 1,000,000 shares authorized at June 30, 2020 and December 31, 2019; 357,727 and 357,469 shares issued and outstanding as of June 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 June 30, 2020 and December 31, 2019 —    —   
Additional paid-in capital 21,148.9    21,113.2   
Retained earnings 5,668.5    5,008.7   
Accumulated other comprehensive income (loss) (13.1)   3.4   
Total CME Group Shareholders’ Equity 26,807.9    26,128.9   
Non-controlling interests 31.0    30.4   
Total Equity 26,838.9    26,159.3   
Total Liabilities and Equity $ 117,214.8    $ 75,215.3   
See accompanying notes to unaudited consolidated financial statements.
5

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
Quarter Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Revenues
Clearing and transaction fees $ 940.2    $ 1,051.8    $ 2,219.0    $ 2,004.4   
Market data and information services 134.7    128.3    266.2    258.4   
Other 107.4    92.6    219.2    189.5   
Total Revenues 1,182.3    1,272.7    2,704.4    2,452.3   
Expenses
Compensation and benefits 217.0    227.3    424.5    457.6   
Technology 49.1    48.6    96.8    95.7   
Professional fees and outside services 51.2    41.7    92.9    81.1   
Amortization of purchased intangibles 76.6    76.1    153.9    156.8   
Depreciation and amortization 36.7    46.3    72.0    79.2   
Licensing and other fee agreements 55.4    44.8    129.3    85.3   
Other 58.8    89.3    137.6    167.0   
Total Expenses 544.8    574.1    1,107.0    1,122.7   
Operating Income 637.5    698.6    1,597.4    1,329.6   
Non-Operating Income (Expense)
Investment income 32.1    139.3    128.0    318.0   
Interest and other borrowing costs (41.9)   (45.1)   (82.8)   (93.2)  
Equity in net earnings of unconsolidated subsidiaries 48.8    43.8    100.0    84.3   
Other non-operating income (expense) (15.2)   (134.5)   (92.0)   (296.4)  
Total Non-Operating Income (Expense) 23.8    3.5    53.2    12.7   
Income before Income Taxes 661.3    702.1    1,650.6    1,342.3   
Income tax provision 158.0    187.5    380.5    331.8   
Net Income 503.3    514.6    1,270.1    1,010.5   
Less: net (income) loss attributable to non-controlling interests —    (0.8)   (0.6)   0.2   
Net Income Attributable to CME Group $ 503.3    $ 513.8    $ 1,269.5    $ 1,010.7   
Earnings per Common Share Attributable to CME Group:
Basic $ 1.41    $ 1.44    $ 3.55    $ 2.83   
Diluted 1.40    1.43    3.54    2.82   
Weighted Average Number of Common Shares:
Basic 357,691    357,060    357,607    356,973   
Diluted 358,457    358,155    358,453    358,103   
See accompanying notes to unaudited consolidated financial statements.
6

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net income $ 503.3    $ 514.6    $ 1,270.1    $ 1,010.5   
Other comprehensive income (loss), net of tax:
Investment securities:
Net unrealized holding gains (losses) arising during the period 1.4    0.9    0.8    1.7   
Reclassification of net (gains) losses on sales included in investment income —    (0.1)   —    (0.1)  
Income tax benefit (expense) (0.4)   (0.2)   (0.2)   (0.4)  
Investment securities, net 1.0    0.6    0.6    1.2   
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 1.1    1.2    2.3    2.4   
Income tax benefit (expense) (0.3)   (0.3)   (0.1)   0.1   
Defined benefit plans, net 0.8    0.9    0.2    (0.2)  
Derivative investments:
Net unrealized holding gains (losses) arising during the period —    (0.5)   —    (0.2)  
Reclassification of net unrealized (gains) losses to interest expense and other non-operating income (expense) (0.3)   (0.3)   (2.1)   (0.6)  
Income tax benefit (expense) —    0.1    0.4    0.1   
Derivative investments, net (0.3)   (0.7)   (1.7)   (0.7)  
Foreign currency translation:
Foreign currency translation adjustments 11.6    1.0    (16.2)   (3.0)  
Reclassification of net currency (gains) losses from foreign entities to other expenses —    —    0.6    —   
Income tax benefit (expense) —    3.0    —    3.0   
Foreign currency translation, net 11.6    4.0    (15.6)   —   
Other comprehensive income (loss), net of tax 13.1    4.8    (16.5)   0.3   
Comprehensive income 516.4    519.4    1,253.6    1,010.8   
Less: comprehensive (income) loss attributable to non-controlling interests —    (0.8)   (0.6)   0.2   
Comprehensive income attributable to CME Group $ 516.4    $ 518.6    $ 1,253.0    $ 1,011.0   
See accompanying notes to unaudited consolidated financial statements.
7

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in millions, except per share data; shares in thousands)
(unaudited) 
Six Months Ended, June 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      $ 21,116.8    $ 5,008.7    $ 3.4    $ 26,128.9    $ 30.4    $ 26,159.3   
Net income 1,269.5    1,269.5    0.6    1,270.1   
Other comprehensive income (loss) (16.5)   (16.5)   —    (16.5)  
Dividends on common stock of $1.70 per share (609.4)   (609.4)   (609.4)  
Impact of adoption of accounting standards updates on credit losses (0.3)   (0.3)   (0.3)  
Exercise of stock options 66    3.8    3.8    3.8   
Vesting of issued restricted Class A common stock 158    (19.4)   (19.4)   (19.4)  
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 45.5    45.5    45.5   
Balance at June 30, 2020 357,727      $ 21,152.5    $ 5,668.5    $ (13.1)   $ 26,807.9    $ 31.0    $ 26,838.9   














8

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(dollars in millions, except per share data; shares in thousands)
(unaudited)
Quarter Ended, June 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 March 31, 2020 357,677      $ 21,124.0    $ 5,469.9    $ (26.2)   $ 26,567.7    $ 31.0    $ 26,598.7   
Net income 503.3    503.3    —    503.3   
Other comprehensive income (loss) 13.1    13.1    —    13.1   
Dividends on common stock of $0.85 per share (304.7)   (304.7)   (304.7)  
Exercise of stock options 11    0.6    0.6    0.6   
Vesting of issued restricted Class A common stock   (0.3)   (0.3)   (0.3)  
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 22.4    22.4    22.4   
Balance at June 30, 2020 357,727      $ 21,152.5    $ 5,668.5    $ (13.1)   $ 26,807.9    $ 31.0    $ 26,838.9   
See accompanying notes to unaudited consolidated financial statements.


























9

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
Six Months Ended, June 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      $ 21,057.9    $ 4,855.3    $ 5.3    $ 25,918.5    $ 46.8    $ 25,965.3   
Net income 1,010.7    1,010.7    (0.2)   1,010.5   
Other comprehensive income (loss) 0.3    0.3    0.3   
Dividends on common stock of $1.50 per share (536.1)   (536.1)   (536.1)  
Impact of adoption of standards updates on leasing 6.9    6.9    6.9   
Changes in non-controlling interest due to measurement period —    (16.9)   (16.9)  
Exercise of stock options 162    7.0    7.0    7.0   
Vesting of issued restricted Class A common stock 128    (14.1)   (14.1)   (14.1)  
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 56.4    56.4    56.4   
Balance at June 30, 2019 357,143      $ 21,112.8    $ 5,336.8    $ 5.6    $ 26,455.2    $ 29.7    $ 26,484.9   












10

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(dollars in millions, except per share data; shares in thousands)
(unaudited)
Quarter Ended, June 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 March 31, 2019 357,013      $ 21,065.7    $ 5,091.1    $ 0.8    $ 26,157.6    $ 28.9    $ 26,186.5   
Net income 513.8    513.8    0.8    514.6   
Other comprehensive income (loss) 4.8    4.8    4.8   
Dividends on common stock of $0.75 per share (268.1)   (268.1)   (268.1)  
Exercise of stock options 98    3.7    3.7    3.7   
Vesting of issued restricted Class A common stock   (0.3)   (0.3)   (0.3)  
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 38.1    38.1    38.1   
Balance at June 30, 2019 357,143      $ 21,112.8    $ 5,336.8    $ 5.6    $ 26,455.2    $ 29.7    $ 26,484.9   
See accompanying notes to unaudited consolidated financial statements.

11

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited) 
  Six Months Ended
June 30,
  2020 2019
Cash Flows from Operating Activities
Net income $ 1,270.1    $ 1,010.5   
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 45.5    56.4   
Amortization of purchased intangibles 153.9    156.8   
Depreciation and amortization 72.0    79.2   
Net losses on impaired assets 27.9    21.6   
Net (gain) loss on derivative contracts (1.6)   16.7   
Net realized and unrealized losses on investments 1.1    27.2   
Undistributed net earnings of unconsolidated subsidiaries (10.5)   (31.2)  
Deferred income taxes (22.1)   (13.1)  
Change in:
Accounts receivable (42.5)   (40.4)  
Other current assets 1.8    126.1   
Other assets 27.8    (13.4)  
Accounts payable 26.1    (64.3)  
Income taxes payable 294.0    (28.6)  
Other current liabilities (55.9)   (177.7)  
Other liabilities (49.1)   8.5   
Other 5.4    8.6   
Net Cash Provided by Operating Activities 1,743.9    1,142.9   
Cash Flows from Investing Activities
Proceeds from maturities of available-for-sale marketable securities 7.5    11.6   
Purchases of available-for-sale marketable securities (6.7)   (8.3)  
Purchases of property, net
(79.2)   (121.6)  
Investments in privately-held equity investments (1.4)   —   
Proceeds from sales of investments 0.3    28.4   
Net Cash Used in Investing Activities (79.5)   (89.9)  
Cash Flows from Financing Activities
Issuance of commercial paper, net of maturities (304.6)   239.5   
Repayment of debt —    (569.2)  
Cash dividends (1,501.6)   (1,159.9)  
Settlement of derivative contracts —    16.0   
Employee taxes paid on restricted stock vesting (19.4)   (14.1)  
Other 15.1    0.4   
Net Cash Used in Financing Activities (1,810.5)   (1,487.3)  




12

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in millions)
(unaudited) 
Six Months Ended
June 30,
2020 2019
Net change in cash, cash equivalents and restricted cash $ (146.1)   $ (434.3)  
Cash, cash equivalents and restricted cash, beginning of period 1,556.6    1,377.2   
Cash, Cash Equivalents and Restricted Cash, End of Period $ 1,410.5    $ 942.9   
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 1,405.4    $ 937.7   
Short-term restricted cash 4.4    4.1   
Long-term restricted cash 0.7    1.1   
Total $ 1,410.5    $ 942.9   
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 116.6    $ 373.9   
Interest paid 67.0    80.1   
Non-cash investing activities:
Accrued proceeds from sale of investments 12.5    —   
See accompanying notes to unaudited consolidated financial statements.
13

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 June 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 $5.2 million at June 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.
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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 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. 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.
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The following table represents a disaggregation of revenue from contracts with customers by product line for the quarters and six months ended June 30, 2020 and 2019:
  Quarter Ended
June 30,
Six Months Ended
June 30,
(in millions) 2020 2019 2020 2019
Interest rates $ 221.4    $ 347.4    $ 639.7    $ 650.2   
Equity indexes 201.3    148.1    449.5    294.0   
Foreign exchange 35.9    39.3    84.1    80.5   
Agricultural commodities 108.7    141.5    226.4    246.5   
Energy 194.0    179.3    415.8    344.3   
Metals 49.6    58.1    128.4    109.1   
Cash markets business 112.4    120.7    236.8    243.6   
Interest rate swap 16.9    17.4    38.3    36.2   
Total clearing and transaction fees 940.2    1,051.8    2,219.0    2,004.4   
Market data and information services 134.7    128.3    266.2    258.4   
Other 107.4    92.6    219.2    189.5   
Total revenues $ 1,182.3    $ 1,272.7    $ 2,704.4    $ 2,452.3   
Timing of Revenue Recognition
Services transferred at a point in time $ 881.3    $ 988.1    $ 2,092.5    $ 1,881.0   
Services transferred over time 298.8    281.9    606.3    559.6   
One-time charges and miscellaneous revenues 2.2    2.7    5.6    11.7   
Total revenues $ 1,182.3    $ 1,272.7    $ 2,704.4    $ 2,452.3   
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 six months ended June 30, 2020 were not materially impacted by any other factors. The balance of contract liabilities was $61.1 million and $42.6 million as of June 30, 2020 and December 31, 2019, respectively. 
4. Performance Bonds and Guaranty Fund Contributions
Performance Bonds and Guaranty Fund Contributions. At June 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 June 30, 2020, the amortized cost and fair value of the U.S. Treasury securities were both $3.5 billion. At June 30, 2020, the amortized cost and fair value of the U.S. government agency securities were both $0.3 billion.
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 June 30, 2020, CME maintained $52.9 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 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.
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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 six months of 2020, the clearing house transferred an average of approximately $5.9 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 June 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 June 30, 2020 and December 31, 2019:
 
  June 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 $ 5,766.8    $ (1,481.3)   $ 4,285.5    $ 5,797.1    $ (1,346.0)   $ 4,451.1   
Technology-related intellectual property 171.4    (56.1)   115.3    174.3    (46.6)   127.7   
Other 101.1    (20.2)   80.9    103.8    (14.9)   88.9   
Total amortizable intangible assets $ 6,039.3    $ (1,557.6)   4,481.7    $ 6,075.2    $ (1,407.5)   4,667.7   
Indefinite-Lived Intangible Assets:
Trade names 450.0    450.0   
Total intangible assets – other, net $ 4,931.7    $ 5,117.7   
Trading products (1)
$ 17,175.3    $ 17,175.3   
(1)Trading products represent futures and options products acquired in our business combinations with CBOT Holdings, Inc., NYMEX Holdings, Inc. and The Board of Trade of Kansas City, Missouri, Inc. Clearing and transaction fees are generated through the trading of these products. These trading products, most of which have traded for decades, require authorization from the Commodity Futures Trading Commission (CFTC). Product authorizations from the CFTC have no term limits.
Total amortization expense for intangible assets was $76.6 million and $76.1 million for the quarters ended June 30, 2020 and 2019, respectively. Total amortization expense for intangible assets was $153.9 million and $156.8 million for the six months ended June 30, 2020 and 2019, respectively.
As of June 30, 2020, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows:
(in millions)  Amortization Expense
Remainder of 2020 $ 154.9   
2021 309.7   
2022 309.4   
2023 308.0   
2024 301.3   
2025 301.1   
Thereafter 2,797.3   
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6. Debt
Long-term debt consisted of the following at June 30, 2020 and December 31, 2019: 
(in millions) June 30, 2020 December 31, 2019
$750.0 million fixed rate notes due September 2022, stated rate of 3.00% (1)
$ 748.1    $ 747.7   
€15.0 million fixed rate notes due May 2023, stated rate of 4.30% 16.5    16.4   
$750.0 million fixed rate notes due March 2025, stated rate of 3.00% (2)
746.7    746.3   
$500.0 million fixed rate notes due June 2028, stated rate of 3.75% 496.6    496.4   
$750.0 million fixed rate notes due September 2043, stated rate of 5.30% (3)
742.9    742.8   
$700.0 million fixed rate notes due June 2048, stated rate of 4.15% 690.1    689.8   
Commercial paper (4)
—    303.8   
Total long-term debt $ 3,440.9    $ 3,743.2   
(1)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.32%.
(2)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.11%.
(3)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 4.73%.
(4)The commercial paper is backed by the five-year multi-currency revolving credit facility.
Commercial paper with an aggregate par value of $1.3 billion and maturities ranging from 1 to 18 days was issued during the first six months of 2020. The weighted average balance of commercial paper outstanding during the first six months of 2020 was $93.4 million.
Long-term debt maturities, at par value (in U.S. dollar equivalent), were as follows at June 30, 2020:  
(in millions) Par Value
2021 $ —   
2022 750.0   
2023 16.9   
2024 —   
2025 750.0   
Thereafter 1,950.0   
Commercial paper is considered to mature in 2022 because it is backed by the five-year multi-currency revolving credit facility, which expires in 2022.
7. Contingencies
Legal and Regulatory Matters. In 2013, the CFTC filed suit against NYMEX and two former employees (the "NYMEX Defendants") alleging disclosure of confidential customer information in violation of the Commodity Exchange Act. On June 3, 2020, the parties informed the Court that the CFTC's Division of Enforcement and the NYMEX Defendants had reached an agreement in principle to resolve the matter, subject to final approval by the CFTC. On July 31, 2020, the parties informed the Court that the CFTC had approved the agreed-upon settlement and further requested that the court enter an order implementing the agreed-upon resolution. The company expects the court to enter the order shortly, which will not be material to the company.
In 2003, the U.S. Futures Exchange, L.L.C. (Eurex U.S.) and U.S. Exchange Holdings, Inc. filed suit in federal court alleging that CBOT and CME violated the antitrust laws and tortuously interfered with the business relationship and contract between Eurex U.S. and The Clearing Corporation. On October 31, 2018, the district court granted CBOT's and CME's motion for summary judgment and dismissed the case in its entirety. On March 23, 2020, the Seventh Circuit affirmed the decision of the district court.
In the normal course of business, the company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry and oversight. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not have a material impact on its consolidated financial position or results of operations. However, the company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters.
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In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty, the company believes that the resolution of any of these matters on an individual or aggregate basis will not have a material impact on its consolidated financial position or results of operations.
As of June 30, 2020, an accrual of $4.0 million was recognized for probable and estimable legal and regulatory issues. No accrual was required as of December 31, 2019.
Intellectual Property Indemnifications. Certain agreements with customers and other third parties related to accessing the CME Group platforms, utilizing market data services and licensing CME SPAN software may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable products and/or services. The potential future claims relating to these indemnifications cannot be estimated and therefore no liability has been recorded.
8. Leases
The company has operating leases for datacenters, corporate offices, and certain information technology equipment. The operating leases have remaining lease terms of up to 18 years, some of which include options to extend or renew the leases for up to an additional five years, and some of which include options to early terminate the leases in less than 12 months. Management evaluates the exercisability of these options at least quarterly in order to determine whether the contract term must be reassessed. For a small number of the leases, primarily the international locations, management's approach is to enter into short-term leases for a lease term of 12 months or less in order to provide for greater flexibility in the local environment. For certain office spaces, the company has entered into arrangements to sublease excess space to third parties, while the original lease contract remains in effect with the landlord.
The company also has one finance lease, which is related to the sale of our datacenter in March 2016. In connection with the sale, the company leased back a portion of the property. The sale leaseback transaction was recognized under the financing method and not as a sale leaseback arrangement.
The right-of-use lease asset is recorded within other assets, and the present value of the lease liability is recorded within other liabilities (segregated between short term and long term) on the consolidated balance sheets. The discount rate applied to the lease payments represents the company's incremental borrowing rate.
The components of lease costs were as follows:
Quarter Ended
June 30,
Six Months Ended
June 30,
(in millions) 2020 2019 2020 2019
Operating lease expense:
Operating lease cost $ 16.4    $ 18.9    $ 31.3    $ 37.3   
Short-term lease cost 0.5    1.5    0.7    4.9   
Total operating lease expense included in other expense $ 16.9    $ 20.4    $ 32.0    $ 42.2   
Finance lease expense:
Interest expense $ 0.8    $ 0.9    $ 1.7    $ 1.8   
Depreciation expense 2.1    2.4    4.3    4.6   
Total finance lease expense $ 2.9    $ 3.3    $ 6.0    $ 6.4   
Sublease revenue included in other revenue $ 3.1    $ 1.7    $ 6.7    $ 5.3   
Supplemental cash flow information related to leases was as follows:
Quarter Ended
June 30,
Six Months Ended
June 30,
(in millions) 2020 2019 2020 2019
Cash outflows for operating leases $ 15.7    $ 16.9    $ 31.6    $ 32.1   
Cash outflows for finance leases 4.2    4.8    8.4    9.0   

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Supplemental balance sheet information related to leases was as follows:
Operating leases
(in millions) June 30, 2020 December 31, 2019
Operating lease right-of-use assets $ 396.7    $ 417.1   
Operating lease liabilities:
Other current liabilities $ 40.5    $ 42.3   
Other liabilities 486.8    514.8   
Total operating lease liabilities $ 527.3    $ 557.1   
Weighted average remaining lease term (in months) 143 146
Weighted average discount rate 4.0  % 4.0  %
Finance leases
(in millions) June 30, 2020 December 31, 2019
Finance lease right-of-use assets $ 93.2    $ 97.5   
Finance lease liabilities:
Other current liabilities $ 7.5    $ 7.4   
Other liabilities 87.7    91.5   
Total finance lease liabilities $ 95.2    $ 98.9   
Weighted average remaining lease term (in months) 129 135
Weighted average discount rate 3.5  % 3.5  %
Future minimum lease payments were as follows as of June 30, 2020 for operating and finance leases: