Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
CBOE Holdings, Inc. and Subsidiaries:
Reports of Independent Registered Public Accounting Firm	55
Consolidated Balance Sheets as of December 31, 2015 and 2014	57
Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and 2013	58
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013	59
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013	60
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2015, 2014 and 2013	61
Notes to Consolidated Financial Statements	62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

CBOE Holdings, Inc. and Subsidiaries

Chicago, Illinois

We have audited the accompanying consolidated balance sheets of CBOE Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CBOE Holdings, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 19, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

CBOE Holdings, Inc. and Subsidiaries

Chicago, Illinois

We have audited the internal control over financial reporting of CBOE Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015 of the Company and our report dated February 19, 2016 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 19, 2016

CBOE Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2015 and December 31, 2014

(in thousands, except share amounts)	December 31, 2015				December 31, 2014
Assets
Current Assets:
Cash and cash equivalents	$	102,253			$	147,927
Accounts receivable—net allowances of 2015 - $150 and 2014 - $285	62,535				58,386
Marketing fee receivable	5,682				10,697
Income taxes receivable	27,901				21,503
Other prepaid expenses	5,122				4,622
Other current assets	625				972
Total Current Assets	204,118				244,107
Investments	48,430				12,351
Land	4,914				4,914
Property and Equipment:
Construction in progress	885				—
Building	70,531				68,019
Furniture and equipment	144,597				286,723
Less accumulated depreciation and amortization	(155,653		)		(287,886		)
Total Property and Equipment—Net	60,360				66,856
Goodwill	7,655				—
Other Assets:
Intangible assets (less accumulated amortization --2015 - $182 and 2014 - $0)	2,378				—
Software development work in progress	13,836				7,817
Data processing software and other assets (less accumulated amortization of 2015 - $164,152; 2014 - $163,486)	43,097				47,856
Total Other Assets—Net	59,311				55,673
Total	$	384,788			$	383,901
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses	$	60,104			$	58,566
Marketing fee payable	6,141				11,236
Contingent consideration - current	2,000				—
Deferred revenue and other liabilities	4,019				1,988
Post-retirement benefit obligation - current	100				101
Income taxes payable	1,633				1,774
Total Current Liabilities	73,997				73,665
Long-term Liabilities:
Post-retirement benefit obligation - long-term	1,896				1,612
Contingent consideration - long-term	1,379				—
Income taxes liability	39,679				40,683
Other long-term liabilities	2,883				4,197
Deferred income taxes	5,309				13,677
Total Long-term Liabilities	51,146				60,169
Commitments and Contingencies
Total Liabilities	125,143				133,834
Stockholders' Equity:
Preferred stock, $0.01 par value: 20,000,000 shares authorized, no shares issued and outstanding at December 31, 2015 or 2014	—				—
Common stock, $0.01 par value: 325,000,000 shares authorized; 92,738,803 issued and 82,088,549 outstanding at December 31, 2015; 92,569,189 issued and 84,114,475 outstanding at December 31, 2014	927				926
Additional paid-in-capital	123,577				110,112
Retained earnings	603,597				472,005
Treasury stock at cost – 10,650,254 shares at December 31, 2015 and 8,454,714 shares at December 31, 2014	(467,632		)		(332,287		)
Accumulated other comprehensive loss	(824		)		(689		)
Total Stockholders' Equity	259,645				250,067
Total	$	384,788			$	383,901

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2015, 2014 and 2013

	Year Ended				Year Ended				Year Ended
(in thousands, except per share amounts)	December 31, 2015				December 31, 2014				December 31, 2013
Operating Revenues:
Transaction fees	$	456,016			$	437,764			$	397,218
Access fees	53,295				59,332				61,022
Exchange services and other fees	42,209				38,042				37,250
Market data fees	30,034				30,447				24,911
Regulatory fees	33,489				37,083				36,631
Other revenue	19,502				14,557				15,018
Total Operating Revenues	634,545				617,225				572,050
Operating Expenses:
Compensation and benefits	105,925				121,734				118,083
Depreciation and amortization	46,274				39,913				34,488
Technology support services	20,662				19,189				17,898
Professional fees and outside services	50,060				31,976				34,473
Royalty fees	70,574				66,110				56,576
Order routing	2,293				4,080				4,355
Travel and promotional expenses	8,982				9,046				9,806
Facilities costs	4,998				5,721				5,053
Other expenses	4,849				5,655				5,504
Total Operating Expenses	314,617				303,424				286,236
Operating Income	319,928				313,801				285,814
Other Income/(Expense):
Investment income	3,692				113				63
Net income/(loss) from investments	447				(4,217		)		(2,221		)
Interest and other borrowing costs	(43		)		—				—
Total Other Income/(Expense)	4,096				(4,104		)		(2,158		)
Income Before Income Taxes	324,024				309,697				283,656
Income tax provision	119,001				119,983				107,657
Net Income	205,023				189,714				175,999
Net Income allocated to participating securities	(898		)		(1,322		)		(2,136		)
Net Income Allocated to Common Stockholders	$	204,125			$	188,392			$	173,863
Net Income Per Share Allocated to Common Stockholders:
Basic	$	2.46			$	2.21			$	1.99
Diluted	2.46				2.21				1.99
Weighted average shares used in computing income per share:
Basic	83,081				85,406				87,331
Diluted	83,081				85,406				87,331

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2015, 2014 and 2013

	Year Ended				Year Ended				Year Ended
(in thousands)	December 31, 2015				December 31, 2014				December 31, 2013
Net Income	$	205,023			$	189,714			$	175,999
Comprehensive Income (Loss) - net of tax:
Post retirement benefit obligation	(135		)		361				(157		)
Comprehensive Income	204,888				190,075				175,842
Comprehensive Income allocated to participating securities	(898		)		(1,322		)		(2,136		)
Comprehensive Income allocated to common stockholders	$	203,990			$	188,753			$	173,706

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2015, 2014 and 2013

	Year Ended				Year Ended				Year Ended
(in thousands)	December 31, 2015				December 31, 2014				December 31, 2013
Cash Flows from Operating Activities:
Net Income	$	205,023			$	189,714			$	175,999
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	46,274				39,913				34,488
Other amortization	81				87				114
Provision for deferred income taxes	(8,282		)		(290		)		(7,145		)
Stock-based compensation	12,181				15,577				20,823
Equity (gain)/loss in investments	(811		)		1,217				1,976
Impairment of investment and other assets	118				3,000				245
Loss on disposition of property	617				662				3
Changes in assets and liabilities:
Accounts receivable	(4,847		)		(8,498		)		(4,222		)
Marketing fee receivable	5,015				(1,828		)		(3,653		)
Income taxes receivable	(6,398		)		536				(10,321		)
Prepaid expenses	(500		)		(615		)		139
Other current assets	799				1,745				(2,151		)
Accounts payable and accrued expenses	1,550				5,888				5,516
Marketing fee payable	(5,095		)		1,794				3,634
Income tax payable	(141		)		1,774				—
Deferred revenue and other liabilities	717				1,229				(75		)
Post-retirement benefit obligations	(19		)		(28		)		(36		)
Income tax liability	(1,004		)		10,780				9,046
Net Cash Flows Provided by Operating Activities	245,278				262,657				224,380
Cash Flows from Investing Activities:
Capital and other assets expenditures	(39,340		)		(50,154		)		(28,673		)
Acquisition of a business	(2,960		)		—				—
Investments	(35,386		)		(1,987		)		(1,920		)
Investment in IPXI Holdings, LLC	—				—				(612		)
Other	(1,735		)		3				8
Net Cash Flows Used in Investing Activities	(79,421		)		(52,138		)		(31,197		)
Cash Flows from Financing Activities:
Payment of quarterly dividends	(73,431		)		(66,999		)		(58,369		)
Payment of special dividend	—				(43,831		)		—
Excess tax benefit from stock-based compensation	1,285				3,557				2,356
Purchase of common stock from employees	(3,178		)		(8,332		)		(6,136		)
Payment of outstanding debt in conjunction with acquisition of a business	(4,040		)		—				—
Purchase of common stock under announced program	(132,167		)		(168,328		)		(45,290		)
Net Cash Flows Used in Financing Activities	(211,531		)		(283,933		)		(107,439		)
Net Increase/(Decrease) in Cash and Cash Equivalents	(45,674		)		(73,414		)		85,744
Cash and Cash Equivalents at Beginning of Period	147,927				221,341				135,597
Cash and Cash Equivalents at End of Period	$	102,253			$	147,927			$	221,341
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	133,460			$	103,976			$	113,741
Non-cash activities:
Change in post-retirement benefit obligation	220				(583		)		255
Unpaid liability - dividends payable	—				—				43,831
Unpaid liability to acquire equipment and software	2,756				2,769				3,048
Contingent consideration - current	2,000				—				—
Contingent consideration - long-term	1,379				—				—

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2015, 2014 and 2013

(in thousands)	Preferred Stock				Common Stock				Additional Paid-In Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
Balance—January 1, 2013	$	—			$	913			$	67,812			$	275,491			$	(104,201	)		$	(893	)		$	239,122
Cash dividends on common stock													(102,200		)										(102,200		)
Stock-based compensation									20,823																20,823
Issuance of vested restricted stock granted to employees					6				(6		)														—
Excess tax benefits from stock-based compensation plan									2,356																2,356
Purchase of common stock																	(51,426		)						(51,426		)
Net income													175,999												175,999
Post-retirement benefit obligation adjustment—net of tax benefit of $99																					(157		)		(157		)
Balance-December 31, 2013	—				919				90,985				349,290				(155,627		)		(1,050		)		284,517
Cash dividends on common stock													(66,999		)										(66,999		)
Stock-based compensation									15,577																15,577
Issuance of vested restricted stock granted to employees					7				(7		)														—
Excess tax benefits from stock-based compensation plan									3,557																3,557
Purchase of common stock																	(176,660		)						(176,660		)
Net income													189,714												189,714
Post-retirement benefit obligation adjustment—net of tax expense of $222																					361				361
Balance-December 31, 2014	—				926				110,112				472,005				(332,287		)		(689		)		250,067
Cash dividends on common stock													(73,431		)										(73,431		)
Stock-based compensation									12,181																12,181
Issuance of vested restricted stock granted to employees					1				(1		)														—
Excess tax benefits from stock-based compensation plan									1,285																1,285
Purchase of common stock																	(135,345		)						(135,345		)
Net income													205,023												205,023
Post-retirement benefit obligation adjustment—net of tax benefit of $86																					(135		)		(135		)
Balance-December 31, 2015	$	—			$	927			$	123,577			$	603,597			$	(467,632	)		$	(824	)		$	259,645

See notes to consolidated financial statements.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015, 2014 and 2013

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business—CBOE Holdings, Inc. ("CBOE Holdings" or the "Company") is the holding company of registered securities exchanges, subject to oversight by the Securities and Exchange Commission ("SEC"), and a designated contract market under the jurisdiction of the Commodity Futures Trading Commission ("CFTC"). The Company's principal business is operating markets that offer for trading exclusive options on various market indexes (index options) and futures contracts, as well as on non-exclusive "multiply-listed" options, such as options on the stocks of individual corporations (equity options) and options on other exchange-traded products (ETP options), such as exchange-traded funds (ETF options) and exchange-traded notes (ETN options), and certain other index options.

Basis of Presentation—The consolidated financial statements include the accounts and results of operations of CBOE Holdings and its wholly-owned subsidiaries, including: Chicago Board Options Exchange, Incorporated ("CBOE"), CBOE Futures Exchange, LLC ("CFE"), C2 Options Exchange, Incorporated ("C2"), Market Data Express, LLC and Chicago Options Exchange Building Corporation. Inter-company balances and transactions have been eliminated in consolidation. The Company reports the results of its operations in one reporting segment.

Effective January 1, 2015, we updated certain line item descriptions on our Consolidated Statement of Income. The table below highlights the changes:

Prior description	Current description
Employee costs	Compensation and benefits
Data processing	Technology support services
Outside services	Professional fees and outside services
Trading volume incentives	Order routing

Fixed Asset Retirements

In the third quarter of 2015, we completed a review of fixed assets, which resulted in the retirement of furniture and equipment and data processing software that were no longer in use and had a net book value of zero. The retired furniture and equipment and data processing software had a gross cost and accumulated depreciation of $144.3 million and $19.5 million, respectively.

Common Stock

As of December 16, 2015, we amended and restated our Amended and Restated Certificate of Incorporation to, among other items, change the name of our unrestricted common stock to common stock and remove obsolete provisions related to the designations, rights and preferences of Class A-1 and Class A-2 common stock.

With the exception of the line item descriptions, fixed asset retirements and common stock, there have been no other material changes in the manner or basis for presenting the items.

Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and reported amounts of revenues and expenses. On an ongoing basis, management evaluates its estimates based upon historical experience, observance of trends, information available from outside sources and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

Cash and Cash Equivalents—Cash and cash equivalents include highly liquid investments with maturities of three months or less from the date of purchase. The Company places its cash and cash equivalents with highly-rated financial institutions, limits the amount of credit exposure with any one financial institution and conducts ongoing evaluations of the

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

creditworthiness of the financial institutions with which it does business; therefore concentrations of credit risk are limited. There are no redemption restrictions on the Company's invested cash balances.

Accounts Receivable—Accounts receivable consists primarily of transaction and regulatory fees from The Options Clearing Corporation ("OCC") and the Company's share of distributable revenue receivable from Options Price Reporting Authority ("OPRA"). Accounts receivable are primarily collected through OCC, and are with large, highly-rated clearing firms; therefore concentrations of credit risk are limited. The Company has no financing-related receivables.

Prepaid Expenses—Prepaid expenses primarily consist of prepaid software maintenance and licensing expenses which are amortized over the respective periods.

Investments - Cost and Equity Method—We use the cost method to account for a non-marketable equity investment in an entity that we do not control and for which we do not have the ability to exercise significant influence over an entity’s operating and financial policies. When we do not have a controlling financial interest in an entity but exercise significant influence over the entity's operating and financial policies, such investment is accounted for using the equity method. We recognize dividend income when declared.

Investments are periodically reviewed to determine whether any events or changes in circumstances indicate that the investments may be other than temporarily impaired. In the event of impairment, the Company would recognize a loss for the difference between the carrying amount and the estimated fair value of the investment.

Property and Equipment—Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method, generally over five to forty years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining term of the applicable leases.

Property and Equipment—Construction in progress is capitalized and carried at cost. Upon completion, the projects are placed in service and amortized over the appropriate useful lives, using the straight-line method commencing with the date the asset is placed in service.

Software Development Work in Progress and Data Processing Software and Other Assets—The Company expenses software development costs as incurred during the preliminary project stage, while capitalizing costs incurred during the application development stage, which includes design, coding, installation and testing activities. Estimated useful lives are generally three to ten years for internally developed and other data processing software and generally are five years or less for other assets.

Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets (See Note 3). We recognize specifically identifiable intangibles when a specific right or contract is acquired. Goodwill has been allocated to specific reporting units for purposes of impairment testing. The reporting unit identified for our goodwill testing is exchange services and other fees. Goodwill impairment testing is performed annually in the fiscal fourth quarter or more frequently if conditions exist that indicate that the asset may be impaired.

We also evaluate intangible assets for impairment annually in the fiscal fourth quarter or more frequently if conditions exist that indicate that the asset may be impaired. Such evaluation includes determining the fair value of the asset and comparing the fair value of the asset with its carrying value. If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment loss is recognized in an amount equal to the difference.

For both goodwill and indefinite-lived impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. If we conclude that this is the case, we must perform additional testing of the asset or reporting unit. Otherwise, no further testing is necessary.

As of December 31, 2015, we did not identified any factors that would result in an impairment charge related to goodwill or intangible assets.

Employee Benefit Plans—The funded status of a post retirement benefit plan is recognized in the Consolidated Balance Sheet and changes in that funded status are recognized in the year of change in other comprehensive income (loss). Plan assets and obligations are measured at year end. The Company recognizes changes in actuarial gains and losses and prior service costs in the year in which the changes occur through accumulated other comprehensive loss.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

Commitments and Contingencies—Litigation—The Company accrues loss contingencies when the loss is both probable and estimable. All legal costs incurred in connection with loss contingencies are expensed as service is provided.

Revenue Recognition—Revenue recognition policies for specific sources of revenue are discussed below:

Transaction Fees: Transaction fees are a function of three variables: (1) exchange fee rates; (2) trading volume; and (3) transaction mix between contract type. Transaction fees are assessed on a per contract basis and are considered earned upon the execution of a trade and are recognized on a trade date basis. Transaction fees are presented net of applicable volume discounts. In the event liquidity providers prepay for transaction fees, revenue is recognized based on the attainment of volume thresholds resulting in the amortization of the prepayment over the calendar year.

Access Fees: Access fees represent fees assessed to Trading Permit Holders for the opportunity to trade and use other related functions of CBOE, C2 and CFE. Access fees are recognized during the period the service is provided.

Exchange Services and Other Fees: Exchange services and other fees include system services, trading floor charges and application revenue. Exchange services and other fees are recognized during the period the service is provided.

Market Data Fees: Market data fees include OPRA income and fees generated from the Company's market data services. OPRA is a limited liability company consisting of representatives of the member exchanges and is authorized by the SEC to provide consolidated options information. The Company's market data services are provided through CBOE Streaming Markets ("CSM") and other services. OPRA income is allocated based upon the individual exchange's relative volume of total cleared options transactions. The Company receives monthly estimates of OPRA's distributable revenue (See Note 5) and income is distributed on a quarterly basis. Company market data fees represent charges for current and historical options and futures data provided directly by the Company. Market data services are recognized in the period the data is provided.

Regulatory Fees: Regulatory fees are primarily based on the number of customer contracts traded on all U.S. options exchanges by Trading Permit Holders and are primarily recognized on a trade-date basis. Under the rules of each of our options exchanges, as required by the SEC, any revenue derived from regulatory fees and fines cannot be used for non-regulatory purposes.

Concentration of Revenue: All contracts traded on our exchanges must be cleared through clearing members of OCC. At December 31, 2015, there were one hundred thirteen Trading Permit Holders that are clearing members of OCC. Two clearing members accounted for 45% of transaction and other fees collected through OCC in 2015. The next largest clearing member accounted for approximately 12% of transaction and other fees collected through the OCC. No one Trading Permit Holder using the clearing services of the top two clearing member firms represented more than 27% of transaction and other fees collected through OCC, for the respective clearing member, in 2015. Should a clearing member withdraw from CBOE, we believe the Trading Permit Holder portion of that clearing member's trading activity would likely transfer to another clearing member.

The two largest clearing members mentioned above clear the majority of the market-maker sides of transactions at CBOE, C2 and at all of the U.S. options exchanges. If either of these clearing members were to withdraw from the business of market-maker clearing and market-makers were unable to transfer to another clearing member, this could create significant disruption to the U.S. options markets, including ours.

Advertising Costs—Advertising costs, including print advertising and production costs, product promotion campaigns and seminar, conference convention costs related to trade shows and other industry events and, in prior years, sponsorships with local professional sports organizations, are expensed as incurred or amortized over the respective period. The Company incurred advertising costs of $4.7 million, $4.3 million and $5.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. Advertising costs are included in travel and promotional expenses in the consolidated statements of income.

Stock-Based Compensation—Stock-based compensation is based on the fair value of the award on the grant date and recognized over the related service period, net of estimated forfeitures. For performance based units, we use the Monte Carlo valuation model method to estimate the fair value of the award.

Income Taxes—Deferred income taxes arise from temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized.

The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements by using a more-likely-than-not recognition threshold based solely on the technical merits of the position taken or expected to be taken.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

Interest and penalties are recorded within the provision for income taxes in the Company's consolidated statements of income and are classified on the consolidated balance sheets with the related liability for unrecognized tax benefits. See Note 10 for further discussion of the Company's income taxes.

Recent Accounting Pronouncements—In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the ASU provides guidance on accounting for certain revenue-related costs including when to capitalize costs associated with obtaining and fulfilling a contract. ASU 2014-09 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The FASB deferred the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. Early adoption of the standard is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. The Company is in the process of evaluating this guidance, though we do not expect it will materially impact our consolidated balance sheets, statements of income, comprehensive income or cash flows.

In September 2015, the FASB issued ASU-2015-16, Business Combinations. This standard simplifies the accounting for adjustments made to provisional amounts recognized in a business combination. First, it requires that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer also should record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments should be applied prospectively to adjustments to provisional amounts that are identified after December 15, 2015 and that are within the measurement period. Upon transition, an entity would be required to disclose the nature of, and reason for, the change in accounting principle. An entity would provide that disclosure in the first annual period of adoption and in the interim periods within the first annual period. The Company is in the process of evaluating this guidance, though we do not expect it will materially impact our consolidated balance sheets, statements of income, comprehensive income or cash flows.

In November 2015, the FASB issued ASU-2015-17, Income Taxes- Balance Sheet Classification of Deferred Taxes. This standard affects only entities that present a classified statement of financial position. Deferred tax liabilities and assets will be classified as noncurrent in a classified statement of financial position and the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount remains the same. Notably, ASU No. 2015-17 aligns the presentation of deferred income tax assets and liabilities with International Accounting Standard 1, Presentation of Financial Statements, which requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. For public business entities, ASU No. 2015-17 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. For all other entities, ASU No. 2015-17 is effective for annual periods beginning after December 15, 2017, and interim periods in annual periods beginning after December 15, 2018. Entities are required to apply the proposed amendments prospectively to all deferred income tax liabilities and assets or retrospectively to all periods presented. We decided to early adopt this standard on a retrospective basis for the period ended December 31, 2015 and the adoption did not have a material effect on our consolidated balance sheet.

2. SHARE REPURCHASE PROGRAM

In 2011, the board of directors approved an initial authorization for the Company to repurchase shares of its outstanding common stock of $100 million and approved additional authorizations of $100 million in each of 2012, 2013, 2014 and 2015 for total authorizations of $500 million. The program permits the Company to purchase shares through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate the Company to make any repurchases at any specific time or situation.

Under the program, for the twelve months ended December 31, 2015, the Company purchased 2,144,545 shares of common stock at an average cost per share of $61.63 totaling $132.2 million.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

Since inception of the program through December 31, 2015, the Company has purchased 9,999,615 shares of common stock at an average cost per share of $44.25 totaling $442.5 million.

3. ACQUISITION - GOODWILL AND INTANGIBLE ASSETS

On August 7, 2015, the Company acquired the market data services and trading analytics platforms of Livevol, Inc. ("Livevol"), which included Livevol Core, Livevol Pro and Livevol X trading analytics platforms, as well as Livevol Enterprise and other market data solutions products. The purchase price consisted of $7.0 million cash, including $4.0 million paid to existing Livevol debt holders and $3.0 million to Livevol owners, upon closing plus contingent consideration based on achievement of certain performance targets, measured at nine and eighteen months from the acquisition date of August 7, 2015. The purchase price was allocated on a preliminary basis, subject to final allocation, to the assets acquired based on their fair values at the acquisition date. The acquisition included tangible and intangible assets totaling $0.1 million and $2.6 million, respectively. The tangible assets primarily reflect computer hardware and intangible assets include: customer relationships, trade names, existing technology, non-compete agreements and a leasehold right.

In addition to the assets, goodwill totaling $7.7 million was recorded in connection with the acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents potential future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is expected to be fully deductible for tax purposes.

The company recorded contingent consideration of $3.3 million, which is based on management's estimate of the performance target achievement by Livevol. If Livevol were to exceed management's estimates it could result in an additional payment in excess of the recorded contingent consideration.

Intangible Assets

Intangible assets totaling $2.6 million were recorded in connection with the acquisition of Livevol. The intangible assets include: customer relationships, trade names, existing technology, non-compete agreements and leasehold rights. Intangible assets and related accumulated amortization consisted of the following as of December 31, 2015 (in thousands):

	As of December 31, 2015			Estimated Useful Lives
Customer relationships	$	910		13 years
Trade names	370			10 years
Technology	1,130			2-5 years
Other	150			1-4 years
Total	$	2,560
Less accumulated amortization	182
Total intangibles, net	$	2,378

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

For the year ended December 31, 2015, amortization of intangible assets was $0.2 million. The remaining weighted average useful lives of the intangible assets is 8.0 years as of December 31, 2015. The future amortization expense from the intangible assets as of December 31, 2015 is as follows (in thousands):

Year		Amortization expense
2016		$	434
2017		379
2018		349
2019		309
2020		206
Total		$	1,677

4. INVESTMENTS

At December 31, 2015 and 2014, the Company's investments were comprised of the following (in thousands):

	2015				2014
Equity Method
Investment in Signal Trading Systems, LLC	$	12,185			$	11,900
Investment in CBOE Stock Exchange, LLC	—				—
Total equity method investments	12,185				11,900
Cost Method
Investment in OCC	30,333				333
Other cost method investments	5,912				118
Total cost method investments	36,245				451
Total Investments	$	48,430			$	12,351

Equity Method

The carrying amount of our equity method investments totaled $12.2 million and $11.9 million as of December 31, 2015 and 2014, respectively, and is included in Investments in our Consolidated Balance Sheet. Our equity method investments include our in investments in Signal Trading Systems, LLC ("Signal") and CBOE Stock Exchange, LLC ("CBSX").

In May 2010, CBOE acquired a 50% interest in Signal from FlexTrade Systems, Inc. ("FlexTrade"). The joint venture develops and markets a multi-asset front-end order entry system, known as "Pulse," which has a particular emphasis on options trading. The Company assists in the development of the terminals and provides marketing services to the joint venture, which is accounted for under the equity method. We account for the investment in Signal under the equity method due to the substantive participating rights provided to the other limited liability company member, FlexTrade. In the twelve months ended December 31, 2015, the Company recorded contributions to Signal of $1.9 million and equity earnings in Signal of $0.8 million. Additionally, the Company received distributions from Signal of $2.4 million which reduced the carrying value of our investment.

The Company currently holds a 49.96% equity interest in CBSX in return for non-cash property contributions. CBSX ceased trading operations on April 30, 2014. CBOE is responsible for the compliance and regulation of the CBSX marketplace. In addition, the Company has a services agreement under which it provides financial, accounting and technology support.

Cost method

The carrying amount of our cost method investments totaled $36.2 million and $0.5 million as of December 31, 2015 and 2014, respectively, and is included in Investments in our Consolidated Balance Sheet. We account for our cost-method investments primarily as a result of our inability to exercise significant influence over these investments. As of December 31, 2015, our cost method investments primarily reflect our 20% investment in OCC and minority investments in American Financial Exchange ("AFX") and IPXI Holdings, LLC ("IPXI").

In December 2014, OCC announced a newly-formed capital plan. The OCC capital plan was designed to strengthen OCC's capital base and facilitate its compliance with proposed SEC regulations for Systemically Important Financial Market Utilities ("SIFMUs") as well as international standards applicable to financial market infrastructures. On February 26, 2015, the SEC issued a notice of no objection to OCC's advance notice filing regarding the capital plan, and OCC and OCC’s existing exchange stockholders, which include CBOE, subsequently executed agreements effecting the capital plan. Under the plan, each of OCC's existing exchange stockholders agreed to contribute its pro-rata share, based on ownership percentage, of $150 million in equity capital, which would increase OCC's shareholders' equity, and to provide its pro rata share in replenishment capital, up to a maximum of $40 million per exchange stockholder, if certain capital thresholds are breached. OCC also adopted policies under the plan with respect to fees, customer refunds, and stockholder dividends, which envision an annual dividend payment to the exchange stockholders equal to the portion of OCC’s after-tax income that exceeds OCC’s capital requirements after payment of refunds to OCC’s clearing members (with such customer refunds generally to constitute 50% of the portion of OCC’s pre-tax income that exceeds OCC’s capital requirements). On March 3, 2015, in accordance with the plan, CBOE contributed $30 million to OCC. On March 6, 2015, OCC informed CBOE that the SEC, acting though delegated authority, had approved OCC's proposed rule filing for the capital plan. The SEC approval order was stayed on March 13, 2015 automatically as a result of the initiation of petitions to review the order. On September 10, 2015, the SEC issued orders that discontinued the automatic stay of the approval order and granted the petitions for the SEC to review the approval order. On September 15, 2015, the petitioners filed motions to reinstitute the automatic stay. On February 11, 2016, based on a de novo review of the entire record, the SEC approved the proposed rule change implementing OCC's capital plan and dismissed the petitions for review and the petitioners' motions. CBOE's contribution has been recorded under Investments in the balance sheet at December 31, 2015. On December 17, 2015, OCC declared a dividend in accordance with the policies adopted under the new capital plan. The Company’s portion of the dividend, payable following issuance of OCC’s financial statements for 2015, is $3.4 million and is recorded under Investment income in the Company’s consolidated statement of income.

In September 2015, CBOE Holdings, through its subsidiary Loan Markets, LLC, acquired a minority interest in AFX, an electronic marketplace for small and mid-sized banks to lend and borrow short-term funds.

The Company, through DerivaTech Corporation, a wholly-owned subsidiary, held a minority interest in IPXI totaling $3.1 million. In December 2014, the Company recorded an impairment charge of $3.0 million. The impairment was the result of an additional investment in IPXI by an investor at a fair value significantly lower than our original investment. IPXI ceased operations on March 23, 2015, resulting in an impairment of our remaining investment balance.

5. RELATED PARTIES

The Company collected transaction and other fees of $596.1 million, $687.5 million and $610.3 million in the years ended December 31, 2015, 2014 and 2013, respectively, by drawing on accounts of CBOE and C2 market participants held at OCC. The amounts collected by OCC for CBOE included $95.7 million, $121.4 million and $99.7 million of marketing fees during the years ended December 31, 2015, 2014 and 2013, respectively. Additionally, the Company collected transaction and other fees of $96.1 million, $84.7 million and $65.7 million in the years ended December 31, 2015, 2014 and 2013, respectively, by drawing on accounts of CFE market participants held at OCC. The Company had a receivable due from OCC of $57.0 million and $59.8 million at December 31, 2015 and 2014, respectively.

OPRA is a limited liability company consisting of representatives of the member exchanges and is authorized by the SEC to provide consolidated options information. This information is provided by the exchanges and is sold to market data vendors, outside news services and customers. OPRA's operating income is distributed among the exchanges based on their relative volume of total cleared options transactions. The Company's share of OPRA operating income was $14.0 million, $15.1 million and $12.9 million during the years ended December 31, 2015, 2014 and 2013, respectively. The Company had a receivable from OPRA of $3.7 million and $4.2 million at December 31, 2015 and 2014, respectively.

The Company incurred re-billable expenses on behalf of CBSX for expenses such as compensation and benefits, computer equipment and software of $0.1 million, $2.4 million and $4.6 million during the years ended December 31, 2015, 2014 and 2013, respectively. These amounts are included as a reduction of the underlying expenses. The Company had an

immaterial receivable balance at December 31, 2015 and 2014 as a result of CBSX ceasing trading operations on April 30, 2014.

Options Regulatory Surveillance Authority ("ORSA") is responsible for conducting insider trading investigations related to options on behalf of all options exchanges. CBOE through December 2014 was the Regulatory Services Provider under a plan entered into by the options exchanges and approved by the SEC to administer ORSA. Effective January 1, 2015, the ORSA policy committee delegated the operation of the ORSA Plan facility to FINRA, and FINRA became the service provider under the Regulatory Services Agreement. During the year, the Company incurred re-billable expenses on behalf of ORSA for expenses such as compensation and benefits, occupancy and operating systems of $0.3 million, $2.7 million and $2.3 million, during the years ended December 31, 2015, 2014 and 2013, respectively. These amounts were included as a reduction of the underlying expenses. The Company had a receivable due from ORSA of $0.1 million and $1.2 million at December 31, 2015 and 2014, respectively.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

At December 31, 2015 and 2014, accounts payable and accrued liabilities consisted of the following (in thousands):

	2015				2014
Compensation and benefit related liabilities	$	23,304			$	23,032
Royalties	15,409				17,624
Contract services (1)	6,684				2,335
Accounts payable	1,762				2,779
Purchase of common stock (2)	1,778				1,159
Facilities	2,099				1,942
Legal	1,536				1,355
Market linkage	628				1,183
Other	6,904				7,157
Total	$	60,104			$	58,566

(1) Reflects costs primarily for certain regulatory functions and contract programming work related to projects that are in process. For comparability purposes, contract services balances previously reflected in Other as of December 31, 2014 have been included on this line.

(2) Reflects shares purchased at the end of the period that are not settled until three trading days after the trade occurs.

7. MARKETING FEE

The Company facilitates the collection and payment of marketing fees assessed on certain trades taking place at CBOE. Funds resulting from the marketing fees are made available to Designated Primary Market-Makers and Preferred Market-Makers as an economic inducement to route orders to CBOE. Pursuant to ASC 605-45, Revenue Recognition—Principal Agent Considerations, the Company reflects the assessments and payments on a net basis, with no impact on revenues or expenses.

As of December 31, 2015 and 2014, amounts assessed by the Company on behalf of others included in current assets totaled $5.7 million and $10.7 million, respectively, and payments due to others included in current liabilities totaled $6.1 million and $11.2 million, respectively.

8. DEFERRED REVENUE

The following tables summarize the activity in deferred revenue for the years ended December 31, 2015 and 2014 (in thousands):

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

	Balance at December 31, 2014				Cash Additions				Revenue Recognition				Balance at December 31, 2015
Liquidity provider sliding scale (1)	$	—			$	14,400			$	(14,400	)		$	—
Other, net	1,988				11,610				(9,579		)		4,019
Total deferred revenue	$	1,988			$	26,010			$	(23,979	)		$	4,019

	Balance at December 31, 2013				Cash Additions				Revenue Recognition				Balance at December 31, 2014
Liquidity provider sliding scale (1)	—				$	15,800			$	(15,800	)		$	—
Other, net	1,100				11,429				(10,541		)		1,988
Total deferred revenue	$	1,100			$	27,229			$	(26,341	)		$	1,988

(1) Liquidity providers are eligible to participate in the sliding scale program, which involves prepayment of transaction fees, and receive reduced fees based on the achievement of certain volume thresholds within a month. The prepayment of 2015 and 2014 transaction fees totaled $14.4 million and $15.8 million, respectively. These amounts were amortized and recorded ratably, as transaction fees over the respective twelve month periods.

9. EMPLOYEE BENEFITS

Employees are eligible to participate in the Chicago Board Options Exchange SMART Plan (“SMART Plan”). The SMART Plan is a defined contribution plan, which is qualified under Internal Revenue Code Section 401(k). In addition, eligible employees may participate in the Supplemental Employee Retirement Plan, Executive Retirement Plan and Deferred Compensation Plan. Each plan is a defined contribution plan that is non-qualified under Internal Revenue Code. The Company contributed $4.7 million, $6.0 million and $5.6 million to the defined contribution plans for each of the years ended December 31, 2015, 2014 and 2013, respectively.

The Company has a post-retirement medical plan for certain former members of senior management. The Company recorded immaterial post-retirement benefits expense for the years ended December 31, 2015, 2014 and 2013, resulting from the amortization of service costs and actuarial expense included in accumulated other comprehensive loss at December 31, 2015, 2014 and 2013.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

10. INCOME TAXES

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, 2015, 2014 and 2013 is as follows:

	2015			2014			2013
Statutory federal income tax rate	35.0	%		35.0	%		35.0	%
State income tax rate, net of federal income tax effect	4.4			3.5			3.6
Section 199 deductions	(1.9	)		(1.7	)		(2.1	)
Other, net	(0.8	)		1.9			1.5
Effective income tax rate	36.7	%		38.7	%		38.0	%

The components of income tax expense for the years ended December 31, 2015, 2014 and 2013 are as follows (in thousands):

	2015				2014				2013
Current
Federal	$	103,344			$	95,946			$	93,844
State	23,939				24,327				20,958
Total current	127,283				120,273				114,802
Deferred
Federal	(6,381		)		1,955				(4,636		)
State	(1,901		)		(2,245		)		(2,509		)
Total deferred	(8,282		)		(290		)		(7,145		)
Total	$	119,001			$	119,983			$	107,657

At December 31, 2015 and 2014, the net deferred income tax liability is as follows (in thousands):

	2015				2014
Deferred tax assets	$	33,564			$	26,962
Deferred tax liabilities	(38,873		)		(40,639		)
Net deferred income tax liability	$	(5,309	)		$	(13,677	)

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

The tax effect of temporary differences giving rise to significant portions of deferred tax assets and liabilities at December 31, 2015 and 2014 are presented below (in thousands):

	2015				2014
Deferred tax assets:
Intangibles	$	38			$	44
Accrued compensation and benefits	15,406				9,347
Property, equipment and technology, net	645				596
Investment in affiliates	7,264				6,325
Other	10,211				10,650
Total deferred tax assets	33,564				26,962
Deferred tax liabilities:
Property, equipment and technology, net	(35,859		)		(37,851		)
Investment in affiliates	(1,707		)		(1,696		)
Prepaid	(1,303		)		(1,080		)
Other	(4		)		(12		)
Total deferred tax liabilities	(38,873		)		(40,639		)
Net deferred tax liabilities	$	(5,309	)		$	(13,677	)

The net deferred tax liabilities are classified as long-term liabilities in the Consolidated Balance Sheets at December 31, 2015 and 2014.

A reconciliation of the beginning and ending uncertain tax positions, excluding interest and penalties, is as follows (in thousands):

	2015				2014				2013
Balance as of January 1	$	35,429			$	26,745			$	19,493
Gross increases on tax positions in prior period	70				2,828				549
Gross decreases on tax positions in prior period	(4,245		)		(1,053		)		(18		)
Gross increases on tax positions in current period	1,891				8,113				7,270
Lapse of statute of limitations	(1,242		)		(1,204		)		(549		)
Balance as of December 31	$	31,903			$	35,429			$	26,745

As of December 31, 2015, 2014 and 2013, the Company had $31.9 million, $35.4 million and $26.7 million, respectively, of uncertain tax positions excluding interest and penalties, which, if recognized in the future, would affect the annual effective income tax rate. Reductions to uncertain tax positions from the lapse of the applicable statutes of limitations during the next twelve months are estimated to be approximately $12.1 million, not including any potential new additions.

Estimated interest costs and penalties are classified as part of the provision for income taxes in the Company's consolidated statements of income and were $2.5 million, $2.1 million and $1.8 million for the periods ended December 31, 2015, 2014 and 2013, respectively. Accrued interest and penalties were $7.7 million, $5.3 million and $3.2 million as of December 31, 2015, 2014 and 2013, respectively.

The Company is subject to U.S. federal tax, California, Illinois, New Jersey, and New York state taxes and Washington, D.C. taxes, as well as taxes in other local jurisdictions. The Company has open tax years from 2007 on for New York, 2008 on for Federal, 2010 on for New Jersey, 2011 on for Washington, D.C and 2013 on for Illinois. The Internal Revenue Service is currently auditing 2010 and is looking at specific line items from 2008 to 2013 due to the filing by the Company of amended returns containing the recognition of certain credits and deductions. The Illinois Department of Revenue has informed the Company it will be auditing the 2013 and 2014 tax years, the New York State Department of Taxation and Finance is currently auditing the 2007 through 2012 tax years and the New Jersey Division of Taxation is currently auditing the 2010 through 2012 tax years.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

11. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk.

The Company applied Financial Accounting Standards Board ("FASB") ASC 820, Fair Value Measurement and Disclosure, which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:

•	Level 1—Unadjusted inputs based on quoted markets for identical assets or liabilities.

•	Level 2—Observable inputs, either direct or indirect, not including Level 1, corroborated by market data or based upon quoted prices in non-active markets.

•	Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in valuing the asset or liability.

The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of December 31, 2015 and 2014. The Company holds no financial liabilities that are measured at fair value on a recurring basis.

(amounts in thousands)	Level 1				Level 2				Level 3				Total
Assets at fair value:
Money market funds	$	84,000			—				—				$	84,000
Total assets at fair value at December 31, 2015	$	84,000			$	—			$	—			$	84,000

(amounts in thousands)	Level 1				Level 2				Level 3				Total
Assets at fair value:
Money market funds	$	135,000			—				—				$	135,000
Total assets at fair value at December 31, 2014	$	135,000			$	—			$	—			$	135,000

In September 2015, CBOE Holdings, through its subsidiary Loan Markets, LLC, acquired a minority interest in AFX. The investment, measured at fair value on a non-recurring basis, is classified as level 3 as the fair value was based on both observable and unobservable inputs.

The Company has recorded contingent consideration of $3.3 million, categorized as level 3, which is based on management's estimate of the achievement by Livevol of certain performance targets at nine and eighteen months. If Livevol were to exceed management's estimates, it could result in an additional payment in excess of the recorded contingent consideration.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

12. COMMITMENTS AND CONTINGENCIES

As of December 31, 2015, the end of the period covered by this report, the Company was subject to the various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.

The Company reviews its legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company's assessment of whether a loss is reasonably possible or probable is based on its assessment of the ultimate outcome of the matter following all appeals.

As of December 31, 2015, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these reviews, inspections or other legal proceedings, if any, has been incurred. While the consequences of certain unresolved proceedings are not presently determinable, the outcome of any litigation is inherently uncertain and an adverse outcome from certain matters could have a material effect on our earnings in any given reporting period. However, in the opinion of management, the ultimate liability is not expected to have a material effect on our financial position, liquidity or capital resources.

Patent Litigation

ISE -- QRM

On November 12, 2012, CBOE brought suit against International Securities Exchange, LLC ("ISE") in the United States District Court for the Northern District of Illinois alleging that ISE infringes three of its patents (United States Patent Nos. 7,356,498; 7,980,457; and 8,266,044 (the “QRM patents”)) related to quote risk monitor ("QRM") technology. CBOE has requested injunctive relief and monetary damages. On February 20, 2013, the court ruled that the case be transferred to the United States District Court for the Southern District of New York. On October 31, 2013, the court stayed the litigation pending resolution of Covered Business Method ("CBM") Patent Reviews at the United States Patent and Trademark Office ("USPTO") that ISE had petitioned for. On March 4, 2014, the USPTO instituted CBM Patent Reviews on CBOE’s three QRM patents. On May 22, 2014, the USPTO instituted Inter Parties Review (“IPR”) Proceedings, which ISE had petitioned for, on some but not all claims of two of CBOE’s QRM patents (United States Patent Nos. 7,356,498 and 7,980,457). On March 2, 2015, the USPTO ruled in the CBM proceedings, finding that the subject matter of the patents is not eligible for patent protection, and in the IPR proceedings, finding for CBOE that the claims were not invalidated by the asserted prior art. On April 30, 2015, ISE filed notice of its appeal of the IPR decisions, and on May 1, 2015, CBOE filed notice of its appeal of the CBM decisions. The appeals are being handled by the United States Court of Appeals for the Federal Circuit. Opening, response and reply briefs were filed September 18, 2015, November 2, 2015 and November 25, 2015, respectively, and briefing on the appeals has concluded. The United States Court of Appeals has set oral argument on the appeals for March 10, 2016.

Lanier Litigation

On May 23, 2014, Harold R. Lanier sued 14 securities exchanges, including CBOE, in the United States District Court for the Southern District of New York on behalf of himself and a putative class consisting of all persons in the United States who entered into contracts to receive market data through certain data plans at any time since May 19, 2008 to the present. The complaint alleged that the market data provided under the CQ Plan and CTA Plans was inferior to the data that the exchanges provided to those that directly receive other data from the exchanges, which the plaintiffs alleged is a breach of their “subscriber contracts” and a violation of the exchanges’ obligations under the CQ and CTA Plans. The plaintiffs sought monetary and injunctive relief. On May 30, 2014, Mr. Lanier filed two additional suits in the same Court, alleging substantially the same claims and requesting the same types of relief against the exchanges who participate in the UTP and the OPRA data plans. CBOE was a defendant in each of these suits, while C2 was only a defendant in the suit regarding the OPRA Plan. On April 28, 2015, the Court dismissed Lanier’s complaint with prejudice because it was preempted by the federal regulatory scheme and because the claims were precluded by the terms of the applicable subscriber agreements. Mr. Lanier appealed the orders dismissing each of his three cases and, on September 2, 2015, he filed his opening appellate briefs in those cases. The

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

defendants’ response briefs were filed November 24, 2015 and briefing on the appeals has concluded. The appeals have been set for oral argument on March 3, 2016.

Other

As a self-regulatory organization under the jurisdiction of the SEC, with respect to CBOE and C2, and as a designated contract market under the jurisdiction of the CFTC, with respect to CFE, we are subject to routine reviews and inspections by the SEC and the CFTC.

We are also currently a party to various other legal proceedings in addition to those already mentioned. Management does not believe that the outcome of any of these other reviews, inspections or other legal proceedings will have a material impact on our consolidated financial position, results of operations or cash flows.

Leases and Other Obligations

The Company currently leases additional office space, a data center and remote network operations center, with lease terms remaining from 7 months to 115 months as of December 31, 2015. Total rent expense related to these lease obligations, reflected in technology support services and facilities costs line items on the Consolidated Statements of Income, for the years ended December 31, 2015, 2014 and 2013 were $4.1 million, $3.8 million and $3.0 million, respectively. Future minimum payments for our operating leases, contractual obligations and other liabilities are as follows at December 31, 2015 (in thousands):

Year	Operating Leases			Contractual Obligations			Other Liabilities			Total
2016	$	3,210		$	32,111		$	2,000		$	37,321
2017	1,166			34,219			1,379			36,764
2018	541			31,070			—			31,611
2019	208			31,084			—			31,292
2020	201			22,848			—			23,049
Total	$	5,326		$	151,332		$	3,379		$	160,037

13. STOCK-BASED COMPENSATION

Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of estimated forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period.

The board amended and restated the CBOE Holdings, Inc. Long Term Incentive Plan (the "LTIP"), effective upon receiving stockholder approval, which was received at the May 17, 2011 annual meeting of stockholders. The LTIP provides that an aggregate of 4,248,497 shares of the Company's common stock are reserved for issuance to participants under the LTIP.

The Compensation Committee of the Company's board of directors administers the LTIP and may designate any of the following as a participant under the LTIP: any officer or other employee of the Company or its affiliates or individuals engaged to become an officer or employee and non-employee directors of the Company. The LTIP permits the granting of non-qualified stock options, restricted stock, restricted stock units, incentive compensation awards or any combination of the foregoing. The Compensation Committee has the authority and complete discretion to prescribe, amend and rescind rules and regulations relating to the LTIP, select participants and to determine the form and terms of any awards.

On February 19, 2015, the Company granted 158,661 restricted stock units ("RSUs"), each of which entitles the holders to one share of common stock upon vesting, to certain officers and employees at a fair value of $61.96 per share. The RSUs vest ratably over three years, with one-third vesting on each anniversary of the grant date, and vesting accelerates upon the occurrence of a change in control. Unvested RSUs will be forfeited if the officer or employee leaves the Company prior to the applicable vesting date, except in limited circumstances. The RSUs have no voting rights but entitle the holder to receive dividend equivalents.

In addition, on February 19, 2015, the Company granted 45,932 RSUs that are contingent on the achievement of performance conditions including 22,966 at a fair value of $61.96 per RSU related to earnings per share during the performance

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

period and 22,966 RSUs at a fair value of $74.00 per RSU, related to total shareholder return during the performance period. The Company used the Monte Carlo valuation model method to estimate the fair value of the total shareholder return RSUs which incorporated the following assumptions: risk free interest rate (1.02%), three-year volatility (19.9%) and three-year correlation with S&P 500 Index (0.44). Each of these performance shares has a performance condition under which the number of units ultimately awarded will vary from 0% to 200% of the original grant, with each unit representing the contingent right to receive one share of our common stock. The vesting period for the RSUs contingent on the achievement of performance is three years. For each of the performance awards, the RSUs will be settled in shares of our common stock following vesting of the RSU assuming that the participant has been continuously employed during the vesting period, subject to acceleration in the event of a change in control of the Company or in the event of a participant’s earlier death or disability. Participants shall have no voting rights with respect to RSUs until the issuance of the shares of stock. Dividends are accrued by the Company and will be paid once the RSUs contingent on the achievement of performance conditions vest.

On May 21, 2015, the Company granted 15,504 shares of restricted stock, at a fair value of $58.06 per share, to the non-employee members of the board of directors. The shares have a one-year vesting period and vesting accelerates upon the occurrence of a change in control of the Company. Unvested portions of the restricted stock will be forfeited if the director leaves the company prior to the applicable vesting date.

For the years ended December 31, 2015, 2014 and 2013, the Company recognized $12.2 million, $15.6 million and $20.8 million, respectively, of stock-based compensation expense related to restricted stock. For the twelve months ended December 31, 2014 and 2013, the Company recorded $2.5 million and $4.0 million, respectively, to recognize accelerated stock-based compensation. The accelerated stock-based compensation expense, in 2014, is primarily for certain executives due to provisions contained in their employment arrangements and, in 2013, departures from the board of directors.

The activity in the Company's restricted stock and restricted stock units for the year ended December 31, 2015 was as follows:

	Number of Shares of Restricted Stock			Weighted Average Grant-Date Fair Value
Unvested restricted stock at January 1, 2015	414,749			$	46.44
Granted	220,097			62.94
Vested	(170,099	)		42.41
Forfeited	(8,177	)		48.42
Unvested restricted stock at December 31, 2015	456,570			$	55.70

As of December 31, 2015, the Company had unrecognized stock-based compensation expense of $13.7 million related to outstanding restricted stock and restricted stock units. The remaining unrecognized stock-based compensation is expected to be recognized over a weighted average period of 1.6 years. The Company is projecting a forfeiture rate of 2%. The total fair value of shares vested during the year ended December 31, 2015 was $7.2 million.

14. NET INCOME PER COMMON SHARE

The computation of basic net income allocated to common stockholders is calculated by reducing net income for the period by dividends paid or declared and undistributed net income for the period that are allocated to participating securities to arrive at net income allocated to common stockholders. Net income allocated to common stockholders is divided by the weighted average number of common shares outstanding during the period to determine net income per share allocated to common stockholders.

The computation of diluted earnings per share is calculated by dividing net income allocated to common stockholders by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The dilutive effect is calculated using the more dilutive of the two-class or treasury stock method.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

The following table reconciles net income allocated to common stockholders and the number of shares used to calculate the basic and diluted net income per common share for the years ended December 31, 2015, 2014 and 2013:

(in thousands, except per share amounts)	2015				2014				2013
Basic EPS Numerator:
Net Income	$	205,023			$	189,714			$	175,999
Less: Earnings allocated to participating securities	(898		)		(1,322		)		(2,136		)
Net Income allocated to common stockholders	$	204,125			$	188,392			$	173,863
Basic EPS Denominator:
Weighted average shares outstanding	83,081				85,406				87,331
Basic net income per common share	$	2.46			$	2.21			$	1.99
Diluted EPS Numerator:
Net Income	$	205,023			$	189,714			$	175,999
Less: Earnings allocated to participating securities	(898		)		(1,322		)		(2,136		)
Net Income allocated to common stockholders	$	204,125			$	188,392			$	173,863
Diluted EPS Denominator:
Weighted average shares outstanding	83,081				85,406				87,331
Dilutive common shares issued under restricted stock program	—				—				—
Diluted net income per common share	$	2.46			$	2.21			$	1.99

For the periods presented, the Company did not have shares of restricted stock or restricted stock units that would have an anti-dilutive effect on the computation of diluted net income per common share.

15. QUARTERLY DATA (unaudited)

Year ended December 31, 2015 (in thousands)	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Operating revenues	$	142,839			$	148,725			$	187,035			$	155,946			$	634,545
Operating expenses	73,286				75,355				85,925				80,051				314,617
Operating income	69,553				73,370				101,110				75,895				319,928
Net income	$	42,259			$	44,845			$	67,516			$	50,403			$	205,023
Net income allocated to common stockholders	$	42,079			$	44,646			$	67,219			$	50,181			$	204,125
Diluted—net income per share to common stockholders	$	0.50			$	0.54			$	0.81			$	0.61			$	2.46

Year ended December 31, 2014 (in thousands)	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Operating revenues	$	157,885			$	143,942			$	148,910			$	166,488			$	617,225
Operating expenses	75,847				74,226				73,826				79,525				303,424
Operating income	82,038				69,716				75,084				86,963				313,801
Net income	$	49,024			$	42,981			$	48,366			$	49,342			$	189,714
Net income allocated to common stockholders	$	48,528			$	42,598			$	48,146			$	49,119			$	188,392
Diluted—net income per share to common stockholders	$	0.56			$	0.50			$	0.57			$	0.58			$	2.21

•	In the fourth quarter of 2015, the Company recognized $2.0 million of revenue to adjust for incorrect coding of transactions by an exchange participant related to prior periods.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2015, 2014 and 2013

•	In the third quarter of 2015, the Company recorded a $4.3 million tax benefit from the release of an uncertain tax provision related to research and development credits, which were effectively settled.

•	In the fourth quarter of 2014, the Company recorded $1.9 million in severance resulting from the outsourcing of certain regulatory services to FINRA.

•	In the fourth quarter of 2014, the Company recorded a $3.0 million impairment of the investment in IXPI.

•	In the first quarter of 2014, the Company recorded accelerated stock-based compensation expense of $2.5 million for certain executives due to provisions contained in their employment arrangements.

16. SUBSEQUENT EVENTS

On January 25, 2016, the Company announced it made a majority equity investment in Vest Financial Group Inc. ("Vest"), an investment advisor that provides options-centric products. As a result of the investment, Vest became a majority-owned subsidiary of CBOE.

On February 17, 2016, the Company's board of directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on March 18, 2016 to stockholders of record at the close of business on March 4, 2016. Additionally, our board of directors increased the share repurchase authorization by $100 million.