Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included in Item 8 of this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. See "Risk Factors" and "Forward-Looking Statements" above.

Overview

CBOE Holdings, Inc. is the holding company for Chicago Board Options Exchange, Incorporated, CBOE Futures Exchange, LLC, C2 Options Exchange, Incorporated and other subsidiaries, including our majority ownership in CBOE Vest Financial Group, Inc.

The Company's principal business is operating markets that offer for trading options on various market indexes (index options), mostly on an exclusive basis, 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). The Company operates CBOE, CFE and C2 as stand-alone exchanges, but reports the results of its operations in a single reporting segment.

CBOE is our primary options market and offers trading in listed options through a single system that integrates electronic trading and traditional open outcry trading on our trading floor in Chicago. This integration of electronic trading and traditional open outcry trading into a single exchange is known as our Hybrid trading model. CFE, our all-electronic futures exchange, offers trading of futures on the VIX Index and other products. C2 is our all-electronic exchange that also offers trading of listed options, and may operate with a different market model and fee structure than CBOE. All of our exchanges operate on our proprietary technology platform known as CBOE Command.

Business Highlights

•	On September 25, 2016, CBOE Holdings and Bats entered into the Merger Agreement. The completion of the Merger is subject to certain conditions, including, among others, receipt of certain regulatory approvals. The Merger is expected to close on February 28, 2017. For more information, see "Business—Pending Merger" above.

•

In connection with entering into the Merger Agreement, we entered into a commitment letter relating to a $1.65 billion senior unsecured 364-day bridge loan facility. In lieu of entering into the bridge loan facility, CBOE Holdings entered into a term loan agreement and completed a notes offering, securing $1.65 billion to finance the cash portion of its pending acquisition of Bats as well as the repayment of Bats' existing indebtedness.

•	On December 15, 2016, we entered into a $1.0 billion senior unsecured delayed draw term loan facility and on January 12, 2017, we issued $650 million aggregate principal amount of our 3.650% Senior Notes due 2027.

•	On December 15, 2016, we entered into a $150 million revolving credit facility to be used for working capital and other general corporate purposes.

•	Transaction fees accounted for 70.5%, 71.9% and 70.9% of total operating revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

•	Index options and futures contracts accounted for 88.2%, 82.9% and 81.8% of our transaction fees for the years ended December 31, 2016, 2015 and 2014, respectively.

•	Our share of total U.S. exchange-traded options contracts for the year ended December 31, 2016 was 27.7%, up from 27.1% in 2015 and down from 29.9% in 2014.

•	Operating expenses were 54.7%, 49.6% and 49.2%, of total operating revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

•	Compensation and benefits, representing our largest expense category, were 17.2%, 16.7% and 19.7%, of total operating revenues for the years ended December 31, 2016, 2015 and 2014, respectively.

•	Professional fees and outside services for the year ended December 31, 2016 includes $13.7 million of acquisition-related costs, consisting mainly of legal and professional fees.

Business Strategy

We believe that the derivatives industry, especially the listed options and futures industry, has significant growth potential, including through new participants and products. We expect to further expand our business and increase our revenues and profitability by pursuing the following growth strategies:

•	We intend to continue our efforts to expand the use of our products domestically and internationally through extended trading hours in our exclusive index options and futures products and investor education.

•	We intend to continue developing innovative proprietary products that meet the needs of the derivatives industry and complement our core products, both through strategic relationships and internal development.

•	We have designed our fee schedule to provide economic benefits to market participants that concentrate their overall trading activity at our exchanges.

•	We intend to continue to enhance our trading platform by continuing to invest in enhancing and augmenting the functionality and capacity of our trading systems and by developing the next generation of trading technology, CBOE Vector. However, the launch of CBOE Vector on CFE is suspended due to the pending Merger.

•	We evaluate strategic opportunities that leverage and complement our core business and that we believe will enhance stockholder value.

In addition, we believe the recently announced Merger squarely fits into our growth strategy outlined above to develop unique products, expand our customer base and leverage alliances that complement our core business. Specifically, we believe that the Merger has the potential to significantly expand and diversify our product line across new asset classes, such as U.S. and European equities, ETF trading and global FX products, broaden our reach with Bats’ market-leading European presence and increase our non-transactional revenue stream, while enabling us to streamline the combined company’s technology and enhance our strong growth and margin profile.

Components of Operating Revenues

Transaction Fees

The primary and largest source of operating revenues is transaction fees. Transaction fees are a function of many variables with the main three being: (1) exchange fee rates; (2) trading volume mix (products traded); and (3) transaction mix between origin type. Because transaction fees are assessed on a per contract basis, transaction fee revenue is correlated to the volume of contracts traded on the Company's exchanges. While exchange fee rates are established by the Company, trading volume and transaction mix are influenced by a number of factors, including price competition, price volatility in the underlying securities and national and international economic and political conditions.

Revenue is recorded as transactions occur on a trade-date basis. The main products that trade on our exchanges are equity, index and ETP options and futures contracts.

•	Equity options reflect trading in options contracts on the stocks of individual companies.

•	Index options reflect trading in index options contracts on market indexes.

•	ETP options include ETF options that are options on baskets of stocks designed to generally track an index, but which trade like individual stocks, and ETN options that are options on senior, unsecured, unsubordinated debt securities issued by an underwriting bank.

•	Futures contracts are standardized, transferable, exchange-traded contracts that require delivery of a commodity, bond, currency, stock index or other benchmark interests at a specified price and on a specified future date, which are settled in cash.

Access Fees

Access fees represent fees assessed to Trading Permit and Privilege Holders for the opportunity to trade, including fees for trading-related functionality, on CBOE, C2 and CFE. The CBOE program contains a tier-based market-maker appointment system with different trading permits based on trading function and, in the case of market-makers, the assessment of a surcharge for certain CBOE proprietary products and sliding scales for all Market-Maker and Floor Broker Trading Permits held by affiliated Trading Permit Holders and TPH Organizations that are used in any options classes other than certain proprietary indexes. The number of trading permits made available is limited.

Exchange Services and Other Fees

To facilitate trading, the Company offers technology services, terminal and other equipment rentals, maintenance services, trading floor space and telecommunications services. Trading floor and equipment rentals are generally on a month-to-month basis. Facilities, systems services and other fees are generally monthly fee-based, although certain services are influenced by trading volume or other defined metrics, while others are based solely on demand. The revenues generated by Livevol for market data services and trading analytics platforms are also included in this line item.

Market Data Fees

Market data fees represent income derived from the sale of our transaction information through the Options Price Reporting Authority ("OPRA") and primarily through our subsidiary, Market Data Express, LLC ("MDX"). Through MDX, we sell historical options data, as well as real-time data for certain proprietary products and indexes. It also provides market data through CBOE Streaming Markets, a high-availability, low latency streaming data feed. OPRA is a limited liability company consisting of representatives of the member exchanges, including CBOE and C2, authorized by the SEC to provide consolidated options information. OPRA gathers market data from various options exchanges, including CBOE and C2, and, in turn, disseminates this data to third parties who pay fees to OPRA to access the data. Revenue generated by OPRA from the dissemination of market data is shared among OPRA members according to the number of total cleared options transactions by each of the member exchanges as calculated each quarter. OPRA is not consolidated with the Company.

Regulatory Fees

Regulatory fees are charged to Trading Permit Holders in support of our regulatory responsibilities as self-regulatory organizations under the Exchange Act. Regulatory fees include an Options Regulatory Fee under which fees are based on industry-wide customer volume of Trading Permit Holders and designated examining authority fees for certain Trading Permit Holders. This source of revenue could decline in the future if the number of customer contracts executed by Trading Permit Holders declines and rates are not increased or are decreased or if our costs to perform our regulatory responsibilities stabilize or decrease.

The SEC requires that the revenues derived from certain of the fees from our regulatory functions, some of which are included in this revenue category, and regulatory fines, must be used for regulatory purposes. Expenses related to our regulatory functions are included in our operating expenses, mainly in compensation and benefits in 2014 and professional fees and outside services starting in 2015 as a result of the transition of certain regulatory systems to FINRA.

Other Revenue

The following sub-categories are the sources of revenue within this category:

•	Revenue generated through various licensing agreements;

•	Revenue derived from fines assessed for rule violations;

•	Revenue associated with advertisements through our corporate web site, www.cboe.com;

•	Revenue generated from courses and seminars offered through CBOE's Options Institute;

•	Revenue generated through regulatory service agreements with other options exchanges (as of 2015, we no longer generated revenue from these regulatory service agreements);

•	Revenue generated through our order routing cancel fee (as of 2015, we waived order routing cancel fees) and position transfer fee;

•	Rental of commercial space in the lobby of our building; and

•	Other sources of revenue.

Components of Operating Expenses

Most of our expenses do not vary directly with changes in our trading volume except royalty fees and order routing.

Compensation and Benefits

Compensation and benefits are our most significant expenses and include salaries and benefits, stock-based compensation, incentive compensation, severance and employer taxes. Salaries and benefits represent our largest expense category and tend to be driven by both our staffing requirements and the general dynamics of the employment market. Stock-based compensation is a non-cash expense related to equity awards. Stock-based compensation can vary depending on the quantity and fair value of the award on the date of grant and the related service period.

Depreciation and Amortization

Depreciation and amortization expense results from the depreciation of long-lived assets purchased and the amortization of purchased and internally developed software.

Technology Support Services

Technology support services expense consists primarily of costs related to the maintenance of computer equipment supporting our system architecture, circuits supporting our wide area network, support for production software, fees paid to information vendors for displaying data and off-site system hosting fees.

Professional Fees and Outside Services

Professional fees and outside services consist primarily of consulting services, which include: the supplementation of staff for activities primarily related to systems development and maintenance, legal, regulatory and audit, tax advisory services and acquisition-related costs, consisting mainly of legal and professional fees.

Royalty Fees

Royalty fees primarily consist of license fees paid for the use of underlying indexes in our proprietary products usually based on contracts traded. The Company has licenses with the owners of the S&P 500 Index, S&P 100 Index and certain other S&P indexes, the DJIA, MSCI, FTSE Russell indexes and certain other index products. This category also includes fees related to the dissemination of market data related to S&P indexes and in prior years, certain fees paid to market participants for order flow that they directed or caused to be directed to our exchanges.

Order Routing

Order routing consists of market linkage expenses incurred to send certain orders to other exchanges. If a competing exchange quotes a better price, we route the customer's order to that exchange and pay certain of the associated costs. Regardless of whether the transaction is traded at our options exchanges, the order flow potential enhances our overall market position and participation and provides cost savings to customers.

Travel and Promotional Expenses

Travel and promotional expenses primarily consist of advertising, costs for special events, sponsorship of industry conferences, options education seminars and travel related expenses.

Facilities Costs

Facilities costs primarily consist of expenses related to owned and leased properties including rent, maintenance, utilities, real estate taxes and telecommunications costs.

Other Expenses

Other expenses represent costs necessary to support our operations but are not included in the above categories.

Other Income/(Expense)

Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other income/(expense). These activities primarily include interest earned on the investing of excess cash, interest expense related to outstanding debt facilities, dividend income and equity earnings or losses from our investments in other business ventures.

Critical Accounting Policies and Estimates

The preparation of the Company's consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. The Company bases its estimates on historical experience, observance of trends in particular areas, information available from outside sources and various other assumptions that are believed to be reasonable under the circumstances. Information from these sources form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these policies on our business operations is discussed throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations." For a detailed discussion on the application of these and other accounting policies, see Note 1 to our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

•	Transaction fees revenue is considered earned upon the execution of the trade recognized on a trade-date basis and presented net of applicable volume discounts. In the event liquidity providers prepay transaction fees, revenue is recognized based on the attainment of volume thresholds resulting in the amortization of the prepayment over the calendar year.

•	Access fee revenue is recognized during the period access is granted and assurance of collectability is provided.

•	Exchange services and other fees revenue is recognized during the period the service is provided.

•	Market data fees from OPRA are allocated based upon the share of total options transactions cleared for each of the OPRA members and is received quarterly. Revenue from our market data services is recognized in the period the data is provided.

•	Regulatory fees are recognized primarily on a trade-date basis.

Income Taxes

Deferred income taxes arise from temporary differences between the tax basis and book basis of assets and liabilities. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be reversed. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. The Company files tax returns for federal, state and local income tax purposes. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized.

If the Company considers that a tax position is "more-likely-than-not" to be sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and require specific analysis to determine the impact of the position, as such the Company often obtains assistance from external advisors. The Company considers the information and arrives at the percentage to apply as a possible uncertain portion related to the position. To the extent that the Company's estimates change or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest and penalties, if any, 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.

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. Based on our evaluation of the standard, we do not expect a material impact on our revenue recognition practices. A significant portion of our revenue is generated from fees associated primarily with the execution of a trade, transaction fees and regulatory fees, and revenue is recognized on the trade date as our performance obligation would be complete. The revenue components that are not primarily associated with the execution of a trade, market data fees and exchange service and other fees, are also not expected to be impacted by the adoption of the new standard. In most cases, our performance obligation is fulfilled on a monthly basis and does not require any additional requirements that would require performance beyond a monthly basis. Therefore we do not expect a material impact on our revenue recognition policies as a result of the adoption of the new standard which the Company is considering early adoption prior to the effective date.

In February 2016, the FASB issued ASU 2016-02, Leases. This update requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. This update is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. 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 March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation. This standard simplifies several aspects of the accounting for stock-based payment transactions, including the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. This update is effective for annual and interim periods beginning after December 15, 2016 and can be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. 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 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force). This standard addresses stakeholders’ concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. In particular, ASU No. 2016-15 addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Note that early adoption is permitted for all entities, including adoption during an interim 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 October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes:Intra-Entity Transfers of Assets other than Inventory. The standard requires that the income tax impact of intra-entity sales and transfers of property, except for inventory, be recognized when the transfer occurs. This update is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The new standard should be applied by making a cumulative effect adjustment directly to retained earnings as of the beginning of period of adoption.The Company is in the process of evaluating this guidance, and considering early adoption, though we do not expect it will materially impact our consolidated balance sheets, statements of income, comprehensive income or cash flows.

Results of Operations

Year ended December 31, 2016 compared to the year ended December 31, 2015

Consolidated Results

The following summarizes financial performance for the year ended December 31, 2016 compared to 2015.

	2016				2015				Inc./(Dec.)				Percent Change
	(in millions, except per share amounts)
Total operating revenues	$	656.9			$	634.5			$	22.4			3.5	%
Total operating expenses	358.7				314.6				44.1				14.0	%
Operating income	298.2				319.9				(21.7		)		(6.8	)%
Total other income/(expense)	8.4				4.1				4.3				105.2	%
Income before income taxes	306.6				324.0				(17.4		)		(5.4	)%
Income tax provision	120.9				119.0				1.9				1.6	%
Net income	$	185.7			$	205.0			$	(19.3	)		(9.4	)%
Net income allocated to common stockholders	$	184.9			$	204.1			$	(19.2	)		(9.4	)%
Operating income percentage	45.4		%		50.4		%
Net income percentage	28.3		%		32.3		%
Diluted—net income per share allocated to common stockholders	$	2.27			$	2.46

•	The increase in total operating revenues was primarily driven by higher transaction fees, exchange services and other fees, market data fees and regulatory fees, partially offset by lower access fees and other revenue.

•	The increase in total operating expenses was primarily driven by higher compensation and benefits, professional fees and outside services, travel and promotional expense and royalty fees. The increase in professional fees and outside services was mainly due to acquisition-related costs, which resulted in a lower operating margin for the year.

•	The increase in total other income/(expense) was primarily driven by proceeds from the settlement of litigation.

Operating Revenues

Total operating revenues for the year ended December 31, 2016 increased $22.4 million, or 3.5%, to $656.9 million from $634.5 million in the prior year. The following summarizes changes in total operating revenues for the year ended December 31, 2016 compared to 2015.

	2016				2015				Inc./(Dec.)				Percent Change
	(in millions)
Transaction fees	$	463.3			$	456.0			$	7.3			1.6	%
Access fees	52.3				53.3				(1.0		)		(1.8	)%
Exchange services and other fees	46.3				42.2				4.1				9.6	%
Market data fees	33.2				30.0				3.2				10.4	%
Regulatory fees	48.3				33.5				14.8				44.3	%
Other revenue	13.5				19.5				(6.0		)		(30.5	)%
Total operating revenues	$	656.9			$	634.5			$	22.4			3.5	%

Transaction Fees

Transaction fees increased 1.6% to $463.3 million for the year ended December 31, 2016, representing 70.5% of total operating revenues, compared with $456.0 million for the prior year period, or 71.9% of total operating revenues. This increase was largely driven by a 0.9% increase in trading volume and a 0.8% increase in the average revenue per contract.

Average revenue per contract, discussed in more detail below, is impacted by our fee structure, which includes volume based incentive programs, mix of products traded, the account type (customer, firm, market-maker, etc.) and the manner in which a trade is executed. The implementation of fee changes, which may increase or decrease our average revenue per contract, is primarily to ensure that we are competitive in the options marketplace and to ultimately improve and continue to drive order flow to our exchanges. We cannot predict the trading patterns of exchange participants, which may be based on factors outside our control, but we can attempt to price our products at levels that are competitive in our market.

Trading volume is impacted by many factors, including: macroeconomic events, market volatility, regulatory actions or considerations, availability of capital, competition and pricing.

The following summarizes transaction fees by product category for 2016 compared to 2015.

	2016				2015				Inc./(Dec.)				Percent Change
	(in millions)
Equities	$	23.4			$	36.4			$	(13.0	)		(35.7	)%
Indexes	307.7				290.3				17.4				6.0	%
Exchange-traded products	31.1				41.8				(10.7		)		(25.6	)%
Total options transaction fees	362.2				368.5				(6.3		)		(1.7	)%
Futures	101.1				87.5				13.6				15.6	%
Total transaction fees	$	463.3			$	456.0			$	7.3			1.6	%

Trading Volume

Our average daily trading volume ("ADV") was 4.70 million contracts in 2016, up 0.9% compared with 4.66 million for 2015. Total trading days in 2016 and 2015 were two hundred fifty-two.

The following summarizes changes in total trading volume and ADV by product category for 2016 compared to 2015.

	2016						2015						Volume Percent Change			ADV Percent Change
	Volume			ADV			Volume			ADV
	(in millions)
Equities	364.3			1.44			393.0			1.56			(7.3	)%		(7.3	)%
Indexes	433.3			1.72			408.3			1.62			6.1	%		6.1	%
Exchange-traded products	326.7			1.30			321.0			1.27			1.8	%		1.8	%
Total options contracts	1,124.3			4.46			1,122.3			4.45			0.2	%		0.2	%
Futures contracts	60.2			0.24			51.7			0.21			16.5	%		16.5	%
Total contracts	1,184.5			4.70			1,174.0			4.66			0.9	%		0.9	%

The following provides the percentage of volume by product category for the years ended December 31, 2016 and 2015.

		2016			2015
Equities		30.8	%		33.5	%
Indexes		36.6	%		34.8	%
Exchange-traded products		27.5	%		27.3	%
Futures		5.1	%		4.4	%
Total		100.0	%		100.0	%

Average revenue per contract

The average revenue per contract was $0.391 in 2016, an increase of 0.8% compared with $0.388 in 2015. Average revenue per contract represents transaction fees divided by total contracts.

The following summarizes average revenue per contract by product category for 2016 compared to 2015.

	2016				2015				Percent Change
Equities	$	0.064			$	0.093			(31.2	)%
Indexes	0.710				0.711				(0.1	)%
Exchange-traded products	0.095				0.130				(26.9	)%
Total options average revenue per contract	0.322				0.328				(1.8	)%
Futures	1.681				1.694				(0.8	)%
Total average revenue per contract	$	0.391			$	0.388			0.8	%

Factors contributing to the change in total average revenue per contract for the year ended December 31, 2016 compared to the same period in 2015 included:

•

Product mix—We experienced a shift in overall product mix. As a percentage of total volume, equities decreased to 30.8% from 33.5%, indexes increased to 36.6% from 34.8% and futures increased to 5.1% from 4.4%. Equities represent our lowest average revenue per contract, while index options and futures generate our highest options average revenue per contract and our highest total average revenue per contract, respectively.

Exchange Services and Other Fees

Exchange services and other fees for the year ended December 31, 2016 increased 9.6% to $46.3 million from $42.2 million in the comparable period in the prior year. The increase was primarily a result of higher fees for technology services and revenue generated from Livevol, which was acquired on August 7, 2015.

Market Data Fees

Market data fees increased 10.4% to $33.2 million for the year ended December 31, 2016 from $30.0 million in the prior year. For the years ended December 31, 2016 and 2015, income derived from our market data services totaled $17.5 million and $16.0 million, respectively. Revenue generated from our market data services, which provide current and historical options and futures data, increased $1.5 million, resulting primarily from an increase in subscribers and fees for certain market data services. For the years ended December 31, 2016 and 2015, OPRA income totaled $15.7 million and $14.0 million, respectively. Income derived from OPRA is allocated based on each exchange's share of total cleared options transactions. The Company's share of total cleared options transactions for the year ended December 31, 2016 increased to 24.4% from 23.3% for the same period in 2015 and total distributable OPRA income increased compared to the prior year ended 2015.

Regulatory Fees

Regulatory fees increased 44.3% for the year ended 2016 to $48.3 million from $33.5 million in the same period in the prior year. The increase in regulatory fees is primarily the result of an increase in our options regulatory fees resulting from increased costs associated with the regulation of CBOE and C2 and other self-regulatory organization commitments.

Regulatory fees are primarily generated by the options regulatory fee that we charge on all Trading Permit Holder customer volume industry-wide. 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.

Other Revenue

Other revenue decreased $6.0 million for the year ended 2016 to $13.5 million from $19.5 million in the same period in the prior year. The decrease in other revenue was primarily due to lower revenue from fines assessed for rule violations and, in 2015, the recognition of revenue to adjust for incorrect coding of transactions by an exchange participant related to prior periods.

Concentration of Revenue

All contracts traded on our exchanges must be cleared through clearing members of OCC. At December 31, 2016, there were one hundred one Trading Permit Holders that are clearing members of OCC. Two clearing members accounted for 42% of transaction and other fees collected through OCC in 2016. The next largest clearing member accounted for approximately 14% of transaction and other fees collected through OCC. No one Trading Permit Holder using the clearing services of the top two clearing member firms represented more than 21% of transaction and other fees collected through OCC, for the respective clearing member, in 2016. 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.

Operating Expenses

Total operating expenses increased $44.1 million, or 14.0%, to $358.7 million for the year ended 2016 from $314.6 million in the year ago period, resulting from higher compensation and benefits, professional fees and outside services, travel and promotional expense and royalty fees. Expenses increased to 54.7% of total operating revenues in the year ended 2016 compared with 49.6% in the same period in 2015.

The following summarizes changes in operating expenses for the year ended December 31, 2016 compared to 2015.

	2016				2015				Inc./(Dec.)				Percent Change
	(in millions)
Compensation and benefits	$	113.2			$	105.9			$	7.3			6.8	%
Depreciation and amortization	44.4				46.3				(1.9		)		(4.1	)%
Technology support services	22.4				20.7				1.7				8.7	%
Professional fees and outside services	78.5				50.1				28.4				56.9	%
Royalty fees	77.9				70.6				7.3				10.5	%
Order routing	0.9				2.3				(1.4		)		(60.8	)%
Travel and promotional expenses	11.0				8.9				2.1				22.1	%
Facilities costs	5.7				5.0				0.7				13.9	%
Other expenses	4.7				4.8				(0.1		)		(3.2	)%
Total operating expenses	$	358.7			$	314.6			$	44.1			14.0	%

Compensation and Benefits

For the year ended December 31, 2016, compensation and benefits were $113.2 million, or 17.2% of total operating revenues, compared with $105.9 million, or 16.7% of total operating revenues, in the same period in 2015. This represented an increase of $7.3 million, or 6.8%, which primarily resulted from increased staffing levels, higher stock-based compensation, including accelerated stock-based compensation expense, and annual incentive compensation, which is aligned with our financial performance relative to our targets. The year ended December 31, 2016 included $0.9 million of accelerated stock-based compensation expense, respectively, for certain officers and employees as a result of attaining certain age and service based requirements in our long-term incentive plan and award agreements.

Stock-based compensation expense, included in compensation and benefits expense, is expected to be approximately

$27.5 million for 2017. This includes $13.0 million in accelerated stock-based compensation, approximately $12.0 million of which is expected to be recognized in the first quarter of 2017. The increase in accelerated stock-based compensation versus 2016, reflects a planned change in the retirement vesting schedule for equity award grants.

Depreciation and Amortization

Depreciation and amortization decreased by $1.9 million to $44.4 million for the year ended December 31, 2016 compared with $46.3 million for the same period in 2015. The decrease was primarily due to the the acceleration of depreciation for certain assets that have a shorter than expected useful life through June 30, 2016, partially offset by the amortization of intangible assets related to the acquisitions of Livevol and Vest.

Professional Fees and Outside Services

Expenses related to professional fees and outside services increased to $78.5 million for the year ended December 31, 2016 from $50.1 million in the prior-year period, an increase of $28.4 million, which primarily resulted from higher legal and professional fees, primarily Bats acquisition-related costs totaling $13.7 million, and higher contract services related to certain regulatory services provided by FINRA and other self-regulatory organization commitments for CBOE and C2. In connection with the anticipated merger with Bats and the planned migration to the Bats trading platform and the suspension of CBOE Vector, our investment of $15.0 million related to the development of Vector, in 2017, could become obsolete or result in a shorter than expected useful life.

Royalty Fees

Royalty fees for the year ended December 31, 2016 were $77.9 million compared with $70.6 million for the prior year period, an increase of $7.3 million, which primarily resulted from higher trading volume in licensed products.

Travel and promotional expenses

Travel and promotional expenses for the year ended December 31, 2016 were $11.0 million compared with $8.9 million for the prior year period. The increase is primarily due to higher advertising expenses.

Operating Income

As a result of the items above, operating income in 2016 was $298.2 million compared to $319.9 million in 2015, a decrease of $21.7 million.

Other Income

Other income totaled $8.4 million for the year ended December 31, 2016 compared with $4.1 million for the same period in the prior year. The increase in other income in 2016 primarily resulted from higher projected dividend income from OCC, proceeds from the settlement of litigation and a gain on settlement of contingent consideration related to the acquisition of Livevol, partially offset by the amortization of expenses for the bridge loan facility related to the proposed acquisition of Bats.

Income before Income Taxes

As a result of the items above, income before income taxes in 2016 was $306.6 million compared to $324.0 million in 2015, a decrease of $17.4 million.

Income Tax Provision

For the year ended December 31, 2016, the income tax provision was $120.9 million compared with $119.0 million for the same period in 2015. The effective tax rate was 39.4% and 36.7% for the years ended December 31, 2016 and 2015, respectively. The lower effective tax rate in 2015 was primarily due to a 2015 decrease in unrecognized tax benefits for tax positions taken in prior years as a result of the expiration of applicable statutes of limitation and the effective settlement of uncertain tax positions.

Net Income

As a result of the items above, net income allocated to common stockholders in 2016 was $184.9 million compared to $204.1 million in 2015, a decrease of $19.2 million. Basic and diluted net income per share allocated to common stockholders were $2.27 and $2.46 for the years ended December 31, 2016 and 2015, respectively.

Year ended December 31, 2015 compared to the year ended December 31, 2014

Consolidated Results

The following summarizes financial performance for the year ended December 31, 2015 compared to 2014.

	2015				2014				Inc./(Dec.)				Percent Change
	(in millions, except per share amounts)
Total operating revenues	$	634.5			$	617.2			$	17.3			2.8	%
Total operating expenses	314.6				303.4				11.2				3.7	%
Operating income	319.9				313.8				6.1				1.9	%
Total other income/(expense)	4.1				(4.1		)		8.2				199.8	%
Income before income taxes	324.0				309.7				14.3				4.6	%
Income tax provision	119.0				120.0				(1.0		)		(0.8	)%
Net income	$	205.0			$	189.7			$	15.3			8.1	%
Net income allocated to common stockholders	$	204.1			$	188.4			$	15.7			8.4	%
Operating income percentage	50.4		%		50.8		%
Net income percentage	32.3		%		30.7		%
Diluted—net income per share allocated to common stockholders	$	2.46			$	2.21

•	The increase in total operating revenues was primarily driven by higher transaction fees, exchange services and other fees and other revenue, partially offset by lower access fees and regulatory fees.

•	The increase in total operating expenses was primarily driven by higher depreciation and amortization, technology support services, professional fees and outside services and royalty fees, partially offset by lower compensation and benefits.

•	The increase in total other income/(expense) was primarily driven by the dividend declared by OCC in December 2015. The prior year included an impairment charge related to our investment in IPXI Holdings, LLC ("IPXI").

Operating Revenues

Total operating revenues for the year ended December 31, 2015 increased $17.3 million, or 2.8%, to $634.5 million from $617.2 million in the prior year. The following summarizes changes in total operating revenues for the year ended December 31, 2015 compared to 2014.

	2015				2014				Inc./(Dec.)				Percent Change
	(in millions)
Transaction fees	$	456.0			$	437.8			$	18.2			4.2	%
Access fees	53.3				59.3				(6.0		)		(10.2	)%
Exchange services and other fees	42.2				38.0				4.2				11.0	%
Market data fees	30.0				30.4				(0.4		)		(1.4	)%
Regulatory fees	33.5				37.1				(3.6		)		(9.7	)%
Other revenue	19.5				14.6				4.9				34.0	%
Total operating revenues	$	634.5			$	617.2			$	17.3			2.8	%

Transaction Fees

Transaction fees increased 4.2% to $456.0 million for the year ended December 31, 2015, representing 71.9% of total operating revenues, compared with $437.8 million for the prior year period, or 70.9% of total operating revenues. This increase was largely driven by a 17.6% increase in the average revenue per contract, partially offset by an 11.4% decrease in trading volume. The increase in average revenue per contract resulted primarily from a shift in volume mix of products traded, fee changes implemented in 2015 and lower volume discounts and incentives. As a percent of total trading volume, index options and futures contracts, which generate our highest options and overall average revenue per contract, respectively, accounted for 39.2% of trading volume for the year ended December 31, 2015, up from 34.5% during the same period in 2014.

The following summarizes transaction fees by product category for 2015 compared to 2014.

	2015				2014				Inc./(Dec.)				Percent Change
	(in millions)
Equities	$	36.4			$	37.2			$	(0.8	)		(2.1	)%
Indexes	290.3				276.0				14.3				5.2	%
Exchange-traded products	41.8				42.4				(0.6		)		(1.5	)%
Total options transaction fees	368.5				355.6				12.9				3.6	%
Futures	87.5				82.2				5.3				6.5	%
Total transaction fees	$	456.0			$	437.8			$	18.2			4.2	%

Trading Volume

Our average daily trading volume ("ADV") was 4.66 million contracts in 2015, down 11.4% compared with 5.26 million for 2014. Total trading days in 2015 and 2014 were two hundred fifty-two.

The following summarizes changes in total trading volume and ADV by product category for 2015 compared to 2014.

	2015						2014						Volume Percent Change			ADV Percent Change
	Volume			ADV			Volume			ADV
	(in millions)
Equities	393.0			1.56			488.6			1.94			(19.6	)%		(19.6	)%
Indexes	408.3			1.62			406.5			1.61			0.4	%		0.4	%
Exchange-traded products	321.0			1.27			379.7			1.51			(15.5	)%		(15.5	)%
Total options contracts	1,122.3			4.45			1,274.8			5.06			(12.0	)%		(12.0	)%
Futures contracts	51.7			0.21			50.6			0.20			2.1	%		2.1	%
Total contracts	1,174.0			4.66			1,325.4			5.26			(11.4	)%		(11.4	)%

The following provides the percentage of volume by product category for the years ended December 31, 2015 and 2014.

		2015			2014
Equities		33.5	%		36.9	%
Indexes		34.8	%		30.7	%
Exchange-traded products		27.3	%		28.6	%
Futures		4.4	%		3.8	%
Total		100.0	%		100.0	%

Average Revenue Per Contract

The average revenue per contract was $0.388 in 2015, an increase of 17.6% compared with $0.330 in 2014. Average revenue per contract represents transaction fees divided by total contracts.

The following summarizes average revenue per contract by product category for 2015 compared to 2014.

	2015				2014				Percent Change
Equities	$	0.093			$	0.076			22.4	%
Indexes	0.711				0.679				4.7	%
Exchange-traded products	0.130				0.112				16.1	%
Total options revenue per contract	0.328				0.279				17.6	%
Futures	1.694				1.623				4.4	%
Total average revenue per contract	$	0.388			$	0.330			17.6	%

Factors contributing to the change in total average revenue per contract for the year ended December 31, 2015 compared to the same period in 2014 included:

•

Product mix—We experienced a shift in overall product mix. As a percentage of total volume, equities decreased to 33.5% from 36.9%, indexes increased to 34.8% from 30.7% and futures increased to 4.4% from 3.8%. Equities represent our lowest average revenue per contract, while index options and futures generate our highest options average revenue per contract and our highest total average revenue per contract, respectively.

•	Rate structure— Our rate structure includes sliding scales, volume discounts, volume incentive programs and caps on fees as part of our effort to increase liquidity and market share in multiply-listed options. The increase in average revenue per contract across all product categories was primarily a result of fee changes implemented in 2015 and lower volume discounts and incentives.

Access Fees

Access fees for the year ended December 31, 2015 decreased to $53.3 million from $59.3 million in the comparable prior year period. The decrease in access fees was primarily due to a reduction in the number of trading permits.

Exchange Services and Other Fees

Exchange services and other fees for the year ended December 31, 2015 increased 11.0% to $42.2 million from $38.0 million in the comparable period in the prior year. The increase was primarily a result of higher fees for technology services and revenue generated from Livevol, which was acquired on August 7, 2015.

Market Data Fees

Market data fees decreased 1.4% to $30.0 million for the year ended December 31, 2015 from $30.4 million in the prior year. For the years ended December 31, 2015 and 2014, income derived from our market data services totaled $16.0 million and $15.4 million, respectively, and OPRA income totaled $14.0 million and $15.0 million, respectively. Revenue generated from our market data services increased $0.6 million, resulting primarily from an increase in subscribers and fees for certain market data services. The Company's share of total cleared options transactions for the period ended December 31, 2015 decreased to 23.3% from 24.9% for the same period in 2014 and total distributable OPRA income decreased compared to the prior year period resulting in lower revenue for the period ended December 31, 2015 compared to the same period in 2014.

Regulatory Fees

Regulatory fees decreased 9.7% for the year ended 2015 to $33.5 million from $37.1 million in the same period in the prior year. The decrease in regulatory fees was primarily the result of lower options regulatory fees and a decrease in regulatory fees received for other regulatory services.

Other Revenue

Other revenue increased $4.9 million for the year ended 2015 to $19.5 million from $14.6 million in the same period in the prior year. The increase in other revenue was primarily due to higher regulatory fines assessed for disciplinary actions and the recognition of revenue to adjust for incorrect coding of transactions by an exchange participant related to prior periods.

Operating Expenses

Total operating expenses increased $11.2 million, or 3.7%, to $314.6 million for the year ended 2015 from $303.4 million in the year ago period, resulting from higher depreciation and amortization, technology support services, professional fees and outside services and royalty fees, partially offset by lower compensation and benefits. Expenses increased to 49.6% of total operating revenues in the year ended 2015 compared with 49.2% in the same period in 2014.

The following summarizes changes in operating expenses for the year ended December 31, 2015 compared to 2014.

	2015				2014				Inc./(Dec.)				Percent Change
	(in millions)
Compensation and benefits	$	105.9			$	121.7			$	(15.8	)		(13.0	)%
Depreciation and amortization	46.3				39.9				6.4				15.9	%
Technology support services	20.7				19.2				1.5				7.7	%
Professional fees and outside services	50.1				32.0				18.1				56.6	%
Royalty fees	70.6				66.1				4.5				6.8	%
Order routing	2.3				4.1				(1.8		)		(43.8	)%
Travel and promotional expenses	8.9				9.0				(0.1		)		(0.7	)%
Facilities costs	5.0				5.7				(0.7		)		(12.6	)%
Other expenses	4.8				5.7				(0.9		)		(14.3	)%
Total operating expenses	$	314.6			$	303.4			$	11.2			3.7	%

Compensation and Benefits

For the year ended December 31, 2015, compensation and benefits were $105.9 million, or 16.7% of total operating revenues, compared with $121.7 million, or 19.7% of total operating revenues, in the same period in 2014. This represented a decrease of $15.8 million, or 13.0%, which primarily resulted from lower stock-based compensation, a reduction in headcount and lower severance expense. The reduction in headcount and severance was primarily due to the transition of certain regulatory functions to FINRA which occurred in December 2014. The twelve months ended December 31, 2014 included $2.5 million of accelerated stock-based compensation expense for certain executives due to provisions contained in their employment arrangements.

Depreciation and Amortization

Depreciation and amortization increased by $6.4 million to $46.3 million for the year ended December 31, 2015 compared with $39.9 million for the same period in 2014. The increase in depreciation and amortization primarily resulted from capital spending to develop and enhance our trading platform and operations and the acceleration of depreciation for certain assets that have a shorter than expected useful life.

Professional Fees and Outside Services

Expenses related to professional fees and outside services increased to $50.1 million for the year ended December 31, 2015 from $32.0 million in the prior-year period, an increase of $18.1 million, which primarily resulted from higher contract services related to the transition of certain regulatory services for CBOE and C2 to FINRA which occurred in December 2014.

Royalty Fees

Royalty fees for the year ended December 31, 2015 were $70.6 million compared with $66.1 million for the prior year period, an increase of $4.5 million, which primarily resulted from higher trading volume in licensed products.

Operating Income

As a result of the items above, operating income in 2015 was $319.9 million compared to $313.8 million in 2014, an increase of $6.1 million.

Other Income/(Expense)

Other income/(expense) reflected income of $4.1 million for the year ended December 31, 2015 compared with a loss of $4.1 million for the same period in the prior year. The income in 2015 primarily included the Company's share of equity earnings of Signal Trading Systems, LLC ("Signal") and the $3.4 million of dividend income declared by the OCC in December 2015. In 2014, the expense primarily included the Company's share of the operating losses of Signal and the impairment of our investment in IPXI, which totaled $3.0 million.

Income before Income Taxes

As a result of the items above, income before income taxes in 2015 was $324.0 million compared to $309.7 million in 2014, an increase of $14.3 million.

Income Tax Provision

For the year ended December 31, 2015, the income tax provision was $119.0 million compared with $120.0 million for the same period in 2014. The effective tax rate was 36.7% and 38.7% for the years ended December 31, 2015 and 2014, respectively. The lower effective tax rate was primarily due to the recognition of a tax benefit associated with the release and expiration of uncertain tax positions.

Net Income

As a result of the items above, net income allocated to common stockholders in 2015 was $204.1 million compared to $188.4 million in 2014, an increase of $15.7 million. Basic and diluted net income per share allocated to common stockholders were $2.46 and $2.21 for the years ended December 31, 2015 and 2014, respectively.

Liquidity and Capital Resources

Our cash requirements principally consist of funding operating expenses, capital expenditures, actual and anticipated quarterly and special dividend payments and common stock repurchases under the previously announced program. In addition, we will require significant capital in order to complete our proposed acquisition of Bats. In connection with the anticipated Merger, we have entered into several indebtedness arrangements in September 2016, December 2016 and in January 2017 to finance the Merger and fund our ongoing cash needs in 2017 and the combined company following the Merger, as further described below.

Short-Term Debt Facilities

In connection with entering into the Merger Agreement, the Company entered into a commitment letter with Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (or any of its designated affiliates) (Bank of America, N.A., and other such financial institutions that accede as lender to such debt commitment letter in accordance with its terms are referred to herein as the “Lenders”), which provides that, subject to the satisfaction and waiver of certain conditions which are usual and customary for financing of this type, the Lenders are committed to provide debt financing for the purposes of funding (i) the cash consideration to be paid in the transactions contemplated by the Merger Agreement, (ii) the refinancing of certain existing indebtedness of Bats and its subsidiaries and (iii) related fees and expenses, which debt financing consists of a senior unsecured 364-day bridge loan facility in an aggregate principal amount of up to $1.65 billion to the extent the Company fails to generate gross cash proceeds in an aggregate principal amount of up to $1.65 billion from permanent financing including in the form of a senior unsecured term loan facility and the issuance of senior unsecured notes on or prior to the consummation of the transaction contemplated by the Merger Agreement. In lieu of entering into the bridge loan facility, the Company entered into a term loan agreement and completed a notes offering, as described below, securing $1.65 billion to finance the cash portion of its pending acquisition of Bats as well as the repayment of Bats' existing indebtedness.

Term Loan Agreement

On December 15, 2016, the Company, as borrower, entered into a Term Loan Credit Agreement (the “Term Loan Agreement”) with Bank of America, N.A., as administrative agent, certain lenders named therein (the “Term Lenders”), Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, Morgan Stanley MUFG Loan Partners, LLC, as syndication agent, and Citibank, N.A., PNC Bank, National Association and JPMorgan Chase Bank, N.A., as co-documentation agents.

The Term Loan Agreement provides for a senior unsecured delayed draw term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $1.0 billion. We may also, subject to the agreement of the applicable Term Lenders, increase the commitments under the Term Loan Agreement by up to $500 million for a total of $1.5 billion. Proceeds from the Term

Loan Facility, if drawn, may be used to finance the Merger and to fund working capital needs and for other general corporate purposes. The availability of the commitments under the Term Loan Agreement is conditioned upon, among other things, confirmation that the Merger has been consummated, or will be consummated substantially concurrently with the extension of the loans under the Term Loan Agreement. As of December 31, 2016, we had not drawn upon the commitments in the Term Loan Agreement.

Commitments under the Term Loan Agreement will expire on the earlier of (i) the consummation of the Merger (after giving effect to the funding of the committed loans in accordance with and subject to the terms of the Term Loan Agreement), (ii) July 25, 2017 (or if the outside date is extended pursuant to the terms of the Merger Agreement, October 23, 2017), (iii) the closing of the Merger without using the loans under the Term Loan Agreement and (iv) the termination of the Merger Agreement in accordance with the terms thereof. Loans under the Term Loan Agreement, if drawn, will mature five years following the closing date of the Merger. The Term Loan Facility is unsecured and is not expected to be guaranteed by any subsidiary.

Loans under the Term Loan Agreement will bear interest, at our option, at either (i) the London Interbank Offered Rate (“LIBOR”) periodically fixed for an interest period (as selected by us) of one, two, three or six months plus a margin (based on our public debt ratings) ranging from 1.00 percent per annum to 1.75 percent per annum or (ii) a daily floating rate based on the agent’s prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on our public debt ratings) ranging from zero percent per annum to 0.75 percent per annum. We will be required to pay a ticking fee to the agent for the account of the Term Lenders which will initially accrue at a rate (based on our public debt ratings) ranging from 0.10 percent per annum to 0.30 percent per annum multiplied by the undrawn aggregate commitments of the Term Lenders in respect of the Term Loan Facility, accruing during the period commencing on December 15, 2016 and ending on the earlier of (i) the date on which the loans are drawn and (ii) the termination of the commitments under the Term Loan Agreement in accordance with the terms thereof.

The Term Loan Agreement contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default and indemnification provisions in favor of the Term Lenders. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by the our subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require us to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. As of December 31, 2016, we had not drawn upon the commitments in the Term Loan Agreement.

Revolving Credit Agreement

On December 15, 2016, the Company, as borrower, entered into a Credit Agreement (the “Revolving Credit Agreement”) with Bank of America, N.A., as administrative agent and as swing line lender, certain lenders named therein (the “Revolving Lenders”), Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole lead arranger and sole bookrunner, Morgan Stanley MUFG Loan Partners, LLC, as syndication agent, and Citibank, N.A., PNC Bank, National Association and JPMorgan Chase Bank, N.A., as co-documentation agents.

The Revolving Credit Agreement provides for a senior unsecured $150 million five-year revolving credit facility (the “Revolving Credit Facility”) that includes a $25 million swing line sub-facility. We may also, subject to the agreement of the applicable lenders, increase the commitments under the Revolving Credit Facility by up to $100 million, for a total of $250 million. Subject to specified conditions, we may designate one or more of our subsidiaries as additional borrowers under the Revolving Credit Agreement provided that we guarantee all borrowings and other obligations of any such subsidiaries. As of December 31, 2016, no subsidiaries were designated as additional borrowers.

Funds borrowed under the Revolving Credit Agreement may be used to fund working capital and for other general corporate purposes. As of December 31, 2016, no borrowings were outstanding under the Revolving Credit Agreement. Accordingly, at December 31, 2016, $150 million of borrowing capacity was available for the purposes permitted by the Revolving Credit Agreement.

Loans under the Revolving Credit Agreement will bear interest, at our option, at either (i) LIBOR periodically fixed for an interest period (as selected by us) of one, two, three or six months plus a margin (based on our public debt ratings) ranging from 1.00 percent per annum to 1.75 percent per annum or (ii) a daily floating rate based on our prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on our public debt ratings) ranging from zero percent per annum to 0.75 percent per annum.

Subject to certain conditions stated in the Revolving Credit Agreement, we may borrow, prepay and reborrow amounts under the Revolving Credit Facility at any time during the term of the Revolving Credit Agreement. The Revolving Credit Agreement will terminate and all amounts owing thereunder will be due and payable on December 15, 2021, unless the commitments are terminated earlier, either at our request or, if an event of default occurs, by the Revolving Lenders (or automatically in the case of certain bankruptcy-related events). The Revolving Credit Agreement contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default and indemnification provisions in favor of the Revolving Lenders. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by our subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require us to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. As of December 31, 2016, we had not drawn upon the Revolving Credit Agreement.

3.650% Senior Notes due 2027

On January 12, 2017, the Company entered into an indenture (the “Indenture”), by and between the Company and Wells Fargo Bank, National Association, as trustee (the “Trustee”), in connection with the issuance of $650 million aggregate principal amount of the Company’s 3.650% Senior Notes due 2027 (the “Notes”). The form and terms of the Notes were established pursuant to an Officer’s Certificate, dated as of January 12, 2017 (the “Officer’s Certificate”), supplementing the Indenture.

The Company intends to use a portion of the net proceeds from the Notes to fund, in part, the Merger, including the payment of related fees and expenses and the repayment of Bats’ existing indebtedness, and the remainder for general corporate purposes. The Notes mature on January 12, 2027 and bear interest at the rate of 3.650% per annum, payable semi-annually in arrears on January 12 and July 12 of each year, commencing July 12, 2017. The Notes are unsecured obligations of the Company and rank equally with all of the Company’s other existing and future unsecured, senior indebtedness, but are effectively junior to the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness, and will not be the obligations of any of the Company’s subsidiaries.

The Company has the option to redeem some or all of the Notes, at any time in whole or from time to time in part, at the redemption prices set forth in the Officer’s Certificate. The Notes will be subject to a special mandatory redemption in the event that the Merger is not consummated on or prior to October 23, 2017 or, if prior to October 23, 2017, the Merger Agreement is terminated other than in connection with the consummation of the Merger and is not otherwise amended or replaced. In such an event, the Notes will be redeemed at a price equal to 101% of the aggregate principal amount thereof. The Company may also be required to offer to repurchase the Notes upon the occurrence of a Change of Control Triggering Event (as such term is defined in the Officer’s Certificate) at a repurchase price equal to 101% of the aggregate principal amount of Notes to be repurchased.

Cash Flows

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

Operating Activities

Net cash provided by operating activities was $229.6 million and $245.3 million for the years ended December 31, 2016 and 2015, respectively. The decrease in net cash flows provided by operating activities was primarily due to lower net income.

Net cash provided by operating activities was $43.8 million higher than net income for the fiscal year ended December 31, 2016. The difference was mainly a result of $44.4 million in depreciation and amortization and the recognition of stock-based compensation totaling $14.5 million, accounts payable and accrued liabilities of $19.8 million, partially offset by increases in accounts receivable of $7.4 million and income taxes receivable of $25.8 million.

Investing Activities

Net cash flows used in investing activities totaled $84.4 million and $79.4 million for the years ended December 31, 2016 and 2015, respectively. Expenditures for capital and other assets totaled $44.4 million and $39.3 million for the years ended December 31, 2016 and 2015, respectively, primarily representing purchases of systems hardware and development of software to develop and enhance our trading platform and operations. In 2016, investing activities primarily represented our majority investment in Vest, which totaled $14.3 million, and other investments totaling $23.3 million, which primarily includes our investments in CurveGlobal and Eris.

In 2015, we also acquired a business, Livevol, which totaled $3.0 million and made investments totaling $35.4 million, which primarily reflects our $30.0 million contribution to OCC, as part of the capital plan and other minority investments.

Our future expenditures for capital and other assets are expected to be primarily driven by spending to enhance the company's systems, as well as ongoing investments in systems hardware and software that enhance trading technology. In connection with the anticipated merger with Bats and the planned migration to the Bats trading platform and the suspension of CBOE Vector, our investment of $15.0 million related to the development of Vector, in 2017, could become obsolete or result in a shorter than expected useful life.

Financing Activities

Net cash flows used in financing activities totaled $150.1 million and $211.5 million for the years ended December 31, 2016 and 2015, respectively. The $61.4 million decrease in net cash flows used in financing activities resulted primarily from lower repurchases of common stock in 2016.

For the year ended December 31, 2016, net cash flows used in financing activities consisted of $60.5 million in common stock purchases under the Company's share repurchase program, $78.5 million for the payment of quarterly dividends, $4.1 million for other share repurchases, which consisted of common stock surrendered to satisfy employees' tax obligations upon the vesting of restricted stock and payments of financing fees in conjunction with the pending acquisition of Bats totaling $8.1 million.

Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014

Operating Activities

Net cash provided by operating activities was $245.3 million and $262.7 million for the years ended December 31, 2015 and 2014, respectively. The decrease in net cash flows provided by operating activities was primarily due to lower deferred income taxes, income tax liability and stock-based compensation, higher accounts receivable and income taxes receivable, partially offset by higher net income and higher depreciation and amortization.

Net cash provided by operating activities was $40.3 million higher than net income for the fiscal year ended December 31, 2015. The difference was mainly a result of $46.3 million in depreciation and amortization and the recognition of stock-based compensation totaling $12.2 million, partially offset by increases in accounts receivable of $4.8 million and income taxes receivable of $6.4 million.

Investing Activities

Net cash flows used in investing activities totaled $79.4 million and $52.1 million for the years ended December 31, 2015 and 2014, respectively. Expenditures for capital and other assets totaled $39.3 million and $50.2 million for the years ended December 31, 2015 and 2014, respectively, primarily representing purchases of systems hardware and development of software to develop and enhance our trading platform and operations. We also acquired a business, Livevol, which totaled $3.0 million. Additionally, investments totaled $35.4 million in 2015, which primarily reflects our $30 million contribution to OCC, as part of the capital plan discussed below, and other minority investments.

Financing Activities

Net cash flows used in financing activities totaled $211.5 million and $283.9 million for the years ended December 31, 2015 and 2014, respectively. The $72.4 million decrease in net cash flows used in financing activities resulted primarily from a special dividend paid in 2014 totaling $43.8 million and lower repurchases of common stock in 2015.

For the year ended December 31, 2015, net cash flows used in financing activities consisted of $132.2 million in common stock purchases under the Company's share repurchase program, $73.4 million for the payment of quarterly dividends, $3.2 million for other share repurchases, which consisted of common stock surrendered to satisfy employees' tax obligations upon the vesting of restricted stock and the payment of outstanding debt in conjunction with the acquisition of Livevol totaling $4.0 million.

Dividends

The Company’s expectation is to continue to pay dividends. The decision to pay a dividend, however, remains within the discretion of the Company's board of directors and may be affected by various factors, including our earnings, financial condition, capital requirements, level of indebtedness and other considerations our board of directors deems relevant. Future debt obligations and statutory provisions, among other things, may limit, or in some cases prohibit, our ability to pay dividends.

Share Repurchase Program

In 2011, the Company's 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, 2015, and February 2016 for a total authorization of $600 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.

For the year ended December 31, 2016, the Company purchased 947,786 shares of common stock at an average cost per share of $63.83, totaling $60.5 million in purchases under the program.

Since inception of the program, the Company purchased 10,947,401 shares of common stock at an average cost per share of $45.95, totaling $503.0 million in purchases under the program.

As of December 31, 2016, the Company had $97 million of availability remaining under its existing share repurchase authorizations.

OCC Capital Plan

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. Certain petitioners subsequently appealed the SEC approval order for the OCC capital plan to the U.S. Court of Appeals for the D.C. Circuit and moved to stay the SEC approval order. On February 23, 2016, the Court denied the petitioners’ motion to stay. The appeal of the SEC approval order remains pending. CBOE's contribution has been recorded under Investments in the balance sheet at December 31, 2016.

Off-Balance Sheet Arrangements

We currently do not have any relationships with unconsolidated entities or financial partnerships, often referred to as structured finance or special purpose entities, that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Lease and Contractual Obligations

The Company currently leases additional office space, a data center and remote network operations center, with lease terms remaining from 3 months to 103 months as of December 31, 2016. In December 2014, we entered into an agreement with FINRA to provide certain regulatory services to the CBOE and C2 options markets. The agreement included the assignment of the office space CBOE leased for regulatory operations.

Total rent expense related to current and former lease obligations for the years ended December 31, 2016, 2015 and 2014 totaled $4.4 million, $4.1 million and $3.8 million, respectively. Future minimum payments under our operating leases and contractual obligations were as follows at December 31, 2016 (in thousands):

	Total(1)				Less than 1 year				1 - 3 years				3 - 5 years				More than 5 years
Operating leases	$	3,247			$	1,182			$	749			$	406			$	910
Contractual obligations (2)	201,274				34,306				62,329				43,135				61,504
Total	$	204,521			$	35,488			$	63,078			$	43,541			$	62,414

(1) Gross unrecognized income tax liabilities, excluding interest and penalties, of $41.9 million are not included in the table due to uncertainty about the date of their settlement.

(2) Contractual obligations means an agreement to purchase goods or services that is enforceable and legally binding

and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable

price provisions; and the approximate timing of the transaction.

On January 12, 2017, the Company entered into an indenture, by and between the Company and Wells Fargo Bank, National Association, as trustee, in connection with the issuance of $650 million aggregate principal amount of the Company’s 3.650% Senior Notes due 2027. The Notes will be subject to a special mandatory redemption in the event that the Merger is not consummated on or prior to October 23, 2017 or, if prior to October 23, 2017, the Merger Agreement is terminated other than in connection with the consummation of the Merger and is not otherwise amended or replaced. In such an event, the Notes will be redeemed at a price equal to 101% of the aggregate principal amount thereof.

If the Merger Agreement is terminated under certain specified circumstances, CBOE Holdings may be required to pay

Bats a termination fee of $110 million and/or reimburse Bats’ expenses up to $10 million under the Merger Agreement.