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	65
Consolidated Balance Sheets as of December 31, 2016 and 2015	67
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014	68
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014	69
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014	70
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2016, 2015 and 2014	71
Notes to Consolidated Financial Statements	72

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. (the “Company”) as of

December 31, 2016 and 2015, 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, 2016. 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. as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, 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, 2016, 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 21, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 21, 2017

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. (the “Company”) as of

December 31, 2016, 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, 2016, 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, 2016 of the Company and our report dated

February 21, 2017 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 21, 2017

CBOE Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2016 and December 31, 2015

(in thousands, except share amounts)	December 31, 2016				December 31, 2015
Assets
Current Assets:
Cash and cash equivalents	$	97,298			$	102,253
Accounts receivable—net allowances of 2016 - $127 and 2015 - $150	69,902				62,535
Marketing fee receivable	6,685				5,682
Income taxes receivable	53,708				27,901
Other prepaid expenses	5,360				5,122
Deferred financing costs	1,958				—
Other current assets	134				625
Total Current Assets	235,045				204,118
Investments	72,923				48,430
Land	4,914				4,914
Property and Equipment:
Construction in progress	173				885
Building	77,026				70,531
Furniture and equipment	138,837				144,597
Less accumulated depreciation and amortization	(160,101		)		(155,653		)
Total Property and Equipment—Net	55,935				60,360
Goodwill	26,468				7,655
Other Assets:
Intangible assets (less accumulated amortization --2016 - $1,894 and 2015 - $182)	8,666				2,378
Software development work in progress	12,305				13,836
Data processing software and other assets (less accumulated amortization of 2016 - $171,950; 2015 - $164,152)	50,675				43,097
Deferred tax asset	3,494				—
Deferred financing long-term	6,190				—
Total Other Assets—Net	81,330				59,311
Total	$	476,615			$	384,788
Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	79,400			$	60,104
Marketing fee payable	7,218				6,141
Deferred revenue and other liabilities	3,107				4,019
Post-retirement benefit obligation - current	100				100
Contingent consideration - current	—				2,000
Income taxes payable	18				1,633
Total Current Liabilities	89,843				73,997
Long-term Liabilities:
Post-retirement benefit obligation - long-term	1,843				1,896
Contingent consideration - long-term	—				1,379
Income taxes liability	52,100				39,679
Other long-term liabilities	2,283				2,883
Deferred income taxes	—				5,309
Total Long-term Liabilities	56,226				51,146
Commitments and Contingencies
Total Liabilities	146,069				125,143
Redeemable Noncontrolling Interests	12,600				—
Stockholders' Equity:
Preferred stock, $0.01 par value: 20,000,000 shares authorized, no shares issued and outstanding at December 31, 2016 or 2015	—				—
Common stock, $0.01 par value: 325,000,000 shares authorized; 92,950,065 issued and 81,285,307 outstanding at December 31, 2016; 92,738,803 issued and 82,088,549 outstanding at December 31, 2015	929				927
Additional paid-in-capital	139,249				123,577
Retained earnings	710,779				603,597
Treasury stock at cost – 11,664,758 shares at December 31, 2016 and 10,650,254 shares at December 31, 2015	(532,249		)		(467,632		)
Accumulated other comprehensive loss	(762		)		(824		)
Total Stockholders' Equity	317,946				259,645
Total	$	476,615			$	384,788

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2016, 2015 and 2014

	Year Ended				Year Ended				Year Ended
(in thousands, except per share amounts)	December 31, 2016				December 31, 2015				December 31, 2014
Operating Revenues:
Transaction fees	$	463,294			$	456,016			$	437,764
Access fees	52,358				53,295				59,332
Exchange services and other fees	46,261				42,209				38,042
Market data fees	33,159				30,034				30,447
Regulatory fees	48,321				33,489				37,083
Other revenue	13,553				19,502				14,557
Total Operating Revenues	656,946				634,545				617,225
Operating Expenses:
Compensation and benefits	113,152				105,925				121,734
Depreciation and amortization	44,377				46,274				39,913
Technology support services	22,465				20,662				19,189
Professional fees and outside services	78,543				50,060				31,976
Royalty fees	77,953				70,574				66,110
Order routing	900				2,293				4,080
Travel and promotional expenses	10,971				8,982				9,046
Facilities costs	5,693				4,998				5,721
Other expenses	4,692				4,849				5,655
Total Operating Expenses	358,746				314,617				303,424
Operating Income	298,200				319,928				313,801
Other Income/(Expense):
Investment and other income	12,984				3,692				113
Net income/(loss) from investments	1,167				447				(4,217		)
Interest and other borrowing costs	(5,747		)		(43		)		—
Total Other Income/(Expense)	8,404				4,096				(4,104		)
Income Before Income Taxes	306,604				324,024				309,697
Income tax provision	120,884				119,001				119,983
Net Income	185,720				205,023				189,714
Net loss attributable to noncontrolling interests	1,100				—				—
Net Income Excluding Noncontrolling Interests	186,820				205,023				189,714
Change in redemption value of noncontrolling interests	(1,100		)		—				—
Net Income allocated to participating securities	(775		)		(898		)		(1,322		)
Net Income Allocated to Common Stockholders	$	184,945			$	204,125			$	188,392
Net Income Per Share Allocated to Common Stockholders:
Basic	$	2.27			$	2.46			$	2.21
Diluted	2.27				2.46				2.21
Weighted average shares used in computing income per share:
Basic	81,432				83,081				85,406
Diluted	81,432				83,081				85,406

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2016, 2015 and 2014

	Year Ended				Year Ended				Year Ended
(in thousands)	December 31, 2016				December 31, 2015				December 31, 2014
Net Income	$	185,720			$	205,023			$	189,714
Other Comprehensive Income (Loss) - net of tax:
Post retirement benefit obligation	62				(135		)		361
Comprehensive Income	185,782				204,888				190,075
Comprehensive loss attributable to noncontrolling interests	1,100				—				—
Comprehensive Income Excluding noncontrolling interests	186,882				204,888				190,075
Change in redemption value of noncontrolling interests	(1,100		)		—				—
Comprehensive income allocated to participating securities	(775		)		(898		)		(1,322		)
Comprehensive Income Allocated to Common Stockholders	$	185,007			$	203,990			$	188,753

See notes to consolidated financial statements

CBOE Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2016, 2015 and 2014

	Year Ended				Year Ended				Year Ended
(in thousands)	December 31, 2016				December 31, 2015				December 31, 2014
Cash Flows from Operating Activities:
Net Income	$	185,720			$	205,023			$	189,714
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	44,377				46,274				39,913
Other amortization	78				81				87
Provision for deferred income taxes	(8,845		)		(8,282		)		(290		)
Gain on settlement of contingent consideration	(1,399		)		—				—
Stock-based compensation	14,503				12,181				15,577
Loss on disposition of property	9				617				662
Equity (gain)/loss in investments	(1,167		)		(811		)		1,217
Impairment of investment and other assets	—				118				3,000
Changes in assets and liabilities:
Accounts receivable	(7,367		)		(4,847		)		(8,498		)
Marketing fee receivable	(1,003		)		5,015				(1,828		)
Income taxes receivable	(25,807		)		(6,398		)		536
Prepaid expenses	(213		)		(500		)		(615		)
Other current assets	491				799				1,745
Accounts payable and accrued expenses	19,841				1,550				5,888
Marketing fee payable	1,077				(5,095		)		1,794
Deferred revenue and other liabilities	(1,512		)		717				1,229
Post-retirement benefit obligations	(26		)		(19		)		(28		)
Income tax liability	12,421				(1,004		)		10,780
Income tax payable	(1,615		)		(141		)		1,774
Net Cash Flows Provided by Operating Activities	229,563				245,278				262,657
Cash Flows from Investing Activities:
Capital and other assets expenditures	(44,402		)		(39,340		)		(50,154		)
Acquisition of a majority interest in a business, net of cash received	(14,257		)		(2,960		)		—
Payment of contingent consideration from acquisition	(1,980		)		—				—
Investments	(23,326		)		(35,386		)		(1,987		)
Other	(421		)		(1,735		)		3
Net Cash Flows Used in Investing Activities	(84,386		)		(79,421		)		(52,138		)
Cash Flows from Financing Activities:
Payment of quarterly dividends	(78,538		)		(73,431		)		(66,999		)
Payment of special dividend	—				—				(43,831		)
Deferred financing costs	(8,148		)		—				—
Excess tax benefit from stock-based compensation	1,171				1,285				3,557
Purchase of common stock from employees	(4,119		)		(3,178		)		(8,332		)
Payment of outstanding debt in conjunction with acquisition of a business	—				(4,040		)		—
Purchase of common stock under announced program	(60,498		)		(132,167		)		(168,328		)
Net Cash Flows Used in Financing Activities	(150,132		)		(211,531		)		(283,933		)
Net Decrease in Cash and Cash Equivalents	(4,955		)		(45,674		)		(73,414		)
Cash and Cash Equivalents at Beginning of Period	102,253				147,927				221,341
Cash and Cash Equivalents at End of Period	$	97,298			$	102,253			$	147,927
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	142,056			$	133,460			$	103,976
Non-cash activities:
Change in post-retirement benefit obligation	(104		)		220				(583		)
Unpaid liability to acquire equipment and software	—				2,756				2,769
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, 2016, 2015 and 2014

(in thousands)	Preferred Stock				Common Stock				Additional Paid-In Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Loss				Total Stockholders' Equity				Redeemable Noncontrolling Interests
Balance-January 1, 2014	—				$	919			$	90,985			$	349,290			$	(155,627	)		$	(1,050	)		$	284,517
Cash dividends on common stock of $0.78 per share													(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 of $0.88 per share													(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				—
Cash dividends on common stock of $0.96 per share													(78,538		)										(78,538		)
Stock-based compensation									14,503																14,503
Issuance of vested restricted stock granted to employees					2				(2		)														—
Excess tax benefits from stock-based compensation plan									1,171																1,171
Purchase of common stock																	(64,617		)						(64,617		)
Net Income excluding noncontrolling interests													186,820												186,820
Increase due to acquiring majority of outstanding equity of Vest																									—				12,600
Net loss attributable to redeemable noncontrolling interest																									—				(1,100		)
Redemption value adjustment													(1,100		)										(1,100		)		1,100
Post-retirement benefit obligation adjustment—net of tax expense of $42																					$	62			62
Balance-December 31, 2016	$	—			$	929			$	139,249			$	710,779			$	(532,249	)		$	(762	)		$	317,946			$	12,600

See notes to consolidated financial statements.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2016, 2015 and 2014

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.

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 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.

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

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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 2). 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 - core CBOE and CBOE Vest. 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, 2016, we had 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.

Business Combinations —The Company accounts for business combinations using the acquisition method. The method requires the acquirer to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. The Company may use independent valuation services to assist in determining the estimated fair values.

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 and Trading Privilege 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 9) 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.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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, 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 the 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.

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 $6.0 million, $4.7 million and $4.3 million for the years ended December 31, 2016, 2015 and 2014, 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. 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 12 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. 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.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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.

2. ACQUISITION - GOODWILL AND INTANGIBLE ASSETS

CBOE Vest Financial Group Inc.

In January 2016, the Company, through its subsidiary CBOE Vest, LLC, acquired a majority of the outstanding equity of Vest, an asset management firm that provides options-based investments through structured protective strategies and innovative technology solutions which allows for enhanced integration of our proprietary products, strategy indexes and options expertise. The purchase price consisted of $18.9 million in cash, reflecting payments of $14.9 million to former stockholders and $4.0 million to Vest for newly issued shares, and represented an ownership interest of 60% resulting in the consolidation of Vest operations. The purchase price was allocated to the assets acquired based on their fair values at the acquisition date. The allocation is identified below:

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

(amounts in thousands)
Purchase Price	$	18,900
Fair Value of Assets Acquired:
Cash	$	4,700
Intangible assets	8,000
Goodwill	18,800
Total Assets Acquired	$	31,500
Redeemable noncontrolling interests	12,600
Net Assets Acquired	$	18,900

The remaining 40% noncontrolling interest is held by the remaining Vest stockholders. The remaining Vest stockholders have a put option that can be exercised to Vest and Vest has a call option that can be exercised to the remaining stockholders. The put and call options can be exercised after five years though they could be accelerated by certain employment-related actions. The combination of the noncontrolling interest and a redemption feature resulted in a redeemable noncontrolling interest, which is classified outside of permanent equity on the consolidated balance sheet.

In addition to the tangible and intangible assets, goodwill totaling $18.8 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 not expected to be deductible for tax purposes.

Vest - Intangible Assets

Intangible assets totaling $8.0 million were recorded in 2016 in connection with the acquisition of Vest and include: customer relationships, trade names, and technology. Intangible assets and related accumulated amortization consisted of the following as of December 31, 2016 (in thousands):

	As of December 31, 2016			Estimated Useful Lives
Customer relationships	$	3,000		9 years
Trade names	1,000			7 years
Technology	4,000			5 years
Total Intangible Assets Acquired	8,000
Less accumulated amortization	1,276
Total Intangibles, net	$	6,724

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

For the year ended December 31, 2016, amortization of Vest intangible assets was $1.3 million. The remaining weighted average useful lives of the intangible assets is 5.8 years as of December 31, 2016. The future expected amortization expense from the intangible assets related to the Vest acquisition as of December 31, 2016 is as follows (in thousands):

Year		Amortization expense
2017		$	1,276
2018		1,276
2019		1,276
2020		1,276
2021		476
Total		$	5,580

Livevol - Intangible Assets

Intangible assets totaling $2.6 million recorded in 2015 in connection with the acquisition of Livevol included: 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, 2016 (in thousands):

	As of December 31, 2016			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	617
Total Intangibles, net	$	1,943

For the twelve months ended December 31, 2016, amortization of Livevol intangible assets was $0.4 million. The remaining weighted average useful lives of the intangible assets is 7.6 years as of December 31, 2016. The future expected amortization expense from the intangible assets related to the Livevol acquisition as of December 31, 2016 is as follows (in thousands):

Year		Amortization expense
2017		379
2018		349
2019		309
2020		206
2021		107
Total		$	1,350

3. INVESTMENTS

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

At December 31, 2016 and 2015, the Company's investments were comprised of the following (in thousands):

	December 31, 2016				December 31, 2015
Equity Method
Investment in Signal Trading Systems, LLC	$	12,409			$	12,185
Investment in CBOE Stock Exchange, LLC	—				—
Total equity method investments	12,409				12,185
Cost Method
Investment in OCC	30,333				30,333
Other cost method investments	30,181				5,912
Total cost method investments	60,514				36,245
Total Investments	$	72,923			$	48,430

Equity Method

The carrying amount of our equity method investments totaled $12.4 million and $12.2 million as of December 31, 2016 and 2015, 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, 2016, the Company recorded contributions to Signal of $2.0 million and equity earnings in Signal of $1.2 million. Additionally, the Company received distributions from Signal of $2.9 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 $60.5 million and $36.2 million as of December 31, 2016 and 2015, 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, 2016, our cost method investments primarily reflect our 20% investment in OCC and minority investments in American Financial Exchange ("AFX"), CurveGlobal and Eris Exchange Holdings, LLC ("Eris").

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

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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.

In 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.

In January 2016, CBOE Holdings, through its subsidiary CBOE III, LLC, acquired a minority interest in CurveGlobal, an interest rate derivatives venture.

In May 2016, CBOE Holdings, through its subsidiary CBOE III, LLC, acquired a minority interest in Eris Exchange Holdings, LLC (“Eris”), the parent of a U.S. based futures exchange group.

4. DEBT

CBOE Holdings and Bats Global Markets, Inc. (“Bats”) entered into an Agreement and Plan of Merger, dated as of September 25, 2016 (the “Merger Agreement”), providing, among other things, that, upon the terms and subject to the conditions set forth in the Merger Agreement, a wholly-owned subsidiary of CBOE Holdings will merge with and into Bats, with Bats surviving as a wholly-owned subsidiary of CBOE Holdings (the “Merger”). The Merger Agreement also provides that, immediately following the effective time of the Merger, Bats, as the surviving corporation from the Merger, will merge with and into CBOE V, LLC (“Merger LLC”), a wholly-owned subsidiary of CBOE Holdings, Inc. (the “Subsequent Merger”), with Merger LLC surviving the Subsequent Merger as a wholly-owned subsidiary of CBOE Holdings. The following outlines the steps the Company has taken regarding short and long-term financing related to the Merger and acquiring funding available for general corporate purposes.

Bridge Facility

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. The Company paid commitment and structuring fees of $6.0 million. Through December 31, 2016, we have amortized $5.7 million of these fees as a result of the Company entering into more permanent debt arrangements. 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,

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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.

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.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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.

5. REDEEMABLE NONCONTROLLING INTEREST

Redeemable noncontrolling interests are reported on the consolidated balance sheets in mezzanine equity in "Redeemable Noncontrolling Interests." We recognize changes to the redemption value of redeemable noncontrolling interests as they occur and adjust the carrying value to equal the redemption value at the end of each reporting period. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges or credits against retained earnings, or in the absence of retained earnings, additional paid in capital. The redemption amounts have been estimated based

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

on the fair value of the majority-owned subsidiary, determined based on a weighting of the discounted cash flow and other economic factors.

For the year ended December 31, 2016, the following reflects changes in our redeemable noncontrolling interests (in thousands):

	Redeemable Noncontrolling Interest
Balance as of January 1, 2016	$	—
Increase due to acquiring majority of outstanding equity of Vest	12,600
Net loss attributable to redeemable noncontrolling interest	(1,100		)
Redemption value adjustment	1,100
Balance as of December 31, 2016	$	12,600

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

At December 31, 2016 and 2015, accounts payable and accrued liabilities consisted of the following (in thousands):

	2016				2015
Compensation and benefit related liabilities	$	25,505			$	23,304
Royalties	17,807				15,409
Contract services	12,166				6,684
Acquisition related (1)	6,856				—
Accounts payable	6,466				1,762
Purchase of common stock (2)	—				1,778
Facilities	2,066				2,099
Legal	1,052				1,536
Market linkage	917				628
Other	6,565				6,904
Total	$	79,400			$	60,104

(1) As of December 31, 2016, this amount reflects professional fees and outside services associated with the proposed acquisition of Bats.

(2) Reflects shares purchased at the end of the period that are not settled until three trading days after the trade occurs. We were not active in our share repurchase program during the fourth quarter of 2016.

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, 2016 and 2015, amounts assessed by the Company on behalf of others included in current assets totaled $6.7 million and $5.7 million, respectively, and payments due to others included in current liabilities totaled $7.2 million and $6.1 million, respectively.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

8. DEFERRED REVENUE

The following tables summarize the activity in deferred revenue for the years ended December 31, 2016 and 2015 (in thousands):

	Balance at December 31, 2015				Cash Additions				Revenue Recognition				Balance at December 31, 2016
Liquidity provider sliding scale (1)	$	—			$	11,400			$	(11,400	)		$	—
Other, net	4,019				11,333				(12,245		)		3,107
Total deferred revenue	$	4,019			$	22,733			$	(23,645	)		$	3,107

	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

(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 2016 and 2015 transaction fees totaled $11.4 million and $14.4 million, respectively. These amounts were amortized and recorded ratably, as transaction fees over each respective year.

9. RELATED PARTIES

The Company collected transaction and other fees of $573.8 million, $596.1 million and $687.5 million in the years ended December 31, 2016, 2015 and 2014, respectively, by drawing on accounts of CBOE and C2 market participants held at OCC. The amounts collected by OCC for CBOE included $80.2 million, $95.7 million and $121.4 million of marketing fees during the years ended December 31, 2016, 2015 and 2014, respectively. Additionally, the Company collected transaction and other fees of $124.2 million, $96.1 million and $84.7 million in the years ended December 31, 2016, 2015 and 2014, respectively, by drawing on accounts of CFE market participants held at OCC. The Company had a receivable due from OCC of $59.8 million and $57.0 million at December 31, 2016 and 2015, 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 $15.7 million, $14.0 million and $15.1 million during the years ended December 31, 2016, 2015 and 2014, respectively. The Company had a receivable from OPRA of $4.8 million and $3.7 million at December 31, 2016 and 2015, respectively.

The Company incurred re-billable expenses on behalf of CBSX for expenses such as compensation and benefits, computer equipment and software of $0.4 million, $0.1 million and $2.4 million during the years ended December 31, 2016, 2015 and 2014, respectively. These amounts are included as a reduction of the underlying expenses. The Company had an immaterial receivable balance at December 31, 2016 and 2015 as a result of CBSX ceasing trading operations on April 30, 2014.

10. 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 Company's board of directors approved the amended and restated the CBOE Holdings, Inc. Long Term Incentive Plan (the "LTIP"), effective upon receiving stockholder approval, which was received at the May 19, 2016 annual meeting of

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

stockholders, which increased shares issuable by 3 million. The LTIP provides that an aggregate of 7,248,497 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, 2016, the Company granted 170,081 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 $61.80 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, 2016, the Company granted 49,238 RSUs that are contingent on the achievement of performance conditions including 24,619 at a fair value of $61.80 per RSU related to earnings per share during the performance period and 24,619 RSUs at a fair value of $83.00 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 (.90%), three-year volatility (21.1%) and three-year correlation with S&P 500 Index (0.41). 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 19, 2016, the Company granted 20,553 shares of restricted stock, at a fair value of $63.29 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, 2016, 2015 and 2014, the Company recognized $14.5 million, $12.2 million and $15.6 million, respectively, of stock-based compensation expense related to restricted stock. For the year ended December 31, 2016, the Company recorded $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 is included in compensation and benefits in the condensed consolidated statements of income.

As of December 31, 2016, the Company had unrecognized stock-based compensation expense of $14.4 million. The remaining unrecognized stock-based compensation is expected to be recognized over a weighted average period of 19.7 months.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

The activity in the Company's restricted stock and restricted stock units for the year ended December 31, 2016 was as follows:

	Number of Shares of Restricted Stock			Weighted Average Grant-Date Fair Value
Unvested restricted stock at January 1, 2016	456,570			$	55.70
Granted	241,681			64.10
Vested	(211,235	)		48.14
Forfeited	(6,421	)		64.50
Unvested restricted stock at December 31, 2016	480,595			$	63.64

11. 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. Effective January 1, 2017, the Executive Retirement Plan is frozen to new executive officers and employees. The Company contributed $5.5 million, $4.7 million and $6.0 million to the defined contribution plans for each of the years ended December 31, 2016, 2015 and 2014, 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, 2016, 2015 and 2014, resulting from the amortization of service costs and actuarial expense included in accumulated other comprehensive loss at December 31, 2016, 2015 and 2014.

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

12. INCOME TAXES

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, 2016, 2015 and 2014 is as follows:

	2016			2015			2014
Statutory federal income tax rate	35.0	%		35.0	%		35.0	%
State income tax rate, net of federal income tax effect	4.5			4.4			3.5
Section 199 deductions	(2.6	)		(1.9	)		(1.7	)
Other, net	2.5			(0.8	)		1.9
Effective income tax rate	39.4	%		36.7	%		38.7	%

The components of income tax expense for the years ended December 31, 2016, 2015 and 2014 are as follows (in thousands):

	2016				2015				2014
Current
Federal	$	107,083			$	103,344			$	95,946
State	22,646				23,939				24,327
Total current	129,729				127,283				120,273
Deferred
Federal	(7,633		)		(6,381		)		1,955
State	(1,212		)		(1,901		)		(2,245		)
Total deferred	(8,845		)		(8,282		)		(290		)
Total	$	120,884			$	119,001			$	119,983

At December 31, 2016 and 2015, the net deferred income tax asset/(liability) is as follows (in thousands):

	2016				2015
Deferred tax assets	$	38,688			$	33,564
Deferred tax liabilities	(35,194		)		(38,873		)
Net deferred income tax asset /(liability)	$	3,494			$	(5,309	)

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

The tax effect of temporary differences giving rise to significant portions of deferred tax assets and liabilities at December 31, 2016 and 2015 are presented below (in thousands):

	2016				2015
Deferred tax assets:
Intangibles	$	32			$	38
Accrued compensation and benefits	16,317				15,406
Property, equipment and technology, net	619				645
Investment in affiliates	4,668				7,264
Other	17,052				10,211
Total deferred tax assets	38,688				33,564
Deferred tax liabilities:
Property, equipment and technology, net	(32,312		)		(35,859		)
Investment in affiliates	(1,724		)		(1,707		)
Prepaid	(1,145		)		(1,303		)
Other	(13		)		(4		)
Total deferred tax liabilities	(35,194		)		(38,873		)
Net deferred tax assets/(liabilities)	$	3,494			$	(5,309	)

The net deferred tax assets and deferred tax liabilities are classified as other assets and long-term liabilities in the Consolidated Balance Sheets at December 31, 2016 and 2015, respectively.

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

	2016				2015				2014
Balance as of January 1	$	31,903			$	35,429			$	26,745
Gross increases on tax positions in prior period	8,801				70				2,828
Gross decreases on tax positions in prior period	(608		)		(4,245		)		(1,053		)
Gross increases on tax positions in current period	3,591				1,891				8,113
Lapse of statute of limitations	(1,816		)		(1,242		)		(1,204		)
Balance as of December 31	$	41,871			$	31,903			$	35,429

As of December 31, 2016, 2015 and 2014, the Company had $41.9 million, $31.9 million and $35.4 million, respectively, of uncertain tax positions excluding interest and penalties, which, if recognized in the future, would affect the 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 $2.4 million.

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, $2.5 million and $2.1 million for the periods ended December 31, 2016, 2015 and 2014, respectively. Accrued interest and penalties were $10.2 million, $7.7 million and $5.3 million as of December 31, 2016, 2015 and 2014, respectively.

The Company is subject to U.S. federal tax, and state and local taxes in various jurisdictions. The Company has open tax years from 2007 on for New York, 2008 on for Federal, 2010 on for New Jersey, and generally 2013 on for all other jurisdictions. 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 2014 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, 2016, 2015 and 2014

13. 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, 2016 and 2015. 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	$	67,500			—				—				$	67,500
Total assets at fair value at December 31, 2016	$	67,500			$	—			$	—			$	67,500

(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

In 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.

In January 2016, CBOE Holdings, through its subsidiary CBOE III, LLC, acquired a minority interest in CurveGlobal. 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.

In May 2016, CBOE Holdings, through its subsidiary CBOE III, LLC, acquired a minority interest in Eris. 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 $3.4 million through June 30, 2016, 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

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

from the acquisition date. In September 2016, the Company settled the contingent consideration for $2.0 million resulting in a gain of $1.4 million which is recorded in other income.

14. 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.

Under the program, 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. Since inception of the program through December 31, 2016, the Company has purchased 10,947,401 shares of common stock at an average cost per share of $45.95 totaling $503.0 million.

As of December 31, 2016, the Company had $97 million of availability remaining under its existing share repurchase authorizations. As a result of our pending transaction with Bats, we were not active in our share repurchase program during the third and fourth quarters of 2016.

15. COMMITMENTS AND CONTINGENCIES

As of December 31, 2016, 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, 2016, 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.

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 (the "Court") 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 defendants’ response briefs were filed November 24, 2015 and briefing on the appeals has concluded. The oral arguments on the appeals were heard on March 3, 2016. On September 23, 2016, the Court of Appeals ruled in favor of the defendants and

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

affirmed the Court’s dismissal of Lanier’s complaints with prejudice. On October 7, 2016, Lanier filed a petition for rehearing only in the action related to the OPRA Plan and the Court of Appeals ruling with respect to the other two complaints is now final. On November 4, 2016, the Court of Appeals denied the petition for rehearing in the case related to the OPRA Plan.

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 3 months to 103 months as of December 31, 2016. 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, 2016, 2015 and 2014 were $4.4 million, $4.1 million and $3.8 million, respectively. Future minimum payments for our operating leases, contractual obligations and other liabilities are as follows at December 31, 2016 (in thousands):

Year	Operating Leases			Contractual Obligations			Total
2017	$	1,182		$	34,306		$	35,488
2018	541			31,158			31,699
2019	208			31,171			31,379
2020	200			22,935			23,135
2021	206			20,200			20,406
Total	$	2,337		$	139,770		$	142,107

16. 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, 2016, 2015 and 2014

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, 2016, 2015 and 2014:

(in thousands, except per share amounts)	2016				2015				2014
Basic EPS Numerator:
Net Income	$	185,720			$	205,023			$	189,714
Loss attributable to noncontrolling interests	1,100				—				—
Net Income excluding noncontrolling interests	186,820				205,023				189,714
Change in redemption value of noncontrolling interests	(1,100		)		—				—
Earnings allocated to participating securities	(775		)		(898		)		(1,322		)
Net Income allocated to common stockholders	$	184,945			$	204,125			$	188,392
Basic EPS Denominator:
Weighted average shares outstanding	81,432				83,081				85,406
Basic Net Income Per Common Share	$	2.27			$	2.46			$	2.21
Diluted EPS Numerator:
Net Income	$	185,720			$	205,023			$	189,714
Loss attributable to noncontrolling interests	1,100				—				—
Net Income excluding noncontrolling interests	186,820				205,023				189,714
Change in redemption value of noncontrolling interests	(1,100		)		—				—
Earnings allocated to participating securities	(775		)		(898		)		(1,322		)
Net Income allocated to common stockholders	$	184,945			$	204,125			$	188,392
Diluted EPS Denominator:
Weighted average shares outstanding	81,432				83,081				85,406
Dilutive common shares issued under stock program	—				—				—
Diluted Net Income Per Common Share	$	2.27			$	2.46			$	2.21

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.

In order to complete the Company's proposed acquisition of Bats, shares of CBOE Holdings common stock are to be issued upon conversion of shares of Bats common stock in the Merger. Based on the number of shares of our common stock and Bats common stock outstanding on September 23, 2016, immediately following the completion of the Merger, our pre-existing stockholders and former Bats stockholders would own approximately 72% and 28% of the outstanding shares of our common stock, respectively. The Merger will have no effect on the number of shares of our common stock owned by our existing stockholders.

17. QUARTERLY DATA (unaudited)

Year ended December 31, 2016 (in thousands)	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Operating revenues	$	162,330			$	163,329			$	156,207			$	175,080			$	656,946
Operating expenses	82,849				85,362				90,557				99,978				358,746
Operating income	79,481				77,967				65,650				75,102				298,200
Net income	$	49,176			$	50,931			$	40,451			$	45,162			$	185,720
Net income allocated to common stockholders	$	49,198			$	50,719			$	40,280			$	44,748			$	184,945
Diluted—net income per share to common stockholders	$	0.60			$	0.62			$	0.50			$	0.55			$	2.27

CBOE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2016, 2015 and 2014

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

•	In the third and fourth quarters of 2016, the Company recognized $8.6 million and $4.2 million, respectively, in professional fees and outside services related to the planned acquisition of Bats.

•	In the fourth quarter of 2016, the Company recorded amortization of $5.5 million for expenses associated with a bridge loan facility related to the proposed acquisition of Bats.

•	In the third quarter of 2016, the Company recognized $1.4 million gain on settlement of contingent consideration.

•	In the second quarter of 2016, the Company recognized $5.5 million in investment and other income for a settlement of attorney fees and expenses relating to a litigation matter.

•	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.

•	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.

18. SUBSEQUENT EVENTS

On January 12, 2017, the Company issued $650 million aggregate principal amount of 3.650% Senior Notes due 2027. See Note (4) Debt for more information.

On January 17, 2017, Bats stockholders adopted the Merger Agreement and CBOE Holdings stockholders approved the issuance of CBOE Holdings common stock pursuant to the Merger Agreement.

CBOE Holdings received regulatory approvals from the Dutch Central Bank and the United Kingdom's Financial Conduct Authority on February 2, 2017 and February 9, 2017, respectively.

On February 16, 2017, the Company's board of directors declared a quarterly cash dividend of $0.25 per share. The dividend is payable on March 24, 2017 to stockholders of record at the close of business on March 3, 2017.

On February 16, 2017, the Company announced that the Merger is expected to close on February 28, 2017.

On February 19, 2017, the Company granted 292,775 RSUs to certain officers and employees at a fair value of $80.40 per share, the closing price of the Company's stock on the grant date. The shares have a three year vesting period based on achievement of certain service, performance and/or market conditions and vesting accelerates upon the occurrence of a change in control of the Company or in the event of earlier death, disability or qualified retirement.