Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:

•	Executive Summary: Includes an overview of our business; current economic, competitive and regulatory trends relevant to our business; our current business strategy; and our primary sources of operating and non-operating revenues and expenses.

•	Critical Accounting Policies: Provides an explanation of accounting policies which may have a significant impact on our financial results and the estimates, assumptions and risks associated with those policies.

•	Recent Accounting Pronouncements: Includes an evaluation of recent accounting pronouncements and the potential impact of their future adoption on our financial results.

•	Results of Operations: Includes an analysis of our 2018, 2017 and 2016 financial results and a discussion of any known events or trends which are likely to impact future results.

•	Liquidity and Capital Resources: Includes a discussion of our future cash requirements, capital resources, significant planned expenditures and financing arrangements.

On November 2, 2018, we completed our acquisition of NEX Group plc (NEX). The following Management's Discussion and Analysis of Financial Condition and Results of Operations includes the financial results of NEX beginning on November 3, 2018.

References in this discussion and analysis to “we” and “our” are to CME Group Inc. (CME Group) and its consolidated subsidiaries, collectively. References to “exchange” are to Chicago Mercantile Exchange Inc. (CME), the Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX), and NEX, collectively, unless otherwise noted.

EXECUTIVE SUMMARY

Business Overview

CME Group, a Delaware stock corporation, is the holding company for CME, CBOT, NYMEX, COMEX, NEX and their respective subsidiaries. The holding company structure is designed to provide strategic and operational flexibility. CME Group's Class A common stock is listed on the NASDAQ Global Select Market (NASDAQ) under the ticker symbol "CME."

Our exchange consists of designated contract markets for the trading of futures and options on futures contracts. We also clear futures, options on futures and swaps contracts through our clearing house. Futures contracts, options on futures contracts and swaps contracts provide investors with vehicles for protecting against, and potentially profiting from, price changes in financial instruments and physical commodities.

We are a global exchange with customer access available virtually all over the world. Our customers consist of professional traders, financial derivatives institutions, individual and institutional investors, major corporations, manufacturers, producers and governments. Customers include both members of the exchange and non-members.

We offer our customers the opportunity to trade futures contracts and options on futures contracts on a range of products including those based on interest rates, equity indexes, foreign exchange, agricultural commodities, energy and metals. Through our acquisition of NEX, we now offer fixed income trading through BrokerTec and foreign currency trading through EBS, which are both included in the cash markets business. Our products provide a means for hedging, speculating and allocating assets. We identify new products by monitoring economic trends and their impact on the risk management and speculative needs of our existing and prospective customers.

Most of our products are available for trading through our electronic trading platforms. These execution facilities offer our customers immediate trade execution and price transparency. In addition, trades can be executed through privately negotiated transactions that are cleared and settled through our clearing house.

Through the acquisition with NEX, we now provide optimization services that deliver transaction lifecycle management and information services to help our customers optimize their capital, mitigate their risk and reduce operational costs. Optimization services includes Traiana and TriOptima.

Our clearing house clears, settles and guarantees futures and options contracts traded through our exchanges, in addition to cleared swaps products. Our clearing house's performance guarantee is an important function of our business. Because of this guarantee, our customers do not need to evaluate the credit of each potential counterparty or limit themselves to a selected set of counterparties. This flexibility increases the potential liquidity available for each trade. Additionally, the substitution of our

clearing house as the counterparty to every transaction allows our customers to establish a position with one party and offset the position with another party. This contract offsetting process provides our customers with flexibility in establishing and adjusting positions and provides for collateral and margining efficiencies. Certain BrokerTec and EBS contracts are cleared at third-party clearing houses.

Business Trends

Economic Environment. Our customers continue to use our markets as an effective and transparent means to manage risk and meet their investment needs despite economic uncertainty and volatility. Trading activity in our centralized markets has fluctuated due to the ongoing uncertainty in the financial markets caused by the United States and European credit crises, fluctuations in the availability of credit, variations in the amount of assets under management as well as the Federal Reserve Bank’s interest rate policy and quantitative easing. We continue to maintain high quality and diverse products as well as various clearing and market data services which support our customers in any economic environment.

Competitive Environment. Our industry is competitive and we continue to encounter competition in all aspects of our business. We expect competition to continue to intensify, especially in light of ongoing regulatory reform in the financial services industry. Competition is influenced by our brand and reputation; the efficiency and security of our services; depth and liquidity of our markets; diversity of product offerings including rate and quality of new product development and innovative services; our ability to position and expand upon existing products; efficient and seamless customer experience; transparency, reliability and anonymity of transaction processing; the regulatory environment; connectivity, accessibility, flexibility in execution methods; efficient and innovative technology and connectivity, as well as transaction costs. We believe we are very well positioned with respect to these factors. Our asset classes contain products designed to address differing risk management needs, and customers are able to achieve operational and capital efficiencies by accessing our diverse products through our platforms and our clearing house. We face competition from other futures, securities and securities option exchanges; clearing organizations; swap execution facilities; alternative trade execution facilities; technology firms, including market data distributors and electronic trading system developers; and others. As markets continue to evolve, we will continue to adapt our trading technology and clearing services to meet the needs of our customers.

Regulatory Environment. Exchange-traded derivatives have historically been subject to extensive regulation. Developments in the regulatory environment have the potential to significantly impact our business. Compliance with regulations may require us and our customers to dedicate significant financial and operational resources which could adversely affect our profitability. The regulatory environment to which we are subject is discussed in "Item 1. Business" on page 10.

Business Strategy

Our strategy focuses on maximizing futures and options growth globally, diversifying our business and revenues, and delivering unparalleled capital and cost efficiency solutions. We focus specifically on opportunities created by increased market awareness and acceptance of derivatives, increased price volatility, technological advances and the increasing need for counterparty risk mitigation and clearing services. This strategy allows us to continue to develop into a more broadly diversified financial exchange that provides trading and clearing solutions across a wide range of products and asset classes. Our strategic initiatives are discussed in "Item 1. Business" on page 7.

Revenues

Clearing and transaction fees. A majority of our revenue is derived from clearing and transaction fees, which include electronic trading fees, surcharges for privately negotiated transactions and other volume-related charges for exchange-traded and over-the-counter contracts. Because clearing and transaction fees are assessed on a per-contract or notional value basis, revenues and profitability fluctuate with changes in contract volume. In addition to the business trends noted earlier, our contract volume, and consequently our revenues, tend to increase during periods of economic and geopolitical uncertainty as our customers seek to manage their exposure to, or speculate on, the market volatility resulting from that uncertainty.

While volume has the most significant impact on our clearing and transaction fees revenue, there are four other factors that also influence this source of revenue:

•	rate structure;

•	product mix;

•	venue, and

•	the percentage of trades executed by customers who are members compared with non-member customers.

Rate structure. Customers benefit from volume discounts and limits on fees as part of our effort to increase liquidity in certain products. We offer various incentive programs to promote trading and clearing in various products and geographic locations. We may periodically change fees, volume discounts, fee limits and member discounts, perhaps significantly, based on our review of operations and the business environment.

Product mix. We offer exchange-traded futures and options on futures contracts as well as cleared-only interest rate swap contracts. Through our acquisition of NEX, we also offer foreign exchange spot and forward contracts and fixed income products. Rates are varied by product in order to optimize revenue on existing products and to encourage contract volume upon introduction of new products.

Venue. Our exchange and platforms are an international marketplace that brings together buyers and sellers mainly through our electronic trading as well as through open outcry trading and privately negotiated transactions. Any customer who is guaranteed by a clearing firm and who agrees to be bound by our exchange rules is able to obtain direct access to our CME electronic platforms. Open outcry trading is conducted exclusively by our members, who may execute trades on behalf of customers or for themselves.

Typically, customers submitting trades through our electronic platforms are charged fees for using the platforms in addition to the fees assessed on all transactions executed on our exchange. Customers entering into privately negotiated transactions also incur additional charges beyond the fees assessed on other transactions.

Member/non-member mix. Generally, member customers are charged lower fees than our non-member customers. Holding all other factors constant, revenue decreases if the percentage of trades executed by members increases, and increases if the percentage of non-member trades increases.

Clearing and transaction fees for cash markets business. Our cash markets business provides matching services whereby we match a buyer and seller of financial instruments to allow both parties to complete the trade bilaterally or through a third-party clearing house. We are not involved in the settlement of the contract but charge a transaction fee generally based on volume or notional value of the trade for providing the matching service. The cash markets business also includes BrokerTec U.S., which generates revenue from a matched principal business. Matched principal trades involve BrokerTec U.S. purchasing a financial instrument from one market participant and selling it to another market participant. Revenue is generated from this business generally on a transaction fee basis.

Other sources. Revenue is also derived from other sources including market data and information services and other various services related to our exchange operations.

Market data and information services. We receive market data and information services revenue from the dissemination of our market data to subscribers. Subscribers can obtain access to our market data services either directly or through third party distributors.

Our service offerings include access to real-time, delayed and end-of-day quotations, trade and summary market data for our products and other data sources. Users of our basic service receive real-time quotes and pay a flat monthly fee for each screen, or device, displaying our market data. Alternatively, customers can subscribe to market data provided on a limited group of products. The fee for this service is also a flat rate per month.

Pricing for our market data services is based on the value of the service provided and the price of comparable services offered by our competitors. Increases or decreases in our market data and information services revenue are influenced by changes in our price structure for existing market data offerings, introduction of new market data services and changes in the number of devices in use. General economic factors that affect the financial services industry, which constitutes our primary customer base, also influence revenue from our market data services.

Other revenues. Other revenue includes access and communication fees. Access and communication fees are connectivity fees charged to members and clearing firms that utilize our various telecommunications networks and communications services. Our communication services include our co-location program as well as the connectivity charges to customers of the CME Globex platform. Access fee revenue varies depending on the type of connection provided to customers.

Beginning on November 3, 2018, other revenues include revenues from NEX's optimization services, which include fees for risk management and information services for the over-the-counter markets, including portfolio reconciliation and post-trade processing. Revenue earned from these services is typically generated through subscriptions or transaction fees.

Other revenues also include fees for post-trade services, fees for collateral management, equity subscription fees and fees for trade order routing through agreements from various strategic relationships as well as other services to members and clearing firms.

Expenses

The majority of our expenses do not vary directly with changes in our contract volume. However, licensing and other fee agreements can vary directly with certain equity, energy and swap volumes as well as the majority of our employee bonuses vary directly with overall contract volume.

Compensation and benefits. Compensation and benefits expense is our most significant expense and includes employee wages, bonuses, stock-based compensation, benefits and employer taxes. Changes in this expense are driven by fluctuations in the number of employees, increases in wages as a result of inflation or labor market conditions, changes in rates for employer taxes and other cost increases affecting benefit plans. In addition, this expense is affected by the composition of our workforce. The expense associated with our bonus and stock-based compensation plans can also have a significant impact on this expense category.

The bonus component of our compensation and benefits expense is based on our financial performance. Under the performance criteria of our annual incentive plans, the bonus funded under the plans is based on achieving certain financial performance targets established by the compensation committee of our board of directors. The compensation committee has discretion to make equitable adjustments to the cash earnings performance calculation to reflect effects of unplanned operating results or capital expenditures to meet intermediate- to long-term growth opportunities.

In general, stock-based compensation is a non-cash expense related to restricted stock and performance share grants. Stock-based compensation varies depending on the quantity and fair value of awards granted. The fair value of restricted stock awards and other performance share grants is based on either the share price on the date of the grant or a model of expected future stock prices. As part of the acquisition of NEX, some of the expense associated with NEX awards will be settled in cash.

Professional fees and outside services. This expense includes fees for consulting services received on strategic and technology initiatives; regulatory and other compliance matters; temporary labor as well as legal and accounting fees. This expense may fluctuate as a result of changes in services required to complete initiatives, handle legal proceedings and comply with regulatory and compliance requirements.

Depreciation and amortization. Depreciation and amortization expense results from the depreciation of long-lived assets such as buildings, leasehold improvements, furniture, fixtures and equipment. This expense also includes the amortization of purchased and internally developed software.

Amortization of purchased intangibles. Amortization of purchased intangibles includes amortization of intangible assets obtained in our acquisitions of CBOT Holdings, Inc., NYMEX Holdings, Inc. and NEX as well as other asset and business acquisitions. Intangible assets subject to amortization consist primarily of clearing firm, market data and other customer relationships.

Other expenses. We incur additional ongoing expenses for communications, technology support services and various other activities necessary to support our operations.

•

Technology expense consists of costs related to maintenance of the hardware and software required to support our technology. It also includes costs for network connections for our electronic platforms and some market data customers; telecommunications costs of our exchange, and fees paid for access to external market data. This expense may be driven by system capacity, functionality and redundancy requirements. It also may be impacted by growth in electronic contract volume and changes in the number of telecommunications hubs and connections which allow customers outside the United States to access our electronic platforms directly.

•	Licensing and other fee agreements expense includes license fees paid as a result of contract volume in equity index products. This expense also includes royalty fees and broker rebates on energy and metals products as well as revenue sharing on cleared swaps contracts and some new product launches. This expense fluctuates with changes in contract volumes as well as changes in fee structures.

•

Other expenses include occupancy and building operations expenses including rent, maintenance, real estate taxes, utilities and other related costs related to leased property in Chicago, New York, the United Kingdom, India as well as other smaller locations throughout the world. Other expenses also include marketing and travel-related expenses as well as general and administrative costs. Marketing, advertising and public relations expense includes media, print and other advertising costs, as well as costs associated with our product promotion. Other expenses also include litigation and customer settlements, impairment charges on operating assets, gains and losses on disposals of operating assets, and foreign currency transaction gains and losses resulting from changes in exchange rates on certain foreign monetary assets and liabilities.

Non-Operating Income and Expenses

Income and expenses incurred through activities outside of our core operations are considered non-operating. These activities include non-core investing and financing activities.

•

Investment income includes income from short-term investment of clearing firms' cash performance bonds and guaranty fund contributions as well as excess operating cash; interest income and realized gains and losses from our marketable securities; realized gains and losses as well as dividend income from our strategic equity investments, and gains and losses on trading securities in our non-qualified deferred compensation plans. Investment income is influenced by market interest rates, changes in the levels of cash performance bonds deposited by clearing firms, the amount of dividends distributed by our strategic investments and the availability of funds generated by operations.

•	Interest and other borrowing costs expense includes charges associated with various short-term and long-term funding facilities, including commitment fees on lines of credit agreements.

•	Equity in net earnings (losses) of unconsolidated subsidiaries includes income and losses from our investments in S&P/Dow Jones Indices LLC (S&P/DJI), Dubai Mercantile Exchange and Bursa Malaysia Derivatives Berhad.

•	Other income (expense) includes expenses related to the distribution of interest earned on performance bond collateral reinvestment to the clearing firms, gains and losses on derivative contracts as well as other various income and expenses outside our core operations.

CRITICAL ACCOUNTING POLICIES

The notes to our consolidated financial statements include disclosure of our significant accounting policies. In establishing these policies within the framework of accounting principles generally accepted in the United States, management must make certain assessments, estimates and choices that will result in the application of these principles in a manner that appropriately reflects our financial condition and results of operations. Critical accounting policies are those policies that we believe present the most complex or subjective measurements and have the most potential to affect our financial position and operating results. While all decisions regarding accounting policies are important, there are certain accounting policies that we consider to be critical. These critical policies, which are presented in detail in the notes to our consolidated financial statements, relate to the valuation of financial instruments, goodwill and intangible assets, revenue recognition, income taxes and internal use software costs.

Valuation of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or an exit price. We have categorized financial instruments measured at fair value into the following three-level fair value hierarchy based upon the level of judgment associated with the inputs used to measure the fair value:

•	Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

•	Level 2— Inputs consist of observable market data, other than level 1 inputs, such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable.

•	Level 3—Inputs are unobservable and reflect management’s best estimate of what market participants would use in pricing the asset or liability. Assets and liabilities carried at level 3 fair value generally include assets and liabilities with inputs that require management’s judgment.

For further discussion regarding the fair value of financial assets and liabilities, see note 19 of the notes to the consolidated financial statements.

Goodwill and intangible assets. We review goodwill for impairment on a quarterly basis and whenever events or circumstances indicate that its carrying value may not be recoverable. Goodwill may be tested quantitatively for impairment by comparing the carrying value of a reporting unit to its estimated fair value. Estimating the fair value of a reporting unit involves the use of valuation techniques that rely on significant estimates and assumptions. These estimates and assumptions may include forecasted revenue growth rates; forecasted operating margins; risk-adjusted discount rates; forecasted economic and market conditions, and industry multiples. We base our fair value estimates on assumptions we believe to be reasonable given the information that is available to us at the time of our assessment; however, actual future results may differ significantly from those estimates. Under certain favorable circumstances, goodwill may be reviewed qualitatively for indications of impairment without utilizing valuation techniques to estimate fair value. The qualitative assessment of goodwill may rely on significant assumptions about forecasts of revenue growth, operating margins and economic conditions as well as overall market and industry-specific trends.

We also review indefinite-lived intangible assets on a quarterly basis or more frequently when events and circumstances indicate that their carrying values may not be recoverable. Indefinite-lived intangible assets may be tested quantitatively for

impairment by comparing their carrying values to their estimated fair values. Estimating the fair value of indefinite-lived intangible assets involves the use of valuation techniques that rely on significant estimates and assumptions. These estimates and assumptions may include forecasted revenue growth rates, forecasted allocations of expense and risk-adjusted discount rates. We base our fair value estimates on assumptions we believe to be reasonable given the information that is available to us at the time of our assessment; however, actual future results may differ significantly from those estimates. Similar to goodwill, under certain favorable circumstances, indefinite-lived intangible assets may be reviewed qualitatively for indications of impairment without utilizing valuation techniques to estimate fair value. The qualitative assessment of indefinite-lived intangible assets may rely on significant assumptions about forecasts of revenue growth, operating margins and economic conditions as well as overall market and industry-specific trends.

Intangible assets subject to amortization are also assessed for impairment on a quarterly basis or more frequently when indicated by a change in economic or operational circumstances. The impairment assessment of these assets requires management to first compare the book value of the amortizing asset to undiscounted cash flows. If the book value exceeds the undiscounted cash flows, management is then required to estimate the fair value of the assets and record an impairment loss for the excess of the carrying value over the fair value and annually challenge the useful lives.

Revenue recognition. A significant portion of our revenue is derived from the clearing and transaction fees we assess on each contract executed through our trading venues and cleared through our clearing house. Clearing and transaction fees are recognized as revenue when a buy and sell order are matched and when the trade is cleared. On occasion, the customer's exchange trading privileges may not be properly entered by the clearing firm and incorrect fees are charged for the transactions in the affected accounts. When this information is corrected within the time period allowed by the exchange, a fee adjustment is provided to the clearing firm. An accrual is established for estimated fee adjustments to reflect corrections to customer exchange trading privileges. The accrual is based on the historical pattern of adjustments processed as well as specific adjustment requests.

Income taxes. Calculation of the income tax provision includes an estimate of the income taxes that will be paid for the current year as well as an estimate of income tax liabilities or benefits deferred into future years. Deferred tax assets are reviewed to determine if they will be realized in future periods. To the extent it is determined that some deferred tax assets may not be fully realized, the assets are reduced to their realizable value by a valuation allowance. The calculation of our tax provision involves uncertainty in the application of complex tax regulations. We recognize potential liabilities for anticipated tax audit issues in the United States and other applicable foreign tax jurisdictions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken or expected to be taken. If the actual obligation of these amounts varies from our estimate, our income tax provision would be reduced or increased at the time that determination is made. This determination may not be known for several years. Past tax audits have not resulted in tax adjustments that resulted in a material change to the income tax provision in the year the audit was completed. The effective tax rate, defined as the income tax provision as a percentage of income before income taxes, will vary from year to year based on changes in tax jurisdictions, tax rates and regulations. In addition, the effective tax rate will vary with changes to income that are not subject to income tax and changes in expenses or losses that are not deductible, such as the utilization of foreign net operating losses.

Internal use software costs. Certain internal and external costs that are incurred in connection with developing or obtaining computer software for internal use are capitalized. We also enter into software hosting arrangements for software projects maintained in the cloud. Software development costs incurred during the planning or maintenance stages of a software project are expensed as incurred, while costs incurred during the application development stage are capitalized and are amortized over the estimated useful life of the software, generally two to four years. Amortization of capitalized costs begins only when the software becomes ready for its intended use.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 in our notes to the consolidated financial statements for information on newly adopted and recently issued accounting pronouncements that are applicable to us.

RESULTS OF OPERATIONS

Financial Highlights

The following summarizes significant changes in our financial performance for the years presented.

														Year-over-Year Change
(dollars in millions, except per share data)		2018				2017				2016				2018-2017			2017-2016
Total revenues		$	4,309.4			$	3,644.7			$	3,595.2			18	%		1	%
Total expenses		1,701.8				1,334.1				1,394.7				28			(4	)
Operating margin		61		%		63		%		61		%
Non-operating income (expense)		$	170.2			$	215.7			$	87.1			(21	)		147
Effective tax expense (benefit) rate		29		%		(61		)%		33		%
Net income attributable to CME Group		$	1,962.2			$	4,063.4			$	1,534.1			(52	)		165
Diluted earnings per common share attributable to CME Group		5.71				11.94				4.53				(52	)		164
Cash flows from operating activities		2,440.8				1,751.1				1,732.0				39			1

Revenues

														Year-over-Year Change
(dollars in millions)		2018				2017				2016				2018-2017			2017-2016
Clearing and transaction fees		$	3,667.0			$	3,098.6			$	3,036.4			18	%		2	%
Market data and information services		449.6				391.8				406.5				15			(4	)
Other		192.8				154.3				152.3				25			1
Total Revenues		$	4,309.4			$	3,644.7			$	3,595.2			18			1

Clearing and Transaction Fees

Futures and Options

The following table summarizes our total contract volume, revenue and average rate per contract for futures and options. Total contract volume includes contracts that are traded on our exchange and cleared through our clearing house and certain cleared-only contracts. Volume is measured in round turns, which is considered a completed transaction that involves a purchase and an offsetting sale of a contract. Average rate per contract is determined by dividing total clearing and transaction fees by total contract volume. Contract volume and average rate per contract disclosures below exclude trading volume for the cash markets business as well as credit default swaps and interest rate swaps.

													Year-over-Year Change
	2018				2017				2016				2018-2017			2017-2016
Total contract volume (in millions)	4,844.4				4,089.2				3,943.7				18	%		4	%
Clearing and transaction fees (in millions)	$	3,513.9			$	3,029.9			$	2,974.4			16			2
Average rate per contract	0.725				0.741				0.754				(2	)		(2	)

We estimate the following increases (decreases) in clearing and transaction fees based on changes in total contract volume and changes in average rate per contract during 2018 compared with 2017, and during 2017 compared with 2016.

		Year-over-Year Change
(in millions)		2018-2017				2017-2016
Increases due to change in total contract volume		$	547.8			$	109.8
Decrease due to change in average rate per contract		(63.8		)		(54.3		)
Net increases in clearing and transaction fees		$	484.0			$	55.5

Average rate per contract is impacted by our rate structure, including volume-based incentives, product mix, trading venue and the percentage of volume executed by customers who are members compared with non-member customers. Due to the

relationship between average rate per contract and contract volume, the change in clearing and transaction fees attributable to changes in each is only an approximation.

Contract Volume

The following table summarizes average daily contract volume. Contract volume can be influenced by many factors, including political and economic factors, the regulatory environment and market competition.

											Year-over-Year Change
(amounts in thousands)		2018			2017			2016			2018-2017			2017-2016
Average Daily Volume by Product Line:
Interest rates		9,951			8,189			7,517			22	%		9	%
Equity indexes		3,589			2,682			3,061			34			(12	)
Foreign exchange		1,004			922			858			9			7
Agricultural commodities		1,480			1,353			1,321			9			2
Energy		2,561			2,578			2,432			(1	)		6
Metals		639			568			460			12			23
Aggregate average daily volume		19,224			16,292			15,649			18			4
Average Daily Volume by Venue:
CME Globex		17,371			14,513			13,766			20			5
Open outcry		1,168			1,107			1,149			6			(4	)
Privately negotiated		685			672			734			2			(9	)
Aggregate average daily volume		19,224			16,292			15,649			18			4
Electronic Volume as a Percentage of Total Volume		90	%		89	%		88	%

Overall contract volume increased from 2016 through 2018. Overall market volatility remained high throughout the last two years as the markets continued to experience uncertainty surrounding the Federal Reserve's interest rate policy, the United States' foreign trade policies and future rates of inflation. Throughout 2017 and 2018, the Federal Open Markets Committee raised the federal funds rate seven times, but raised the expectation of slower rate increases in 2019. We believe these factors led to the overall increases in contract volumes from 2016 to 2018.

Interest Rate Products

The following table summarizes average daily contract volume for our key interest rate products. Eurodollar front 8 contracts include contracts expiring within two years. Eurodollar back 32 contracts include contracts expiring within three to ten years.

								Year-over-Year Change
(amounts in thousands)		2018		2017		2016		2018-2017			2017-2016
Eurodollar futures and options:
Front 8 futures		2,131		1,745		1,828		22	%		(5	)%
Back 32 futures		839		769		729		9			5
Options		1,416		1,368		1,225		3			12
U.S. Treasury futures and options:
10-Year		2,363		1,914		1,717		23			11
5-Year		1,285		1,003		886		28			13
2-Year		560		396		331		41			20
Treasury bond		484		380		347		28			9
Federal Funds futures and options		259		191		133		36			44

From 2016 to 2018, overall interest rate contract volumes increased due to volatility caused by continued uncertainty surrounding the Federal Reserve's interest rate policy, including volatility resulting from the Federal Open Markets Committee raising the federal funds rate seven times in 2017 and 2018. We also believe the increases in contract volumes were due to volatility caused by increased issuance of U.S. Treasury bills by the U.S. Department of Treasury as well as increased

uncertainty surrounding the United States' foreign trade policies, future rates of inflation and the potential for increased government spending.

Equity Index Products

The following table summarizes average daily contract volume for our key equity index products.

								Year-over-Year Change
(amounts in thousands)		2018		2017		2016		2018-2017			2017-2016
E-mini S&P 500 futures and options		2,527		2,062		2,449		23	%		(16	)%
E-mini NASDAQ 100 futures and options		504		289		271		75			6

In 2018 when compared with 2017, the increase in equity index contract volume was largely attributable to periods of higher equity market volatility, as measured by the CBOE Volatility Index and the CBOE Nasdaq-100 Volatility Index, throughout 2018. We believe the higher volatility was caused by greater market uncertainty, including uncertainty surrounding the United States' foreign trade policies and other political and economic policies of the United States.

The decrease in overall equity index contract volume in 2017 when compared with 2016 resulted from periods of lower equity market volatility. The comparatively low volatility was believed to be caused by fewer market-moving geopolitical and macro-level events that impacted these indexes in 2017. During 2016, there were periods of higher volatility within the equity markets due to uncertainty regarding the Federal Open Markets Committee's decision to start raising interest rates in 2016, the deceleration of the Chinese economy, the results of the U.S. presidential and congressional elections, and declining global crude oil prices.

Foreign Exchange Products

The following table summarizes average daily contract volume for our key foreign exchange products.

								Year-over-Year Change
(amounts in thousands)		2018		2017		2016		2018-2017			2017-2016
Euro		308		261		226		18	%		15	%
Japanese yen		159		181		159		(12	)		14
British pound		142		137		125		3			10
Australian dollar		118		102		106		15			(4	)
Canadian dollar		91		84		80		8			5

Foreign exchange contract volumes increased from 2016 through 2018, primarily due to higher euro contract volumes resulting from market uncertainty caused by differences in monetary policies by the European Central Bank and the Federal Reserve. We believe the increases in British pound contract volumes were attributable to the ongoing uncertainty from the United Kingdom European Union membership referendum as well as the potential for future interest rate hikes. Japanese yen contract volume increased in 2017 when compared with 2016 as market participants turned to the yen as a safe-haven currency when currency rates steadied but decreased in 2018 due to stagnant economic growth for Japan in 2018.

Agricultural Commodity Products

The following table summarizes average daily volume for our key agricultural commodity products.

								Year-over-Year Change
(amounts in thousands)		2018		2017		2016		2018-2017			2017-2016
Corn		482		449		424		7	%		6	%
Soybean		305		283		323		8			(12	)
Wheat		248		217		191		14			14

In 2018 when compared with 2017, the increase in agricultural commodity contract volume was due to periods of higher price volatility throughout 2018, which we believe resulted from uncertainty surrounding crop production due to drought conditions in both South America and Australia. We also believe the increase in contract volume was attributable to volatility caused by concern surrounding the United States' foreign trade policies.

Agricultural commodity contract volume increased in 2017 when compared with 2016 largely due to higher corn and wheat volumes resulting from greater uncertainty related to weather conditions in 2017. The increase was partially offset by lower soybean volume due to lower uncertainty related to expectations of crop production versus 2016.

Energy Products

The following table summarizes average daily volume for our key energy products.

								Year-over-Year Change
(amounts in thousands)		2018		2017		2016		2018-2017			2017-2016
WTI crude oil		1,439		1,442		1,321		—	%		9	%
Natural gas		594		597		549		(1	)		9
Refined products		398		392		363		2			8

In 2018 when compared with 2017, overall energy contract volume remained relatively flat. Crude oil contract volume remained flat due to lower price volatility, which we believe was the result of stability within the crude oil markets as supply was meeting global demand.

Overall energy contract volume increased in 2017 when compared with 2016 largely due to an increase in crude oil contract volume caused by higher volatility in 2017. We believe the increased volatility was caused by a shift in crude oil supplies as United States crude oil production rose along with the Organization of Petroleum Exporting Countries' decision to cut oil supplies in the fourth quarter of 2016. Natural gas and refined products contract volumes also increased in 2017 due to higher price volatility caused by shifts in supply and demand in the underlying markets.

Metal Products

The following table summarizes average daily volume for our key metal products.

								Year-over-Year Change
(amounts in thousands)		2018		2017		2016		2018-2017			2017-2016
Gold		375		335		273		12	%		23	%
Copper		131		108		86		21			26
Silver		103		98		78		5			25

The overall increases in metal contract volumes from 2016 to 2018 were due to investors using gold and other precious metals as safe-haven alternative investments to other markets. We believe the increases in metal contract volumes were driven by consistent periods of high price volatility within other markets caused by the uncertainties surrounding the policies of the political administration in the United States and future rates of inflation.

Average Rate per Contract

The slight decrease in average rate per contract in 2018 when compared with 2017 was largely due to a shift in product mix. Interest rate and equity contract volumes collectively increased by 4 percentage points as a percentage of total volume, while energy and agricultural commodity contract volumes collectively decreased by 3 percentage points. In general, interest rate and equity products have a lower rate per contract compared with energy and agricultural commodity products. The decrease resulting from a shift in product mix was partially offset by lower incentives.

The average rate per contract decreased in 2017 when compared with 2016 due to a shift in product mix as interest rate volume increased by 2 percentage points as a percentage of total volume, while equity contract volume decreased by 3 percentage points. In general, interest rate products have a lower rate per contract compared with equity contracts. The overall decrease in average rate per contract was partially offset by a rate increase that was effective in the first quarter of 2017 and lower incentives.

Cash Markets Business

Total clearing and transaction fees revenue in 2018 includes transaction fees of $91.2 million attributable to businesses acquired from NEX for the period of November 3, 2018 through December 31, 2018. This revenue includes $32.9 million in transaction fees from BrokerTec U.S.'s fixed income volume and $37.5 million from EBS's foreign exchange volume.

The related average daily notional value for November 3, 2018 through December 31, 2018 were as follows:

(amounts in billions)		Average Daily Notional Value
U.S. Treasury		$	187.2
European Repo (in euros)		253.6
Spot FX		79.0

Concentration of Revenue

We bill a significant portion of our clearing and transaction fees to our clearing firms. The majority of clearing and transaction fees received from clearing firms represent charges for trades executed and cleared on behalf of their customers. One firm represented 10% of our clearing and transaction fee revenue in 2018. One firm represented 13% and another firm represented 12% of our clearing and transaction fees revenue in 2017. One firm represented 13% and another firm represented 11% of our clearing and transaction fees revenue in 2016. Should a clearing firm withdraw, we believe that the customer portion of the firm's trading activity would likely transfer to another clearing firm of the exchange. Therefore, we do not believe we are exposed to significant risk from an ongoing loss of revenue received from or through a particular clearing firm.

Other Sources of Revenue

Market data and information services. In 2018 when compared with 2017, the increase in market data and information services revenue was attributable to an increase in fees for basic real-time market data service to $105 per month from $85 per month beginning in the second quarter of 2018. The increase was partially offset by modest declines in screen counts due to cost-cutting initiatives at member firms. The increase in market data and information services revenue was also attributable to additional market data revenue generated by NEX subsequent to the acquisition of NEX on November 2, 2018.

The decrease in market data and information services revenue in 2017 when compared with 2016 was due to a decline in screen counts from cost-cutting initiatives at member firms.

The two largest resellers of our market data represented, in aggregate, 41%, 45% and 40% of our market data and information services revenue in 2018, 2017 and 2016, respectively. Despite this concentration, we consider exposure to significant risk of revenue loss to be minimal. In the event that one of these vendors no longer subscribes to our market data, we believe the majority of that vendor's customers would likely subscribe to our market data through another reseller. Additionally, several of our largest institutional customers that utilize services from our two largest resellers report usage and remit payment of their fees directly to us.

Other revenues. The increase in other revenues for 2018 when compared with 2017 is largely attributable to the additional other revenue contributed by the NEX acquisition. Other revenues from NEX primarily include optimization services such as portfolio management, analytics, and trade and regulatory reporting.

Expenses

														Year-over-Year Change
(dollars in millions)		2018				2017				2016				2018-2017			2017-2016
Compensation and benefits		$	672.2			$	563.9			$	543.2			19	%		4	%
Technology		117.2				101.6				97.6				15			4
Professional fees and outside services		166.1				117.6				144.4				41			(19	)
Amortization of purchased intangibles		130.0				95.5				96.1				36			(1	)
Depreciation and amortization		118.7				113.0				129.2				5			(13	)
Licensing and other fee agreements		170.6				146.3				135.8				17			8
Other		327.0				196.2				248.4				67			(21	)
Total Expenses		$	1,701.8			$	1,334.1			$	1,394.7			28			(4	)

2018 Compared With 2017

Operating expenses increased by $367.7 million in 2018 when compared with 2017. The following table shows the estimated impact of key factors resulting in the net increase in operating expenses.

(dollars in millions)		Year- Over-Year Change				Change as a Percentage of 2017 Expenses
Expenses from NEX operations		$	153.5			12	%
Foreign currency exchange rate fluctuation		83.0				6
NEX transaction costs		75.5				6
Licensing and other fee agreements		23.0				2
Bonus		20.9				2
Salaries, benefits and employer taxes		17.9				1
Other expenses, net		(6.1		)		(1	)
Total		$	367.7			28	%

Overall operating expenses increased in 2018 when compared with 2017 due to the following reasons:

•	In 2018, we recognized operating expenses beginning on November 3, 2018, from our operations of NEX, which was acquired on November 2, 2018.

•

In 2018, we recognized a net loss of $73.6 million primarily due to the decline in the British pound versus U.S. dollar exchange rate on $1.6 billion of restricted cash held for the acquisition of NEX, which was denominated in British pounds, compared to a net gain of $9.4 million on favorable changes in exchange rates on foreign cash balances in 2017. Gains and losses from exchange rate fluctuations result when subsidiaries with a U.S. dollar functional currency hold cash as well as certain other monetary assets and liabilities denominated in foreign currencies.

•	Transaction costs incurred by CME Group pertaining to the NEX acquisition primarily include professional fees and transfer taxes. These costs accounted for a $75.5 million increase in operating expenses in 2018 when compared with 2017.

•	Licensing and other fee agreements expense increased during 2018 due to higher fees related to an increase in volume and an increase in license rates for certain products.

•	Bonus expense increased in 2018 due to improved performance relative to our cash earnings target in 2018 when compared with 2017 performance relative to our 2017 cash earnings target.

•	Compensation and benefits expense increased as a result of higher average headcount primarily in our international locations as well as normal cost of living adjustments.

2017 Compared With 2016

Operating expenses decreased by $60.6 million in 2017 when compared with 2016. The following table shows the estimated impact of key factors resulting in the net decrease in operating expenses.

(dollars in millions)		Year- Over-Year Change				Change as a Percentage of 2016 Expenses
Foreign currency exchange rate fluctuation		$	(33.9	)		(2	)%
Loss on datacenter and related legal fees		(28.6		)		(2	)
Professional fees and outside services		(26.8		)		(2	)
Licensing and other fee agreements		10.5				1
Salaries, benefits and employer taxes		18.8				1
Other expenses, net		(0.6		)		—
Total		$	(60.6	)		(4	)%

Decreases in operating expenses in 2017 when compared with 2016 were as follows:

•	In 2017, we recognized a net gain of $9.4 million due to a favorable change in exchange rates on foreign cash balances, compared with a net loss of $24.5 million in 2016. Gains and losses from exchange rate fluctuations result when subsidiaries with a U.S. dollar functional currency hold cash as well as certain other monetary assets and liabilities denominated in foreign currencies.

•

In the first quarter of 2016, we sold and leased back our datacenter in the Chicago area. The transaction was recognized under the financing method under generally accepted accounting principles. We recognized total losses and expenses of $28.6 million, including a net loss on write-down to fair value of the assets and certain other transaction fees of $27.1 million within other expenses and $1.5 million of legal and other fees.

•	Professional fees and outside services expense decreased in 2017 compared to 2016, largely due to higher legal and regulatory fees in 2016 related to our business activities and product offerings as well as higher professional fees related to a greater reliance on consultants for security and systems enhancement work.

The overall decrease in operating expenses in 2017 when compared with 2016 was partially offset by the following increases:

•

Licensing and other fee agreements expense increased due to higher expense resulting from incentive payments made to facilitate the transition of the Russell contract open interest, as well as increased costs of revenue sharing agreements for certain licensed products. The overall increase in 2017 was partially offset by lower expense related to revenue sharing agreements for certain equity and energy contracts due to lower volume for these products compared to 2016.

•	Compensation and benefits expense increased as a result of higher average headcount primarily in our international locations as well as normal cost of living adjustments.

Non-Operating Income (Expense)

														Year-over-Year Change
(dollars in millions)		2018				2017				2016				2018-2017			2017-2016
Investment income		$	745.1			$	531.7			$	141.8			40	%		n.m.
Interest and other borrowing costs		(157.7		)		(117.0		)		(123.5		)		35			(5	)
Equity in net earnings (losses) of unconsolidated subsidiaries		152.8				129.2				110.2				18			17
Other income (expense)		(570.0		)		(328.2		)		(41.4		)		74			n.m.
Total Non-Operating		$	170.2			$	215.7			$	87.1			(21	)		147

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Investment income. The increases in investment income from 2016 to 2018 were largely due to increases in earnings from cash performance bond and guaranty fund contributions that are reinvested, which primarily resulted from higher rates of interest earned on the cash account at the Federal Reserve Bank of Chicago. In 2018, we recognized net realized and unrealized gains of $97.4 million on certain privately-held equity investments. In 2017, we sold our remaining ownership interest in BM&FBOVESPA S.A. (BM&FBOVESPA) and recognized a gain of $86.5 million, net of transaction costs. We also sold our 2% interest in Bolsa Mexicana de Valores, S.A.B. de C.V. and recognized a gain of $2.3 million, net of transaction costs. In 2016, we recognized a net gain of $48.4 million on sales of 28.0 million shares of our investment in BM&FBOVESPA.

Interest and other borrowing costs. Interest and other borrowing costs were higher in 2018 when compared with 2017 and 2016 due to the issuance of $500.0 million of 3.75% fixed rate notes due June 2028 and $700.0 million of 4.15% fixed rate notes due June 2048 during the second quarter of 2018. Interest and other borrowing costs were also higher due to issuance of commercial paper and the assumption of the outstanding NEX debt as part of the acquisition.

Equity in net earnings (losses) of unconsolidated subsidiaries. Higher income generated from our S&P/DJI business venture contributed to increases in equity in net earnings (losses) of unconsolidated subsidiaries from 2016 through 2018.

Other income (expense). From 2016 to 2018, we recognized higher expenses related to the distribution of interest earned on performance bond collateral reinvestment to the clearing firms. In 2018, we recognized net losses of $62.3 million on various derivative contracts, which included our foreign exchange option and forward contracts used to mitigate certain exposure to foreign exchange rate fluctuation on the currency required to facilitate the NEX acquisition as well as derivative contracts that we assumed in our acquisition of NEX.

Income Tax Provision

The following table summarizes the effective tax rate for the periods presented:

	2018			2017			2016			Year-over-Year Change
2018-2017		2017-2016
Year ended December 31	29.3	%		(60.8	)%		32.9	%		n.m.		n.m.

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In 2018 when compared with 2017, the effective tax rate increased primarily due to the remeasurement of the deferred tax liabilities recognized in 2017 from the U.S. income tax reform and state tax charges in 2018 related to the NEX acquisition.

The overall decrease in the effective tax rate in 2017 when compared with 2016 was primarily due to the remeasurement of the deferred tax liabilities as a result of the U.S. income tax reform. The decrease was partially offset by expense from a state and local tax law change recorded in the third quarter of 2017 as well as from reclassifying income tax expense from other comprehensive income for the sale of the remaining BM&FBOVESPA shares.

LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

We have historically met our funding requirements with cash generated by our ongoing operations. While our cost structure is fixed in the short term, our sources of operating cash are largely dependent on contract trading volume levels. We believe that our existing cash, cash equivalents, marketable securities and cash generated from operations will be sufficient to cover our working capital needs, capital expenditures and other commitments. However, it is possible that we may need to raise additional funds to finance our activities through issuances of commercial paper, future public debt offerings or by direct borrowings from financial institutions through our committed revolving credit facilities.

Cash will also be required for operating leases and non-cancellable purchase obligations as well as other obligations reflected as long-term liabilities on our consolidated balance sheet at December 31, 2018. These were as follows:

(in millions)		Operating Leases				Purchase Obligations				Debt Obligations				Other Long-Term Liabilities (1)				Total
Year
2019		$	82.5			$	24.7			$	720.4			$	—			$	827.6
2020-2021		151.0				34.0				266.6				22.7				474.3
2022-2023		154.7				18.2				1,401.1				—				1,574.0
Thereafter		586.2				—				4,324.9				—				4,911.1
Total		$	974.4			$	76.9			$	6,713.0			$	22.7			$	7,787.0

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(1)

The liability for gross unrecognized income tax benefits, including interest and penalties, of $459.7 million for uncertain tax positions is not included in the table due to uncertainty about the date of their settlement. It also excludes liabilities for lease arrangements as well as liabilities that have uncertainty associated with timing of payments, including liabilities for benefit plans. It also excludes liabilities that will not be settled in cash.

Operating leases include rent payments for office space in Chicago, New York and other smaller offices in the United States and in various foreign countries. The operating lease for our headquarters in Chicago expires in 2032. Annual minimum rental payments under this lease range from $12.9 million to $20.8 million. We also maintain operating leases for datacenter space in Chicago, which expires in March 2031. Annual minimum rental payments under this lease range from $16.8 million to $18.3 million. The operating lease for our office space in New York expires in December 2028. Annual minimum rental payments under this lease range from $13.3 million to $14.5 million.

Purchase obligations include minimum payments due under agreements for advertising, licensing, hardware, software and maintenance as well as telecommunication services. Debt obligations include repayment of principal and interest associated with the debt obligations. Other long-term liabilities include deferred payments for previous acquisitions completed by NEX before being acquired by CME Group.

Future capital expenditures for technology are anticipated as we continue to support our growth through increased system capacity, performance improvements as well as improvements to some of our office spaces. Each year, capital expenditures are incurred for improvements to and expansion of our offices, remote data centers, telecommunications network and other

operating equipment. In 2019, we expect capital expenditures to total approximately $180.0 million to $190.0 million. We continue to monitor our capital needs and may revise our forecasted expenditures as necessary in the future.

We intend to continue to pay a regular quarterly dividend to our shareholders, which is set at between 50% to 60% of the prior year's cash earnings. The decision to pay a dividend and the amount of the dividend; however, remains within the discretion of our board of directors and may be affected by various factors, including our earnings, financial condition, capital requirements, levels of indebtedness and other considerations our board of directors deems relevant. CME Group is also required to comply with restrictions contained in the general corporation laws of its state of incorporation, which could also limit its ability to declare and pay dividends. On February 6, 2019 the board of directors declared a regular quarterly dividend of $0.75 per share. The dividend will be payable on March 25, 2019 to shareholders of record on March 8, 2019. Assuming no changes in the number of shares outstanding, the first quarter dividend payment will total approximately $270.0 million. The board of directors also declared an additional, annual variable dividend of $1.75 per share on December 5, 2018 paid on January 16, 2019 to the shareholders of record on December 28, 2018. In general, the amount of the annual variable dividend will be determined by the end of each year, and the level will increase or decrease from year to year based on operating results, capitalization expenditures, potential merger and acquisition activity and other forms of capital return including regular dividends and share buybacks during the prior year.

Sources and Uses of Cash

The following is a summary of cash flows from operating, investing and financing activities.

														Year-over-Year Change
(dollars in millions)		2018				2017				2016				2018-2017			2017-2016
Net cash provided by operating activities		$	2,440.8			$	1,751.1			$	1,732.0			39	%		1	%
Net cash (used by) provided by investing activities		(1,889.6		)		179.9				53.7				n.m.			n.m.
Net cash used in financing activities		(1,080.0		)		(1,985.3		)		(1,620.5		)		(46	)		23

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Operating activities

The increases in net cash provided by operating activities from 2016 through 2018 were largely attributable to increases in trading volumes, lower overall tax payments due to a reduction in the federal tax rate as well as higher investment income related to our reinvestment of cash performance bonds and guaranty fund collateral, net of the distribution of interest earned to the clearing firms.

Investing activities

The increase in cash used in investing activities in 2018 when compared with 2017 was largely due to the cash consideration required for the acquisition of NEX, net of cash received.

The increase in cash provided by investing activities in 2017 when compared with 2016 was due to proceeds from the sale of BM&FBOVESPA and Bolsa Mexicana de Valores, S.A.B. de C.V. shares.

Financing activities

The decrease in cash used in financing activities in 2018 when compared with 2017 was due to proceeds from the debt offering in the second quarter of 2018 as well as the net proceeds from issuance of commercial paper, which was used to finance the cash consideration for the acquisition of NEX. The decrease in cash used in financing activities was partially offset by an increase in cash dividends and the repayment of outstanding debt assumed in the acquisition of NEX.

The increase in cash used by financing activities in 2017 when compared with 2016 was attributable to higher cash dividends declared in 2017. The increase was partially offset by proceeds from a finance lease obligation related to the sale leaseback of the datacenter in the first quarter of 2016.

Debt Instruments

The following table summarizes our debt outstanding as of December 31, 2018:

(in millions)	Par Value
Fixed rate notes due March 2019, stated rate of 3.13% (1)	€	350.0
Term loan due March 2019, stated rate at 0.81% (2)	¥	19,100.0
Fixed rate notes due September 2022, stated rate of 3.00% (3)	$	750.0
Fixed rate notes due May 2023, stated rate of 4.30%	€	15.0
Fixed rate notes due March 2025, stated rate of 3.00% (4)	$	750.0
Fixed rate notes due June 2028, stated rate of 3.75%	$	500.0
Fixed rate notes due September 2043, stated rate of 5.30% (5)	$	750.0
Fixed rate notes due June 2048, stated rate of 4.15%	$	700.0
Commercial Paper	$	390.0

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(1)	We maintain a cross-currency swap contract, which swaps a euro-based stated interest rate of 3.13% for a pound-based interest rate of 4.40% and a euro-based principal repayment for a pound-based principal repayment on €250.0 million fixed rate notes.

(2)	We maintain a hedge contract to fix the exchange rate for the maturing principal and interest at a fixed British pound to Japanese yen exchange rate.

(3)	We maintain a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.32%.

(4)	We maintain a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.11%.

(5)	We maintain a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable effectively became fixed at a rate of 4.73%.

In June 2018, we completed offerings of $500.0 million of 3.75% fixed rate notes due June 2028 and $700.0 million of 4.15% fixed rate notes due June 2048. We used the net proceeds from the offering, together with cash on hand, to finance the cash consideration for the acquisition of NEX. In connection with the acquisition, we issued commercial paper in the fourth quarter of 2018 and have an outstanding balance of $389.9 million at December 31, 2018. The commercial paper is backed by the $2.4 billion multi-currency revolving senior credit facility.

As part of our acquisition of NEX, we assumed their outstanding debt, which included a €350.0 million Eurobond maturing in March 2019, a ¥19.1 billion term loan maturing in March 2019 and a €15.0 million fixed rate note maturing in May 2023. NEX maintained a £350.0 million revolving credit facility that was paid down and terminated in November 2018.

We maintain a $2.4 billion multi-currency revolving senior credit facility with various financial institutions, which matures in November 2022. The proceeds from this facility can be used for general corporate purposes, which includes providing liquidity for our clearing house in certain circumstances at CME Group's discretion and, if necessary, for maturities of commercial paper. As long as we are not in default under this facility, we have the option to increase it up to $3.0 billion with the consent of the agent and lenders providing the additional funds. This facility is voluntarily pre-payable from time to time without premium or penalty. Under this facility, we are required to remain in compliance with a consolidated net worth test, which is defined as our consolidated shareholders' equity at September 30, 2017, giving effect to share repurchases made and special dividends paid during the term of the agreements (and in no event greater than $2.0 billion in aggregate), multiplied by 0.65. We currently do not have any borrowings outstanding under this facility, but the outstanding commercial paper balance is backstopped against this facility.

We maintain a 364-day multi-currency revolving secured credit facility with a consortium of domestic and international banks to be used in certain situations by CME Clearing. The facility provides for borrowings of up to $7.0 billion. We may use the proceeds to provide temporary liquidity in the unlikely event of a clearing firm default, in the event of a liquidity constraint or default by a depositary (custodian for our collateral), or in the event of a temporary disruption with the domestic payments system that would delay payment of settlement variation between us and our clearing firms. Clearing firm guaranty fund contributions received in the form of cash or U.S. Treasury securities as well as the performance bond assets of a defaulting firm can be used to collateralize the facility. At December 31, 2018, guaranty funds available to collateralize the facility totaled $7.4 billion. We have the option to request an increase in the line from $7.0 billion to $10.0 billion. Our 364-day facility contains a requirement that CME remain in compliance with a consolidated tangible net worth test, defined as CME consolidated shareholder's equity less intangible assets (as defined in the agreement), of not less than $800.0 million. We

currently do not have any borrowings outstanding under this facility. On November 1, 2018, we amended and extended the agreement to include two extension dates, which allow us to terminate or extend the agreement within six or nine months.

The indentures governing our fixed rate notes, our $2.4 billion multi-currency revolving senior credit facility and our 364-day multi-currency revolving secured credit facility for $7.0 billion do not contain specific covenants that restrict the ability to pay dividends. These documents, however, do contain other customary financial and operating covenants that place restrictions on the operations of the company that could indirectly affect the ability to pay dividends.

At December 31, 2018, we have excess borrowing capacity for general corporate purposes of approximately $2.0 billion under our multi-currency revolving senior credit facility.

At December 31, 2018, we were in compliance with the various covenant requirements of all our debt facilities.

CME Group, as a holding company, has no operations of its own. Instead, it relies on dividends declared and paid to it by its subsidiaries in order to provide a portion of the funds which it uses to pay dividends to its shareholders.

To satisfy our performance bond obligation with Singapore Exchange Limited, we may pledge CME-owned U.S. Treasury securities or U.S. dollars in lieu of, or in combination with, irrevocable letters of credit. At December 31, 2018, we had pledged letters of credit totaling $285.0 million.

The following table summarizes our credit ratings as of December 31, 2018:

Rating Agency		Short-Term Debt Rating		Long-Term Debt Rating		Outlook
Standard & Poor’s		A1+		AA-		Stable
Moody’s Investors Service		P1		Aa3		Stable

Given our cash flow generation, our ability to pay down debt levels and our ability to refinance existing debt facilities, if necessary, we expect to maintain an investment grade rating. If our ratings are downgraded below investment grade due to a change of control, we are required to make an offer to repurchase our CME Group fixed rate notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.

Off-Balance Sheet Arrangements

As of December 31, 2018, we did not have any off-balance sheet arrangements as defined by Securities and Exchange Commission rules and regulations.

Liquidity and Cash Management

Cash and cash equivalents totaled $1.4 billion at December 31, 2018 and $1.9 billion at December 31, 2017. The balance retained in cash and cash equivalents is a function of anticipated or possible short-term cash needs, prevailing interest rates, our investment policy and alternative investment choices. A majority of our cash and cash equivalents balance is invested in money market mutual funds that invest only in U.S. Treasury securities, U.S. government agency securities and U.S. Treasury security reverse repurchase agreements. Our exposure to credit and liquidity risk is minimal given the nature of the investments. Cash that is not available for general corporate purposes because of regulatory requirements or other restrictions is classified as restricted cash and is included in other current assets or other assets on the consolidated balance sheets.

Our practice is to have our pension plan 100% funded at each year end on a projected benefit obligation basis, while also satisfying any minimum required contribution and obtaining the maximum tax deduction. Based on our actuarial projections, we estimate that no contribution will be necessary in 2019 as we exceeded our funding goal by $50.7 million in 2018. However, the amount of the actual contribution is contingent on various factors, including the actual rate of return on our plan assets during 2019 and the December 31, 2019 discount rate.

Regulatory Requirements

CME is regulated by the CFTC as a U.S. Derivatives Clearing Organization (DCO). DCOs are required to maintain capital, as defined by the CFTC, in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities, or a line of credit at least equal to six months of projected operating expenses. CME was designated by the Financial Stability Oversight Council as a systemically important financial market utility under Title VIII of Dodd-Frank. As a result, CME must comply with CFTC regulations applicable to a systemically important DCO for financial resources and liquidity resources. CME is in compliance with all DCO financial requirements.

CME, CBOT, NYMEX and COMEX are regulated by the CFTC as Designated Contract Markets (DCM). DCMs are required to maintain capital, as defined by the CFTC, in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities or a line of credit at least equal to six months of projected operating expenses. Our DCMs are in compliance with all DCM financial requirements.

BrokerTec Americas LLC is required to maintain sufficient net capital under Securities Exchange Act Rule 15c3-1 (the “Net Capital Rule”). The Net Capital Rule focuses on liquidity and is designed to protect securities customers, counterparties, and creditors by requiring that broker-dealers have sufficient liquid resources on hand at all times to satisfy claims promptly. Rule 15c3-3, or the customer protection rule, which complements rule 15c3-1, is designed to ensure that customer property (securities and funds) in the custody of broker-dealers is adequately safeguarded. By law, both of these rules apply to the activities of registered broker-dealers, but not to unregistered affiliates. Since the firm does not hold any customer securities or funds, the firm received approval from the Financial Industry Regulatory Authority and the SEC to become a (k)(2)(i) broker dealer in November 2017. A company operating under the (k)(2)(i) exemption is not required to lock up customer funds as would otherwise be required under Rule 15c3-3 of the Securities Exchange Act.