Item 1. FINANCIAL STATEMENTS

88K characters. Original on sec.gov · Markdown

Item 1. FINANCIAL STATEMENTS

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions, except par value data; shares in thousands)


	June 30, 2022		December 31, 2021
	(unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	1,879.5	$	2,834.9
Marketable securities	95.1		115.0
Accounts receivable, net of allowance of $5.8 and $5.6	582.3		434.5
Other current assets (includes $4.7 and $4.8 in restricted cash)	463.7		427.8
Performance bonds and guaranty fund contributions	138,430.4		157,949.6
Total current assets	141,451.0		161,761.8
Property, net of accumulated depreciation and amortization of $1,097.3 and $1,039.4	481.6		505.3
Intangible assets—trading products	17,175.3		17,175.3
Intangible assets—other, net	3,382.1		3,532.0
Goodwill	10,484.1		10,528.0
Other assets (includes $0.4 and $0.5 in restricted cash)	3,697.2		3,277.9
Total Assets	$	176,671.3	$	196,780.3

Liabilities and Equity
Current Liabilities:
Accounts payable	$	80.9	$	48.8
Short-term debt	—		749.4
Other current liabilities	488.8		1,650.6
Performance bonds and guaranty fund contributions	138,430.4		157,949.6
Total current liabilities	139,000.1		160,398.4
Long-term debt	3,436.7		2,695.7
Deferred income tax liabilities, net	5,363.0		5,390.4
Other liabilities	869.8		896.5
Total Liabilities	148,669.6		169,381.0



Shareholders’ Equity:
Preferred stock, $0.01 par value, 10,000 shares authorized as of June 30, 2022 and December 31, 2021; 4,584 issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Class A common stock, $0.01 par value, 1,000,000 shares authorized at June 30, 2022 and December 31, 2021; 358,677 and 358,599 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	3.6		3.6
Class B common stock, $0.01 par value, 3 shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Additional paid-in capital	22,232.3		22,190.3
Retained earnings	5,797.5		5,151.9
Accumulated other comprehensive income (loss)	(31.7)		53.5
Total CME Group Shareholders’ Equity	28,001.7		27,399.3


Total Liabilities and Equity	$	176,671.3	$	196,780.3

See accompanying notes to unaudited consolidated financial statements.

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues
Clearing and transaction fees	$	1,024.6	$	929.9	$	2,162.7	$	1,936.9
Market data and information services	151.7		145.2		303.4		289.4
Other	60.9		104.1		117.7		206.2
Total Revenues	1,237.2		1,179.2		2,583.8		2,432.5
Expenses
Compensation and benefits	185.3		211.7		370.5		436.7
Technology	45.9		49.3		91.8		97.5
Professional fees and outside services	32.0		36.8		63.8		74.2
Amortization of purchased intangibles	57.1		59.4		115.5		120.0
Depreciation and amortization	33.0		37.1		66.5		74.7
Licensing and other fee agreements	83.1		54.2		164.0		118.9
Other	51.1		56.0		102.9		110.7
Total Expenses	487.5		504.5		975.0		1,032.7
Operating Income	749.7		674.7		1,608.8		1,399.8

Non-Operating Income (Expense)
Investment income	286.9		62.4		360.0		93.3
Interest and other borrowing costs	(39.9)		(41.7)		(82.4)		(83.2)
Equity in net earnings of unconsolidated subsidiaries	87.3		55.7		160.6		111.9
Other non-operating income (expense)	(217.3)		(25.0)		(264.0)		(43.4)
Total Non-Operating Income (Expense)	117.0		51.4		174.2		78.6
Income before Income Taxes	866.7		726.1		1,783.0		1,478.4
Income tax provision	204.2		215.5		409.5		393.0
Net Income	662.5		510.6		1,373.5		1,085.4
Less: net (income) loss attributable to non-controlling interests	—		(0.3)		—		(0.7)
Net Income Attributable to CME Group	662.5		510.3		1,373.5		1,084.7
Net Income Attributable to Common Shareholders of CME Group	$	654.1	$	510.3	$	1,356.1	$	1,084.7

Earnings per Share Attributable to Common Shareholders of CME Group:
Basic	$	1.82	$	1.42	$	3.78	$	3.03
Diluted	1.82		1.42		3.78		3.02
Weighted Average Number of Common Shares:
Basic	358,641		358,261		358,625		358,204
Diluted	359,205		358,888		359,179		358,853

See accompanying notes to unaudited consolidated financial statements.

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(unaudited)


	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income	$	662.5	$	510.6	$	1,373.5	$	1,085.4
Other comprehensive income (loss), net of tax:
Investment securities:
Net unrealized holding gains (losses) arising during the period	(1.0)		0.4		(2.3)		(0.7)

Income tax benefit (expense)	0.3		(0.1)		0.6		0.2
Investment securities, net	(0.7)		0.3		(1.7)		(0.5)
Defined benefit plans:
Net change in defined benefit plans arising during the period	—		—		(3.7)		—
Amortization of net actuarial (gains) losses included in compensation and benefits expense	0.3		1.1		0.6		2.2
Income tax benefit (expense)	(0.1)		(0.3)		0.8		(0.6)
Defined benefit plans, net	0.2		0.8		(2.3)		1.6
Derivative investments:


Reclassification of net unrealized (gains) losses to interest expense and other non-operating income (expense)	(0.9)		(0.3)		(0.1)		(0.6)
Income tax benefit (expense)	0.2		0.1		—		0.2
Derivative investments, net	(0.7)		(0.2)		(0.1)		(0.4)
Foreign currency translation:
Foreign currency translation adjustments	(58.5)		21.6		(81.1)		(29.6)


Foreign currency translation, net	(58.5)		21.6		(81.1)		(29.6)
Other comprehensive income (loss), net of tax	(59.7)		22.5		(85.2)		(28.9)
Comprehensive income	602.8		533.1		1,288.3		1,056.5
Less: comprehensive (income) loss attributable to non-controlling interests	—		(0.3)		—		(0.7)
Comprehensive income attributable to CME Group	$	602.8	$	532.8	$	1,288.3	$	1,055.8

See accompanying notes to unaudited consolidated financial statements.

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Six Months Ended, June 30, 2022
	Preferred Stock (Shares)	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Preferred Stock, Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity
Balance at December 31, 2021	4,584	358,599	3	$	22,193.9	$	5,151.9	$	53.5	$	27,399.3
Net income						1,373.5				1,373.5
Other comprehensive income (loss)								(85.2)		(85.2)
Dividends on common and preferred stock of $2.00 per share						(727.9)				(727.9)


Exercise of stock options		1		0.1						0.1

Vesting of issued restricted Class A common stock		39		(5.3)						(5.3)
Shares issued to Board of Directors		19		4.0						4.0
Shares issued under Employee Stock Purchase Plan		19		3.8						3.8
Stock-based compensation				39.4						39.4
Balance at June 30, 2022	4,584	358,677	3	$	22,235.9	$	5,797.5	$	(31.7)	$	28,001.7

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (continued)

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Quarter Ended, June 30, 2022
	Preferred Stock (Shares)	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Preferred Stock, Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity
Balance at March 31, 2022	4,584	358,631	3	$	22,209.9	$	5,498.9	$	28.0	$	27,736.8
Net income						662.5				662.5
Other comprehensive income (loss)								(59.7)		(59.7)
Dividends on common and preferred stock of $1.00 per share						(363.9)				(363.9)


Exercise of stock options		1		0.1						0.1
Vesting of issued restricted Class A common stock		8		(1.0)						(1.0)
Shares issued to Board of Directors		18		3.7						3.7
Shares issued under Employee Stock Purchase Plan		19		3.8						3.8
Stock-based compensation				19.4						19.4
Balance at June 30, 2022	4,584	358,677	3	$	22,235.9	$	5,797.5	$	(31.7)	$	28,001.7

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (continued)

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Six Months Ended, June 30, 2021
	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity		Non-controlling Interest		Total Equity
Balance at December 31, 2020	358,110	3	$	21,189.1	$	4,995.9	$	134.9	$	26,319.9	$	31.6	$	26,351.5
Net income					1,084.7				1,084.7		0.7		1,085.4
Other comprehensive income (loss)							(28.9)		(28.9)				(28.9)
Dividends on common stock of $1.80 per share					(646.1)				(646.1)				(646.1)
Purchase of non-controlling interest			(4.4)						(4.4)		(8.1)		(12.5)

Exercise of stock options	58		3.2						3.2				3.2
Vesting of issued restricted Class A common stock	104		(13.5)						(13.5)				(13.5)
Shares issued to Board of Directors	13		2.9						2.9				2.9
Shares issued under Employee Stock Purchase Plan	20		4.4						4.4				4.4
Stock-based compensation			41.0						41.0				41.0
Balance at June 30, 2021	358,305	3	$	21,222.7	$	5,434.5	$	106.0	$	26,763.2	$	24.2	$	26,787.4

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (continued)

(dollars in millions, except per share data; shares in thousands)

(unaudited)


	Quarter Ended, June 30, 2021
	Class A Common Stock (Shares)	Class B Common Stock (Shares)	Common Stock and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CME Group Shareholders' Equity		Non-controlling Interest		Total Equity
Balance at March 31, 2021	358,240	3	$	21,197.1	$	5,247.3	$	83.5	$	26,527.9	$	28.0	$	26,555.9
Net income					510.3				510.3		0.3		510.6
Other comprehensive income (loss)							22.5		22.5				22.5
Dividends on common stock of $0.90 per share					(323.1)				(323.1)				(323.1)

Purchase of non-controlling interest			(2.2)						(2.2)		(4.1)		(6.3)
Exercise of stock options	27		1.5						1.5				1.5
Vesting of issued restricted Class A common stock	5		(0.4)						(0.4)				(0.4)
Shares issued to Board of Directors	13		2.9						2.9				2.9
Shares issued under Employee Stock Purchase Plan	20		4.4						4.4				4.4
Stock-based compensation			19.4						19.4				19.4
Balance at June 30, 2021	358,305	3	$	21,222.7	$	5,434.5	$	106.0	$	26,763.2	$	24.2	$	26,787.4

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Six Months Ended June 30,
	2022		2021
Cash Flows from Operating Activities
Net income	$	1,373.5	$	1,085.4
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	39.4		41.0
Amortization of purchased intangibles	115.5		120.0
Depreciation and amortization	66.5		74.7



Net realized and unrealized (gains) losses on investments	(3.0)		(20.7)
Cash dividends in excess of earnings (undistributed net earnings) of unconsolidated subsidiaries	(3.9)		1.9
Deferred income taxes	(12.0)		19.2
Change in:
Accounts receivable	(148.0)		(132.5)
Other current assets	(19.0)		(22.3)
Other assets	52.1		31.1
Accounts payable	32.0		(21.0)
Income taxes payable	(52.2)		(83.7)
Other current liabilities	5.6		24.5
Other liabilities	(39.0)		(17.3)
Other	9.2		2.2
Net Cash Provided by Operating Activities	1,416.7		1,102.5

Cash Flows from Investing Activities
Proceeds from maturities of available-for-sale marketable securities	3.9		5.7
Purchases of available-for-sale marketable securities	(2.9)		(4.9)
Purchases of property, net	(41.3)		(68.2)

Investment in S&P/Dow Jones Indices LLC	(410.0)		—
Investments in privately-held equity investments	(1.1)		(1.5)
Purchase of non-controlling interest	—		(12.5)
Proceeds from sales of investments	10.9		13.4
Net Cash Used in Investing Activities	(440.5)		(68.0)

Cash Flows from Financing Activities

Proceeds from debt, net of issuance costs	741.0		—
Repayment of debt, including call premium	(756.2)		—
Cash dividends	(1,906.8)		(1,540.0)


Change in performance bond and guaranty fund contributions	(19,519.2)		54,518.0
Employee taxes paid on restricted stock vesting	(5.3)		(13.5)
Other	(4.6)		(0.8)
Net Cash (Used in) Provided by Financing Activities	(21,451.1)		52,963.7

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in millions)

(unaudited)


	Six Months Ended June 30,
	2022		2021
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	$	(20,474.9)	$	53,998.2
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	160,789.9		88,420.3
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	$	140,315.0	$	142,418.5

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents:
Cash and cash equivalents	$	1,879.5	$	1,081.0
Cash classified as assets held for sale	—		30.0
Short-term restricted cash	4.7		4.8
Long-term restricted cash	0.4		2.9
Restricted cash and restricted cash equivalents (performance bonds and guaranty fund contributions)	138,430.4		141,299.8
Total	$	140,315.0	$	142,418.5

Supplemental Disclosure of Cash Flow Information
Income taxes paid	$	479.4	$	433.7
Interest paid	67.3		67.1
Non-cash investing activities:
Accrued proceeds from sale of investments	—		0.7

See accompanying notes to unaudited consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements consist of CME Group Inc. (CME Group) and its subsidiaries (collectively, the company), including Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX) and NEX Group Limited (NEX). The clearing house is operated by CME.

In January 2021, the company announced that it agreed with IHS Markit (now a part of S&P Global) to combine their post-trade services into a new joint venture, OSTTRA. The joint venture was launched in September 2021. OSTTRA performs trade processing and risk mitigation services.

The accompanying interim consolidated financial statements have been prepared by CME Group without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial position of the company at June 30, 2022 and December 31, 2021 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period.

During the fourth quarter of 2021, the company revised the presentation of the consolidated statements of cash flows to include cash performance bonds and guaranty fund contributions as restricted cash and restricted cash equivalents within the beginning and ending balances of the reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents. Total cash flows from financing activities were revised to include the changes associated with the cash performance bonds and guaranty fund contribution liability. See Note 4. Performance Bonds and Guaranty Fund Contributions for additional information on cash performance bonds and guaranty fund contributions.

The prior period amounts have been revised to conform to the current period presentation. The revision in presentation is considered immaterial to the company's overall financial statements and has had no impact on the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income or consolidated statements of equity, including all previously filed financial statements. These cash performance bonds and guaranty fund contributions cannot be used for the company's operations or to satisfy any operational liabilities.

The following table presents the effects of the changes on the presentation of these cash flows to the previously reported consolidated statements of cash flows of June 30, 2021:


	2021
(in millions)	As Previously Reported		Adjustments	Revised

Net cash provided by (used in) financing activities	$	(1,554.3)	54,518.0	$	52,963.7
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	(519.8)		54,518.0	53,998.2

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in CME Group’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (SEC) on February 25, 2022.

2. Accounting Policies

Newly Adopted Accounting Policies. The company adopted the following accounting policies during 2022:

In August 2020, FASB issued an accounting update that simplifies the accounting for convertible instruments and amends certain guidance on the computation of EPS for convertible instruments. This guidance reduces the number of accounting models used for the allocation of proceeds attributable to the issuance of a convertible instrument, thereby eliminating the beneficial conversion feature model. It is also noted that this guidance revises and eliminates certain criteria for achieving equity classification on the balance sheet. This accounting update requires entities to provide expanded disclosures about the terms and features of convertible instruments, including information about events, conditions and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The company adopted this guidance on January 1, 2022. Adoption of this guidance did not have an impact on the consolidated financial statements.

3. Revenue Recognition

The company generates revenue from customers from the following sources:

Clearing and transaction fees. Clearing and transaction fees include electronic trading fees and brokerage commissions, surcharges for privately-negotiated transactions, portfolio reconciliation and compression services, risk mitigation and other volume-related charges for trade contracts. Clearing and transaction fees are assessed upfront at the time of trade execution. As such, the company recognizes the majority of the fee revenue upon successful execution of the trade. The minimal remaining portion of the fee revenue related to settlement activities performed after trade execution is recognized over the short-term period that the contract is outstanding, based on management’s estimates of the average contract lifecycle. These estimates are based on various assumptions to approximate the amount of fee revenue to be attributed to services performed through contract settlement, expiration, or termination. For cleared trades, these assumptions include the average number of days that a contract remains in open interest, contract turnover, average revenue per day, and revenue remaining in open interest at the end of each period.

The nature of contracts gives rise to several types of variable consideration, including volume-based pricing tiers, customer incentives associated with market maker programs and other fee discounts. The company includes fee discounts and incentives in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee reduction. These estimates are based on historical experience, anticipated performance, and best judgment at the time. Because of the company's certainty in estimating these amounts, they are included in the transaction price of contracts.

Market data and information services. Market data and information services represent revenue from the dissemination of market data to subscribers, distributors, and other third-party licensees of market data. Pricing for market data is primarily based on the number of reportable devices used as well as the number of subscribers enrolled under the arrangement. Fees for these services are generally billed monthly. Market data services are satisfied over time and revenue is recognized on a monthly basis as the customers receive and consume the benefit of the market data services. However, the company also maintains certain annual license arrangements with one-time upfront fees. The fees for annual licenses are initially recorded as a contract liability and recognized as revenue monthly over the term of the annual period.

Other. Other revenues include certain access and communication fees, fees for collateral management, equity membership subscription fees, and fees for trade order routing through agreements from various strategic relationships. Access and communication fees are charges to customers that utilize various telecommunications networks and communications services. Fees for these services are generally billed monthly and the associated fee revenue is recognized as billed. Collateral management fees are charged to clearing firms that have collateral on deposit with the clearing house to meet their minimum performance bond and guaranty fund obligations on the exchange. These fees are calculated based on daily collateral balances and are billed monthly. This fee revenue is recognized monthly as billed as the customers receive and consume the benefits of the services. The company also has an equity membership program which provides equity members the option to substitute a monthly subscription fee for their existing requirement to hold CME Group Class A common stock. Choosing to pay this fee in lieu of holding Class A shares is entirely voluntary and the client's choice. Fee revenue under this program is earned monthly as billed over the contractual term. Pricing for strategic relationships may be driven by customer levels and activity. There are fee arrangements which provide for monthly as well as quarterly payments in arrears. Revenue is recognized monthly for strategic relationship arrangements as the customers receive and consume the benefits of the services.

The following table represents a disaggregation of revenue from contracts with customers by product line for the quarters and six months ended June 30, 2022 and 2021:


	Quarter Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Interest rates	$	324.6	$	265.5	$	699.5	$	565.2
Equity indexes	255.9		172.3		515.0		370.8
Foreign exchange	45.2		39.0		90.0		79.5
Agricultural commodities	114.3		138.0		240.3		258.5
Energy	140.2		141.0		315.4		299.1
Metals	45.2		51.5		99.6		109.8
BrokerTec fixed income	42.1		42.8		86.4		88.3
EBS foreign exchange	39.8		41.4		82.2		86.7
Optimization	—		21.5		—		45.9
Interest rate swap	17.3		16.9		34.3		33.1
Total clearing and transaction fees	1,024.6		929.9		2,162.7		1,936.9
Market data and information services	151.7		145.2		303.4		289.4
Other	60.9		104.1		117.7		206.2
Total revenues	$	1,237.2	$	1,179.2	$	2,583.8	$	2,432.5

Timing of Revenue Recognition
Services transferred at a point in time	$	965.8	$	870.1	$	2,043.1	$	1,815.4
Services transferred over time	266.6		303.7		531.3		609.8
One-time charges and miscellaneous revenues	4.8		5.4		9.4		7.3
Total revenues	$	1,237.2	$	1,179.2	$	2,583.8	$	2,432.5

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the consolidated balance sheets. Certain fees for transactions, annual licenses, and other revenue arrangements are billed upfront before revenue is recognized, which results in the recognition of contract liabilities. These liabilities are recognized on the consolidated balance sheets on a contract-by-contract basis upon commencement of services under the customer contract. These upfront customer payments are recognized as revenue over time as the obligations under the contracts are satisfied. Changes in the contract liability balances during the six months ended June 30, 2022 were not materially impacted by any other factors. The balance of contract liabilities was $35.6 million and $15.2 million as of June 30, 2022 and December 31, 2021, respectively.

4. Performance Bonds and Guaranty Fund Contributions

Performance Bonds and Guaranty Fund Contributions. CME has been designated as a systemically important financial market utility by the Financial Stability Oversight Council and is authorized to maintain cash accounts at the Federal Reserve Bank of Chicago. At June 30, 2022, CME maintained $128.6 billion within the cash account at the Federal Reserve Bank of Chicago. The cash deposit at the Federal Reserve Bank of Chicago is included within performance bonds and guaranty fund contributions on the consolidated balance sheets.

Clearing House Contract Settlement. The clearing house marks-to-market open positions for all futures and options contracts twice a day (once a day for CME's cleared-only interest rate swap contracts). Based on values derived from the mark-to-market process, the clearing house requires payments from clearing firms whose positions have lost value and makes payments to clearing firms whose positions have gained value. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure related to positions other than cleared-only interest rate swap contracts would be one half day of changes in fair value of all open positions, before considering the clearing house's ability to access defaulting clearing firms' collateral deposits.

For CME's cleared-only interest rate swap contracts, the maximum exposure related to CME's guarantee would be one full day of changes in fair value of all open positions, before considering CME's ability to access defaulting clearing firms' collateral.

During the first six months of 2022, the clearing house transferred an average of approximately $6.2 billion a day through its clearing systems for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained

value. The clearing house reduces its guarantee exposure through initial and maintenance performance bond requirements and mandatory guaranty fund contributions. Management has assessed the fair value of the company's settlement guarantee liability by taking the following factors into consideration: the design and operations of the clearing risk management process, the financial safeguard packages in place, historical evidence of default by a clearing member and the estimated probability of potential payouts by the clearing house. Based on the assessment performed, management estimates the guarantee liability to be nominal and therefore has not recorded any liability at June 30, 2022 and December 31, 2021. The company does not have a history of significant losses recognized on performance bond collateral as posted by our clearing members, and management currently does not anticipate any future credit losses on its performance bond assets. Accordingly, the company has not provided an allowance for credit losses on these performance bond deposits, nor has it recorded any liabilities to reflect an allowance for credit losses related to our off-balance sheet credit exposures and guarantees.

5. Intangible Assets and Goodwill

Intangible assets consisted of the following at June 30, 2022 and December 31, 2021:


	June 30, 2022				December 31, 2021
(in millions)	Assigned Value		Accumulated Amortization		Net Book Value		Assigned Value		Accumulated Amortization		Deconsolidation(2)		Net Book Value
Amortizable Intangible Assets:
Clearing firm, market data and other customer relationships	$	4,685.3	$	(1,804.3)	$	2,881.0	$	5,818.2	$	(1,847.7)	(950.0)		$	3,020.5

Technology-related intellectual property	62.5		(52.1)		10.4		175.3		(76.3)		(84.6)		14.4
Other	69.8		(29.1)		40.7		105.7		(35.5)		(23.1)		47.1
Total amortizable intangible assets	$	4,817.6	$	(1,885.5)	$	2,932.1	$	6,099.2	$	(1,959.5)	$	(1,057.7)	3,082.0

Indefinite-Lived Intangible Assets:
Trade names					450.0								450.0
Total intangible assets – other, net					$	3,382.1							$	3,532.0
Trading products (1)					$	17,175.3							$	17,175.3

(1)Trading products represent futures and options products acquired in our business combinations with CBOT Holdings, Inc., NYMEX Holdings, Inc. and The Board of Trade of Kansas City, Missouri, Inc. Clearing and transaction fees are generated through the trading of these products. These trading products, most of which have traded for decades, require authorization from the Commodity Futures Trading Commission (CFTC). Product authorizations from the CFTC have no term limits.

(2)The activity from deconsolidation includes intangible assets as part of the contribution of the net assets of the optimization business to OSTTRA.

Total amortization expense for intangible assets was $57.1 million and $59.4 million for the quarters ended June 30, 2022 and 2021, respectively. Total amortization expense for intangible assets was $115.5 million and $120.0 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows:


(in millions)	Amortization Expense
Remainder of 2022	$	114.4
2023	227.6
2024	221.1
2025	221.1
2026	221.1
2027	219.9
Thereafter	1,706.9

Goodwill activity consisted of the following for the periods ended June 30, 2022 and December 31, 2021:


(in millions)	Balance at December 31, 2021		Deconsolidation (1)		Other Activity (2)		Balance at June 30, 2022
CBOT Holdings	$	5,066.4	$	—	$	—	$	5,066.4
NYMEX Holdings	2,462.2		—		—		2,462.2
NEX	2,959.0		—		(43.9)		2,915.1
Other	40.4		—		—		40.4
Total Goodwill	$	10,528.0	$	—	$	(43.9)	$	10,484.1
(in millions)	Balance at December 31, 2020		Deconsolidation (1)		Other Activity (2)		Balance at December 31, 2021
CBOT Holdings	$	5,066.4	$	—	$	—	$	5,066.4
NYMEX Holdings	2,462.2		—		—		2,462.2
NEX	3,229.8		(246.2)		(24.6)		2,959.0
Other	40.4		—		—		40.4
Total Goodwill	$	10,798.8	$	(246.2)	$	(24.6)	$	10,528.0

(1) The activity from deconsolidation includes goodwill as part of the contribution of the net assets of the optimization business to OSTTRA.

(2) Other activity includes currency translation adjustments.

6. Long-Term Investments

In June 2022, the company invested $410.0 million in S&P/Dow Jones Indices LLC (S&P/DJI), which S&P/DJI used as part of the consideration for its acquisition of the IHS Markit index business. Following the additional contribution, the company's ownership interest remained at 27%. At June 30, 2022, the company's investment in S&P/DJI was $1.4 billion.

7. Debt

Short-term debt consisted of the following at June 30, 2022 and December 31, 2021:


(in millions)	June 30, 2022		December 31, 2021
$750.0 million fixed rate notes due September 2022, stated rate of 3.00% (1)	—		749.4
Total short-term debt	$	—	$	749.4

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

Long-term debt consisted of the following at June 30, 2022 and December 31, 2021:


(in millions)	June 30, 2022		December 31, 2021
€15.0 million fixed rate notes due May 2023, stated rate of 4.30%	15.6		16.8
$750.0 million fixed rate notes due March 2025, stated rate of 3.00% (1)	748.1		747.7
$500.0 million fixed rate notes due June 2028, stated rate of 3.75%	497.4		497.2
$750.0 million fixed rate notes due March 2032, stated rate of 2.65%	741.3		—
$750.0 million fixed rate notes due September 2043, stated rate of 5.30% (2)	743.5		743.4
$700.0 million fixed rate notes due June 2048, stated rate of 4.15%	690.8		690.6
Total long-term debt	$	3,436.7	$	2,695.7

(2)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 4.73%.

Long-term debt maturities, at par value (in U.S. dollar equivalent), were as follows at June 30, 2022:


(in millions)	Par Value
2023	$	15.7
2024	—
2025	750.0
2026	—
2027	—
Thereafter	2,700.0

8. Contingencies

Legal and Regulatory Matters. In the normal course of business, the company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry and oversight. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not have a material impact on its consolidated financial position or results of operations. However, the company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters.

A putative class action complaint was filed January 15, 2014 in the Circuit Court of Cook County, Chancery Division, against CME Group Inc. and the Board of Trade of the City of Chicago, Inc. The plaintiffs, certain Class B shareholders of CME Group and Class B members of CBOT, allege breach of contract and breach of the implied covenant of good faith and fair dealing for violations of their core rights granted in the defendants’ respective Certificates of Incorporation. On December 2, 2021, the court granted the plaintiffs’ motion for certification of a damages-only class. No trial date has been set. Given the uncertainty of factors that may potentially affect the resolution of the matter, at this time the company is unable to estimate the reasonably possible loss or range of reasonably possible losses in the unlikely event it were found to be liable at trial. Based on its investigation to date, the company believes that it has strong factual and legal defenses to the claims.

In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty, the company believes that the resolution of any of these matters on an individual or aggregate basis will not have a material impact on its consolidated financial position or results of operations.

No accrual was required for legal and regulatory matters as none were probable and estimable as of June 30, 2022 and December 31, 2021.

Intellectual Property Indemnifications. Certain agreements with customers and other third parties related to accessing the CME Group platforms, utilizing market data services and licensing CME SPAN software may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable products and/or services. The potential future claims relating to these indemnifications cannot be estimated and therefore no liability has been recorded.

9. Leases

The company has operating leases for corporate offices. The operating leases have remaining lease terms of up to 16 years, some of which include options to extend or renew the leases for up to an additional five years, and some of which include options to early terminate the leases in less than 12 months. Management evaluates whether these options are exercisable at least quarterly in order to determine whether the contract term must be reassessed. For a small number of the leases, primarily the international locations, management's approach is to enter into short-term leases for a lease term of 12 months or less in order to provide for greater flexibility in the local environment. For certain office spaces, the company has entered into arrangements to sublease excess space to third parties, while the original lease contract remains in effect with the landlord.

The company also has one finance lease, which is related to the sale of our data center in March 2016. In connection with the sale, the company leased back a portion of the property. The sale leaseback transaction was recognized under the financing method and not as a sale leaseback arrangement.

The right-of-use lease asset is recorded within other assets, and the present value of the lease liability is recorded within other liabilities (segregated between short term and long term) on the consolidated balance sheets. The discount rate applied to the lease payments represents the company's incremental borrowing rate.

The components of lease costs were as follows:


	Quarter Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Operating lease expense:
Operating lease cost	$	14.1	$	16.3	$	28.8	$	33.1
Short-term lease cost	0.1		0.2		0.2		0.4
Total operating lease expense included in other expense	$	14.2	$	16.5	$	29.0	$	33.5

Finance lease expense:
Interest expense	$	0.7	$	0.8	$	1.4	$	1.6
Depreciation expense	2.1		2.1		4.3		4.3
Total finance lease expense	$	2.8	$	2.9	$	5.7	$	5.9

Sublease revenue included in other revenue	$	2.8	$	2.4	$	5.5	$	4.9

Supplemental cash flow information related to leases was as follows:


	Quarter Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Cash outflows for operating leases	$	16.3	$	14.8	$	33.2	$	30.1
Cash outflows for finance leases	4.2		4.3		8.5		8.5

Supplemental balance sheet information related to leases was as follows:

Operating leases


(in millions)	June 30, 2022			December 31, 2021
Operating lease right-of-use assets	$	329.9		$	345.3

Operating lease liabilities:
Other current liabilities	$	48.5		$	47.3
Other liabilities	408.9			449.4
Total operating lease liabilities	$	457.4		$	496.7



Weighted average remaining lease term (in months)	127			132
Weighted average discount rate	3.8		%	3.9		%

Finance leases


(in millions)	June 30, 2022			December 31, 2021
Finance lease right-of-use assets	$	75.8		$	80.2

Finance lease liabilities:
Other current liabilities	$	8.1		$	7.9
Other liabilities	71.9			75.9
Total finance lease liabilities	$	80.0		$	83.8

Weighted average remaining lease term (in months)	105			111
Weighted average discount rate	3.5		%	3.5		%

Future minimum lease payments were as follows as of June 30, 2022 for operating and finance leases:


(in millions)	Operating Leases
Remainder of 2022	$	32.5
2023	65.7
2024	60.0
2025	57.1
2026	52.8
2027	50.5
Thereafter	243.9
Total lease payments	562.5
Less: imputed interest	(105.1)
Present value of lease liability	$	457.4


(in millions)	Finance Leases
Remainder of 2022	$	8.6
2023	17.2
2024	17.4
2025	17.5
2026	17.6
2027	17.8
Thereafter	58.9
Total lease payments	155.0
Less: imputed interest	(75.0)
Present value of lease liability	$	80.0

10. Guarantees

Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) maintain a mutual offset agreement with a current term through May 2023. This agreement enables market participants to open a futures position on one exchange and liquidate it on the other. The term of the agreement will automatically renew for a one-year period after May 2023 unless either party provides advance notice of their intent to terminate. CME can maintain collateral in the form of irrevocable, standby letters of credit. At June 30, 2022, CME was contingently liable to SGX on letters of credit totaling $330.0 million. CME also maintains a $350.0 million line of credit to meet its obligations under this agreement. Regardless of the collateral, CME guarantees all cleared transactions submitted through SGX and would initiate procedures designed to satisfy these financial obligations in the event of a default, such as the use of performance bonds and guaranty fund contributions of the defaulting clearing firm. Management has assessed the fair value of the company's guarantee liability under this mutual offset agreement by taking the following factors into consideration: the design and operations of the clearing risk management process, the financial safeguard packages in place, historical evidence of default by a clearing member and the estimated probability of potential payouts by the

clearing house. Based on the assessment performed, management estimates the guarantee liability to be nominal and therefore has not recorded any liability at June 30, 2022 and December 31, 2021.

Family Farmer and Rancher Protection Fund. In 2012, the company established the Family Farmer and Rancher Protection Fund (the Fund). The Fund is designed to provide payments, up to certain maximum levels, to family farmers, ranchers and other agricultural industry participants who use the company's agricultural commodity products and who suffer losses to their segregated account balances due to their CME clearing member becoming insolvent. Under the terms of the Fund, farmers and ranchers are eligible for up to $25,000 per participant. Farming and ranching cooperatives are eligible for up to $100,000 per cooperative. The Fund was established with a maximum of $100.0 million available for distribution to participants. Since its establishment, the Fund has made payments of approximately $2.0 million, which leaves $98.0 million available for future claims. If, at any time, payments due to participants were to exceed the amount remaining in the Fund, payments would be pro-rated. Clearing members and customers must register with the company in advance and provide certain documentation in order to substantiate their eligibility. The company believes that its guarantee liability is nominal and therefore has not recorded any liability at June 30, 2022 and December 31, 2021.

11. Accumulated Other Comprehensive Income (Loss)

The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss):


(in millions)	Investment Securities		Defined Benefit Plans		Derivative Investments		Foreign Currency Translation		Total
Balance at December 31, 2021	$	1.1	$	(34.8)	$	66.1	$	21.1	$	53.5
Other comprehensive income (loss) before reclassifications and income tax benefit (expense)	(2.3)		(3.7)				(81.1)		(87.1)
Amounts reclassified from accumulated other comprehensive income (loss)	—		0.6		(0.1)		—		0.5
Income tax benefit (expense)	0.6		0.8		—		—		1.4
Net current period other comprehensive income (loss)	(1.7)		(2.3)		(0.1)		(81.1)		(85.2)
Balance at June 30, 2022	$	(0.6)	$	(37.1)	$	66.0	$	(60.0)	$	(31.7)


(in millions)	Investment Securities		Defined Benefit Plans		Derivative Investments		Foreign Currency Translation		Total
Balance at December 31, 2020	$	1.6	$	(57.1)	$	67.0	$	123.4	$	134.9
Other comprehensive income (loss) before reclassifications and income tax benefit (expense)	(0.7)		—		—		(29.6)		(30.3)
Amounts reclassified from accumulated other comprehensive income (loss)	—		2.2		(0.6)		—		1.6
Income tax benefit (expense)	0.2		(0.6)		0.2		—		(0.2)
Net current period other comprehensive income (loss)	(0.5)		1.6		(0.4)		(29.6)		(28.9)

Balance at June 30, 2021	$	1.1	$	(55.5)	$	66.6	$	93.8	$	106.0

12. Fair Value Measurements

The company uses a three-level classification hierarchy of fair value measurements for disclosure purposes:

Level 1 inputs, which are considered the most reliable evidence of fair value, consist of quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs consist of observable market data, 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 consist of unobservable inputs which are derived and cannot be corroborated by market data or other entity-specific inputs.

The company's level 1 assets generally include investments in publicly traded mutual funds, equity securities and corporate debt securities with quoted market prices. In general, the company uses quoted prices in active markets for identical assets to determine the fair value of marketable securities.

The company's level 2 assets and liabilities generally consist of long-term debt notes. The fair values of the long-term debt notes were based on quoted market prices in an inactive market.

The company's level 3 assets and liabilities include certain investments that were adjusted to fair value.

Recurring Fair Value Measurements. Financial assets and liabilities recorded at fair value on the consolidated balance sheet as of June 30, 2022 were classified in their entirety based on the lowest level of input that was significant to each asset and liability's fair value measurement. The following table presents financial instruments measured at fair value on a recurring basis:


	June 30, 2022
(in millions)	Level 1		Level 2		Level 3		Total
Assets at Fair Value:
Marketable securities:
Corporate debt securities	$	12.7	$	—	$	—	$	12.7

Mutual funds	82.2		—		—		82.2
Equity securities	0.2		—		—		0.2

Total Marketable Securities	95.1		—		—		95.1





Total Assets at Fair Value	$	95.1	$	—	$	—	$	95.1

Non-Recurring Fair Valu**e Measurements. The company also recognized net unrealized loss on investments of $9.9 million on equity investments without readily determinable fair value. The fair value of these investments were estimated to be $27.1 million at June 30, 2022. The assessment was based on quantitative and qualitative indicators of fair value. The fair value measurement of the investment is considered level 3 and non-recurring.

Fair Values of Long-Term Debt Notes. The following presents the estimated fair values of long-term debt notes, which are carried at amortized cost on the consolidated balance sheets. The fair values below are classified as level 2 under the fair value hierarchy and were estimated using quoted market prices in inactive markets.

At June 30, 2022, the fair values (in U.S. dollar equivalent) were as follows:


(in millions)	Fair Value	Level

€15.0 million fixed rate notes due May 2023	16.1	Level 2
$750.0 million fixed rate notes due March 2025	742.9	Level 2
$500.0 million fixed rate notes due June 2028	488.1	Level 2
$750.0 million fixed rate notes due March 2032	658.5	Level 2
$750.0 million fixed rate notes due September 2043	812.8	Level 2
$700.0 million fixed rate notes due June 2048	661.4	Level 2

13. Earnings Per Share

The company uses the two-class method to calculate basic and diluted earnings per common share because its Series G preferred stock are participating securities. Under the two-class method, undistributed earnings are allocated to common stock and participating securities according to their respective rights in undistributed earnings, as if all of the earnings for the period had been distributed. Basic earnings per common share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Net income attributable to common shareholders is reduced for preferred stock dividends earned during the period. Preferred stock also receives a proportionate allocation of undistributed or overdistributed earnings for the period because Series G preferred stock has a contractual obligation to share in profits and losses of the company. Diluted earnings per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding plus potentially dilutive common shares. Anti-dilutive stock awards were as follows for the periods presented:


	Quarter Ended June 30,		Six Months Ended June 30,
(in thousands)	2022	2021	2022	2021

Stock awards	128	1	130	117
Total	128	1	130	117

The following table presents the earnings per share calculation for the periods presented:


	Quarter Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net Income Attributable to CME Group (in millions)	$	662.5	$	510.3	$	1,373.5	$	1,084.7
Less: preferred stock dividends	(4.6)		—		(9.2)		—
Less: undistributed earnings allocated to preferred stock	(3.8)		—		(8.2)		—
Net Income Attributable to Common Shareholders of CME Group	$	654.1	$	510.3	$	1,356.1	$	1,084.7

Weighted Average Number of Common Shares (in thousands):
Basic	358,641		358,261		358,625		358,204
Effect of stock options, restricted stock and performance shares	564		627		554		649
Diluted	359,205		358,888		359,179		358,853
Earnings per Common Share Attributable to Common Shareholders of CME Group:
Basic	$	1.82	$	1.42	$	3.78	$	3.03
Diluted	1.82		1.42		3.78		3.02

14. Subsequent Events

The company has evaluated subsequent events through the date the financial statements were issued. The company has determined that there were no subsequent events that met the requirement for recognition or disclosure in the consolidated financial statements.

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS