CME Group 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

- OR -

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-31553

CME GROUP INC.

(Exact name of registrant as specified in its charter)

Delaware												36-4459170
(State or other jurisdiction of incorporation or organization)												(I.R.S. Employer Identification No.)
20 South Wacker Drive			Chicago			Illinois						60606
(Address of principal executive offices)												(Zip Code)

(312) 930-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading symbol			Name of each exchange on which registered
Class A Common Stock			CME			The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒						Accelerated filer			☐
Non-accelerated filer			☐						Smaller reporting company			☐
									Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of each of the registrant’s classes of common stock as of October 12, 2022 was as follows: 359,724,979 shares of Class A common stock, $0.01 par value; 625 shares of Class B-1 common stock, $0.01 par value; 813 shares of Class B-2 common stock, $0.01 par value; 1,287 shares of Class B-3 common stock, $0.01 par value; and 413 shares of Class B-4 common stock, $0.01 par value.

CME GROUP INC.

FORM 10-Q

INDEX

						Page
PART I. FINANCIAL INFORMATION						3
Item 1.			Financial Statements			5
			Consolidated Balance Sheets at September 30, 2022 and December 31, 2021			5
			Consolidated Statements of Income for the Quarters and Nine Months Ended September 30, 2022 and 2021			6
			Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2022 and 2021			7
			Consolidated Statements of Equity for the Quarters and Nine Months Ended September 30, 2022 and 2021			8
			Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021			12
			Notes to Unaudited Consolidated Financial Statements			14
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			34
Item 4.			Controls and Procedures			34
PART II. OTHER INFORMATION						34
Item 1.			Legal Proceedings			34
Item 1A.			Risk Factors			34
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 6.			Exhibits			35
SIGNATURES						36

PART I. FINANCIAL INFORMATION

Certain Terms

All references to “options” or “options contracts” in the text of this document refer to options on futures contracts.

Further information about CME Group and its products can be found at http://www.cmegroup.com. Information made available on our website does not constitute a part of this Quarterly Report on Form 10-Q.

Information about Contract Volume and Average Rate per Contract

All amounts regarding contract volume and average rate per contract are for CME Group's listed futures and options on futures contracts unless otherwise noted.

Trademark Information

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. NEX, BrokerTec and EBS are trademarks of various entities of NEX Group Limited (NEX). Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. ("CME"). All other trademarks are the property of their respective owners.

Forward-Looking Statements

From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and verbal statements, we discuss our expectations regarding future performance. These forward-looking statements are identified by their use of terms and phrases such as "believe," "anticipate," "could," "estimate," "intend," "may," "plan," "expect" and similar expressions, including references to assumptions. These forward-looking statements are based on currently available competitive, financial and economic data, current expectations, estimates, forecasts and projections about the industries in which we operate and management's beliefs and assumptions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that might affect our performance are:

• increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities;

• our ability to keep pace with rapid technological developments, including our ability to complete the development, implementation and maintenance of the enhanced functionality required by our customers while maintaining reliability and ensuring that such technology is not vulnerable to security risks;

• our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services, including our ability to provide effective services to the swaps market;

• our ability to adjust our fixed costs and expenses if our revenues decline;

• our ability to maintain existing customers at substantially similar trading levels, develop strategic relationships and attract new customers;

• our ability to expand and globally offer our products and services;

• changes in regulations, including the impact of any changes in laws or government policies with respect to our products or services or our industry, such as any changes to regulations and policies that require increased financial and operational resources from us or our customers;

• the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others;

• decreases in revenue from our market data as a result of decreased demand or changes to regulations in various jurisdictions;

• changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure;

• the ability of our credit and liquidity risk management practices to adequately protect us from the credit risks of clearing members and other counterparties, and to satisfy the margin and liquidity requirements associated with the BrokerTec matched principal business;

• the ability of our compliance and risk management programs to effectively monitor and manage our risks, including our ability to prevent errors and misconduct and protect our infrastructure against security breaches and misappropriation of our intellectual property assets;

• our dependence on third-party providers and exposure to risk through third parties, including risks related to the performance, reliability and security of technology used by our third-party providers;

• volatility in commodity, equity and fixed income prices, and price volatility of financial benchmarks and instruments such as interest rates, credit spreads, equity indices, fixed income instruments and foreign exchange rates;

• economic, social, political and market conditions, including the volatility of the capital and credit markets and the impact of economic conditions on the trading activity of our current and potential customers;

• the impact of the COVID-19 pandemic and response by governments and other third parties;

• our ability to accommodate increases in contract volume and order transaction traffic and to implement enhancements without failure or degradation of the performance of our trading and clearing systems;

• our ability to execute our growth strategy and maintain our growth effectively;

• our ability to manage the risks, control the costs and achieve the synergies associated with our strategy for acquisitions, investments and alliances, including those associated with our investment in S&P/Dow Jones Indices LLC (S&P/DJI), our OSTTRA joint venture with IHS Markit (now part of S&P Global) and our partnership with Google Cloud;

• uncertainty related to the transition from LIBOR;

• our ability to continue to generate funds and/or manage our indebtedness to allow us to continue to invest in our business;

• industry and customer consolidation;

• decreases in trading and clearing activity;

• the imposition of a transaction tax or user fee on futures and options transactions and/or repeal of the 60/40 tax treatment of such transactions;

• our ability to maintain our brand and reputation; and

• the unfavorable resolution of material legal proceedings.

For a detailed discussion of these and other factors that might affect our performance, see Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 25, 2022 and Item 1A. in Part II of this Quarterly Report on Form 10-Q.

CME GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

						September 30, 2022						December 31, 2021
						(unaudited)
Assets
Current Assets:
Cash and cash equivalents						$	2,130.1					$	2,834.9
Marketable securities						91.3						115.0
Accounts receivable, net of allowance of $7.3 and $5.6						580.2						434.5
Other current assets (includes $4.6 and $4.8 in restricted cash)						476.4						427.8
Performance bonds and guaranty fund contributions						139,974.9						157,949.6
Total current assets						143,252.9						161,761.8
Property, net of accumulated depreciation and amortization of $1,111.0 and $1,039.4						465.5						505.3
Intangible assets—trading products						17,175.3						17,175.3
Intangible assets—other, net						3,302.2						3,532.0
Goodwill						10,447.3						10,528.0
Other assets (includes $0.2 and $0.5 in restricted cash)						3,788.3						3,277.9
Total Assets						$	178,431.5					$	196,780.3
Liabilities and Equity
Current Liabilities:
Accounts payable						$	95.0					$	48.8
Short-term debt						14.5						749.4
Other current liabilities						488.3						1,650.6
Performance bonds and guaranty fund contributions						139,974.9						157,949.6
Total current liabilities						140,572.7						160,398.4
Long-term debt						3,421.8						2,695.7
Deferred income tax liabilities, net						5,351.5						5,390.4
Other liabilities						834.7						896.5
Total Liabilities						150,180.7						169,381.0
Shareholders’ Equity:
Preferred stock, $0.01 par value, 10,000 shares authorized as of September 30, 2022 and December 31, 2021; 4,584 issued and outstanding as of September 30, 2022 and December 31, 2021						—						—
Class A common stock, $0.01 par value, 1,000,000 shares authorized at September 30, 2022 and December 31, 2021; 358,877 and 358,599 shares issued and outstanding as of September 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 September 30, 2022 and December 31, 2021						—						—
Additional paid-in capital						22,235.3						22,190.3
Retained earnings						6,111.7						5,151.9
Accumulated other comprehensive income (loss)						(99.8)						53.5
Total CME Group Shareholders’ Equity						28,250.8						27,399.3
Total Liabilities and Equity						$	178,431.5					$	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												Nine Months Ended
						September 30,												September 30,
						2022						2021						2022						2021
Revenues
Clearing and transaction fees						$	998.6					$	878.9					$	3,161.3					$	2,815.8
Market data and information services						154.3						145.4						457.7						434.8
Other						74.9						85.6						192.6						291.8
Total Revenues						1,227.8						1,109.9						3,811.6						3,542.4
Expenses
Compensation and benefits						189.6						198.6						560.1						635.3
Technology						46.8						49.3						138.6						146.8
Professional fees and outside services						35.1						45.2						98.9						119.4
Amortization of purchased intangibles						55.5						59.0						171.0						179.0
Depreciation and amortization						34.5						37.2						101.0						111.9
Licensing and other fee agreements						83.6						57.6						247.6						176.5
Other						43.9						49.3						146.8						160.0
Total Expenses						489.0						496.2						1,464.0						1,528.9
Operating Income						738.8						613.7						2,347.6						2,013.5
Non-Operating Income (Expense)
Investment income						686.2						145.8						1,046.2						239.1
Interest and other borrowing costs						(40.4)						(41.8)						(122.8)						(125.0)
Equity in net earnings of unconsolidated subsidiaries						76.5						66.4						237.1						178.3
Other non-operating income (expense)						(581.1)						311.8						(845.1)						268.4
Total Non-Operating Income (Expense)						141.2						482.2						315.4						560.8
Income before Income Taxes						880.0						1,095.9						2,663.0						2,574.3
Income tax provision						200.4						169.6						609.9						562.6
Net Income

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The following discussion is provided as a supplement to, and should be read in conjunction with, the accompanying unaudited consolidated financial statements and notes in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

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), and Commodity Exchange, Inc. (COMEX), collectively, unless otherwise noted.

RESULTS OF OPERATIONS

Financial Highlights

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

						Quarter Ended September 30,																		Nine Months Ended September 30,
(dollars in millions, except per share data)						2022						2021						Change						2022						2021						Change
Total revenues						$	1,227.8					$	1,109.9					11		%				$	3,811.6					$	3,542.4					8		%
Total expenses						489.0						496.2						(1)						1,464.0						1,528.9						(4)
Operating margin						60.2		%				55.3		%										61.6		%				56.8		%
Non-operating income (expense)						$	141.2					$	482.2					(71)						$	315.4					$	560.8					(44)
Effective tax rate						22.8		%				15.5		%										22.9		%				21.9		%
Net income attributable to CME Group						$	679.6					$	926.5					(27)						$	2,053.1					$	2,011.2					2
Diluted earnings per common share attributable to CME Group						1.87						2.58						(28)						5.64						5.60						1
Cash flows from operating activities																								2,074.5						1,734.1						20

Revenues

						Quarter Ended September 30,																		Nine Months Ended September 30,
(dollars in millions)						2022						2021						Change						2022						2021						Change
Clearing and transaction fees						$	998.6					$	878.9					14		%				$	3,161.3					$	2,815.8					12		%
Market data and information services						154.3						145.4						6						457.7						434.8						5
Other						74.9						85.6						(13)						192.6						291.8						(34)
Total Revenues						$	1,227.8					$	1,109.9					11						$	3,811.6					$	3,542.4					8

Clearing and Transaction Fees

Futures and Options Contracts

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 exclude trading volume for the cash markets business and interest rate swaps volume.

						Quarter Ended September 30,																		Nine Months Ended September 30,
						2022						2021						Change						2022						2021						Change
Total contract volume (in millions)						1,435.9						1,138.3						26		%				4,472.4						3,631.4						23		%
Clearing and transaction fees (in millions)						$	905.1					$	770.3					17						$	2,864.9					$	2,453.2					17
Average rate per contract						$	0.631					$	0.677					(7)						$	0.641					$	0.676					(5)

We estimate the following net changes in clearing and transaction fees based on changes in total contract volume and changes in average rate per contract for futures and options during the third quarter and first nine months of 2022 when compared with the same periods in 2021.

(in millions)						Quarter Ended						Nine Months Ended
Increases due to changes in total contract volumes						$	187.6					$	538.7
Decreases due to changes in average rate per contract						(52.8)						(127.0)
Net increases in clearing and transaction fees						$	134.8					$	411.7

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 conditions, the regulatory environment and market competition.

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
Average Daily Volume by Product Line:
Interest rates						10,357						8,111						28		%				11,149						8,995						24		%
Equity indexes						7,445						5,100						46						7,712						5,372						44
Foreign exchange						1,091						776						41						983						798						23
Agricultural commodities						1,208						1,141						6						1,328						1,412						(6)
Energy						1,837						2,178						(16)						2,092						2,166						(3)
Metals						499						480						4						525						573						(8)
Aggregate average daily volume						22,437						17,786						26						23,789						19,316						23
Average Daily Volume by Venue:
CME Globex						21,021						16,652						26						22,192						18,071						23
Open outcry						704						598						18						818						640						28
Privately negotiated						712						536						33						779						605						29
Aggregate average daily volume						22,437						17,786						26						23,789						19,316						23
Electronic Volume as a Percentage of Total Volume						94%						94		%										93%						94		%

Overall market volatility increased throughout the first nine months of 2022 following lower overall volatility in much of 2021. Interest rate and equity volatility was higher as result of a change in market expectations and uncertainty regarding the Federal Reserve's interest rate policy amid higher than expected inflation levels. The Federal Open Market Committee raised the Federal Funds rate by a total of 300 percentage points in the first nine months of 2022 and has indicated that it intends to further raise interest rates in the near future. In addition, geopolitical uncertainty due to the conflict between Russia and Ukraine also continues to result in additional market volatility within the equity and foreign exchange markets. However, the geopolitical uncertainty between Russia and Ukraine also led to risk aversion and reduced trading by market participants within the agricultural commodity and energy markets due to global commodity trade uncertainty and low global supplies of energy products. We believe these factors led to the changes in contract volume during the third quarter and first nine months of 2022, when compared with the same periods in 2021.

Interest Rate Products

The following table summarizes average daily contract volume for our key interest rate products.

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
Eurodollar futures and options:
Futures expiring within two years						891						1,072						(17)		%				1,296						1,165						11		%
Options						512						890						(42)						946						986						(4)
Futures expiring beyond two years						339						967						(65)						537						1,126						(52)
SOFR futures and options:
Futures expiring within two years						1,780						114						n.m.						1,408						109						n.m.
Futures expiring beyond two years						333						9						n.m.						244						9						n.m.
Options						585						—						n.m.						286						—						n.m.
U.S. Treasury futures and options:
10-Year (1)						2,354						2,291						3						2,556						2,549						—
5-Year (1)						1,481						1,136						30						1,602						1,263						27
2-Year (1)						663						390						70						707						439						61
Treasury Bond (1)						470						531						(11)						520						586						(11)
Federal Funds futures and options						335						71						n.m.						350						87						n.m.

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(1) U.S. Treasury futures and options now include respective weekly treasury options that were previously separated under a unique product category. Prior period amounts have been revised to conform to the current period presentation.

n.m. not meaningful

In the third quarter and first nine months of 2022, overall interest rate contract volumes increased when compared with the same periods in 2021. We believe these increases were due to higher interest rate volatility as a result of higher than expected inflation levels and the Federal Open Market Committee's decision to increase the Federal Funds rate multiple times in 2022. The increases in Secured Overnight Financing Rate contract (SOFR) volumes were also due to more market participants transitioning to the new reference rate as well as incentive programs designed to encourage market participation in SOFR options trading.

Equity Index Products

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

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
E-mini S&P 500 futures and options (1)						4,538						2,947						54		%				4,503						3,087						46		%
E-mini Nasdaq 100 futures and options (1)						2,120						1,392						52						2,273						1,500						52
E-mini Russell 2000 futures and options (1)						328						348						(6)						391						358						9

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(1) Futures and options now include respective weekly Micro E-mini options that were previously separated under a unique product category. Prior period amounts have been revised to conform to the current period presentation.

Equity index contract volumes increased in the third quarter and first nine months of 2022 when compared with the same periods in 2021 due to increases in volatility. Volatility within the equity indexes increased as a result of the Federal Reserve's actions to increase the Federal Funds rate due to higher than expected inflation levels in 2022 as well as rising tensions and geopolitical uncertainty with Russia and Ukraine. We believe these factors led to the overall increases in equity contract volumes.

Foreign Exchange Products

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

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
Euro						299						195						54		%				263						210						25		%
Japanese Yen						193						113						70						166						112						48
British Pound						149						100						49						129						100						30
Australian dollar						109						96						14						106						105						2

Overall foreign exchange contract volumes increased in the third quarter and first nine months of 2022 when compared with the same periods in 2021. Market volatility increased in 2022 following low foreign exchange volatility in 2021 due to the global central banks' interest rate policy decisions as a result of higher than expected inflation as well as rising tension and geopolitical uncertainty with Russia and Ukraine. We believe these factors led to the overall increases in foreign exchange contract volumes.

Agricultural Commodity Products

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

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
Corn						387						369						5		%				446						494						(10)		%
Soybean						229						205						12						272						284						(4)
Wheat						162						182						(11)						184						203						(9)

In the third quarter of 2022 when compared with the same period in 2021, overall commodity contract volume increased due to a slight increase in market volatility. Volatility in the third quarter of 2021 was low as a result of stable prices and demand following the 2021 growing season.

We believe the overall decline in commodity contract volume in the first nine months of 2022 when compared with the same period in 2021 was largely due to risk aversion by market participants following price increases and global trade uncertainty due to the conflict between Russia and Ukraine.

Energy Products

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

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
WTI crude oil						1,049						1,119						(6)		%				1,153						1,150						—		%
Natural gas						404						583						(31)						499						540						(8)
Refined products						298						355						(16)						341						351						(3)

Overall energy contract volumes decreased in the third quarter and first nine months of 2022 when compared with the same periods in 2021. Participant trading activity slowed down largely due to concerns regarding low global crude oil supplies, high inflation and a possible economic downturn. In addition, the sustained conflict between Russia and Ukraine continued to cause disruptions to the global energy markets. We believe these factors led to the overall decrease in energy contract volumes.

Metal Products

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

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in thousands)						2022						2021						Change						2022						2021						Change
Gold						300						294						2		%				326						341						(4)		%
Copper						94						87						9						91						108						(16)
Silver						78						78						—						82						102						(19)

Overall metal contract volume increased slightly in the third quarter of 2022 when compared with the same period in 2021. Uncertainty surrounding the global economy and threats of an economic slowdown have caused market users to manage their risk expectations through the use of our copper and gold contracts, which may be viewed as a safe haven in uncertain times.

In the first nine months of 2022, metal contract volume decreased when compared with the same period in 2021 due to lower overall market volatility within the gold and silver markets in early 2022. Volatility was higher in early 2021, as investors were using gold and other precious metals as safe-haven investments following the COVID-19 pandemic.

Average Rate per Contract

The average rate per contract decreased in the third quarter and first nine months of 2022 when compared with the same periods in 2021. The decreases in the average rate per contract were primarily due to changes in product mix. In the third quarter of 2022, equity index, interest rate and foreign exchange contract volumes increased by 6 percentage points as a percent of total volume, while all other products collectively decreased by 6 percentage points. In the first nine months of 2022, equity index, interest rate and foreign exchange contract volumes increased by 5 percentage points as a percent of total volume, while all other products collectively decreased by 5 percentage points. In general, equity index, interest rate and foreign exchange products have a lower rate per contract compared with the remaining contracts.

Cash Markets Business

Total clearing and transaction fees revenues in the third quarter and the first nine months of 2022 include $77.1 million and $245.7 million of transaction fees attributable to the cash markets business compared with $93.5 million and $314.4 million in the third quarter and first nine months of 2021, respectively. This revenue primarily includes BrokerTec Americas LLC's fixed income volume and EBS's foreign exchange volume. In September 2021, we contributed the net assets of our optimization business to OSTTRA, our new joint venture with IHS Markit (now a part of S&P Global).

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in millions)						2022						2021						Change						2022						2021						Change
BrokerTec fixed income transaction fees						$	40.7					$	40.7					—		%				$	127.1					$	129.0					(1)		%
EBS foreign exchange transaction fees						36.4						38.8						(6)		%				118.6						125.5						(5)		%
Optimization transaction fees						—						14.0						n.m.						—						59.9						n.m.

The related average daily notional value for the third quarter and first nine months of 2022 were as follows:

						Quarter Ended September 30,																		Nine Months Ended September 30,
(amounts in billions)						2022						2021						Change						2022						2021						Change
European Repo (in euros)						$	359.2					$	293.4					22		%				$	342.1					$	293.8					16		%
U.S. Treasury						119.9						98.0						22						133.6						113.0						18
Spot FX						66.4						54.4						22						66.6						62.8						6

Overall average daily notional values for the cash markets business increased in the third quarter and the first nine months of 2022 compared with the same periods in 2021. The increases in European Repo and U.S. Treasury transactions were largely due to increased volatility as a result of a change in market expectations regarding the Federal Reserve's interest rate policy, following higher than expected inflation levels in 2022. Despite the increase in average daily notional value, transaction revenue for BrokerTec and EBS decreased slightly due to the tiered pricing structure and incentive rate programs.

Concentration of Revenue

We bill a substantial portion of our clearing and transaction fees directly 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 individual firm represented approximately 10% of our clearing and transaction fees in the first nine months of 2022. 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 the ongoing loss of revenue received from or through a particular clearing firm.

Other Sources of Revenue

During the third quarter and first nine months of 2022, overall market data and information services revenues increased when compared with the same periods in 2021, largely due to price increases for certain products.

The two largest resellers of our market data represented approximately 33% of our market data and information services revenue in the first nine months of 2022. 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.

In the third quarter and first nine months of 2022, the decreases in other revenue when compared with the same periods in 2021 were largely attributable to the deconsolidation of the optimization business in September 2021 as part of the contribution of the business's net assets to OSTTRA, our joint venture with IHS Markit. In the third quarter and first nine months of 2021, the optimization business generated $29.2 million and $116.1 million in other revenue.

Expenses

						Quarter Ended September 30,																		Nine Months Ended September 30,
(dollars in millions)						2022						2021						Change						2022						2021						Change
Compensation and benefits						$	189.6					$	198.6					(5)		%				$	560.1					$	635.3					(12)		%
Technology						46.8						49.3						(5)						138.6						146.8						(6)
Professional fees and outside services						35.1						45.2						(22)						98.9						119.4						(17)
Amortization of purchased intangibles						55.5						59.0						(6)						171.0						179.0						(4)
Depreciation and amortization						34.5						37.2						(7)						101.0						111.9						(10)
Licensing and other fee agreements						83.6						57.6						45						247.6						176.5						40
Other						43.9						49.3						(11)						146.8						160.0						(8)
Total Expenses						$	489.0					$	496.2					(1)						$	1,464.0					$	1,528.9					(4)

Operating expenses decreased by $7.2 million and $64.9 million in the third quarter and first nine months of 2022 when compared with the same periods in 2021. The following table shows the estimated impacts of key factors resulting in the change in operating expenses:

						Quarter Ended September 30, 2022												Nine Months Ended September 30, 2022
						Amount of Change						Change as a Percentage of Total Expenses						Amount of Change						Change as a Percentage of Total Expenses
(dollars in millions)
Salaries, benefits and employer taxes						$	(13.8)					(3)		%				$	(57.8)					(4)		%
Non-qualified deferred compensation						(3.1)						(1)						(28.9)						(2)
Currency fluctuation						(7.3)						(1)						(23.8)						(2)
Professional fees and outside services						(10.1)						(2)						(20.5)						(1)
Employee severance and restructuring						(5.1)						(1)						(16.3)						(1)
Bonus						9.2						2						24.4						2
Licensing and other fee agreements						26.0						5						71.1						5
Other expenses, net						(3.0)						—						(13.1)						(1)
Total decrease						$	(7.2)					(1)		%				$	(64.9)					(4)		%

Decreases in operating expenses in the third quarter and first nine months of 2022 when compared with the same periods in 2021 were as follows:

• Salaries, benefits and employer taxes were lower during the third quarter and first nine months of 2022 when compared with the same periods in 2021 due to a net decrease in headcount since September 30, 2021, including the contribution of employees from CME Group's optimization businesses to the new joint venture with IHS Markit in September 2021.

• A decrease in our non-qualified deferred compensation liability during the third quarter and first nine months of 2022, the impact of which does not affect net income because of an equal and offsetting change in investment income, contributed to a decrease in compensation and benefits expense.

• In the third quarter and first nine months of 2022, we recognized a net gain of $10.5 million and $23.6 million, compared with a net gain of $3.2 million and net loss of $0.2 million in the same periods in 2021, due to currency exchange rate fluctuations. Gains and losses from exchange rate fluctuations are recognized in the consolidated

statements of net income when subsidiaries with a U.S. dollar functional currency hold certain monetary assets and liabilities denominated in foreign currencies.

• Professional fees and outside services expenses decreased due to one-time legal and other professional fees incurred in the third quarter of 2021 related to our joint venture with IHS Markit. The decreases in professional fees were partially offset by increases in consulting fees attributable to CME Group's partnership with Google Cloud, which was signed in November 2021.

• Employee separation and retention costs were lower during the third quarter and first nine months of 2022 due to lower reductions in workforce compared with the same periods in 2021.

Increases in operating expenses in the third quarter and first nine months of 2022 when compared with the same periods in 2021 were as follows:

• Bonus expense increased in the third quarter and first nine months of 2022 largely due to our performance relative to our 2022 cash earnings target when compared with the same periods in 2021.

• Increases in licensing and other fee agreements expense were due to higher volumes for certain equity products in the third quarter and first nine months of 2022 compared with the same periods in 2021.

Non-Operating Income (Expense)

						Quarter Ended September 30,																		Nine Months Ended September 30,
(dollars in millions)						2022						2021						Change						2022						2021						Change
Investment income						$	686.2					$	145.8					n.m.						$	1,046.2					$	239.1					n.m.
Interest and other borrowing costs						(40.4)						(41.8)						(3)						(122.8)						(125.0)						(2)
Equity in net earnings of unconsolidated subsidiaries						76.5						66.4						15						237.1						178.3						33
Other non-operating income (expense)						(581.1)						311.8						n.m.						(845.1)						268.4						n.m.
Total Non-Operating						$	141.2					$	482.2					(71)						$	315.4					$	560.8					(44)

n.m. not meaningful

Investment income. In the third quarter and first nine months of 2022 when compared with the same periods in 2021, there were increases in earnings from cash performance bond and guaranty fund contributions that are reinvested due to higher rates of interest earned in the cash accounts at the Federal Reserve Bank of Chicago following interest rate hikes in the first nine months of 2022. In the third quarter of 2022 and 2021, earnings from cash performance bond and guaranty fund contributions were $676.8 million and $54.6 million, respectively. In the first nine months of 2022 and 2021, earnings from cash performance bond and guaranty fund contributions were $1.0 billion and $116.6 million, respectively.The increases in income were partially offset by decreases in net realized and unrealized gains on investments and decreases in earnings on our deferred compensation plan, the impact of which does not affect net income because of an equal and offsetting change in compensation and benefits expense.

Equity in net earnings (losses) of unconsolidated subsidiaries. Higher income generated from our S&P/Dow Jones Indices LLC (S&P/DJI) business venture contributed to an increase in equity in net earnings of unconsolidated subsidiaries in the third quarter and first nine months of 2022 when compared with the same periods in 2021. We also recognized our share of net earnings on our investment in OSTTRA, our new joint venture with IHS Markit that was formed in September 2021.

Other income (expense). In the third quarter and first nine months of 2022 when compared with the same periods in 2021, we recognized higher expenses related to the distribution of interest earned on performance bond collateral reinvestments to the clearing firms in conjunction with higher interest income earned on our reinvestment during the period due to a higher Federal Funds rate in early 2022. In the third quarter of 2022 and 2021, expenses related to the distribution of interest earned on collateral reinvestments were $589.7 million and $35.5 million, respectively. In the first nine months of 2022 and 2021, expenses related to the distribution of interest earned on collateral reinvestments were $861.6 million and $82.2 million, respectively. In the third quarter of 2021, we recognized a net gain of $343.5 million on the deconsolidation and contribution of our optimization business to OSTTRA.

Income Tax Provision

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

						2022						2021
Quarter ended September 30						22.8		%				15.5		%
Nine months ended September 30						22.9		%				21.9		%

The overall effective tax rate increased in the third quarter and first nine months of 2022 when compared with the same periods in 2021. In the third quarter of 2021, we recognized a net gain of $343.5 million on the deconsolidation and contribution of our optimization business to OSTTRA, which was not taxable.

Liquidity and Capital Resources

Sources and Uses of Cash*.* Net cash provided by operating activities increased in the first nine months of 2022 when compared with the same period in 2021 largely due to an increase in trading volume and revenue as well as an overall decrease in operating expenses. Net cash used in investing activities was higher during the first nine months of 2022 when compared with the same period in 2021 largely due to the additional investment in S&P/DJI in the first nine months of 2022. Cash used in financing activities was higher during the first nine months of 2022 when compared with the same period in 2021 due to a decrease in cash performance bonds and guaranty fund contributions.

Debt Instruments*.* The following table summarizes our debt outstanding at September 30, 2022:

(in millions)			Par Value
Fixed rate notes due May 2023, stated rate of 4.30%			€	15.0
Fixed rate notes due March 2025, stated rate of 3.00% (1)			$	750.0
Fixed rate notes due June 2028, stated rate of 3.75%			$	500.0
Fixed rate notes due March 2032, stated rate of 2.65%			$	750.0
Fixed rate notes due September 2043, stated rate of 5.30% (2)			$	750.0
Fixed rate notes due June 2048, stated rate of 4.15%			$	700.0

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(1)We 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 3.11%.

(2)We maintained 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%.

We maintain a $2.3 billion multi-currency revolving senior credit facility with various financial institutions, which matures in November 2026. 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 $3.3 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, 2021, 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 any commercial paper balance if or when outstanding can be 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 the clearing house. The facility provides for borrowings of up to $7.0 billion. We may use the proceeds to provide temporary liquidity in the unlikely event a clearing firm fails to promptly discharge an obligation to CME Clearing, in the event of a liquidity constraint or default by a depositary (custodian for our collateral), 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, or in other cases as provided by the CME rulebook. Clearing firm guaranty fund contributions received in the form of cash or U.S. Treasury securities as well as the performance bond assets (pursuant to the CME rulebook) can be used to collateralize the facility. At September 30, 2022, guaranty fund contributions available to collateralize the facility totaled $6.9 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's 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.

The indentures governing our fixed rate notes, our $2.3 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 September 30, 2022, we have excess borrowing capacity for general corporate purposes of approximately $2.3 billion under our multi-currency revolving senior credit facility.

At September 30, 2022, 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 the funds which it uses to pay dividends to its shareholders.

To satisfy our performance bond obligation with Singapore Exchange Limited, we may pledge irrevocable standby letters of credit. At September 30, 2022, the letters of credit totaled $330.0 million. We also maintain a $350.0 million line of credit to meet our obligations under this agreement.

The following table summarizes our credit ratings at September 30, 2022:

						Short-Term						Long-Term
Rating Agency						Debt Rating						Debt Rating						Outlook
Standard & Poor’s Global Ratings						A1+						AA-						Stable
Moody’s Investors Service, Inc.						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 within certain specified time periods due to a change of control, we are required to make an offer to repurchase our fixed rate notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. No report of any rating agency is incorporated by reference herein.

Liquidity and Cash Management. Cash and cash equivalents totaled $2.1 billion and $2.8 billion at September 30, 2022 and December 31, 2021, respectively. The balance retained in cash and cash equivalents is a function of anticipated or possible short-term cash needs, prevailing interest rates, our corporate 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 and short-term bank deposits. 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 in the consolidated balance sheets.

Regulatory Requirements*.* CME is regulated by the CFTC as a 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 the Dodd-Frank Wall Street Reform and Consumer Protection Act. 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 of 1934, as amended (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. The firm began operating as a (k)(2)(i) broker dealer in November 2017 following notification to the Financial Industry Regulatory Authority and the SEC. A company operating under the (k)(2)(i) exemption is not required to lock up customer funds as would otherwise be required under Exchange Act Rule 15c3-3.