CME GROUP INC. 10-K

ITEM 1. BUSINESS CME Group provides market participants worldwide the ability to efficiently manage risk across multiple asset classes, by trading futures, options, cash and over-the-counter (OTC) products. CME Group also offers a suite of products and services to optimize portfolios, achieve capital efficiencies and manage pre-trade and post-trade processes. Our customers can receive and analyze market data through multiple service offerings in real-time, historical and derived data formats. CME Group also offers industry-leading research and analytics tools to provide customers with market education resources. GENERAL DEVELOPMENT OF BUSINESS CME was founded in 1898 as a not-for-profit corporation. It established CME Clearing in 1919, which is operated by CME. CME demutualized in 2000, and in 2002 its parent company, CME Group, completed an initial public offering of its Class A common stock (Nasdaq: CME). CME Group subsequently acquired CBOT Holdings, Inc. in 2007, NYMEX Holdings, Inc. (NYMEX and COMEX) in 2008, the Kansas City Board of Trade in 2012 and NEX Group plc (NEX) in 2018. The combination with NEX expanded our global customer base and product offerings through the complementary combination of CME Group’s exchange-traded derivative products and NEX’s cash and OTC products. It also created a leading, client-centric, global markets company, generating capital efficiencies across futures, cash and OTC products for market participants seeking to lower their cost of trading and better manage risk. Our principal executive offices are located at 20 South Wacker Drive, Chicago, Illinois 60606, our telephone number is 312-930-1000 and our website is cmegroup.com . DESCRIPTION OF BUSINESS CME Group exchanges offer the widest range of global benchmark products across interest rates, equity indexes, foreign exchange (FX), agricultural commodities, energy and metals. We also offer cash and repo fixed income trading via BrokerTec, and cash and OTC FX trading via EBS. In addition, we operate one of the world’s leading central counterparty clearing providers, CME Clearing, operated by CME. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group offers optimization, reconciliation and processing services through Traiana, TriOptima and Reset. Derivatives Exchange Business: Through our derivatives exchanges and clearing house, we believe our customers prefer CME Group's diversity of products, liquidity, price transparency and technological capabilities. Market liquidity - or the ability of a market to absorb the execution of large purchases or sales quickly and efficiently - is key to attracting and retaining customers and contributing to a market's success. Our products provide a means for hedging, speculation and asset allocation related to the risks associated with, among other things, interest rate sensitive instruments, equity ownership, changes in the value of foreign currency and changes in the prices of agricultural, energy and metal commodities. • CME's product slate includes agricultural, equities, FX and interest rate products, including Eurodollar futures and options, Secured Overnight Financing Rate (SOFR) futures and options, livestock and cash-settled contracts based on the S&P 500, including the E-mini S&P 500 Environmental, Social and Governance (ESG) contract, Micro E-mini Equity Index contracts, Nasdaq-100, FTSE Russell and Bitcoin Reference Rate. • CBOT's product slate consists of agricultural, equities and interest rate products, including contracts for United States (U.S.) Treasury futures, soybean, corn, wheat and contracts based on the Dow Jones Industrial Index. • NYMEX's product slate consists of energy and metals products, including contracts for crude oil, natural gas, heating oil and gasoline. • COMEX's product slate consists of metals products, including contracts for gold, silver, copper and other base metals. We believe the breadth and diversity of our products and services lines are beneficial to our customers and CME Group's overall performance. Our asset classes contain products designed to address differing risk management needs, and customers are able to manage risks and achieve operational and capital efficiencies by accessing our diverse products through our platforms and our clearing house. CME Group products are traded primarily through CME Globex, as well as by open outcry auction markets in Chicago and through privately negotiated transactions. Due to the COVID-19 pandemic, in March 2020 we closed our open outcry trading floor and reopened it in August 2020 for Eurodollar options. Currently, the remainder of the trading floor is closed. We strive to provide the most flexible and scalable platforms to support the operational and capacity needs of the business along with the delivery of innovative technology solutions to the marketplace. Our CME Globex electronic platform is the trading engine for our central limit order book markets and is available on a global basis nearly 24 hours a day throughout the trading week. The CME Globex platform is accessible through a wide variety of vendor-provided and custom-built trading systems that benefit from our open application programming interface approach. For privately negotiated markets, we offer brokers and customers the CME Direct platform for arranging, executing, recording and risk-managing trades. CME Direct 5 Table of Contents includes CME One for mobile access and CME Straight-Through Processing, which enables direct connectivity for trade information directly with customer order management and risk management systems and is designed to reduce errors and improve efficiency. Together, our platforms offer: • certainty of execution; • extensive capabilities to facilitate complex and demanding trading; • direct market access; • fairness, price transparency and anonymity; • convenience and efficiency; • connectivity through highly secure, resilient and low-latency network options; • access to market data; and • global distribution, including connectivity through high-speed international telecommunications hubs in key financial centers or order routing to our global partner exchanges. We maintain comprehensive business continuity and disaster recovery plans and facilities designed to provide nearly continuous availability of our markets in the event of a business disruption or disaster. We also maintain incident and crisis management plans that address responses to disruptive events. The customer base of our derivatives exchanges includes professional traders, financial institutions, institutional and individual investors, major corporations, manufacturers, producers, governments and central banks. Customers may be members of one or more of our exchanges. Rights to directly access our derivatives markets will depend upon the nature of the customer, such as whether the entity or individual is a member of one of our exchanges or has executed an agreement with us for direct access. U.S. trading rights and privileges are exchange-specific. Open outcry trading is conducted exclusively by our members. Membership on one of our derivatives exchanges also enables a customer to trade specific products at lower fees. Under the terms of the organizational documents of our exchanges, our members have certain rights that relate primarily to trading right protections, certain trading fee protections and certain membership benefit protections. In 2020, 83% of our contract volume was from trades by our members. CME Clearing Business: Through our clearing house, CME Clearing, which is operated by CME, we provide clearing and settlement services for a broad range of exchange-traded futures and options on futures contracts and over-the-counter derivatives. Our integrated clearing function is designed to ensure the safety and the soundness of our markets by serving as the counterparty to every trade, becoming the buyer to each seller and the seller to each buyer, and limiting counterparty credit risk. CME Clearing marks open positions to market at least twice a trading day, requiring payments from clearing firms whose positions have lost value and making payments to clearing firms whose positions have gained value. For select cleared-only markets, positions are marked-to-market daily, with the capacity to mark-to-market more frequently as market conditions warrant. The CME ClearPort front-end system provides access to our flexible clearing services for block transactions, bi-lateral trades and swaps. The majority of clearing and transaction fees received from clearing firms represents charges for trades executed and cleared on behalf of their customers. One firm represented at least 10% of our clearing and transaction fees revenue for 2020. In the event a clearing firm were to withdraw, our experience indicates that the customer portion of the firm's trading activity would likely transfer to one or more other clearing firms of the exchange. Cash Markets Business: Our cash markets business is comprised of BrokerTec and EBS. Certain BrokerTec and EBS contracts are cleared at third-party clearing houses. BrokerTec and EBS offer anonymous and disclosed trading venues, offering clients multiple execution and distribution options and the benefit of an established and far-reaching distribution network of liquidity providers and consumers. Our BrokerTec markets were migrated from a third-party platform to our CME Globex electronic platform in the first quarter of 2021 and our EBS market is expected to migrate to the CME Globex platform in the fourth quarter of 2021. • BrokerTec operates global electronic trading for fixed income products on the CME Globex platform, with a leading position in cash U.S. Treasuries, E.U. and U.S. repo fixed income instruments and European Government Bonds. It facilitates trading principally for banks and non-bank professional trading firms. • EBS is a global electronic platform for the trading of FX products across major and emerging market currencies.EBS also offers execution of non-deliverable forwards through a Commodity Futures Trading Commission (CFTC) registered Swap Execution Facility (SEF). Optimization Business: Our optimization services, which include Traiana, TriOptima and Reset, deliver transaction lifecycle management services to help our clients simplify their workflow, optimize their capital and resources, mitigate their risk, increase efficiency, reduce their operational costs and streamline complex processes. 6 Table of Contents • Trade and portfolio management comprises portfolio and margin reconciliation, monitoring pre-trade risk and automating post-trade processing of financial transactions. • Financial resource optimization comprises portfolio compression, basis risk mitigation, portfolio balancing and derivative pricing and risk analytics. • Regulatory reporting comprises trade and position reporting (including licensed MiFID agent reporting to national regulators and the public), end-to-end multi-regime regulatory reporting, data normalization, enrichment, reconciliation, validation and cross-jurisdictional matching. In 2020, we substantially completed the wind-down of our commercial regulatory reporting operations. We have transitioned to self-reporting for our EMEA BrokerTec and EBS businesses and will also continue to serve customer reporting needs in the U.S. (CFTC reporting) and Canada. • Trade Processing comprises end-to-end automation, from trade execution notification to trade confirmation of post-trade processing, in real-time to reduce operational risks and costs. In January 2021, we announced an agreement with IHS Markit to combine our post-trade services into a new joint venture. The new company will be structured as a 50/50 joint venture and will include trade processing and risk mitigation operations through incorporation of our optimization businesses – Traiana, TriOptima and Reset – and IHS Markit’s MarkitSERV. We expect the transaction to close in mid-2021, subject to customary antitrust and regulatory approvals and other customary closing conditions. Market Data Business: We offer a variety of market data services through industry-leading market data platforms and third-party distribution partners, which are designed to meet the risk-management, trading, investment and business needs of our global client base. As such, we provide proprietary real-time and historical market data related to CME Group’s vibrant and deeply liquid exchanges and cash markets businesses. We further offer derived cash markets pricing, third-party and alternative data sets, as well as a wide range of analytic tools. As customers continue to leverage cloud technology to improve and evolve their businesses, CME Group has taken a leading role by becoming the first derivatives marketplace to provide live market data natively in the cloud with the launch of our Smart Stream on Google Cloud Platform capabilities. CME Group is also the distributor of leading benchmark equity and commodity indices on behalf of third parties as well as our own proprietary indices, which include CME Group Volatility Indices (CVOL). Our Strategic Initiatives The following is a description of our strategic initiatives: Maximize Futures and Options Growth Globally - We continue to focus on driving growth and new customer acquisition by expanding, innovating and scaling our core offerings, and increasing participation from non-U.S. customers. We do this by expanding our global sales team, cross-selling our products, expanding the strength of our existing benchmark products, launching new products and services and deepening open interest in our core futures and options offerings. We have further focused on building upon cloud-based data distribution capabilities as a more flexible and potentially cost-effective means of providing data to our clients. In 2020, CME Group futures and options had an average daily volume of 19.1 million contracts, with volume records in two of our asset classes - equities and metals for the fifth consecutive year. It was also a year of volume records for multiple products, including: Ultra 10 Year futures, SOFR futures, E-mini Nasdaq-100 futures, Russell 2000 futures, Micro E-Mini Equity Index futures and a record number of contracts executed via Basis Trade at Index Close. We set records in the volume traded for our Micro E-Mini Equity Index futures in total, as well as for each of the Micro E-Mini S&P 500, Nasdaq-100, Russell 2000 and Dow 30 contracts. We also set an overall volume record for the Natural Gas franchise, as well as an individual product record in Silver futures. We continue to expand and deepen our customer base worldwide and offer customers around the world the most broad and diversified portfolio of benchmark products. Some of our products introduced over the past two years include: • 3-Year Treasury Note Futures (2020) • Adjusted Interest Rate (AIR) Total Return Futures (2020) • Trade at Cash Open (TACO) (2019) • Cash-settled Bitcoin Options (2020) • SOFR Options (2020) and SOFR OTC Swaps (2019) • Shanghai Gold Futures (2019) • Physical Liquefied Natural Gas (LNG) Futures (2019) • Micro E-mini Equity Index Futures (2019) and Options (2020) • E-mini S&P 500 ESG Index Futures (2019) • Brazilian Soybean Futures (2020) • Pork Cutout Futures and Options (2020) 7 Table of Contents • European Renewable Fuel Futures (2020) • Nasdaq-100 Volatility Index (VOLQ) Futures (2020) • Nasdaq Veles California Water Index Futures (2020) • Adjusted Interest Rate Total Return Futures (2020) In addition to the individual product launches noted above, we have completed many product extensions across our asset classes, including short-dated options products, monthly FX futures, additional grades in our crude oil complex and expansion of our metals complex with additional base metals products. We continue to expand and deepen our customer base worldwide and offer customers around the world with the most broad and diversified portfolio of benchmark products. We believe we have a significant opportunity to expand the participation of our non-U.S. customer base in our markets. Our penetration of these markets lags our development in the U.S., and we believe that there is room for significant growth and development of these financial markets. In 2020, approximately 28% of our electronic futures and options volume was from transactions reported as outside the U.S. and approximately 55% of our market data revenue was derived from outside the U.S. We also achieved 20% growth in trading volume during Asian trading hours and 6% growth during European trading hours in 2020 compared to 2019. In 2020, we launched four proprietary tools to enable customers to link and compare opportunities across OTC, cash and futures markets: FX Swap Rate Monitor, FX Options Vol Converter, TreasuryWatch Tool and FX Market Profile Tool. Our CME Liquidity Tool enables market participants to analyze liquidity across CME Group products during U.S., London or Singapore trading hours. To further our commitment to our international customers, in 2020 we introduced a TreasuryWatch Tool and additional tools to help customers and prospective customers identify key marketplace developments and potential risk management and trading opportunities (e.g., SOFR-LIBOR spread). Also in 2020, we began daily publication of a suite of new implied volatility benchmark indexes based on our innovative and proprietary CME Group Volatility Index (CVOL) methodology, starting with 10-Year Treasuries and FX currency pairs. We have increased our customer base and continue to target cross-asset sales across client segments, driving international sales and generating new client participation across all regions. We have a long history of providing customer value and responsiveness and believe our products and services position us to help our customers adapt and comply with new regulations, while enabling them to efficiently manage their risks. We have a broad distribution network comprised of a combination of internal and external channels and proprietary front-end capabilities. Diversify our Business and Revenue - Our acquisition of NEX strengthened our role in global financial markets infrastructure and information services, adding complementary cash and OTC businesses and scale to our listed interest rate and FX products, while enabling new efficiencies for the derivatives marketplace. We are positioned to take direct advantage of growth in treasury issuance, liquid treasury holdings and the trading of treasury instruments, as well as growing repo activity in the U.S. and Europe. The transaction expanded CME Group’s position in the large, highly competitive and highly fragmented global FX marketplace, offering both order book trading and relationship-based trading solutions for customers. The acquisition added strength in underlying customer marketplaces, especially around regional bank customers and other market participants outside of North America and expanded our post-trade and trade-processing services and market data solutions beyond futures and options into cash and OTC offerings. Our joint venture with S&P Global, Inc., S&P/DJI Indices LLC, combines the world class capabilities of the S&P and Dow Jones Indices, and is a significant player in passive investing, including the exchange-traded fund (ETF) industry value chain. As part of the joint venture, we acquired a long-term, ownership-linked, exclusive license to list futures and options based on the S&P 500 Index and certain other S&P indices. We also act as the joint ventures' licensing agent and distribution services provider. Deliver Unparalleled Customer Efficiencies and Operational Excellence - With changing regulatory capital requirements for many of our customers, including additional margin requirements on uncleared trades, and the need for greater efficiencies, we have added tools to enable customers to manage trading and clearing positions in our markets in an efficient manner. With the ongoing implementation of regulatory reform in the U.S. and in Europe, along with global implementation of Basel III capital requirements on financial institutions, we expect capital efficiencies and centralized clearing to continue to be important for our global client base. We provide a comprehensive multi-asset class clearing solution to market participants for maximum operational ease and the capital efficiency that comes with connecting to our clearing house. Our clearing services offer the ability to optimize collateral and capital efficiencies across portfolios within the clearing house while meeting the heightened regulatory requirements on derivatives. The majority of our clearing volumes and activities are related to our listed futures and options, which represents the majority of our open interest and collateral held against these positions. We also offer clearing services for OTC interest rate swaps, FX forwards and commodity swaps. The addition of our enhanced Standard Portfolio Analysis of Risk (SPAN) margin framework – CME SPAN 2, will provide enhanced risk management capabilities in a single, unified interface by maintaining 8 Table of Contents SPAN's current calculations and functions while incorporating several new modeling, reporting and margin replication enhancements. CME SPAN 2 will be launched in a phased multi-year approach, starting in 2021 with certain futures and options on energy products. Over the next few years, as SPAN 2 is expanded to other asset classes, margins for diversified portfolios will consist of products using the enhanced CME SPAN 2 framework in addition to the existing SPAN framework, ensuring appropriate levels of offsets will continue to be provided across products subject to the SPAN and SPAN 2 frameworks. CME Group provides various tools and services to assist customers with capital and operational efficiencies, including: • CME Clearing provides compression via coupon blending as well as CME CORE, an interactive margin calculator that enables clients to optimize their capital by providing insights on margin requirements prior to trading. • triReduce provides multilateral portfolio compression, which reduces notional outstanding exposure and line items in order to reduce operational resources and risks, minimize regulatory capital costs, and manage counterparty exposures. • triResolve provides the global trading community with tools for portfolio reconciliation and collateral management, including compliance with initial margin and uncleared margin rules (UMR). • Traiana provides various operational efficiencies and risk mitigation solutions to clients through bilateral and tri-party pre- and post-trade processing and credit risk management. • Reset provides risk mitigation services to clients looking to hedge short-term interest rate and options expiry exposure. • Under our newly announced agreement with IHS Markit, the joint venture will incorporate our optimization businesses – Traiana, TriOptima and Reset – and IHS Markit’s MarkitSERV. We expect the transaction to close in mid-2021, subject to customary antitrust and regulatory approvals and other customary closing conditions. Patents, Trademarks and Licenses We own the rights to a large number of trademarks, service marks, domain names and trade names in the U.S., Europe and other parts of the world. We have registered many of our most important trademarks in the U.S. and other countries. We hold the rights to a number of patents and have a number of patent applications pending. Our patents cover match engine, trader user interface, trading floor support, market data, general technology and clearing house functionalities. We also own copyrights to a variety of materials. Those copyrights, some of which are registered, include printed and on-line publications, websites, advertisements, educational materials, graphic presentations and other literature, both textual and electronic. We protect our intellectual property rights by relying on trademarks, patents, copyrights, database rights, trade secrets, restrictions on disclosure and other methods. We offer equity index futures and options on key benchmarks, including S&P, Nasdaq, Dow Jones and the FTSE Russell indexes. These products are listed by us subject to license agreements with the applicable owners of the indexes, some of which are exclusive. In connection with our joint venture with S&P Global, Inc., we have a license agreement (S&P License Agreement), which superseded our prior licensing arrangements and was assigned to the joint venture. CME’s license for the S&P 500 Index will be exclusive for futures and options until one year prior to the termination of the S&P License Agreement, and non-exclusive for the last year. The license for the other S&P stock indexes is generally exclusive for futures and options. The term of the S&P License Agreement will continue until the date that is one year after the date that CME Group ceases to own at least five percent (accounting for dilution) of the outstanding joint venture interests. Upon the occurrence of certain events, including certain terminations of the joint venture, the term may be extended up to an additional ten years. CBOT has an exclusive license agreement (Dow Jones License Agreement) with CME Group Index Services LLC (CME Indexes) for certain Dow Jones indexes, which has also been assigned to the joint venture. The initial term of the agreement is through June 30, 2026. Following the initial term, the Dow Jones License Agreement shall automatically renew for renewal terms of five years thereafter so long as there is open interest in any of CBOT’s or its affiliates’ products based on one or more of the Dow Jones licensed indexes. In the event there is no open interest in any such products, then CME Indexes may terminate the agreement. We also have an exclusive license agreement for certain Nasdaq indexes through 2029. In 2015, we entered into an exclusive license agreement with FTSE Russell and launched the E-mini Russell 2000 futures in 2017. We pay the applicable third-party, per-trade fees based on contract volume under the terms of these licensing agreements. A copy of the S&P License Agreement has been filed as a material contract. We also have a multi-year non-exclusive licensing arrangement with ICE Benchmark Administration for the use of LIBOR to settle several of our interest rate products, including our Eurodollar contracts. We cannot guarantee that we will be able to maintain the exclusivity of our licensing agreements with S&P, Dow Jones, Nasdaq and FTSE Russell or be able to maintain existing exclusive and non-exclusive licensing arrangements beyond the term of the current agreements or that any renewal will be on terms as favorable to us. In addition, we cannot guarantee that others will not succeed in creating stock index futures based on information similar to that which we have obtained by license, or that market participants will not increasingly use other instruments, including securities and options based on the S&P, Dow Jones, Nasdaq or FTSE Russell indexes, to manage or speculate on U.S. stock risks. Parties also may succeed in offering indexed products that 9 Table of Contents are similar to our licensed products without being required to obtain a license, or in countries that are beyond our and/or our licensors' jurisdictional reach. Competition The industry in which we operate is highly competitive, has seen multiple new entrants over time, and we expect competition to continue to intensify and become more global, especially in light of changes in the financial services industry driven by regulatory reforms such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), European Market Infrastructure Regulation (EMIR), EMIR 2.2, Markets in Financial Instruments Directive II (MiFID II), Capital Requirements Directive IV, Market Abuse Regulation, Benchmarks Regulation, Basel III, and various other laws and regulations. Please also refer to the discussion below and in the “Risk Factors” section beginning on page 15 for a description of competitive risks and uncertainties. Competition in our Derivatives Exchange Business We believe competition in the derivatives business is based on a number of factors, including, among others: • brand and reputation; • efficient and secure settlement, clearing and support services; • depth and liquidity of markets; • diversity of product offerings and frequency and quality of new product development and innovative services; • ability to position and expand upon existing products to address changing market needs; • efficient and seamless customer experience; • transparency, reliability, anonymity and security in transaction processing; • regulatory environment; • connectivity, accessibility, flexibility in execution methods, and distribution; • technological capability and innovation; and • overall transaction costs. We believe that we compete favorably with respect to these factors. Our deep, liquid markets; diverse and complementary product offerings; frequency and quality of new product development, and efficient, secure settlement, clearing and support services, distinguish us from others in the industry. We believe that in order to maintain our competitive position, we must continue to expand globally; develop and offer new and innovative products; enhance our technology infrastructure, including its reliability, functionality and security; maintain liquidity and low transaction costs; continue to strengthen our risk management capabilities and solutions, and implement customer protections designed to ensure the integrity of our market and the confidence of our customers. We compete in a large and expanding financial services trading, clearing and settlement marketplace globally. Our competitors include, among other entities, exchanges such as Intercontinental Exchange, Inc. (ICE), the Hong Kong Exchanges and Clearing Limited, and Deutsche Börse AG. Competition also includes alternative means of developing exposures through alternative instruments (depending on market factors) such as cash, OTC, ETFs, options, warrants, contracts for differences, structured products, and other offerings and incorporates large customer and channel internalization of trade flows and data. New emerging competitors have targeted different segments of our industry, with multiple execution models and products, and emerging technologies will continue to offer additional alternative products in the future. Competition in our industry continues to be dynamic and recent developments and alliances may result in a growing number of well-capitalized trading service providers that compete with all or a portion of our business. Competition in our CME Clearing Business In the past few years, there has been increased competition in the provision of clearing services and we expect competition to continue to increase in connection with compliance with Dodd-Frank, EMIR 2.2, Basel III, MiFID II and other various laws and regulations. Our competitors in the clearing services space include, among others, companies such as ICE, LCH Group, the Options Clearing Corporation, Depository Trust & Clearing Corporation, Hong Kong Exchanges and Clearing, Japan Securities Clearing Corporation, LME Clearing and Deutsche Börse AG. In light of the implementation of new regulatory requirements and other reforms of the financial services industry, we believe that other exchanges and infrastructure providers also may 10 Table of Contents undertake to provide clearing and other related post-trade services, such as Nodel and ERIS in the U.S., as CFTC regulated designated clearing organizations. We believe competition in clearing services is based on, among other things, the value of providing customers with capital and margin efficiencies; quality and reliability of the services; creditworthiness of the clearing house; regulatory costs, timely delivery of the services; reputation; diversity of the service offerings; confidentiality of positions and information security protective measures; and the fees charged for the services provided. Competition in our Cash Markets Business The cash markets businesses face substantial competition across a wide array of venues. In the FX space, the marketplace is highly fragmented, and there is competition from other electronic communication networks, single dealer platforms, bank-owned multi-participant platforms, streaming and request for quote services, trading venues tied to data platforms, voice brokers, other broker enabled platforms and other venues. There is a growing array of platforms and technologies, and they are often owned by many well-capitalized financial institutions and intermediaries that are also driving internalization of client FX trade flows. In the fixed income space, there are also multiple providers of treasury, European and U.S. repo, and European bond trading, as well as other products such as corporate bonds, municipal bonds, mortgage-backed bonds and agencies, and a multitude of competitors and new entrants offering single-dealer liquidity, bank-owned multi-participant platforms, streaming and request for quote services, and other broker and exchange-enabled platforms. Competition in our Optimization Services Business The optimization services business faces substantial competition across each of the segments in which CME Group operates. There are multiple providers of compression services, reconciliation services, trade processing, analytics, and regulatory reporting services. In addition, there is considerable innovation occurring in this business, with new entrants and new technologies being developed to serve customers and differentiate offerings. Competition also comes from other clearing houses and exchange groups, who are today internalizing or have plans to internalize various services, as well as existing back office service providers, who may embed these services in their offerings. Competition in our Market Data Business Technology companies, market data and information vendors and front-end software vendors also represent actual and potential competitors because they have their own substantial market data distribution capabilities that could serve as alternative means for receiving open market data feeds instead of connecting directly to our exchange. Distributors and consumers of our market data may also use our market data as an input into a product that competes against one of our traded or cleared products. Although we may receive license fees for such products, such fees may not offset the impact of any loss in revenue from our comparable product. Regulatory Matters Our businesses are regulated and serve a customer-base that includes regulated institutions or individuals. Developments in the regulatory environment have the potential to significantly affect our businesses. As such, we are subject to extensive regulation primarily in the U.S. and Europe. On January 31, 2020, the United Kingdom (U.K.) formally withdrew from the European Union (E.U.) after a majority of voters in the U.K. approved an exit from the E.U., commonly referred to as Brexit. As a result of Brexit, we have established certain businesses in Amsterdam, an E.U. jurisdiction, which will allow us to continue to provide services to E.U. clients. We have also entered into agreements to work with E.U.-based clearing venues to clear E.U. based repo traded products. Additionally, amendments to EMIR 2.2 became effective during 2020, which resulted in changes to the E.U. equivalence and recognition regime for non-E.U. clearing houses, including CME Clearing. The European Commission adopted several implementing and delegated acts relating to central counterparties established in third countries under the EMIR 2.2 revisions to the European Market Infrastructure Regulation. Please also refer to the discussion below and in the “Risk Factors” section beginning on page 15 for a description of regulatory and legislative risks and uncertainties. Regulation of our Derivatives Business, CME Clearing and our SEF Our operation of U.S. futures exchanges, CME Clearing and our SEF is subject to extensive regulation by the CFTC that requires our regulated subsidiaries to satisfy the requirements of certain core principles relating to the operation and oversight of our markets and our clearing house. The CFTC carries out the regulation of the futures and swaps markets and clearing houses in accordance with the provisions of the Commodity Exchange Act as amended by, among others, the Commodity Futures Modernization Act and Dodd-Frank. Regulations implementing Dodd-Frank include rules relating to the implementation of mandatory clearing of certain OTC derivatives, swap reporting, operation of a clearing house, anti-manipulation, large trader reporting, product definitions, the 11 Table of Contents definition of an agricultural commodity and certain provisions of the rules applicable to designated contract markets, swap execution facilities and swap data repositories. CME has been designated as a systemically important financial market utility and a systemically important derivatives clearing organization. These designations carry with them additional regulatory oversight of certain of our risk-management standards, clearing and settlement activities by the CFTC and the Federal Reserve Board. In connection with the global offering of our products and clearing services, this business is also subject to the rules and regulations of the local jurisdictions in which we conduct business, including the European Securities and Markets Authority (ESMA), the U.K. Financial Conduct Authority (FCA) and Bank of England and the Netherlands Authority for the Financial Markets (AFM). Regulation of our Cash Markets Business The operation of our BrokerTec platform subjects us to regulation by the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) as a broker-dealer and alternative trading system operator. It also subjects us to regulation by authorities in the E.U. as a multilateral trading facility and regulated market and by the applicable regulators in Singapore and Canada. Our EBS business holds various permissions, approvals and exemptions globally, including those that subject certain of its activities to CFTC, FCA, AFM and Hong Kong Monetary Authority (HKMA) oversight. The settlement of matched principal and exchange-traded businesses requires access to clearing houses either directly or through third-party providers of clearing and settlement services. BrokerTec Americas is a member of the Fixed Income Clearing Corp. (FICC) through which it clears U.S. Treasury and repo products. Regulation of our Optimization Services Business Certain areas of our optimization services, which enable clients to mitigate their risk, reduce operational costs, optimize their capital, and fulfill trade reporting obligations, are subject to regulatory oversight in those jurisdictions in which we conduct business, including the Swedish Financial Supervisory Authority, the FCA, CFTC, the National Futures Association, ESMA, the Australian Securities and Investments Commission and HKMA. Regulation of our Market Data Business A portion of our market data business, offered by CME Group Benchmark Administration, is subject to regulation by the E.U. Benchmarks Regulation, which regulates our RepoFunds Rate suite of daily Euro repo indices. Key Areas of Focus We actively monitor and participate in the domestic and international rulemaking processes for our industry, including providing government testimony, commenting on proposed rulemaking and educating our regulators on potential impacts to the marketplace. We are also focused on the new U.S. Presidential administration and any anticipated changes that may result. Our key areas of focus in the regulatory environment are: • The potential impact of the adoption of EMIR 2.2 allowing for the direct regulation by the E.U. of non-E.U. clearing houses, like ours, and resulting changes to the E.U. equivalence and recognition regime on non-E.U. clearing houses and exchanges with customers based in Europe. EMIR 2.2 became effective on January 1, 2020, and as of December 31, 2020, we do not anticipate a significant impact to our business. • Rules respecting capital charges under Basel III with respect to clearing members of central counterparties may have negative implications for the cleared derivatives markets. Additional risks could arise through inconsistent adoption of the Basel III capital charges globally, potentially leading to disparate impacts on our customers. • The potential for further regulation stemming from industry performance disruptions and residual concerns around electronic trading activity and, in particular, "high frequency trading." • The potential elimination of the 60/40 tax treatment of certain of our futures and options contracts, which would result in 60% of the gains being taxed at the short-term capital gain rate instead of the long-term capital gain rate. This would impose a significant increase in tax rates applicable to certain market participants and could result in a decrease in their trading activity. • The implementation of a transaction tax or user fee in the U.S., U.K. or E.U., or in the States of Illinois or New Jersey, which could discourage institutions and individuals from using our markets or products or encourage them to trade in another less costly jurisdiction. Legislation to impose a financial transaction tax has been proposed in the U.S. Congress, Illinois General Assembly and State of New Jersey Legislature in the last legislative sessions and could be proposed again in the current legislative sessions. Additionally, from time to time, the proposed U.S. Presidential budget request has included a proposal to impose a user fee to fund all or a portion of the budget of the CFTC. 12 Table of Contents • Certain provisions in relation to the E.U. Regulations on Benchmarks came into effect on January 1, 2018, and prices and data provided by CME Group for use by E.U. supervised entities and use of those benchmarks may be impacted. On November 30, 2020, the European Commission, European Parliament and the Council agreed to postpone application of the rules on third country benchmarks until December 31, 2023. As a result, all prices and data provided by CME Group are available for use by E.U. supervised entities throughout the transition period until January 1, 2023, subject to entering into appropriate licensing arrangements where relevant. The implementation of legislation in the E.U. impacting how benchmark index prices are formed, including new requirements for price submitters, price aggregators and markets that list contracts that reference index prices. • Concerns that European legislators will prohibit or restrict exclusive licenses for benchmark indexes, which might impact the profitability of several of our most popular contracts. • The FCA has indicated that it will no longer require banks to participate in the LIBOR panel after December 31, 2021. The possibility exists that the FCA may find LIBOR to not be representative of the underlying short-term interest rate pricing or unfit for such purpose, and thus may unfavorably impact our ability to list our existing suite of Eurodollar futures and options products. • The implementation of rules resulting in negative treatment of the liquidity profile of U.S. Treasury securities, including as qualifying liquidity resources, or any potential limitation on the use of U.S. Treasury securities as collateral could result in increased costs to us and our clearing firms. • The implementation of the final phases of uncleared margin rules (UMR Phase 5 & 6) across jurisdictions and implications for customers' management of exposures. Please also see "Item 1A - "Risk Factors" beginning on page 15 for additional information on our areas of regulatory risks. Human Capital Management At CME Group, we rely on our highly skilled and experienced global workforce to meet our business objectives. As of December 31, 2020, our global employee population consisted of approximately 4,370 staff, with 58% (approximately 2,550) of these employees working in the U.S. and the remaining 42% (approximately 1,820) working in our various non U.S. locations (Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Israel, Japan, Netherlands, Philippines, Singapore, South Korea, Sweden, Switzerland and the U.K.). We recognize that fostering a diverse and inclusive global culture is critical to our business success. We provide our workforce with a compelling employee experience that allows us to attract, retain and develop industry-leading talent. We are continually seeking new ways to challenge, develop and support our employees. Select highlights of our employee experience include the following: • We offer a wide range of benefits designed to support our employees’ health and well-being, retirement needs, and work/life balance. • We provide a variety of avenues for employees to grow their expertise, including tuition assistance for continuing education, onsite professional development training courses, access to external seminars and technical skills training, as well as an integrated series of leadership development programs to prepare employees for each stage of their careers. • Our competitive compensation programs align employee rewards with shareholder interests and emphasize our pay-for-performance philosophy. • Our Employee Network Groups (ENGs) are essential to fostering an inclusive culture grounded in mutual respect. All employees are eligible to join our ENGs and employees are encouraged to form new ENGs that align with our shared mission and values, creating communities around professional and personal interests. We conduct regular employee engagement surveys and we monitor our performance against specific voluntary turnover, open role placement and internal promotion metrics to understand where further workforce investments may be necessary. During fiscal year 2020, our performance against these metrics was: • 5.2% voluntary turnover • 34% of open roles filled with internal candidates • 8.9% of employees promoted 13 Table of Contents Diversity and Inclusion At CME Group, we embrace an exchange of ideas driven by the rich diversity of our people, cultures and experiences. We know that when our employees bring their authentic selves to work each day, it makes our business and our culture that much stronger. Leveraging the collective mix of perspectives and insights that our individual backgrounds bring, we can continually provide our global clients with innovative products and solutions, strengthen our competitive advantage and best serve the communities in which we live and work. We have anchored our commitment to diversity and inclusion by incorporating it into our corporate goals and our Chief Human Resources Officer provides our senior management and Board with regular updates. Our Diversity and Inclusion (D&I) Council is responsible for driving our corporate D&I strategy. Members of our management team and employees from across our global workforce serve on the council, representing a wide variety of backgrounds and perspectives. For more information, please refer to our current Corporate Citizenship & Sustainability Report, which is available on our website at www.cmegroup.com under the "Corporate Citizenship" link. Information about our Executive Officers The following are CME Group's executive officers. Ages are as of February 10, 2021. Terrence A. Duffy, 62. Mr. Duffy has served as our Chairman and Chief Executive Officer since 2016. Mr. Duffy previously served as our Executive Chairman and President since 2012 and as Executive Chairman from 2006. Mr. Duffy has been a member of our board of directors since 1995. He also served as President of TDA Trading, Inc. from 1981 to 2002 and has been a member of our CME exchange since 1981. Kathleen M. Cronin, 57. Ms. Cronin has served as our Senior Managing Director, General Counsel and Corporate Secretary since 2003. Prior to joining us, Ms. Cronin was a corporate attorney at Skadden, Arps, Slate, Meagher & Flom LLP from 1989 through 1995 and from 1997 through 2002. Ms. Cronin also serves as a director of Kemper Corporation. Sunil Cutinho , 49. Mr. Cutinho has served as President of CME Clearing since 2014. He joined CME Group in 2002 and since then has held various positions of increasing responsibility within the organization and, most recently served as Managing Director, Deputy Head of CME Clearing from April 2014 through September 2014. Julie Holzrichter, 52. Ms. Holzrichter has served as our Senior Managing Director, Chief Operating Officer since 2014. She previously served as our Senior Managing Director, Global Operations from 2007. Ms. Holzrichter rejoined us in 2006 as our Managing Director, CME Globex Services and Technology Integration. Ms. Holzrichter previously held positions of increasing responsibility in our organization from 1986 to 2003 in trading operations. Kevin Kometer, 56. Mr. Kometer has served as Senior Managing Director and Chief Information Officer since 2008. He previously served as Managing Director and Deputy Chief Information Officer from 2007 to 2008. Since joining the company most recently in 1998, he has held senior leadership positions in the Technology Division, including Managing Director, Trading Execution Systems and Director, Advanced Technology. Mr. Kometer was also with the company from 1994 to 1996. Hilda Harris Piell, 53. Ms. Piell has served as Senior Managing Director and Chief Human Resources Officer since 2007. Previously she served as Managing Director and Senior Associate General Counsel, as Director and Associate General Counsel and as Associate Director and Assistant General Counsel since joining us in 2000. John W. Pietrowicz, 56. Mr. Pietrowicz has served as our Chief Financial Officer since 2014. Previously, Mr. Pietrowicz served as our Senior Managing Director, Business Development and Corporate Finance since 2010. Mr. Pietrowicz joined us in 2003 and since then has held various positions of increasing responsibility, including Managing Director and Deputy Chief Financial Officer from 2009 to 2010 and Managing Director, Corporate Finance and Treasury from 2006 to 2009. Mr. Pietrowicz also serves as a director of S&P/Dow Jones Indices LLC. Derek Sammann, 52. Mr. Sammann has served as our Senior Managing Director, Commodities and Options Products since 2014. He previously served as our Senior Managing Director, Financial Products and Services since 2009 and Global Head of Foreign Exchange Products since joining us in 2006. Prior to joining us, Mr. Sammann served as Managing Director, Global Head of FX Options and Structured Products at Calyon Corporate and Investment Bank in London from 1997 to 2006. Jack Tobin, 57. Mr. Tobin has served as our Chief Accounting Officer since 2015. Mr. Tobin most recently served as our Managing Director, Corporate Finance since 2007. Prior to our merger with CBOT Holdings, Mr. Tobin served as the Director, Corporate Finance for CBOT Holdings and CBOT from 2002 to 2007. Prior to joining CBOT, Mr. Tobin served as a principal consultant with PricewaterhouseCoopers from 1997 to 2002. Mr. Tobin is a registered certified public accountant. Sean Tully, 57. Mr. Tully has served as Senior Managing Director, Financial and OTC Products of CME Group since 2014. He previously served as Senior Managing Director, Interest Rates and OTC Products during 2014. Previously, he served as Managing Director, Interest Rate and OTC Products since 2013 and as our Managing Director, Interest Rate Products since 14 Table of Contents joining us in 2011. Before joining the company, Mr. Tully most recently served as Managing Director, Global Head of Fixed Income Trading at WestLB in London. Kendal Vroman, 49. Mr. Vroman has served as our Senior Managing Director, International and Optimization Services since February 2020. He previously served as our Senior Managing Director, Cash Markets and Optimization Services. Since joining the company in 2001, he has held a variety of senior leadership roles including Managing Director, Planning and Execution, Global Head, Commodity Products and OTC Solutions and Managing Director and Chief Corporate Development Officer. Prior to joining us, Mr. Vroman most recently served as Vice President, Corporate Operations/Chief of Staff to the Chief Executive Officer for marchFirst Inc. Julie Winkler, 46. Ms. Winkler has served as our Senior Managing Director, Chief Commercial Officer since 2016. She previously served as Senior Managing Director, Research and Product Development and Index Services of CME Group since 2014 and as Managing Director, Research and Product Development since 2007. Prior to our merger with CBOT Holdings, Ms. Winkler held positions of increasing responsibility for CBOT Holdings since 1996. Ms. Winkler also serves as a director of S&P/Dow Jones Indices LLC. AVAILABLE INFORMATION Our website is www.cmegroup.com . Information made available on our website does not constitute part of this document. We make available on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. Our corporate governance materials, including our Corporate Governance Principles, Director Conflict of Interest Policy, Board of Directors Code of Ethics, Categorical Independence Standards, Employee Code of Conduct and the charters for all the committees of our board, also may be found on our website. Copies of these materials also are available to shareholders free of charge upon written request to Shareholder Relations, Attention Ms. Beth Hausoul, CME Group Inc., 20 South Wacker Drive, Chicago, Illinois 60606.