CME GROUP INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except per share data; shares in thousands) December 31, 2020 2019 Assets Current Assets: Cash and cash equivalents $ 1,633.2 $ 1,551.4 Marketable securities 100.9 83.2 Accounts receivable, net of allowance of $5.4 and $3.4 461.3 491.8 Other current assets (includes $4.7 and $4.3 in restricted cash) 306.7 364.4 Performance bonds and guaranty fund contributions 86,781.8 37,077.0 Total current assets 89,283.9 39,567.8 Property, net 579.2 544.0 Intangible assets—trading products 17,175.3 17,175.3 Intangible assets—other, net 4,865.3 5,117.7 Goodwill 10,798.8 10,742.5 Other assets (includes $0.6 and $0.9 in restricted cash) 1,957.1 2,068.0 Total Assets $ 124,659.6 $ 75,215.3 Liabilities and Equity Current Liabilities: Accounts payable $ 69.3 $ 61.9 Other current liabilities 1,346.8 1,384.8 Performance bonds and guaranty fund contributions 86,781.8 37,075.8 Total current liabilities 88,197.9 38,522.5 Long-term debt 3,443.8 3,743.2 Deferred income tax liabilities, net 5,607.0 5,635.2 Other liabilities 1,059.4 1,155.1 Total Liabilities 98,308.1 49,056.0 Shareholders’ Equity: Preferred stock, $0.01 par value, 10,000 shares authorized as of December 31, 2020 and 2019; none issued — — Class A common stock, $0.01 par value, 1,000,000 shares authorized as of December 31, 2020 and 2019, 358,110 and 357,469 shares issued and outstanding as of December 31, 2020 and 2019, respectively 3.6 3.6 Class B common stock, $0.01 par value, 3 shares authorized, issued and outstanding as of December 31, 2020 and 2019 — — Additional paid-in capital 21,185.5 21,113.2 Retained earnings 4,995.9 5,008.7 Accumulated other comprehensive income (loss) 134.9 3.4 Total CME Group shareholders’ equity 26,319.9 26,128.9 Non-controlling interests 31.6 30.4 Total Equity 26,351.5 26,159.3 Total Liabilities and Equity $ 124,659.6 $ 75,215.3 See accompanying notes to consolidated financial statements. 50 Table of Contents CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share data; shares in thousands) Year Ended December 31, 2020 2019 2018 Revenues Clearing and transaction fees $ 3,897.4 $ 3,946.1 $ 3,667.0 Market data and information services 545.4 518.5 449.6 Other 440.8 403.4 192.8 Total Revenues 4,883.6 4,868.0 4,309.4 Expenses Compensation and benefits 856.5 898.7 672.2 Technology 198.5 201.5 117.2 Professional fees and outside services 191.3 174.1 166.1 Amortization of purchased intangibles 311.2 314.7 130.0 Depreciation and amortization 153.2 158.6 118.7 Licensing and other fee agreements 244.9 172.2 170.6 Other 290.6 360.4 327.0 Total Expenses 2,246.2 2,280.2 1,701.8 Operating Income 2,637.4 2,587.8 2,607.6 Non-Operating Income (Expense) Investment income 182.7 637.9 745.1 Interest and other borrowing costs ( 166.2 ) ( 178.0 ) ( 157.7 ) Equity in net earnings (losses) of unconsolidated subsidiaries 190.6 176.8 152.8 Other non-operating income (expense) ( 122.4 ) ( 534.9 ) ( 570.0 ) Total Non-Operating Income (Expense) 84.7 101.8 170.2 Income before Income Taxes 2,722.1 2,689.6 2,777.8 Income tax provision 615.7 573.8 814.1 Net Income 2,106.4 2,115.8 1,963.7 Less: net (income) loss attributable to non-controlling interests ( 1.2 ) 0.7 ( 1.5 ) Net Income Attributable to CME Group $ 2,105.2 $ 2,116.5 $ 1,962.2 Earnings per Common Share Attributable to CME Group: Basic $ 5.88 $ 5.93 $ 5.73 Diluted 5.87 5.91 5.71 Weighted Average Number of Common Shares: Basic 357,764 357,155 342,344 Diluted 358,524 358,239 343,737 See accompanying notes to consolidated financial statements. 51 Table of Contents CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) Year Ended December 31, 2020 2019 2018 Net income $ 2,106.4 $ 2,115.8 $ 1,963.7 Other comprehensive income, net of tax: Investment securities: Net unrealized holding gains (losses) arising during the period 1.1 1.0 ( 0.8 ) Income tax benefit (expense) ( 0.3 ) ( 0.3 ) 0.2 Investment securities, net 0.8 0.7 ( 0.6 ) Defined benefit plans: Net change in defined benefit plans arising during the period ( 7.4 ) ( 6.6 ) ( 15.3 ) Amortization of net actuarial (gains) losses and prior service costs included in compensation and benefits expense 4.7 4.9 2.6 Income tax benefit (expense) 0.7 0.4 3.2 Defined benefit plans, net ( 2.0 ) ( 1.3 ) ( 9.5 ) Derivative investments: Net unrealized holding gains (losses) arising during the period — 0.6 0.9 Amortization of effective portion of net (gains) losses on cash flow hedges included in interest expense ( 2.7 ) ( 1.2 ) ( 1.2 ) Income tax benefit (expense) 0.7 ( 0.1 ) 0.1 Derivative investments, net ( 2.0 ) ( 0.7 ) ( 0.2 ) Foreign currency translation: Foreign currency translation adjustments 134.3 ( 0.6 ) ( 2.5 ) Reclassification adjustment for loss included in other expense 0.4 — — Foreign currency translation, net 134.7 ( 0.6 ) ( 2.5 ) Other comprehensive income (loss), net of tax 131.5 ( 1.9 ) ( 12.8 ) Comprehensive income 2,237.9 2,113.9 1,950.9 Less: comprehensive (income) loss attributable to non-controlling interest ( 1.2 ) 0.7 ( 1.5 ) Comprehensive income attributable to CME Group $ 2,236.7 $ 2,114.6 $ 1,949.4 See accompanying notes to consolidated financial statements. 52 CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (dollars in millions, except per share data; shares in thousands) Class A Common Stock (Shares) Class B Common Stock (Shares) Common Stock and Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total CME Group Shareholders' Equity Non-controlling Interest Total Equity Balance at December 31, 2017 339,235 3 $ 17,900.3 $ 4,497.2 $ 14.3 $ 22,411.8 $ — $ 22,411.8 Net income 1,962.2 1,962.2 1.5 1,963.7 Other comprehensive income ( 12.8 ) ( 12.8 ) ( 12.8 ) Dividends on common stock of $4.55 per share ( 1,591.6 ) ( 1,591.6 ) ( 1,591.6 ) Impact of adoption of standards update on tax effects related to accumulated other comprehensive income and revenue recognition ( 12.5 ) 3.8 ( 8.7 ) ( 8.7 ) Common stock issued to complete the acquisition of NEX 16,927 3,105.8 3,105.8 3,105.8 Non-controlling interest resulting from the acquisition of NEX — 45.3 45.3 Exercise of stock options 175 11.5 11.5 11.5 Vesting of issued restricted Class A common stock 449 ( 35.0 ) ( 35.0 ) ( 35.0 ) Shares issued to Board of Directors 16 2.8 2.8 2.8 Shares issued under Employee Stock Purchase Plan 22 4.0 4.0 4.0 Stock-based compensation 68.5 68.5 68.5 Balance at December 31, 2018 356,824 3 $ 21,057.9 $ 4,855.3 $ 5.3 $ 25,918.5 $ 46.8 $ 25,965.3 See accompanying notes to consolidated financial statements. 53 CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (continued) (dollars in millions, except per share data; shares in thousands) Class A Common Stock (Shares) Class B Common Stock (Shares) Common Stock and Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total CME Group Shareholders' Equity Non-controlling Interest Total Equity Balance at December 31, 2018 356,824 3 $ 21,057.9 $ 4,855.3 $ 5.3 $ 25,918.5 $ 46.8 $ 25,965.3 Net income 2,116.5 2,116.5 ( 0.7 ) 2,115.8 Other comprehensive income ( 1.9 ) ( 1.9 ) ( 1.9 ) Dividends on common stock of $5.50 per share ( 1,970.0 ) ( 1,970.0 ) ( 1,970.0 ) Impact of adoption of standards updates on leasing 6.9 — 6.9 6.9 Changes in non-controlling interest due to measurement period adjustments — ( 15.7 ) ( 15.7 ) Exercise of stock options 204 14.2 14.2 14.2 Vesting of issued restricted Class A common stock 399 ( 36.8 ) ( 36.8 ) ( 36.8 ) Shares issued to Board of Directors 16 3.2 3.2 3.2 Shares issued under Employee Stock Purchase Plan 26 5.2 5.2 5.2 Stock-based compensation 73.1 73.1 73.1 Balance at December 31, 2019 357,469 3 $ 21,116.8 $ 5,008.7 $ 3.4 $ 26,128.9 $ 30.4 $ 26,159.3 See accompanying notes to consolidated financial statements. 54 CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (continued) (dollars in millions, except per share data; shares in thousands) Class A Common Stock (Shares) Class B Common Stock (Shares) Common Stock and Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total CME Group Shareholders' Equity Non-controlling Interest Total Equity Balance at December 31, 2019 357,469 3 $ 21,116.8 $ 5,008.7 $ 3.4 $ 26,128.9 $ 30.4 $ 26,159.3 Net income 2,105.2 2,105.2 1.2 2,106.4 Other comprehensive income 131.5 131.5 131.5 Dividends on common stock of $5.90 per share ( 2,117.7 ) ( 2,117.7 ) ( 2,117.7 ) Impact of adoption of accounting standards updates on credit losses ( 0.3 ) ( 0.3 ) ( 0.3 ) Exercise of stock options 123 6.9 6.9 6.9 Vesting of issued restricted Class A common stock 457 ( 41.4 ) ( 41.4 ) ( 41.4 ) Shares issued to Board of Directors 17 2.9 2.9 2.9 Shares issued under Employee Stock Purchase Plan 44 7.9 7.9 7.9 Stock-based compensation 96.0 96.0 96.0 Balance at December 31, 2020 358,110 3 $ 21,189.1 $ 4,995.9 $ 134.9 $ 26,319.9 $ 31.6 $ 26,351.5 See accompanying notes to consolidated financial statements. 55 Table of Contents CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2019 2018 Cash Flows from Operating Activities Net income $ 2,106.4 $ 2,115.8 $ 1,963.7 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation 96.0 73.1 96.5 Amortization of purchased intangibles 311.2 314.7 130.0 Depreciation and amortization 153.2 158.6 118.7 Net losses on assets held for sale and impaired 26.3 61.1 — (Gain)/Loss on derivative contracts ( 1.5 ) 17.7 62.3 Net realized and unrealized (gains)/losses on investments 5.5 1.8 ( 97.4 ) Undistributed earnings, net of losses, of unconsolidated subsidiaries ( 7.7 ) ( 43.6 ) ( 8.3 ) Deferred income taxes ( 41.6 ) ( 3.7 ) 114.3 Change in: Accounts receivable 28.2 60.8 ( 65.5 ) Other current assets 30.4 110.2 ( 84.9 ) Other assets 71.6 29.2 29.7 Accounts payable 7.4 ( 54.1 ) 32.3 Income taxes payable 4.7 ( 28.6 ) 195.4 Other current liabilities ( 54.3 ) ( 99.3 ) ( 36.8 ) Other liabilities ( 28.8 ) ( 52.8 ) ( 20.5 ) Other 8.6 11.9 11.3 Net Cash Provided by Operating Activities 2,715.6 2,672.8 2,440.8 Cash Flows from Investing Activities Proceeds from maturities and sales of available-for-sale marketable securities 12.3 18.8 11.8 Purchases of available-for-sale marketable securities ( 11.1 ) ( 15.4 ) ( 10.0 ) Purchases of property, net ( 197.5 ) ( 245.6 ) ( 116.7 ) Investments in business ventures ( 5.5 ) — — Proceeds from sale of business ventures 26.3 89.6 20.7 Cash paid to acquire NEX, net of cash received — — ( 1,795.4 ) Net Cash Used in Investing Activities ( 175.5 ) ( 152.6 ) ( 1,889.6 ) See accompanying notes to consolidated financial statements. 56 Table of Contents CME GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in millions) Year Ended December 31, 2020 2019 2018 Cash Flows from Financing Activities (Repayment) issuance of commercial paper, net $ ( 304.6 ) $ ( 92.5 ) $ 386.9 Proceeds from other borrowings, net of issuance costs — — 1,185.0 Repayment of other borrowings — ( 569.2 ) ( 452.5 ) Cash dividends ( 2,110.0 ) ( 1,695.9 ) ( 2,149.9 ) Proceeds from settlement of (premium payment for) derivative contract — 16.0 ( 30.0 ) Employee taxes paid on restricted stock vesting ( 41.4 ) ( 36.8 ) ( 35.0 ) Other ( 2.2 ) 37.6 15.5 Net Cash Used in Financing Activities ( 2,458.2 ) ( 2,340.8 ) ( 1,080.0 ) Net change in cash, cash equivalents and restricted cash 81.9 179.4 ( 528.8 ) Cash, cash equivalents and restricted cash, beginning of period 1,556.6 1,377.2 1,906.0 Cash, Cash Equivalents and Restricted Cash, End of Period $ 1,638.5 $ 1,556.6 $ 1,377.2 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 1,633.2 $ 1,551.4 $ 1,374.5 Short-term restricted cash 4.7 4.3 1.5 Long-term restricted cash 0.6 0.9 1.2 Total $ 1,638.5 $ 1,556.6 $ 1,377.2 Supplemental Disclosure of Cash Flow Information Income taxes paid $ 652.7 $ 591.2 $ 577.4 Interest paid 133.3 146.3 108.3 Non-cash financing activities: Common stock issued for the acquisition of NEX — — 3,105.8 Declaration of annual variable dividend, payable in January 2021, January 2020 and January 2019 895.2 893.7 624.4 See accompanying notes to consolidated financial statements. 57 Table of Contents CME GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS CME Group Inc. (CME Group) exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange (FX), agricultural, energy and metal commodities. We offer futures and options trading across asset classes through the CME Globex platform, cash and repo fixed income trading via BrokerTec, and cash and OTC FX trading via EBS. In addition, it operates one of the world’s leading central counterparty clearing houses. CME Group offers clearing, settlement and guarantees for all products cleared through the clearing house. 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), wholly-owned subsidiaries of CME Group, are designated contract markets for the trading of futures and options contracts. Effective November 2, 2018, CME Group completed its acquisition of NEX Group plc (NEX). NEX offers electronic trade execution platforms for the foreign exchange and fixed income over-the-counter markets as well as other services across the transaction lifecycle, including trade and portfolio management and portfolio compression. The financial statements and accompanying notes presented in this report include the financial results of NEX and its subsidiaries beginning on November 3, 2018. CME Group and its subsidiaries are referred to collectively as “the company” in the notes to the consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. and include the accounts of the company and its subsidiaries. All intercompany transactions and balances have been eliminated. Use of Estimates. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts on the consolidated financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and assumptions management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ. Cash and Cash Equivalents. Cash and cash equivalents consist of cash and highly liquid investments with a maturity of three months or less at the time of purchase. Financial Investments. The company maintains short-term and long-term investments, classified as equity method investments, equity securities, available-for-sale debt securities, and trading securities. Available-for-sale debt securities are carried at fair value, with unrealized gains and losses, net of deferred income taxes, reported as a component of accumulated other comprehensive income. Trading securities held in connection with non-qualified deferred compensation plans and equity securities are recorded at fair value, with net realized and unrealized gains and losses and dividend income reported as investment income. For equity investments in privately-held entities that do not have a readily determinable fair value, our accounting policy is to utilize the measurement alternative for valuation of these investments, which permits the company to estimate fair value at cost minus impairment, plus or minus changes resulting from observable price movements. Also, the company maintains long-term investments accounted for under the equity method, which requires that the company recognize its share of net income (loss) in the investee as an adjustment to the carrying amount of the investment each reporting period. The company reviews its investment portfolio at least quarterly as well as whenever facts or circumstances exist which indicate that the carrying value of the investment is greater than its fair value. For investments not carried at fair value, the carrying value of the investment is reduced to its fair value and a corresponding impairment expense is charged to earnings, if events and circumstances indicate that a markdown to fair value is warranted. Declines in the fair value of available-for-sale securities that are deemed to be other-than-temporary are charged to earnings as a realized loss. Fair Value of Financial Instruments. The company uses a three-level classification hierarchy of fair value measurements that establishes the quality of inputs used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial instruments is determined using various techniques that involve some level of estimation and judgment, the degree of which is dependent on the price transparency and the complexity of the instruments. Derivative Investments. The company occasionally uses derivative instruments to limit exposure to changes in interest rates and foreign currency exchange rates. Derivatives are recorded at fair value on the consolidated balance sheets. For those 58 Table of Contents derivatives that meet the criteria for hedge accounting and are classified as effective cash flow hedges, changes in the fair value of the hedges are deferred in accumulated other comprehensive income. Any realized gains and losses from effective hedges are classified within the same financial statement line item on the consolidated statements of income as the hedge risk. For any hedges no longer deemed effective or for which hedge accounting is not applied, changes in fair value of the derivative instruments are recognized in earnings immediately within other non-operating income (expense). There were no outstanding derivative instruments at December 31, 2020. Accounts Receivable. Accounts receivable are comprised of trade receivables and unbilled revenue. All accounts receivable are stated at net realizable value. Exposure to losses on receivables for clearing and transaction fees and other amounts owed by clearing and trading firms is dependent on each firm's financial condition. With respect to clearing firms, our credit loss exposure is mitigated by the memberships that collateralize fees owed to the company. The company retains the right to liquidate exchange memberships to satisfy an outstanding receivable. The allowance for doubtful accounts is calculated based on management's assessment of future expected losses over the life of the receivable, historical trends and the current economic environment within which we operate. Performance Bonds and Guaranty Fund Contributions. Performance bonds and guaranty fund contributions held for clearing firms may be in the form of cash, securities or other non-cash deposits. Performance bonds and guaranty fund contributions received in the form of cash held by CME may be invested in U.S. government securities, U.S. government agency securities and certain foreign government securities acquired through and held by a bank or broker-dealer subsidiary of a bank, a cash account at the Federal Reserve Bank of Chicago, reverse repurchase agreements secured with highly rated government securities, money market funds or through CME's Interest Earning Facility (IEF) program. Any interest earned on CME investments accrues to CME and is included in investment income on the consolidated statements of income. CME may distribute any interest earned on its investments to the clearing firms at its discretion. Because CME has control of the cash collateral and the benefits and market risks of ownership accrue to CME, cash performance bonds and guaranty fund contributions are reflected on the consolidated balance sheets. Securities and other non-cash deposits may include U.S. Treasury securities, U.S. government agency securities, Eurobonds, corporate bonds, other foreign government securities and gold bullion. Securities and other non-cash deposits are held in safekeeping by a custodian bank. Interest and gains or losses on securities deposited to satisfy performance bond and guaranty fund requirements accrue to the clearing firm. Because the benefits and risks of ownership accrue to the clearing firm, non-cash performance bonds and guaranty fund contributions are not reflected on the consolidated balance sheets. Property. Property is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method, generally over two to thirty-nine years. Property and equipment are depreciated over their estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining term of the respective lease to which they relate or the remaining useful life of the leasehold improvement. Land is reported at cost. Internal and external costs incurred in developing or obtaining computer software for internal use which meet the requirements for capitalization are amortized on a straight-line basis over the estimated useful life of the software, generally two to four years, but up to eight years for certain trading and clearing applications, depending upon expected useful lives. Leases. The company accounts for our leases of office space as operating leases. Landlord allowances are recorded as a direct reduction to the capitalized lease asset, which is reported in other assets and amortized to rent expense over the term of the lease. The associated lease liability represents the present value of lease payments remaining in the lease term and is recorded within current and other liabilities depending upon the balance sheet classification of the payment obligations as short-term or long-term. For sale leaseback transactions, the company evaluates the sale and the lease arrangement based on the company's conclusion as to whether control of the underlying asset has been transferred and recognizes the sale leaseback as either a sale transaction or under the financing method, which requires the asset to remain on the consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation. A portion of the lease payments is recognized as a reduction of the financing obligation and a portion is recognized as interest expense based on an imputed interest rate. Goodwill and Other Intangible Assets. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. The company reviews goodwill and indefinite-lived intangible assets for impairment at least quarterly and whenever events or circumstances indicate that their carrying values may not be recoverable. The company may test goodwill quantitatively for impairment by comparing the carrying value of a reporting unit to its estimated fair value. Estimating the fair value of a reporting unit involves significant judgments inherent in the analysis including estimating the amount and timing of future cash flows and the selection of appropriate discount rates and long-term growth rate assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting unit. If the carrying amount exceeds fair value, an impairment loss is recorded. In certain circumstances, goodwill may be reviewed qualitatively for indications of impairment without utilizing valuation techniques to estimate fair value. The company performs an impairment assessment of indefinite-lived intangible assets at least quarterly or whenever events or circumstances indicate that their carrying values may not be recoverable. If the indefinite-lived intangible asset carrying value 59 Table of Contents exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Estimating the fair value of indefinite-lived intangible assets involves the use of valuation techniques that rely on significant estimates and assumptions including forecasted revenue growth rates, forecasted allocations of expense and risk-adjusted discount rates. Changes in these estimates and assumptions could materially affect the determination of fair value for indefinite-lived intangible assets. In certain circumstances, indefinite-lived intangible assets may be reviewed qualitatively for indications of impairment without utilizing valuation techniques to estimate fair value. Intangible assets subject to amortization are also assessed for impairment at least quarterly or when indicated by a change in economic or operational circumstances. The impairment assessment of these assets requires management to first compare the carrying value of the amortizing asset to undiscounted net cash flows. If the carrying value exceeds the undiscounted net cash flows, management is then required to estimate the fair value of the assets and record an impairment loss for the excess of the carrying value over the fair value. In connection with this impairment assessment, management also challenges the useful lives of our amortizing intangible assets. Business Combinations. The company accounts for business combinations using the acquisition method. The method requires the acquirer to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. The company may use independent valuation services to assist in determining the estimated fair values. Employee Benefit Plans. The company recognizes the funded status of defined benefit postretirement plans on its consolidated balance sheets. Changes in that funded status are recognized in the year of change in other comprehensive income (loss). Plan assets and obligations are measured at year end. The company recognizes future changes in actuarial gains and losses and prior service costs in the year in which the changes occur through accumulated other comprehensive income (loss). Foreign Currency Translation . Foreign currency denominated assets and liabilities are re-measured into the functional currency using period-end exchange rates. Gains and losses from foreign currency transactions are included in other expense on the accompanying consolidated statements of income. When the functional currency differs from the reporting currency, revenues and expenses of foreign subsidiaries are translated from their functional currencies into U.S. dollars using weighted-average exchange rates while their assets and liabilities are translated into U.S. dollars using period-end exchange rates. Gains and losses resulting from foreign currency translations are included in accumulated other comprehensive income (loss) within shareholders' equity. Revenue Recognition. Revenue recognition policies for specific sources of revenue are discussed below. Clearing and Transaction Fees. Clearing and transaction fees include per-contract charges for trade execution, clearing, trading on the company's electronic trading platforms, portfolio reconciliation and compression services, risk mitigation, and other fees. Fees are charged at various rates based on the product traded, the method of trade, the exchange trading privileges of the customer making the trade and the type of contract. The majority of our clearing and transaction fees are recognized as revenue when a buy and sell order are matched. Therefore, unfilled or canceled buy and sell orders have no impact on revenue. On occasion, the customer's exchange trading privileges may not be properly entered by the clearing firm and incorrect fees are charged for the transactions. When this information is corrected within the time period allowed by the company, a fee adjustment is provided to the clearing firm. A reserve is established for estimated fee adjustments to reflect corrections to customer exchange trading privileges. The reserve is based on the historical pattern of adjustments processed as well as specific adjustment requests. The company believes the allowances are adequate to cover estimated adjustments. Market Data and Information Services. Market data and information services represent revenue earned for the dissemination of market information. Revenues are accrued each month based on the number of devices reported by vendors or over a straight line basis in accordance with the market data subscription contract term. The company conducts periodic examinations of the number of devices reported and assesses additional fees as necessary. On occasion, customers will pay for services in a lump sum payment; however, revenue is recognized as services are provided. Other Revenues. Other revenues include access and communication fees, fees for collateral management, equity membership subscription fees and fees for trade order routing through agreements from various strategic relationships as well as other services to customers. Revenue is recognized as services are provided. Concentration of Revenue. One clearing firm represented at least 10 % of the company's clearing and transaction fee revenue in 2020. No individual clearing firm represented at least 10 % of our clearing and transaction fees in 2019. One clearing firm represented 10 % of the company's clearing and transaction fee revenue in 2018. Should a clearing firm withdraw from the company, management believes that the customer portion of that firm's trading activity would likely transfer to another clearing firm. Therefore, management does not believe that the company is exposed to significant risk from the ongoing loss of revenue received from a particular clearing firm. 60 Table of Contents The two largest resellers of market data represented approximately 35 % of market data and information services revenue in 2020, 37 % in 2019, and 41 % in 2018. Should one of these vendors no longer subscribe to the company's market data, management believes that the majority of that firm's customers would likely subscribe to the market data through another reseller. Therefore, management does not believe that the company is exposed to significant risk from a loss of revenue received from any particular market data reseller. Share-Based Payments. The company accounts for share-based payments at fair value, which is based on the grant date price of the equity awards issued. The company recognizes expense relating to stock-based compensation on an accelerated basis. As a result, the expense associated with each vesting date within a stock grant is recognized over the period of time that each portion of that grant vests. Forfeitures are recognized in the period in which they occur. Marketing Costs. Marketing costs are incurred for the production and communication of advertising as well as other marketing activities. These costs are expensed when incurred, except for costs related to the production of broadcast advertising, which are expensed when the first broadcast occurs. Income Taxes. Deferred income taxes arise from temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized. The company accounts for uncertainty in income taxes recognized in its consolidated financial statements by using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken or expected to be taken. The company classifies interest and penalties related to uncertain tax positions in income tax expense. Segment Reporting. The company reports the results of its operations as one operating segment primarily comprised of the businesses of CME, CBOT, NYMEX, COMEX and NEX. The individual operations of the company do not meet the thresholds for reporting separate segment information. Newly Adopted Accounting Policies. The company adopted the following accounting policies during 2020: Credit Losses. In June 2016, the FASB issued guidance that changes how credit losses are measured for most financial assets measured at amortized cost and certain other instruments. The standard requires an entity to estimate its lifetime expected credit loss and record an allowance, that when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. This forward-looking expected loss model generally will result in the earlier recognition of allowances for losses. The standard also amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available for sale debt security is a credit loss. Severity and duration of the unrealized loss are no longer permissible factors in concluding whether a credit loss exists. Entities will recognize improvements to estimated credit losses on available for sale debt securities immediately in earnings rather than as interest income over time. The company implemented this standard on January 1, 2020 by recognizing an immaterial cumulative-effect adjustment to the beginning balance of retained earnings. The company has not experienced significant levels of underpayment or nonpayment by customers and does not expect changes to this trend over the payment terms of our receivables. Exposure to losses on receivables for clearing and transaction fees and other amounts owed by clearing and trading firms is dependent on each firm's financial condition. With respect to clearing firms, the company's credit loss exposure is mitigated by the memberships that collateralize fees owed to the company. The allowance for credit losses on accounts receivable is calculated by evaluating the aging of the company's billings by revenue stream: clearing and transaction, market data, and other. This aging assessment, as well as contemplation of current and anticipated economic factors, including the interest rate environment and pricing levels are the primary considerations that most significantly impact the collectability of accounts receivable. The allowance for accounts receivable is $ 5.4 million at December 31, 2020. Defined Pension and Other Postretirement Plans. In August 2018, the FASB issued a standards update that modifies the disclosure requirements for employers that sponsor defined pension or other postretirement plans. The guidance clarifies certain existing disclosures and expands the requirements for others. Disclosures that are not considered cost beneficial are removed by the update. Also, there is a new disclosure requirement to include an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for reporting periods ending after December 15, 2020. Adoption of this guidance in December 2020 did not have a material financial statement impact as the changes are disclosure-related only. The company has amended its employee benefit plan disclosures to incorporate the new guidance in footnote 11 of this report. Income Taxes. In December 2019, the FASB issued an accounting update that is intended to reduce cost and complexity related to accounting for income taxes. The update removes specific exceptions to the general principles for accounting for income taxes. Specifically, it eliminates the need for an entity to analyze whether the following exceptions apply in a given period: incremental approach for intraperiod tax allocation, accounting basis differences when there are ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The update also simplifies the accounting for the following: franchise taxes that are partially based on income, transactions with a government 61 Table of Contents that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. This update is effective for reporting periods beginning after December 15, 2020. The company early adopted this standard on January 1, 2020. The impact of adoption of this standard was immaterial to the consolidated financial statements. 3. MARKETABLE SECURITIES The company has equity securities, available-for-sale debt securities and mutual funds classified as marketable securities on our consolidated balance sheets. The amortized cost and fair value of equity securities and available-for-sale debt securities at December 31, 2020 and 2019 were as follows: 2020 2019 (in millions) Amortized Cost Fair Value Amortized Cost Fair Value Corporate debt securities (1) $ 15.9 $ 17.9 $ 15.8 $ 16.7 Asset-backed security 0.5 0.3 0.5 0.3 Equity securities — 0.1 — 0.1 Total $ 16.4 $ 18.3 $ 16.3 $ 17.1 _______________ (1) The corporate debt securities are maintained for a non-qualified retirement and benefit plan under the COMEX Members' Recognition and Retention Plan (MRRP) (note 11). Net unrealized gains (losses) on marketable debt securities classified as available-for-sale are reported as a component of other comprehensive income (loss) and included on the accompanying consolidated statements of comprehensive income and consolidated statements of equity. Changes in the fair value of equity securities are recognized within investment income on the consolidated statements of income. The fair value and gross unrealized losses of our asset-backed security was $ 0.3 million and $ 0.2 million, respectively, at December 31, 2020. The asset-backed security was in an unrealized loss position at December 31, 2020 and was deemed not to be other-than-temporarily impaired. The company does not intend to sell and is not required to sell these securities prior to maturity. The amortized cost and fair value of the corporate debt securities and asset-backed security at December 31, 2020, by contractual maturity, were as follows: (in millions) Amortized Cost Fair Value Maturity of one year or less $ 0.7 $ 0.7 Maturity between one and five years 6.2 6.7 Maturity between five and ten years 2.8 3.0 Maturity greater than ten years 6.7 7.8 Total $ 16.4 $ 18.2 The company maintains additional investments in a diverse portfolio of mutual funds related to its non-qualified deferred compensation plans (note 11). These securities are classified as trading securities. The fair value of these securities was $ 82.6 million and $ 66.1 million at December 31, 2020 and 2019, respectively. 4. REVENUE RECOGNITION The company generates revenue from customers from the following sources: Clearing and transaction fees. Clearing and transaction fees include electronic trading fees and brokerage commissions, surcharges for privately-negotiated transactions, portfolio reconciliation and compression services, risk mitigation and other volume-related charges for trade contracts. Clearing and transaction fees are assessed upfront at the time of trade execution. As such, the company recognizes the majority of the fee revenue upon successful execution of the trade. The minimal remaining portion of the fee revenue related to settlement activities performed after trade execution is recognized over the short-term period that the contract is outstanding, based on management’s estimates of the average contract lifecycle. These estimates are based on various assumptions to approximate the amount of fee revenue to be attributed to services performed through contract settlement, expiration, or termination. For cleared trades, these assumptions include the average number of days that a contract remains in open interest, contract turnover, average revenue per day, and revenue remaining in open interest at the end of each period. 62 Table of Contents The nature of contracts gives rise to several types of variable consideration, including volume-based pricing tiers, customer incentives associated with market maker programs and other fee discounts. The company includes fee discounts and incentives in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee reduction. These estimates are based on historical experience, anticipated performance, and best judgment at the time. Because of the company's certainty in estimating these amounts, they are included in the transaction price of contracts. Market data and information services. Market data and information services represent revenue from the dissemination of market data to subscribers, distributors, and other third-party licensees of market data. Pricing for market data is primarily based on the number of reportable devices used as well as the number of subscribers enrolled under the arrangement. Fees for these services are generally billed monthly. Market data services are satisfied over time and revenue is recognized on a monthly basis as the customers receive and consume the benefit of the market data services. However, the company also maintains certain annual license arrangements with one-time upfront fees. The fees for annual licenses are initially recorded as a contract liability and recognized as revenue monthly over the term of the annual period. Other. Other revenues include certain access and communication fees, fees for collateral management, equity membership subscription fees, and fees for trade order routing through agreements from various strategic relationships. Access and communication fees are charges to customers that utilize various telecommunications networks and communications services. Fees for these services are generally billed monthly and the associated fee revenue is recognized as billed. Collateral management fees are charged to clearing firms that have collateral on deposit with the clearing house to meet their minimum performance bond and guaranty fund obligations on the exchange. These fees are calculated based on daily collateral balances and are billed monthly. This fee revenue is recognized monthly as billed as the customers receive and consume the benefits of the services. We also have an equity membership program which provides equity members the option to substitute a monthly subscription fee for their existing requirement to hold CME Group Class A common stock. Choosing to pay this fee in lieu of holding Class A shares is entirely voluntary and the client's choice. Fee revenue under this program is earned monthly as billed over the contractual term. Pricing for strategic relationships may be driven by customer levels and activity. There are fee arrangements which provide for monthly as well as quarterly payments in arrears. Revenue is recognized monthly for strategic relationship arrangements as the customers receive and consume the benefits of the services. The following table represents a disaggregation of revenue from contracts with customers for the years ended December 31, 2020, 2019 and 2018: (in millions) 2020 2019 2018 Interest rates $ 1,008.1 $ 1,278.5 $ 1,201.0 Equity indexes 803.7 583.8 687.0 Foreign exchange 163.3 158.8 187.8 Agricultural commodities 462.2 452.4 470.0 Energy 699.3 683.5 744.2 Metals 248.0 239.3 223.9 Interest rate swap and credit default swap 65.4 66.8 61.9 Cash markets business 447.4 483.0 91.2 Total clearing and transaction fees 3,897.4 3,946.1 3,667.0 Market data and information services 545.4 518.5 449.6 Other 440.8 403.4 192.8 Total revenues $ 4,883.6 $ 4,868.0 $ 4,309.4 Timing of Revenue Recognition Services transferred at a point in time 3,658.2 3,696.2 3,561.5 Services transferred over time 1,219.2 1,156.9 738.8 One-time charges and miscellaneous revenues 6.2 14.9 9.1 Total revenues $ 4,883.6 $ 4,868.0 $ 4,309.4 The timing of revenue recognition, billings and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the consolidated balance sheets. Certain fees for transactions, annual licenses, and other revenue arrangements are billed upfront before revenue is recognized, which results in the recognition of contract liabilities. These liabilities are recognized on the consolidated balance sheets on a contract-by-contract basis upon commencement of services under the customer contract. Upfront customer payments are recognized as revenue over time as the obligations under 63 Table of Contents the contracts are satisfied. Changes in the contract liability balances during 2020 were not materially impacted by any other factors. Contract liabilities are presented within other current liabilities. The balance of contract liabilities was $ 37.3 million and $ 42.6 million as of December 31, 2020 and 2019, respectively. 5. PERFORMANCE BONDS AND GUARANTY FUND CONTRIBUTIONS The clearing house clears and guarantees the settlement of contracts traded in the futures and options and interest rate swap markets. In its guarantor role, the clearing house has precisely equal and offsetting claims to and from clearing firms on opposite sides of each contract, standing as an intermediary on every contract cleared. In the U.S., clearing firm positions are held according to Commodity and Futures Trading Commission (CFTC) regulatory account segregation standards. To the extent that funds are not otherwise available to satisfy an obligation under the applicable contract, the clearing house bears counterparty credit risk in the event that future market movements create conditions that could lead to clearing firms failing to meet their obligations to the clearing house. The clearing house reduces the exposure through risk management programs that include initial and ongoing financial standards for designation as a clearing firm, performance bond requirements, daily mark-to-market, mandatory guaranty fund contributions and intra-day monitoring. Each clearing firm is required to deposit and maintain balances in the form of cash, U.S. government securities, certain foreign government securities, bank letters of credit or other approved collateral investments to satisfy performance bond and guaranty fund requirements. All non-cash deposits and certain cash deposits with foreign currency exposure are marked-to-market and haircut on a daily basis. Securities deposited by the clearing firms are not reflected on the consolidated financial statements and the clearing house does not earn any interest on these deposits. These balances may fluctuate significantly over time due to collateral investment choices available to clearing firms and changes in the amount of contributions required. The clearing house marks-to-market open positions at least once a day (twice a day for futures and options contracts), and requires payment from clearing firms whose positions have lost value and make payments to clearing firms whose positions have gained value. The clearing house has the capability to mark-to-market more frequently as market conditions warrant. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure at the time of default related to positions other than interest rate swap contracts would be one half day of changes in fair value of all open positions, before considering the clearing house's ability to access defaulting clearing firms' collateral deposits. For cleared interest rate swap contracts, the maximum exposure at the time of default related to the clearing house's guarantee would be one full day of changes in fair value of all open positions, before considering the clearing house's ability to access defaulting clearing firms' collateral. The clearing firms' collateral requirements are sized to cover at least one day of anticipated price movements. During 2020, the clearing house transferred an average of approximately $ 4.7 billion a day through the clearing system for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained value. The clearing house reduces its exposure through maintenance performance bond requirements and guaranty fund contributions. For futures and options products, the clearing firms' collateral requirements are sized to cover at least one day of anticipated price movements. For cleared swap products, the clearing firms' collateral requirements are sized to cover at least five days of anticipated price movements. Management has assessed the fair value of the company's settlement guarantee liability by taking the following factors into consideration: the design and operations of the clearing risk management process, the financial safeguard packages in place, historical evidence of default by a clearing member and the estimated probability of potential payouts by the clearing house. Based on the assessment performed, management estimates the guarantee liability to be nominal and therefore has not recorded any liability at December 31, 2020. At December 31, 2020 and 2019, performance bond and guaranty fund contribution assets on the consolidated balance sheets included cash as well as U.S. government agency securities with maturity dates of 90 days or less. U.S. government agency securities are purchased by the clearing house, at its discretion, using cash collateral. The benefits, including interest earned, and risks of ownership accrue to the clearing house. Interest earned is included in investment income on the consolidated statements of income. The U.S. government agency securities held at December 31, 2019 matured during the first quarter of 2020. These securities are marked to fair value on the consolidated balance sheets. The amortized cost and fair value of these securities at December 31, 2020 and 2019 were as follows. 2020 2019 (in millions) Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency securities $ — $ — $ 898.2 $ 898.2 CME has been designated as a systemically important financial market utility by the Financial Stability Oversight Council and is authorized to maintain cash accounts at the Federal Reserve Bank of Chicago. At December 31, 2020 and 2019, the clearing house maintained $ 76.3 billion and $ 22.9 billion, respectively, within the cash accounts at the Federal Reserve Bank of Chicago. The cash deposited at the Federal Reserve Bank of Chicago is included within performance bonds and guaranty fund contributions on the consolidated balance sheets. 64 Table of Contents CME and The Options Clearing Corporation (OCC) have a perpetual cross-margin arrangement, whereby a clearing firm may maintain a cross-margin account in which a clearing firm's positions in certain equity index futures and options are combined with certain positions cleared by OCC for purposes of calculating performance bond requirements. The performance bond deposits are held jointly by CME and OCC. Cross-margin cash, securities and letters of credit jointly held with OCC under the cross-margin agreement are reflected at 50 % of the total, or CME's proportionate share per that agreement. If a participating firm defaults, the gain or loss on the liquidation of the firm's open position and the proceeds from the liquidation of the cross-margin account would be allocated 50 % each to CME and OCC. In the event of a remaining loss, CME would first apply assets of the defaulting clearing firm to satisfy its payment obligation. These assets include the defaulting firm's guaranty fund contributions, performance bonds and any other available assets, such as assets required for clearing membership and any associated trading rights. In addition, the clearing house would make a demand for payment pursuant to any applicable guarantee, if any, provided to it by the parent company of the clearing firm. Thereafter, if the payment default remains unsatisfied, the clearing house would use its corporate contributions designated for the respective financial safeguard package. The clearing house would then use guaranty fund contributions of other clearing firms within the respective financial safeguard package and funds collected through an assessment against solvent clearing firms within the respective financial safeguard package to satisfy the deficit. In addition, CME has perpetual cross-margin agreements with Fixed Income Clearing Corporation (FICC) whereby the clearing firms' offsetting positions with CME and FICC are subject to reduced performance bond requirements. Clearing firms maintain separate performance bond deposits with each clearing house, but depending on the net offsetting positions between CME and FICC, each clearing house may reduce that firm's performance bond requirements. In the event of a firm default, the total liquidation net gain or loss on the firm's offsetting open positions and the proceeds from the liquidation of the performance bond collateral held by each clearing house's supporting offsetting positions would be divided evenly between CME and FICC. Additionally, if, after liquidation of all the positions and collateral of the defaulting firm at each respective clearing organization, and taking into account any cross-margining loss sharing payments, any of the participating clearing organizations has a remaining liquidating surplus, and any other participating clearing organization has a remaining liquidating deficit, any additional surplus from the liquidation would be shared with the other clearing house to the extent that it has a remaining liquidating deficit. Any remaining surplus funds would be passed to the bankruptcy trustee. In the event of a remaining loss, CME would first apply assets of the defaulting clearing firm to satisfy its payment obligation. These assets include the defaulting firm's guaranty fund contributions, performance bonds and any other available assets, such as assets required for clearing membership and any associated trading rights. In addition, the clearing house would make a demand for payment pursuant to any applicable guarantee, if any, provided to it by the parent company of the clearing firm. Thereafter, if the payment default remains unsatisfied, the clearing house would use its corporate contributions designated for the respective financial safeguard package. The clearing house would then use guaranty fund contributions of other clearing firms within the respective financial safeguard package and funds collected through an assessment against solvent clearing firms within the respective financial safeguard package to satisfy the deficit. Each clearing firm for futures and options is required to deposit and maintain specified guaranty fund contributions in the form of cash or U.S. Treasury securities (base guaranty fund). In the event that performance bonds, guaranty fund contributions and other assets required to support clearing membership of a defaulting clearing firm are inadequate to fulfill that clearing firm's outstanding financial obligation, the base guaranty fund for contracts other than interest rate swaps is available to cover potential losses after first utilizing $ 100.0 million of corporate contributions designated by CME to be used in the event of a default of a clearing firm for the base guaranty fund. The clearing house maintains a separate guaranty fund to support the clearing firms that clear interest rate swap products (cleared interest rate swaps contract guaranty fund). The funds for interest rate swaps are independent of the base guaranty fund and are isolated to clearing firms for products in the respective asset class. Each clearing firm for cleared interest rate swaps is required to deposit and maintain specified guaranty fund contributions in the form of cash or U.S. Treasury securities. In the event that performance bonds, guaranty fund contributions and other assets required to support clearing membership of a defaulting clearing firm for cleared interest rate swap contracts are inadequate to fulfill that clearing firm's outstanding financial obligation, the interest rate swaps contracts guaranty fund is available to cover potential losses after first utilizing $ 150.0 million of corporate contributions designated by CME to be used in the event of a default of a cleared interest rate swap clearing firm. CME maintains a 364 -day multi-currency line of credit with a consortium of domestic and international banks to be used in certain situations by the clearing house. CME may use the proceeds to provide temporary liquidity in the unlikely event of a clearing firm default, in the event of a liquidity constraint or default by a depositary (custodian of the collateral), or in the event of a temporary disruption with the domestic payments system that would delay payment of settlement variation between CME and its clearing firms. Clearing firm guaranty fund contributions received in the form of cash or U.S. Treasury securities as well as the performance bond assets of a defaulting firm can be used to collateralize the facility. The line of credit provides for borrowings of up to $ 7.0 billion. At December 31, 2020, guaranty fund contributions available for clearing firms were $ 8.0 billion. CME has the option to request an increase in the line from $ 7.0 billion to $ 10.0 billion, subject to the approval of 65 Table of Contents participating banks. In addition to the 364 -day fully secured, committed multi-currency line of credit, the company also has the option to use the $ 2.4 billion multi-currency revolving senior credit facility to provide liquidity for the clearing house in the unlikely event of default. The clearing house is required under the Commodity Exchange Act in the U.S. to segregate cash and securities deposited by clearing firms from its customers. In addition, the clearing house requires segregation of all funds deposited by its clearing firms from operating funds. Cash and non-cash deposits held as performance bonds and guaranty fund contributions at fair value at December 31, 2020 and 2019 were as follows: 2020 2019 (in millions) Cash Non-Cash Deposits and IEF Funds (1) Cash Non-Cash Deposits and IEF Funds (1) Performance bonds $ 83,923.5 $ 124,573.7 $ 35,597.3 $ 116,462.7 Guaranty fund contributions 2,770.0 6,015.7 1,470.1 7,500.6 Cross-margin arrangements 88.1 8.1 — 191.2 Performance bond collateral for delivery 0.2 2.1 9.6 2.1 Total $ 86,781.8 $ 130,599.6 $ 37,077.0 $ 124,156.6 _______________ (1) IEF funds include customer-directed investments in IEF funds that are not included on the consolidated balance sheets. Cross-margin arrangements include collateral for the cross-margin accounts with OCC and FICC. Cash performance bonds may include intraday settlement, if any, that is owed to the clearing firms and paid the following business day. The balance of intraday settlements was $ 134.7 million and $ 133.8 million at December 31, 2020 and 2019, respectively. Intraday settlements may be invested on an overnight basis and are offset by an equal liability owed to clearing firms. In addition to cash, securities and other non-cash deposits, irrevocable letters of credit may be used as performance bond deposits for clearing firms. At December 31, 2020 and 2019 these letters of credit, which are not included in the accompanying consolidated balance sheets, were as follows: (in millions) 2020 2019 Performance bonds $ 3,394.8 $ 2,461.0 Performance bond collateral for delivery 1,290.4 2,242.2 Total Letters of Credit $ 4,685.2 $ 4,703.2 All cash, securities and letters of credit posted as performance bonds are only available to meet the financial obligations of that clearing firm to the clearing house. 6. PROPERTY A summary of the property accounts at December 31, 2020 and 2019 is presented below: (in millions) 2020 2019 Estimated Useful Life Land and land improvements $ 7.7 $ 7.8 10 - 20 years (1) Building and building improvements 167.1 173.9 3 - 39 years Leasehold improvements 225.5 219.0 3 - 19 years Furniture, fixtures and equipment 492.9 433.0 2 - 7 years Software and software development costs 647.2 577.8 2 - 4 years Total property 1,540.4 1,411.5 Less accumulated depreciation and amortization ( 961.2 ) ( 867.5 ) Property, net $ 579.2 $ 544.0 _______________ (1) Estimated useful life applies only to land improvements. 66 Table of Contents 7. INTANGIBLE ASSETS AND GOODWILL Intangible assets consisted of the following at December 31, 2020 and 2019: 2020 2019 (in millions) Assigned Value Accumulated Amortization Net Book Value Assigned Value Accumulated Amortization Net Book Value Amortizable Intangible Assets: Clearing firm, market data and other customer relationships $ 5,858.0 $ ( 1,632.5 ) $ 4,225.5 $ 5,797.1 $ ( 1,346.0 ) $ 4,451.1 Technology-related intellectual property 178.4 ( 68.2 ) 110.2 174.3 ( 46.6 ) 127.7 Other 106.9 ( 27.3 ) 79.6 103.8 ( 14.9 ) 88.9 Total Amortizable Intangible Assets $ 6,143.3 $ ( 1,728.0 ) 4,415.3 $ 6,075.2 $ ( 1,407.5 ) 4,667.7 Indefinite-Lived Intangible Assets: Trade names 450.0 450.0 Total Intangible Assets—Other, Net $ 4,865.3 $ 5,117.7 Trading products (1) $ 17,175.3 $ 17,175.3 _______________ (1) Trading products represent futures and options products acquired in our business combinations with CBOT Holdings, Inc., NYMEX Holdings, Inc. and The Board of Trade of Kansas City, Missouri, Inc. Clearing and transaction fees are generated through the trading of these products. These trading products, most of which have traded for decades, require authorization from the CFTC. Product authorizations from the CFTC have no term limits. The originally assigned useful lives for the amortizable intangible assets as of December 31, 2020 are as follows: Clearing firm, market data and other customer relationships 5 - 30 years Technology-related intellectual property 5 - 9 years Other 3 - 24.5 years Total amortization expense for intangible assets was $ 311.2 million, $ 314.7 million and $ 130.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows: (in millions) 2021 $ 316.6 2022 316.2 2023 314.9 2024 308.1 2025 308.0 Thereafter 2,851.5 67 Table of Contents Goodwill activity consisted of the following for the years ended December 31, 2020 and 2019 : (in millions) Balance at December 31, 2019 Other Activity (1) Balance at December 31, 2020 CBOT Holdings $ 5,066.4 $ — $ 5,066.4 NYMEX Holdings 2,462.2 — 2,462.2 NEX 3,173.5 56.3 3,229.8 Other 40.4 — 40.4 Total Goodwill $ 10,742.5 $ 56.3 $ 10,798.8 (in millions) Balance at December 31, 2018 Other Activity (1) Balance at December 31, 2019 CBOT Holdings $ 5,066.4 $ — $ 5,066.4 NYMEX Holdings 2,462.2 — 2,462.2 NEX 3,236.3 ( 62.8 ) 3,173.5 Other 40.4 — 40.4 Total Goodwill $ 10,805.3 $ ( 62.8 ) $ 10,742.5 _______________ 1) Other activity includes currency translation adjustments and measurement period adjustments, including adjustments to intangible assets, fixed assets, other assets and accrued liabilities, as well as goodwill associated with assets sold and held for sale. The company finalized its purchase price allocation of net tangible and intangible assets associated with NEX in the fourth quarter of 2019. 8. LONG-TERM INVESTMENTS The company maintains various long-term investments as described below. The investments are recorded in other assets on the consolidated balance sheets. DME Holdings Limited. The company owns an approximately 50 % interest in DME Holdings Limited (DME Holdings), and accounts for its investment in DME Holdings using the equity method of accounting. The company's investment in DME Holdings was $ 14.6 million at December 31, 2020. The company and DME Holdings maintain an agreement for Dubai Mercantile Exchange futures contracts to be exclusively traded on the CME Globex platform. S&P/DJI Indices LLC. The company owns a 27 % interest in S&P/Dow Jones Indices LLC (S&P/DJI) and accounts for its investment in S&P/DJI using the equity method of accounting. The company's investment in S&P/DJI was $ 971.5 million at December 31, 2020. The company has long-term exclusive licensing agreements with S&P/DJI to list products based on the Standard & Poor's Indices and Dow Jones Indices. Shanghai CFETS-NEX International Money Broking Co., Ltd. The company owns a 33 % interest in Shanghai CFETS-NEX International Money Broking Co., Ltd. (CFETS) and accounts for its investment in CFETS using the equity method of accounting. The company's investment in CFETS was $ 35.7 million at December 31, 2020. 68 Table of Contents 9. DEBT Long-term debt outstanding consisted of the following at December 31, 2020 and 2019 (in U.S. dollar equivalents): (in millions) 2020 2019 $750.0 million fixed rate notes due September 2022, stated rate of 3.00% (1) $ 748.6 $ 747.7 €15.0 million fixed rate notes due May 2023, stated rate of 4.30% 18.1 16.4 $750.0 million fixed rate notes due March 2025, stated rate of 3.00% (2) 747.0 746.3 $500.0 million fixed rate notes due June 2028, stated rate of 3.75% 496.8 496.4 $750.0 million fixed rate notes due September 2043, stated rate of 5.30% (3) 743.1 742.8 $700.0 million fixed rate notes due June 2048, stated rate of 4.15% 690.2 689.8 Commercial paper (4) — 303.8 Total long-term debt $ 3,443.8 $ 3,743.2 _______________ (1) The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.32 %. (2) The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.11 %. (3) The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 4.73 % . (4) The commercial paper is backed by the five-year multi-currency revolving credit facility . Commercial paper with an aggregate par value of $ 1.3 billion and maturities ranging from 1 to 18 days was issued during 2020. The weighted average balance of commercial paper outstanding during the year was $ 46.5 million. There was no outstanding commercial paper balance as of December 31, 2020. Long-term debt maturities, at par value (in U.S. dollar equivalents), were as follows as of December 31, 2020: (in millions) Par Value 2021 $ — 2022 750.0 2023 18.4 2024 — 2025 750.0 Thereafter 1,950.0 69 Table of Contents 10. INCOME TAXES The company is subject to regulation under a wide variety of U.S., federal, state and foreign tax laws and regulations. Income before income taxes and the income tax provision consisted of the following for the years ended December 31, 2020, 2019 and 2018: (in millions) 2020 2019 2018 Income before income taxes: Domestic $ 2,640.7 $ 2,650.2 $ 2,716.8 Foreign 81.4 39.4 61.0 Total $ 2,722.1 $ 2,689.6 $ 2,777.8 Income tax provision: Current: Federal $ 488.4 $ 419.5 $ 524.8 State 140.1 139.2 154.2 Foreign 28.8 18.8 20.8 Total 657.3 577.5 699.8 Deferred: Federal 2.3 ( 6.7 ) ( 9.3 ) State ( 36.8 ) 28.0 127.8 Foreign ( 7.1 ) ( 25.0 ) ( 4.2 ) Total ( 41.6 ) ( 3.7 ) 114.3 Total Income Tax Provision $ 615.7 $ 573.8 $ 814.1 Reconciliation of the U.S. federal income tax rate (statutory tax rate) to the effective tax rate is as follows: 2020 2019 2018 Statutory tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 4.0 4.1 4.5 Impact of revised state and local apportionment estimates ( 1.0 ) 0.8 3.5 Impact of 2017 Tax Act — — ( 0.2 ) Foreign-derived intangible income deduction ( 2.0 ) ( 3.8 ) — Other, net 0.6 ( 0.8 ) 0.5 Effective Tax Expense (Benefit) Rate 22.6 % 21.3 % 29.3 % In 2020, the effective tax rate was higher than the statutory tax rate. The increase to the effective tax rate for the state taxes was partially offset by the foreign-derived intangible income deduction (FDII). In 2019, the effective tax rate was slightly higher than the statutory tax rate. The increase to the effective tax rate for the state taxes was partially offset by the FDII deduction. Proposed FDII deduction regulations were released in 2019 and as a result, management revised the income tax calculations to reflect the proposed guidance. The benefit recognized in 2019 includes estimates for the deduction for 2018 and 2019. In 2018, the effective tax rate was higher than the statutory tax rate primarily due to the NEX acquisition impact on state tax expense. 70 Table of Contents At December 31, 2020 and 2019, deferred income tax assets (liabilities) consisted of the following: (in millions) 2020 2019 Deferred Income Tax Assets: Net operating losses $ 36.8 $ 35.9 Accrued expenses, compensation and other 59.1 46.2 Subtotal 95.9 82.1 Valuation allowance ( 11.3 ) ( 10.0 ) Total deferred income tax assets 84.6 72.1 Deferred Income Tax Liabilities: Purchased intangible assets ( 5,614.9 ) ( 5,654.4 ) Property ( 45.7 ) ( 23.3 ) Total deferred income tax liabilities ( 5,660.6 ) ( 5,677.7 ) Net Deferred Income Tax Liabilities $ ( 5,576.0 ) $ ( 5,605.6 ) Reported as: Net non-current deferred tax assets $ 31.0 $ 29.6 Net non-current deferred tax liabilities ( 5,607.0 ) ( 5,635.2 ) Net Deferred Income Tax Liabilities $ ( 5,576.0 ) $ ( 5,605.6 ) A valuation allowance is recorded when it is more-likely-than-not that some portion or all of the deferred income tax assets may not be realized. The ultimate realization of the deferred income tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. At December 31, 2020 and 2019, the company had domestic and foreign income tax loss carry forwards of $ 190.2 million and $ 202.1 million, respectively. These amounts primarily related to losses from the acquisition of NEX Group plc, the acquisitions of Swapstream Limited and its affiliates, the acquisition of Pivot, Inc., losses incurred in the operation of various foreign entities and capital losses from the sales of securities. At December 31, 2020 and 2019, the company determined that it was not more-likely-than-not that certain foreign deferred income tax assets will be fully realized. As a result, valuation allowances of $ 11.3 million and $ 10.0 million were recorded at December 31, 2020 and 2019, respectively. The following is a summary of the company’s unrecognized tax benefits at December 31, 2020, 2019 and 2018: (in millions) 2020 2019 2018 Gross unrecognized tax benefits $ 328.2 $ 388.5 $ 396.2 Unrecognized tax benefits, net of tax impacts in other jurisdictions 302.4 359.6 367.9 Unrecognized interest and penalties related to uncertain tax positions 43.6 53.3 63.5 Interest and penalties recognized on the consolidated statements of income 7.7 ( 1.5 ) 29.5 The company does not believe it is reasonably possible that within the next twelve months, unrecognized tax benefits will change by a significant amount. 71 Table of Contents A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows: (in millions) 2020 2019 2018 Balance at January 1 $ 388.5 $ 396.2 $ 308.8 Additions based on tax positions related to the current year 20.2 30.3 27.2 Unrecognized tax benefits acquired at date of acquisition — — 58.4 Additions for tax positions of prior years 3.2 4.7 7.7 Reductions for tax positions of prior years ( 10.8 ) ( 8.8 ) ( 0.3 ) Reductions resulting from the lapse of statutes of limitations — ( 1.7 ) ( 3.1 ) Settlements with taxing authorities ( 72.9 ) ( 32.2 ) ( 2.5 ) Balance at December 31 $ 328.2 $ 388.5 $ 396.2 The company is subject to U.S. federal income tax as well as income taxes in Illinois and multiple other state, local and foreign jurisdictions. As of December 31, 2020, substantially all federal and state income tax matters had been concluded through 2007 and 2006, respectively. 11. EMPLOYEE BENEFIT PLANS Pension Plans. CME maintains a non-contributory defined benefit cash balance pension plan for eligible employees. CME's plan provides for a pay-based credit added to the cash balance account based on age and earnings and includes salary and cash bonuses in the definition of earnings. Employees who have completed a continuous 12-month period of employment and have reached the age of 21 are eligible to participate. Participant cash balance accounts receive an interest credit equal to the greater of the one-year constant maturity yield for U.S. Treasury notes or 4.0 %. Participants become vested in their accounts after three years of service. The measurement date used for the plan is December 31. The following is a summary of the change in projected benefit obligation: (in millions) 2020 2019 Balance at January 1 $ 324.2 $ 265.1 Service cost 26.7 19.0 Interest cost 11.7 12.3 Actuarial (gain) loss 25.2 35.9 Benefits paid ( 7.5 ) ( 8.1 ) Balance at December 31 $ 380.3 $ 324.2 The actuarial losses recognized as of December 31, 2020 and 2019 are the result of a reduction in the discount rate used to determine the projected benefit obligation as of each year end. The aggregate accumulated benefit obligation was $ 350.3 million and $ 293.1 million at December 31, 2020 and 2019, respectively. The following is a summary of the change in fair value of plan assets: (in millions) 2020 2019 2018 Balance at January 1 $ 356.9 $ 315.8 $ 348.0 Actual return on plan assets 38.8 49.2 ( 17.3 ) Benefits paid ( 7.5 ) ( 8.1 ) ( 14.9 ) Balance at December 31 $ 388.2 $ 356.9 $ 315.8 The plan assets are classified into a fair value hierarchy in their entirety based on the lowest level of input that is significant to each asset or liability’s fair value measurement. Valuation techniques for level 2 assets use significant observable inputs such as quoted prices for similar assets, quoted market prices in inactive markets and other inputs that are observable or can be supported by observable market data. 72 Table of Contents The fair value of each major category of plan assets as of December 31, 2020 and 2019 is indicated below: (in millions) 2020 2019 Level 2: Money market funds $ 14.1 $ 9.6 Mutual funds: Fixed income 140.2 155.0 U.S. equity 149.4 121.1 Foreign equity 84.5 71.2 Total $ 388.2 $ 356.9 At December 31, 2020 and 2019, the fair value of pension plan assets exceeded the projected benefit obligation by $ 7.9 million and $ 32.7 million, respectively, and the excess was recorded as a non-current pension asset in other assets. CME's funding goal is to have its pension plan 100 % funded at each year-end on a projected benefit obligation basis, while also satisfying any minimum required contribution and obtaining the maximum tax deduction. Year-end 2020 assumptions have been used to project the assets and liabilities from December 31, 2020 to December 31, 2021. The company anticipates based on this projection that an additional contribution of $ 6.0 million in 2021 will be necessary for it to meet its funding goal. However, the amount of the actual contribution is contingent on various factors, including the actual rate of return on the plan assets during 2021 and the December 31, 2021 discount rate. The components of net pension expense and the assumptions used to determine the end-of-year projected benefit obligation and net pension expense in aggregate at December 31, 2020, 2019 and 2018 are indicated below: (in millions) 2020 2019 2018 Components of Net Pension Expense: Service cost $ 26.7 $ 19.0 $ 19.1 Interest cost 11.7 12.3 10.5 Expected return on plan assets ( 21.0 ) ( 20.0 ) ( 22.1 ) Recognized net actuarial loss 4.8 5.0 2.7 Net Pension Expense $ 22.2 $ 16.3 $ 10.2 Assumptions Used to Determine End-of-Year Benefit Obligation: Discount rate 2.70 % 3.40 % 4.40 % Rate of compensation increase 4.00 5.00 5.00 Cash balance interest crediting rate 4.00 4.00 4.00 Assumptions Used to Determine Net Pension Expense: Discount rate 3.40 % 4.40 % 3.70 % Rate of compensation increase 5.00 5.00 5.00 Expected return on plan assets 6.00 6.50 6.50 Interest crediting rate 4.00 4.00 4.00 The discount rate for the plan was determined based on the market value of a theoretical settlement bond portfolio. This portfolio consisted of U.S. dollar denominated Aa-rated corporate bonds across the full maturity spectrum. A single equivalent discount rate was determined to align the present value of the required cash flow with that settlement value. The resulting discount rate was reflective of both the current interest rate environment and the plan's distinct liability characteristics. The basis for determining the expected rate of return on plan assets for the plan is comprised of three components: historical returns, industry peers and forecasted return. The plan's total return is expected to equal the composite performance of the security markets over the long term. The security markets are represented by the returns on various domestic and international stock, bond and commodity indexes. These returns are weighted according to the allocation of plan assets to each market and measured individually. 73 Table of Contents The overall objective of the plan is to achieve required long-term rates of return in order to meet future benefit payments. The component of the investment policy for the plan that has the most significant impact on returns is the asset mix. The asset mix has a minimum and maximum range depending on asset class. The plan assets are diversified to minimize the risk of large losses by any one or more individual assets. Such diversification is accomplished, in part, through the selection of asset mix and investment management. The asset allocation for the plan, by asset category, at December 31, 2020 and 2019 was as follows: 2020 2019 Fixed income 36.1 % 43.5 % Money market funds 3.6 2.7 U.S. equity 38.5 33.9 Foreign equity 21.8 19.9 For 2021, management expects the fixed income asset class to remain at approximately 50 % of the portfolio. The target allocation for the U.S. equity asset class is expected to range from 15 % to 45 % of the portfolio and the target allocation for the foreign equity asset class is expected to range from approximately 10 % to 30 % of the portfolio. At times, the company may determine that it is necessary to place some assets in cash equivalent investments in order to pay expected plan liabilities. Given this, the actual asset allocation for the plan may not fall within the target allocation ranges from time to time. According to the plan's investment policy, the plan is not allowed to invest in securities that compromise independence, short sales of securities directly owned by the plan, securities purchased on margin or other uses of borrowed funds, derivatives not used for hedging purposes, restricted stock or illiquid securities or any other transaction prohibited by employment laws. If the plan directly invests in short-term and long-term debt obligations, the investments are limited to obligations rated at the highest rating category by Standard & Poor's or Moody's. The pre-tax balance and activity of actuarial losses for the pension plan, which are included in other comprehensive income (loss), for 2020 are as follows: (in millions) Actuarial Loss Balance at January 1 $ 75.2 Unrecognized net loss 7.3 Recognized as a component of net pension expense ( 4.8 ) Balance at December 31 $ 77.7 At December 31, 2020, anticipated benefit payments from the plan in future years are as follows: (in millions) 2021 $ 25.3 2022 26.2 2023 27.4 2024 28.4 2025 29.3 2026-2030 154.5 Savings Plans. CME maintains a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code, whereby all U.S. employees are participants and have the option to contribute to this plan. CME matches employee contributions up to 3 % of the employee's base salary and may make additional discretionary contributions. In addition to the plan for U.S. employees, the company maintains defined contribution savings plans for employees in international locations, including employees for NEX beginning on November 3, 2018. Aggregate expense for all of the defined contribution savings plans amounted to $ 27.7 million , $ 23.6 million and $ 13.8 million in 2020, 2019 and 2018, respectively. CME Non-Qualified Plans. CME maintains non-qualified plans, under which participants may make assumed investment choices with respect to amounts contributed on their behalf. Although not required to do so, CME invests such contributions in assets that mirror the assumed investment choices. The balances in these plans are subject to the claims of general creditors of the company and totaled $ 82.6 million and $ 66.1 million at December 31, 2020 and 2019 respectively. Although the value of the plans is recorded as an asset in marketable securities on the consolidated balance sheets, there is an equal and offsetting 74 Table of Contents liability. The investment results of these plans have no impact on net income as the investment results are recorded in equal amounts to both investment income and compensation and benefits expense. The non-qualified plans include the following: Supplemental Savings Plan. CME maintains a supplemental plan to provide benefits for employees who have been impacted by statutory limits under the provisions of the qualified pension and savings plan. Employees in this plan are subject to the vesting requirements of the underlying qualified plans. Deferred Compensation Plan. A deferred compensation plan is maintained by CME, under which eligible employees and members of the board of directors may contribute a percentage of their compensation and defer income taxes thereon until the time of distribution. COMEX Members' Retirement Plan and Benefits. COMEX maintains a non-qualified retirement and benefit plan under the COMEX Members' Retirement Plan and Benefits plan (MRRP). This plan provides benefits to certain members of the COMEX division based on long-term membership, and participation is limited to individuals who were COMEX division members prior to NYMEX's acquisition of COMEX in 1994. No new participants were permitted into the plan after the date of this acquisition. All benefits to be paid under the MRRP are based on reasonable actuarial assumptions which are based upon the amounts that are available and are expected to be available to pay benefits. There w ere no co ntributions to the plan in 2020, 2019 and 2018. At December 31, 2020 and 2019, the obligation for the MRRP totaled $ 15.7 million and $ 16.5 million, respectively . Assets with a fair value of $ 19.0 million and $ 19.3 million have been allocated to this plan at December 31, 2020 and 2019, respectively, and are included in marketable securities and cash and cash equivalents on the consolidated balance sheets. The balances in this plan are subject to the claims of general creditors of COMEX. 12. LEASES AND OTHER COMMITMENTS Leases. The company has operating leases for datacenters and corporate offices. The operating leases have remaining lease terms of up to 17 years, some of which include options to extend or renew the leases for up to an additional five years, and some of which include options to early terminate the leases in less than 12 months. Management evaluates the exercisability of these options at least quarterly in order to determine whether the contract term must be reassessed. For a small number of the leases, primarily the international locations, management's approach is to enter into short-term leases for a lease term of 12 months or less in order to provide for greater flexibility in the local environment. For certain office spaces, the company has entered into arrangements to sublease excess space to third parties, while the original lease contract remains in effect with the landlord. The company also has one finance lease, which is related to the sale of our datacenter in March 2016. In connection with the sale, the company leased back a portion of the property. The sale leaseback transaction was recognized under the financing method and not as a sale leaseback arrangement. The right-of-use lease asset is recorded within other assets, and the present value of the lease liability is recorded within other liabilities (segregated between short-term and long-term) on the consolidated balance sheets. The discount rate applied to the lease payments represents the company's incremental borrowing rate. The company has elected to utilize the short-term lease exception as prescribed in the leasing standard, such that the company has not capitalized on the balance sheet a lease asset or lease liability associated with leases with terms of 12 months or less from the commencement date. 75 Table of Contents The components of lease costs were as follows for the years ended December 31, 2020 and 2019: (in millions) 2020 2019 Operating lease expense: Operating lease cost $ 66.1 $ 72.3 Short-term lease cost 0.7 6.2 Total operating lease expense included in other expense $ 66.8 $ 78.5 Finance lease expense: Interest expense $ 3.3 $ 3.6 Depreciation expense 8.7 9.2 Total finance lease expense $ 12.0 $ 12.8 Sublease revenue included in other revenue $ 13.3 $ 10.2 Supplemental cash flow information related to leases was as follows for years ended December 31, 2020 and 2019: (in millions) 2020 2019 Cash outflows for operating leases $ 64.3 $ 66.5 Cash outflows for finance leases 16.9 19.0 Supplemental balance sheet information related to leases was as follows as of December 31, 2020 and 2019: Operating leases (in millions) 2020 2019 Operating lease right-of-use assets $ 390.3 $ 417.1 Operating lease liabilities: Other current liabilities $ 44.5 $ 42.3 Other liabilities 492.2 514.8 Total operating lease liabilities $ 536.7 $ 557.1 Weighted average remaining lease term (in months) 138 146 Weighted average discount rate 3.9 % 4.0 % 76 Table of Contents Finance leases (in millions) 2020 2019 Finance lease right-of-use assets $ 88.8 $ 97.5 Finance lease liabilities: Other current liabilities $ 7.7 $ 7.4 Other liabilities 83.8 91.5 Total finance lease liabilities $ 91.5 $ 98.9 Weighted average remaining lease term (in months) 123 135 Weighted average discount rate 3.5 % 3.5 % Future minimum lease payments were as follows as of December 31, 2020 for operating and finance leases: (in millions) Operating Leases 2021 63.9 2022 67.0 2023 65.4 2024 59.4 2025 56.8 Thereafter 346.0 Total lease payments 658.5 Less: imputed interest ( 121.8 ) Present value of lease liability $ 536.7 (in millions) Finance Lease 2021 17.0 2022 17.1 2023 17.2 2024 17.4 2025 17.5 Thereafter 94.3 Total lease payments 180.5 Less: imputed interest ( 89.0 ) Present value of lease liability $ 91.5 Other Commitments. Commitments include material contractual purchase obligations that are non-cancellable. Purchase obligations relate to advertising, licensing, hardware, software and maintenance as well as telecommunication services. At December 31, 2020, future minimum payments due under purchase obligations were payable as follows (in millions): Year 2021 $ 25.5 2022 20.6 2023 9.8 2024 0.4 2025 — Thereafter — Total $ 56.3 77 Table of Contents 13. CONTINGENCIES Legal and Regulatory Matters. In the normal course of business, the company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry and oversight. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not have a material impact on its consolidated financial position or results of operations. However, the company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters. In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty, the company believes that the resolution of any of these matters on an individual or aggregate basis will not have a material impact on its consolidated financial position or results of operations. No accrual was required for contingent legal and regulatory matters as none were probable and estimable as of December 31, 2020 and 2019. Intellect ual Property Indemnifications. Certain agreements with customers and other third parties related to accessing the CME Group platforms, utilizing market data services and licensing CME SPAN software may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable products and/or services. The potential future claims relating to these indemnifications cannot be estimated and therefore no liability has been recorded. 14. GUARANTEES Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) maintain a mutual offset agreement with a current term through May 2023. This agreement enables market participants to open a futures position on one exchange and liquidate it on the other. The term of the agreement will automatically renew for a one-year period after May 2023 unless either party provides advance notice of its intent to terminate. CME can maintain collateral in the form of irrevocable, standby letters of credit. At December 31, 2020, CME was contingently liable to SGX on irrevocable letters of credit totaling $ 310.0 million . CME also maintains a $ 350.0 million line of credit to meet its obligations under this agreement. Regardless of the collateral, CME guarantees all cleared transactions submitted through SGX and would initiate procedures designed to satisfy these financial obligations in the event of a default, such as the use of performance bonds and guaranty fund contributions of the defaulting clearing firm. Management has assessed the fair value of the company's guarantee liability under this mutual offset agreement by taking the following factors into consideration: the design and operations of the clearing risk management process, the financial safeguard packages in place, historical evidence of default by a clearing member and the estimated probability of potential payouts by the clearing house. Based on the assessment performed, management estimates the guarantee liability to be nominal and therefore has not recorded any liability at December 31, 2020. Family Farmer and Rancher Protection Fund. In 2012, the company established the Family Farmer and Rancher Protection Fund (the Fund). The Fund is designed to provide payments, up to certain maximum levels, to family farmers, ranchers and other agricultural industry participants who use the company's agricultural products and who suffer losses to their segregated account balances due to their CME clearing member becoming insolvent. Under the terms of the Fund, farmers and ranchers are eligible for up to $ 25,000 per participant. Farming and ranching cooperatives are eligible for up to $ 100,000 per cooperative. The Fund has an aggregate maximum payment amount of $ 100.0 million. Since its establishment, the Fund has made payments of approximately $ 2.0 million, which leaves $ 98.0 million available for future claims. If payments to participants were to exceed this amount, payments would be pro-rated. Clearing members and customers must register in advance with the company and provide certain documentation in order to substantiate their eligibility . The company believes that its guarantee liability is zero and therefore has not recorded any liability at December 31, 2020. 15. CAPITAL STOCK Shares Outstanding. The following table presents information regarding capital stock: December 31, (in thousands) 2020 2019 Class A common stock authorized 1,000,000 1,000,000 Class A common stock issued and outstanding 358,110 357,469 Class B-1 common stock authorized, issued and outstanding 0.6 0.6 Class B-2 common stock authorized, issued and outstanding 0.8 0.8 Class B-3 common stock authorized, issued and outstanding 1.3 1.3 Class B-4 common stock authorized, issued and outstanding 0.4 0.4 CME Group has no shares of preferred stock issued and outstanding. 78 Table of Contents Associated Trading Rights. Members of CME, CBOT, NYMEX and COMEX own or lease trading rights which entitle them to access open outcry trading, discounts on trading fees and the right to vote on certain matters as provided for by the rules of the particular exchange and CME Group's or the subsidiary's organizational documents. Each class of CME Group Class B common stock is associated with a membership in a specific division for trading at CME. A CME trading right is a separate asset that is not part of or evidenced by the associated share of Class B common stock of CME Group. The Class B common stock of CME Group is intended only to ensure that the Class B shareholders of CME Group retain rights with respect to the election of six members to the board of directors and approval rights with respect to the core rights described below. Trading rights at CBOT are evidenced by Class B memberships in CBOT, at NYMEX by Class A memberships in NYMEX and at COMEX by COMEX Division Memberships. Members of CBOT, NYMEX and COMEX do not have any rights to elect members of the board of directors and are not entitled to receive dividends or other distributions on their memberships or trading permits. Core Rights. Holders of CME Group Class B common shares have the right to approve changes in specified rights relating to the trading privileges at CME associated with those shares. These core rights relate primarily to trading right protections, certain trading fee protections and certain membership benefit protections. Votes on changes to these core rights are weighted by class. Each class of Class B common stock has the following number of votes on matters relating to core rights: Class B-1, six votes per share; Class B-2, two votes per share; Class B-3, one vote per share; and Class B-4, 1/6th of one vote per share. The approval of a majority of the votes cast by the holders of shares of Class B common stock is required in order to approve any changes to core rights. Holders of shares of Class A common stock do not have the right to vote on changes to core rights. Voting Rights. With the exception of the matters reserved to holders of CME Group Class B common stock, holders of CME Group common stock vote together on all matters for which a vote of common shareholders is required. In these votes, each holder of shares of Class A or Class B common stock of CME Group has one vote per share. Transfer Restrictions. Each class of CME Group Class B common stock is subject to transfer restrictions contained in the Certificate of Incorporation of CME Group. These transfer restrictions prohibit the sale or transfer of any shares of Class B common stock separate from the sale of the associated trading rights. Election of Directors. The CME Group board of directors is currently comprised of 23 members. Holders of Class B-1, Class B-2 and Class B-3 common stock have the right to elect six directors, of which three are elected by Class B-1 shareholders, two are elected by Class B-2 shareholders and one is elected by Class B-3 shareholders. The remaining directors are elected by the Class A and Class B shareholders voting as a single class. Dividends. Holders of Class A and Class B common stock of CME Group are entitled to receive proportionately such dividends, if any, as may be declared by the CME Group board of directors. CME Group Omnibus Stock Plan. CME Group has adopted an Omnibus Stock Plan under which stock-based awards may be made to employees. A total of 40.2 million Class A common stock shares have been reserved for awards under the plan. Awards totaling 25.0 million shares have been granted and are outstanding or have been exercised under this plan at December 31, 2020 (note 16). Director Stock Plan. CME Group has adopted a Director Stock Plan under which awards are made to non-executive directors as part of their annual compensation. A total of 625,000 Class A shares have been reserved under this plan, and approximately 417,000 shares have been awarded through December 31, 2020. Employee Stock Purchase Plan. CME Group has adopted an Employee Stock Purchase Plan (ESPP) under which employees may purchase Class A shares at 90 % of the market value of the shares using after-tax payroll deductions. A total of 500,000 Class A shares have been reserved under this plan, of which approximately 353,000 shares have been purchased through December 31, 2020 (note 16). 16. STOCK-BASED PAYMENTS CME Group adopted an Omnibus Stock Plan under which stock-based awards may be made to employees. A total of 40.2 million Class A shares have been reserved for awards under the plan. Awards totaling 25.0 million shares have been granted and are outstanding or have been exercised under the plan as of December 31, 2020. Awards granted generally vest over a four-year period, with 25 % vesting one year after the grant date and on that same date in each of the following three years. Total compensation expense for stock-based payments and total income tax benefit recognized on the consolidated statements of income for stock-based awards at December 31, 2020, 2019 and 2018 were as follows: (in millions) 2020 2019 2018 Compensation expense $ 96.9 $ 85.8 $ 96.8 Income tax benefit recognized 23.6 27.3 27.5 79 Table of Contents At December 31, 2020, there was $ 142.9 million of total unrecognized compensation expense related to employee stock-based compensation arrangements that had not yet vested. The total unrecognized expense is expected to be recognized over a weighted average period of 2.2 years. Stock options have not been granted since 2012. The following table summarizes stock option activity for 2020. Aggregate intrinsic value is in millions. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at December 31, 2019 227,084 $ 54 1.4 $ 33.2 Exercised ( 123,561 ) 54 Cancelled ( 700 ) 54 Outstanding at December 31, 2020 102,823 54 0.7 13.1 Exercisable at December 31, 2020 102,823 54 0.7 13.1 The total intrinsic value of options exercised during 2020, 2019 and 2018 was $ 16.7 million, $ 23.1 million and $ 17.8 million, respectively. In 2020, the company granted 426,694 shares of restricted Class A common stock and 31,112 shares of restricted stock units. Restricted common stock and restricted stock units generally have a vesting period of two to four years. The fair value related to these grants was $ 76.9 million, which is recognized as compensation expense on an accelerated basis over the vesting period. Dividends are accrued on restricted Class A common stock and restricted stock units and are paid once the restricted stock vests. In 2020, the company also granted 209,534 performance shares. The fair value related to these grants was $ 37.2 million, which is recognized as compensation expense on a straight-lined basis over the vesting period. The vesting of these shares is contingent on meeting stated performance or market conditions, generally measured over a three year period. The following table summarizes restricted stock, restricted stock units, and performance shares activity for 2020: Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2019 1,324,378 $ 177 Granted 667,340 171 Vested ( 456,295 ) 148 Cancelled ( 271,136 ) 153 Outstanding at December 31, 2020 1,264,287 190 The total fair value of restricted stock, restricted stock units, and performance shares that vested during 2020, 2019 and 2018 was $ 79.4 million, $ 77.7 million and $ 76.6 million, respectively. Under the ESPP, eligible employees may acquire shares of Class A common stock using after-tax payroll deductions made during consecutive offering periods of approximately six months in duration. Shares are purchased at the end of each offering period at a price of 90 % of the closing price of the Class A common stock as reported on the Nasdaq Global Select Market. Compensation expense is recognized on the dates of purchase for the discount from the closing price. In 2020, 2019 and 2018, a total of 44,029 , 26,134 and 22,249 shares, respectively, of Class A common stock were issued to participating employees. These shares are subject to a six-month holding period. Annual expense of $ 0.8 million for the purchase discount was recognized in 2020, $ 0.5 million was recognized in 2019 and $ 0.4 million was recognized in 2018. Non-executive directors receive an annual award of Class A common stock with a value equal to $ 120,000 . Non-executive directors may also elect to receive some or all of the cash portion of their annual stipend, up to $ 80,000 , in shares of stock based on the closing price at the date of distribution. As a result, 17,322 shares, 16,328 shares and 16,640 shares of Class A common stock were issued to non-executive directors during 2020, 2019 and 2018, respectively. These shares are not subject to any vesting restrictions. Expense of $ 3.1 million, $ 3.0 million and $ 2.6 million related to these stock-based payments was recognized for the years ended December 31, 2020, 2019 and 2018, respectively. 80 Table of Contents 17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income and reclassifications out of accumulated other comprehensive income (loss): (in millions) Investment Securities Defined Benefit Plans Derivative Investments Foreign Currency Translation Total Balance at December 31, 2019 $ 0.8 $ ( 55.1 ) $ 69.0 $ ( 11.3 ) $ 3.4 Other comprehensive income before reclassifications and income tax benefit (expense) 1.1 ( 7.4 ) — 134.3 128.0 Amounts reclassified from accumulated other comprehensive income — 4.7 ( 2.7 ) 0.4 2.4 Income tax benefit (expense) ( 0.3 ) 0.7 0.7 — 1.1 Net current period other comprehensive income 0.8 ( 2.0 ) ( 2.0 ) 134.7 131.5 Balance at December 31, 2020 $ 1.6 $ ( 57.1 ) $ 67.0 $ 123.4 $ 134.9 (in millions) Investment Securities Defined Benefit Plans Derivative Investments Foreign Currency Translation Total Balance at December 31, 2018 $ 0.1 $ ( 53.8 ) $ 69.7 $ ( 10.7 ) $ 5.3 Other comprehensive income before reclassifications and income tax benefit (expense) 1.0 ( 6.6 ) 0.6 ( 0.6 ) ( 5.6 ) Amounts reclassified from accumulated other comprehensive income — 4.9 ( 1.2 ) — 3.7 Income tax benefit (expense) ( 0.3 ) 0.4 ( 0.1 ) — — Net current period other comprehensive income 0.7 ( 1.3 ) ( 0.7 ) ( 0.6 ) ( 1.9 ) Balance at December 31, 2019 $ 0.8 $ ( 55.1 ) $ 69.0 $ ( 11.3 ) $ 3.4 (in millions) Investment Securities Defined Benefit Plans Derivative Investments Foreign Currency Translation Total Balance at December 31, 2017 $ 0.6 $ ( 36.1 ) $ 58.0 $ ( 8.2 ) $ 14.3 Other comprehensive income before reclassifications and income tax benefit (expense) ( 0.8 ) ( 15.3 ) 0.9 ( 2.5 ) ( 17.7 ) Amounts reclassified from accumulated other comprehensive income — 2.6 ( 1.2 ) — 1.4 Income tax benefit (expense) 0.2 3.2 0.1 — 3.5 Net current period other comprehensive income ( 0.6 ) ( 9.5 ) ( 0.2 ) ( 2.5 ) ( 12.8 ) Impact of adoption of standards update on tax effects related to accumulated other comprehensive income 0.1 ( 8.2 ) 11.9 — 3.8 Balance at December 31, 2018 $ 0.1 $ ( 53.8 ) $ 69.7 $ ( 10.7 ) $ 5.3 18. FAIR VALUE MEASUREMENTS The company uses a three-level classification hierarchy of fair value measurements for disclosure purposes: • Level 1 inputs, which are considered the most reliable evidence of fair value, consist of quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 inputs consist of observable market data, other than level 1 inputs, such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable. 81 Table of Contents • Level 3 inputs consist of unobservable inputs which are derived and cannot be corroborated by market data or other entity-specific inputs. Level 1 assets generally include investments in publicly traded mutual funds, equity securities, U.S. government securities and corporate debt securities with quoted market prices. In general, the company uses quoted prices in active markets for identical assets to determine the fair value of marketable securities. Level 2 assets and liabilities generally consist of asset-backed securities and long-term debt notes. Asset-backed securities were measured at fair value based on matrix pricing using prices of similar securities with similar inputs such as maturity dates, interest rates and credit ratings. The fair values of the long-term debt notes were based on quoted market prices in an inactive market. Level 3 assets include fixed assets, intangible assets and certain investments that were impaired. Recurring Fair Value Measurements. Financial assets and liabilities recorded at fair value on the consolidated balance sheets as of December 31, 2020 and 2019 were classified in their entirety based on the lowest level of input that was significant to each asset or liability's fair value measurement. Financial Instruments Measured at Fair Value on a Recurring Basis: December 31, 2020 (in millions) Level 1 Level 2 Level 3 Total Assets at Fair Value: Marketable securities: Corporate debt securities $ 17.9 $ — $ — $ 17.9 Mutual funds 82.6 — — 82.6 Equity securities 0.1 — — 0.1 Asset-backed securities — 0.3 — 0.3 Total Marketable Securities 100.6 0.3 — 100.9 Total Assets at Fair Value $ 100.6 $ 0.3 $ — $ 100.9 December 31, 2019 (in millions) Level 1 Level 2 Level 3 Total Assets at Fair Value: Marketable securities: Corporate debt securities $ 16.7 $ — $ — $ 16.7 Mutual funds 66.1 — — 66.1 Equity securities 0.1 — — 0.1 Asset-backed securities — 0.3 — 0.3 Total Marketable Securities 82.9 0.3 — 83.2 Performance bonds and guaranty fund contributions (1) : U.S. government agencies securities 898.2 — — 898.2 Total Assets at Fair Value $ 981.1 $ 0.3 $ — $ 981.4 _______________ (1) Performance bonds and guaranty fund contributions on the consolidated balance sheet at December 31, 2019 include U.S. government agency securities purchased with cash collateral. Non-Recurring Fair Value Measurements. During 2020, the company recognized impairment charg es of $ 31.4 million related to certain intangible assets and fixed assets. The combined fair values of the assets were estimated to be zero at December 31, 2020. The company also recognized net unrealized gains on certain investments of $ 0.9 million. The combined fair values of these investments were estimated to be $ 35.2 million. These assessments were based on quantitative and qualitative indications of impairment. The fair value measurements of the investments, fixed assets and assets held for sale are considered level 3 and non-recurring. Fair Values of Debt Notes. The following presents the estimated fair values of long-term debt notes, which are carried at amortized cost on the consolidated balance sheets. The fair values below that are classified as level 2 under the fair value hierarchy were estimated using quoted market prices in inactive markets. 82 Table of Contents At December 31, 2020, the fair values (in U.S. dollar equivalents) were as follows: (in millions) Fair Value Level $750.0 million fixed rate notes due September 2022 785.1 Level 2 €15.0 million fixed rate notes due May 2023 20.3 Level 2 $750.0 million fixed rate notes due March 2025 822.4 Level 2 $500.0 million fixed rate notes due June 2028 594.4 Level 2 $750.0 million fixed rates notes due September 2043 1,113.9 Level 2 $700.0 million fixed rate notes due June 2048 941.6 Level 2 19. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares of all classes of common stock outstanding for each reporting period. Diluted earnings per share reflects the increase in shares using the treasury stock method to reflect the impact of an equivalent number of shares of common stock if stock options were exercised and restricted stock awards were converted into common stock. Anti-dilutive stock awards were as follows for the years presented: (in thousands) 2020 2019 2018 Stock awards 87 519 79 Total 87 519 79 The following table presents the earnings per share calculation for the years presented: 2020 2019 2018 Net Income Attributable to CME Group (in millions) $ 2,105.2 $ 2,116.5 $ 1,962.2 Weighted Average Common Shares Outstanding (in thousands): Basic 357,764 357,155 342,344 Effect of stock options and stock awards 760 1,084 1,393 Diluted 358,524 358,239 343,737 Earnings per Common Share Attributable to CME Group: Basic $ 5.88 $ 5.93 $ 5.73 Diluted 5.87 5.91 5.71 83 Table of Contents 20. QUARTERLY INFORMATION (UNAUDITED) (in millions, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Year to Date Year Ended December 31, 2020 Total revenues $ 1,522.1 $ 1,182.3 $ 1,080.7 $ 1,098.5 $ 4,883.6 Operating income 959.9 637.5 525.0 515.0 2,637.4 Non-operating income (expense) 29.4 23.8 11.5 20.0 84.7 Income before income taxes 989.3 661.3 536.5 535.0 2,722.1 Net income attributable to CME Group 766.2 503.3 411.7 424.0 2,105.2 Earnings per common share attributable to CME Group: Basic $ 2.14 $ 1.41 $ 1.15 $ 1.18 $ 5.88 Diluted 2.14 1.40 1.15 1.18 5.87 Year Ended December 31, 2019 Total revenues $ 1,179.6 $ 1,272.7 $ 1,277.3 $ 1,138.4 $ 4,868.0 Operating income 631.0 698.6 685.2 573.0 2,587.8 Non-operating income (expense) 9.2 3.5 38.0 51.1 101.8 Income before income taxes 640.2 702.1 723.2 624.1 2,689.6 Net income attributable to CME Group 496.9 513.8 636.3 469.5 2,116.5 Earnings per common share attributable to CME Group: Basic $ 1.39 $ 1.44 $ 1.78 $ 1.31 $ 5.93 Diluted 1.39 1.43 1.78 1.31 5.91 21. SUBSEQUENT EVENTS The company has evaluated subsequent events through the date the financial statements were issued. The company has determined that there were no subsequent events that require disclosure, except the following: On January 12, 2021, the company announced that it has agreed with IHS Markit to combine their post-trade services into a new joint venture. The new company will include trade processing and risk mitigation operations. It will include CME Group's optimization business, which includes Traiana, TriOptima and Reset. The transaction is expected to close in mid-2021, subject to customary antitrust and regulatory approvals and other customary closing conditions. In January 2021, the net assets that will be contributed to the joint venture were classified as held for sale following approval of the transaction by the company's Board of Directors. The company is still evaluating the full financial statement impact of the transaction. 84 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.