What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-26 · 142 added, 126 removed, 474 unchanged (36% of the section changed)

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• Critical Accounting Policies :

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

• Recent Accounting Pronouncements :

Includes an evaluation of recent accounting pronouncements and the potential impact of their future adoption on our financial results.

Provides an explanation of accounting policies that may have a significant impact on our financial results and the estimates, assumptions and risks associated with those policies.

• Results of Operations :

Includes an analysis of our 2020 financial results and a discussion of any known events or trends which are likely to impact future results.

Includes an analysis of our 2021 financial results and a discussion of any known events or trends that are likely to impact future results.

• Liquidity and Capital Resources :

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In addition, trades can be executed through privately negotiated transactions that are cleared and settled through our clearing house.

We also provide optimization services that deliver transaction lifecycle management and information services to help our customers optimize their capital, mitigate their risk and reduce operational costs.

Optimization services includes Traiana, TriOptima and Reset.

Prior to September 2021, we provided optimization services that delivered transaction lifecycle management and information services to help our customers optimize their capital, mitigate their risk and reduce operational costs.

Optimization services included Traiana, TriOptima and Reset.

In September 2021, we contributed the net assets of our optimization business to OSTTRA, our new joint venture with IHS Markit.

Our clearing house clears, settles and guarantees futures and options contracts traded through our exchanges, in addition to cleared swaps products.

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connectivity, accessibility, flexibility in execution methods and distribution;

technology capability and innovation, as well as overall transaction costs.

and technology capability and innovation, as well as overall transaction costs.

We believe we are very well positioned with respect to these factors.

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Regulatory Environment.

Exchange-traded derivatives have historically been subject to extensive regulation.

Our exchange-traded derivatives exchanges and other businesses are regulated and we serve a customer base that includes regulated institutions and individuals.

Developments in the regulatory environment have the potential to significantly impact our business.

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Business Strategy

Our strategy focuses on maximizing futures and options growth globally, diversifying our business and revenues, and delivering unparalleled customer efficiencies and operational excellence.

Our strategy focuses on maximizing futures and options growth globally, diversifying our business and revenues and delivering unparalleled customer efficiencies and operational excellence, including through our partnership with Google Cloud.

This strategy allows us to continue to develop into a more broadly diversified financial exchange that provides trading and clearing solutions across a wide range of products and asset classes.

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Clearing and transaction fees.

A majority of our revenue is derived from clearing and transaction fees, which include electronic trading fees, surcharges for privately negotiated transactions and other volume-related charges for exchange-traded and over-the-counter contracts.

Because clearing and transaction fees are assessed on a per-contract or notional value basis, revenues and profitability fluctuate with changes in contract volume.

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We offer exchange-traded futures and options contracts as well as cleared-only interest rate swap contracts.

Through our acquisition of NEX, we also offer foreign exchange spot and forward contracts and fixed income products.

We also offer foreign exchange spot and forward contracts and fixed income products.

Rates are varied by product in order to optimize revenue on existing products and to encourage contract volume upon introduction of new products.

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Open outcry trading is conducted exclusively by our members, who may execute trades on behalf of customers or for themselves.

Beginning in May 2021, open outcry trading is now limited to Eurodollar options and Secured Overnight Financing Rate (SOFR) options products following the permanent closure of most of our open outcry pits.

Typically, customers submitting trades through our electronic platforms are charged fees for using the platforms in addition to the fees assessed on all transactions executed on our exchange.

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We are not involved in the settlement of the contract but charge a transaction fee generally based on volume or notional value of the trade for providing the matching service.

The cash markets business also includes BrokerTec Americas, which generates revenue from a matched principal business.

The cash markets business includes BrokerTec Americas, which generates revenue from a matched principal business.

This business serves as a fully matched counterparty to offsetting positions entered into by clients on its electronic trading platform to facilitate anonymity and access to clearing and settlement.

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Access fee revenue varies depending on the type of connection provided to customers.

Other revenues include revenues from our optimization services, which include fees for risk management and information services for the over-the-counter markets, including portfolio reconciliation and post-trade processing.

Revenue earned from these services is typically generated through subscriptions or transaction fees.

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

Prior to the contribution of the net assets of our optimization business to OSTTRA, other revenues included revenues from our optimization services, which included fees for risk management and information services for the OTC markets, including portfolio reconciliation and post-trade processing.

Revenue earned from these services was typically generated through subscriptions or transaction fees.

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

The majority of our expenses do not vary directly with changes in our contract volume.

However, licensing and other fee agreements can vary directly with certain equity, energy and swap volumes as well as the majority of our employee bonuses vary directly with overall contract volume.

However, licensing and other fee agreements can vary directly with certain equity, energy and swap volumes, and the majority of our employee bonuses vary indirectly with overall contract volume, as bonuses are primarily based on our financial performance.

Compensation and benefits.

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This expense fluctuates with changes in contract volumes as well as changes in fee structures.

• Other expenses include occupancy and building operations expenses including rent, maintenance, real estate taxes, utilities and other related costs related to leased property in Chicago, New York, the U.K., India as well as other smaller locations throughout the world.

• Other expenses include occupancy and building operations expenses including rent, maintenance, real estate taxes, utilities and other related costs related to leased property in Chicago, New York, the U.K., and India, as well as other smaller locations throughout the world.

Other expenses also include marketing and travel-related expenses as well as general and administrative costs.

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interest income and realized gains and losses from our marketable securities;

realized gains and losses as well as dividend income from our strategic equity investments, and gains and losses on trading securities in our non-qualified deferred compensation plans.

realized gains and losses and dividend income from our strategic equity investments, and gains and losses on trading securities in our non-qualified deferred compensation plans.

Investment income is influenced by market interest rates, changes in the levels of cash performance bonds deposited by clearing firms, the amount of dividends distributed by our strategic investments and the availability of funds generated by operations.

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

• Equity in net earnings (losses) of unconsolidated subsidiaries includes income and losses from our investments in S&P/Dow Jones Indices LLC (S&P/DJI), Shanghai CFETS-NEX International Money Broking Co., Ltd.

• Equity in net earnings (losses) of unconsolidated subsidiaries includes income and losses from our investments in OSTTRA, S&P/Dow Jones Indices LLC (S&P/DJI), Shanghai CFETS-NEX International Money Broking Co., Ltd.

and Dubai Mercantile Exchange.

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

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

CRITICAL ACCOUNTING POLICIES

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• Level 3 inputs consist of unobservable inputs, which are derived and cannot be corroborated by market data or other entity-specific inputs.

For further discussion regarding the fair value of financial assets and liabilities, see note 2 of the notes to the consolidated financial statements.

For further discussion regarding the fair value of financial assets and liabilities, see note 2.

Summary of Significant Accounting Policies and note 17.

Fair Value Measurements to the consolidated financial statements.

Goodwill and intangible assets.

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risk-adjusted discount rates;

forecasted economic and market conditions, and industry multiples.

forecasted economic and market conditions;

and industry multiples.

We base our fair value estimates on assumptions we believe to be reasonable given the information that is available to us at the time of our assessment;

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In addition, software assets are assessed for impairment when events or circumstances indicate that the carrying values may not be recoverable or that a reduction in the estimated useful lives is warranted.

RECENT ACCOUNTING PRONOUNCEMENTS

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

RESULTS OF OPERATIONS

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Operating margin 56 % 54 %

Non-operating income (expense) $ 84.7 $ 101.8 (17)

Non-operating income (expense) $ 728.4 $ 84.7 n.m.

Effective tax expense rate 21.8 % 22.6 %

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Cash flows from operating activities 2,402.4 2,715.6 (12)

not meaningful

Year-over-Year Change

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Average rate per contract 0.669 0.702 (5)

We estimate the following decreases in clearing and transaction fees based on a change in total contract volume and a change in average rate per contract during 2020 compared with 2019.

We estimate the following decrease in clearing and transaction fees based on a change in total contract volume and a change in average rate per contract during 2021 compared with 2020.

Year-over-Year Change

(in millions) 2021-2020

Decrease due to change in total contract volume $ (6.6)

Increase due to change in total contract volume $ 81.7

Decrease due to change in average rate per contract (160.0)

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Electronic Volume as a Percentage of Total Volume 93 % 94 %

In 2020 when compared with 2019, overall market volatility declined following a period of very high volatility in the first quarter of 2020.

During the first quarter of 2020, the Federal Reserve made the unexpected decision to lower the federal funds rate due to economic concerns from the COVID-19 pandemic, which resulted in significant volatility within the financial and equity markets.

However, interest rate volatility subsided following indication by the Federal Reserve that it did not intend to raise interest rates in the foreseeable future.

Equity market volatility remained high throughout 2020 as a result of the governmental and business response to the COVID-19 pandemic, as well as political uncertainty surrounding the U.S.

Presidential and Congressional elections in November.

In addition, heightened producer price competition within the oil markets combined with lower energy demands during the COVID-19 pandemic resulted in significant market volatility within the energy market during the first quarter of 2020.

However, this volatility subsided as oil prices stabilized and demand for crude oil remained low for the remainder of 2020.

In 2021 when compared with 2020, overall market volatility remained lower following periods of higher volatility in 2020, with the exception of interest rate volatility .

In mid-2021, the Federal Reserve indicated a potential increase in interest rates earlier than many market participants expected, which resulted in higher volatility within the interest rate market.

However, volatility remained lower in other markets throughout much of 2021.

Equity market volatility was higher in 2020 as a result of the governmental and business response to the COVID-19 pandemic.

In addition, a continued rebalance and reduction in demand in the crude oil market as a result of the COVID-19 pandemic resulted in lower market volatility within the energy market in 2021.

We believe these factors led to the changes in volume in 2021 when compared with 2020.

Due to the COVID-19 pandemic, in March 2020 we closed our open outcry trading floor and reopened it in August 2020 for Eurodollar options.

In May 2021, we announced our decision to permanently close the trading floor outside of Eurodollar options and Secured Overnight Financing Rate (SOFR) options.

Interest Rate Products

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Treasury futures and options:

10-Year 2,026 2,324 (13)

5-Year 1,081 1,358 (20)

2-Year 517 749 (31)

2,495 2,107 18

1,278 1,090 17

Treasury bond (1)

Federal Funds futures and options 207 356 (42)

In 2020 when compared with 2019, overall interest rate contract volume decreased.

We believe this was d ue to the Federal Reserve's decision to cut interest rates to near zero in early 2020 and its indication that it would not raise interest rates in the foreseeable future in response to the economic impact of the COVID-19 pandemic.

_______________

Treasury futures and options now include respective weekly treasury options that were previously separated under a unique product category.

Prior period amounts have been revised to conform to the current period presentation.

In 2021 when compared with 2020, overall interest rate contract volume in creased due to higher overall interest rate volatility resulting from changes in market expectations.

We believe interest rate volatility increased following the Federal Reserve's indication that it would maintain its zero interest rate policy in the short term and potentially raise interest rates sooner than expected.

In addition, we believe the increase in U.S.

Treasury contract volume was due to a record level of U.S.

Treasury issuances, which has led to an increased need for market participants to manage their risk across the treasury yield curve.

Equity Index Products

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

Volume below for the year ended 2019 includes Micro-E-mini contract volumes for each index beginning on May 6, 2019, which was the date the contracts were launched.

Year-over-Year Change

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E-mini Russell 2000 futures and options 368 302 22

In 2020 when compared with 2019, equity index contract volume increased due to higher overall volatility in the equity market in 2020, particularly in the first and fourth quarters.

We believe the increase in volatility was attributable to uncertainty surrounding the economic impact of governmental and business actions to combat the COVID-19 pandemic, as well as political uncertainty surrounding the U.S.

presidential and congressional elections.

Average daily contract volume in 2020 also included Micro-E-mini equity index contract volume of approximately 1 .8 million per day compared to approximately 0.3 million per day in 2019.

Micro-E-mini equity index contracts have a notional size of one-tenth of the traditional E-mini con tracts.

In 2021 when compared with 2020, equity index contract volume decreased slightly due to overall lower volatility.

We believe the v olatility within the broad-based indexes, including the S&P 500, subsided in 2021 following significant equity market volatility in early 2020 resulting from uncertainty surrounding the economic impact of governmental and business actions to combat the COVID-19 pandemic.

However, there was an increase in volatility within certain narrow-based technology and small cap indexes, which resulted from a market repricing of certain stocks in early 2021.

We believe this increase in volatility contributed to an increase in the E-mini Nasdaq 100 and E-mini Russell 2000 contract volume in 2021.

Foreign Exchange Products

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Japanese yen 114 123 (7)

British pound 116 129 (10)

Australian dollar 102 107 (4)

In 2020 when compared with 2019, overall foreign exchange contract volume was flat, which we believe resulted from lower overall volatility.

In 2020, market volatility subsided in the second half of the year following very high foreign exchange volatility in the first quarter caused by significant uncertainty surrounding the economic impacts of governmental and business

actions to combat the COVID-19 pandem ic.

In addition, we believe foreign exchange trading declined slightly due to operational strains from stay at home orders and risk aversion by market participants during the COVID-19 pandemic.

British pound 101 116 (13)

Overall foreign exchange contract volume decreased in 2021 when compared with 2020, which we believe is due to lower overall market volatility.

Market volatility subsided in 2021 following very high foreign exchange volatility in early 2020

caused by significant uncertainty surrounding the economic impacts of the governmental and business actions to combat the COVID-19 pandemic.

Agricultural Commodity Products

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Wheat 197 220 (11)

Overall commodity contract volume was relatively flat in 2020 when compared with 2019.

Corn contract volume decreased due to lower price volatility, which we believe was caused by large stock piles and lower demand.

We believe the increase in soybean contract volume was due to an increase in demand for commodities from China.

In 2021 when compared with 2020, overall commodity contract volume decreased, which we believe is a result of lower market volatility in the second half of 2021.

M arket volatility subsided in the second half of 2021 following periods of higher volatility in 2020 and early 2021 as crop supplies met demand following the 2021 growing season and COVID-19 related supply chain disruptions were corrected.

Energy Products

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Refined products 351 366 (4)

Overall energy contract volume was relatively flat in 2020 when compared with 2019, which we believe was due to periods of high volatility in early 2020 followed by periods of low volatility as a result of governmental and business actions to combat the COVID-19 pandem ic .

The increase in natural gas volume is the result of significant price declines in early 2020 followed by price increases in the second half of 2020 as a result of higher demand during the winter months.

This was partially offset by a decrease in crude oil volume due to a reduction in demand caused by the COVID-19 pandemic.

Overall energy contract volume decreased in 2021 when compared with 2020, which we believe was a ttributable to lower overall market volatility within the energy market.

We believe this was due to a continued rebalance and reduction in demand in the crude oil markets as a result of the COVID-19 pandemic.

In addition, forecasts of warmer than expected weather resulted in a decrease in natural gas contract volume compared with 2020.

We believe these factors led to the overall decrease in energy volume.

Metal Products

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Gold 330 456 (28) %

Silver 123 107 15

Copper 101 98 3

Overall metal contract volume increased in 2020 when compared with 2019 due to an increase in metals price volatility caused by investors using gold and other precious metals as safe-haven alternative investments due to significant uncertainty within other markets caused by the COVID-19 pandemic.

Silver 95 123 (23)

Lower overall market volatility within the gold and silver markets contributed to the o verall decline in metal contract volume in 2021 when compared with 2020.

Volatility was higher in 2020, as investors used gold and other precious metals as safe-haven investments as a result of uncertainty within other markets caused by the governmental and business actions to combat the COVID-19 pandemic.

Average Rate per Contract

The average rate per contract was substantially the same in 2020 when compared with 2019.

There was an increase in the average rate per contract due to a change in product mix.

Interest rate contract volume decreased by 12 percentage points as a percent of total volume, while all other products collectively increased by 12 percentage points.

The average rate per contract was lower in 2021 when compared with 2020.

The decrease in the average rate per contract was primarily due to a change in product mix.

Interest rate contract volume increased by 5 percentage points as a percent of total volume, while all other products collectively decreased by 5 percentage points.

In general, interest rate products have a lower rate per contract compared with the remaining contracts.

The increase in the average rate per contract was offset by the introduction of the micro-E-mini equity index contracts in mid-2019, which have a lower average rate per contract compared with a standard E-mini contract.

Micro-E-mini equity index contracts have a notional size of one-tenth of the traditional E-mini contracts.

Cash Markets Business

Total clearing and transaction fees revenue in 2020 includes $447.4 million of transaction fees attributable to the cash markets business acquired from NEX compared with $483.0 million in 2019.

Total clearing and transaction fees revenue in 2021 includes $396.2 million of transaction fees attributable to the cash markets business, compared with $ 447.4 million in 2020.

This revenue primarily includes BrokerTecs's fixed income volume and EBS foreign exchange volume.

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BrokerTec fixed income transaction fees $ 172.0 $ 173.2 (1) %

$ 173.2 $ 191.5 (10) %

EBS foreign exchange transaction fees 164.3 179.3 (8) %

179.3 191.8 (7) %

The related average daily notional value for the years ended 2021 and 2020 for key cash markets products were as follows:

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Spot FX 61.2 71.5 (14) %

Overall average daily notional value for the cash markets business decreased in 2020 when compared with 2019 due to expectations of potentially low interest rates for an extended period of time and economic uncertainty surrounding the COVID-19 pandemic.

Overall average daily notional value for the cash markets business increased slightly in 2021 when compared with 2020.

The increase in European Repo transactions was largely due to increased volatility as a result of the European Union unexpectedly leaving interest rates unchanged.

We believe the decreases in U.S.

Treasury and Spot FX volumes are primarily due to lower levels of volatility following periods of higher volatility in early 2020 caused by significant uncertainty surrounding the economic impacts of the governmental and business actions to combat the COVID-19 pandemic.

Despite the increase in average daily notional value, transaction revenue decreased due to the tiered pricing structure and incentive rate programs.

Concentration of Revenue

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Market data and information services.

In 2020 when compared with 2019, the increase in market data and information services revenue was largely attributable to an increase in certain device fees, an increase in subscriber device counts and higher demand for CME Group data.

In 2021 when compared with 2020, the increase in market data and information services revenue was largely attributable to an increase in certain device fees.

The two largest resellers of our market data represented, in aggregate, approximately 34% of our market data and information services revenue in 2021.

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Other revenues.

The increase in other revenues in 2020 when compared with 2019 is largely attributable to an increase in custody fees due to a new rate structure put in place in 2020.

The decrease in other revenues in 2021 when compared with 2020 was largely attributable to the deconsolidation of the optimization business in September 2021 as part of the contribution of the business's net assets to OSTTRA, our joint venture with IHS Markit.

Year-over-Year Change

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2020 Expenses

Bonus expense $ (54.3) (2) %

Intangible and fixed asset impairments (49.8) (2)

Travel and entertainment (25.0) (1)

Marketing (20.9) (1)

Stock-based compensation 11.1 —

Amortization of purchased intangibles $ (73.6) (3) %

Professional fees and outside services (39.6) (2)

Licensing and other fee agreements 72.7 3

Other expenses, net (39.2) (2)

Salaries, benefits and employer taxes (34.9) (2)

Intangible and fixed asset impairments (30.4) (1)

Stock-based compensation (20.5) (1)

Employee separation and retention costs 15.0 1

Total $ (201.7) (9) %

Overall operating expenses decreased in 2021 when compared with 2020 due to the following reasons:

• Bonus expenses decreased in 2020 largely due to a reduction in headcount with legacy NEX businesses in conjunction with our planned integration, as well as performance relative to our 2020 cash earnings target when compared with 2019 performance relative to our 2019 cash earnings target.

• During 2019, we recognized higher impairment charges on certain intangibles and fixed assets due to the disposal of various businesses.

• Travel and entertainment expenses decreased as a result of the company's response to the COVID-19 pandemic, with the vast majority of staff working remotely during 2020.

• Marketing expenses decreased compared with 2019 due to a reduction in planned advertising, media campaigns and special promotional events.

• Amortization of purchased intangibles was lower in 2021, as intangible assets related to CME Group's optimization business were contributed to OSTTRA, a joint venture with IHS Markit, in September 2021.

Amortization was no longer taken on these intangible assets once they were classified as held for sale in January 2021 following approval of the contribution by the company's board of directors.

• Professional fees and outside services expenses decreased due to a greater reliance on consultants for platform integrations, information security and systems enhancements in 2020, as well as a reduction in legal fees related to our business activities and product offerings.

• Salaries, benefits and employer taxes were lower during 2021 when compared to 2020 due to higher reductions in workforce and the contribution of employees from CME Group's optimization businesses to the new joint venture with IHS Markit in September 2021.

• In 2020, we recognized higher impairment charges on certain intangible assets and fixed assets related to a subsidiary.

• Decreases in stock-based compensation expense were primarily due to higher forfeitures resulting from reductions in headcount compared to 2020.

Increases in operating expenses in 2021 when compared with 2020 were as follows:

• Licensing and other fee agreements expenses increased during 2020 due to higher fees related to revenue sharing agreements for certain equity contracts, which resulted from an increase in volume and an increase in license rates for certain products.

• Professional fees and outside services expenses increased due to higher legal fees compared to 2019, as well as professional and legal fees incurred in 2020 in connection with to our recently announced joint venture with IHS Markit.

• Stock-based compensation expense increased due to acceleration of certain grants and the impact related to our September 2019 and 2020 grants.

• Employee separation and retention costs were higher during 2021 due to a higher reduction in workforce compared to 2020.

• Bonus expenses increased in 2021 largely due to performance relative to our 2021 cash earnings target when compared with 2020 performance relative to our 2020 cash earnings target.

Non-Operating Income (Expense)

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Equity in net earnings (losses) of unconsolidated subsidiaries 245.8 190.6 29

Other income (expense) (122.4) (534.9) (77)

Total Non-Operating $ 84.7 $ 101.8 (17)

Other income (expense) 342.6 (122.4) n.m.

Total Non-Operating $ 728.4 $ 84.7 n.m.

not meaningful

Investment income.

The decrease in investment income in 2020 when compared with 2019 was largely due to a decline in earnings from cash performance bond and guaranty fund contributions that are reinvested.

The decrease in earnings resulted primarily from lower rates of interest earned in the cash account at the Federal Reserve Bank of Chicago following significant interest rate cuts in early 2020 despite an increase in our average reinvestment amount.

Interest and other borrowing costs.

Interest and other borrowing costs were lower in 2020 when compared with 2019, primarily due to lower borrowing costs on commercial paper issuances, as there were higher average balances of commercial paper outstanding during 2019 when compared with 2020.

Interest and other borrowing costs were also lower during 2020 due to interest expense recognized on the €350.0 million fixed rate notes and the ¥19.1 billion term loan assumed as part of the NEX acquisition in 2018 and subsequently paid off during the first quarter of 2019.

The increase in investment income in 2021 when compared with 2020 was largely due to higher net unrealized and realized gains on investments of $122.5 million.

Equity in net earnings (losses) of unconsolidated subsidiaries.

Higher income generated from our S&P/DJI business venture contributed to an increase in equity in net earnings (losses) of unconsolidated subsidiaries in 2021 when compared with 2020.

In September 2021, we also began recognizing our share of net earnings in our investment in OSTTRA, our new joint venture with IHS Markit.

Other income (expense).

In 2020 when compared with 2019, we recognized lower expense related to a reduction in the distribution of interest earned on performance bond collateral reinvestments to the clearing firms due to lower interest income earned on our reinvestment.

In addition, a gain of $1.5 million was recognized on derivative contracts in 2020 compared with a net loss of $17.7 million in 2019.

In 2021, we recognized a net gain of $400.7 million on the deconsolidation and contribution of our optimization business to OSTTRA, which contributed to an increase in other income in 2021.

We also recognized a gain of $30.4 million related to the sale of a building in Chicago in the fourth quarter of 2021, as well as proceeds from a legal settlement.

Income Tax Provision

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Year ended December 31 21.8 % 22.6 % (0.8) %

In 2020 when compared with 2019, the effective tax rate was higher due to the recognition of additional benefits from the Internal Revenue Code Section 250 deduction in 2019.

Proposed FDII Deduction regulations were released in 2019 and as a result, we revised our income tax calculations to reflect the proposed guidance.

The benefit recognized in 2019 includes estimates for the deduction for 2018 and 2019, whereas the benefit recognized in 2020 only includes the deduction for 2020.

The effective tax rate decreased in 2021 when compared with 2020.

In 2021, we recognized a gain on the deconsolidation and contribution of our optimization business to OSTTRA, which was not taxable.

The decrease due to the gain was partially offset by an increase to the statutory rate in the United Kingdom.

LIQUIDITY AND CAPITAL RESOURCES

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We have historically met our funding requirements with cash generated by our ongoing operations.

However, as part of the funding for the NEX acquisition, we utilized our commercial paper program in late 2018 and through the beginning of the second quarter of 2020 for short-term funding requirements.

However, we have used our commercial paper program from time to time to fund large short-term funding needs, including our acquisition of NEX in 2018.

While our cost structure is generally fixed in the short term, our sources of operating cash are largely dependent on contract trading volume levels.

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It is also possible that we may need to raise additional funds to finance our activities through future public debt offerings or by direct borrowings from financial institutions through our committed revolving credit facilities.

Future capital expenditures for technology are anticipated as we continue to support our growth through increased system capacity, performance improvements, integration of acquired platforms as well as improvements to some of our office spaces.

Cash will also be required for non-cancellable purchase obligations as at December 31, 2021.

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.

Aside from the table below, we have certain other arrangements that have a perpetual term for which we pay $5.0 million per year.

At December 31, 2021, future minimum payments due under purchase obligations were payable as follows (in millions):

2023-2024 145.3

2025-2026 214.2

Thereafter 839.3

Total $ 1,306.4

Each year, capital expenditures are incurred for improvements to and modification of our offices, remote data centers, telecommunications network and other operating equipment.

In 2021, we expect capital expenditures to total approximately $180.0 million to $190.0 million, net of any leasehold improvement allowances and any one-time costs associated with the NEX integration.

In 2022, we expect capital expenditures to total approximately $140.0 million to $150.0 million, net of any leasehold improvement allowances.

We continue to monitor our capital needs and may revise our forecasted expenditures as necessary in the future.

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The decision to pay a dividend and the amount of the dividend, however, remains within the discretion of our board of directors and may be affected by various factors, including our earnings, financial condition, capital requirements, levels of indebtedness and other considerations our board of directors deems relevant.

We are also required to comply with restrictions contained in the general corporation laws of our state of incorporation, which could also limit our ability to declare and pay dividends.

On February 3, 2021 the board of directors declared a regular quarterly dividend of $0.90 per share.

We are also required to comply with restrictions contained in the general corporation laws of our state of incorporation, which could limit our ability to declare and pay dividends.

On February 3, 2022, the board of directors declared a regular quarterly dividend of $1.00 per share for all outstanding common and preferred shares.

The dividend will be payable on March 25, 2022 to shareholders of record on March 10, 2022.

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Net cash provided by operating activities $ 2,402.4 $ 2,715.6 (12) %

Net cash used in investing activities (175.5) (152.6) 15

Net cash used in financing activities (2,458.2) (2,340.8) 5

Net cash provided by (used in) investing activities 58.4 (175.5) 133

Net cash provided by financing activities 69,908.7 47,246.6 48

Operating activities

Net cash provided by operating activities was relatively flat in 2020 compared with 2019.

Net cash provided by operating activities was lower in 2021 compared with 2020, largely due to a decrease in clearing and transaction fee revenue and other revenue.

We also contributed the operating net assets of the optimization business to OSTTRA in the third quarter of 2021, which resulted in a net decrease in operating cash flow.

In addition, our income tax payments were higher in 2021 compared with 2020.

Investing activities

The increase in cash used in investing activities in 2020 compared with 2019 was largely due to a decrease in cash proceeds received on sales of certain privately-held investments.

The increase in cash provided by investing activities in 2021 compared with 2020 was largely due to the net cash received from the OSTTRA joint venture transaction of $ 100.7 million and the additional proceeds received from sales of investments in 2021.

In addition, our purchases of fixed assets were lower in 2021 when compared with 2020.

Financing activities

Cash used in financing activities was higher in 2020 when compared with 2019 due to an increase in the amount of cash dividends paid.

The increase in cash used in financing activities was partially offset by a reduction in the amount of outstanding debt repayments in 2020 compared with 2019.

Cash provided by financing activities was higher in 2021 when compared with 2020 mainly due to an increase in cash performance bonds and guaranty fund contributions.

In addition, we received proceeds of $ 965.0 million from the issuance of

preferred shares in connection with our partnership with Google Cloud.

The increase in cash provided by financing activities was partially offset by a reduction in the amount of outstanding commercial paper in 2020.

For discussion regarding the revision of the presentation of the consolidated statements of cash flow to include cash performance bonds and guaranty fund contributions, see note 2.

Summary of Significant Accounting Policies to the consolidated financial statements.

Debt Instruments

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We maintain a $2.3 billion multi-currency revolving senior credit facility with various financial institutions, which matures in November 2026.

The proceeds from this facility can be used for general corporate purposes, which includes providing liquidity for our clearing house in certain circumstances at our discretion and, if necessary, for maturities of commercial paper.

as we are not in default under this facility, we have the option to increase it up to $3.0 billion with the consent of the agent and lenders providing the additional funds.

The proceeds from this facility can be used for general corporate purposes, which includes providing liquidity for our clearing house in certain circumstances at CME Group's discretion and, if necessary, for maturities of commercial paper.

As long as we are not in default under this facility, we have the option to increase it up to $3.3 billion with the consent of the agent and lenders providing the additional funds.

This facility is voluntarily pre-payable from time to time without premium or penalty.

Under this facility, we are required to remain in compliance with a consolidated net worth test, which is defined as our consolidated shareholders' equity at September 30, 2021, giving effect to share repurchases made and special dividends paid during the term of the agreements (and in no event greater than $2.0 billion in aggregate), multiplied by 0.65.

We currently do not have any borrowings outstanding under this facility, but the outstanding commercial paper balance is backstopped against this facility.

We maintain a 364-day multi-currency revolving secured credit facility with a consortium of domestic and international banks to be used in certain situations by CME Clearing.

We currently do not have any borrowings outstanding under this facility, but any commercial paper balance if or when outstanding can be backstopped against this facility.

We maintain a 364-day multi-currency revolving secured credit facility with a consortium of domestic and international banks to be used in certain situations by the clearing house.

The facility provides for borrowings of up to $7.0 billion.

We may use the proceeds to provide temporary liquidity in the unlikely event a clearing firm fails to promptly discharge an obligation to CME Clearing, in the event of a liquidity constraint or default by a depository (custodian for our collateral), in the event of a temporary disruption with the domestic payments system that would delay payment of settlement variation between us and our clearing firms, or in other cases as provided by the CME rulebook.

We may use the proceeds to provide temporary liquidity in the unlikely event a clearing firm fails to promptly discharge an obligation to CME Clearing, in the event of a liquidity constraint or default by a depositary (custodian for our collateral), in the event of a temporary disruption with the domestic payments system that would delay payment of settlement variation between us and our clearing firms, or in other cases as provided by the CME rulebook.

Clearing firm guaranty fund contributions received in the form of cash or U.S.

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We have the option to request an increase in the line from $7.0 billion to $10.0 billion.

Our 364-day facility contains a requirement that CME remains in compliance with a consolidated tangible net worth test, defined as CME consolidated shareholder's equity less intangible assets (as defined in the agreement), of not less than $800.0 million.

Our 364-day facility contains a requirement that CME remain in compliance with a consolidated tangible net worth test, defined as CME consolidated shareholder's equity less intangible assets (as defined in the agreement), of not less than $800.0 million.

We currently do not have any borrowings outstanding under this facility.

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At December 31, 2021, we have excess borrowing capacity for general corporate purposes of approximately $2.3 billion under our multi-currency revolving senior credit facility.

At December 31, 2020, we were in compliance with the various covenant requirements of all our debt facilities.

At December 31, 2021, we were in compliance with the various financial covenant requirements of all our debt facilities.

CME Group, as a holding company, has no operations of its own.

Instead, it relies on dividends declared and paid to it by its subsidiaries in order to provide a portion of the funds which it uses to pay dividends to its shareholders.

To satisfy our performance bond obligation with Singapore Exchange Limited, we may pledge CME-owned U.S.

Treasury securities or U.S.

dollars in lieu of, or in combination with, irrevocable letters of credit.

At December 31, 2020, we had pledged letters of credit totaling $310.0 million.

Instead, it relies on dividends declared and paid to it by its subsidiaries in order to provide the funds that it uses to pay dividends to its shareholders.

To satisfy our performance bond obligation with Singapore Exchange Limited, we may pledge irrevocable standby letters of credit.

At December 31, 2021, the letters of credit totaled $330.0 million.

We also maintain a $350.0 million line of credit to meet our obligations under this agreement.

The following table summarizes our credit ratings as of December 31, 2021:

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Liquidity and Cash Management

Cash and cash equivalents totaled $1.6 billion at December 31, 2020 and December 31, 2019.

Cash and cash equivalents, excluding restricted cash, totaled $2.8 billion and $1.6 billion at December 31, 2021 and December 31, 2020, respectively.

The balance retained in cash and cash equivalents is a function of anticipated or possible short-term cash needs, prevailing interest rates, our corporate investment policy and alternative investment choices.

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Our exposure to credit and liquidity risk is minimal given the nature of the investments.

Cash that is not available for general corporate purposes because of regulatory requirements or other restrictions is classified as restricted cash and is included in other current assets or other assets on the consolidated balance sheets.

Our practice is to have our pension plan 100% funded at each year end on a projected benefit obligation basis, while also satisfying any minimum required contribution and obtaining the maximum tax deduction.

Based on our actuarial projections, we estimate that an additional contribution may be necessary in 2021 to meet our funding goal.

However, the amount of the

actual contribution is contingent on various factors, including the actual rate of return on our plan assets during 2021 and the December 31, 2021 discount rate.

Based on our actuarial projections, we estimate that no additional contribution will be necessary in 2022 to meet our funding goal.

However, the amount of the actual contribution is contingent on various factors, including the actual rate of return on our plan assets during 2022 and the December 31, 2022 discount rate.

Regulatory Requirements

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DCOs are required to maintain capital, as defined by the CFTC, in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities, or a line of credit at least equal to six months of projected operating expenses.

CME was designated by the Financial Stability Oversight Council as a systemically important financial market utility under Title VIII of Dodd-Frank.

CME was designated by the Financial Stability Oversight Council as a systemically important financial market utility under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As a result, CME must comply with CFTC regulations applicable to a systemically important DCO for financial resources and liquidity resources.

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By law, both of these rules apply to the activities of registered broker dealers, but not to unregistered affiliates.

The firm began operating as a (k)(2)(i) broker-dealer in November 2017 following notification to FINRA and the SEC.

A company operating under the (k)(2)(i) exemption is not required to lock up customer funds as would otherwise be required under Rule 15c3-3 of the Exchange Act.

The firm began operating as a (k)(2)(i) broker dealer in November 2017 following notification to the Financial Industry Regulatory Authority and the SEC.

A company operating under the (k)(2)(i) exemption is not required to lock up customer funds as would otherwise be required under Exchange Act Rule 15c3-3.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis