What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-02-25 · 124 added, 124 removed, 492 unchanged (34% of the section changed)

39 unchanged sentences

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.

In September 2021, we contributed the net assets of our optimization business to OSTTRA, our joint venture with IHS Markit (later acquired by S&P Global).

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

4 unchanged sentences

This contract offsetting process provides our customers with flexibility in establishing and adjusting positions and provides for collateral and margining efficiencies.

Certain BrokerTec and EBS contracts are cleared at third-party clearing houses.

Certain BrokerTec contracts are cleared at third-party clearing houses.

Business Trends

18 unchanged sentences

Our asset classes contain products designed to address differing risk management needs, and customers are able to achieve operational and capital efficiencies by accessing our diverse products through our platforms and our clearing house.

We face competition from other futures, securities and securities option exchanges;

clearing organizations;

swap execution facilities;

alternative trade execution facilities;

technology firms, including market data distributors and electronic trading system developers;

We compete in a large and expanding financial services trading, clearing and settlement marketplace globally.

As markets continue to evolve, we will continue to adapt our trading technology and clearing services to meet the needs of our customers.

The competitive environment to which we are subject is discussed in "Item 1.

Business" on page 10 .

The competitive environment to which we are subject is discussed in "Item 1 - Business" beginning on page 10 .

Regulatory Environment.

2 unchanged sentences

Compliance with regulations may require us and our customers to dedicate significant financial and operational resources, which could adversely affect our profitability.

The regulatory environment to which we are subject is discussed in "Item 1.

Business" on page 11 .

The regulatory environment to which we are subject is discussed in "Item 1 - Business" beginning on page 11 .

Business Strategy

1 unchanged sentence

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.

Our strategic initiatives are discussed in "Item 1.

Business" on page 7 .

Our strategic initiatives are discussed in "Item 1 - Business" beginning on page 7 .

Clearing and transaction fees.

14 unchanged sentences

Our exchange and platforms are an international marketplace that brings together buyers and sellers mainly through our electronic trading as well as through open outcry trading and privately negotiated transactions.

Any customer who is guaranteed by a clearing firm and who agrees to be bound by our exchange rules is able to obtain direct access to our electronic platforms.

Any customer who is guaranteed by a clearing firm and who agrees to be bound by our exchange rules is able to obtain direct access to our

electronic platforms.

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

8 unchanged sentences

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 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.

BrokerTec Americas also generates revenue from a matched principal business.

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

Revenue is generated from this business generally on a transaction fee basis.

23 unchanged sentences

Compensation and benefits expense is our most significant expense and includes employee wages, bonuses, stock-based compensation, benefits and employer taxes.

Changes in this expense are driven by fluctuations in the number of employees, increases in wages as a result of inflation or labor market conditions, changes in rates for employer taxes and other cost increases affecting benefit plans.

Changes in this expense are driven by fluctuations in the number of employees, increases in wages as a result of labor market conditions, changes in rates for employer taxes and other cost increases affecting benefit plans.

In addition, this expense is affected by the composition of our workforce.

23 unchanged sentences

telecommunications costs of our exchange, and fees paid for access to external market data.

This expense may be driven by system capacity, functionality and redundancy requirements.

This expense may be driven by system capacity, cloud consumption, functionality and redundancy requirements.

It also may be impacted by growth in electronic contract volume and changes in the number of telecommunications hubs and connections which allow customers outside the U.S.

15 unchanged sentences

• 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 OSTTRA, 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 S&P Dow Jones Indices LLC, OSTTRA, Shanghai CFETS-NEX International Money Broking Co., Ltd.

and Dubai Mercantile Exchange.

40 unchanged sentences

The impairment assessment of these assets requires management to first compare the carrying value of the amortizing asset to its 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 definite-lived intangible assets on a periodic basis.

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 definite-lived intangible assets.

Revenue recognition.

A significant portion of our revenue is derived from the clearing and transaction fees we assess on each contract executed through our trading venues and cleared through our clearing house.

Clearing and transaction fees are recognized as revenue when a buy and sell order are matched and when the trade is cleared.

Clearing and transaction fees are recognized as revenue when a buy and sell order are matched, novated and when the trade is cleared.

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 in the affected accounts.

16 unchanged sentences

Certain internal and external costs that are incurred in connection with developing or obtaining software for internal use are capitalized.

We also enter into software hosting arrangements for software projects maintained in the cloud.

Software development costs incurred during the planning or maintenance stages of a software project are expensed as incurred, while costs incurred during the application development stage are capitalized and are amortized over the estimated useful life of the software, which is generally two to four years, but up to eight years for certain trading and clearing applications, depending upon expected useful lives.

We also enter into software hosting arrangements for software projects maintained or developed in the cloud.

Software development costs incurred during the planning or maintenance stages of a software project are expensed as incurred, while certain costs incurred during the application development stage are capitalized and are amortized over the estimated useful life of the software, which is generally two to four years, but up to eight years for certain trading and clearing applications, depending upon expected useful lives.

Amortization of capitalized costs begins only when the software becomes ready for its intended use.

3 unchanged sentences

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

For a comparison of our results of operations for the fiscal years ended December 31, 2020, see "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 26, 2021.

For a comparison of our results of operations for the fiscal years ended December 31, 2021 to December 31, 2020, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022.

Year-over-Year Change

3 unchanged sentences

Operating margin 60.1 % 56.4 %

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

Non-operating income (expense) $ 474.4 $ 728.4 (35)

Effective tax expense rate 22.9 % 21.8 %

2 unchanged sentences

Cash flows from operating activities 3,056.0 2,402.4 27

not meaningful

Year-over-Year Change

16 unchanged sentences

Average rate per contract 0.643 0.669 (4)

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.

We estimate the following net increase in clearing and transaction fees based on a change in total contract volume and a change in average rate per contract during 2022 compared with 2021.

Year-over-Year Change

2 unchanged sentences

Decrease due to change in average rate per contract (128.5)

Net decrease in clearing and transaction fees $ (78.3)

Net increase in clearing and transaction fees $ 452.2

Average rate per contract is impacted by our rate structure, including volume-based incentives, product mix, trading venue and the percentage of volume executed by customers who are members compared with non-member customers.

19 unchanged sentences

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

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, equity, and foreign exchange volatility were higher in 2022 when compared with 2021 as result of a change in market expectations and uncertainty regarding the Federal Reserve's interest rate policy amid higher than expected inflation levels.

The Federal Open Market Committee raised the Federal Funds rate by a total of 425 percentage points in 2022 and has indicated that it intends to further raise interest rates in the near future.

The Federal Reserve also began quantitative tightening in the second half of 2022 by reducing its holdings of U.S.

Treasury securities.

However, the geopolitical uncertainty between Russia and Ukraine led to risk aversion and reduced trading by market participants within the agricultural commodity and energy markets due to global commodity trade uncertainty.

We believe these factors led to the changes in contract volume during 2022, when compared with 2021.

Interest Rate Products

5 unchanged sentences

Eurodollar futures and options:

Front 8 futures 1,291 1,311 (2) %

Back 32 futures 1,085 633 71

Futures expiring within two years 1,100 1,291 (15) %

Options 833 1,059 (21)

Futures expiring beyond two years 440 1,085 (59)

SOFR futures and options:

Futures expiring within two years 1,479 145 n.m.

Futures expiring beyond two years 282 13 n.m.

Options 440 36 n.m.

Treasury futures and options:

2 unchanged sentences

Treasury Bond

_______________

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.

Federal Funds futures and options 335 112 n.m.

not meaningful

In 2022 compared with 2021, overall interest rate contract volume increased as a result of higher overall volatility.

We believe this was due to higher than expected inflation levels, the Federal Open Market Committee's decision to increase the Federal Funds rate multiple times in 2022 as well as the Federal Reserve's quantitative tightening in the second half of 2022.

The increase in overall SOFR volume was also due to more market participants transitioning to the new reference rate away from LIBOR as well as incentive programs designed to encourage market participation in SOFR options trading.

Equity Index Products

3 unchanged sentences

E-mini S&P 500 futures and options (1)

4,535 3,179 43 %

E-mini Nasdaq 100 futures and options (1)

2,208 1,536 44

E-mini Russell 2000 futures and options (1)

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.

_______________

(1) Futures and options now include respective weekly Micro E-mini options that were previously separated under a unique product category.

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

Equity index contract volume increased due to higher overall volatility in 2022 when compared with 2021.

V olatility within the equity indexes increased as a result of higher than expected inflation levels as well as the Federal Reserve's actions to increase the Federal Funds rate and quantitative tightening in 2022.

We believe these factors led to the overall increases in equity contract volumes.

Foreign Exchange Products

4 unchanged sentences

Japanese yen 167 114 46

Australian dollar 102 107 (4)

British pound 129 101 28

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.

Australian dollar 106 102 3

Overall foreign exchange contract volume increased in 2022 when compared with 2021, which we believe is due to higher overall market volatility.

Market volatility increased in 2022 due to the global central banks' interest rate policy decisions as a result of higher than expected inflation.

Agricultural Commodity Products

5 unchanged sentences

Wheat 175 197 (11)

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.

In 2022 when compared with 2021, overall commodity contract volume decreased, which we believe is largely due to risk aversion by market participants following price increases and global trade uncertainty resulting from the Russia and Ukraine conflict.

Energy Products

5 unchanged sentences

Refined products 328 351 (6)

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.

Overall energy contract volume decreased in 2022 when compared with 2021.

Participant trading activity slowed down largely due to concerns regarding high inflation and an economic downturn.

In addition, the sustained conflict between Russia and Ukraine continued to cause disruptions to the global energy markets.

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

Metal Products

5 unchanged sentences

Silver 83 95 (12)

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.

In 2022 when compared with 2021, overall metal contract volume decreased, which we believe was attributable to lower overall market volatility within the gold and silver markets.

Volume was higher in 2021, as investors were using gold and other precious metals as safe-haven investments following the COVID-19 pandemic.

Average Rate per Contract

1 unchanged sentence

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.

Equity index contract volume increased by 5 percentage points as a percent of total volume, while agricultural commodity, energy and metal contract volume collectively decreased by 5 percentage points.

In general, equity index products have a lower rate per contract compared with the agricultural commodity, energy and metal contracts.

Cash Markets Business

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.

Total clearing and transaction fees revenue in 2022 included $318.8 million of transaction fees attributable to the cash markets business, compared with $396.2 million in 2021.

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

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

Year-over-Year Change

2 unchanged sentences

EBS foreign exchange transaction fees 154.1 164.3 (6) %

Optimization transaction fees — 59.9 n.m.

not meaningful

The related average daily notional value for the years ended 2022 and 2021 for key cash markets products were as follows:

1 unchanged sentence

(amounts in billions) 2022 2021 2022-2021

Treasury $ 115.0 $ 125.9 (9) %

European Repo (in euros) $ 345.2 $ 292.3 18 %

Treasury 126.1 115.0 10 %

Spot FX 65.7 61.2 7 %

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.

Overall average daily notional value for the cash markets business increased in 2022 when compared with 2021.

The increases in European Repo and U.S.

Treasury transactions were largely due to increased volatility as a result of a change in market expectations regarding the Federal Reserve's interest rate policy, following higher than expected inflation levels in 2022.

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

Concentration of Revenue

1 unchanged sentence

The majority of clearing and transaction fees received from clearing firms represent charges for trades executed and cleared on behalf of their customers.

One clearing firm represented approximately 10% of our clearing and transaction fees in 2021.

One clearing firm represented at least approximately 10% of our clearing and transaction fees in 2022.

Should a clearing firm withdraw, we believe that the customer portion of the firm's trad ing activity would likely transfer to another clearing firm of the exchange.

2 unchanged sentences

Market data and information services.

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.

In 2022 when compared with 2021, the increase in market data and information services revenue was largely attributable to price increases for certain products as well as an increase in usage for certain products.

The two largest resellers of our market data represented, in aggregate, approximately 33% of our market data and information services revenue in 2022.

Despite this concentration, we consider exposure to significant risk of revenue loss to be minimal.

In the event that one of these vendors no longer subscribes to our market data, we believe the majority of that vendor's customers would likely subscribe to our market data through another reseller.

In the event that one of these vendors no longer distributes our market data, we believe the majority of that vendor's customers would likely subscribe to our market data through another reseller.

Additionally, several of our largest institutional customers that utilize services from our two largest resellers report usage and remit payment of their fees directly to us.

Other revenues .

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.

In 2022 when compared with 2021, the decrease in other revenue 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.

In 2021, the optimization business genera ted $115.1 million in other revenue.

Year-over-Year Change

15 unchanged sentences

2021 Expenses

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

Professional fees and outside services (39.6) (2)

Other expenses, net (39.2) (2)

Salaries, benefits and employer taxes $ (63.9) (3) %

Intangible and fixed asset impairments (30.4) (1)

Stock-based compensation (20.5) (1)

Non-qualified deferred compensation (28.7) (1)

Employee separation and retention costs (25.0) (1)

Professional fees and outside services (14.3) (1)

Currency fluctuation (12.8) (1)

Licensing and other fee agreements 83.1 4

Other expenses, net (1.0) —

Total $ (41.0) (2) %

Overall operating expenses decreased in 2022 when compared with 2021 due to the following reasons:

• 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.

• Salaries, benefits and employer taxes were lower during 2022 when compared with 2021 due to a net decrease in average headcount, including the contribution of employees from CME Group's optimization businesses to the joint venture with IHS Markit in September 2021.

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

• Employee separation and retention costs were lower in 2022 compared with 2021 due to a lower reduction in workforce.

• Professional fees and outside services expense decreased due to one-time legal and other professional fees incurred in 2021 related to our joint venture with IHS Markit.

The decrease in professional fees was partially offset by an increase in consulting fees attributable to CME Group's partnership with Google Cloud, which was signed in November 2021.

• In 2022, we recognized a net gain of $13.2 million, compared to a net gain of $0.4 million in 2021, due to currency exchange rate fluctuations.

Gains and losses from exchange rate fluctuations are recognized in the consolidated statements of net income when subsidiaries with a U.S.

dollar functional currency hold certain monetary assets and liabilities denominated in foreign currencies.

Increases in operating expenses in 2022 when compared with 2021 were as follows:

• 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.

• Bonus expense increased in 2022 largely due to performance relative to our 2022 cash earnings target when compared with 2021 performance relative to our 2021 cash earnings target.

• Licensing and other fee agreements expense increased in 2022 due to higher volumes for certain equity products during 2022 compared with 2021.

Non-Operating Income (Expense)

1 unchanged sentence

(dollars in millions) 2022 2021 2022-2021

Investment income $ 306.9 $ 182.7 68 %

Investment income $ 2,198.4 $ 306.9 n.m.

Interest and other borrowing costs (162.7) (166.9) (2)

1 unchanged sentence

Other income (expense) (1,862.4) 342.6 n.m.

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

Total Non-Operating $ 474.4 $ 728.4 (35)

not meaningful

Investment income .

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.

In 2022 when compared with 2021, there was an increase in earnings from reinvested cash performance bond and guaranty fund contributions due to a higher rate of interest earned in the cash accounts at the Federal Reserve Bank of Chicago following interest rate hikes in 2022.

In 2022 and 2021, earnings from cash performance bond and guaranty fund contributions were $2,169.5 million and $173.9 million, respectively.

The increase in income was partially offset by a decrease in net realized and unrealized gains on investments as well as a decrease in earnings on our deferred compensation plan, the impact of which does not affect net income because of an equal and offsetting change in compensation and benefits expense.

Equity in net earnings (losses) of unconsolidated subsidiaries .

Higher income generated from our S&P/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.

Higher income generated from our S&P Dow Jones Indices LLC business venture contributed to an increase in equity in net earnings (losses) of unconsolidated subsidiaries in 2022 when compared with 2021.

We also recognized our share of net earnings on our investment in OSTTRA, our joint venture with IHS Markit that was formed in September 2021.

Other income (expense).

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.

In 2022 when compared with 2021, we recognized higher expenses related to the distribution of interest earned on performance bond collateral reinvestments to the clearing firms in conjunction with higher interest income earned on our reinvestment during the period due to a higher Federal Funds rate in 2022.

In 2022 and 2021, expenses related to the distribution of interest earned on collateral reinvestments were $1,889.7 million and $119.6 million, respectively.

In 2021, we also recognized a net gain of $400.7 million on the deconsolidation and contribution of our optimization business to OSTTRA.

Income Tax Provision

2 unchanged sentences

Year ended December 31 22.9 % 21.8 % 1.1 %

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

The effective tax rate increased in 2022 when compared with 2021.

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.

The impact of the gain in 2021 was partially offset by an increase to the statutory rate in the United Kingdom in 2021.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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

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.

However, we have used our commercial paper program from time to time to fund large short-term funding needs.

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

4 unchanged sentences

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.

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

At December 31, 2022, future minimum payments due under purchase obligations were payable as follows (in millions):

5 unchanged sentences

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

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

In 2023, we expect capital expenditures to total approximately $100.0 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.

2 unchanged sentences

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.

On February 2, 2023, the company declared a regular quarterly dividend of $1.10 per share for all outstanding

common and preferred shares.

The dividend will be payable on March 27, 2023 to shareholders of record on March 10, 2023.

7 unchanged sentences

Net cash provided by operating activities $ 3,056.0 $ 2,402.4 27 %

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

Net cash provided by (used in) investing activities (489.8) 58.4 n.m.

Net cash provided by financing activities (25,381.7) 69,908.7 n.m.

not meaningful

Operating activities

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.

Net cash provided by operating activities was higher in 2022 compared with 2021, largely due to an increase in clearing and transaction fee revenue.

This was partially offset by income tax payments which were higher in 2022 compared with 2021.

Investing activities

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.

The increase in cash used in investing activities in 2022 compared with 2021 was largely due to the additional investment in S&P Dow Jones Indices LLC of $410.0 million.

In addition, we received $100.7 million from the OSTTRA joint venture transaction and additional proceeds from sales of investments in 2021.

Financing activities

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.

Cash used in financing activities was higher in 2022 when compared with 2021 mainly due to a decrease in cash performance bonds and guaranty fund contributions.

In addition, there was an increase in dividends paid in 2022.

In 2021, we received proceeds of $ 965.0 million from the issuance of preferred shares in connection with our partnership with Google Cloud.

Debt Instruments

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(in millions) Par Value

Fixed rate notes due September 2022, stated rate of 3.00% (1)

Fixed rate notes due May 2023, stated rate of 4.30% € 15.0

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Fixed rate notes due June 2028, stated rate of 3.75% $ 500.0

Fixed rate notes due March 2032, stated rate of 2.65% $ 750.0

Fixed rate notes due September 2043, stated rate of 5.30% (2)

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(1) We maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.11%.

(2) We maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.11%.

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

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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.

during the term of the agreements (and in no event greater than $2.0 billion in aggregate), multiplied by 0.65.

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

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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 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.

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

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

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At December 31, 2022, 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, 2021, we were in compliance with the various financial covenant requirements of all our debt facilities.

At December 31, 2022, we were in compliance with the various covenant requirements of all our debt facilities.

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

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Given our cash flow generation, our ability to pay down debt levels and our ability to refinance existing debt facilities, if necessary, we expect to maintain an investment grade rating.

If our ratings are downgraded below investment grade due to a change of control, we are required to make an offer to repurchase our fixed rate notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.

If our ratings are downgraded below investment grade within certain specified time periods due to a change of control, we are required to make an offer to repurchase our fixed rate notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.

No report of any rating agency is incorporated by reference herein.

Liquidity and Cash Management

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Regulatory Requirements

CME is regulated by the CFTC as a U.S.

Derivatives Clearing Organization (DCO).

CME is regulated by the CFTC as a Derivatives Clearing Organization (DCO).

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

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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