UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form FORM 10-K
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
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| For the fiscal year ended December 31, 2017 |
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
Commission File Number 001-36198
Intercontinental Exchange, Inc.INTERCONTINENTAL EXCHANGE, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | 46-2286804 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
5660 New Northside Drive, 30328
Atlanta, Georgia(Zip Code) 5660 New Northside Drive,
Atlanta, Georgia
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| 30328
(Zip Code)
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| (Address of principal executive offices) | |
(770)857-4700
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 par value per share | ICE | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ☑ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨☐Noþ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),; and (2) has been subject to such filing requirements for the past 90 days. Yesþ☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ☑ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filerþ | ☑ | | Accelerated filer¨ | ☐ |
Non-accelerated filer¨ (Do not check if a smaller reporting company) | ☐ | | Smaller reporting company ¨ | ☐ |
| | | | Emerging growth company¨ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨ ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $38,484,678,440. $48,031,836,007.
As of February 5, 2018,3, 2020, the number of shares of the registrant’s Common Stock outstanding was 582,294,307553,450,116 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant’s Proxy Statement for the 20182020 Annual Meeting of Stockholders is incorporated herein by reference in Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year to which this report relates.relates.
Intercontinental Exchange, Inc.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 20172019
TABLE OF CONTENTS
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Item Number | | Page Number | | Page Number |
| | PART I | | PART I | |
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| 1(A). | | | | |
| 1(B). | | | | |
| 2. | | | | |
| 3. | | | | |
| 4. | | | | |
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| | PART II | | PART II | |
| 5. | | | | |
| 6. | | | | |
| 7. | | | | |
| 7(A). | | | | |
| 8. | | | | |
| 9. | | | | |
| 9(A). | | | | |
| 9(B). | | | | |
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| | PART III | | PART III | |
| 10. | | | | |
| 11. | | | | |
| 12. | | | | |
| 13. | | | | |
| 14. | | | | |
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| | PART IV | | PART IV | |
| 15. | | | | |
| 16. | | | | |
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PART I
In this Annual Report on Form 10-K, or Annual Report, and unless otherwise indicated, the terms “Intercontinental Exchange,” “ICE,” “we,” “us,” “our,” “our company,” and “our business” refer to Intercontinental Exchange, Inc. together with its consolidated subsidiaries. References to “ICE products” mean products listed on one or more of our markets. All references to “options” or “options contracts” in the context of our futures products refer to options on futures contracts. Solely for convenience, references in this Annual Report to any trademarks, service marks and trade names owned by ICE are listed without the ®, ™ and © symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names.
We also include references to third-party trademarks, trade names and service marks in this Annual Report. Except as otherwise expressly noted, our use or display of any such trademarks, trade names or service marks is not an endorsement or sponsorship and does not indicate any relationship between us and the parties who own such marks and names.
The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. Due to rounding, figures in tables may not sum exactly. All references to “options” or “options contracts” in the context of our futures products refer to options on futures contracts.
Forward-Looking Statements
This Annual Report, including the sections entitled “Business,” “Legal Proceedings,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking“forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are based on our beliefs and assumptions and information currently available to us. You can identify thesenot statements by terminology such as “may,” “will,” “should,” “could,” “would,” “target,” “goal,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the antonyms of these terms or other comparable terminology.historical fact may be forward-looking statements.
Forward-lookingThese forward-looking statements relate to future events or our future financial performance and are based on our present beliefs and assumptions, as well as the information currently available to us. They involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance, cash flows, financial position or achievements to differ materially from those expressed or implied by these statements.
Forward-looking statements may be introduced by or contain terminology such as “may,” “will,” “should,” “could,” “would,” “targets,” “goal,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the antonyms of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, cash flows, financial position or achievements. Accordingly, we caution you not to place undue reliance on any forward-looking statements we may make.
Factors that may affect our performance and the accuracy of any forward-looking statements include, but are not limited to, those listed below:
conditions in global financial markets and domestic and international economic, political and social conditions;
the impact of the introduction of or any changes in laws, regulations, rules or government policies with respect to financial markets, climate change, increased regulatory scrutiny or enforcement actions and our ability to comply with these requirements;
volatility in commodity prices, equity prices and price volatility of financial benchmarks and instruments such as interest rates, credit spreads, equity indices, and foreign exchange rates;rates, and mortgage origination and refinancing trends;
the business environment in which we operate and trends in our industry, including trading volumes, clearing, data services, fees, changing regulations, competition and consolidation;
the success of our clearing houses and our ability to minimize the risks associated with operating clearing houses in multiple jurisdictions;
the success of our equity and options exchanges and the exchanges’ compliance with their respective regulatory and oversight responsibilities;
the resilience of our electronic platforms and soundness of our business continuity and disaster recovery plans;
continued highchanges in renewal rates of subscription-based data revenues;
our ability to execute our growth strategy, identify and effectively pursue, implement and integrate acquisitions and strategic alliances;
our ability to completealliances and realize the synergies and benefits of our acquisitionssuch transactions within the expected time frame, and to integrate acquired operations with our business;
our ability to effectively maintain our growth;frame;
the performance and reliability of our othertrading and clearing technologies and those of third-party service providers, including providers;
our ability to keep pace with technological developments and client preferences;
our ability to ensure that the technology we utilize is not vulnerable to securitycyber-attacks, hacking and other cybersecurity risks or other disruptive events;
our ability to identify trends and adjust our business to benefit from such trends;
our ability to evolve our benchmarks and indices in a manner that maintains or enhances their reliability and relevance;
the accuracy of our cost and other financial estimates and our belief that cash flows from operations will be sufficient to service our debt and to fund our operational and capital expenditure needs;
our ability to secure additional debt;
our ability to maintain existing market participants and data customers, and to attract new ones, andones;
our ability to offer additional products and services, leverage our risk management capabilities and enhance our technology in a timely and cost-effective fashion;
our ability to attract and retain key talent;
our ability to protect our intellectual property rights and to operate our business without violating the intellectual property rights of others; and
potential adverse results of threatened or pending litigation and regulatory actions and proceedings.proceedings;
our ability to realize the expected benefits of our majority investment in Bakkt which could result in additional unanticipated costs and risks; and
our ability to detect illegal activity such as fraud, money laundering, tax evasion and ransomware scams through digital currency transactions that are easily exploited.
These risks and other factors include, among others, those set forth in Item 1(A) under the caption “Risk Factors” and elsewhere in this Annual Report, as well as in other filings we make with the Securities and Exchange Commission, or SEC. Due to the uncertain nature of these factors, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any of these statements to reflect events or circumstances occurring after the date of this Annual Report. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects.
ITEM 1.BUSINESS
Introduction
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing of a broad array of derivatives contracts and securities contracts across major asset classes, including energy and agricultural commodities, metals, interest rates, equities, equity derivatives, exchange traded funds, or ETFs, credit derivatives, digital assets, bonds and currencies. Wecurrencies, and also offer end-to-endmortgage and technology services. In addition, we offer comprehensive data services and solutions to support the trading, investment, risk management and connectivity needs of customers around the world and across major asset classes.
Our Global Execution, ClearingHistory
In 2000, ICE was founded with the idea of transforming the energy markets by creating a marketplace that removed barriers and Data Businessesdrove greater transparency and access. By staying close to our customers, we have expanded into new asset classes and services, while retaining a core mission of reducing friction in markets and bringing efficiency to our customers’ workflows.
Today, we are a Fortune 500 company, providing a global community of market participants an array of execution venues, risk management tools, capital-raising capabilities and mission-critical data and analytics. With a leading-edge approach to developing technology, we provide trading infrastructure in major market centers around the world, offering customers the ability to manage risk and make informed decisions in the jurisdictions and asset classes of their choice. By leveraging our core strengths, we seek to continue to identify new ways to serve our customers and transform global markets.
Our business is currently conducted asthrough two reportable business segments: our
Trading and Clearing segmentClearing; and our
Data and Listings segment. Listings.
The majority of our identifiable assets are located in the United States, or U.S., and the United Kingdom, or U.K. For a summary of our revenues, net assets and net property and equipment by geographic region, see note 17Note 18 to our consolidated financial statements included in this Annual Report.
Trading and Clearing Segment
Our TradingWe provide execution and Clearing segment includes revenues generated by our executionrisk management services to businesses, investors and traders across major asset classes, such as commodities, interest rates, credit default swaps, or CDS, bonds, foreign exchange, equities and mortgage-related products. We operate multiple trading venues, including 12 regulated exchanges and oursix clearing services, as well as other revenues. Our exchanges include derivative exchangeshouses, which are strategically positioned in major market centers around the world, including the U.S., U.K., European Union, or EU, Canada and Singapore,Singapore.
The Trading and cash equities, equity options and bond exchangesClearing segment accounted for 49% of our consolidated revenues, or $2.5 billion in the U.S. We also operate over-the-counter, or OTC, markets for physical energy and credit default swaps, or CDS, trade execution as well as two electronic fixed income alternative trading systems, or ATSs. To serve global derivatives markets, we operate central counterparty clearing houses in the U.S., U.K., EU, Canada and Singapore.2019. Our Trading and Clearing segment generated revenuesbusiness can experience moderate seasonal fluctuations, although such seasonal impacts have been somewhat negated in periods of $2.1 billion in 2017 and accounted for 46% of our consolidated revenues.
Derivatives Exchanges: Our regulated futures and options exchanges provide a means for trading and managing risks associated with price volatility, securing physical delivery of certain commodities, as well as enabling investment,high volume trading. Key asset allocation and diversification. Futures and options on futures contracts are cleared through one of our seven central clearing houses. We conduct our derivatives markets through the following regulated exchanges:
ICE Futures Europe is a leading exchange for futures and options contracts based on energy and agricultural commodities, interest rates, equity derivatives and emissions. ICE Clear Europe clears contracts traded on ICE Futures Europe.
ICE Futures U.S. is a leading exchange that lists futures and options contracts for agricultural and energy commodities, equity indices, currencies, credit and precious metals. ICE Clear Europe clears select energy contracts traded on ICE Futures U.S. and ICE Clear U.S. clears all other contracts traded on ICE Futures U.S.
ICE Futures Canada is Canada’s leading agricultural futures and options exchange. ICE Clear Canada clears contracts traded on ICE Futures Canada.
ICE Endex is a leading continental European energy exchange providing regulated markets for natural gas and power derivatives, gas balancing markets and gas storage services and is based in Amsterdam, the Netherlands. ICE Clear Europe provides clearing for ICE Endex.
classes include:
Natural Gas Exchange, Inc., or NGX, is a Canadian exchange which provides electronic execution, clearing and data services to the North American natural gas, electricity and oil markets.
ICE Futures Singapore lists futures contracts for energy, gold and foreign exchange commodities. ICE Clear Singapore provides clearing for ICE Futures Singapore.
NYSE American Options, formerly known as NYSE Amex Options, is a U.S. equity options exchange that offers order execution through a hybrid model, with both electronic trading and open outcry on our floor adjoining the New York Stock Exchange, or the NYSE.
NYSE Arca Options is also a U.S. equity options exchange that offers order execution through a hybrid model, with execution services conducted on our trading floor in San Francisco, California.
Some of the key products offered on our derivatives exchanges include:
•Energy Futures Contracts: We operate regulated markets for energy futures contracts and options on those contracts through our subsidiaries: ICE Futures Europe, ICE Futures U.S., NGX, and ICE Futures Singapore. Our core products include contracts based on crude and refined oil, natural gas, power, emissions, coal, freight, iron ore and natural gas liquids. In aggregate, we offer approximately 2,000 energy futures contracts in our markets. Our largest energy contract is the ICE Brent crude futures contract. The contract is a deliverable contract based on an Exchange for Physical, or EFP, delivery mechanism with an option to cash settle against the ICE Brent Index price on the last trading day of the futures contract. | |
| • | Energy Futures and Options: We are a leading marketplace for global crude and refined oil. We offer trading and clearing services across a range of global benchmark contracts, including: Brent, West Texas Intermediate, or WTI, Platts Dubai, Gasoil, Heating Oil, and hundreds of additional grades and related spread contracts. The Brent complex, which includes the ICE Brent crude oil futures contract, our largest contract by volume traded, is a group of related benchmarks used to price a range of traded oil products, including approximately two-thirds of the world’s internationally traded oil products, including approximately two-thirds of the world’s internationally-traded crude oil. The ICE Low Sulphur Gasoil futures contract is a European diesel oil contract that offers physical delivery and serves as a middle distillate pricing benchmark for refined oil products, particularly in Europe and Asia. We also operate the world’s second largest market for trading in WTI crude oil futures, as measured by the volume of contracts traded. The WTI crude futures contract is the benchmark for pricing U.S. crude oil. Together, these benchmarks form the foundation for a suite of more than 600 other related oil products such as locational spreads, product spreads and refining spreads. These are precise risk management tools that benefit from the deep liquidity in, and their relationship to, our global oil benchmarks. |
Our global natural gas complex spans important trading hubs from the U.S. and Canada to Europe and Asia, underpinned by a global offering of more than 800 financially and physically-delivered natural gas contracts. We support liquidity and risk management across markets, from key delivery points in the U.S. to the U.K. National Balancing Point, or NBP, and European TTF futures contracts. In Asia, our Japan Korea Marker (JKM) Liquefied Natural Gas, or LNG, futures contract has become the leading LNG benchmark.
In our power markets, we offer a global suite of electric power contracts and are the largest venue for electronic power trading in the world. In addition, we operate the world’s second largestleading market for emissions trading, in WTI crude oil futures, as measured by the volumean important component of contracts traded in 2017 according to the Futures Industry Association. The WTI crude futures contract is the benchmarkrisk management for pricing U.S. crude oil. ICE also operates markets for North American natural gas and power futures contracts, as well as global coal and European and U.K. natural gas, power and emissions contracts.
•Agricultural Futures Contracts: Our agricultural commodity contracts are offered on ICE Futures U.S., ICE Futures Europe and ICE Futures Canada. The prices for our agricultural contracts serve as global benchmarks for the physical commodity markets, including Sugar No. 11® (world raw sugar), white sugar, Coffee “C”® (Arabica coffee), robusta coffee, Cotton No. 2® (cotton), U.S. and London cocoa and frozen concentrated orange juice. ICE Futures Canada is a regulated commodity futures exchange in Canada and it facilitates markets for futures and options on futures contracts for canola.
•Financial Futures Contracts: ICE Futures Europe provides markets for a range of financial futures and options on futures contracts, including interest rate, equity indices, and currency derivative products. Core products are short-term interest rate, or STIR, contracts, with ICE Futures Europe’s STIR contracts principally-based on implied forward rates denominated in euro and pound sterling, such as Euribor, short-term Sterling, SONIA (based on the Sterling Overnight Index Average) and Gilt contracts, as well as U.S. rates including Eurodollar and GCF repo futures. ICE Futures U.S. offers financial futures and options on futures contracts in currency, equity index and credit index markets, including contracts on certain MSCI indices, most notably the Emerging Markets and EAFE indices and the benchmark U.S. Dollar Index (USDX®) futures contract.
•Equity Options: We provide markets for trading securities options. NYSE American Options trades options on more than 2,600 equity securities (including exchange traded funds, or ETFs) and NYSE Arca Options trades options on more than 2,200 equity securities.
OTC Markets: Our OTC markets include both regulated and unregulated platforms for the execution of cleared and bilateral, or non-cleared, CDS instrumentscorporations and energy contracts. Through our brokerage services, including those offered through the recently acquired Shorcan Energy Brokers, Inc., or Shorcan Energy, we provide OTC brokerage servicesintensive industries in working to the North American energy markets. And through ICE Swap Trade, which operates our swap execution facility, we provide execution services to the global credit default swap market. We are the leading venue for OTC clearing of CDS as measured by cleared notional value.mitigate climate impacts.
Key products offered on our OTC venues include:
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| • | Agricultural & Metals Futures and Options: We offer benchmark futures and options contracts on the most globally relevant commodities including: sugar, coffee, cocoa, cotton and frozen concentrated orange juice, as well as key metal contracts such as gold, silver and iron ore. Our markets provide global businesses effective price risk management tools to hedge input costs critical to the global flow of goods and services around the world. |
•Credit Default Swaps: We offer electronic trade execution for CDS instruments through Creditex U.S. and U.K., and through ICE Swap Trade, the operator of our Commodity Futures Trading Commission, or CFTC, registered swap execution facility, or SEF. We offer clearing services for the CDS markets through ICE Clear Europe and ICE Clear Credit. Both CDS clearing houses are open-access and therefore accept qualifying trades for clearing that are executed on other venues or bilaterally.
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| • | Financial Futures and Options: Our global interest rate complex spans geographies, currencies and tenors, providing market participants with effective tools to manage global interest rate risk. We offer the largest marketplace to transact in U.K. and European interest rates, including Short Sterling, Gilts, Sterling Overnight Index Average, or SONIA, and Euribor. In addition, we offer one- and three-month contracts on the Secured Overnight Financing Rates, or SOFR, adding to our interest rate complex. Other Financial Futures and Options include a range of contracts on key global equity and FX benchmarks such as the MSCI® World, MSCI® Emerging Markets, MSCI® EAFE, the FTSE® 100 and the U.S. Dollar Index, or USDX. |
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| • | Cash Equities and Equity Options: Through our five registered securities exchanges, including the New York Stock Exchange, or the NYSE, we serve a broad range of global capital markets participants, including investors, traders, market makers and global corporations. With a mission to provide a transparent, efficient and high quality trading market to our customers, we operate five cash equity exchange venues and two options markets. |
We also
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| • | Fixed Income and Credit: We offer electronic trade execution for CDS instruments and are the industry leader in global CDS clearing, as measured by gross notional cleared. ICE Bonds, our fixed income execution business, offers deep liquidity pools across multiple trading protocols, such as click-to-trade, auctions and request for quote, or RFQ, providing our customers a choice in how they manage fixed income risk. |
Through ICE Mortgage Services, we operate ICE Link,the Mortgage Electronic Registration Systems, or MERS, a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in U.S. residential loans, and Simplifile, LC, or Simplifile, which isserves as an automated trade workflowelectronic liaison between lenders, settlement agents and electronic connectivity platform for affirming credit derivatives transactions. It also provides connectivity between industry participants, facilitating straight-through processing between trading venues, trade repositories, swap data repositoriescounty recording offices, streamlining the local recording of residential mortgage transactions in the U.S.
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| • | OTC and Other Transactions: Our over-the-counter, or trade warehousing and legal confirmation platforms, or to a clearing house for CDS transactions that are clearing eligible. •OTC Energy Products: Our OTC, energy markets comprise of bilaterally-traded energy contracts. We operate our financially-settled bilateral energy markets through ICE Swap Trade, and we offer electronic trading of contracts based on physically-settled natural gas, power and refined oil contracts through ICE U.S. OTC Commodity Markets.
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| • | Other Revenue: Other revenues primarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, technology development fees, exchange membership fees and agricultural grading and certification fees. |
We operate our financially settled bilateral energy markets through ICE Swap Trade and we offer electronic trading of contracts based on physically settled natural gas, power and refined oil contracts through ICE U.S. OTC Commodity Markets. As of December 31, 2017, approximately 1,000 OTC energy contracts were listed on our electronic trading platform for bilateral trading. A substantial portion of our OTC volume relates to approximately 70 contracts in North American natural gas and power, and global oil.
Alternative Trading Systems: Through Creditex Securities Corporation, we operate two ATSs, serving the fixed income markets. ICE Credit Trade, which is our dealer-to-dealer venue, offers electronic corporate bond trading solutions. BondPoint, which we acquired from Virtu Financial on January 2, 2018, offers dealer-to-client electronic execution services across an array of fixed income securities including corporate, municipal and government bonds.
Clearing Services: We operate sevensix clearing houses, each of which acts as a central counterparty that, for its clearing members, becomes the buyer to every seller and the seller to every buyer for its clearing members.buyer. Through this central counterparty function, theour clearing houses provide financial security for each transaction, for the duration of the position, by limiting counterparty credit risk. Our clearing houses are responsible for providing clearing services to each of our futures exchanges and certain of our clearing houses clear contracts traded outside of our execution venues. Our clearing houses are:
ICE Clear Europe: clears ICE Futures Europe and ICE Endex futures and options contracts for interest rates, equity indices, energy and agriculture contracts, as well as ICE Futures U.S. futures and options contracts for energy and OTC European CDS instruments;
ICE Clear U.S.: clears ICE Futures U.S. soft commodity, currency, metals, credit and equity index futures contracts;
NGX: offers electronic execution and clearing to the North American natural gas, electricity and oil markets;
ICE Clear Credit: clears North American, European, Asian-Pacific and Emerging Market CDS instruments;
ICE Clear Canada: clears ICE Futures Canada agricultural futures contracts;
ICE Clear Netherlands: offers clearing for Dutch equity options; and
ICE Clear Singapore: clears ICE Futures Singapore commodity and foreign exchange contracts, or FX.
Our clearing housesMechanisms have never experienced an incident of a clearing member default which has required the use of thebeen created, called guaranty funds, of non-defaulting clearing members or the assets of the clearing house. We have extensive risk management procedures and governance in place to ensure we protect the interests of our clearing members and clearing houses. Each of our clearing houses has instituted a multi-layered risk management system of rules, policies and procedures to protect itselfprovide partial protection in the event of a clearing member default, starting with membership criteriadefault. With the exception of ICE NGX Canada Inc., or ICE NGX, each of the ICE Clearing Houses requires that each clearing member make deposits into a guaranty fund maintained by the relevant ICE Clearing House. In addition, we have contributed $404 million of our own cash to the guaranty funds included in the table below, and continuing to powers of assessment (other than for NGX)such amounts are at risk and could be used in the event of a clearing member default, generally as follows:
To ensure performance,default. In September 2019, we also added a layer of insurance to our clearing houses maintain extensive technology and quantitative risk management systems, as well as financial and operational requirementsmember default protection. The default insurance has a three-year term that commenced on September 17, 2019, for clearing members and minimum margin requirements for our cleared products. Ourthe following clearing houses use software based on industry standard margining conventions and on our proprietary models uniquely
customized to our products to determine the appropriate margin requirements for each clearing member by simulating the possible gains and losses of complex portfolios based on price movements. Our clearing houses’ margin methodologies are independently validated on an annual basis.
In the event of a payment default by a member, the default procedures specified in the rules of that clearing house would apply. In general, the clearing houses would first apply assets of the defaulting member to cover the obligation. These include original/initial margin, variation margin, positions held at the clearing house and, other than for NGX, guaranty fund deposits of the clearing member. In addition, the clearing houses could make a demand for payment pursuant to any available guaranty provided by the parent or affiliate of the defaulting clearing member. If that is not sufficient, the clearing houses would use any designated contributions held by the clearing house itself, as applicable, the guaranty fund contributions of other non-defaulting members and funds collected through an assessment against all other non-defaulting members, to satisfy the remaining deficit, if any. As part of the powers and procedures designed to backstop financial obligations in the event of a default, each of our clearing houses may levy assessments on all of its clearing members if there are insufficient funds available to cover a deficit following the depletion of all assets in the guaranty fund.
Our risk management framework that applies to the clearing services for the CDS markets throughamounts: ICE Clear Credit - $50 million; ICE Clear Europe - $75 million; and, ICE Clear Europe is separate from that of our futures and options or non-CDS clearing operations. ICE Clear Credit only offers clearing services with respect to the CDS markets. With respect to the ICE Clear Europe CDS clearing offering, we have established separate CDS risk pools that feature a separate guaranty fund and separate margin accounts, meaning that the CDS positions are not combined with futures and options positions. The CDS clearing houses have risk management systems that are designed specifically for CDS instruments and have independent governance structures. Our CDS clearing houses are open-access, consistent with regulatory requirements, and we accept qualifying trades for clearing that are executed on other venues. As of December 31, 2017, our CDS clearing houses collectively clear 499 single name instruments and 145 CDS indexes.
Other than for NGX, which we acquired on December 14, 2017 and which provides electronic execution, clearing and data services to the North American natural gas, electricity and oil markets, our clearing houses require that each clearing member make deposits to the guaranty fund. The amounts in the guaranty fund serve to secure the obligations of the clearing members to the clearing house. The amounts in the guaranty fund are mutualized in that a clearing member’s deposit serves to secure both its own obligation to the clearing house as well as the other clearing members’ obligations to the clearing house.
US - $25 million. In addition, we contribute a limited amount of our capital to the guaranty fund of each of our clearing houses. This capital contribution is commonly referred to as clearing house "Skin-In-The-Game". As of December 31, 2017, we have made combined contributions to our clearing houses’ guaranty funds of $254 million. ICE Clear Europe has contributed $100 million of its own cash as part of its futures and options guaranty fund as of December 31, 2017 and has also contributed $50 million of its own cash as part of its CDS guaranty fund as of December 31, 2017. ICE Clear Credit has contributed $50 million of its own cash as part of its CDS guaranty fund as of December 31, 2017 and ICE Clear U.S. has contributed $50 million of its own cash as part of its futures and options guaranty fund as of December 31, 2017. ICE Clear Canada, ICE Clear Netherlands and ICE Clear Singapore have each also contributed a combined $4 million in cash to their respective guaranty funds. Each of these amounts are reflected as long-term restricted cash in the consolidated balance sheet.
NGX maintains a guaranty fund utilizing aof $100 million funded by a letter of credit that has been entered into withissued by a major Canadian chartered bank, and backed by a default insurance policy underwritten by Export Development Corporation, or EDC, a Canadian government agency. In the eventinsurance.
Our contributions to each clearing house as of a participant default, where a participant’s collateral becomes depleted, any remaining shortfall would be covered by a draw down on the letter of credit following which NGX would pay the first $15 million in losses per its deductibleDecember 31, 2019 are listed below and recover additional losses under the insurance policy up to $100 million. We have provided a parent guaranty of $100 million in favor of the major Canadian chartered bank and we voluntarily reserved $100 million of our Amended Credit Facility (defined below) to backstop that parent guaranty.
To provide a tool to address the liquidity needs of our clearing houses and manage the liquidation of margin and guaranty fund deposits held in the form of cash and high quality sovereign debt,are referred to herein collectively as “the ICE Clear Europe, ICE Clear Credit and ICE Clear US have entered into Committed Repurchase Agreement Facilities, or Committed Repo. Additionally, ICE Clear Credit has entered into Committed FX Facilities to support these liquidity needs. As of December 31, 2017 the following facilities were in place:Clearing Houses”:
ICE Clear Europe: $1.05 billion in Committed Repo to finance U.S. dollar, euro and pound sterling deposits.
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| Clearing House | Products Cleared | Location | Exchange where Executed | ICE's Contribution |
ICE Clear Credit:Europe | Energy, agricultural, interest rates and equity index futures and options contracts and OTC CDS instruments | U.K. | ICE Futures Europe, ICE Futures U.S., ICE Endex, and third-party venues | $300308 million in Committed Repo to finance |
ICE Clear U.S. dollar | Agricultural, metals, FX, equity index futures and euro deposits, €500options contracts and digital assets futures contracts | U.S. | ICE Futures U.S. | $128 million in Committed Repo to finance euro deposits, |
| ICE Clear Credit | North American, European, Asian-Pacific and €1.9 billion in Committed FX Facilities to finance euro payment obligations.Emerging Market CDS instruments | U.S. | Creditex, OTC and third-party venues | $100 million |
| ICE Clear Netherlands | Derivatives on equities and equity indices traded on regulated markets | The Netherlands | ICE Endex | $2 million |
| ICE Clear Singapore | Energy, metals and financial futures products | Singapore | ICE Futures Singapore | $1 million |
| ICE NGX | Physical North American natural gas, electricity and oil futures | Canada | ICE NGX | $115 million |
Of our total contribution to ICE Clear US: $250U.S. above, $35 million is solely applicable to any losses associated with a default in Committed Repo to finance U.S. dollar deposits.
Securities Exchanges: We currently operate three securities exchanges for cash equity securities, including ETFs as well as fixed income securities. One of the primary functions of these markets is to ensure that orders to purchase and sell securities are executed in a fair, orderly and efficient manner. In addition, through our listings operations, we offer corporate and ETF issuers access to the U.S. capital markets. We currently conduct our securities trading and listings business through the following exchanges and marketplaces:
The New York Stock Exchange is a leading global cash equity exchange. It is the leading equity exchange for initial public offerings, or IPOs, globally, and enables companies seeking to raise capital to become publicly listed through the IPO process upon meeting exchange listing standards. In addition to common stocks, preferred stocks and warrants, the NYSE lists structured products, such as capital securities and mandatory convertible securities. In addition, NYSE operates NYSE Bonds, an electronic trading platform with transparent pricing for debt securities, including corporate bonds.
NYSE American, formerly NYSE MKT, became part of NYSE Group, Inc., or NYSE Group, in 2008. NYSE American supports emerging growth companies by providing a listing venue for a broad range of companies that may not qualify for listing on the New York Stock Exchange.
NYSE Arca lists approximately 1,500 securities, including listings on the NYSE, Nasdaq, Inc., or Nasdaq, and BATS Global Markets, Inc., or BATS. NYSE Arca is the leading listing and trading platform for ETFs and exchange traded notes. NYSE Arca also lists and trades securities options.
On January 31, 2017, we acquired 100% of National Stock Exchange, Inc., now named NYSE National. The acquisition gives the NYSE Group a fourth U.S. exchange license. NYSE National is distinct from NYSE Group’s three listings exchanges because NYSE National will only be a trading venue and will not be a listings market. NYSE Group’s three listings exchanges, NYSE, NYSE American and NYSE Arca, have unique market models designed for corporate and ETF issuers. After closing the transaction, NYSE National ceased operations on February 1, 2017. Subject to regulatory approvals, NYSE Group anticipates re-launching operations on NYSE National, Inc. in the second quarter of 2018.digital asset contracts.
Data and Listings Segment
Our Data and Listings segment includesWe provide a range of data and listing services for global financial and commodity markets, including pricing and reference data, indices, exchange data, analytics, consolidated feeds, index services, desktops and connectivity solutions as well as corporate and ETF listing services on our cash equity exchanges. Our Data and Listings segment generated revenues of $2.5 billion in 2017 and accounted for 54% of our consolidated revenues. Revenues in our Data and Listings segment are largely subscription-based and recurring in nature.
nature and generally not impacted by seasonality. The Data Services: ICE Data Services offers a broad rangeand Listings segment generated revenues of data, analytics$2.7 billion in 2019 and connectivity solutions across global commodity, equity and fixed income markets. ICE Data Services provides our customers comprehensive, flexible information services and solutions to meet their operational, compliance and risk management needs. The diversity and quality of the data we distribute, together with our technology and connectivity services, are crucial to supporting liquidity, price discovery, trading and investing, risk management, compliance, reporting and other operational activities across global financial markets. We intend to continue to invest to expand our data distribution offerings across asset classes, data types and services to serve the evolving needsaccounted for 51% of our global customer base.consolidated revenues.
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| • | Pricing and Analytics: We provide global securities evaluations, reference data, market indices, risk analytics, derivative pricing and other information designed to address our customers’ portfolio management, trading, risk management, reporting valuation and regulatory compliance needs. |
We have defined our data business in three main categories of services: Pricing and Analytics; Exchange Data; and Desktops and Connectivity.
•Pricing and Analytics: ICE Data Services’ Pricing and Analytics service provides global securities evaluations, reference data, risk analytics, derivative pricing and other information designed to meet our customers’ risk management, reporting and regulatory compliance needs. For example, we provide fixed income valuations, including independent evaluated pricing services, on over 2.72.8 million fixed income securities and other hard-to-value financial instruments. Our evaluated pricing spansinstruments each day. These instruments span approximately 145154 countries and covers65 currencies that cover a wide range of financial instruments including sovereign, corporate and municipal bonds, structured products,mortgage and asset-backed securities and leveraged loans, and our Fair Value Information Services for international equities, options, futures and fixed income products. loans.
Our reference data complements our evaluated pricing services by offering our clients a broad range of descriptive information, covering over 1133 million financial instruments across over 210 markets. Our reference data coverage increased from 13 million securities in 2018 by adding both active and inactive, or historical, securities. This data is used by clients to enhanceinform risk management, support regulatory and compliance needs, create indices and improve operational efficiency. Additionally, we completed a unified and comprehensive reference data service for exchange traded derivatives, or ETD, products traded on ICE exchanges and cleared at ICE Clearing Houses.
We also offer a range of multi-asset class analytics which provideincluding valuation services for OTC derivatives and structured products, best execution liquidity indicatorsservices, ICE Liquidity Indicators™ and fixed income and equity portfolio analytics to help analyze risk and return exposures. These offerings, including our pricing and reference data, are delivered over our secure technology platforms and are used by investment professionals to simulate various market environments to help forecast performance, construct portfolios, validate investment strategies, conduct stress testing, generate dynamic risk measures, analyze asset cash flows and support regulatory compliance requirements. ICE Data Services
We also
designs design and distributesdistribute many of today’s leading indices and benchmarks across equities, fixed income, equity, commodity and derivativescurrency markets. FollowingICE Data Indices, LLC, or ICE Data Indices, which includes the acquisition ofICE BofA indices, is the Bank of America Merrill Lynch, or BofAML indicesbenchmark provider for more than $1 trillion in October 2017, we are thefund assets, and is second largest fixed income index provider with nearly $1 trillion ofin benchmarked assets under management, or AUM, benchmarked to our indices.for fixed income funds. Our ETF Valuations and Index Construction offering providesindex calculation agent services provide clients with independent and objective operational outsourcing, including design, support, maintenance, calculation and distribution of indices across fixed income instruments, currencies, equities, and commodities. third-party indices. Our ETF valuations service provides clients with intraday calculations of indicative net asset values, or iNAVs.
ICE Benchmark Administration, or IBA, is the regulated administrator of a range of benchmarks including the London Interbank Offered Rate, or LIBOR, the ICE Swap Rate, the London Bullion Market, or LBMA Gold and Silver Price and the ISDA Standard Initial Margin Model, or SIMM, Crowdsourcing Utility. IBA has implemented processes, governance, systems and technology that enhance the transparency and security of these benchmarks and services, which are relied upon globally.
•Exchange Data: Our exchange data business provides unique real-time and historical pricing, order book and transaction information related to our exchanges across global commodity and financial markets. We publish a broad range of prices and other transaction data and related content from our electronic futures trading platform. The data is disseminated directly and through data vendors to market participants. In addition, we develop unique equity market data solutions, which is known as proprietary data. We package this exchange proprietary market data as real-time products and as historical products, which are used for analysis by market participants and observers. These products are proprietary, and we do not share the revenues that they generate with other markets. Proprietary data that provides real-time quoting or trading information from our securities exchanges is filed with the SEC and the pricing for these market data products is subject to review by the SEC. Finally, we receive a share of revenue from the National Market System Plan, or NMS Plan, consolidated data products. All | |
| • | Exchange Data and Feeds: We provide real-time, historical, and derived pricing data, order book and transaction information related to our trading venues, which span global commodity and financial markets. We publish a broad range of proprietary data and content from our electronic futures trading platform, as well as our cash equity and equity options venues. In addition, we receive a share of revenue from the National Market System Plan, or NMS Plan. Under the NMS Plan, the Financial Industry Markets Authority, or FINRA, and all SEC-registered securities exchanges send their trades and top-of-book quotes in exchange listed securities to a central consolidator, which then distributes the data pursuant to SEC requirements. The majority of our market data revenue from consolidated data products is for trades and quotes in exchange listed securities to a central consolidator, which then distributes the data pursuant to SEC-approved requirements. Finally, through our consolidated feeds business, we offer a broad array of third-party trading venues and news feeds. |
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| • | Desktops and Connectivity: Our Desktop and Connectivity services provide the connection to our exchanges, clearing houses and data centers. These services also facilitate the global distribution of our ICE Data Services data. Through our ICE Global Network, we offer connectivity solutions to access markets and data through highly secure, resilient and low latency network options, as well as global colocation services and Direct Market Access provides connectivity to over 150 trading venues and data from over 750 third-party sources. Our ICE Global Network wireless service offers one of the most extensive ultra-low latency network connectivity solutions among the New York, Chicago, Toronto and Tokyo metro areas. Our Desktop service offers a range of products and services to support commodity and energy traders, risk managers, financial advisors, wealth managers, retail traders, Investor Relations Officers and Chief Financial Officers. These applications deliver real-time financial market information and decision-support tools to help clients analyze financial markets and make investment decisions. Our robust instant messaging, or IM, system protects the privacy of clients’ business information while allowing collaboration with nearly 100,000 market participants in the industry through a secure channel. |
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| • | Listings: Through our listings services, we offer corporate and ETF issuers access to the U.S. capital markets. Our listing venues allow companies to list domestic and international equity securities, corporate structured products, convertible bonds, trackers and debt securities. In 2019, the NYSE and NYSE American LLC, or NYSE American, raised the most capital, globally, for the ninth consecutive year, with approximately $112 billion raised in initial public offerings, or IPOs, and follow-on offerings from over 300 transactions. The total capital raised by NYSE-listed and |
NYSE American-listed and NYSE-Arca securities traded on our securities exchanges. We also receive a share of the consolidated market data revenues from trades and quotes in Nasdaq-listed securities.
•Desktops and Connectivity: Our Desktop and Connectivity business provides the connection to our exchanges, clearing houses and data centers and facilitates the distribution of our ICE Data Services data as well as data from a broad array of trading venues and news feeds through our consolidated feeds offering. Our Desktop service offers a range of products and services to support commodity and energy traders, financial advisors, wealth managers, Investor Relations Officers and Chief Financial Officers. These applications deliver real-time financial market information and decision-support tools to help clients analyze financial markets and make investment decisions. Similarly, our web-based financial information solutions consist of market data, decision-support tools and hosting services. Our robust instant messaging, or IM, system protects the privacy of clients’ business information while allowing collaboration with other market participants in the industry through a secure, compliant channel. In 2017, we launched the ICE Connect Platform. ICE Connect provides integrated access to global markets and price discovery solutions. ICE Connect provides integrated access to trading, messaging, news, data and analytics, with single sign-on functionality to streamline workflow and leverage data.
We also offer connectivity solutions to access markets and data through highly secure, resilient and low latency network options, as well as global colocation services, and Direct Market Access to over 150 venues and 600 market data and news feeds. Our consolidated feeds solution provides cost-effective access to a range of real-time data sources to over 17 million instruments and over 1,000 entitlement options. Clients who have agreements with any of over 600 global exchanges, trading venues and data sources covering listed and OTC securities can receive consolidated real-time and/or delayed feeds of such financial data. Our Consolidated Feed service is complemented by our Tick History service, which provides access to tick and trade data for global securities to assist clients with “best execution” requirements, transaction cost analysis and advanced charting applications. Our connectivity solutions provide secure, purpose-built, private multi-participant connectivity to global exchanges and content service providers via dedicated data circuits with a design that ensures no single point of failure exists across the platform. We operate purpose-built data centers in Basildon and Essex in the U.K. and Mahwah, New Jersey, and we manage systems in a third-party data center in Illinois to meet the needs of a largely electronic customer base. We offer server colocation space at our data centers for market participants to house their servers and applications on equivalent terms. The acquisition of TMX Atrium and our announced partnership with Go West, once launched, will mean our Secure Financial Transaction Infrastructure, or SFTI, wireless networks will offer the most extensive ultra-low latency network connectivity solutions among the New York, Chicago, Toronto and Tokyo metro areas. We are already experiencing customer interest in our Go West partnership and expect to go live in the first half of 2018.
Listings: Through our listings services, we offer corporate and ETF issuers access to the U.S. capital markets. Our listing venues allow companies to list domestic and international equity securities, corporate structured products, convertible bonds, trackers and debt securities. In 2017, the NYSE was the global leader in capital raised for the seventh consecutive year, with $128 billion raised in total IPO proceeds and follow-on offerings from 454 transactions, almost twice30% higher than the capital raised by the next largest exchange and more than any other exchange in the world.
Product and Services Development
We leverage our customer relationships, global distribution, technology infrastructure and software development capabilities to diversify our products and services. New product development is an ongoing process, and weWe are continually developing, evaluating and testing new products for introduction into our markets to better serve our client base. The majority of our product development relates to evaluating new contracts or new markets based on customer demand. New contracts often must be reviewed and approved by relevant regulators. Outside of third-party licensing costs, we typically do not incur separate, material costs for the development of new products - such costs are embedded in our normal costs of operation.operations.
While we have historically developedprimarily develop our products and services internally, we also periodically evaluate and enter into strategic partnerships and licensing arrangements to develop meaningful new products and services. We intend to continue to invest to expand our trading, clearing, data and listings offerings to serve the evolving needs of our global customer base.
Technology
Technology is a key component of our business strategy and competitive position and we regard effective execution of our technology initiatives as crucial to our sustainable business operations, market competitiveness, compliance and risk management and overall success. Our technology solutions support the entire risk management workflow: trading and clearing technology, multi-asset class analytics, risk assessment tools, robust data offerings, instant messaging capabilities and flexible connectivity and delivery solutions. Where feasible, we design and build our softwareown systems and write our own software programs since we believe that having control over our technology allows us to be more responsive to theour customers’ needs, of our customers, better support the dynamic nature of our business, and deliverprovide the highest quality markets and data. Our proprietary systems are built using state-of-the-art technology. A significant number of our employees work in technology, including product management, project management, system architecture, software development, network engineering, information security, performance, systems analysis, quality assurance, database administrationdeliver relevant, timely and customer technical support.
ICE Trading Platform and Technology
The ICE trading platform supports trading in our cleared futures and options markets as well as our bilateral OTC markets. We also offer voice brokers a facility for submitting block trades for products that are eligible for clearing.
Speed, reliability, scalability and capacity are critical performance criteria for electronic trading platforms. Connectivity to our trading platform for our markets is available through our web-based front-end, as well as multiple independent software vendors, or ISVs, and application programming interfaces, or APIs.
NYSE Trading Platforms and Related Technology
The NYSE electronic trading platform features an open system architecture that allows users to access our system via one of the many front-end trading applications developed by ISVs. For equity options, we offer a hybrid model of electronic and open outcry trading through NYSE American Options and NYSE Arca Options. We have developed a new integrated trading platform and matching engine known as NYSE Pillar and have migrated NYSE Arca Equities and NYSE American to this platform. In the future, we will complete the migration for the remaining U.S. cash equities and equity options markets which currently operate on distinct platforms. The single specification will improve performance and reduce the cost and complexity of operating multiple equity and options trading systems.
ICE Data Services Technology
ICE Data Services technology supports solutions for mission-critical information, analytics and connectivity. Our technology centers on integrated platforms for the capture, maintenance and synthesis of information. This platform includes a single configurableactionable data capture mechanism, a common data model and a flexible multi-format delivery capability. The platform enables real-time processing and delivery of information, accelerates new product development, improves production reliability, and yields operating and cost efficiencies as the pre-existing heterogeneous environment is retired. Our information is delivered via real-time messaging protocols, files, web services and other on-demand facilities and state-of-the-art front-ends.
Clearing Technology
A broad range of trade management and clearing services are offered through the integrated technology infrastructure that serves our clearing houses. ICE Clearing Systems encompass a number of integrated systems, including post-trade position management, risk management, settlement and treasury and reporting functions.
A core component of our derivatives clearing houses is the risk management of clearing firm members. Our extensive technology and rules-based risk system provide analytical tools to determine margin, to determine credit risk, and to monitor risk of the clearing members. The risk system also monitors trading activities of the clearing members.
Cybersecurity
Cybersecurity is critical to our operations. We employ a defense-in-depth strategy, with leading-edge security technology and processes including encryption, firewalls, virus prevention, intrusion prevention and detection systems and secured servers. Where our services are accessible via the Internet, we have implemented additional restrictions to limit access to specific approved networks. We also maintain insurance coverage that may, subject to the termsmarkets and conditions of the policy and payment of significant deductibles, cover certain aspects of cybersecurity issues. We monitor physical threats in addition to cyber threats and continuously review and update physical security and environmental controls to secure our office and data center locations.customers we serve.
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| • | ICE Trading Platform and Technology: The ICE trading platform supports trading in our cleared futures and options markets as well as our bilateral OTC markets. We also offer voice brokers a facility for submitting block trades for products that are eligible for clearing. Speed, reliability, resilience, capacity and security are critical performance criteria for electronic trading platforms. Connectivity to our trading platform for our markets is available through our web-based front-end, as well as multiple independent software vendors, or ISVs, and application programming interfaces, or APIs. |
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| • | Clearing Technology: A broad range of trade management and clearing services are offered through the integrated technology infrastructure that serves our clearing houses. The ICE clearing systems encompass a number of integrated systems, including post-trade position management, risk management, settlement and treasury and reporting functions. A core component of our derivatives clearing houses is the risk management of clearing firm members. Our extensive technology and rules-based risk systems provide analytical tools that allow us to determine margin, evaluate credit risk and monitor the trading activities and overall risk of the clearing members. |
Business Continuity Planning and Disaster Recovery
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| • | NYSE Trading Platforms and Related Technology: The NYSE electronic trading platform features an open system architecture that allows users to access our system via one of the many front-end trading applications developed by ISVs. For equity options, we offer a hybrid model of electronic and open outcry trading through NYSE American Options and NYSE Arca Options. We developed an integrated trading platform and matching engine known as NYSE Pillar and have migrated all of our cash equity securities markets to this platform. We also expect to migrate our equity options markets to this platform, which have historically operated on distinct platforms. This integrated platform is expected to improve performance and reduce the complexity of operating multiple trading systems. |
We maintain comprehensive business continuity and disaster recovery plans and facilities to provide
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| • | ICE Data Services Technology: ICE Data Services technology uses integrated platforms to capture, store and process information, perform analytics and maintain connectivity solutions using a single configurable data capture mechanism and a flexible delivery capability. Together, the platforms enable real-time processing and delivery of information, accelerate new product development and improve production reliability. Our data and analytics are delivered via real-time messaging, files, web services and other on-demand facilities and state-of-the-art front-ends. In addition, the technology underpinning our ICE Global Network supports scalable bandwidth and a wide variety of connectivity options including fiber, wireless, colocation and hosting. |
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| • | Business Continuity Planning and Disaster Recovery:We maintain comprehensive business continuity and disaster recovery plans and facilities designed to enable nearly continuous availability of our markets and other |
services in the event of a business disruption or disaster. We maintain incident and crisis management plans that address responses to disruptive events at any of our locations worldwide.
Cybersecurity
Our business activities rely extensively on technology and software, including the systems used by our business partners, regulators and customers. In addition, our activities involve the use and retention of confidential data and information. These activities make us susceptible to cyber-attacks. We employ the following activities, processes and strategies to evaluate, manage and address these risks.
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| • | Strategy: We maintain a Cybersecurity Strategy, or CSS, which emphasizes consideration of the nature of our business, ongoing intelligence collection regarding cybersecurity threats, and initiatives to specifically address prominent areas of cybersecurity risk. The CSS outlines the key priorities for our cybersecurity program and the methods by which our Information Security department seeks to accomplish those goals. The CSS is ratified by the Risk Committee of our Board of Directors and when applicable, also by the corporate governance committees of our regulated subsidiaries. |
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| • | Risk Management: Thematic threats such as sabotage, fraud, and theft of assets or customer data are used to frame our risk management activities. Asset theft often involves organized crime or financially motivated nations staging sophisticated, well-planned campaigns to steal significant cash, cryptocurrency, or equivalent assets. Our thematic threats, along with others, are evaluated by our Board of Directors as well as our Risk Committee, Chief Risk Officer and Chief Information Security Officer, or CISO. The CSS provides the framework we use for assessing risk, prioritizing testing, identifying remedial actions and validating improvements. The CSS also provides for the deployment of external and internal teams of ethical hackers that operate alongside our traditional vulnerability detection processes. |
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| • | Information Sharing: We recognize the importance of collaboration and information sharing among private sector firms in the financial services sector, across sectors, and with global public-sector agencies, when appropriate. Our cybersecurity leaders hold positions within the Financial Services Information Sharing and Analysis Center and the Financial Systemic Analysis and Resiliency Center in the U.S., the Financial Sector Cyber Collaboration Centre in the U.K., and similar organizations across the EU and in Singapore. |
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| • | Governance and Leadership: Our Information Security department is led by our CISO, who provides comprehensive reports to a dedicated internal governance committee at least quarterly outlining threat assessment, control performance, and ongoing enhancements. Additionally, cybersecurity matters are reported to and discussed with a cross-subsidiary leadership committee, the Risk Committee of our Board of Directors, and when applicable, subsidiary boards. Our CISO and other senior security leaders conduct periodic cybersecurity education sessions with our employees and directors. These sessions cover general cybersecurity topics as well as specific details regarding our cybersecurity program. |
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| • | Third-Party Review: Our information security group utilizes extensive penetration testing, vulnerability scanning, ethical hacking and maturity assessment services from global leaders in these practices. The results of these reviews alongside frequent regulatory and customer examinations are assessed, with any resulting mitigation activity assigned and tracked to remediation. |
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| • | Controls: Our identification of risks and selection of cyber-related controls is performed in the context of the critical financial infrastructure we maintain and operate. Our ongoing threat assessments are intended to identify changes in external events and in our activities, infrastructure and processes that could necessitate reprioritization of risks and controls. The nature of our business activities mandates an emphasis on sabotage and asset theft as primary threats in addition to the other typical contemporary themes of data theft. Our focus on these threats leads to an emphasis on social engineering controls, behavioral detection of insider threat, and deliberate and rehearsed recovery strategies. |
Intellectual Property
We rely on a wide range of intellectual property, both owned and licensed, forin connection with the operation of our electronic platforms.various businesses. We own the rights to a large number of trademarks, service marks, domain names and trade names in the U.S., Europe and in other parts of the world. We have registered many of our trademarks in the U.S. and in certain other countries. We hold the rights to a number of patents and have made a number of patent applications in the U.S. and other countries. We also own the copyright to a variety of material. Those copyrights, some of which are registered, include software code, printed and online publications, websites, advertisements, educational material, graphic presentations and other literature, both textual and electronic. We attempt to protect our intellectual property rights by relying on trademarks, patents, copyrights, database rights, trade secrets, restrictions on disclosure and other methods.
This Annual Report also includes references to third partyFTSE® and the FTSE indexes are trademarks trade names and service marks. Our use or displaymarks of any suchthe London Stock Exchange plc and Financial Times Limited and are used under license. MSCI® and the MSCI indexes are trademarks trade names orand service marks is not an endorsementof MSCI Inc. or sponsorshipits affiliates and does not indicate any relationship between us and the parties who own such marks and names.are used under license.
Employees
As of December 31, 2017,2019, we had a total of 4,9525,989 employees with 1,627 employees1,691 in New York, 884 employees1,035 in Atlanta, 713 employees754 in the U.K., 533 in India, and a total of 1,7281,976 employees across our other offices around the world. Of our total employee base, less than 1% is subject to collective bargaining arrangements,agreements, and such relations are considered to be good.
Our History
Our Competitive Strengths and Competition
Competitive Strengths
We operate global markets in the asset classes in whichbelieve we compete on the basis of a number of factors, including:
depth and liquidity of markets;
price transparency;
reliability and speed of trade execution and processing;
technological capabilities and innovation;
breadth of products and services;
rate and quality of new product developments;
quality and stability of services;
distribution and ease of connectivity;
mid- and back-office service offerings, including futures, cash equities, equity options, fixed incomedifferentiated and OTC markets. value-added services;
transaction costs; and
reputation.
We believe that we compete favorably with respect to these factors, and that our deep, liquid markets, breadth of product offerings, new product development, customer relationships and efficient, secure settlement, clearing and support services distinguish us from our competitors. We believe that to maintain our competitive position, we must continue to develop new and innovative products and services, enhance our technology infrastructure, maintain liquidity and offer competitive pricing.
We believe our key strengths include our:
diverse liquid, global derivatives, fixed income and equities markets across 12 regulated exchanges as well as OTC and ATS venues;
secure central counterparty clearing and risk management for global derivatives markets through seven clearing houses in five jurisdictions;
global data services including pricing and analytics, desktop and connectivity services across multiple asset classes serving commodity, fixed income and equity markets; and
widely-distributed, leading edge technology for trading, clearing, data and trade processing.
We are a leading global operator of regulated exchanges, clearing houses and listings venues and a provider of data services for commodity, fixed income and equity markets. Our global data services business consists of unique information derived from our various execution venues and clearing houses, as well as analytics, valuation services, reference data, desktops, indices and connectivity solutions. Our acquisitions of the BofAML Indices, SuperDerivatives, Interactive Data, Securities Evaluations and Credit Market Analysis have served to expand our data services based on rising demand for independent, real-time information, which is being driven by regulation, market fragmentation, passive investing and indexation, and increased automation. We provide data to global financial institutions and asset managers, commercial hedgers, corporates, traders and consumers across virtually all asset classes. We believe our data services are relevant to our clients’ business operations regardless of market volatility and price levels due to the need for continuous information and analysis. | |
| • | Diverse and Liquid Product Offerings: Many of our futures contracts serve as global benchmarks for managing risk relating to exposure to price movements in the underlying products, including financial, energy and agricultural commodities. For example, we operate the leading market for ICE Brent crude oil futures, as measured by the volume of contracts traded in 2019. The ICE Brent Crude futures contract is the benchmark for pricing light, sweet crude oil produced and consumed outside of the U.S. It is part of the Brent complex, which forms the price reference for approximately two-thirds of the world’s internationally-traded physical oil. In addition, we operate a leading market for short-term European interest rates contracts, with our principal contracts based on implied forward rates on European Money Markets Institute Euribor rates and a short-term Sterling contract based on the ICE LIBOR rate, as well as Gilts and the SONIA contract. We also offer markets in other key commodity and financial benchmarks such as: sugar, cocoa, cotton, coffee, MSCI® World, MSCI® Emerging Markets, MSCI® EAFE, the FTSE® 100 and the USDX. In our cash equities markets, as evidenced by our leading market share, the NYSE's unique market model and technology delivers low levels of volatility and provides participants with deep liquidity. |
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| • | Risk Management Expertise: We offer a range of central clearing and related risk management services to promote the liquidity and security of our markets in jurisdictions around the world to meet local regulatory and operational needs in key financial market centers. The credit and performance assurance provided by our clearing houses to clearing members is designed to substantially reduce counterparty risk and is a critical component of our exchanges’ identities as reliable and secure marketplaces for global transactions. Our clearing houses are designed to protect the financial integrity of our markets by maintaining strong governance and rules, managing collateral, facilitating payments and collections, enhancing capital efficiency and limiting counterparty credit risk. |
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| • | Unique Derived Data Services: Our global data services business consists of unique information derived from our various execution venues and clearing houses, as well as analytics, valuation services, reference data, desktops, indices and connectivity solutions. Our acquisitions, including of the Bank of America Merrill Lynch, or BofAML's, indices (now named the ICE BofA indices), SuperDerivatives, Interactive Data, Standard & Poor’s Securities Evaluations, Inc., or SPSE, and Credit Market Analysis have served to expand our data services to better address the rising demand for independent, real-time information, which is being driven by regulation, market fragmentation, technology and data demands, passive investing and indexation. We believe our data services are relevant to our clients’ business operations regardless of market volatility and price levels due to the need for continuous information and analysis. ICE Data Pricing & Reference Data is an independent provider of evaluated pricing services and reference data solutions. We are a leading source to the institutional investment community for market data and analytic and financial information. We also offer our fixed income continuous evaluated pricing service, best execution service, and ICE Liquidity Indicators in the front, middle and back office, extending the reach of fixed income evaluations into intra-day applications. |
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| • | Global Distribution: We operate multiple trading venues, including 12 regulated exchanges, as well as six clearing houses, which are strategically-positioned in major market centers around the world, including the U.S., U.K., EU, Canada and Singapore. Our ICE Global Network, which is our highly secure, resilient and low latency connectivity offering, provides connectivity to over 150 trading venues and data from over 750 third-party sources, including ICE-operated markets and data services. |
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| • | Technology: Our proprietary systems are built using state-of-the-art technology and support the entire risk management workflow: trading and clearing technology, multi-asset class analytics, risk management tools, a robust data offering, instant messaging capabilities and flexible connectivity and delivery solutions. We employ a significant number of employees in technology-related activities, including product management, system architecture, software development, network engineering, server maintenance and continuity, cybersecurity, system and data performance, systems analysis, quality assurance, database administration and customer technical support. Speed, reliability, resilience, capacity and security are critical performance criteria for electronic trading platforms. Connectivity to our trading platform for our markets is available through our web-based front-end, as well as multiple ISVs and APIs. |
Our regulated exchanges and our trading and clearing platforms offer qualified participants access to our markets and risk management services, covering a range of asset classes, including interest rates, equities, bonds, energy, agriculture, metals, equity indices, environmental, currencies, CDS and equity options. By operating several markets and offering thousands of products we provide our participants with flexibility to implement their trading and risk management strategies on a common technology with integrated clearing and data solutions.
Many of our futures contracts serve as global benchmarks for managing risk relating to exposure to price movements in the underlying products, including financial, energy and agricultural commodities. For example, we operate the leading market for ICE Brent crude oil futures, as measured by the volume of contracts traded in 2017 according to the Futures Industry Association. The ICE Brent Crude futures contract is the benchmark for pricing light, sweet crude oil produced and consumed outside of the U.S. It is part of the Brent complex, which forms the price reference for approximately two-thirds of the world’s internationally-traded physical oil. Our oil complex has expanded since its inception in 1988 to include more than 500 contracts for hedging related oil products. In addition, we operate a leading market for short-term European interest rates contracts, with our principal contracts based on implied forward rates on European Money Markets Institute Euribor rates and a short-term Sterling contract based on the ICE LIBOR rate, as well as Gilts and the Sonia contract, based on the Sterling Overnight Index Average as published each business day. We also offer markets in soft commodity benchmark contracts, including sugar, cocoa, cotton, coffee and canola, which serve as global price benchmarks.
We offer a range of central clearing and related risk management services to promote the liquidity and security of our markets in jurisdictions around the world to meet local regulatory and operational needs in key financial market centers. The credit and performance assurance provided by our clearing houses to clearing members is designed to substantially reduce counterparty risk and is a critical component of our exchanges’ identities as reliable and secure marketplaces for global transactions. We believe the range of products cleared and the risk management services offered by our clearing houses are a competitive advantage and attract market participants. Our clearing houses are designed to protect the financial integrity of our markets by maintaining strong governance and rules, managing collateral, facilitating payments and collections, enhancing capital efficiency and limiting counterparty credit risk.
We operate the leading global listings and trading exchanges for equities and ETFs, and offer our customers access to the U.S. capital markets. Our listing venues allow companies to list domestic and international equity securities, corporate structured products, convertible bonds, trackers and debt securities. In 2017, the NYSE was the global leader in capital raised for the seventh consecutive year, with $128 billion raised in total IPO proceeds and follow-on offerings.
CompetitionCompetitors
The execution markets in which we operate are global and highly competitive. We face competition in all aspects of our business from a number of different enterprises, both domestic and international, including traditional exchanges, electronic trading platforms, data vendors and voice brokers. We believe we compete on the basis of a number of factors, including:
•depthTrading and liquidity of markets;
•price transparency;
•reliability and speed of trade execution and processing;
•technological capabilities and innovation;
•breadth of products and services;
•rate and quality of new product developments;
•quality of services;
•stability of services;
•distribution and ease of connectivity;
•mid- and back-office service offerings, including differentiated and value-added services;
•transaction costs; and
•reputation.Clearing Segment
We believe that we compete favorably with respect to these factors, and that our deep, liquid markets, breadth of product offerings, new product development, customer relationships and efficient, secure settlement, clearing and support services distinguish
us from our competitors. We believe that in order to maintain our competitive position, we must continue to develop new and innovative products and services, enhance our technology infrastructure, maintain liquidity and offer competitive costs.
In our derivatives markets, certain exchanges replicate our futures contracts. For example, CME Group lists our futures on agricultural and energy commodities, currency and equity index contracts. Nasdaq Futures, Inc., or NFX, an energy platform operated by Nasdaq has also listed certain of our energy contracts. We compete in European interest rates and equity derivatives with Eurex, which is the derivatives exchange operated by Deutsche Börse and Curve Global, a consortium of banks and exchanges that lists interest rate futures. In the European utilities markets, we compete with the European Energy Exchange.
In addition to venues that offer futures products, we also face competition from multiple exchanges, electronic trading systems, third-party clearing houses, and technology firms. Additional ventures could form, or have been formed, to provide services that could potentially compete with certain services that we provide.
We compete withfirms, voice brokers active in the credit derivatives markets, other electronic trading platforms for derivatives, clearing houses and market data vendors. ICE Swap Tradevendors and Creditex compete with other swap executiontrading facilities and large inter-dealer brokers in the credit derivatives market.U.S. and globally. Some of these exchanges are consortiums formed by banks and exchanges.
We face significant competition with respect to equities trading, and this competition is expected to remain intense. Our current and prospective competitors include regulated markets, dark pools and other ATS,alternative trading systems, or ATSs, market makers and other execution venues. We also face competition from large brokers and customers that may assume the role of principal and act as counterparty to orders originating from retail customers, or by matching their respective order flows through bilateral trading arrangements, including through internalization of order flow.
Our principal competitor for listings in the U.S. is Nasdaq. For ETF listings, we compete with Nasdaq and CBOE Global Markets. We also face competition for foreign issuer listings from a number of stock exchanges outside the U.S., including the London Stock Exchange, Deutsche Börse, Euronext and stock exchanges in Hong Kong and Toronto. As other liquidity venues seek exchange status, we may face more competition for listings.
NYSE Arca and NYSE American Options face considerable competition in the equity options markets. Theirmarkets; their principal U.S. competitors are the CBOECboe Global Markets and Nasdaq.
Our fixed income trading venues, which include ICE Credit Trade, BondPoint, TMC Bonds, LLC, or TMC Bonds, and NYSE Bonds, compete with other electronic trading venues such as those offered by Bloomberg, TradeWeb and MarketAxess.venues. Our platforms also compete for volume traded bilaterally or trading activity that is not done through an electronic venue.
In our ICE Mortgage Services business, which includes MERS and Simplifile, we compete with other digital mortgage solution providers. We also compete for mortgage activity that does not utilize digital solutions.
Data and Listings Segment
ICE Data Services operatesfaces intense competition in a competitive environment for all aspects of its constituent parts. Our Exchange Data productsbusiness. We broadly compete with similar offerings by other exchange groups. That competition and the competition for order flow among the exchange groups creates a competitive pricing environment for our proprietary data products. Pricing and Analytics competes with information obtained from informal industry relationships and sources, such as broker quotes. It, along with the Desktop and Connectivity business, competes with purchased third-party information and services from large global suppliers of financial market data. Our Exchange Data products compete with similar offerings by other exchange groups, and that competition for order flow among the exchange groups and other alternative trading venues constrains the pricing for our proprietary data products. Our Pricing and Analytics services compete with information obtained from informal industry relationships and sources, such as Bloomberg, Thomson Reuters Corporationbroker quotes, as well as other index and IHS Markit. One of the many offerings in ourportfolio analytics providers. Our Connectivity business SFTI competes with other extranet providers such as CenturyLinkproviders.
Our principal competitor for corporate listings in the U.S. is Nasdaq. For ETF listings, we compete with Nasdaq and Colt Technology Services. Our ICE Data Indices business competes withCboe Global Markets. We also face competition for foreign issuer listings from a number of stock exchanges outside the U.S. As other index providers with significant index offerings including Bloomberg, IHS Markit, MSCI, FTSE Russell,liquidity venues and Standard & Poor’s.new entrants seek exchange status, we may face more competition for listings.
Our Growth Strategy
Throughout our history, we have expanded our core execution, clearing and data businesses both organically and through acquisitions, developed innovative new products for global markets, and provided services to a larger and more diverse participant base. In addition, we have completed a number of strategic alliances to leverage our core strengths and grow our business. We seek to advance our leadership position in our markets by focusing our efforts on the following key strategies for growth:
expand our data offerings and the markets we serve to address the rising demand for information;
expand onenhance our extensive trading, clearing and risk management capabilities;
maintain leadership in our listinglistings businesses;
enhancefurther develop our technology infrastructure and increase distribution; and
pursuestrengthen competitive position through select acquisitions and strategic relationships that maximize customer and shareholder benefits.relationships.
The record consolidated revenues and trading volume we achieved in 20172019 reflect our focus on the implementation and execution of our long-term growth strategy.
Expand our Data Offerings and the Markets We Serve to Address the Rising Demand for Information
With the growth of our ICE derivatives markets and NYSE equity markets, we have strengthened and enhanced our data services due to meet the demand for more data solutions. ThisOur growth has been driven by many factors, such as increased automation, regulation and demand for independent, secure, real-time information. To build on our exchange data and connectivity business,businesses, we have acquired multiple assets in the past twoseveral years, including Interactive Data, SPSE, which we renamed Securities Evaluations, Credit Market Analysis TMX Atrium, and on October 20, 2017, BofAML’s Global Research division’s index business. The BofAML indices are the second largest group of fixed income indices as measured by AUM globally. The AUM benchmarked against our combined fixed income indices is nearly $1 trillion, and the indices have been re-branded asbusiness (now named the ICE BofAML indices.BofA indices).
These assets are now part of ICE Data Services, supporting our growth strategy by expanding the markets we serve and adding new data, connectivity and valuation services to our platform. This growth allows us to serve the full trade life cycle from pre-trade, through-trading to post-trade activities through content such as more than 2.7 million fixed income evaluated prices and reference data on more than 11 million securities, which all help to power an array of multi-asset class analytics, indices and various reporting and performance tools. We also provide ultra-low latency network connectivity solutions.activities. By bringing together a wide range of data and analytics as well as delivery mechanisms through our desktopsDesktops and connectivityConnectivity business, we offer customers a comprehensive and flexibileflexible solution to address the need for more transparency, efficiency and information across their respective workflows.
We will continue to look for strategic opportunities to grow our data offerings and will also continue to pursue opportunities in markets we do not currently serve but where it expands the ways in which we can serve our customers. Theseserve. Our recent acquisitions and new marketsproduct and demandsservice offerings have allowed us to grow using a balanced approach, including new products and services, increased consumption, new customers, mergers and acquisitions, and pricing changes. Thiswhich is supported by a general market growth inan increased demand for these types of services includingincluding: portfolio management and analytics, exchange data, real time and historical trading data, pricing, reference and valuation data.
Expand on
Enhance our Extensive Trading, Clearing and Risk Management Capabilities
Our derivatives customer base has grown and diversified as a result of several drivers, including addingthe addition of new markets and products, the move toward increased risk management and counterparty credit management, mark-to-market and margining services andas well as regulatory requirements. We continue to add new participants to our markets, which bring additional demand for new products and services. Our markets support price transparency and risk management, particularly in times of volatility and in many markets for products where there is less liquidity. In addition, the use of hedging, trading and risk management programs by commercial enterprises continues to rise based on the availability of technology to deliver more products, as well as the security and the capital efficiencies offered by clearing. We develop new products, but have also increased our capabilities through licenses and acquisitions of companies and intellectual property. Further, by acquiring, building and maintaining our own geographically diverse clearing operations, we are able to respond to market demand for central clearing and related risk management services across diverse geographic and regulatory jurisdictions. As new markets evolve, we intend to leverage our domain knowledge to meet additional demand for cleared products and related risk management solutions.
As requirements for regulatory compliance and capital efficiencies grow, the use of clearing, data and related post-trade services, such asparticularly from independent data providers and benchmark servicesproviders also continues to grow. We intend to continue to expand our customer base by leveraging our existing relationships and our global sales and marketing team to promote participation in our markets, and by expanding our range of products and services.
On January 2, 2018, we acquired 100% of BondPoint from Virtu Financial, Inc. for $400 million in cash. BondPoint is a leading provider of electronic fixed income trading solutions for the buy-side and sell-side offering access to centralized liquidity and automated trade execution services through its ATS and provides trading services to more than 500 financial services firms.
On October 24, 2017, we acquired a 4.7% stake in Euroclear for €275 million in cash ($327 million based on the euro/U.S. dollar exchange rate of 1.1903 as of October 24, 2017). During December 2017, we reached an agreement to buy an additional 5.1% stake in Euroclear for €243 million in cash ($292 million based on the euro/U.S. dollar exchange rate of 1.2003 as of December 31, 2017) and expect to receive necessary regulatory approval during the first quarter of 2018. Upon closing, we will own a 9.8% stake in Euroclear for a total investment of €518 million ($619 million based on the exchange rates above). Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.
On December 14, 2017, we sold Trayport to TMX Group for £550 million ($733 million based on the pound sterling/U.S. dollar exchange rate of 1.3331 as of December 14, 2017). The proceeds of the sale included a combination of cash and our acquisitions of NGX and Shorcan Energy, both wholly-owned subsidiaries of TMX Group, for £200 million ($267 million). NGX, headquartered in Calgary, provides electronic execution, central counterparty clearing and data services to the North American natural gas, electricity and oil markets. Shorcan Energy offers brokerage services for the North American crude oil markets. We recognized a gain of $110
million upon the closing of this transaction, equal to the gross proceeds received from TMX Group, less the adjusted carrying value and the costs to sell Trayport.
Maintain Leadership in our ListingListings Businesses
The following chart depicts 2017 global capital proceeds raisedThere are nearly 2,200 total companies listed on various listings venues, in billions:
In ourthe NYSE listings business, weand NYSE American. We will continue to focus on enhancing our product offerings and services to retain and attract companies of all sizes and industries to our listing venues. In 2017,2019, demand for our listing services continued to be strong in terms of new listings and secondary offerings. A total of 46489 new issuers listed on NYSE marketsand NYSE American in 2017 and there are over 2,200 total companies listed on2019. In 2019, NYSE and NYSE American. NYSE wasAmerican raised the leader inmost capital raised in 2017globally with $128approximately $112 billion raised in 454IPOs and follow-on offerings from over 300 transactions. The NYSE listed 8858 IPOs in 20172019, raising total IPO proceeds of $31approximately $29 billion, including the fivelargest U.S. IPO of 2019. The NYSE has listed 24 of the 25 largest U.S. IPOs of 2017. Theall time. Our listed companies benefit from:
a high-tech/ high-touch platform that combines technology and human judgment;
the NYSE's proprietary hybrid trading model including access to Designated Market Makers, or DMMs, Supplemental Liquidity Providers, or SLPs, and NYSE hasFloor Brokers;
the deepest pools of liquidity; and
lower volatility and tighter spreads, particularly during times of heightened volatility.
NYSE Arca listed ETFs with approximately $3.4 trillion in AUM representing 77% of all 32 of the last 32 IPOs greater than $700 million in proceeds.
InU.S. listed ETFs as of December 31, 2017, NYSE Arca’s listed ETFs had over $2.8 trillion in AUM representing nearly 83% of all U.S. listed ETFs.2019. We strive to maintain our leadership position by offering ETF issuers:
guidance through the complete listings process, including expert consultations around regulatory and legal items;
over a decade of experience in listing more than 2,700nearly 3,100 ETFs across a wide range of asset classes and investment strategies;
a focus on customer service from experienced ETF professionals;
the highest liquidity in ETFs of any exchange and some of the narrowestmost narrow quoted bid / ask spreads; and
Lead Market Maker, or LMM, and incentive programs.
EnhanceFurther Develop Our Technology Infrastructure and Increase Distribution
We develop and maintain our own infrastructure, electronic trading platform,platforms, clearing systems and data and analytics platforms to ensure scalability and the delivery of technology that meets our expanding customer base’s demands for price transparency, reliability, risk management and transaction efficiency. We intend to continue to increase ease of access and connectivity with our existing and prospective market participants. We develop and maintain our trading and clearing systems, as well as our data solutions and many post-trade systems such as ICE Link and ICE Trade Vault, among others. We have developed and have begunwill continue rolling out aNYSE Pillar, our new integrated trading platform and matching engine, known as NYSE Pillar that will eventually serve each ofto our U.S. cash equities and equity options markets to improve performance and reduce the cost and complexity of operating multiple trading systems. We also ownoperate systems that support trading, clearing and operate two data centers and analytics across five data centers. We also offer connectivity solutions to global exchanges and content service
providers viathrough dedicated data circuits.
On May 1, 2017, Finally, we acquired 100% of TMX Atrium, a global extranet and wireless services business, from TMX Group. TMX Atriumoperate our ICE Global Network, which provides low-latency accessconnectivity to markets and market data across 12 countries, more than 30 majorover 150 trading venues and ultra-low latency wireless connectivity to accessdata from over 750 third-party sources, including ICE-operated markets and market data in the Toronto, New Jersey and Chicago metro areas. The wireless assets consist of microwave and millimeter networks that transport market data and provide private bandwidth. TMX Atrium is now part of ICE Data Services and is being integrated with our connectivity services.
PursueStrengthen Competitive Position Through Select Acquisitions and Strategic Relationships that Maximize Customer and Shareholder Benefits
AsWe were an early consolidator in global markets to build out our markets and services for customers, we intend to continue to explore and pursue acquisitions and other strategic opportunities to strengthen our competitive position globally, broaden our product offerings and service,services and support the growth of our company while maximizing shareholderenhancing stockholder value as measured by return on invested capital, earnings and cash flow growth. We may enter into business combinations, make acquisitions or enter into strategic partnerships, joint ventures or other alliances, any of which may be material. In addition to growing our business, we may enter into these transactions for a variety of additional reasons, including leveraging our existing strengths to enter new markets or related industries, expanding our products and services, diversifying our business, addressing underserved markets, advancing our technology and anticipating or responding to regulatory change or other potential changes in our industry.industry or other industries. For example, in June 2019, we acquired Simplifile to expand our ICE Mortgage Services portfolio. Simplifile offers an array of mortgage services, primarily serving as an electronic liaison between lenders, settlement agents and county recording offices, streamlining the local recording of residential mortgage transactions.
Our Customer Base
No single customer accounted for more than 10% of total consolidated revenues during 2019, 2018 or 2017.
Information About Our Executive Officers of the Registrant
Information relating to our executive officers is included under “Executive“Information About Our Executive Officers” in Part III, Item 10, “Directors, Executive Officers and Corporate Governance” of this Annual Report.
Regulation
Our activities and the markets in which we operate are subject to regulations that impact us as well as our customers, and, in turn, meaningfully influence our activities, the manner in which we operate and our strategy. We are primarily subject to the jurisdiction of regulatory agencies in the U.S., U.K., EU, Canada, Singapore and Singapore.Abu Dhabi. Failure to satisfy regulatory requirements can or may give rise to sanctions by the applicable regulator. See the discussion below and Item 1(A) "-Risk Factors" in this Annual Report for additional descriptions of regulatory and legislative risks and uncertainties.
Regulation of our Derivatives Business
Our regulated derivatives markets and clearing houses are based primarily in the U.S., U.K., EU, Canada, Singapore and Singapore. Abu Dhabi.
Our U.S. futures exchange, ICE Futures U.S., is subject to extensive regulation by the Commodity Futures Trading Commission, or CFTC, under the Commodity Exchange Act, or CEA. The CEA generally requires that futures trading in the U.S. be conducted on a commodity exchange registered as a Designated Contract Market, or DCM. As a registered DCM, ICE Futures U.S. is a self-regulatory organization, or SRO, that has institutedimplemented rules and procedures to comply with the core principles applicable to it under the CEA.
In the U.K., ICE Futures Europe is a Recognized Investment Exchange, or RIE, in accordance with the Financial Services and Markets Act 2000, or FSMA.2000. Like U.S. regulated derivatives markets, RIEs are SROs with surveillance and compliance responsibilities.
In the EU, ICE Endex is a regulated market in the Netherlands and its derivative markets are licensed under the Dutch Financial Services Act and supervised by the Dutch National Bank, or DNB, and the Netherlands Authority for the Financial Markets, or AFM.
In Singapore, ICE Futures Singapore is an approved exchange and is supervised by the Monetary Authority of Singapore, or MAS.
In Abu Dhabi, ICE Futures Abu Dhabi is an RIE and regulated by the Financial Services Regulatory Authority, or FSRA. ICE Futures Abu Dhabi is expected to launch following regulatory approval.
In Canada, ICE NGX is recognized as an exchange and clearing house by the Alberta Securities Commission and is also registered by the CFTC as a Foreign Board of Trade and as a Derivatives Clearing Organization, or DCO.
ICE Clear Credit and ICE Clear U.S. and NGX are regulated by the CFTC as Derivatives Clearing Organizations, or DCOs. DCOs are subject to extensive regulation by the CFTC under the CEA. The Financial Stability Oversight Council, or FSOC, has designated ICE Clear Credit as a systemically important financial market utility under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act. As such, ICE Clear Credit has access to the Federal Reserve System and holds deposits of $19.5 billion of its U.S. dollar cash in its cash accounts at the Federal Reserve as of December 31, 2019.
ICE Clear Europe, which is primarily regulated in the U.K. by the Bank of England, or BOE, as a Recognized Clearing House, or RCH, is also subject to regulation by the CFTC as a DCO. Both ICE Clear Credit and ICE Clear Europe are also regulated by the SEC as clearing agencies because they clear security-based swaps.
The Financial Stability Oversight Council, or FSOC, has designatedIn the EU, ICE Clear Credit as a systemically important financial market utility under Title VIII ofNetherlands is an authorized central counterparty and is regulated by the Dodd-Frank Wall Street ReformDNB and Consumer Protection Act, or the Dodd-Frank Act. As such,AFM.
In Singapore, ICE Clear Credit has access toSingapore is an approved clearing house supervised by the Federal Reserve System and holds deposits of $18.5 billion of its U.S. dollar cash in its cash accounts at the Federal Reserve as of December 31, 2017.MAS.
Regulation of our Securities Business
In our cash equities and options markets, NYSE, NYSE Arca, NYSE American, NYSE National and NYSE NationalChicago are national securities exchanges and, as such, are SROs and subject to oversight by the SEC. Accordingly, our U.S. securities exchanges are regulated by
the SEC and, in turn, are the regulators of their members. As national securities exchanges, NYSE, NYSE Arca, NYSE American, NYSE National and NYSE NationalChicago must comply with, and enforce compliance by their members with, the Securities Exchange Act of 1934, or the Exchange Act.
In ourOur U.S.-based execution-oriented fixed income markets are operated by our two SEC-registered broker-dealers, Creditex Securities Corporation, which also includesoperates two SEC registered ATSs, ICE BondPoint and ICE Credit Trade, and TMC Bonds, which operates the recently acquired BondPoint business, is a broker-dealerTMC Bonds ATS. Both Creditex Securities Corporation and ATS operator, and, as such, isTMC Bonds are subject to oversight by the SEC. Creditex Securities Corporation is also a memberSEC and are members of the Financial Industry Regulatory Authority, or FINRA, and isare registered with the Municipal Securities Rulemaking Board, self-regulatory organizationsor MSRB. FINRA and MSRB are SROs that regulate broker-dealers in the U.S. ICE Securities Execution & Clearing, LLC, a full clearing member of the National Securities Clearing Corporation, the Fixed Income Clearing Corporation and The Depository Trust Corporation, provides correspondent clearing for Creditex Securities and is subject to oversight by the SEC, FINRA and the MSRB.
Our U.K.-based execution-oriented fixed income market is operated by Creditex Brokerage, L.L.P., which is an operator of a multilateral trading facility, or MTF, and ICE Markets Limited, which acts as the matched principal counterparty to transactions arranged on the MTF operated by Creditex Brokerage. Both Creditex Brokerage and ICE Markets Limited are regulated by the U.K.’s Financial Conduct Authority, or FCA. Additionally, Creditex Brokerage is authorized to provide automated trading services in Hong Kong and is subject to oversight by the Hong Kong Securities and Futures Commission in connection with its offering of bonds in Hong Kong.
Regulation of our Data Business
AsWe have a result of our evaluated pricing operations, we have U.S. subsidiariessubsidiary that areis registered with the SEC under the Investment Advisers Act of 1940, or the Investment Advisers Act, for theirits evaluated pricing services. The Investment Advisers Act imposes numerous regulatory obligations on registered investment advisers, including those relating to the management and distribution of products and services, record-keeping, compliance management,oversight, operational and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. Investment advisers also are subject to certain state securities laws and regulations. InteractiveICE Data Services (Australia) Pty. Ltd. provides financial services in Australia and is licensed by the Australian Securities and Investment Commission, or ASIC, and provides certain financial services in Australia. Interactive
ASIC. ICE Data Desktop Solutions (Europe) Limited provides certain financial services throughout Europe and is regulated by the FCA. ICE Data Indices, LLC, or ICE Data Indices, applies the International Organization of Securities Commissions Principles for Financial Conduct Authority,Benchmarks to its indices, and as a third country (i.e. non-EU) Benchmark Administrator in Europe. ICE Data Indices has been recognized as a third country benchmark administrator under Article 32 of the EU Benchmarks Regulation, or BMR, by the FCA. ICE Benchmark Administration Limited is authorized and regulated by the FCA in connection with the regulated activity of administering a benchmark, and provides certain financial services inis authorized as a benchmark administrator under the European Economic Area.BMR. See “Regulatory Changes” below for more information.
Regulatory ReformChanges
Domestic and foreign policy makers have undertaken ongoing reviews ofcontinue to review their legal frameworks governing financial markets, followingand periodically change the 2009 financial crisis, and have either passed new laws and regulations, or are in the process of debating and/or enacting new laws and regulations that apply to our business and to our customers’ businesses. Our key areas of focus on these evolving efforts are:
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| • | Brexit timing and implications. On January 31, 2020, the U.K. officially withdrew from the EU. In connection with the U.K.'s withdrawal from the EU, the U.K. and the EU entered into a withdrawal agreement, which, amongst other things, includes a transitional period until December 31, 2020, during which EU law will continue to apply in and to the U.K. |
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| • | Continued access by EU market participants to U.K. CCPs and exchanges.Under the terms of the withdrawal agreement, EU law will continue to apply in and to the U.K. for a transitional period until December 31, 2020. During such time, EU market participants will be able to continue clearing through U.K. central counterparties, or CCPs, such as ICE Clear Europe, and accessing U.K. trading venues, such as ICE Futures Europe. Access by EU market participants to U.K. CCPs following the end of the transitional period, will be contingent upon the terms of any trade agreement entered into by the U.K. and EU prior to the end of the transitional period and/or U.K. CCPs being recognized by ESMA. Separately, ICE Futures Europe and ICE Endex will continue to be able to permit access by EU and U.K. persons to transact on their platforms, even in the absence of any trade agreement being entered into by the U.K. and EU prior to the end of the transitional period and/or any trading venue equivalence decisions by the U.K. or ESMA. The lack of equivalence decisions for trading venues, however, may result in increased costs for certain EU and U.K. market participants which could impact trading on ICE Futures Europe and ICE Endex. The impact to our business and corresponding regulatory changes remain uncertain at this time. We are monitoring the impact to our business as a result of these discussions and are pursuing avenues to facilitate continued access for EU and U.K. customers to our services in the event that the transition period ends without any trade agreement addressing access to CCPs and trading venues being entered into. |
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| • | The proposed revisions to the regulatory structure of non-EU clearing houses. On January 1, 2020, the European Market Infrastructure Regulation, or EMIR 2.2, became effective, which revises the EU's current regulatory and supervisory structure for EU and non-EU clearing houses. These revisions of the regulatory structure may have an impact on our non-EU clearing houses if they are determined to be systemically important or likely to become systemically important to the financial stability of the EU or one or more of its Member States. It remains uncertain what the nature and extent of the regulation's impact will be on the regulation and supervision of one or more of our non-EU clearing houses, which will depend on ESMA’s future determination of whether a non-EU clearing house is systemically important to the EU or its Member States and the extent to which ESMA will rely on such clearing house’s domestic regulator. |
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| • | Requirement that European exchanges and CCPs offer non-discriminatory access. The non-discriminatory access provisions of the Markets in Financial Instruments Directive II, or MiFID II, would require our European exchanges and CCPs to offer access to third parties on commercially reasonable terms. In addition, MiFID II could require our European exchanges and CCPs to allow participants to trade and/or clear at other venues, which may encourage competing venues to offer lookalikes of our products. In June 2016, the EU approved a 12-month postponement of implementation and compliance with this provision of MiFID II to January 3, 2018. On January 3, 2018, ICE Futures Europe and ICE Clear Europe received a deferral from the FCA and the BOE, respectively, which delays the non-discriminatory access provision of MiFID II until July 3, 2020. In addition, on February 28, 2018, the AFM granted ICE Endex and ICE Clear Netherlands a deferral which delays the non-discriminatory access provisions for those entities until July 3, 2020. |
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| • | Basel III capital charges. The implementation of capital charges in Basel III could have a negative impact on certain of our clearing members, in particular, the Supplemental Leverage Ratio applicable to certain financial institutionsmay impose capital requirements on certain of our clearing house members and their customers that may raise the costs and thus discourage financial institutions from client clearing. In June 2019, the Basel Committee on Banking Supervision revised its treatment of the leverage ratio capital requirement for derivatives that a bank centrally clears on behalf of its clients. The revised treatment will permit both cash and non-cash forms of initial margin and variation margin received from a client to offset the replacement cost and potential future exposure for client cleared derivatives only. The revision will apply to the version of the leverage ratio standard that will serve as the Pillar 1 minimum capital requirement as of January 1, 2022. In November 2019, the Federal Reserve Board, the Federal Deposit Insurance Corporation, or FDIC, and the Office of the Comptroller of the Currency finalized rule changes to the derivative exposure calculations and |
leverage ratio requirements. The harmonization of regulations globally. Global regulations have not been fully harmonized and severalfinal rule also revised the treatment of the Markets in Financial Instruments Directive II’s, or MiFID II, regulations are inconsistent withleverage ratio capital requirement for derivatives that a bank centrally clears on behalf of its clients to permit both cash and non-cash forms of initial margin and variation margin received from a client to offset the replacement cost and potential future exposure for client cleared derivatives only. The compliance date for the revised regulation is January 1, 2022, however early adoption is permitted beginning April 1, 2020.
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| • | Capital requirements for investment firms acting as market makers. EU policy makers are developing a framework for prudential requirements for European investment firms. The proposed rules risk imposing disproportionate capital requirements on European investment firms acting as market makers. European investment firms may be discouraged from acting as market makers on certain markets operated by ICE Futures Europe and ICE Endex due to the increased capital requirements. |
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| • | Position limits. The adoption and implementation of position limit rules in the U.S. and the EU could have an impact on our commodities business if comparable trading venues in foreign jurisdictions are not subject to equivalent rules. Position limits became effective in the EU beginning January 2018 under MiFID II. The FCA has published certain position limits for commodity contracts. In certain cases, the position limits are either lower or higher than the corresponding limits on U.S. equivalent contracts. In November 2019, ESMA issued a consultation paper on position limits seeking market views on proposed changes to the position limits and position management regime. Conversely, in January 2020, the CFTC proposed a rule which replaces the CFTC's prior Dodd-Frank position limit efforts. There is potential for further divergence between MiFID II and U.S. position limit rules if the U.S. makes changes to the financial regulations and the EU either does not make changes to MiFID II or makes changes inconsistent with U.S. regulations. |
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| • | A proposed European financial transaction tax. A number of EU Member States have considered such a tax, but many details remain to be discussed and agreed, including how to assess the tax at a Member State level. Implementation of a financial transaction tax could result in a reduction in volumes and liquidity, which would have a negative impact on our European operations. |
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| • | The EU Benchmarks Regulation, or BMR. In June 2016, the BMR entered into force and the majority of provisions applied from January 2018. Under the BMR, benchmarks provided by a third-country (i.e. non-EU) benchmark administrator may be used by EU-supervised entities provided that the European Commission, or EC, has adopted an equivalence decision or the administrator has been recognized or endorsed and the benchmarks are listed on the register established by ESMA. The BMR provides for a transition period which was extended by the EU authorities to January 1, 2022 for providers of critical benchmarks and third-country benchmark providers. In May 2019, ICE Data Indices received recognition from the FCA, and as such, benchmarks provided by ICE Data Indices and included in the ESMA register may continue to be used by supervised entities in the EU. In October 2019, the EC published a consultation reviewing the BMR and included a proposal to provide competent authorities with broader powers to require a benchmark administrator to change the methodology of a critical benchmark. Increasing the powers of a competent authority to change the underlying market or benchmark could result in increased risks to the administrator of a critical benchmark and the operator of a derivatives market referencing the benchmark. We are monitoring the impacts to our business as a result of the consultation and any resulting legislative changes. |
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| • | Market Data Requirements. Our U.K. and EU derivatives exchanges could be impacted by changes to requirements related to the dissemination of market data. In its December 2019 report to the EC, ESMA recommended, among other things, against outright regulation of market data prices, however ESMA suggested that users could gain transparency into how market data prices are set with the help of new supervisory guidance and targeted changes to the MiFID II/Markets in Financial Instruments Regulation, or MiFIR, text. The EC is considering ESMA’s report and is expected to issue its own report on these issues in mid-2020. |
In addition, in 2017,October 2019, the CFTC announced itsSEC proposed a change to Rule 608 that would eliminate the provision allowing market data fee changes proposed by NMS Plans to become immediately effective. Further, in January 2020, the SEC requested comment on a proposed order directing the exchanges and FINRA to submit a plan to create a new, agenda callingsingle NMS Plan to replace the three existing NMS Plans that govern the dissemination of real-time, consolidated equity market data for regulatory simplification and the reduction of regulatory burdens. The CFTC is looking to restructure its rules by moving back to a more principles-based approach. As a result, there is potential for further divergence between MiFID II and U.S. rules if the U.S. makesNMS stocks. If implemented, these changes to financial regulations while the EU continues with MiFID implementation.
The harmonization of regulations relating to trading venues in the U.S. and EU. In December 2017, the CFTC adopted an order exempting certain multilateral trading facilities, or MTFs, and organized trading facilities, or OTFs, authorized within the EUcould impact NYSE’s revenues from the CFTC registration requirements as Swap Execution Facilities, or SEFs. The European Commission also announced in December 2017 an equivalence determination of CFTC-authorized trading venues including SEFs and DCMs. The equivalence decision allows transactions conducted on EU and U.S. trading venues to be recognized as equivalent.consolidated “SIP” feeds.
The proposed revisions to the regulatory structure of non-EU clearing houses. In June 2017, the European Commission published a proposal to revise the current regulatory structure for non-EU clearing houses. The nature and extent of the regulation would depend on the “impact” of a non-EU clearing house’s business in the EU. Details on the classification of non-EU clearing will be established by the European Commission in cooperation with the European Securities and Markets Authority, or ESMA, and the European System of Central Banks. The proposal will undergo legislative review by the European Parliament and the EU Member States, and is subject to change. The proposal could have an impact on our non-EU clearing houses to the extent they are deemed to be doing business in Europe which might involve change to clearing house regulation and/or supervision.
The non-discriminatory access provisions of MiFID II as currently drafted, would require our European exchanges and CCPs to offer access to third parties on commercially reasonable terms. In addition, MiFID II could require our European exchanges to allow participants to trade and/or clear at other venues, which may encourage competing venues to offer our products. In June 2016, the EU approved a twelve-month postponement of MiFID II implementation and compliance to January 1, 2018. On January 3, 2018, we received a deferral from the FCA and the Bank of England, which delays the non-discriminatory access provision of MiFID II for a period of 30 months.
The implementation of capital charges in Basel III, particularly the Supplemental Leverage Ratio with respect to certain clearing members of central counterparties. These new standards may impose burdensome capital requirements on our clearing members and customers that may disincentivize clearing.
The adoption and implementation of position limit rules in the U.S. and EU, which could have an impact on our commodities business if comparable trading venues in foreign jurisdictions are not subject to equivalent rules. Position limits became effective in Europe beginning January 2018 under MiFID II. The FCA has published certain position limits for commodity
contracts. In certain cases, the position limits are lower than on U.S. trading venues and in certain cases position limits are higher than U.S. equivalent contracts. The FCA is actively reviewing the recently issued position limits. Conversely, in December 2016, the CFTC re-proposed the position limit rules as opposed to finalizing the rule.
The proposed European financial transaction taxes are uncertain. Although a number of Member States participating in the financial transaction tax have reached a broad political agreement on instituting the tax, many details are left to be concluded, including how to assess the tax at a member state level. Implementation of a financial transaction tax could have a negative impact on our European operations if adopted.
The EU Benchmark Regulation, or BMR, was adopted in June 2016 and applies from January 2018. Under the BMR, benchmarks provided by a third country benchmark administrator may be used by EU supervised entities provided that the European Commission has adopted an equivalence decision or the administrator has been recognized or endorsed and the benchmarks are listed on the register established by ESMA. The BMR provides for a transition period which applies from January 1, 2018, when the BMR enters into force, until January 1, 2020. During this period ICE Data Indices, LLC plans to apply to the UK FCA for recognition, and benchmarks provided by ICE Data Indices, LLC may continue to be used by supervised entities.
Brexit timing and implications. In March 2017, the U.K. officially triggered Article 50 and notified the EU of its intention of leaving the EU following the U.K.’s June 2016 referendum vote to leave the EU (commonly known as Brexit). The triggering of Article 50 begins the process of withdrawal from the EU, which will last two years unless extended by the unanimous decision of member states. We are monitoring the impact to our business of the U.K. leaving the EU. The impact to our business and corresponding regulatory changes are uncertain at this time, and may not be known in the near future. | |
| • | The SEC Transaction Fee Pilot. In December 2018, the SEC adopted a Transaction Fee Pilot. The final rule established a pilot program, for at least one-year and up to two-years, that will limit the fees charged and rebates paid by our five national securities exchanges in certain securities to be designated by the SEC. On March 28, 2019, the SEC partially stayed the Transaction Fee Pilot, pending resolution of our and two other national securities exchanges’ petitions for review of the Transaction Fee Pilot by the U.S. Court of Appeals for the District of Columbia Circuit. The only requirement that the SEC did not stay was the requirement that the exchanges collect data during a pre-pilot period, which began on July 1, 2019 and terminated on December 31, 2019. |
See the discussion below and Item 1(A) “- Risk Factors” in this Annual Report for additional description of regulatory and legislative risks and uncertainties.
Corporate Citizenship
We strive to create long-term value for our shareholdersstockholders and maintainmeet sustainability goals for all of our stakeholders. That includes maintaining high ethical and business standards. We are activestandards, giving back in the communities where we operatelive and support charitable organizations throughwork and using our unique resources to bring together a combinationnetwork of financial resourcesthe world's leading companies to learn from each other and through employee participation. We also operate the ICE NYSE Foundation that hasexchange ideas on a commitmentbroad range of issues, including those related to supporting our communities, financial literacy and veterans’ programs. We also host programs for our issuers on governance topics to provide a forum for advancing their efforts on environmental, social and governance matters.
Much of our approach is driven by the core values that make up our culture. In late 2018, we will engage in a survey ofsurveyed our employees to further monitorassess how we, as a company, we are living up to our core values, and have taken actions based on the results of the survey to find additional ways to improvefurther our employees’ work experience.embodiment of our core values.
We provideFor additional information, in our Corporate Responsibility Report, which can be located inplease refer to the Corporate Citizenship section of our website.
With regard to environmental markets, we own Climate Exchange PLC and are today the leading operator of global emissions and environmental products markets, which enabled us to expand and support the development of emissions markets. We have invested further to develop new environmental products on our exchanges, including carbon emissions, aviation allowances, renewable energy certificate contracts, California carbon allowance contracts and biofuel products related to renewable identification numbers.website at www.theice.com/esg.
Available Information
Our principal executive offices are located at 5660 New Northside Drive, 3rd Floor, Atlanta, Georgia 30328. Our main telephone number is 1-770-857-4700, and our website is www.intercontinentalexchange.com.www.theice.com.
We are required to file reports and other information with the SEC. A copy of this Annual Report on Form 10-K, as well as any future Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available free of charge, on our website (www.theice.com) as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC. A copy of these filings is also available at the SEC’s website (www.sec.gov). The reference to our website address and to the SEC’s website address do not constitute incorporation by reference of the information contained on the website and should not be considered part of this report. YouFrom time to time, we may read and copy any documents filed by us at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.use our website and/or social media, including Twitter, as distribution channels of material information. The website to access our Twitter account is https://twitter.com/ICE_Markets.
In addition, we have posted on our website the charters for our (i) Audit Committee, (ii) Compensation Committee, (iii) Nominating and Corporate Governance Committee and (iv) Risk Committee, as well as our Global Code of Business Conduct, and Ethics, which includes information regarding our whistleblower hotline information, Board of Directors Governance Principles and Board Communication Policy. We will provide a copy of these documents without charge to stockholders upon request.
ITEM 1(A). RISK FACTORS
The risks and uncertainties described below are those that we currently believe maycould materially adversely affect us. Other risks and uncertainties that we do not presently consider to be material or of which we are not presently aware may become important factors that affect us in the future. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. Accordingly, you should carefully consider the following risk factors, as well as other information contained in or incorporated by reference in this Annual Report.
Global economic, political and financial market and social events or conditions may negatively impact our business.
Global economic conditions will impact our business. Adverse macroeconomic conditions, including recessions, inflation, high unemployment, government shutdowns, currency fluctuations, interest rate changes, geopolitical events, climate change, international trade disputes, including the imposition of tariffs or other protectionist measures, actual or anticipated large-scale defaults or failures or slowdown of global trade could decrease consumer and corporate confidence and reduce consumer, government and corporate spending.spending, and in turn impact our business. If our customers reduce spending, workforce, trading activity or demand for financial data as a result of challenges in the prevailing economic markets, our revenues willcould decline. Further, NYSE’s revenue increases when more companies are willing to go public and stagnation or a decline in the IPO market could have an adverse effect on our revenues. A prolonged decrease in the number of IPOs could also negatively impact the growth of our transaction revenues since initial public offerings are typically actively traded following the offering date. The number of public companies in the U.S. has decreased significantly over the last twenty years.
A significantsubstantial portion of our revenues are derived from market data fees and fees for transactions executed and cleared in our markets. We derived 42%, 43%Our market data-based revenues are largely subscription-based, or recurring, and 56%are generated from a range of our consolidated revenues, less transaction-based expenses, fromglobal financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. For our transaction-based business in 2017, 2016 and 2015, respectively. In particular,revenues, we derive a significant percentage of the consolidated revenues from our transaction-based business from trading in ICE Brent Crudeglobal energy and agricultural-related futures and options contracts, North American natural gas futures and options contracts, sugar futures and options contracts,as well as equity transactions and short-termglobal interest rates contracts, including the Euribor and Short Sterling futures and optionsrate contracts. The market data subscriptions and trading volumes in our markets could decline substantially if our market participants reduce their level of spending or trading activity for any reason, including:
adverse market conditions that curtail the addition of new customers or cause a decrease in purchases by our existing customers for our subscription-based products and services;
weakness in the macroeconomic environment that causes our customers to delay or cancel existing orders or subscriptions;
cost-cutting pressures across the industry or decrease in demand for our subscription-based products and services that lead to a reduction in price;
consolidation in our markets or the markets of our customers that results in a reduction in the number of market participants that use our platform;participants;
a reduction in trading demand by customers or a decision to curtail or cease hedging or speculative trading;
regulatory or legislative changes impacting our customers and financial markets;
the impact of climate change;
a prolonged decrease in volatility in the financial markets;
heightened capital requirements or mandated reductions in leverage resulting from new regulation;regulations;
defaults by clearing or exchange members or the inability of participants to pay out contractual obligations;
changes to our contract specifications that are not viewed favorably by our market participants; or
reduced access to, or availability of, capital required to fund trading activities.
A reduction in our overall trading volume could render our markets less attractive to market participants as a source of liquidity, which could result in further loss of trading volume and associated transaction-based revenues. A reduction in trading volumes could also result in a corresponding decrease in the demand for our market data, which would further reduce our overall revenue.
In addition, uncertaintyFurther, NYSE’s revenue increases when more companies are seeking access to public markets, and on the NYSE specifically. A stagnation or a decline in various markets throughout the worldIPO market, or issuers choosing to list on venues other than the NYSE, could have resulted or may result in decreased revenues or growth rates. For example, thean adverse effect on our revenues.
The uncertainty surrounding the terms of the U.K.’s's exit from the EU, commonly referred to as Brexit, could negativelyadversely impact our business, results of operations and financial condition.
In 2016, a majority of voters in the U.K. approved an exit from the EU, commonly referred to as Brexit. Brexit has created political and economic uncertainty and instability in the global markets (including currency and cause weakercredit markets), particularly in the U.K. and EU. In addition, political and economic uncertainty surrounding the terms of Brexit has in the past led to, and the outcome of Brexit could lead to, certain macroeconomic conditions that could continue foradversely affect our business. Adverse macroeconomic consequences such as deterioration in economic conditions, volatility in currency exchange rates, legal uncertainty, potentially divergent national laws and regulations as the foreseeable future. Such economic weaknessU.K. determines which EU laws to replace or replicate and/or prohibitive laws and uncertaintyregulations may adversely affect both demand for our products and services.services and our ability to deliver our products and services into the EU. The long term effects of Brexit will depend, in part, on any agreements the U.K. makes or does not make to retain access to EU markets following a transitional period.
Following the formation of a majority Conservative government in December 2019, the U.K. withdrew from the EU on January 31, 2020. The future relationship between the U.K. and the EU remains uncertain as the U.K. and the EU work through the transition period that provides time for them to negotiate the details of their future relationship. The transition period is currently expected to end on December 31, 2020, and, if no agreement is reached, the default scenario would be a “no-deal” Brexit. In the event of a no-deal Brexit, the U.K. will leave the EU with no agreements in place beyond any temporary arrangements that have or may be put in place by the EU or individual EU Member States, and the U.K. as part of no-deal contingency efforts and those conferred by mutual membership of the World Trade Organization. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the U.K. leaving the EU with no agreements in place would have and how such withdrawal would affect us. A large portion of our operations are conducted in the U.K. As a result, a no-deal Brexit could restrict access to our services by persons located in the EU or make access more expensive, which could adversely affect our operations and profitability.
Our businesses and those of many of our clients have been and continue to be subject to increased legislation and regulatory scrutiny, and we face the risk of changes to thisour regulatory environment and business in the future.
We are and will continue to be subject to extensive regulation in many jurisdictions around the world, and in particular in the U.S. and the U.K. where the largest portions of our operations are conducted. We face the risk of significant actions by regulatory and taxing authorities in all jurisdictions in which we conduct our businesses and hold investments, thatwhich may affect our business, the activity of our market participants, and as a consequence, our results. Among other things, as a result of regulators and tax authorities enforcing existing laws and regulations, we could be censured, fined, prohibited from pursuing certain acquisitions or engaging in some of our business activities, subjected to limitations or conditions on our business activities, including fair, reasonable and nondiscriminatory pricing restrictions, also known as FRAND, or subjected to new or substantially higher taxes or other governmental charges in connection
with the conduct of our business or with respect to our employees, including settlement payments, interest payments and penalty payments. In many cases, our activities may be subject to overlapping and divergent regulation in different jurisdictions.
There is also the risk that new laws or regulations or changes in enforcement practices applicable to our businesses or those of our clients could be imposed. This could adversely affect our ability to compete effectively with other institutions that are not affected in the same way or impact our clients’ overall trading volume through our exchanges and demand for our market data and other services. In addition, regulation imposed on financial institutions or market participants generally, such as enhanced regulatory capital requirements, could adversely impact levels of market activity and price volatility more broadly, and thus impact our businesses. The U.S. government, in particular, has indicated a goal of reforming many aspects of existing financial services regulations,regulations. Some areas identified as subject to potential change, amendment or repeal include the Dodd-Frank Act and the authorities of the Federal Reserve and FSOC, however, it is unknown at this time to what extent new legislation will be passed into law or pending or new regulatory proposals will be adopted or modified, or the effect that such passage, adoption or modification will have, positively or negatively, on our industry or on us.
There is also increasing public concern regarding data privacy and data protection and many jurisdictions have passed laws in this area, such as the European Union General Data Protection Regulation, and the California Consumer Privacy Act, and other jurisdictions are considering imposing additional restrictions. The laws and regulations related to privacy and data protection are increasing in complexity and number, change frequently and increasingly conflict among the various countries in which we operate, which has resulted in greater compliance risk and cost for us. Regulation of privacy and data protection often times require monitoring of, and changes to, our data practices in regard to the collection, use, disclosure, storage, transfer and/or security of personal and sensitive information.
These developments could impact our profitability in the affected jurisdictions, or even make it uneconomical for us to continue to conduct all or certain of our businesses in such jurisdictions, or could cause us to incur significant costs associated with changing our business practices, restructuring our businesses or moving all or certain of our businesses and our employees to other jurisdictions, including liquidating assets or raising capital in a manner that adversely increases our funding costs or otherwise adversely affects our stockholders and creditors. For example, the adoption and implementation of position limit rules in the U.S. and the EU could have an impact on our commodities business if comparable trading venues in foreign jurisdictions are not subject to equivalent rules. Position limits became effective in the EU beginning January 2018, and in certain cases the position limits are either lower than U.S. equivalent contracts and in other cases position limits areor higher than the limits in U.S. equivalent contracts. These divergent regulations may cause us to move products from one jurisdiction to another as a result of business risks and competitive challenges, and could significantly increase the regulatory compliance costs for our customers and could significantly impact trading activity, which could have a negative impact on our business.
U.S. and EU legal and regulatory developments in response to the global financial crisis, in particular the Dodd-Frank Act, EMIR, EMIR 2.2, MiFID II and the benchmark regulation,BMR, have significantly altered and propose to further alter the regulatory framework within which we operate and may adversely affect our competitive position and profitability. The enacted and proposed legal and regulatory changes most likely to affect our businesses are: position limit rules in the U.S. and the EU, non-discriminatory access provisions of MiFID II, interoperability and margin rules in EMIR, enhanced regulatory capital liquidity and leverage rules in Basel III and Capital Requirements Directive IV, access rules under the benchmark regulation,BMR, the non-harmonization of margin requirements, implementation of a financial transaction tax, access to our benchmarks and maintaining our exchanges’ abilities to operate as SROs with related immunity for the discharge of their regulatory functions. As the operator of global businesses, the lack of harmonization in international financial reform efforts could impact our business as our clearing houses and exchanges are subject to regulation in multiple jurisdictions.
The Dodd-Frank Act established enhanced regulatory requirements for non-bank financial institutions designated as “systemically important” by the FSOC. ICE Clear Credit has been designated as a systemically important financial market utility by the FSOC and, as a result, is subject to additional oversight by the CFTC. Compliance with these requirements has resulted in, and will continue to result in, additional operating costs.
In 2016, the SEC approved a plan to establish a market-wide consolidated audit trail, or CAT, to improve regulators’ ability to monitor trading activity. In 2018, the first phase of implementation went live and required SRO participants to begin reporting to the CAT. Due to delays in implementation and failure to implement required functionality, there is an increased risk to SROs (which include us) of regulatory action by the SEC. In addition to increased risk in connection with our regulatory obligations, implementation of the CAT could result in significant additional expenditures, which may not be reimbursed. Funding of the implementation and operation of the CAT is ultimately expected to be provided by both the SROs and broker-dealers. To date, however, funding has been provided solely by the SROs, partly in exchange for promissory notes, which increases the risk that SROs, including us, will not be reimbursed for costs expended to date. Due to delays and failures in implementation and functionality by the original plan processor, as well as recently published proposals by the SEC for an amended timeline and implementation structure, we recorded promissory note impairment charges of $16 million in 2019. We believe the risk that SROs are not reimbursed has increased, resulting in this impairment. Until the SEC approves a funding model that shares the cost of the CAT between the SROs and broker-dealers, the SROs may continue to incur additional costs, which may become significant and may not be reimbursed. As of December 31, 2019, we have accrued approximately $7 million as a receivable in connection with our portion of expenses related to the CAT implementation.
We are subject to tax laws, regulations, rulings and audits in multiple U.S. income tax reform effortsand non-U.S. jurisdictions that could have a materialsignificant impact on our business. On December 22, 2017, the Tax Cutsbusiness and Jobs Act,lead to additional expenditures for us or TCJA, was signed into law. The TCJA enacts broad changes to the existing U.S. federal incomeour customers. For example, there have been discussions in various jurisdictions around financial transaction or digital service tax code, including reducing the federal corporate income tax rate from 35% to 21%, amongst many other complex provisions. The ultimate impact of such tax reforms may differ from our current estimates due to changes in interpretations and assumptions made by us as well as the issuanceframeworks. Implementation of any furthernew or amended taxes or regulations could impact our global operations or guidance that may alter the operation of the U.S. federal income tax code. Various uncertainties also exist in terms of how U.S. states and any foreign countries within which we operate will react to these U.S. federal income tax reforms, which could have additional impacts on our business.
The European Commission has approved a data protection regulation, known as the General Data Protection Regulation, or GDPR, which has been finalized and comes into effect in May 2018. The GDPR will create a range of new compliance obligations for companies that receive or process personal data of residents of the EU that are different than the compliance obligations currently in place in the EU, and will include significant penalties for non-compliance.trading volumes.
Other enacted and proposed legal and regulatory changes not discussed above may also adversely affect our competitive position and profitability. See Item 1 “- Business - Regulation” above for additional information regarding the current and proposed laws and regulations that impact our business, including risks to our business associated with these laws and regulations.
Our compliance and risk management methods, as well as our fulfillment of our regulatory obligations, might not be effective, which could lead to enforcement actions by our regulators.
Systems failuresOur ability to comply with existing rules, regulations and laws and changing rules, regulations and laws largely depends on our establishment and maintenance of compliance, audit and reporting systems that can quickly adapt and respond, as well as our ability to attract and retain qualified compliance and other risk management personnel. Regulators periodically review our ability to self-regulate and our compliance with a variety of laws and regulations including self-regulatory standards. In particular, certain of our businesses associated with the NYSE Group are subject to public notice procedures prior to making changes in operations, policies and procedures. If we fail to comply with any of these obligations, regulators could take a variety of actions that could impair our ability to conduct our business.
Our acquisitions expose us to new regulatory requirements. For example, as a result of our acquisition of Interactive Data, we operate an SEC-registered investment adviser. Investment advisers are subject to significant regulatory obligations under the derivativesInvestment Advisers Act. Prior to this acquisition, none of our businesses were registered under the Investment Advisers Act. Compliance with the Investment Advisers Act and securities trading industry could negatively impact us.other regulatory requirements gives rise to costs and expenses that may be material. In addition, our acquisition of the BondPoint ATS in January 2018 and our acquisition of TMC Bonds in July 2018 exposes us to increased exposure to regulatory scrutiny from the SEC, FINRA and MSRB.
High-profile system failures in the derivatives and securities trading industry could negatively impact our business and result in regulatory investigations, fines and penalties. Further,Our regulators have imposed new requirements for trading platforms that have been costly forbroad enforcement powers to censure, fine, issue cease-and-desist orders, embargo future business activity or prohibit us to implement, or that could resultfrom engaging in a decrease in demand for some of our services. In particular,businesses. We have settled certain regulatory actions in the SEC’s Regulation Systems Compliancepast, including NYSE's settlement with the SEC in March 2018 in which we agreed to pay a $14 million civil monetary penalty. We continue to face the risk of significant intervention by regulatory authorities, including extensive examination and Integrity, or Regulation SCI, and the CFTC’s system safeguards regulations subject portionssurveillance activity of our securities and derivatives trading platforms and other technological systems relatedbusiness. Any such matters may result in material adverse consequences to our clearing houses, trade repositoriesfinancial condition, operating results or ability to conduct our business, including adverse judgments, settlements, fines, penalties, injunctions, restrictions on our business activities or other relief. Our involvement in any such matters, even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the U.S. Swap Execution Facility, or SEF, to more extensive regulation and oversight. Ensuring our compliance with the requirements of Regulation SCI and the CFTC’s system safeguards regulations requires significant implementation costs as well as increased ongoing administrative expenses and burdens. If system failures in the industry continue to occur, it is also possible that investor confidence in the trading industry could diminish, leading to decreased trading volume and revenue. Whether or not anyoperation of our own systems experience material failures,business. Further, any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by government or regulatory agencies may result in additional litigation, investigations or proceedings as other litigants and government or regulatory agencies begin independent reviews of these developmentsthe same businesses or activities. Finally, the implementation of new legislation or regulations, or changes in or unfavorable interpretations of existing regulations by courts or regulatory bodies, could adversely affectrequire us to incur significant compliance costs and impede our business, financial conditionability to remain competitive and operating results.grow our business.
Our business is subject to the impact of financial markets volatility, including the prices and interest rates underlying our derivative products, due to conditions that are beyond our control.
Trading volume in our markets and products is largely driven by the degree of volatility - the magnitude and frequency of fluctuations - in prices and levels of the underlying commodities, securities, indices, financial benchmarks or other instruments. Volatility increases the need to hedge price risk and creates opportunities for investment and speculative or arbitrage trading. Were there to be a sustained period of stability in the prices or levels of the underlying commodities, securities, indices, benchmarks or other instruments of our products, we could experience lower trading volumes, slower growth or declines in revenues.
Factors that are particularly likely to affect price and interest rate levels and volatility, and thus trading volumes, include:
global and domestic economic, political and market conditions;
concerns over inflation, deflation, legislative and regulatory changes, government fiscal and monetary policy - including actions by the Federal Reserve and other foreign monetary units governing bodies, and investor and consumer confidence levels;
weather conditions including hurricanes and other significant events, natural and other unnatural disasters like large oil spills that impact the production of commodities and, in the case of energy commodities, production, refining and distribution facilities for oil and natural gas;
war, acts of terrorism and any unforeseen market closures or disruptions in trading;
political developments impacting international trade, including continued uncertainty surrounding Brexit, trade disputes and increased tariffs, particularly between the U.S. and China, and imposition of protectionist measures;
real and perceived changes in the supply and demand of commodities underlying our products, particularly energy and agricultural products, including changes as a result of technological improvements or the development of alternative energy sources; and
credit quality of market participants, the availability of capital and the levels of assets under management.
Any one or more of these factors, which are beyond our control, may reduce trading activity, which could make our markets less attractive as a source of liquidity, and in turn could further discourage existing and potential market participants and thus accelerate a decline in the level of trading activity and potentially related services such as data or clearing. Further, lower market volatility could also result in more exchanges competing for trading volumes to maintain their growth. If any of these unfavorable conditions were to persist over a lengthy period of time and trading volumes were to decline substantially and for a long enough period, the critical mass of transaction volume necessary to support viable markets could be jeopardized. Because our cost structure is largely fixed, if demand for our current products and services decline for any reason, we may not be able to adjust our cost structure to counteract the associated decline in revenues, which would cause our net income to decline.
Systems failures in the derivatives and securities trading industry could negatively impact us.
High-profile system failures in the derivatives and securities trading industry have in the past, and could in the future, negatively impact our business and result in a loss of confidence in our technology and our markets, regulatory investigations, fines and penalties and business activity slowdown or interruptions. Further, regulators have imposed requirements for trading platforms that have been costly for us to implement and could result in a decrease in demand for some of our services. In particular, the SEC’s Regulation Systems Compliance and Integrity, or Regulation SCI, and the CFTC’s system safeguards regulations subject portions of our securities and derivatives trading platforms and other technological systems related to our clearing houses, trade repositories and the U.S. SEF to more extensive regulation and oversight. Ensuring our compliance with the requirements of Regulation SCI and the CFTC’s system safeguards regulations requires significant implementation costs as well as increased ongoing administrative expenses and burdens. In addition, any expansion of the ICE systems that are determined to be in scope for Regulation SCI could result in significant additional expenditures.
Our systems and those of our third-party service providers may be vulnerable to cyber-attacks, hacking and other cybersecurity risks, especially in light of our role in the global financial marketplace, which could result in wrongful manipulation, disclosure, destruction, or use of our information or that of a third party, or which could make our participants unable or reluctant to use our electronic platforms.
The secure transmission of confidential information and the ability to reliably transact on our electronic platforms and provide financial data services are critical elements of our operations. Some of our products and services involve the storage and transmission of proprietary information and sensitive or confidential client and other data, including client portfolio information. If anyone gains improper access to our electronic platforms, networks or databases, they may be able to steal, publish, delete or modify our confidential information or that of a third party. Breaches of our cybersecurity measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our clients or our customers, including the potential loss or disclosure of such information or data could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation, regulatory action and potential liability for us, damage our brand and reputation or otherwise harm our business. Our networks and those of our participants, third-party service providers and external market infrastructures may be vulnerable to compromise, unauthorized access, security technology failure, computer viruses, social engineering, denial of service attacks, terrorism, ransomware attacks, firewall or encryption failures or other security problems resulting in loss of data integrity, information disclosure, unavailability or fraud. The financial services industry has been targeted for purposes of political protest, activism and financial gain and our role in the global marketplace places us at greater risk than other public companies for cyber-attack and other information security threats. Further, former employees of companies in the financial sector have misappropriated trade secrets or stolen source code in the past, and we could be a target for such illegal acts in the future. There also may be system or network disruptions if new or upgraded systems are defective or not tested and installed properly.
Although we have not been subject to cyber-attacks or other cyber incidents that have had a material impact on our operations or financial condition, we have from time to time experienced cybersecurity events including distributed denial of service attacks, malware infections, phishing, web attacks and other information technology incidents that are typical for a financial services company of our size. For example, we experienced a coordinated set of sophisticated Distributed Denial of Service, or DDoS, attacks in 2019 that activated our detection and response measures, which mitigated the impact. In response to these threats, we also engaged our threat intelligence and risk assessment functions to perform root-cause analysis and continue to refine controls. While we operate an Information Security program that is designed to prevent, detect, track and mitigate cyber incidents and that has detected and mitigated such incidents in the past, we cannot assure you that these measures will be sufficient to protect our business against future attacks, losses or reduced trading volume in our markets. Any such attacks could result in reputational damage, cause system failures or delays that could cause us to lose customers, cause us to experience lower current and future trading volumes or incur significant liabilities or have a negative impact on our competitive position. In addition, given the increasing complexity and sophistication of the techniques used to obtain unauthorized access or disable or degrade systems, a cyber-attack could occur and persist for an extended period of time before being detected, and we may not anticipate these acts or respond adequately or timely. The extent of a particular cyber incident and the steps that we may need to take to investigate the incident may not be immediately clear, and it may take a significant amount of time before such investigation can be completed and full and reliable information about the incident is known. While such an investigation is ongoing, we may not necessarily know the extent of the harm or how best to remediate it, which may compound damages before the incident is discovered or remediated. Additionally, as threats continue to evolve and increase, and as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, we may be required
to devote significant additional resources to modify and enhance our security controls and to identify and remediate any security vulnerabilities, which could adversely impact our net income.
Further, cybersecurity threats to, and incidents involving, vendors and other third-parties who support our activities - particularly those with less-sophisticated defenses - could impact us. During 2019, we became aware of three separate vendors who were materially impacted by significant ransomware attacks. Although we were able to shift reliance away from each of these vendors quickly, these incidents demonstrate the potential for cybersecurity incidents of third parties to have a material impact despite the efforts we make to minimize concentration risk and ensure the cyber resiliency of our vendors.
Owning clearing houses exposes us to risks, including riskrisks related to defaults by clearing members, risks related to investing margin and guaranty funds and the cost of operating the clearing houses.
There are risks inherent in operating a clearing house,houses, including exposure to the market and counterparty risk of clearing members, market liquidity risks, defaults by clearing members and risks associated with custody and investing margin or guaranty fund assets provided by clearing members to our clearing houses, which could subject our business to substantial losses. For example, clearing members have transferred an aggregate amount of cash in ICE Clear Europe relating to margin and guaranty funds of $22.8$32.5 billion as of December 31, 20172019 and a total of $50.5$65.0 billion for all of our clearing houses as of December 31, 2017.2019. The ICE Clear Europe and ICE Clear U.S.Clearing Houses may use third partythird-party investment managersadvisors for investment of cash assets, subject to the guidelines provided by each clearing house, and may add or change the investment managers from time to time. To the extent available, ICE Clear Credit holds the U.S. dollar cash and U.S. Treasuries that clearing members transfer to satisfy their original margin and guaranty fund requirements at its account at the
Federal Reserve. With respect to other clearing member cash posted, ICE Clear Credit currently self-manages and uses external investment managers to invest such cash margin and guaranty fund deposits.
We have an obligation to return margin payments and guaranty fund contributions to clearing members to the extent that the relevant member’s risk based on its open contracts to the clearing house is reduced. If a number of clearing members substantially reduce their open interest or default, the concentration of risks within our clearing houses will be spread among a smaller pool of clearing members, which would make it more difficult to absorb and manage risk in the event of a further clearing member’s default. Further, following our acquisition of the BondPoint business in January 2018, Creditex Securities Corporation intends to seek regulatory approval to be a clearing firm so that it can clear trades in fixed income securities executed on the Creditex platforms. Self-clearing exposes our business to additional settlement and counterparty risk.
Although our clearing houses have policies and procedures to help ensure that clearing members can satisfy their obligations, such policies and procedures may not succeed in preventing losses after a membermember's or a counterparty’s default. In addition, although we believe that we have carefully analyzed the process for setting margins and our financial safeguards, it is a complex process and there is no guarantee that our procedures will adequately protect us from the risks of clearing these products. We cannot assure you that these measures and safeguards will be sufficient to protect us from a default or that we will not be materially and adversely affected in the event of a significant default. We have contributed our own capital to the front of the guaranty fund of the clearing houses that could be used in the event of a default. Furthermore, in September 2019, we added a layer of insurance to our clearing member default protection. The default insurance layer resides after and in addition to the ICE Clear Credit, ICE Clear Europe, and ICE Clear U.S. Skin In The Game contributions and before the guaranty fund contributions of the non-defaulting clearing members. The default insurance has a three-year term, subject to renewal. Notwithstanding these actions, the default of any one of the clearing members could subject our business to substantial losses and cause our customers to lose confidence in the guaranty of our clearing houses.
A decline in the value of securities held as margin or guaranty fund contributions by our clearing houses or default by a sovereign government issuer could pose additional risks of default by clearing members.
Our clearing houses hold a substantial amount of assets as margin or guaranty fund contributions, which comprise U.S. and other sovereign treasury securities. As of December 31, 2017,2019, our clearing houses held $39.5$58.2 billion of non-cash margin or guaranty fund contributions in U.S. and other sovereign treasury securities: $29.1$44.5 billion of this amount was comprised of U.S. Treasury securities, $1.7$2.4 billion of French Treasury securities, $1.5$1.6 billion of German Treasury securities, $1.3 billion of Italian Treasury securities, $1.2$1.4 billion of U.K. Treasury securities and $4.6$8.3 billion of other European, Japanese and Tri-Party Treasury securities. Sovereign treasury securities have historically been viewed as one of the safest and most liquid securities for clearing houses to hold due to the perceived credit worthiness of major governments, althoughgovernments. However, the markets for such securities have experienced significant volatility during the past decade and as of late due to on-going financial challenges in some of the major European countries and the U.S. government’s negotiations regarding taxation, spending cuts and raising the debt ceiling, which is the maximum amount of debt that the U.S. government can legally incur. In addition, if there is a collapse of the euro,in a specific currency relied upon by our clearing houses, our clearing houses would face significant expenses in changing
their systems and such an event could cause a credit contraction and major swings in asset prices and exchange rates. To mitigate this risk, our clearing houses currently apply a discount or “haircut” to the market values for all sovereign securities held as margin or guaranty fund contributions; however, market conditions could change more quickly than we adjust the amount of the haircuts and the haircuts could be insufficient in the event of a sudden market event.
Notwithstanding the current intraday margin and valuation checks conducted by our clearing houses and our policies and practices to limit exposures, our clearing houses will need to continue to monitor the volatility and value of sovereign treasury securities. If the value of these securities declines significantly, our clearing houses will need to collect additional margin or guaranty fund contributions from their clearing members, which may be difficult for the members to supply in a time of financial stress affected by an actual or threatened default by a sovereign government. In addition, our clearing houses may be required to impose a more significant discount on the value of sovereign treasury securities posted as margin or guaranty fund contributions if there is uncertainty regarding the future value of these securities, which would trigger the need for additional margin or guaranty fund contributions by the clearing members. If a clearing member cannot supply the additional margin or guaranty fund contributions, which may include cash in a currency acceptable to the clearing house, the clearing house would deem the clearing member in default. If any clearing members default as a result of the reduction in the value of margin or guaranty fund contributions, our clearing houses and trading business could suffer substantial losses as a result of the loss of any capital that has been contributed to the clearing house’s guaranty funds and a loss of confidence by clearing members in the clearing house, resulting in a reduction in volumes of future cleared transactions.
Further, our clearing houses invest large sums through reverse repo transactions in connection with their clearing operations and may hold sovereign securities as security in connection with such investment transactions. In the event that a reverse repo counterparty defaults, the value of the sovereign securities we hold as collateral might not be sufficient to cover our losses. Our clearing houses may also make timedemand deposits with banks that are secured only to the value of FDIC insurance or other national deposit guarantee schemes, which is small, and therefore, the deposits may in significant part be lost in the event one of these banks becomes insolvent.
Owning and operating equity and options exchanges exposes us to additional risks, including the regulatory responsibilities to which these businesses are subject.
Owning and operating equity and options exchanges for which the revenues are primarily derived from trading activity, market data and listing fees, and trading activity, exposes us to additional risks. Adverse economic conditions and regulatory changes similar to those discussed above, including changes to the number of exchanges that are permitted to conduct closing auctions, could result in decreased trading volume on our exchanges, discourage market participants from listing on our equity and options exchanges or cause them to forgo new offerings. Any of these could reduce our revenues, including market data revenue.
Our exchanges are operated as for-profit businesses but have certain regulatory responsibilities that must be fulfilled. Specifically, our exchanges are responsible for enforcing listed company compliance with applicable listing standards, overseeing regulatory policy determinations, rule interpretation and regulation-related rule development and conducting trading reviews. Any failure by one of our exchanges with self-regulatory responsibility to comply with, and enforce compliance by their members with, exchange rules and securities laws could significantly harm our reputation, prompt regulatory scrutiny, result in the payment of fines or penalties and adversely affect our business, financial condition and operating results.
We must allocate significant resources to fulfill our self-regulatory responsibilities. The for-profit exchanges’ goal of maximizing stockholder value might contradict the exchanges’ self-regulatory responsibilities. TheIn addition, the listing of our common stock on the NYSE could potentially create a conflict between the exchange’s regulatory responsibilities to vigorously oversee the listing and trading of securities, on the one hand, and our commercial and economic interest, on the other hand. While we have structural protections to minimize these potential conflicts, we cannot be sure that such measures will be successful.
Further, changes in the rules and operations of our securities markets must be reviewed and approved by the SEC. Approval of such changes by the SEC cannot be guaranteed, and the SEC could delay either the approval process or the initiation of the public comment process. Any denial or delay in approving changes could have an adverse effect on our business, financial condition and operating results.
Our compliance and risk management methods, as well as our fulfillment of our regulatory obligations, might not be effective, which could lead to enforcement actions by our regulators.
Our ability to comply with complex and changing laws and rules is largely dependent on our establishment and maintenance of compliance, audit and reporting systems that can quickly adapt and respond, as well as our ability to attract and retain qualified compliance and other risk management personnel. While we have policies and procedures to identify, monitor and manage our risks and regulatory obligations, we cannot assure you that our policies and procedures will always be effective or that we will always be successful in monitoring or evaluating the risks to which we are or may be exposed. Regulators periodically review our exchanges’ ability to self-regulate and our compliance with a variety of laws and regulations including self-regulatory standards. In particular, certain of our businesses acquired in the NYSE acquisition are subject to public notice procedures prior to making changes in operations, policies and procedures. If we fail to comply with any of these obligations, regulators could take a variety of actions that could impair our ability to conduct our business.
Our acquisitions expose us to new regulatory requirements. For example, as a result of our acquisitions of Interactive Data and Securities Evaluations, we operate two SEC registered investment advisers. Investment advisers are subject to significant regulatory obligations under the Investment Advisers Act. Prior to these acquisitions, none of our businesses were registered under the Investment Advisers Act. Compliance with the Investment Advisers Act and other regulatory requirements gives rise to costs and expenses that may be material. In addition, our acquisition of the BondPoint ATS in January 2018 exposes us to increased exposure to regulatory scrutiny from the SEC and FINRA.
Our regulators have broad enforcement powers to censure, fine, issue cease-and-desist orders or prohibit us from engaging in some of our businesses. For example, we paid a $5 million penalty to the SEC in 2014 and a $3 million penalty to the CFTC in 2015 as a result of enforcement actions brought by these regulators. In December 2015, NYSE received an inquiry from the enforcement staff of the SEC regarding a July 8, 2015 outage on the NYSE markets, during which trading was suspended for approximately 3.5 hours in all symbols. The investigation proceeded throughout 2016 and on December 29, 2016, NYSE received a Wells Notice stating that the staff made a preliminary determination to recommend that the SEC file an enforcement action in connection with how NYSE responded to the circumstances leading up to the suspension of trading. For this matter and other SEC investigations, we have recorded an aggregate of $14 million in expense accruals as of December 31, 2017. The specific results of the Wells Notice and these enforcement actions are unknown at this time.
We will continue to face the risk of significant intervention by regulatory authorities, including extensive examination and surveillance activity. Any such matters may result in material adverse consequences to our financial condition, operating results or
ability to conduct our business, including adverse judgments, settlements, fines, penalties, injunctions, restrictions on our business activities or other relief. Our involvement in any such matters, even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business. Further, any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by government or regulatory agencies may result in additional litigation, investigations or proceedings as other litigants and government or regulatory agencies begin independent reviews of the same businesses or activities. Finally, the implementation of new legislation or regulations, or changes in or unfavorable interpretations of existing regulations by courts or regulatory bodies, could require us to incur significant compliance costs and impede our ability to remain competitive and grow our business.
We face intense competition.
We face intense competition in all aspects of our business and our competitors, both domestic and international, are numerous. We currently compete with:
regulated, diversified futures exchanges globally that offer trading in a variety of asset classes similar to those offered by us, such as energy, agriculture, equity and equity index, credit, and interest rate derivatives markets and foreign exchange;
exchanges offering listing and trading of cash equities, ETFs, closed-end funds and other structured products similar to those offered by us;
market data and information vendors;
providers of digital solutions, including providers of mortgage services;
interdealer brokers active in the global credit derivatives markets;
existing and newly formed electronic trading platforms, service providers and other exchanges;
other clearing houses; and
consortiums of our customers, members or market participants that may work together to achieve more favorable terms or pool their trading activity to establish new exchanges, trading platforms or clearing facilities.
Trends towards the globalization of capital markets have resulted in greater mobility of capital, greater international participation in markets and increased competition among markets in different geographical areas. Competition in the market for derivatives trading and clearing and in the market for cash equity listings, trading and execution have intensified as a result of consolidation, as the markets become more global in connection with the increase in electronic trading platforms and the desire by existing exchanges to diversify their product offerings. Finally, many of our competitors are our largest customers or are owned by our customers and may prioritize their internalization and ATS businesses ahead of their exchange-based market making business. Some of our competitors may have greater capital and resources, offer a wide range of products and services or operate under less stringent regulatory regimes than we do.
We also face pricing competition in many areas of our business. A decline in our fees due to competitive pressure, the inability to successfully launch new products or the loss of customers due to competition could lower our revenues, which would adversely affect our profitability. For example, Interactive Data’sICE Data Services’ business has benefited from a high renewal rate in its subscription basedsubscription-based business, but we cannot assure you that this will continue. We also cannot assure you that we will be able to continue to expand our product offerings, modify the pricing for our products or that we will be able to retain our current customers or attract new customers. If we are not able to compete successfully, our business could be materially impacted, including our ability to remain as an operating entity.
In our listings business, the legal and regulatory environment in the U.S., and the market perceptions about that environment, may make it difficult for our U.S. equity exchanges to compete with non-U.S. equity exchanges for listings. For example, negative perceptions regarding compliance costs associated with adherence to corporate governance requirements and risks of litigation have and may continue to discourage listings on U.S. equity exchanges by both U.S. and foreign private issuers. Any failure by our exchanges to successfully compete for any reason could adversely impact our revenue derived from listing fees and the associated trading, execution and market data fees.
We may have difficulty executing our growth strategy and maintaining our growth effectively.
We have achieved a tremendous amount of growth since becoming a public company in 2005. Our growth is highly dependent on customer demand for our core products and services, favorable economic conditions and our ability to invest in our personnel, facilities, infrastructure and financial and management systems and controls. Adverse economic conditions could reduce customer demand for our products and services, which may place a significant strain on our management and resources and could force us to defer existing or future planned opportunities. We regularly evaluate our existing operations, service capacity and business efficiencies and, as a result of such evaluations, we may undertake strategic initiatives outside of and within our businesses. In addition, we may not be successful in executing on our strategies to support our growth organically or through acquisitions, other investments or strategic alliances.
Our systems and those ofRegulatory changes or court rulings may have an adverse impact on our third party service providers may be vulnerable to security risks, hacking and cyber-attacks, especially in light of our role in the global financial marketplace, which could result in wrongful use of our information or that of a third party, or which could make our participants reluctant to use our electronic platform.
The secure transmission of confidential information and the ability to reliably transact onderive revenue from market data and connectivity fees.
Regulatory developments or court rulings could reduce the amount of revenue that we obtain from market data and connectivity fees. With respect to our electronic platformsU.S. equities and provide financialequity options exchanges, our ability to assess fees for market data services are critical elements of our operations. Some of our products and services involvecertain connectivity fees are subject to review by the storageSEC. There continues to be opposing industry viewpoints and transmission of proprietary informationlitigation as to the extent that our U.S. equities and sensitive or confidential client data, including client portfolio information. If anyone gains improper access to our electronic platforms, networks or databases, they mayequity options exchanges should be able to steal, publish, deletecharge for market data and market access, and the manner in which we set such exchange fees could be reassessed. In October 2018, the SEC issued an order setting aside certain market data fees imposed by NYSE Arca, Inc. and Nasdaq Stock Market LLC that were challenged by the Securities Industry and Financial Markets Association, or modify our confidential information orSIFMA, finding that of a third party. Breaches of our cybersecurity measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidentialexchanges had not met their statutory obligation to demonstrate that the fees were consistent with the Exchange Act (i.e., that these fees are fair and reasonable and not unreasonably discriminatory). Simultaneously the SEC remanded over 400 market data about us, our clients or our customers, includingfee and other filings back to the potential loss or disclosure of such information or data could expose us, our customers orexchanges and the individuals affectednational market system plans for consideration under the standards set out in the SIFMA order and an earlier order issued by the SEC relating to a risk of loss or misuse of this information, result inseparate litigation regulatory action and potential liability for us, damage our brand and reputation or otherwise harm our business. Our networks and those of our participants, third party service providers and external market infrastructures may be vulnerable to compromise, security technology failure, social engineering, denial of service attacks, or other security failures resulting in loss of data integrity, information disclosure, unavailability, or fraud. The financial services industry has been targeted for purposes of political protest, activism and fraud. Further, former employees of certain companies in the financial sector have misappropriated trade secrets or stolen source code in the past, and we could be a target for such illegal acts in the future. There also may be system or network disruptions ifmatter.
If new or upgraded systemsconstraints are defective or not tested and installed properly.
Although we have not been the victim of cyber-attacks or other cyber incidents that have had a material impactplaced on our operationsability to charge for market data or financial condition, we have from time to time experienced cybersecurity events including distributed denial of service attacks, malware infections, phishing, web attacks and other information technology incidents that are typical for a financial services company of our size. For example, we experienced a distributed denial of service attack against our website in November 2016 that activated automated mitigation response and was reportable to regulatory authorities. While we operate an Information Security program that is designed to prevent, detect, track, and mitigate cyber incidents and that has detected and mitigated such incidents in the past, we cannot assure you that these measures will be sufficient to protect our business against attacks, losses or reduced trading volume in our markets as a result of any security breach, hacking or cyber-attack. Any such attacksmarket access, it could result in reputational damage, cause system failures or delays that could cause us to lose customers, cause us to experience lower current and future trading volumes or incur significant liabilities, or have a negative impact on our competitive position. In addition, givenrevenues. We cannot predict whether, or in what form, any regulatory or other changes will take effect or their
impact on our business. A determination by the increasing complexitySEC or a court, for example, that the SEC must link market data fees to marginal costs, take a more active role in the market data rate-setting process, or reduce the current levels of market data fees, could have an adverse effect on our market data revenues.
Separately, our European exchanges are currently authorized to sell trade information on a non-discriminatory basis at a reasonable cost. This regulatory position could be modified or interpreted by the EC or future European court decisions in a manner that could have an adverse effect on our European market data revenues.
Failure to administer and sophisticationevolve our benchmarks and indices in a manner that maintains the reliability and relevance of the techniques usedbenchmark or index, damage to obtain unauthorized access or disable or degrade systems, such intrusions mayour reputation related to the administration of benchmarks and indices, including LIBOR, and the potential replacement of, and transition from, benchmarks and indices, including LIBOR, could adversely affect our business.
Certain of our subsidiaries produce and license multiple global benchmarks and indices across asset classes, and a significant portion of our trading and clearing volume references these benchmarks and indices. To ensure continued trading and clearing in these benchmark-related products, and the continued licensing and use of these benchmarks and indices, our subsidiaries must be difficultable to detect for periods of time, we maydemonstrate that these benchmarks and indices are administered with integrity and are not anticipate these acts or respond adequately or timely. Additionally, as threatsreadily subject to manipulation and must also continue to evolve these benchmarks and increase,indices as necessary to maintain their reliability and relevance. As an example, our subsidiary, IBA, is the administrator of various global benchmarks, including LIBOR. IBA assumed the administration of LIBOR following various cases of attempted manipulation and misconduct related to the LIBOR benchmark that emerged following the financial crisis. Any failures, negative publicity or lawsuits related to our subsidiaries' administration of benchmarks and indices, including LIBOR, could result in a loss of confidence in the administration of these benchmarks and indices and could harm our business and our reputation. In 2019, ICE and certain affiliates were named as defendants in three virtually identical proposed class action lawsuits regarding the administration of LIBOR that allege that ICE and certain affiliates, along with 18 multinational banks, engaged in a conspiracy to set the U.S. Dollar LIBOR benchmark at artificially low levels. ICE and its affiliates intend to vigorously defend this action.
The replacement of, or transition from, our subsidiaries' benchmarks and indices, including LIBOR, or any other changes or reforms to the determination or administration of such benchmarks and indices, could have an adverse impact on our business, financial condition and operating results. In July 2017, the FCA stated its intention that it would no longer be necessary to sustain LIBOR through its influence or legal powers beyond 2021. As such, there is no guarantee that any LIBOR settings will continue to be published after year-end 2021. Alternative risk free reference rates have been selected for the various LIBOR currencies by working groups in each relevant jurisdiction, and global regulators have advocated for a transition from LIBOR to these alternative rates by year-end 2021. In the U.S., the Federal Reserve Board and the Federal Reserve Bank of New York, or New York Fed, convened the Alternative Reference Rates Committee, which selected the SOFR as the alternative risk free rate for U.S. Dollars. The New York Fed started publishing SOFR in April 2018 and developed a “Paced Transition Plan” of key steps and milestones to encourage its adoption. The transition from LIBOR to alternative rates in the various LIBOR currencies is at different stages and is proceeding at different speeds. We continue to monitor industry and regulatory environment relateddevelopments, but it is not yet possible to information security, data collectionpredict with certainty how the transition from LIBOR will be implemented, whether recommendations and proposals from industry groups will be broadly accepted, and what effect the transition from LIBOR may have on the markets that use and privacy becomes increasingly rigorous, including as a result of the European Commission’s approval of GDPR, we may be required to devote significant additional resources to modify and enhance our security controls and to identify and remediate any security vulnerabilities, which could adversely impact our net income.benchmark today.
We may not be successful in offering new products or technologies or in identifying opportunities.
We intend to launch new products and services and continue to explore and pursue other opportunities to strengthen our business and grow our company. We may spend substantial time and money developing new product offerings or improving current product offerings. If these offerings are not successful, we may miss a potential market opportunity and not be able to recover the costs of such initiatives. Obtaining any required regulatory approval associated with these offerings may also result in delays or restrictions on our ability to benefit fully benefit from these offerings. Further, we may seek to enter into or increase our presence in markets that already possess established competitors who may enjoy the protection of high barriers to entry. Attracting customersIntroducing or maintaining our offerings in certain countries may also be subject to a number of other risks, including currency exchange rate risk, difficulties in enforcing agreements or collecting receivables, longer payment cycles, compliance with the laws or regulations of these countries, and political and regulatory uncertainties.
In addition, in light of consolidation in the exchange, data services and clearing sectors and competition for opportunities, we may be unable to identify strategic opportunities or we may be unable to negotiate or finance any future acquisition successfully. Our competitors could merge, making it more difficult for us to find appropriate entities to acquire or merge
with and making it more difficult to compete in our industry due to the increased resources of our merged competitors. Also, offering new products and pursuing acquisitions requires substantial time and attention of our management team, which could prevent them from successfully overseeing other initiatives that are necessary for our success.
We have made substantial progress toward developing and deploying new technology platforms to improve our equity exchange business and data services business. We may experience disruptions or encounter unexpected challenges in deploying these new systems. Further, the costs to complete the remaining work may exceed our current expectations. Any significant cost
increases or disruptions to product quality, sales effectiveness or client service or to our other business operations could have an adverse effect on our business, financial condition and operating results.
If we are unable to keep up with rapid changes in technology and client preferences, we may not be able to compete effectively.
Our success depends on our ability to maintain and expand our product offerings, our customer base and our technology. To remain competitive, we must continue to enhance and improve the responsiveness, functionality, accessibility and reliability of our electronic platforms and our proprietary and acquired technology. The financial services industry is characterized by rapid technological change, change in use patterns, change in client preferences, frequent product and service introductions and the emergence of new industry standards and practices. These changes could render our existing proprietary technology uncompetitive or obsolete. We are in the process of implementinghave implemented a new trading technology system at NYSE and if there are trading disruptions or if the new system has inadequate performance, we could suffer material losses, incur reputational damage or be subject to heightened regulatory scrutiny.
Further,
We cannot assure you that we will successfully implement new technologies or adapt our proprietary technology to our clients’ requirements or emerging industry standards in a timely and cost-effective manner. Any failure to remain abreast of industry standards in technology and to be responsive to client preferences could cause our market share to decline and negatively impact our results.
Our use of "open source" software could negatively impact our ability to sell our products and services and subject us to litigation.
We use some open-source software in our technology, most often as small components within a larger product or service, to augment algorithms, functionalities or libraries we create, and we may use more open-source software in the future. Open-source code is also contained in some third-party software we rely on. We could be subject to suits by parties claiming breach of the terms of the license for such open-source software. The terms of many open-source licenses are ambiguous and have not been interpreted by U.S. or other courts, and these licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products and services.
We cannot assure you that we will successfully implement new technologies Further, open-source licensors generally do not provide technology support, maintenance, warranties or adapt our proprietary technologyassurance of title or controls on the origin of the software, which can also lead to our clients’ requirements or emerging industry standards in a timely and cost-effective manner. Any failure to remain abreastgreater risks than use of industry standards in technology and to be responsive to client preferences could cause our market share to decline and negatively impact our revenues.third-party commercial software.
Our business may be harmed by computer and communicationscommunication systems failures and delays.
Our business depends on the integrity, reliability and security of our infrastructure which is highly dependent on our computer and communication systems. We support and maintain many of the systems that comprise our electronic platforms and our failure to monitor or maintain these systems, or to find replacements for defective components within a system in a timely and cost-effective manner when necessary, could have a material adverse effect on our ability to conduct our business. Our customers rely on us for the delivery of time-sensitive, up-to-date and high-quality financial market data, analytics and related solutions. Our timely, reliable delivery of high-quality products and services is subject to an array of technical production processes that enable our delivery platforms to leverage an extensive range of content databases. Our redundant systems or disaster recovery plans, including our ability to recover from the loss of one of our primary data centers, may prove to be inadequate in the event of a systems failure or cybersecurity breach. Our systems, or those of our third partythird-party providers, may fail or be shut down or, due to capacity constraints, may operate slowly, causing one or more of the following:
unanticipated disruption in service to our participants;
slower response time and delays in our participants’ trade execution and processing;
failed settlement by participants to whom we provide trade confirmation or clearing services;
incomplete or inaccurate accounting, recording or processing of trades;
failure to complete the clearing house margin settlement process resulting in significant financial risk;
distribution of inaccurate or untimely market data to participants who rely on this data in their trading activity; and
financial loss.loss to us or those who depend on our systems and data.
We have experienced system failures in the past due to telecommunication failures and hardware and software malfunctions and defects, and could experience in the future, system failures due to power or telecommunications failures, human error on our part or on the part of our vendors or participants, natural disasters, fire, sabotage, hardware or software malfunctions or defects, computer viruses, cyber-attacks, intentional acts of vandalism or terrorism and similar events. If any one or more of theseThese situations were to arise, they could result in damage to our business reputation and participant dissatisfaction with our electronic platform, which could prompt participants to trade elsewhere or expose us to litigation or regulatory sanctions. As a consequence, our business, financial condition and operating results could suffer materially.
Our regulated business operations generally require that our trade execution and communications systems be able to handle anticipated present and future peak trading volume. Heavy use of computer systems during peak trading times or at times of unusual market volatility could cause those systems to operate slowly or even to fail for periods of time. However, we cannot
assure you that our estimates of future trading volume will be accurate or that our systems will always be able to accommodate actual trading volume without failure or degradation of performance.
Although many of our systems are designed to accommodate additional volume and products and services without redesign or replacement, we will need to continue to make significant investments in additional hardware and software and telecommunications infrastructure to accommodate the increases in volume of order and trading transaction traffic and to provide processing and clearing services to third parties. If we cannot increase the capacity and capabilities of our systems to accommodate an increasing volume of transactions and to execute our business strategy, our ability to maintain or expand our businesses wouldcould be adversely affected.
We currently have a substantial amount of outstanding indebtedness which could adversely affect our financial condition and operations and restrict our ability to engage in additional transactions or incur additional indebtedness.satisfy our debt service obligations.
As of December 31, 2017,2019, we had $6.1$7.8 billion of outstanding debt. This level of indebtedness could have important consequences to our business, including making it more difficult to satisfy our debt service obligations, increasing our vulnerability to general adverse economic and industry conditions, limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, placing us at a competitive disadvantage compared to our peers and restricting us from pursuing certain business opportunities. As we use our available resources to reduce and refinance our consolidated debt, our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and our ability to pursue future business opportunities may be further restrained. In addition, the terms of our debt facilities contain affirmative and negative covenants, including a leverage ratio test and certain limitations on the incurrence of additional debt or the creation of liens and other matters. Further, a significant portion of our outstanding debt has been in commercial paper, which is subject to interest rate changes. Rising interest rates will result in an increase in our interest expense. We may incur additional indebtedness in the future, which could materially affect our financial condition.
Our long-term and short-term debt is currently rated by Moody’s Investor Services and Standard & Poor’s. These ratings agencies regularly evaluate us and our credit ratings based on a number of quantitative and qualitative factors, including our financial strength and conditions affecting the financial services industry, generally. Our credit ratings remain subject to change at any time, and it is possible that a ratings agency may take action to downgrade our credit ratings in the future. In particular, our inability to sustain reduced debt on a consolidated basis may result in a downgrade of our credit ratings. A significant downgrade of our credit ratings could impact customers’ willingness to use our clearing houses, make parties less willing to do business with us, and could negatively impact our ability to access the capital markets and increase the cost of our commercial paper and any future debt funding we may obtain.
Failure to evolve our benchmarks and indices in a manner that maintains the relevance of the benchmark or index, damage to our reputation resulting from our administration of LIBOR or other benchmarks and indices and the potential replacement of LIBOR could adversely affect our business.
We operate multiple global benchmark products and indices across our asset classes and a significant portion of our volume is based on these products. To ensure continued trading in our benchmark products and indices, we must be able to demonstrate that our products are not readily subject to manipulation and we must continue to evolve our products to maintain their relevance. Our subsidiary, IBA, is the administrator for various benchmarks, including LIBOR. IBA’s administration of LIBOR is the result of the LIBOR scandal, which was a series of fraudulent actions taken by banks that were submitting false LIBOR rates to profit from trades, or to give the impression that the banks were more creditworthy than they were. Any failures or negative publicity resulting from our administration of LIBOR or other benchmarks could result in a loss of confidence in the administration of these benchmarks and could harm our business and our reputation.
In July 2017, the FCA announced the desire to phase out the use of LIBOR by the end of 2021. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative references rates or any other reforms to LIBOR that may be enacted in the U.K. or elsewhere. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on our business, financial condition and operating results.
We may fail to complete or realize the anticipated cost savings, growth opportunities and synergies and other benefits anticipated from our recent acquisitions and future acquisitions, which could adversely affect the value of our common stock.
We have completed many acquisitions and plan to continue to pursue acquisitions and joint ventures. The success of our acquisitions will depend, in part, on our ability to integrate these businesses into our existing operations and realize anticipated cost savings, revenue synergies and growth opportunities. We generally set aggressive timelines for realizing savings,which assumes we successfully undertake a variety of actions (including, but not limited to, integrating technology, eliminating redundancies and effecting organizational restructurings) that are themselves subject to a variety of risks and may be subject to regulatory approvals
that we do not control. The process of integrating acquired companies is time consuming and could disrupt each company’s ongoing businesses, produce unforeseen regulatory and operating difficulties (including inconsistencies in standards, controls, procedures and policies that adversely affect relationships with market participants, regulators and others), require substantial resources and expenditures, and divert the attention of management from the ongoing operation of the business.
There is a risk, however, that we may not integrate these acquired companies in a manner that permits our expected cost savings and revenue synergies to be fully realized in the time periods expected, or at all. In addition, a variety of factors, including but not limited to regulatory conditions, governmental competition approvals, currency fluctuations, and difficulty integrating technology platforms, may adversely affect our ability to complete our acquisitions or realize our anticipated cost savings and synergies. For example, the U.K. Competition and Markets Authority, or CMA, ordered a divestment of Trayport and such divestment was completed in December 2017.
We may also not realize anticipated growth opportunities and other benefits from strategic investments or strategic joint ventures or alliances that we have entered into or may enter into for a number of reasons, including regulatory or government approvals or changes, global market changes, contractual obligations, competing products and, in some instances, our lack of or limited control over the management of the business. Further, strategic initiatives that have historically been successful may not continue to be successful due to competitive threats, changing market conditions or the inability for the parties to extend the relationship into the future.
As a result of any future acquisition, we may issue additional shares of our common stock that dilute our stockholders’ ownership interest, expend cash, incur debt, assume actual and contingent liabilities, inherit existing or pending litigation or create additional expenses related to amortizing intangible assets. Further, we cannot assure you that any such financing or equity investments will be available with terms that will be favorable to us, or available at all.
Fluctuations in foreign currency exchange rates may adversely affect our financial results.
Since we conduct operations in several different countries, including the U.S., U.K., EU and Canada, substantial portions of our revenues, expenses, assets and liabilities are denominated in U.S. dollars, pounds sterling, euros and Canadian dollars. Because our consolidated financial statements are presented in U.S. dollars, we must translate non-U.S. dollar denominated revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar
against the other currencies may affect our net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies.
External events such as Brexit and the negotiations regarding the terms of the U.K.’s exit from the EU, the outcome of the U.S. presidential electionthereof and the passage of U.S. taxation reform legislation each have caused, and may continue to cause, significant volatility in currency exchange rates, especially among the U.S. dollar, the British pound sterling and the euro. If global economic and market conditions, or economic conditions in the U.K., EU, the U.S. or other key markets remain uncertain or deteriorate further, the value of the pound sterling and euro and the global credit markets may further weaken. General financial instability in countries in the EU could have a contagion effect on the region and contribute to the general instability and uncertainty in the EU. Events that adversely affect our U.K. and EU clients and suppliers could in turn have a materially adverse effect on our international business results and our operating results.
For additional information on our foreign currency exchange rate risk, refer to “- Foreign Currency Exchange Rate Risk” in Item 7A “- Quantitative and Qualitative Disclosures About Market Risk, which is included in this Annual Report.”
We may be required to recognize impairments of our goodwill, other intangible assets or investments.
The determination of the value of goodwill and other intangible assets requires the use of estimates and assumptions that affect our consolidated financial statements. As of December 31, 2017,2019, we had goodwill of $12.2$13.3 billion and net other intangible assets of $10.3 billion relating to our acquisitions and our purchase of trademarks and Internet domain names from various third parties. We
During 2019, we recorded a $33an impairment charge of $31 million impairment loss on the remaining value of our Creditex customer relationshipexchange registration intangible assets during 2016, primarily due to the saleon ICE Futures Singapore as a result of our Creditex U.S. voice broker operations and the discontinuance of our Creditex U.K. voice brokerage operations in 2016.
As of December 31, 2016, we had $432 million in long-term investments relating to our equity security investment in Cetip, S.A., or Cetip. In 2017, we sold our equity security investment in Cetip and recognized a realized net investment gain of $167 million.
On October 24, 2017, we acquired a 4.7% stake in Euroclear for €275 million in cash ($327 million based on the euro/U.S. dollar exchange rate of 1.1903 as of October 24, 2017). During December 2017, we reached an agreement to buy an additional 5.1% stake in Euroclear for €243 million in cash ($292 million based on the euro/U.S. dollar exchange rate of 1.2003 as of December 31, 2017) and expect to receive necessary regulatory approval during the first quarter of 2018. Upon closing, we will own a 9.8% stake in Euroclear for a total investment of €518 million ($619 million based on the exchange rates above). Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.
The Financial Accounting Standards Board, or FASB, has issued Accounting Standards Update, or ASU, No. 2016-01, which provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changesdecrease in fair value recognized in net income. We were required to adopt ASU 2016-01 on January 1, 2018. Our cost method investments, including our investment in Euroclear and our 1.8% stake in Coinbase Global, Inc., among others, will be impacted by our adoption of ASU 2016-01 beginning in the first quarter of 2018. These companies do not currently have readily determinable fair market values as they are not publicly listed companies. Therefore, in accordance with ASU 2016-01, we will only adjust the fair value of these investments if and when there is an observable price change in an orderly transaction, and any change in the fair value will be recognized in net income.
value. We cannot assure you that we will not experience future events that may result in asset impairments. An impairment of the value of our existing goodwill, other intangible assets and other investments and assets could have a significant negative impact on our future operating results.
For additional information on our goodwill, other intangible assets and investments, including the impairment and realized investment gain, refer to notesNotes 3, 64 and 8 to our consolidated financial statements and “- Critical Accounting Policies - Goodwill and Other Identifiable Intangible Assets” in Item 7 “- Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included in this Annual Report.
We may face liability for content contained in our data products and services.
We may be subject to claims for breach of contract, defamation, libel, copyright or trademark infringement, fraud or negligence or based on other theories of liability, in each case relating to the data, articles, commentary, ratings, information or other content we distribute in our financial data services. If such data or other content or information that we distribute has errors, is delayed or has design defects, we could be subject to liability or our reputation could suffer. We could also be subject to claims based upon the content that is accessible from our corporate website or those websites that we own and operate through links to other websites. Use of our products and services as part of the investment process creates the risk that clients, or the parties whose assets are managed by our clients, may pursue claims against us for significant amounts. Any such claim, even if the outcome were ultimately favorable to us, could involve a significant commitment of our management, personnel, financial and other resources. Such claims and lawsuits could have a material adverse effect on our business, financial condition and operating results and a negative impact on our reputation.
In addition, we license and redistribute data and content from various third parties and the terms of these licenses change frequently. Our third partythird-party data and content suppliers may audit our use of and our clients’ use of and payment for data and content from time to time in the ordinary course of business, including audits currently underway. Such third partythird-party data and content suppliers may assert that we or our clients owe additional amounts under the terms of the applicable license agreements, that we inappropriately distributed the third partythird-party data or that we or our clients used the data or content in a manner that exceeded the scope of the applicable license agreement or without a license agreement. We have and expect to continue to spend and allocate resources to develop and acquire the use of technology and other intellectual property rights to manage these risks and track third partythird-party data usage, but we cannot be assured that we will not incur liability. We may incur costs to investigate any allegations and may be required to pay damages to or make unexpected settlement payments to these data and content suppliers and these costs and payments could be material.
A failure to protect our intellectual property rights, or allegations that we have infringed the intellectual property rights of others, could adversely affect our business.
Our business is dependent on proprietary technology and other intellectual property that we own or license from third parties, including trademarks, service marks, trade names, trade secrets, copyrights and patents. We cannot assure you that the steps that we have taken or will take in the future will prevent misappropriation of our proprietary technology or intellectual property. Additionally, we may be unable to detect the misappropriation or unauthorized use of our proprietary technology and intellectual property. Our failure to adequately protect our proprietary technology and intellectual property could harm our reputation and
affect our ability to compete effectively. Further, we may need to resort to litigation to enforce our intellectual property rights, which may require significant financial and managerial resources. As a result, we may choose not to enforce our infringed intellectual property rights, depending on our strategic evaluation and judgment regarding the best use of our resources, the relative strength of our intellectual property portfolio and the recourse available to us.
In addition, our competitors, as well as other companies and individuals, may have obtained, and may be expected to obtain in the future, patent and intellectual property rights related to the types of products and services we offer or plan to offer. We cannot assure you that we are or will be aware of all patents and intellectual property rights that may pose a risk of infringement by our products and services. As a result, we may face allegations that we have infringed the intellectual property rights of third parties which may be costly for us to defend against. If one or more of our products or services is found to infringe patents and intellectual property rights held by others, we may be subject to lawsuits or required to stop developing or marketing the products or services, obtain licenses to develop and market the products or services from the holders of the patents and intellectual property or redesign the products or services in such a way as to avoid infringing the patents. We also could be required to pay damages if we were found to infringe patents held by others, which could materially adversely affect our business, financial condition and operating results. We cannot assess the extent to which we may be required in the future to obtain licenses with respect to patents held by others, whether such licenses would be available or, if available, whether we would be able to obtain such licenses on commercially reasonable terms. If we were unable to obtain such licenses, we may not be able to redesign our products or services at a reasonable cost to avoid infringement, which could materially adversely affect our business, financial condition and operating results.
We rely on third partythird-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of an important service, data or content supplied by any third party, or the loss of an exclusive license, could have a material adverse effect on our business.
We depend on a number of suppliers, such as online service providers, hosting service and software providers, data processors, software and hardware vendors, banks, local and regional utility providers, and telecommunications companies for elements of our trading, clearing, data services and other systems. We rely on access to certain data used in our business through licenses with third parties, and we rely on a large international telecommunications company for the provision of hosting services. We also depend on third-party suppliers for data and content, including data received from certain competitors, clients, various government and public record services and financial institutions, used in our products and services. Some of this data is exclusive to particular suppliers and may not be obtained from other suppliers. In addition, our data suppliers could enter into exclusive contracts with our competitors without our knowledge. The general trend toward industry consolidation may increase the risk that these services may not be available to us in the future. If these companies were to experience difficulties, discontinue providing services to us for any reason or be unable to or fail to provide the type of service agreed to for any reason, we would likely experience significant disruption to our business and may be subject to litigation by our clients or increased regulatory scrutiny or regulatory fines. Our third partythird-party data suppliers perform audits on us from time to time in the ordinary course of business to determine if data we license for redistribution has been properly accounted for in accordance with the terms of the applicable license agreement. As a result of these audits, we may incur additional expenses.
Many of our clients also rely on third parties to provide them with systems necessary to access our trading platform. If these companies were to discontinue providing services to our clients for any reason, we may experience a loss of revenue associated with our clients’ inability to transact with our businesses. We hold exclusive licenses to list various index futures and contracts. In the future, litigation or regulatory action may limit the right of owners to grant exclusive licenses for index futures and contracts trading to a single exchange, and our competitors may succeed in providing economically similar products in a manner or jurisdiction not otherwise covered by our exclusive license. MiFID II introduced a harmonized approach to the licensing of services relating to commodity derivatives across Europe and the legislation requires open access to any benchmarks (a benchmark is an index or other measure used to determine the value of a financial instrument, for example, LIBOR or the S&P 500) used in Europe. If unlicensed trading of any index product where we hold an exclusive
license were permitted, we could lose trading volume for these products which would adversely affect our revenues associated with the license and the related index products.
We are subject to significant litigation and liability risks.
Many aspects of our business, and the businesses of our participants, involve substantial risks of liability. These risks include, among others, potential liability from disputes over terms of a trade and the claim that a system failure or delay caused monetary loss to a participant or that an unauthorized trade occurred. For example, dissatisfied market participants that have traded on our electronic platform or those on whose behalf such participants have traded may make claims regarding the quality of trade execution, or allege improperly confirmed or settled trades, abusive trading practices, security and confidentiality breaches, mismanagement or even fraud against us or our participants. In addition, because of the ease and speed with which sizable trades can be executed on our electronic platform, participants can lose substantial amounts by inadvertently entering trade orders or by
entering them inaccurately. A large number of significant error trades could result in participant dissatisfaction and a decline in participant willingness to trade in our electronic markets.
In addition, we are subject to on-going legal disputes that could result in the payment of fines, penalties or damages and could expose us to additional liability in the future. For example, on December 19,in 2017, the U.S. Court of Appeals for the Second Circuit, or the Second Circuit, issued itsa decision in City of Providence v. BATS Global Markets et al. Two, a proposed class action case in which two of our subsidiaries, New York Stock Exchange LLC and NYSE Arca, Inc., are defendants in this case.defendants. In vacating the district court’s dismissal of this lawsuit and remanding for further proceedings, the Second Circuit concluded in part that the defendant securities exchanges are not immune from the claims in this case because absolute immunity is available to a self-regulatory organization,SROs, like the New York Stock Exchange LLC and NYSE Arca, Inc., only when they carry out regulatory functions. Although our exchanges will continue to have other defenses available to them in securities litigation cases (including in this matter), limitations on the doctrine of absolute immunity could result in an increased exposure to litigation, and to increased liability and/or other legal expenses. Additionally, in early 2019, three virtually identical proposed class action lawsuits were filed in the U.S. District Court for the Southern District of New York, asserting that various ICE entities, including ICE Benchmark Administration, engaged in an alleged conspiracy with the LIBOR panel banks to set the USD LIBOR benchmark at artificially low levels for the alleged purpose and effect of depressing payments by those banks to persons who engaged in interest rate transactions with the banks from February 2014 to the present. Subsequently, the plaintiffs re-filed these claims as a consolidated amended complaint, which ICE and the other defendants have moved to dismiss. While ICE intends to vigorously defend these matters, their outcome cannot be determined and adverse rulings could impact our financial condition and continued administration of the LIBOR benchmark.
Further, we could incur significant expenses defending claims, even those without merit, which could adversely affect our business, financial condition and operating results. An adverse resolution of any lawsuit or claim against us, including those we are involved with due to acquisition activity, may require us to pay substantial damages or impose restrictions on how we conduct business, either of which could adversely affect our business, financial condition and operating results. In addition, we may have to establish accruals for those matters in circumstances when a loss contingency is considered probable and the related amount is reasonably estimable. Any such accruals may be adjusted as circumstances change. See note 14Note 15 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for a summary of our legal proceedings and claims.
We may fail to complete or realize the anticipated cost savings, growth opportunities and synergies and other benefits anticipated from our acquisitions, which could adversely affect the value of our common stock.
We have completed many acquisitions and plan to continue to pursue acquisitions and joint ventures. The success of our acquisitions will depend, in part, on our ability to integrate these businesses into our existing operations and realize anticipated cost savings, revenue synergies and growth opportunities. We generally set aggressive timelines for realizing savings,which assumes we successfully undertake a variety of actions (including, but not limited to, integrating technology, eliminating redundancies and effecting organizational restructurings) that are themselves subject to a variety of risks and may be subject to regulatory approvals that we do not control. The process of integrating acquired companies is time consuming and could disrupt each company’s ongoing businesses, produce unforeseen regulatory and operating difficulties (including inconsistencies in standards, controls, procedures and policies that adversely affect relationships with market participants, regulators and others), require substantial resources and expenditures and divert the attention of management from the ongoing operation of the business.
There is a risk, however, that we may not integrate these acquired companies in a manner that permits our expected cost savings and revenue synergies to be fully realized in the time periods expected, or at all. In addition, a variety of factors,
including but not limited to regulatory conditions, governmental competition approvals, currency fluctuations and difficulty integrating technology platforms, may adversely affect our ability to complete our acquisitions or realize our anticipated cost savings and synergies.
We may also not realize anticipated growth opportunities and other benefits from strategic investments or strategic joint ventures or alliances that we have entered into or may enter into for a number of reasons, including regulatory or government approvals or changes, global market changes, contractual obligations, competing products and, in some instances, our lack of or limited control over the management of the business. Further, strategic initiatives that have historically been successful may not continue to be successful due to competitive threats, changing market conditions or the inability for the parties to extend the relationship into the future.
As a result of any future acquisition, we may issue additional shares of our common stock that dilute our stockholders’ ownership interest, expend cash, incur debt, assume actual and contingent liabilities, inherit existing or pending litigation or create additional expenses related to amortizing intangible assets. Further, we cannot assure you that any such financing or equity investments will be available with terms that will be favorable to us, or available at all.
We may be at greater risk from terrorism than other companies.
Given our prominence in the global securities industry and the location of many of our properties and personnel in U.S. and European financial centers, including lower Manhattan, we may be more likely than other companies to be a direct target of, or an indirect casualty of, attacks by terrorists or terrorist organizations, or other extremist organizations that employ threatening or harassing means to achieve their social or political objectives.
It is impossible to predict the likelihood or impact of any terrorist attack on the securities industry generally or on our business. In the event of an attack or a threat of an attack, our security measures and contingency plans may be inadequate to prevent significant disruptions in our business, technology or access to the infrastructure necessary to maintain our business. Damage to our facilities due to terrorist attacks may be significantly in excess of insurance coverage, and we may not be able to insure against some damage at a reasonable price or at all. The threat of terrorist attacks may also negatively affect our ability to attract and retain employees. In addition, terrorist attacks may cause instability or decreased trading in the securities markets, including trading on exchanges. Any of these events could adversely affect our business, financial condition and operating results.
Damage to our reputation could damage our business.
Our business is highly competitive and our customers typically have options on where to conduct their business. Our management team and business operations benefit from being highly regarded in our industry. Maintaining our reputation is critical to attracting and retaining customers and investors and for maintaining our relationships with our regulators. Negative publicity regarding our company or actual, alleged or perceived issues regarding our products or services, operations, risk management, compliance with regulations or management team could give rise to reputational risk which could significantly harm our existing business and business prospects.
Owning and operating voice broker and electronic fixed income brokerage businesses exposes us to additional risk, and these businesses are largely dependent on general market conditions.
Our voice broker business provides brokerage services to clients in the form of agency transactions in commodity products. In agency transactions, customers pay transaction fees for trade execution services in which we connect buyers and sellers who settle their transactions directly. In connection with our fixed income business, our broker-dealers operate in both an agency and in a matched principal capacity (also known as “risk-less principal”). When trading as matched principal, we agree to buy instruments from one customer and sell them to another customer. The amount of the fee generally depends on the spread between the buy and sell price of the security that is brokered.brokered on our platforms. With respect to matched principal transactions, a counterparty to a matched principal transaction may fail to fulfill its obligations, or we may face liability for an unmatched trade. We also face the risk of not being able to collect transaction or processingsubscription- based fees charged to customers for brokerage and related services that we provide to our customers.
Our success largely depends on key personnel, including our senior management, and processing serviceshaving adequate succession plans in place. Because competition for our key employees is intense, we provide.may not be able to attract, retain and develop the highly skilled employees we need to support our business. The loss of senior management or other key personnel could harm our business.
Our future performance depends, in large part, on the continued services of our senior management and other key personnel, including our ability to attract, retain and motivate key personnel. Competition for key personnel in the various localities and business segments in which we operate is intense. Our ability to attract and retain key personnel, in particular senior management, will be dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. There is no guarantee that we will have the continued service of key employees who we rely upon to execute our business strategy and identify and pursue strategic opportunities and initiatives. The loss of the services of any of our senior management or other key personnel, or our inability to attract highly qualified senior management and other key personnel, could harm our business. In particular, we may have to incur costs to replace senior officers or other key employees who leave, and our ability to execute our business strategy could be impaired if we are unable to replace such persons in a timely manner.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key new hires or promoted employees could adversely affect our business and results of operations.
We are a holding company and depend on our subsidiaries for dividends, distributions and other payments.
We are a legal entity separate and distinct from our operating subsidiaries. Our principal source of cash flow, including cash flow to pay dividends to our stockholders, and principal and interest on our outstanding debt or repurchase shares of our common stock, is dividends from our subsidiaries. There are statutory and regulatory limitations on the payment of dividends by certain of our subsidiaries to us. If our subsidiaries are unable to make dividend payments to us and sufficient cash or liquidity is not otherwise available, we may not be able to make dividend payments to our stockholders, principal and interest payments on our outstanding debt or repurchase shares of our common stock, which could have a material adverse effect on our business, financial condition and operating results.
Provisions of our organizational documents and Delaware law may delay or deter a change of control of ICE.
Our organizational documents contain provisions that may have the effect of discouraging, delaying or preventing a change of control of, or unsolicited acquisition proposals for, ICE. These provisions make a change of control less likely, which may be contrary to the desires of certain of our stockholders. Many of these provisions are required by relevant regulators in connection with our ownership and operation of U.S. and European equity exchanges. For example, our organizational documents include provisions that generally restrict any person (either alone or together with its related persons) from (i) voting or causing the voting of shares of stock representing more than 10% of our outstanding voting capital stock (including as a result of any agreement by any other persons not to vote shares of stock) or (ii) beneficially owning shares of stock representing more than 20% of the outstanding shares of any class or series of our capital stock. Further, our organizational documents generally limit the ability of stockholders to call special stockholders’ meetings or act by written consent, and generally authorize our boardBoard of directors,Directors, without stockholder approval, to issue and fix the rights and preferences of one or more series of preferred stock. In addition, provisions of Delaware law may have a similar effect, such as provisions limiting the ability of certain interested stockholders, as defined under Delaware law, from causing the merger or acquisition of a corporation against the wishes of the boardBoard of directors.Directors.
RISKS TO OUR BUSINESS RELATED TO OUR INVESTMENT IN AND OPERATION OF BAKKT
We may not realize the expected benefits of our majority investment in Bakkt and the investment may introduce additional risks to our business due to its newly developed and evolving business model.
We have a majority ownership interest in Bakkt Holdings, LLC and by extension, its subsidiaries (collectively, “Bakkt”). Bakkt intends to create an integrated platform that enables consumers and institutions to transact in digital assets, which include cryptocurrencies and other assets, such as loyalty and rewards points. In 2019, Bakkt launched a custodial solution for Bitcoin futures traded on ICE Futures U.S. and other related trading products based on those futures. In the future, Bakkt plans to launch additional products and services, including a consumer platform that will enable consumers to buy, sell, store, and spend digital assets. Due to our majority ownership interest in Bakkt, we have increased financial and reputational risks if there is a failure to launch one or more products, or if the launch of a new product is unsuccessful. Also, there can be no assurance that we will receive the necessary regulatory approvals or support from customers to launch products as planned, that Bakkt will operate as anticipated, or that we will realize the expected return on our investment. We regularly evaluate our existing operations, service capacity and business efficiencies and, as a result of
such evaluations, we may undertake strategic initiatives outside of and within our businesses. As a result, it may take longer than expected for us to realize the expected returns from this investment or such returns may ultimately be less than anticipated. Furthermore, our investment in Bakkt entails numerous risks, including risks relating to Bakkt’s ability to:
manage the complexity of its business model to stay current with the industry;
successfully enter categories and markets in which it may have limited or no prior experience;
apply distributed ledger technology to a global ecosystem for digital assets;
successfully develop and integrate products, systems or personnel into its business operations; and
maintain trading volume in Bakkt's Bitcoin futures contract, or any subsequent products released by Bakkt.
As digital assets and blockchain technologies evolve, Bakkt may add, modify or discontinue certain aspects of its business model relating to the product mix and service offerings. Future additions and modifications to Bakkt’s business will increase the complexity of its business and place significant strain on our and Bakkt’s management, personnel, operations, systems, technical performance, financial resources and internal financial control and reporting functions. We cannot offer any assurance that these or any other additions or modifications will be successful or will not result in harm to Bakkt’s or our business.
Distributed ledger technology is relatively new, and we believe that the application of distributed ledger technology to a global ecosystem for digital assets is novel to the proposed Bakkt systems and, accordingly, we have limited experience applying distributed ledger technology to a global ecosystem for digital assets. The creation and operation of an exchange for the transfer of digital assets utilizing a distributed ledger to enable consumers and institutions to confirm that the blockchain underlying these digital assets has not been altered is subject to potential technical, legal and regulatory constraints. Any problems that Bakkt encounters with the operation of the Bakkt systems, including technical, legal and regulatory problems, could have a material adverse effect on its business and plan of operations.
Hiring qualified and experienced personnel in this specialized technology space is difficult due to the high level of competition and scarcity of experience. This could put a strain on existing ICE employees and delay the work that these employees are performing for ICE and ICE’s subsidiaries. In addition, any potential issues or major decisions involving Bakkt may divert the attention of management and resources from matters that are core or critical to ICE’s business.
At present, Bakkt is heavily dependent on trading volume from Bakkt's Bitcoin futures contract, for its clearing and transaction fee revenues and profits. Failure to establish the trading volume in Bakkt's Bitcoin futures contract, or any subsequent products released by Bakkt, would negatively impact Bakkt's business, financial condition and operating results and, consequently, our majority ownership interest in Bakkt.
Digital currency custodial solutions and related technology, including Bakkt’s systems and custodial arrangements, are subject to risks related to a loss of funds due to theft of cryptocurrencies, employee or vendor sabotage, security and cybersecurity risks, system failures and other operational issues and a lack of sufficient insurance, which could cause damage to our reputation and brand and Bakkt’s reputation and brand.
Bakkt's systems and custodial solutions involve the processing, storage and transmission of cryptocurrencies and data. While Bakkt will contractually limit the amount of exposure it will have in the event that the cryptocurrencies are stolen or misappropriated, we cannot guarantee that these limits will protect us from additional liability and other damage. The theft or misappropriation of cryptocurrencies held in custody by Bakkt would likely result in financial loss, reputational damage, potential lack of trust from our customers in other business lines, negative press coverage and diversion of management’s time and focus. The secure storage and transmission of cryptocurrencies and data over networks will be a critical element of Bakkt’s operations. Despite the defensive measures Bakkt may take, these threats may come from external factors such as governments, organized crime, hackers and other third parties such as outsourced or infrastructure-support providers and application developers, or may originate internally from an employee or service provider to whom Bakkt has granted access to its systems.
Cryptocurrency transactions are irrevocable, and stolen or incorrectly transferred cryptocurrencies may be irretrievable. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of a cryptocurrency generally will not be reversible, and Bakkt may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, the cryptocurrency could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Such events would
have a material adverse effect on the ability of Bakkt to continue as a going concern, which would have a material adverse effect on our majority ownership interest in Bakkt.
While Bakkt maintains insurance policies, they may not be adequate to reimburse us for losses caused by security breaches, and Bakkt may lose cryptocurrencies valued in excess of the insurance policy without any recourse. Unlike bank accounts or accounts at some other financial institutions, in the event of loss or loss of utility value, there is no public insurer, such as the Securities Investor Protection Corporation or the FDIC, to offer recourse to Bakkt or to any investor and the misappropriated cryptocurrencies cannot easily be traced to the bad actor.
Further, when cryptocurrency custodial solutions or transfer venues (whether involving Bakkt systems or others) experience system failures or other operational issues, such events could result in a reduction in cryptocurrency prices or confidence and impact the success of Bakkt and have a material adverse effect on the ability of Bakkt to continue as a going concern.
As Bakkt expands into its consumer business, its business will involve the collection, storage, processing, and transmission of customers’ personal data, including financial information. An increasing number of organizations, including large merchants, businesses, technology companies, and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.
The techniques used to obtain unauthorized, improper, or illegal access to Bakkt’s systems, its data or customers’ data, disable or degrade service, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly, and may only be recognized or detected after they have been launched against a target. Due to the nature of the Bakkt business and industry, unauthorized parties have attempted, and we expect they will continue to attempt, to gain access to Bakkt’s systems or facilities through various means, including hacking into Bakkt’s systems or facilities or those of its customers, partners, or vendors, or attempting to fraudulently induce (for example, through spear phishing attacks) its employees, customers, partners, vendors, or other users into disclosing user names, passwords, payment information, or other sensitive information, which may in turn be used to access our systems. Certain efforts may be state-sponsored and supported by significant financial and technological resources, making them even more sophisticated and difficult to defend against and detect. Numerous and evolving cybersecurity threats, including advanced and persistent cyber-attacks, phishing and social engineering schemes, could compromise the confidentiality, availability, and integrity of the data in our systems. We believe that Bakkt is a particularly attractive target for such attacks due to its industry, name, and brand recognition. Although we have developed systems and processes designed to protect our data, customer data, systems, personnel, and facilities from data loss and other security breaches, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will be sufficient.
Bakkt’s information technology and infrastructure may be vulnerable to cyber-attacks or security breaches, and unauthorized third parties may be able to access its customers’ personal or confidential information and other sensitive data that are stored on or accessible through those systems. We may experience breaches of our security measures due to human error, malfeasance, system errors or vulnerabilities in either Bakkt systems or authorized third-party systems that Bakkt relies on. Cybersecurity threats to, and incidents involving, third parties who support our activities - particularly those with less-sophisticated defenses - could impact us despite the efforts we make to ensure their cyber resiliency.
Bakkt expects to expend significant additional resources to protect against security or privacy breaches, and may be required to redress problems caused by breaches. Financial services regulators in various jurisdictions, including the U.S., have implemented authentication requirements for banks and payment processors intended to reduce online fraud, which could impose significant costs, require us to change our business practices, make it more difficult for new customers to join Bakkt, or reduce the ease of use of our products, any of which could harm our business.
Regulatory changes or actions may alter the nature of our majority ownership interest in Bakkt or restrict the use of cryptocurrencies in a manner that adversely affects Bakkt’s business, prospects or operations and, consequently, our majority ownership interest in Bakkt.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies, with certain governments deeming them illegal and others allowing their use and trade. Ongoing and future regulatory actions may impact the ability of Bakkt to continue to operate, and such actions could affect the ability of Bakkt to continue as a going concern, which would have a material adverse effect on the business, prospects or operations of Bakkt and, consequently, our majority ownership interest in Bakkt.
The CFTC has designated bitcoin as a commodity, and as such, exchange-traded derivatives involving bitcoin are subject to the CFTC's jurisdiction and enforcement powers. Although the CFTC has suggested it is not particularly focused on pursuing such enforcement at this time, and in fact there may be some limits on its ability to do so without a specific connection to commodities derivatives markets, in the event that the CFTC does pursue such enforcement and ultimately shuts down an exchange on which Bakkt’s Bitcoin futures contract is traded, it may have a significant adverse impact on Bakkt's business and plan of operations and, consequently, our majority ownership interest in Bakkt.
Governments may in the future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost and/or subject cryptocurrency companies to additional regulation.
In addition, as Bakkt expands its business to new products and services, it will come under the jurisdiction of additional regulators - both with respect to jurisdiction (inside and outside the U.S.) and subject matter (payments, consumer protection, and other areas). Any failure or perceived failure to comply with existing or new laws, regulations, or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, or orders), including those discussed in this risk factor, may subject Bakkt to significant fines, penalties, criminal and civil lawsuits, forfeiture of significant assets, and enforcement, result in additional compliance and licensure requirements, increase regulatory scrutiny of its business, restrict Bakkt’s operations, and force Bakkt to change its business practices, make product or operational changes, or delay planned product launches or improvements. Bakkt has implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no assurance that its employees, contractors, or agents will not violate such laws and regulations.
The characteristics of digital currency have been, and may in the future continue to be, exploited to facilitate illegal activity such as fraud, money laundering, tax evasion and ransomware scams; if any of our customers do so or are alleged to have done so, it could adversely affect us.
Digital currencies and the digital currency industry are relatively new and, in many cases, lightly regulated or largely unregulated. Some types of digital currency have characteristics, such as the speed with which digital currency transactions can be conducted, the ability to conduct transactions without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, the irreversible nature of certain digital currency transactions and encryption technology that anonymizes these transactions, that make digital currency particularly susceptible to use in illegal activity such as fraud, money laundering, tax evasion and ransomware scams.
While we believe that Bakkt’s risk management and compliance framework is reasonably designed to detect any such illicit activities, we cannot ensure that we will be able to detect any such illegal activity in all instances. Because the speed, irreversibility and anonymity of certain digital currency transactions make them more difficult to track, fraudulent transactions may be more likely to occur. Bakkt may be specifically targeted by individuals seeking to conduct fraudulent transfers, and it may be difficult or impossible for us to detect and avoid such transactions in certain circumstances.
Bakkt is subject to anti-money laundering and counter terrorist financing laws and regulations globally, including the USA PATRIOT Act, as well as economic and trade sanctions programs, including those imposed and administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC. Under OFAC’s economic sanctions program, Bakkt is prohibited from financial transactions and other dealings with certain countries and geographies (currently, Crimea, Cuba, Iran, North Korea and Syria) and with persons and entities included in OFAC sanctions lists, including its list of Specially Designated Nationals and Blocked Persons. Currently, Iran, Sudan and Syria have been identified by the U.S. State Department as terrorist-sponsoring states. Bakkt is also subject to anti-corruption laws and regulations globally, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Bakkt has implemented policies and procedures designed to help ensure compliance with these laws and regulations, but there can be no assurance that its employees or agents will not violate such laws and regulations. A failure by Bakkt or its employees or agents to comply with such laws and regulations and subsequent judgment or settlement against Bakkt under these laws could subject Bakkt to monetary penalties, damages, and/or have a significant reputational impact.
ITEM 1 (B). UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The net book value of our property was $1.2$1.5 billion as of December 31, 2017.2019. Our intellectual property is described under the heading in Item 1 “- Business -Technology.”-Technology” and "-Business-Intellectual Property." In addition to our intellectual property, our other primary assets include buildings, computer equipment, corporate aircraft, software, and internally developed software. We own an array of computers and related equipment.
Our headquarters and principal executive offices are located in Atlanta, Georgia and New York, New York. We currently occupy 270,000273,000 square feet of office space in Atlanta in a building that we own that serves as our Atlanta headquarters. Our New York headquarters are located at 11 Wall Street, where we occupy 370,000 square feet of office space in a building we own. In total, we maintain 2.5approximately 2.6 million square feet in offices primarily throughout the U.S., U.K., EU, Asia, Israel and Canada. Generally, our properties are not earmarked for use by a particular business segment. Our principal offices consist of the properties described below.
|
| | | | | | | | | | | |
| Location | | Owned/Leased | | Lease Expiration | | Approximate Size | |
5660 New Northside Drive Atlanta, Georgia | | | Owned | | | N/A | | | 270,000273,000 sq. ft. | |
11 Wall Street New York, New York | | | Owned | | | N/A | | | 370,000 sq. ft. | |
| Basildon, U.K. | | | Owned | | | N/A | | | 539,000 sq. ft. | |
| Mahwah, New Jersey | | | Leased | | | 2029 | | | 395,000396,000 sq. ft. | |
60 Codman Hill Road Boxborough, Massachusetts | | | Leased | | | 2018 | | | 100,000 sq. ft. | |
55 East 52nd52nd Street New York, New York | | | Leased | | | 2028 | | | 93,00094,000 sq. ft. | |
| Skyview Tower Hyderabad, India | | | Leased | | | 2024 | | | 84,000 sq. ft. | |
| 32 Crosby Drive Bedford, Massachusetts | | | Leased | | | 2026 | | | 82,000 sq. ft. | |
| Milton Gate London, U.K. | | | Leased | | | 2024 | | | 70,00072,000 sq. ft. | |
| Fitzroy House London, U.K. | | | Leased | | | 2025 | | | 65,00068,000 sq. ft. | |
| 100 Church Street New York, New York | | | Leased | | | 2024 | | | 65,000 sq. ft. | |
| 132 Menachem Begin Rd Tel Aviv, Israel | | | Leased | | | 2022 | | | 57,000 sq. ft. | |
| 353 North Clark Street Chicago, Illinois | | | Leased | | | 2027 | | | 57,000 sq. ft. | |
In addition to the above, we currently lease an aggregate of 367,000nearly 460,000 square feet of administrative, sales and disaster preparedness facilities in various cities around the word. We believe that our facilities are adequate for our current operations and that we will be able to obtain additional space as and when it is needed.
ITEM 3. LEGAL PROCEEDINGS
We are subject to legal proceedings, claims and investigations that arise in the ordinary course of our business. We establish accruals for those matters in circumstances when a loss contingency is considered probable and the related amount is reasonably estimable. Any such accruals may be adjusted as circumstances change. Assessments of losses are inherently subjective and involve unpredictable factors. We do not believe that the resolution of these legal matters, including the matters described below,in this Annual Report, will have a material adverse effect on our consolidated financial condition, results of operations, or liquidity. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially and adversely affected by any developments relating to the legal proceedings, claims and investigations. See note 14Note 15 to the consolidated financial statements in Part II, Item 8 of this Annual Report for a summary of our legal proceedings and claims.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
ITEM 5. | ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES |
Approximate Number of Holders of Common Stock
As of February 5, 2018,3, 2020, there were approximately 538494 holders of record of our common stock. Our common stock trades on the New York Stock Exchange under the ticker symbol “ICE.”
Dividends
The declarationOur Board of dividends is subject to the discretion of our board of directors, and may be affected by various factors, including our future earnings, financial condition, capital requirements, share repurchase activity, levels of indebtedness, credit ratings and other considerations our board of directors deem relevant. Our board of directorsDirectors has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the boardBoard or audit committeeAudit Committee of the boardBoard of directorsDirectors taking into account such factors as our evolving business model, prevailing business conditions and our financial results and capital requirements, without a predetermined annual net income payout ratio. DuringThe declaration of dividends is subject to the year ended December 31, 2017, we paid dividends of $0.80 per sharediscretion of our common stock in the aggregate,Board of Directors, and may be affected by various factors, including quarterly dividend for each quarter in 2017our future earnings, financial condition, capital requirements, share repurchase activity, current and future planned strategic growth initiatives, levels of $0.20 per
share, for an aggregate payout of $476 million in 2017. Refer to note 11 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for details on the amounts of our quarterly dividend payouts for the last three years. For the first quarter of 2018, we announced a $0.24 per share dividend, which is a 20% increase over the prior dividend, which is payable on March 29, 2018 to shareholders of record as of March 15, 2018.
As a holding company, we have no operations and rely upon dividends from our subsidiaries in order to provide liquidity necessary to service our debt obligations and make dividend payments to our shareholders. We and our subsidiaries are all required to comply with legal and regulatory restrictions, including restrictions contained in applicable general corporate laws, regarding the declaration and payment of dividends. These laws may limit our or our subsidiaries’ ability to declare and pay dividends from time to time.
None of the indentures governing our and our subsidiaries’ outstanding indebtedness, contain specific covenants restricting our ability, or the ability of our subsidiaries, to pay dividends absent a default on such indebtedness. Our senior unsecured revolving credit facility in the aggregate amount of $3.4 billion, however, limits our ability to declare and make dividend payments,ratings and other distributionsconsiderations our Board of our cash, property or assets, if a default under the applicable facility has occurred and is continuing, or would occur as a result of our declaration and payment of any dividend or other distribution. Our senior unsecured revolving credit facility contains customary financial and operating covenants that place restrictions on our operations, including our maintenance of specified total leverage and interest coverage ratios, which could indirectly affect our ability to pay dividends. Refer to note 10 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on our debt facilities.Directors deem relevant.
Price Range of Common Stock
Our common stock trades on the New York Stock Exchange under the ticker symbol “ICE.” On February 5, 2018, our common stock traded at a high of $74.47 per share and a low of $71.27 per share. The following table sets forth the quarterly high and low sale prices for the periods indicated for our common stock on the New York Stock Exchange.
|
| | | | | | | |
| | Common Stock Market
Price |
| | High | | Low |
| Year Ended December 31, 2016 | | | |
| First Quarter | $ | 53.78 |
| | $ | 45.79 |
|
| Second Quarter | $ | 54.39 |
| | $ | 45.88 |
|
| Third Quarter | $ | 57.40 |
| | $ | 50.18 |
|
| Fourth Quarter | $ | 59.86 |
| | $ | 52.27 |
|
| Year Ended December 31, 2017 | | | |
| First Quarter | $ | 61.98 |
| | $ | 55.80 |
|
| Second Quarter | $ | 66.73 |
| | $ | 57.91 |
|
| Third Quarter | $ | 68.88 |
| | $ | 63.22 |
|
| Fourth Quarter | $ | 72.99 |
| | $ | 64.91 |
|
Equity Compensation Plan Information
The following table provides information about our common stock that has been or may be issued under our equity compensation plans as of December 31, 2017:2019:
•Intercontinental Exchange, Inc. 2018 Employee Stock Purchase Plan
•Intercontinental Exchange, Inc. 2017 Omnibus Employee Incentive Plan
•Intercontinental Exchange, Inc. 2013 Omnibus Employee Incentive Plan
•Intercontinental Exchange, Inc. 2013 Omnibus Non-Employee Director Incentive Plan
•Intercontinental Exchange, Inc. 2009 Omnibus Incentive Plan
•Intercontinental Exchange, Inc. 2003 Restricted Stock Deferral Plan for Outside Directors
•Intercontinental Exchange, Inc. 2000 Stock Option Plan
•NYSE Omnibus Incentive Plan As Amended and Restated
The 2000 Stock Option Plan was retired on May 14, 2009 when our shareholders approved the 2009 Omnibus Incentive Plan. The 2009 Omnibus Incentive Plan was retired onin May 17, 2013 when our shareholders approvedupon adoption of the 2013 Omnibus Employee Incentive Plan. The 2013 Omnibus Employee Incentive Plan was retired onin May 19, 2017 when our shareholders approvedupon adoption of the 2017 Omnibus Employee Incentive Plan. No future grants will be made from the retired plans. No future grants will be made to legacy NYSE employees under the NYSE Omnibus Incentive Plan. All future grants to employees will be made under the Intercontinental Exchange, Inc. 2017 Omnibus Employee Incentive Plan and all future grants to directors will be made under the Intercontinental Exchange, Inc. 2013 Omnibus Non-Employee Director Incentive Plan. All purchases made pursuant to the Employee Stock Purchase Plan are made from the 2018 Employee Stock Purchase Plan.
| | | Plan Category | Number of
securities to be issued
upon exercise of
outstanding options
and rights
(a) | | Weighted average
exercise price of
outstanding options
(b) | | Number of securities
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c) | Number of securities to be issued upon exercise of outstanding options and rights (in thousands)
(a) | | Weighted average exercise price of outstanding options
(b) | | Number of securities
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (in thousands)
(c) |
Equity compensation plans approved by security holders(1) | 10,650,500 |
| (1) | $ | 41.13 |
| (1) | 39,660,237 |
| 8,078 |
| (1) | $ | 51.87 |
| (1) | 34,184 |
|
Equity compensation plans not approved by security holders(2) | 88,930 |
| (2) | — |
| (2) | — |
| 89 |
| (2) | — |
| (2) | — |
|
| TOTAL | 10,739,430 |
| | $ | 41.13 |
| | 39,660,237 |
| 8,167 |
| | $ | 51.87 |
| | 34,184 |
|
| |
| (1) | The 2000 Stock Option Plan was approved by our stockholders in June 2000. The 2009 Omnibus Incentive Plan was approved by our stockholders onin May 14, 2009. The 2013 Omnibus Employee Incentive Plan and the 2013 Omnibus Non-Employee Director Incentive Plan were approved by our stockholders in May 2013. The shareholders of NYSE approved the NYSE Amended and Restated Omnibus Incentive Plan on April 25, 2013. The 2017 Omnibus Employee Incentive Plan was approved by our shareholders onstockholders in May 19, 2017. Of the 10,650,5008.1 million securities to be issued upon exercise, of outstanding options and rights, 4,013,3883.5 million are options with a weighted average exercise price of $41.13$51.87 and the remaining 6,637,1124.6 million securities are restricted stock shares that do not have an exercise price. Of the 6,637,112 restricted stock shares to be issued, 106,105 shares were originally granted under the NYSE Amended and Restated Omnibus Incentive Plan.The 2018 Employee Stock Purchase Plan was approved by stockholders in May 2018. |
| |
| (2) | This category includes the 2003 Restricted Stock Deferral Plan for Outside Directors. All of the 88,93089,000 securities to be issued are restricted stock shares that do not have an exercise price. For more information concerning these plans, see noteNote 11 to our consolidated financial statements, and related notes, which are included elsewhere in this Annual Report. |
Stock Repurchases
The table below sets forth the information with respect to purchases made by or on behalf of ICE or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended December 31, 2017. 2019.
|
| | | | |
Period (2019) | Total number of shares purchased (in thousands) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs (in thousands) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) |
| October 1 - October 31 | 1,305 | $93.17 | 15,076 | $758 |
| November 1 - November 30 | 1,149 | $92.64 | 16,225 | $652 |
| December 1 - December 31 | 1,207 | $92.73 | 17,432 | $540 |
| Total | 3,661 | $92.86 | 17,432 | $540 |
|
| | | | |
Period (2017) | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs(1) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions)(1) |
| October 1 - October 31 | 1,227,656 | $68.01 | 13,599,618 | $158 |
| November 1 - November 30 | 1,192,278 | $67.39 | 14,791,896 | $78 |
| December 1 - December 31 | 1,077,640 | $70.75 | 15,869,536 | $1 |
| Total | 3,497,574 | $68.62 | 15,869,536 | $1 |
| |
(1) | In September 2017, our board of directors approved an aggregate of $1.2 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2018. Refer to note 11Refer to Note 12 to our consolidated financial statements, and related notes, which are included elsewhere in this Annual Report, for additional details on our stock repurchase plans. |
ITEM 6. SELECTED FINANCIAL DATA
The following tables present our selected consolidated financial data as of and for the dates and periods indicated. We derived the selected consolidated financial data set forth below for the years ended2019, 2018 and 2017 and as of December 31, 2017,2019 and 2018 from our audited consolidated financial statements, which are included in this Annual Report. We derived the financial data for 2016 and 2015 and as of December 31, 2017, 2016 and 2016 from our audited consolidated financial statements, which are included elsewhere in this Annual Report. We derived the selected consolidated financial data set forth below for the years ended December 31, 2014 and 2013 and as of December 31, 2015 2014 and 2013 from our audited consolidated financial statements, which are not included in this Annual Report. The selected consolidated financial data presented below is not indicative of our future results for any period. The selected consolidated financial data set forth belowIt should be read in conjunction with our consolidated financial statements and related notes and Item 7, “- Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (In millions, except for per share data) |
Consolidated Statement of Income Data: | | | | | | | | | |
| Revenues: | | | | | | | | | |
Transaction and clearing, net(1) | $ | 3,627 |
| | $ | 3,483 |
| | $ | 3,131 |
| | $ | 3,384 |
| | $ | 3,228 |
|
| Data services | 2,211 |
| | 2,115 |
| | 2,084 |
| | 1,978 |
| | 871 |
|
| Listings | 449 |
| | 444 |
| | 426 |
| | 432 |
| | 405 |
|
| Other revenues | 260 |
| | 234 |
| | 202 |
| | 177 |
| | 178 |
|
| Total revenues | 6,547 |
| | 6,276 |
| | 5,843 |
| | 5,971 |
| | 4,682 |
|
Transaction-based expenses(1) | 1,345 |
| | 1,297 |
| | 1,205 |
| | 1,459 |
| | 1,344 |
|
| Total revenues, less transaction-based expenses | 5,202 |
| | 4,979 |
| | 4,638 |
| | 4,512 |
| | 3,338 |
|
| Operating expenses: | | | | | | | | | |
| Compensation and benefits | 1,042 |
| | 994 |
| | 946 |
| | 953 |
| | 611 |
|
| Professional services | 125 |
| | 131 |
| | 121 |
| | 137 |
| | 139 |
|
Acquisition-related transaction and integration costs(2) | 2 |
| | 34 |
| | 36 |
| | 80 |
| | 88 |
|
| Technology and communication | 469 |
| | 432 |
| | 397 |
| | 374 |
| | 203 |
|
| Rent and occupancy | 68 |
| | 68 |
| | 69 |
| | 70 |
| | 57 |
|
| Selling, general and administrative | 161 |
| | 151 |
| | 155 |
| | 116 |
| | 116 |
|
| Depreciation and amortization | 662 |
| | 586 |
| | 535 |
| | 610 |
| | 374 |
|
| Total operating expenses | 2,529 |
| | 2,396 |
| | 2,259 |
| | 2,340 |
| | 1,588 |
|
| Operating income | 2,673 |
| | 2,583 |
| | 2,379 |
| | 2,172 |
| | 1,750 |
|
Other income (expense), net(3) | (192 | ) | | (63 | ) | | 147 |
| | (129 | ) | | (97 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In millions, except for per share data) |
Consolidated Statement of Income Data(1) | | | | | | | | | |
| Revenues: | | | | | | | | | |
Transaction and clearing, net(2) | $ | 3,131 |
| | $ | 3,384 |
| | $ | 3,228 |
| | $ | 3,144 |
| | $ | 1,393 |
|
| Data services | 2,084 |
| | 1,978 |
| | 871 |
| | 691 |
| | 246 |
|
| Listings | 417 |
| | 419 |
| | 405 |
| | 367 |
| | 33 |
|
| Other revenues | 202 |
| | 177 |
| | 178 |
| | 150 |
| | 58 |
|
| Total revenues | 5,834 |
| | 5,958 |
| | 4,682 |
| | 4,352 |
| | 1,730 |
|
Transaction-based expenses(2) | 1,205 |
| | 1,459 |
| | 1,344 |
| | 1,260 |
| | 132 |
|
| Total revenues, less transaction-based expenses | 4,629 |
| | 4,499 |
| | 3,338 |
| | 3,092 |
| | 1,598 |
|
| Operating expenses: | | | | | | | | | |
| Compensation and benefits | 937 |
| | 945 |
| | 611 |
| | 592 |
| | 302 |
|
| Professional services | 121 |
| | 137 |
| | 139 |
| | 181 |
| | 54 |
|
Acquisition-related transaction and integration costs(3) | 36 |
| | 80 |
| | 88 |
| | 129 |
| | 143 |
|
| Technology and communication | 397 |
| | 374 |
| | 203 |
| | 188 |
| | 63 |
|
| Rent and occupancy | 69 |
| | 70 |
| | 57 |
| | 78 |
| | 39 |
|
| Selling, general and administrative | 155 |
| | 116 |
| | 116 |
| | 143 |
| | 51 |
|
| Depreciation and amortization | 535 |
| | 610 |
| | 374 |
| | 333 |
| | 156 |
|
| Total operating expenses | 2,250 |
| | 2,332 |
| | 1,588 |
| | 1,644 |
| | 808 |
|
| Operating income | 2,379 |
| | 2,167 |
| | 1,750 |
| | 1,448 |
| | 790 |
|
Other income (expense), net(4) | 138 |
| | (138 | ) | | (97 | ) | | (41 | ) | | (286 | ) |
| Income from continuing operations before income tax expense (benefit) | 2,517 |
| | 2,029 |
| | 1,653 |
| | 1,407 |
| | 504 |
|
Income tax expense (benefit)(5) | (25 | ) | | 580 |
| | 358 |
| | 402 |
| | 184 |
|
| Income from continuing operations | 2,542 |
| | 1,449 |
| | 1,295 |
| | 1,005 |
| | 320 |
|
Income (loss) from discontinued operations, net of tax(6) | — |
| | — |
| | — |
| | 11 |
| | (50 | ) |
| Net income | $ | 2,542 |
| | $ | 1,449 |
| | $ | 1,295 |
| | $ | 1,016 |
| | $ | 270 |
|
| Net income attributable to non-controlling interest | (28 | ) | | (27 | ) | | (21 | ) | | (35 | ) | | (16 | ) |
Net income attributable to ICE(7) | $ | 2,514 |
| | $ | 1,422 |
| | $ | 1,274 |
| | $ | 981 |
| | $ | 254 |
|
| Basic earnings (loss) per share attributable to ICE common shareholders: | | | | | | | | | |
Continuing operations(7) | $ | 4.27 |
| | $ | 2.39 |
| | $ | 2.29 |
| | $ | 1.70 |
| | $ | 0.78 |
|
Discontinued operations(6) | — |
| | — |
| | — |
| | 0.02 |
| | (0.13 | ) |
| Basic earnings per share | $ | 4.27 |
| | $ | 2.39 |
| | $ | 2.29 |
| | $ | 1.72 |
| | $ | 0.65 |
|
Basic weighted average common shares outstanding(8) | 589 |
| | 595 |
| | 556 |
| | 570 |
| | 392 |
|
| Diluted earnings (loss) per share attributable to ICE common shareholders: | | | | | | | | | |
Continuing operations(7) | $ | 4.23 |
| | $ | 2.37 |
| | $ | 2.28 |
| | $ | 1.69 |
| | $ | 0.77 |
|
Discontinued operations(6) | — |
| | — |
| | — |
| | 0.02 |
| | (0.13 | ) |
| Diluted earnings per share | $ | 4.23 |
| | $ | 2.37 |
| | $ | 2.28 |
| | $ | 1.71 |
| | $ | 0.64 |
|
Diluted weighted average common shares outstanding(8) | 594 |
| | 599 |
| | 559 |
| | 573 |
| | 396 |
|
| Dividend per share | $ | 0.80 |
| | $ | 0.68 |
| | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.13 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (In millions, except for per share data) |
| Income before income tax expense (benefit) | 2,481 |
| | 2,520 |
| | 2,526 |
| | 2,043 |
| | 1,653 |
|
Income tax expense (benefit)(4) | 521 |
| | 500 |
| | (28 | ) | | 586 |
| | 358 |
|
| Net income | $ | 1,960 |
| | $ | 2,020 |
| | $ | 2,554 |
| | $ | 1,457 |
| | $ | 1,295 |
|
| Net income attributable to non-controlling interest | (27 | ) | | (32 | ) | | (28 | ) | | (27 | ) | | (21 | ) |
| Net income attributable to ICE | $ | 1,933 |
| | $ | 1,988 |
| | $ | 2,526 |
| | $ | 1,430 |
| | $ | 1,274 |
|
| Basic earnings per share attributable to ICE common stockholders: | | | | | | | | | |
| Basic earnings per share | $ | 3.44 |
| | $ | 3.46 |
| | $ | 4.29 |
| | $ | 2.40 |
| | $ | 2.29 |
|
Basic weighted average common shares outstanding(5) | 561 |
| | 575 |
| | 589 |
| | 595 |
| | 556 |
|
| Diluted earnings per share attributable to ICE common stockholders: | | | | | | | | | |
| Diluted earnings per share | $ | 3.42 |
| | $ | 3.43 |
| | $ | 4.25 |
| | $ | 2.39 |
| | $ | 2.28 |
|
Diluted weighted average common shares outstanding(5) | 565 |
| | 579 |
| | 594 |
| | 599 |
| | 559 |
|
| Dividend per share | $ | 1.10 |
| | $ | 0.96 |
| | $ | 0.80 |
| | $ | 0.68 |
| | $ | 0.58 |
|
| |
| (1) | We acquired several companies during the periods presented and have included the financial results of these companies in our consolidated financial statements effective from the respective acquisition dates. Refer to note 3 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on these acquisitions. |
| |
(2) | Our transaction and clearing fees are presented net of rebates paid to our customers. We also report transaction-based expenses relating to Section 31 fees and payments made for routing services and to certain U.S. equities liquidity providers. For a discussion of these rebates, see Item 7 “- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Segment Reporting - Trading and Clearing Segment” included elsewhere in this Annual Report. |
| |
(3)(2) | Acquisition-related transaction and integration costs relate to acquisitions and other strategic opportunities. The acquisition-related transaction costs include fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms, deal-related bonuses to certain of our employees, as well as costs associated with credit facilities and other external costs directly related to the transactions.acquisitions and other strategic opportunities. We also incurred integration costs during the years ended December 31,2018, 2017, 2016 and 2015 relating to our Interactive Data acquisition and during the years ended December 31, 2016 2015, 2014 and 20132015 relating to our NYSE acquisition, primarily related to employee termination costs, lease terminations costs, costs incurred relating to the IPO of Euronext, transaction-related bonuses and professional services costs incurred relating to the integrations. |
| |
(4)(3) | Other income (expense), net during 2019 includes a $16 million impairment on promissory notes, interest expense of $285 million and interest income of $35 million. Other income (expense), net during 2018 includes a $110 million gain on our initial investment value in MERS recorded on October 3, 2018, the year ended December 31,date we completed our acquisition, interest expense of $244 million and interest income of $22 million. Other income (expense), net during 2017 includes a $167 million realized net investment gain in connection with our sale of Cetip and a $110 million net gain on our divestiture of Trayport, interest expense of $187 million and otherinterest income (expense), net during the year ended December 31, 2013 includes a $190 million impairment loss on our Cetip investment and a $51 million expense relating to the early payoff of outstanding debt.$8 million. Refer to notesNotes 3 and 64 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on the 2017 gains relating to the sales of Cetip and Trayport.information. |
| |
(5)(4) | The income tax benefit orin 2017 and lower income tax expense for the years ended December 31, 2017 andin 2015 are primarily due to the deferred tax benefit associated with future U.S. income tax rate reductions of $764 million for the year ended December 31,in 2017 and the deferred tax benefit associated with future U.K. income tax rate reductions along with certain favorable settlements with various taxing authorities of $75 million for the year ended December 31,in 2015. See Item 7 “- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Income Tax Provision” included elsewhere in this Annual Report for more information on these items. |
| |
(6) | During the year ended December 31, 2014, we sold 100% of our wholly-owned subsidiary, Euronext, in connection with Euronext’s IPO, and we sold our entire interest in three companies that comprised the former NYSE Technologies (NYFIX, Metabit and Wombat). We treated the sale of these entities as discontinued operations for all periods presented from their acquisition on November 13, 2013 to their dispositions. |
| |
(7) | Our results include certain items that are not reflective of our cash operations and core business performance. Excluding these items, net of taxes, net income attributable to ICE for the year ended December 31, 2017 would have been $1.8 billion; and, basic earnings per share and diluted earnings per share attributable to ICE common shareholders would have been $2.97 and $2.95, respectively. See Item 7 “- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” included elsewhere in this Annual Report for more information on these items and the Non-GAAP results for the other years. |
(8)(5) The weighted average common shares outstanding decreased in 2019 and 2018 primarily due to our share repurchases. The weighted average common shares outstanding increased in 2016 primarily due to the stock issued for the Interactive Data and Trayport acquisitions and increased in 2014 primarily due to stock issued for the NYSE acquisition.acquisitions. We issued 211.9 million shares of our common stock to NYSE stockholders, 32.3 million shares of our common stock to Interactive Data stockholders and 12.6 million shares of our common stock to Trayport stockholders, weighted to show these additional shares outstanding for all periods after the respective acquisition dates.
| | | | As of December 31, | As of December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
(In millions) | | Consolidated Balance Sheet Data | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 535 |
| | $ | 407 |
| | $ | 627 |
| | $ | 652 |
| | $ | 961 |
| $ | 841 |
| | $ | 724 |
| | $ | 535 |
| | $ | 407 |
| | $ | 627 |
|
Margin deposits, guaranty funds and delivery contracts receivable(2) | 51,222 |
| | 55,150 |
| | 51,169 |
| | 47,458 |
| | 42,216 |
| |
Margin deposits, guaranty funds and delivery contracts receivable(1) | | 64,987 |
| | 63,955 |
| | 51,222 |
| | 55,150 |
| | 51,169 |
|
| Total current assets | 53,562 |
| | 57,133 |
| | 53,313 |
| | 50,232 |
| | 44,269 |
| 67,979 |
| | 66,692 |
| | 53,562 |
| | 57,133 |
| | 53,313 |
|
Goodwill and other intangible assets, net(1) | 22,485 |
| | 22,711 |
| | 22,837 |
| | 16,315 |
| | 18,512 |
| 23,600 |
| | 23,547 |
| | 22,485 |
| | 22,711 |
| | 22,837 |
|
| Total assets | 78,264 |
| | 82,003 |
| | 77,987 |
| | 68,254 |
| | 64,422 |
| 94,493 |
| | 92,791 |
| | 78,264 |
| | 82,003 |
| | 77,987 |
|
Margin deposits, guaranty funds and delivery contracts payable(2) | 51,222 |
| | 55,150 |
| | 51,169 |
| | 47,458 |
| | 42,216 |
| |
Margin deposits, guaranty funds and delivery contracts payable(1) | | 64,987 |
| | 63,955 |
| | 51,222 |
| | 55,150 |
| | 51,169 |
|
| Total current liabilities | 54,171 |
| | 58,617 |
| | 54,743 |
| | 50,436 |
| | 44,321 |
| 68,816 |
| | 66,108 |
| | 54,175 |
| | 58,617 |
| | 54,743 |
|
Short-term and long-term debt(1) | 6,100 |
| | 6,364 |
| | 7,308 |
| | 4,277 |
| | 5,058 |
| |
Short-term and long-term debt | | 7,819 |
| | 7,441 |
| | 6,100 |
| | 6,364 |
| | 7,308 |
|
Equity(1) | 16,952 |
| | 15,754 |
| | 14,840 |
| | 12,392 |
| | 12,381 |
| 17,286 |
| | 17,231 |
| | 16,985 |
| | 15,775 |
| | 14,840 |
|
| |
| (1) | The increases in our equity, goodwill and other intangible assets, and debt as of December 31, 2015 primarily relates to our acquisition of Interactive Data. Refer to notes 3, 8 and 10 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on these items. |
| |
(2) | Clearing members of our clearing houses are required to deposit original margin and variation margin and, for our clearing houses other than ICE NGX, to make deposits to a guaranty fund. The cash deposits made to these margin accounts and to the guaranty fund are recorded in the consolidated balance sheet as current assets with corresponding current liabilities to the clearing members that deposited them. We also account for the physical delivery of our energy contracts for ICE NGX following its acquisition in December 2017. Refer to note 13Note 14 to our consolidated financial statements, and related notes, which are included elsewhere in this Annual Report, for more information on these items. |
| |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons. See the factors set forth under the heading “Forward Looking Statements” at the beginning of Part 1 of this Annual Report and in Item 1(A) under the heading “Risk Factors.” The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information contained in Item 6 ���Selected“Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report. For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission on February 7, 2019.
Overview
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing of a broad array of derivatives contracts and securities contracts across major asset classes, including energy and agricultural commodities, metals, interest rates, equities, equity derivatives, ETFs, credit derivatives, digital assets, bonds and currencies. Wecurrencies, and also offer end-to-endmortgage and technology services. In addition, we offer comprehensive data services and solutions to support the trading, investment, risk management and connectivity needs of customers around the world and across all major asset classes.
Our exchanges include derivative exchanges in the U.S., U.K., EU, Canada and Singapore, and cash equities, equity options and bond exchangestrading venues in the U.S. We also operate OTC markets for physical energy, fixed income and CDS trade execution. To serve global derivatives markets, we operate central counterparty clearing houses in the U.S., U.K., EU, Canada and Singapore. We offer a range of data services, globally, for global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through our markets, clearing houses, listings and market data services, we provide end-to-endcomprehensive solutions for our customers to manage risk and raise capital through liquid markets, benchmark products, access to capital markets and related services to support their ability to manage risk and raise capital.services. Our business is currently conducted as two reportable business segments, our Trading and Clearing segment and our Data and Listings segment, and the majority of our identifiable assets are located in the U.S. and U.K.
Recent Developments
U.S. Tax Cuts and Jobs ActAcquisition of Simplifile
On December 22, 2017, the Tax Cuts and Jobs Act, or TCJA,June 12, 2019, we acquired Simplifile for $338 million in cash. The cash consideration was signed into law. The TCJA reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. We are required to revalue our U.S. deferred tax assets and liabilities at the new federal corporate income tax rate asgross of $12 million in cash held by Simplifile on the date of enactmentacquisition. Simplifile offers an array of mortgage services, primarily serving as an electronic liaison between lenders, settlement agents and county recording offices, streamlining the TCJA and to include the rate change effectlocal recording of residential mortgage transactions. Simplifile has a presence in the tax provision for the period ended December 31, 2017. As a result, we recognized a $764 million deferred tax benefit based on a reasonable estimate of the deferred tax assets and liabilities as of December 22, 2017. This significantly reduced the effective tax rate for the period ended December 31, 2017 in comparison to the effective tax rates for the last two comparable periods. As partover half of U.S. international tax reform, the TCJA imposes a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits. As we are in an aggregate net foreign deficit position for U.S. tax purposes, we are not liable for the transition tax. See “- Consolidated Income Tax Provision” below.
Divestiture of Trayport and the Acquisitions of NGX and Shorcan Energy
On December 11, 2015, we acquired 100% of Trayport in a stock transaction. The total purchase price was $620 million, comprised of 12.6 million shares of our common stock. Trayport is a software company that licenses its technology to serve exchanges, OTC brokers and traders to facilitate electronic and hybrid trade execution primarily in the energy markets.
The CMA undertook a review of our acquisition of Trayport under the merger control laws of the U.K. In October 2016, the CMA issued its findings and ordered a divestment of Trayport to remedy what the CMA determined to be a substantial lessening of competition. In November 2016, we filed an appeal with the U.K. Competition Appeal Tribunal, or the CAT, to challenge the CMA’s decision. In March 2017, the CAT upheld the CMA decision that we should divest Trayport. Following the CAT’s judgment, we asked for leave to appeal the CAT’s decision at the U.K. Court of Appeals. In May 2017, the U.K. Court of Appeals denied our request for leave to appeal and we were obligated to sell Trayport by January 2018.
On December 14, 2017, we sold Trayport to TMX Group for £550 million ($733 million based on the pound sterling/U.S. dollar exchange rate of 1.3331 as of December 14, 2017). We recognized a net gain of $110 million on the divestiture of Trayport, which was recorded as other income within our Data and Listings segment in the consolidated statements of income for the year ended December 31, 2017. The net gain is equal to the $733 million in gross proceeds received less the adjusted carrying value of Trayport’s net assets of $607 million (which is equal to the $531 million carrying value of Trayport plus $76 million in accumulated other comprehensive loss from foreign currency translation) and less $16 million in costs to sell Trayport.
The gross proceeds included a combination of £350 million ($466 million) in cash and £200 million ($267 million) in value relating to our acquisitions of NGX and Shorcan Energy, both wholly-owned subsidiaries of TMX Group. Trayport was included in our Data and Listings segment and NGX and Shorcan Energy are included in our Trading and Clearing segment. NGX, headquartered in Calgary, provides electronic execution, central counterparty clearing and data services to the North American natural gas, electricity and oil markets. Shorcan Energy offers brokerage services for the North American crude oil markets.
The functional currency of Trayport was the pound sterling, as this was the currency in which Trayport operated. The $620 million in Trayport net assets were recorded on our December 11, 2015 opening balance sheet at a pound sterling/U.S. dollar exchange rate of 1.5218 (£407 million). Because our consolidated financial statements are presented in U.S. dollars, we translated the Trayport net assets into U.S. dollars at the exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the valuecounties, representing over 80% of the U.S. dollar againstpopulation. The transaction expands the pound sterling affectedICE Mortgage Services portfolio, which includes MERS.
Launch of Bakkt Bitcoin Futures Contract
On September 23, 2019, the valueBakkt Bitcoin Futures contract launched and on December 9, 2019, options on Bitcoin futures launched. These contracts are traded on ICE Futures U.S. and cleared through ICE Clear U.S. Bakkt was approved by the New York State Department of Financial Services to take custody of digital assets through Bakkt Trust Company, LLC, a qualified custodian. Bakkt Trust takes custody of bitcoin for physically-delivered futures, creating the Trayport balance sheet, with gains or losses included in the cumulative translation adjustment account, a component of equity. As a result of the decrease in the pound sterling/U.S. dollar exchange ratefirst fully regulated marketplace to 1.3331 as of December 14, 2017, the portion of our equity attributable to the Trayport net assets in accumulated other comprehensive loss from foreign currency translation was $76 million.transact physically-delivered digital asset futures. In connection with the divestiture on December 14, 2017,launch of the $76Bakkt Bitcoin Futures contract, Bakkt contributed $35 million to the ICE Clear U.S. guaranty fund in September 2019, solely applicable to any losses associated with a default in Bitcoin contracts and other digital asset contracts that ICE Clear U.S. might clear in the Trayport foreign currency translation lossfuture. Since launch, 2019 volume in physically-delivered Bakkt Bitcoin Daily and Monthly Futures was reclassified out85,413 contracts with open interest of accumulated other comprehensive loss and recognized as part505 contracts at December 31, 2019. Bakkt Bitcoin options volume was 68 contracts in 2019 with open interest of the net gain on the divestiture as discussed above.51 contracts at December 31, 2019.
AsLaunch of June 30, 2017, we classified Trayport as held for sale and ceased depreciation and amortization of the property and equipment and other intangible assets. Subsequent to its divestiture on December 14, 2017, there are no longer any Trayport assets and liabilities classified as held for sale.
Acquisition of BondPointETF Hub
On January 2, 2018,October 21, 2019, we acquired 100%launched ICE ETF Hub, a new platform designed to bring efficiencies and standardization to the ETF primary trading market, where shares of BondPoint from Virtu Financial, Inc.ETFs are created and redeemed. ICE ETF Hub aims to offer a standardized, automated process for $400 million in cash. BondPoint isassembling and placing creation and redemption baskets. ICE ETF Hub plans to include ICE Data Services’ pricing, reference data and analytics, connectivity and feeds, as well as connections to ICE Bonds, which provides fixed income execution protocols for asset classes including municipals, corporates, treasuries, agencies and certificates of deposit.
Agreement to Acquire Bridge2 Solutions
On February 5, 2020, we agreed to acquire Bridge2 Solutions, a leading provider of electronic fixed income tradingloyalty solutions for merchants and consumers, contingent on completion of Hart-Scott-Rodino review. Following the buy-side and sell-side offering access to centralized liquidity and automated trade execution services through its ATS and provides trading services to more than 500 financial services firms.
Investment in Euroclear
On October 24, 2017, we acquired a 4.7% stake in Euroclear for €275 million in cash ($327 million based on the euro/U.S. dollar exchange rate of 1.1903 as of October 24, 2017). During December 2017, we reached an agreement to buy an additional 5.1% stake in Euroclear for €243 million in cash ($292 million based on the euro/U.S. dollar exchange rate of 1.2003 as of December 31, 2017) and expect to receive necessary regulatory approval during the first quarter of 2018. Upon closing, we will own a 9.8% stake in Euroclear for a total investment of €518 million ($619 million based on the exchange rates above). Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.
Acquisition of Global Research Division’s Index Business from BofAML
On October 20, 2017, we acquired BofAML’s Global Research division’s index business. BofAML indices are the second largest group of fixed income indices as measured by AUM globally. The AUM benchmarked against our combined fixed income indices is nearly $1 trillion, and the indices have been re-branded as the ICE BofAML indices.
Purchase of Minority Interests
During June 2017, we purchased both N.V. Nederlandse Gasunie’s, or Gasunie, 21% minority ownership interest in ICE Endex and ABN AMRO Clearing Bank N.V.’s, or ABN AMRO Clearing, 25% minority ownership interest in ICE Clear Netherlands. Subsequent to these acquisitions, we own 100% of ICE Endex and ICE Clear Netherlands and will no longer include any non-controlling interest amounts for ICE Endex and ICE Clear Netherlands in our consolidated financial statements. During the year ended December 31, 2017, we purchased 12.6%completion of the net profit sharing interest in our CDS clearing subsidiariestransaction, Bakkt intends to acquire Bridge2 Solutions from several non-ICE limited partnersICE. Bridge2 Solutions enables some of the world’s leading brands to engage customers and the remaining non-ICE limited partners holddrive loyalty. It powers incentive and employee perk programs for companies across a 29.9% net profit sharing interest in our CDS clearing subsidiaries aswide spectrum of December 31, 2017. See “- Consolidated Non-Operating Income (Expense)” below.industries.
Divestiture of NYSE Governance Services46
On June 1, 2017, we sold NYSE Governance Services to Marlin Heritage, L.P. NYSE Governance Services provides governance and compliance analytics and education solutions for organizations and their boards of directors through dynamic learning solutions. We recognized a net loss of $6 million on the divestiture of NYSE Governance Services, which was recorded as amortization expense within our Data and Listings segment in the accompanying consolidated statements of income for the year ended December 31, 2017.
Acquisition of TMX Atrium
On May 1, 2017, we acquired 100% of TMX Atrium, a global extranet and wireless services business, from TMX Group. TMX Atrium provides low-latency access to markets and market data across 12 countries, more than 30 major trading venues, and ultra-low latency wireless connectivity to access markets and market data in the Toronto, New Jersey and Chicago metro areas. The wireless assets consist of microwave and millimeter networks that transport market data and provide private bandwidth. TMX Atrium is now part of ICE Data Services and is being integrated with our connectivity services.
Divestiture of Interactive Data Managed Solutions
On March 31, 2017, we sold Interactive Data Managed Solutions, or IDMS, a unit of Interactive Data, to FactSet. IDMS is a managed solutions and portal provider for the global wealth management industry. There was no gain or loss recognized on the sale of IDMS.
Cetip Investment Gain
Until March 29, 2017, we held a 12% ownership interest in Cetip, which we classified as an available-for-sale long-term investment. On March 29, 2017, Cetip and BM&FBOVESPA S.A. finalized a merger agreement. BM&FBOVESPA S.A., which changed its name to B3 S.A. - Brasil, Bolsa, Balcao, or B3, following the merger with Cetip, is a stock exchange and operator of registration, clearing, custodial and settlement services for equities, financial securities, indices, rates, commodities and currencies and is located in São Paulo, Brazil. The merger valued our Cetip investment at $500 million. We received the proceeds in cash and in B3 common stock.
The cash component was valued at $319 million, which was subject to Brazilian capital gains tax of $28 million that was remitted to the Brazilian tax authorities in March 2017. We received net cash proceeds in April 2017 of $286 million, which is net of a foreign exchange loss of $6 million that was incurred in April 2017. We received 29,623,756 B3 common shares valued at their quoted market price of $181 million. In April 2017, we sold the B3 common shares for net proceeds of $152 million, which is net of a capital gain tax of $26 million that was remitted to the Brazilian tax authorities and further transaction expenses of $3 million that were incurred in April 2017. We used the $438 million in net cash and stock proceeds received from the merger and sale of B3 shares to pay down amounts outstanding under our U.S. dollar commercial paper program, or the Commercial Paper Program, and for share repurchases.
The $500 million fair value of our investment in Cetip included an accumulated unrealized gain of $176 million, based on the $324 million cost basis. In connection with the sale of our equity investment in Cetip, the $176 million accumulated unrealized gain was reclassified out of accumulated other comprehensive income and was recognized in other income as a realized investment gain in the consolidated statement of income for the year ended December 31, 2017. Refer to note 6 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on the Cetip investment gain.
Acquisition of National Stock Exchange
On January 31, 2017, we acquired 100% of National Stock Exchange, Inc., now named NYSE National. The acquisition gives the NYSE Group a fourth U.S. exchange license. NYSE National is distinct from NYSE Group’s three listings exchanges because NYSE National will only be a trading venue and will not be a listings market. NYSE Group’s three listings exchanges, NYSE, NYSE American and NYSE Arca, have unique market models designed for corporate and ETF issuers. After closing the transaction, NYSE National ceased operations on February 1, 2017. Subject to regulatory approvals, NYSE Group anticipates re-launching operations on NYSE National, Inc. in the second quarter of 2018.
Consolidated Financial Highlights
The following charts and table summarizesummarizes our results and significant changes in our consolidated financial performance for the periods presented (dollars in millions, except per share amounts):
| | | | Year Ended December 31, | | | | Year Ended December 31, | | | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Revenues, less transaction-based expenses | $ | 4,629 |
| | $ | 4,499 |
| | 3 | % | | $ | 4,499 |
| | $ | 3,338 |
| | 35 | % | $ | 5,202 |
| | $ | 4,979 |
| | 4 | % | | $ | 4,979 |
| | $ | 4,638 |
| | 7 | % |
| Operating expenses | $ | 2,250 |
| | $ | 2,332 |
| | (3 | )% | | $ | 2,332 |
| | $ | 1,588 |
| | 47 | % | $ | 2,529 |
| | $ | 2,396 |
| | 6 | % | | $ | 2,396 |
| | $ | 2,259 |
| | 6 | % |
Adjusted operating expenses(1) | $ | 1,938 |
| | $ | 1,947 |
| | — | % | | $ | 1,947 |
| | $ | 1,365 |
| | 43 | % | $ | 2,189 |
| | $ | 2,071 |
| | 6 | % | | $ | 2,071 |
| | $ | 1,947 |
| | 6 | % |
| Operating income | $ | 2,379 |
| | $ | 2,167 |
| | 10 | % | | $ | 2,167 |
| | $ | 1,750 |
| | 24 | % | $ | 2,673 |
| | $ | 2,583 |
| | 3 | % | | $ | 2,583 |
| | $ | 2,379 |
| | 9 | % |
Adjusted operating income(1) | $ | 2,691 |
| | $ | 2,552 |
| | 5 | % | | $ | 2,552 |
| | $ | 1,973 |
| | 29 | % | $ | 3,013 |
| | $ | 2,908 |
| | 4 | % | | $ | 2,908 |
| | $ | 2,691 |
| | 8 | % |
| Operating margin | 51 | % | | 48 | % | | 3 pts |
| | 48 | % | | 52 | % | | (4 pts) |
| 51 | % | | 52 | % | | (1 pt) |
| | 52 | % | | 51 | % | | 1 pt |
|
Adjusted operating margin(1) | 58 | % | | 57 | % | | 1 pt |
| | 57 | % | | 59 | % | | (2 pts) |
| 58 | % | | 58 | % | | — |
| | 58 | % | | 58 | % | | — |
|
| Other income (expense), net | $ | 138 |
| | (138 | ) | | n/a |
| | (138 | ) | | (97 | ) | | 42 | % | $ | (192 | ) | | $ | (63 | ) | | 203 | % | | $ | (63 | ) | | $ | 147 |
| | n/a |
|
| Income tax expense (benefit) | $ | (25 | ) | | $ | 580 |
| | n/a |
| | $ | 580 |
| | $ | 358 |
| | 62 | % | $ | 521 |
| | $ | 500 |
| | 4 | % | | $ | 500 |
| | $ | (28 | ) | | n/a |
|
| Effective tax rate | (1 | )% | | 29 | % | | (30 pts) |
| | 29 | % | | 22 | % | | 7 pts |
| 21 | % | | 20 | % | | 1 pt |
| | 20 | % | | (1 | )% | | 21 pts |
|
| Net income attributable to ICE | $ | 2,514 |
| | $ | 1,422 |
| | 77 | % | | $ | 1,422 |
| | $ | 1,274 |
| | 12 | % | $ | 1,933 |
| | $ | 1,988 |
| | (3 | )% | | $ | 1,988 |
| | $ | 2,526 |
| | (21 | )% |
Adjusted net income attributable to ICE(1) | $ | 1,752 |
| | $ | 1,665 |
| | 5 | % | | $ | 1,665 |
| | 1,359 |
| | 23 | % | $ | 2,194 |
| | $ | 2,077 |
| | 6 | % | | $ | 2,077 |
| | $ | 1,764 |
| | 18 | % |
| Diluted earnings per share attributable to ICE common shareholders | $ | 4.23 |
| | $ | 2.37 |
| | 78 | % | | $ | 2.37 |
| | $ | 2.28 |
| | 4 | % | |
Adjusted diluted earnings per share attributable to ICE common shareholders(1) | $ | 2.95 |
| | $ | 2.78 |
| | 6 | % | | $ | 2.78 |
| | $ | 2.43 |
| | 14 | % | |
| Diluted earnings per share attributable to ICE common stockholders | | $ | 3.42 |
| | $ | 3.43 |
| | — | % | | $ | 3.43 |
| | $ | 4.25 |
| | (19 | )% |
Adjusted diluted earnings per share attributable to ICE common stockholders(1) | | $ | 3.88 |
| | $ | 3.59 |
| | 8 | % | | $ | 3.59 |
| | $ | 2.97 |
| | 21 | % |
| Cash flows from operating activities | $ | 2,085 |
| | $ | 2,149 |
| | (3 | )% | | $ | 2,149 |
| | $ | 1,311 |
| | 64 | % | $ | 2,659 |
| | $ | 2,533 |
| | 5 | % | | $ | 2,533 |
| | $ | 2,085 |
| | 21 | % |
(1) The adjusted numbers in the charts and table above are calculated by excludingfigures exclude items that are not reflective of our cashongoing core operations and core business performance, and for adjustedperformance. Adjusted net income attributable to ICE and adjusted diluted earnings per share attributable to ICE common shareholders,stockholders are presented net of taxes. As a result, theseThese adjusted numbers are not calculated in accordance with GAAP. See “- Non-GAAP Financial Measures” below.
Revenues, less transaction-based expenses, increased $130$223 million for the year ended December 31, 2017,in 2019 from the comparable period in 2016. See “- Trading and Clearing Segment” and “Data and Listings Segment” below for a discussion of the significant changes in our revenues.2018. The increase in revenues includes $22 million in unfavorable foreign exchange effects
arising from the strengthening U.S. dollar for the year ended December 31, 2017, from the comparable period in 2016. See Item 7(A) “- Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk” below for additional information on the impact of currency fluctuations.
Revenues, less transaction-based expenses, increased $1.2 billion for the year ended December 31, 2016, from the comparable period in 2015, primarily due to our acquisitions of Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis, and to a lesser extent, revenue increases in our exchange-related data services and Brent crude and agricultural transaction and clearing. We recognized $1.1 billion in Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis data services revenues for the year ended December 31, 2016, compared to $50 million in Interactive Data and Trayport data services revenues for the year ended December 31, 2015, subsequent to their acquisitions in December 2015. The increase in revenues includes $59$34 million in unfavorable foreign exchange effects arising from the strengtheningstronger U.S. dollar for the year ended December 31, 2016,in 2019 from 2018.
Revenues, less transaction-based expenses, increased $341 million in 2018 from 2017. The increase in revenues includes $26 million in favorable foreign exchange effects arising from the comparable periodweaker U.S. dollar in 2015.2018 from 2017.
Operating expenses decreased $82increased $133 million for the year ended December 31, 2017,in 2019 from the comparable period in 2016. During the year ended December 31, 2016, we recorded a $33 million Creditex customer relationship intangible asset impairment. See “- Consolidated Operating Expenses” below for a discussion of the other significant changes in our operating expenses.2018. The decreaseincrease in operating expenses includes $14 million in favorable foreign exchange effects arising from the strengtheningstronger U.S. dollar for the year ended December 31, 2017,in 2019 from the comparable period in 2016.2018.
Operating expenses increased $744$137 million for the year ended December 31, 2016,in 2018 from the comparable period2017. The increase in 2015, primarily due to increased operating expenses relating to Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis and $33 million relating to the Creditex customer relationship intangible asset impairment recorded in September 2016. Excluding acquisition-related transaction and integration costs, we recognized $812includes $11 million in Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis operating expenses for the year ended December 31, 2016, compared to $39 million in Interactive Data and Trayport operating expenses for the year ended December 31, 2015, subsequent to their acquisitions in December 2015. These increases were partially offset by decreases in professional services expenses and selling, general and administrative expenses for the year ended December 31, 2016, from the comparable period in 2015. Also partially offsetting the operating expense increases were favorableunfavorable foreign exchange effects of $40 million arising from the strengtheningweaker U.S. dollar for the year ended December 31, 2016,in 2018 from the comparable period2017.
In connection with our acquisition of MERS, we recorded a $110 million gain in 2015.
other income during 2018. In connection with Cetip’s merger with BM&FBOVESPA S.A., now B3, we recognized a $167 million net realized investment gain in other income,income/(expense), net for the year ended December 31,in 2017. We also recognized a net gain of $110 million in connection with our divestiture of Trayport in other income income/(expense), net for the year ended December 31,in 2017. See “- Recent Developments” above.
The lower2019 effective tax rates and incomerate is higher than the 2018 effective tax expense (benefit) for the years ended December 31, 2017 and 2015 arerate primarily due to the 2018 discrete tax benefits from the acquisition of MERS and the divestiture of Trayport exceeding the net increased tax benefits recorded in 2019 from certain international tax provisions under the U.S. Federal Tax Cuts and Jobs Act, or TCJA.
Excluding the 2017 deferred tax benefit associated with futurefrom the U.S. tax law changes, the 2018 effective tax rate is lower than the 2017 effective tax rate due to the TCJA, which reduced the U.S. federal corporate income tax rate reductionsfrom 35% to 21% effective January 1, 2018, tax benefits from our acquisition of $764 million for the year ended December 31, 2017MERS, our divestiture of Trayport and the deferred tax benefit associated with future U.K. incomebenefits from the U.S. tax rate reductions along with certain favorable settlements with various taxing authorities of $75 million for the year ended December 31, 2015. See “- Consolidated Income Tax Provision” below.reduction resulting from changes in estimates.
Business Environment and Market Trends
Our business environment has been characterized by:
globalization of marketplaces, customers and competitors;
commodity, interest rate and financial markets uncertainty;
growing demand for data to inform customers' risk management and investment decisions;
evolving, increasing and disparate regulation across multiple jurisdictions;
price volatility increasing customers' demand for risk management services;
increasing focus on capital and cost efficiencies;
customers' preference to manage risk in markets demonstrating the greatest depth of liquidity and product diversity;
the evolution of existing products and new product innovation to serve emerging customer needs and changing industry agreements;
rising demand for speed, data, data capacity and connectivity by industry market participants, necessitating increased investment in technology; and
consolidation and increasing competition among global markets for trading, clearing and listings; the globalization of exchanges, customers and competitors; market participants’ rising demand for speed, data capacity and connectivity, which requires ongoing investment in technology; evolving and disparate regulation across multiple jurisdictions; and increasing focus on capital and cost efficiencies.listings.
Price volatility increases the need to hedge risk and creates demand among market participants for the exchange of risk through trading and clearing. Market liquidity is one of the primary market attributes for attracting and maintaining customers and is an important indicator of a market’s strength. In addition, the ability to evolve existing products to serve emerging needs, develop new products and respond to competitive dynamics in pricing, exclusivity and consolidation is important to our business. Changes in these and other factors could cause our revenues to fluctuate from period to period and these fluctuations may affect the reliability of period to period comparisons of our revenues and operating results. For additional information regarding the factors that affect our results of operations, see Item 1(A) “- Risk Factors” included elsewhere in this Annual Report.
The implementation of new laws or regulations or the uncertainty around potential changes may impact participation in our markets, or the demand for our clearing and data services either favorably or unfavorably. Many of the recentRecent changes with regard to global financial reform have emphasized the importance of transparent markets, centralized clearing and access to data, all of which are important aspects of our product offering. However, some of the proposed rules have yet to be implemented and some rules that have already been partially implemented on January 3, 2018 are being reconsidered. In addition, some of the global regulations have
not been fully harmonized and several of the MiFID IInon-U.S. regulations are inconsistent with U.S. rules. As this is established,the evolution continues, legislative and regulatory actions may change the way we conduct our business and may create uncertainty for market participants, which could affect trading volumes or demand for market data. As a result, it is difficult to predict all of the effects that the legislation and its implementing regulations will have on us. As discussed more fully in Item 1 “- Business - Regulation” included elsewhere in this Annual Report, Brexit, the implementation of MiFID II and other regulations may result in operational, regulatory and/or business risk.
In recent years, low interest rates and uncertainty in the financial markets continued to reflect the impact of a relatively slow or yet to occur global economic recovery. Lower growth in Asia and the EU may also continue to affect global financial markets. In addition, economic and regulatory uncertainty, coupled with periods of high market volatility around geopolitical events, low interest rates and low natural gas prices, has affected our clients’ activities in recent years. The duration of these trends will determine the continued impact on our business across trading and listings. We have diversified our business so that we are not dependent on volatility or trading activity in any one asset class. In addition, we have increased our portion of non-transaction and clearing revenues from 21%34% in 20132014 to 58%51% in 2017.2019. This non-transaction revenue includes data services listings and other revenues. listings.
We have invested, and continue to focusinvest significant resources, in our proprietary ICE Global Network and cybersecurity protections to minimize the potential impact of a wide-scale cyber interruption, system outages or global regulatory drive to
move critical infrastructure and/or sensitive financial transactions away from the public Internet. We believe that our current and historic investments in this space position us well competitively to accommodate increased costs of compliance, assurance, or incident response, however, trends in nationalism and data privacy could result in requirements that necessitate increases in staffing or the introduction of local data collection, and such requirements could undermine our synergistic centralized service model. Further, a prolonged and impactful cyber-attack on our strategy to grow eachany of our revenue streams, as well as on our company-wide expense reduction initiativesmarket participants could drive the industry away from electronification and our synergies in connection with our acquisitions in order to mitigate these uncertainties and to build on our growth opportunities by leveraging our proprietary data, clearing and markets.reduce the market advantages we have realized through automation.
Many of the data products we sell and services we sellprovide are required for our clients’ business operations regardless of market volatility or shifts in business profitability levels. We anticipate that there will continue to be growth in the financial information services sector driven by a number of global trends, including the following:
increasing global regulatory demands;
greater use of fair value accounting standards and reliance on independent valuations;
greater emphasis on risk management;
market fragmentation driven by regulatory changes;
the move to passive investing and indexation;
ongoing growth in the size and diversity of financial markets;
increased electronificationautomation of fixed income and other less automated markets;
the development of new data products;
the demand for greater data capacity and connectivity;
new entrants; and
increasing demand for outsourced services by financial institutions.
We contract with clients through data fixed-fee subscriptions, variable fees basedcontinue to focus on usage or a combination of fixed-fee subscription and usage-based fees. In addition, someour strategy to grow each of our revenue streams, and prudently manage expenses, in order to mitigate these uncertainties and to build on our growth opportunities by leveraging our proprietary data, services generate one-time or non-recurring revenue, such as one-time purchases of historical data, set-up services or implementation fees.clearing and markets.
Segment ReportingResults
We operateOur business is conducted through two reportable business segments: our
Trading and Clearing, segment and our Data and Listings segment. This presentation is reflective of how our chief operating decision maker reviews and operates our business. Our Trading and Clearing segmentwhich comprises our transaction-based execution and clearing businesses. Our businesses; and
Data and Listings, segmentwhich comprises our subscription-based data services and securities listings businesses. Our chief operating decision maker does not review total assets, intersegment revenues/expenses or statements of income below operating income by segments; therefore, such information is not presented below.
While revenues are allocated directlyrecorded specifically in the segment in which they are earned or to segments,which they relate, a significant portion of our operating expenses are not solely related to a specific segment because the expenses serve functions that are necessary for the operation of both segments. Because these expenses do not relate to a single segment, we have employed a reasonable allocation method to allocate expenses between the segments for presentation purposes. We have elected to use a pro-rata revenue approach as the allocation method for the expenses that do not relate solely to one segment. Further, precise allocation of expenses to specific revenue streams within these segments is not reasonably possible. Accordingly, we did not allocate expenses to specific revenue streams within the segments.
Certainthese segments since such an allocation is not reasonably possible. Our two segments do not engage in intersegment transactions. For details on trends in recent prior year’s segment expenses for 2016 have been reclassified to conformyear periods, refer to our current year’s segment financial statement presentation. This reclassification increased the operating expenses for the Data2018 and Listings segment by $55 million, while decreasing the operating expenses for the Trading and Clearing segment by the same amount.
2017 Annual Reports on Form 10-K.
Trading and Clearing Segment
The following charts and table present ourpresents selected statements of income data for our Trading and Clearing segment (dollars in millions):
(1) The adjusted numbers in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance with U.S. GAAP. See “- Non-GAAP Financial Measures” below.
| | | | Year Ended December 31, | | | | Year Ended December 31, | | | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | |
| Energy futures and options contracts | $ | 909 |
| | $ | 865 |
| | 5 | % | | $ | 865 |
| | $ | 804 |
| | 7 | % | $ | 992 |
| | $ | 965 |
| | 3 | % | | $ | 965 |
| | $ | 909 |
| | 6 | % |
| Agricultural and metals futures and options contracts | 216 |
| | 228 |
| | (5 | ) | | 228 |
| | 211 |
| | 8 |
| 251 |
| | 251 |
| | — |
| | 251 |
| | 216 |
| | 16 |
|
| Interest rates and other financial futures and options contracts | 326 |
| | 318 |
| | 2 |
| | 318 |
| | 342 |
| | (6 | ) | |
| Financial futures and options contracts | | 332 |
| | 354 |
| | (6 | ) | | 354 |
| | 326 |
| | 9 |
|
| Cash equities and equity options | 1,491 |
| | 1,780 |
| | (16 | ) | | 1,780 |
| | 1,676 |
| | 6 |
| 1,643 |
| | 1,624 |
| | 1 |
| | 1,624 |
| | 1,491 |
| | 9 |
|
| Other transactions | 189 |
| | 193 |
| | (1 | ) | | 193 |
| | 195 |
| | (1 | ) | |
| Fixed income and credit | | 364 |
| | 240 |
| | 52 |
| | 240 |
| | 139 |
| | 72 |
|
| OTC and other transactions | | 45 |
| | 49 |
| | (8 | ) | | 49 |
| | 50 |
| | (2 | ) |
| Transaction and clearing, net | 3,131 |
| | 3,384 |
| | (7 | ) | | 3,384 |
| | 3,228 |
| | 5 |
| 3,627 |
| | 3,483 |
| | 4 |
| | 3,483 |
| | 3,131 |
| | 11 |
|
| Other revenues | 202 |
| | 177 |
| | 14 |
| | 177 |
| | 178 |
| | — |
| 260 |
| | 234 |
| | 11 |
| | 234 |
| | 202 |
| | 16 |
|
| Revenues | 3,333 |
| | 3,561 |
| | (6 | ) | | 3,561 |
| | 3,406 |
| | 5 |
| 3,887 |
| | 3,717 |
| | 5 |
| | 3,717 |
| | 3,333 |
| | 12 |
|
| Transaction-based expenses | 1,205 |
| | 1,459 |
| | (17 | ) | | 1,459 |
| | 1,344 |
| | 9 |
| 1,345 |
| | 1,297 |
| | 4 |
| | 1,297 |
| | 1,205 |
| | 8 |
|
| Revenues, less transaction-based expenses | 2,128 |
| | 2,102 |
| | 1 | % | | 2,102 |
| | 2,062 |
| | 2 | % | 2,542 |
| | 2,420 |
| | 5 |
| | 2,420 |
| | 2,128 |
| | 14 |
|
| Other operating expenses | 590 |
| | 571 |
| | 3 | % | | 571 |
| | 670 |
| | (15 | )% | 763 |
| | 686 |
| | 11 |
| | 686 |
| | 592 |
| | 16 |
|
| Depreciation and amortization | | 268 |
| | 215 |
| | 24 |
| | 215 |
| | 187 |
| | 16 |
|
| Acquisition-related transaction and integration costs | 2 |
| | 10 |
| | (83 | )% | | 10 |
| | 28 |
| | (64 | )% | 2 |
| | 10 |
| | (81 | ) | | 10 |
| | 2 |
| | n/a |
|
| Depreciation and amortization (including impairment) | 187 |
| | 244 |
| | (23 | )% | | 244 |
| | 217 |
| | 12 | % | |
| Operating expenses | 779 |
| | 825 |
| | (6 | )% | | 825 |
| | 915 |
| | (10 | )% | 1,033 |
| | 911 |
| | 13 |
| | 911 |
| | 781 |
| | 17 |
|
| Operating income | $ | 1,349 |
| | $ | 1,277 |
| | 6 | % | | $ | 1,277 |
| | $ | 1,147 |
| | 11 | % | $ | 1,509 |
| | $ | 1,509 |
| | — | % | | $ | 1,509 |
| | $ | 1,347 |
| | 12 | % |
Transaction and Clearing Revenues
Overview
Our transaction and clearing revenues are reported on a net basis, except for the NYSE transaction-based expenses discussed below, and consist of fees collected from our derivatives, fixed income, cash equities and equity options trading and derivatives clearing. In our derivatives markets, we earn transaction and clearing revenues from both counterparties to each contract that is traded and/or cleared, and in our equity and equity options markets, we receive trade execution fees as well as routing fees related to orders in our markets which are routed to other markets for execution.
Rates per-contract, or RPC, are driven by the number of contracts or securities traded and the fees charged per contract, net of certain rebates. Our per-contract transaction and clearing revenues will depend upon many factors, including, but not limited to, market conditions, transaction and clearing volume, product mix, pricing, applicable revenue sharing and market making agreements, and new product introductions. Because transaction and clearing revenues are generally assessed on a per-contract basis, revenues and profitability fluctuate with changes in contract volume and due to product mix.
For the years ended December 31, 2017, 2016In 2019 and 2015, 20%,2018, 19% and 20%, respectively, of our Trading and Clearing segment revenues, less transaction-based expenses, were billed in pounds sterling or euros. As the pound sterling or euro exchange rate changes, the U.S. equivalent of revenues denominated in foreign currencies changes accordingly. Due to the weakeningfluctuations of the pound sterling and euro the last two years compared to the
U.S. dollar, our Trading and Clearing segment revenues, less transaction-based expenses, were lower by $14$25 million for the year ended December 31, 2017in 2019 from the comparable period in 2016, and were lower by $35 million for the year ended December 31, 2016 from the comparable period in 2015. See Item 7(A) “- Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk” below for additional information on the impact of currency fluctuations.2018.
Our transaction and clearing feesrevenues are presented net of rebates. We recorded rebates of $749 million, $674$860 million and $563$844 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. We offer rebates in certain of our markets primarily to support market liquidity and trading volume by providing qualified participants in those markets a discount to the applicable commission rate. Such rebates are calculated based on volumes traded. The increase in the rebates is due primarily to increased volumes in products with higher rates per contract, an increase in the number of rebate programs offered and an increase in the number of participants in the rebate programs offered on various contracts, an increase inwithin our traded volume and an increase in the number of rebate programs.
Commodities Markets
We operate global crude oil and refined oil futures markets, including the ICE Brent, ICE WTI and ICE Gasoilenergy futures and options contracts, as well as over 500 refined oil futures products that relate to our benchmark futures contracts and other key price benchmarks. The ICE Brent crude contract is relied upon by a broad range of global market participants, including oil producing nations and multinational companies, to price and hedge their crude oil production and consumption. ICE Gasoil is a key refinedprograms.
oil benchmark in Europe and Asia. Total oil volume and revenues increased 14% and 12%, respectively, for the year ended December 31, 2017, from the comparable period in 2016, and increased 12% and 10%, respectively, for the year ended December 31, 2016, from the comparable period in 2015. Crude oil revenues grew at a slightly lower rate due to customer and product mix.
In 2017, ICE Brent crude futures and options contracts were traded at record levels for the twenty-first consecutive year. ICE Brent crude futures and options volume increased 15% for the year ended December 31, 2017, from the comparable period in 2016, and increased 15% for the year ended December 31, 2016, from the comparable period in 2015. ICE WTI crude futures and options volume increased 14% for the year ended December 31, 2017, from the comparable period in 2016, and increased 16% for the year ended December 31, 2016, from the comparable period in 2015. ICE Brent crude and ICE WTI crude futures and options volume increased primarily due to increased oil price volatility related to shifting supply and demand dynamics globally; broader market volatility in oil products, equities and foreign exchange rates; acts of central governments; outcomes of elections; and uncertainty around the Organization of Petroleum Exporting Countries, or OPEC, policy.
Our global natural gas futures and options volume declined 1% and revenues decreased 1% for the year ended December 31, 2017, from the comparable period in 2016, respectively, and volume declined 2% and revenues increased 4% for the year ended December 31, 2016, from the comparable period in 2015, respectively. Global natural gas revenues decreased in 2017 primarily due to the impact of foreign currency translation in our European natural gas products. Global natural gas volume declined in 2016 primarily due to lower price volatility related to high natural gas supplies but revenues increased due to geographic product mix.
Total volume and revenues in our agricultural and metals futures and options markets decreased 7% and 5%, respectively, for the year ended December 31, 2017, from the comparable period in 2016, and increased 11% and 8%, respectively, for the year ended December 31, 2016, from the comparable period in 2015. The decreases in agricultural volume in 2017 were primarily driven by the reduced price volatility in 2017 compared to the higher price volatility in 2016. The increases in agricultural volume in 2016 were primarily driven by increased price volatility due to changing supply and demand expectations largely related to weather and production levels.
Financial Markets
Interest rates and other financial futures and options volume and revenues increased 15% and 2%, respectively, for the year ended December 31, 2017, from the comparable period in 2016, and volume increased 10% and revenues decreased 6%, respectively, for the year ended December 31, 2016, from the comparable period in 2015. Interest rate futures and options volume increased in 2017 primarily due to expectations for heightened central bank activity during 2017, and volume increased in 2016 primarily due to uncertainty around central bank actions, economic data during 2016, and the U.K.’s decision to exit the EU. Interest rate futures and options revenues increased less than traded volumes in 2017 and in 2016 primarily due to the impact of foreign currency translation and increased market making rebates that apply at higher volume levels.
Cash equities handled volume decreased 17% for the year ended December 31, 2017, from the comparable period in 2016, primarily due to a reduction in U.S. equities market volatility during 2017 compared to the prior year. Cash equities handled volume increased 6% for the year ended December 31, 2016, from the comparable period in 2015, primarily due to increased market volatility throughout 2016. Cash equities revenues, net of transaction-based expenses, were $196 million, $223 million and $220 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Equity options volume decreased 13% for the year ended December 31, 2017, compared to the same period in 2016, and decreased 5% for the year ended December 31, 2016, from the comparable period in 2015. Equity options revenues, net of transaction-based expenses, were $90 million, $98 million and $112 million for the years ended December 31, 2017, 2016 and 2015, respectively. Equity options volume and revenues decreased the last several years primarily due to lower U.S. equity market volatility in 2017 and the restructuring of the NYSE American Options business. While revenues declined the last several years, the overall financial contribution of equity options was consistent with the prior years due to the retention of a higher percentage of profits from NYSE American Options driven by our repurchase of the equity in the exchange from the minority shareholders. | |
| • | Energy Futures and Options Contracts: Total energy volume decreased 3% and revenues increased 3% in 2019 from 2018. |
| |
| – | Total oil volume decreased 2% in 2019 from 2018 primarily driven by lower volumes within Brent, partially offset by strength in our Other Crude and Refined Products complex. |
| |
| – | Our global natural gas futures and options volume decreased 6% in 2019 from 2018. The volume decrease was primarily due to lower Henry Hub volumes and was partially offset by increased volumes in our European TTF gas contract. The strength in our European TTF gas volumes was driven by the continued emergence of TTF as the European benchmark for natural gas as natural gas continues to globalize. |
| |
| – | Emission futures and options volumes increased 2% in 2019 from 2018 driven by higher carbon prices and supply-demand dynamics impacted by regulatory uncertainty. |
| |
| • | Agricultural and Metals Futures and Options Contracts: Total volume in our agricultural and metals futures and options markets increased 4% and revenues were flat in 2019 from 2018. The overall increase in agricultural volumes was primarily driven by price volatility resulting from supply and demand dynamics, including weather concerns and geopolitical events. |
| |
| – | Sugar futures and options volumes increased 2% in 2019 from 2018. |
| |
| – | Other agricultural and metal futures and options volume increased 5% in 2019 from 2018. |
| |
| • | Financial Futures and Options Contracts: Total volume and revenues in our financial futures and options markets decreased 11% and 6%, respectively, in 2019 from 2018. |
| |
| – | Interest rate futures and options volume and revenue decreased 13% and 15%, respectively, in 2019 from 2018 driven, in part, by a muted European economic backdrop. Interest rate futures and options revenues were $196 million and $230 million in 2019 and 2018, respectively. |
| |
| – | Other financial futures and options volume, which includes our MSCI®, FTSE® and NYSE FANG+ equity index products, decreased 1% and revenue increased 10% in 2019 from 2018. Other financial futures and options volume decreased due to lower equity market volatility than in the prior year while revenues increased due to strong volumes in our MSCI® complex. Other financial futures and options revenues were $136 million and $124 million in 2019 and 2018, respectively. |
| |
| • | Cash Equities and Equity Options: Cash equities handled volume was flat in 2019 from 2018. Cash equities revenues, net of transaction-based expenses, were $203 million and $220 million in 2019 and 2018, respectively. Equity options volume decreased 6% in 2019 from 2018 due to lower equity market volatility than in the prior year. Equity options revenues, net of transaction-based expenses, were $95 million and $107 million in 2019 and 2018, respectively. |
| |
| • | Fixed Income and Credit: Fixed income and credit includes revenues from ICE Mortgage Services, ICE Bonds and CDS execution and clearing. Fixed income transaction revenues in 2019 include an increase of $133 million due to acquisitions made in these businesses in late 2018 and 2019. |
CDS clearing revenues were $113 million, $107$132 million and $100$139 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. The notional value of CDS cleared during the same periods were $11.5 trillion, $11.5was $14.7 trillion and $11.9$16.4 trillion in 2019 and 2018, respectively. Buy-sideCDS clearing revenues decreased in 2019 from 2018 due to lower market volatility, partially offset by record buy-side participation at our U.S. CDS clearing house, ICE Clear Credit, reached record levels in terms of number of participants and single name notional cleared due to increased participation from both U.S. and European buy-side customers due to greater regulatory certainty, the breadth of products offered, and cost efficient margining in the U.S. relative to Europe.
CDS trade execution revenues were $27 million, $36 million and $49 million for the years ended December 31, 2017, 2016 and 2015, respectively. CDS trading remains muted due to financial reform and lower volatility in corporate credit markets. Thecleared.
| |
| • | OTC and Other Transactions: OTC and other transactions include revenues from our OTC energy business and other trade confirmation services. |
decrease in the CDS trade execution revenues for the year ended December 31, 2017 is also impacted by the sale and discontinuance of our U.S. and U.K. CDS voice brokerage operations in the third quarter of 2016.
Other Revenues
Other revenues primarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, technology development fees, exchange membership fees and agricultural grading and certification fees. The increase in other revenues for the year ended December 31, 2017,in 2019 from the comparable period in 2016,2018 is primarily due to a $6 million breakup fee received in the third quarter of 2017 relatedincreased interest income earned on certain clearing margin deposits reflecting higher balances and increased interest rates, as well as due to the terminationacquisition of the derivatives clearing agreement with Euronext, under which ICE Clear Netherlands was to provide clearing of Euronext’s financial and commodity derivatives.Simplifile.
Selected Operating Data
The following charts and tabletables present trading activity in our futures and options markets by commodity type based on the total number of contracts traded, as well as futures and options rate per contract (in millions, except for percentages and rate per contract amounts): |
| | | | |
| Volume and Rate per Contract |
| | | | Year Ended
December 31, | | | | Year Ended
December 31, | | | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Number of contracts traded: | | | | | | | | | | | | |
| Number of contracts traded (in millions): | | | | | | | | | | | | |
| Energy futures and options | 685 |
| | 635 |
| | 8 | % | | 635 |
| | 596 |
| | 7 | % | 669 |
| | 692 |
| | (3 | )% | | 692 |
| | 685 |
| | 1 | % |
| Agricultural and metals futures and options | 94 |
| | 101 |
| | (7 | ) | | 101 |
| | 90 |
| | 11 |
| 111 |
| | 107 |
| | 4 | % | | 107 |
| | 94 |
| | 15 | % |
| Interest rates and other financial futures and options | 647 |
| | 564 |
| | 15 |
| | 564 |
| | 514 |
| | 10 |
| |
| Financial futures and options | | 630 |
| | 710 |
| | (11 | )% | | 710 |
| | 647 |
| | 10 | % |
| Total | 1,426 |
| | 1,300 |
| | 10 | % | | 1,300 |
| | 1,200 |
| | 8 | % | 1,410 |
| | 1,509 |
| | (7 | )% | | 1,509 |
| | 1,426 |
| | 6 | % |
| | | | | | | | | | | | | |
| | | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| | | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Average Daily Volume of contracts traded (in thousands): | | | | | | | | | | | | |
| Energy futures and options | | 2,655 |
| | 2,747 |
| | (3 | )% | | 2,747 |
| | 2,731 |
| | 1 | % |
| Agricultural and metals futures and options | | 442 |
| | 427 |
| | 4 | % | | 427 |
| | 374 |
| | 14 | % |
| Financial futures and options | | 2,460 |
| | 2,770 |
| | (11 | )% | | 2,770 |
| | 2,536 |
| | 9 | % |
| Total | | 5,557 |
| | 5,944 |
| | (7 | )% | | 5,944 |
| | 5,641 |
| | 5 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| Rate per contract: | | | | | | | | | | | | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Energy futures and options | $ | 1.33 |
| | $ | 1.36 |
| | (2 | )% | | $ | 1.36 |
| | $ | 1.35 |
| | 1 | % | $ | 1.48 |
| | $ | 1.39 |
| | 6 | % | | $ | 1.39 |
| | $ | 1.33 |
| | 5 | % |
| Agricultural and metals futures and options | $ | 2.30 |
| | $ | 2.27 |
| | 1 | % | | $ | 2.27 |
| | $ | 2.34 |
| | (3 | )% | $ | 2.25 |
| | $ | 2.34 |
| | (4 | )% | | $ | 2.34 |
| | $ | 2.30 |
| | 2 | % |
| Interest rates and other financial futures and options | $ | 0.49 |
| | $ | 0.54 |
| | (10 | )% | | $ | 0.54 |
| | $ | 0.63 |
| | (14 | )% | |
| Financial futures and options | | $ | 0.52 |
| | $ | 0.49 |
| | 6 | % | | $ | 0.49 |
| | $ | 0.49 |
| | — | % |
Open interest is the aggregate number of contracts (long or short) that clearing members hold either for their own account or on behalf of their clients. Open interest refers to the total number of contracts that are currently open —“open,” – in other words, contracts that have been traded but not yet liquidated by either an offsetting trade, exercise, expiration or assignment. Open interest is also a measure of the future activity remaining to be closed out in terms of the number of contracts that members and their clients continue to hold in the particular contract and by the number of contracts held for each contract month listed by the exchange. The following charts and table presentspresent our year-end open interest for our futures and options contracts (in thousands, except for
| | | | As of December 31, | | | | As of December 31, | | | As of December 31, | | | | As of December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Open interest — in thousands of contracts: | | | | | | | | | | | | | | | | | | | | | | |
| Energy futures and options | 33,906 |
| | 32,096 |
| | 6 | % | | 32,096 |
| | 32,329 |
| | (1 | )% | 37,433 |
| | 35,019 |
| | 7 | % | | 35,019 |
| | 33,906 |
| | 3 | % |
| Agricultural and metals futures and options | 3,391 |
| | 3,920 |
| | (14 | )% | | 3,920 |
| | 3,878 |
| | 1 |
| 3,836 |
| | 3,643 |
| | 5 | % | | 3,643 |
| | 3,391 |
| | 7 | % |
| Interest rates and other financial futures and options | 24,025 |
| | 19,413 |
| | 24 | % | | 19,413 |
| | 23,834 |
| | (19 | ) | |
| Financial futures and options | | 29,369 |
| | 29,061 |
| | 1 | % | | 29,061 |
| | 24,025 |
| | 21 | % |
| Total | 61,322 |
| | 55,429 |
| | 11 | % | | 55,429 |
| | 60,041 |
| | (8 | )% | 70,638 |
| | 67,723 |
| | 4 | % | | 67,723 |
| | 61,322 |
| | 10 | % |
The following charts and tabletables present selected cash and equity options trading data. All trading volume below is presented as average net daily trading volume, or ADV, and is single counted.counted:
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Cash products (shares in millions): | | | | | | | | | | | |
| NYSE listed (Tape A) issues: | | | | | | | | | | | |
| Handled volume | 1,086 |
| | 1,269 |
| | (14 | )% | | 1,269 |
| | 1,203 |
| | 5 | % |
| Matched volume | 1,077 |
| | 1,256 |
| | (14 | )% | | 1,256 |
| | 1,185 |
| | 6 | % |
| Total NYSE listed consolidated volume | 3,434 |
| | 3,918 |
| | (12 | )% | | 3,918 |
| | 3,685 |
| | 6 | % |
| Share of total matched consolidated volume | 31.4 | % | | 32.1 | % | | (0.7) pts |
| | 32.1 | % | | 32.2 | % | | (0.1) pts |
|
| NYSE Arca, NYSE American and regional listed (Tape B) issues: | | | | | | | | | | | |
| Handled volume | 289 |
| | 372 |
| | (22 | )% | | 372 |
| | 310 |
| | 20 | % |
| Matched volume | 281 |
| | 360 |
| | (22 | )% | | 360 |
| | 296 |
| | 22 | % |
| Total NYSE Arca, NYSE American and regional listed consolidated volume | 1,188 |
| | 1,536 |
| | (23 | )% | | 1,536 |
| | 1,355 |
| | 13 | % |
| Share of total matched consolidated volume | 23.7 | % | | 23.4 | % | | 0.2 pts |
| | 23.4 | % | | 21.8 | % | | 1.6 pts |
|
| Nasdaq listed (Tape C) issues: | | | | | | | | | | | |
| Handled volume | 145 |
| | 186 |
| | (22 | )% | | 186 |
| | 217 |
| | (14 | )% |
| Matched volume | 136 |
| | 177 |
| | (23 | )% | | 177 |
| | 206 |
| | (14 | )% |
| Total Nasdaq listed consolidated volume | 1,921 |
| | 1,907 |
| | 1 | % | | 1,907 |
| | 1,894 |
| | 1 | % |
| Share of total matched consolidated volume | 7.1 | % | | 9.3 | % | | (2.2) pts |
| | 9.3 | % | | 10.9 | % | | (1.6) pts |
|
| Total cash volume handled | 1,521 |
| | 1,828 |
| | (17 | )% | | 1,828 |
| | 1,730 |
| | 6 | % |
| Total cash market share matched | 22.8 | % | | 24.4 | % | | (1.5) pts |
| | 24.4 | % | | 24.3 | % | | 0.1 pts |
|
| | | | | | | | | | | | |
| Equity options (contracts in thousands): | | | | | | | | | | | |
| NYSE equity options | 2,375 |
| | 2,719 |
| | (13 | )% | | 2,719 |
| | 2,867 |
| | (5 | )% |
| Total equity options volume | 14,697 |
| | 14,391 |
| | 2 | % | | 14,391 |
| | 14,793 |
| | (3 | )% |
| NYSE share of total equity options | 16.2 | % | | 18.9 | % | | (2.7) pts |
| | 18.9 | % | | 19.4 | % | | (0.5) pts |
|
| | | | | | | | | | | | |
| Revenue capture or rate per contract: | | | | | | | | | | | |
| Cash products revenue capture (per 100 shares) | $0.051 | | $0.049 | | 6 | % | | $0.049 | | $0.050 | | (4 | )% |
| Equity options rate per contract | $0.151 | | $0.143 | | 5 | % | | $0.143 | | $0.156 | | (8 | )% |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| NYSE cash equities (shares in millions): | | | | | | | | | | | |
| Total cash handled volume | 1,740 |
| | 1,735 |
| | — | % | | 1,735 |
| | 1,521 |
| | 14 | % |
| Total cash market share matched | 24.2 | % | | 23.2 | % | | 1.0 pts |
| | 23.2 | % | | 22.8 | % | | 0.4 pts |
|
| | | |
|
| | | | | | | | |
| NYSE equity options (contracts in thousands): | | |
|
| | | | | | | | |
| NYSE equity options volume | 3,172 |
| | 3,386 |
| | (6 | )% | | 3,386 |
| | 2,375 |
| | 43 | % |
| Total equity options volume | 17,542 |
| | 18,217 |
| | (4 | )% | | 18,217 |
| | 14,697 |
| | 24 | % |
| NYSE share of total equity options | 18.1 | % | | 18.6 | % | | (0.5) pts |
| | 18.6 | % | | 16.2 | % | | 2.4 pts |
|
| | | |
|
| | | | | | | | |
| Revenue capture or rate per contract: | | |
|
| | | | | | | | |
| Cash equities rate per contract (per 100 shares) | $0.046 | | $0.050 | | (8 | )% | | $0.050 | | $0.051 | | (2 | )% |
| Equity options rate per contract | $0.12 | | $0.12 | | (5 | )% | | $0.12 | | $0.15 | | (17 | )% |
Handled volume represents the total number of shares of equity securities, ETFs and crossing session activity internally matched on our exchanges or routed to and executed on an external market center. Matched volume represents the total number of shares of equity securities, ETFs and crossing session activity executed on our exchanges.
For NYSE cash equities, market share declined during 2017 due to historically low volatility driving more trading to off-exchange trading venues, particularly dark pools. For NYSE equity options, market share decreased due to a strategic focus on maximizing revenues in an extremely competitive environment.
Transaction-Based Expenses
Our equities and equity options markets pay fees to the SEC pursuant to Section 31 of the Exchange Act. Section 31 fees are recorded on a gross basis as a component of transaction and clearing fee revenue. These Section 31 fees are designedassessed to recover the government’s costs of supervising and regulating the securities markets and securities professionals.professionals and are subject to change. We, in turn, collect corresponding activity assessment fees which are included in transaction and clearing revenues in our consolidated statements of income, from member organizations clearing or settling trades on the equities and options exchanges, and recognize these amounts in our transaction and clearing revenues when invoiced. The activity assessment fees are designed so that they areto equal to the Section 31 fees that are included in transaction-based expenses in our consolidated statements of income.fees. As a result, activity assessment fees and the corresponding Section 31 fees do not have an impact on our net income. Activity assessmentincome, although the timing of payment by us may vary from collections. Section 31 fees receivedwere $379 million and $357 million in 2019 and 2018, respectively. The fees we collect are included in cash at the time of receipt and as required by law,we remit the amount dueamounts to the SEC semi-annually as required. The total amount is remitted semi-annuallyincluded in accrued liabilities and recordedwas $138 million as an accrued liability until paid. As of December 31, 2017, the accrued liability related to the un-remitted SEC Section 31 fees was $128 million.2019.
We also incurmake liquidity payments made to cash and options trading customers, andas well as routing charges made to other exchanges thatwhich are included in transaction-based expenses. We incur routing charges when we do not have the best bid or offer in the market
for a security that a customer is trying to buy or sell on one of our securities exchanges. In that case, we route the customer’s order to the external market center that displays the best bid or offer. The external market center charges us a fee per share (denominated in tenths of a cent per share) for routing to its system. We record routing charges on a gross basis as a component of transaction and clearing fee revenue. Cash liquidity payments, routing and clearing fees were $966 million and $940 million in 2019 and 2018, respectively.
Operating Expenses, Operating Income and Operating Margin
OurThe following chart summarizes our Trading and Clearing segmentsegment's operating expenses, decreased $46 million for the year ended December 31, 2017, from the comparable periodoperating income and operating margin (dollars in 2016, and decreased $90 million for the year ended December 31, 2016, from the comparable period in 2015 (with the 2016 decrease being partially offset by the $33 million Creditex customer relationship intangible asset impairment expense recorded in September 2016)millions). See “- Consolidated Operating Expenses” below for a discussion of the significant changes in our operating expenses.
|
| | | | | | | | | | | | | | | | | | | | | |
| Trading and Clearing Segment: | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Operating expenses | $ | 1,033 |
| | $ | 911 |
| | 13 | % | | $ | 911 |
| | $ | 781 |
| | 17 | % |
Adjusted operating expenses(1) | $ | 908 |
| | $ | 824 |
| | 10 | % | | $ | 824 |
| | $ | 714 |
| | 16 | % |
| Operating income | $ | 1,509 |
| | $ | 1,509 |
| | — | % | | $ | 1,509 |
| | $ | 1,347 |
| | 12 | % |
Adjusted operating income(1) | $ | 1,634 |
| | $ | 1,596 |
| | 2 | % | | $ | 1,596 |
| | $ | 1,414 |
| | 13 | % |
| Operating margin | 59 | % | | 62 | % | | (3 pts) |
| | 62 | % | | 63 | % | | (1 pt) |
|
Adjusted operating margin(1) | 64 | % | | 66 | % | | (2 pts) |
| | 66 | % | | 66 | % | | — |
|
(1) The adjusted figures exclude items that are not reflective of our ongoing core operations and Clearing segment operating income increased $72 million for the year ended December 31, 2017, from the comparable periodbusiness performance. These adjusted numbers are not calculated in 2016, and increased $130 million for the year ended December 31, 2016, from the comparable period in 2015. Trading and Clearing segment operating margins were 63%, 61% and 56% for the years ended December 31, 2017, 2016 and 2015, respectively. The operating income and operating margin increases the last two years were driven by the revenue increases discussed above and operating expense decreases discussed below.
Our Trading and Clearing segment adjusted operating expenses were $712 million, $715 million and $809 million for the years ended December 31, 2017, 2016 and 2015, respectively. Our Trading and Clearing segment adjusted operating income was $1.4 billion, $1.4 billion and $1.3 billion for the years for the years ended December 31, 2017, 2016 and 2015, respectively. Our Trading and Clearing segment adjusted operating margins were 67%, 66% and 61% for the years for the years ended December 31, 2017, 2016 and 2015, respectively.accordance with GAAP. See “- Non-GAAP Financial Measures” below.
Data and Listings Segment
The following presentscharts and table present our selected statements of income data for our Data and Listings segment (dollars in millions):
(1) The adjusted numbers in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance with U.S. GAAP. See “- Non-GAAP Financial Measures” below.
| | | | Year Ended December 31, | | | | Year Ended December 31, | | | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | |
| Pricing and analytics | $ | 970 |
| | $ | 858 |
| | 13 | % | | $ | 858 |
| | $ | 151 |
| | 469 | % | $ | 1,083 |
| | $ | 1,043 |
| | 4 | % | | $ | 1,043 |
| | $ | 970 |
| | 7 | % |
| Exchange data | 556 |
| | 535 |
| | 4 |
| | 535 |
| | 470 |
| | 14 |
| |
| Exchange data and feeds | | 704 |
| | 670 |
| | 5 |
| | 670 |
| | 632 |
| | 6 |
|
| Desktops and connectivity | 558 |
| | 585 |
| | (5 | ) | | 585 |
| | 250 |
| | 134 |
| 424 |
| | 402 |
| | 5 |
| | 402 |
| | 482 |
| | (17 | ) |
| Data services | 2,084 |
| | 1,978 |
| | 5 |
| | 1,978 |
| | 871 |
| | 127 |
| 2,211 |
| | 2,115 |
| | 5 |
| | 2,115 |
| | 2,084 |
| | 1 |
|
| Listings | 417 |
| | 419 |
| | — |
| | 419 |
| | 405 |
| | 4 |
| 449 |
| | 444 |
| | 1 |
| | 444 |
| | 426 |
| | 4 |
|
| Revenues | 2,501 |
| | 2,397 |
| | 4 |
| | 2,397 |
| | 1,276 |
| | 88 |
| 2,660 |
| | 2,559 |
| | 4 |
| | 2,559 |
| | 2,510 |
| | 2 |
|
| Other operating expenses | 1,089 |
| | 1,071 |
| | 2 |
| | 1,071 |
| | 456 |
| | 135 |
| 1,102 |
| | 1,090 |
| | 1 |
| | 1,090 |
| | 1,096 |
| | (1 | ) |
| Acquisition-related transaction and integration costs | 34 |
| | 70 |
| | (52 | ) | | 70 |
| | 60 |
| | 17 |
| — |
| | 24 |
| | n/a |
| | 24 |
| | 34 |
| | (29 | ) |
| Depreciation and amortization | 348 |
| | 366 |
| | (5 | ) | | 366 |
| | 157 |
| | 134 |
| 394 |
| | 371 |
| | 6 |
| | 371 |
| | 348 |
| | 6 |
|
| Operating expenses | 1,471 |
| | 1,507 |
| | (2 | ) | | 1,507 |
| | 673 |
| | 124 |
| 1,496 |
| | 1,485 |
| | 1 |
| | 1,485 |
| | 1,478 |
| | — |
|
| Operating income | $ | 1,030 |
| | $ | 890 |
| | 16 | % | | $ | 890 |
| | $ | 603 |
| | 48 | % | $ | 1,164 |
| | $ | 1,074 |
| | 8 | % | | $ | 1,074 |
| | $ | 1,032 |
| | 4 | % |
TheOur Data and Listings segment represents largely subscription-based, or recurring, revenues from data services and listings services offered across our trading and clearing businesses and ICE Data Services. Through ICE Data Services, we generate revenues from a range of marketglobal financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, including the dissemination of our exchangedesktops and evaluated pricing data and analytics, desktops, connectivity and market data.solutions. Through NYSE, NYSE American and NYSE Arca, we generate listings revenue related to the provision of listings services for public companies and ETFs, and related corporate actions for listed companies.
For the years ended December 31, 2017, 2016In 2019 and 2015, 10%, 12%2018, 7% and 4%8%, respectively, of our Data and Listings segment revenues were billed in pounds sterling or euros (all relating to our data services revenues). As the pound sterling or euro exchange rate changes, the U.S. equivalent of revenues denominated in foreign currencies changes accordingly. Due to the weakeningstrengthening of the U.S. dollar compared to the pound sterling and euro the last two years compared to the U.S. dollar,during 2019, our data services revenues were lower by $8$9 million for the year ended December 31, 2017 from the comparable period in 2016, and were lower by $24 million for the year ended December 31, 2016 from the comparable period2019 than in 2015.2018.
Data Services Revenues
Our pricing and analytics services consist of an extensive set of independent evaluated pricing services focused primarily on fixed income and international equity securities, valuation services, reference data, market data, end of day pricing, fixed income, equity portfolio analytics and risk management analytics. We also serve as an administrator of regulated benchmarks. Our index services offer a range of products across fixed income, energy, equities, ETFs and other asset classes to provide the methodology, pricing and licensing of indices and benchmarks.
Our exchange data revenues primarily represent subscription fees for the provision of our market data that is created from activity on our exchanges, which is driven by the products and technology we develop to deliver real-time views of markets and related information. In our derivatives markets, exchange data revenues relate to subscription fees charged for customer and license access from third party data vendors, or quote vendors such as Thomson Reuters Corporation and Bloomberg, and from end users, as well as view-only data access, direct access services, terminal access, daily indices, forward curves, and end of day reports.
We also earn exchange data revenues relating to our cash equity and options markets, and related data services. We collect cash trading market data fees principally for consortium-based data products and, to a lesser extent, for NYSE proprietary data
products. Consortium-based data fees are determined by the securities industry plans and are charged to vendors based on their redistribution of data. Consortium-based data revenues (net of administrative costs) are distributed to participating securities markets on the basis of a formula set by the SEC under Regulation NMS. Last trade prices and quotes in NYSE-listed, NYSE American-listed, and NYSE Arca-listed securities are disseminated through “Tape A” and “Tape B,” which constitute the majority of our revenues from consortium-based market data revenues.
Our desktop and connectivity services comprise technology-based information platforms, feeds and connectivity solutions. These include trading applications, desktop solutions, data feeds and infrastructure to support trading, voice brokers and investment functions. Our desktop and web-based applications deliver real-time market information, analytical and decision support tools to support trading and investment decisions. Through our consolidated feeds, clients receive market data from global exchanges, trading venues, news and data sources for exchange-traded and OTC markets. Our services offer clients a secure, resilient, private multi-participant network that provides access to global exchanges and content service providers. Our infrastructure managed services solution also offers colocation space, direct exchange access, proximity hosting and support services that enable access to real-time exchange data, and facilitates low latency, secure electronic market access.
Our data services revenues are primarily subscription-based and increased the last two years5% in 2019 from 2018 primarily due to the strong retention rate of existing customers, the addition of new customers, increased purchases by existing customers the developmentand increases in pricing of new and enhanced products serving the need for an expanded range of data, regulatory compliance and analytics solutions, and our acquisitions of Interactive Data and Trayport in December 2015 and of Securities Evaluations and Credit Market Analysis in October 2016. These increases were partially offset by the impact of foreign currency translation and the divestitures of IDMS and Trayport in our desktop and connectivity business. We recognized $1.1 billion in data services revenues for Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis during the year ended December 31, 2016, compared to $50 million in data services revenues for Interactive Data and Trayport from the comparable period in 2015, subsequent to their acquisitions dates.products.
| |
| • | Pricing and Analytics: Our pricing and analytics revenues increased 4% in 2019 from 2018. The increase in revenue was due to strength in our pricing and reference data and index businesses driven by the strong retention rate of existing customers, the addition of new customers, increased purchases by existing customers and increases in pricing of our products. This growth was partially offset by $5 million of unfavorable fluctuations in the U.S. dollar as compared to the pound sterling and euro. |
| |
| • | Exchange Data and Feeds: Our exchange data and feeds revenues increased 5% in 2019 from 2018. The increase in revenue was largely due to strength in our futures exchange data and to a lesser extent cash equities exchange data. The growth was driven by the strong retention rate of existing customers, the addition of new customers, increased purchases by existing customers, a larger share of the NMS Plan revenue and increases in pricing of our products. |
| |
| • | Desktops and Connectivity: Our desktop and connectivity revenues increased 5% in 2019 from 2018. The increase in revenue was driven primarily by growth in our connectivity services including the ICE Global Network, coupled with stronger desktop revenues. |
Organic Annual Subscription Value
Organic Annual Subscription Value, or ASV, represents, at a point in time, the data services revenues subscribed for the succeeding twelve12 months. ASV does not include new sales, contract terminations or price changes that may occur during that twelve-month12-month period. ASV also does not include certain data services revenue streams that are not subscription-based. Revenue from ASV is adjusted for material acquisitions, divestitures or discontinued businesses to provide an organic viewhas historically represented approximately 90% of comparable performance on a year over year basis at a beginning of the quarter.our data revenues. Thus, while it is an indicative forward-looking metric, it does not provide a growth forecast of the next twelve12 months of data services revenues.
As of December 31, 2017,2019, ASV was $1.8$2.014 billion, a 6% increasewhich increased 5.5% compared to the ASV of $1.7 billion as of December 31, 2016. Underpinning this growth is strength in both our pricing and analytics business and our connectivity services.2018. This does not adjust for year-over-year foreign exchange fluctuations or impacts of acquisitions.
Listings Revenues
We recognize listingsListings revenues in our securities markets arise from fees applicable to companies listed on our cash equities exchanges -exchanges– original listing fees and annual listing fees. Original listing fees consist of two components: initial listing fees and fees related to corporate actions. Initial listing fees, subject to a minimum and maximum amount, are based on the number of shares that a company initially lists. Initial listingAll listings fees are billed upfront and the identified performance obligations are satisfied over time. Revenue related to the investor relations performance obligation is recognized as revenue on a straight-line basis over estimated service periods of nine years for NYSE and five years for NYSE Arca and NYSE American. U.S. companies pay annual fees based on the number of outstanding shares the company has and non-U.S. companies pay annual fees based on the number of outstanding shares the company has issued or held in the U.S. Annual fees are recognized as revenue on a pro rata basisratably over the calendar year, and generally receivedperiod these services are provided, with the remaining revenue recognized ratably over time as cash in the first quarter of the year.customers continue to list on our exchanges.
In addition, we earn corporate actions-related listing fees in connection with actions involving the issuance of new shares, such as stock splits, rights issues and sales of additional securities, as well as mergers and acquisitions. Corporate actions-relatedListings fees related to other corporate actions are considered contract modifications of our listing feescontracts and are recognized ratably over time as revenuecustomers continue to list on a straight-line basis over estimated service periods of six years forour exchanges.
In 2019, NYSE and three years for NYSE ArcaAmerican raised the most capital globally with approximately $112 billion raised in IPOs and NYSE American. Unamortized balances are recorded as deferred revenue in our consolidated balance sheet.follow-on offerings from over 300 transactions.
Operating Expenses, Operating Income and Operating Margin
OurThe following chart summarizes our Data and Listings segmentsegment's operating expenses, decreased $36 million for the year ended December 31, 2017, from the comparable periodoperating income and operating margin (dollars in 2016, and increased $834 million for the year ended December 31, 2016, from the comparable period in 2015. The increase in 2016 primarily relates to $812 million in operating expenses recognized relating to Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis for the year ended December 31, 2016, compared to $39 million in operating expenses recognized relating to Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis for the comparable period in 2015 (both excluding acquisition-related transaction and integration costs)millions). See “- Consolidated Operating
Expenses” below for further details on the Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis operating expenses and for a discussion of the other significant changes in our operating expenses.
|
| | | | | | | | | | | | | | | | | | | | | |
| Data and Listings Segment: | Year Ended December 31, | | | | Year Ended December 31, | | |
| | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Operating expenses | $ | 1,496 |
| | $ | 1,485 |
| | 1 | % | | $ | 1,485 |
| | $ | 1,478 |
| | — | % |
Adjusted operating expenses(1) | $ | 1,281 |
| | $ | 1,247 |
| | 3 | % | | $ | 1,247 |
| | $ | 1,233 |
| | 1 | % |
| Operating income | $ | 1,164 |
| | $ | 1,074 |
| | 8 | % | | $ | 1,074 |
| | $ | 1,032 |
| | 4 | % |
Adjusted operating income(1) | $ | 1,379 |
| | $ | 1,312 |
| | 5 | % | | $ | 1,312 |
| | $ | 1,277 |
| | 3 | % |
| Operating margin | 44 | % | | 42 | % | | 2 pts |
| | 42 | % | | 41 | % | | 1 pt |
|
Adjusted operating margin(1) | 52 | % | | 51 | % | | 1 pt |
| | 51 | % | | 51 | % | | — |
|
(1) The adjusted figures exclude items that are not reflective of our ongoing core operations and Listings segment operating income increased $140 million for the year ended December 31, 2017, from the comparable periodbusiness performance. These adjusted numbers are not calculated in 2016, and increased $287 million for the year ended December 31, 2016, from the comparable period in 2015. Data and Listings segment operating margins were 41%, 37% and 47% for the years ended December 31, 2017, 2016 and 2015, respectively. The operating income and operating margin increases in 2017 were driven by the revenue increases discussed above and operating expense decreases discussed below.
Our Data and Listings segment adjusted operating expenses were $1.2 billion, $1.2 billion and $556 million for the years ended December 31, 2017, 2016 and 2015, respectively. Our Data and Listings segment adjusted operating income was $1.3 billion, $1.2 billion and $720 million for the years ended December 31, 2017, 2016 and 2015, respectively. Our Data and Listings segment adjusted operating margins were 51%, 49% and 56% for the years for the years ended December 31, 2017, 2016 and 2015, respectively.accordance with GAAP. See “- Non-GAAP Financial Measures” below.
Consolidated Operating Expenses
The following presents our consolidated operating expenses (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Compensation and benefits | $ | 1,042 |
| | $ | 994 |
| | 5 | % | | $ | 994 |
| | $ | 946 |
| | 5 | % |
| Professional services | 125 |
| | 131 | | (5 | ) | | 131 |
| | 121 | | 8 |
|
| Acquisition-related transaction and integration costs | 2 |
| | 34 | | (94 | ) | | 34 |
| | 36 | | (5 | ) |
| Technology and communication | 469 |
| | 432 | | 8 |
| | 432 |
| | 397 | | 9 |
|
| Rent and occupancy | 68 |
| | 68 | | 1 |
| | 68 |
| | 69 | | (2 | ) |
| Selling, general and administrative | 161 |
| | 151 | | 7 |
| | 151 |
| | 155 | | (3 | ) |
| Depreciation and amortization | 662 |
| | 586 | | 13 |
| | 586 |
| | 535 | | 10 |
|
| Total operating expenses | $ | 2,529 |
| | $ | 2,396 |
| | 6 | % | | $ | 2,396 |
| | $ | 2,259 |
| | 6 | % |
The majority of our operating expenses do not vary directly with changes in our volume and revenues, except for certain technology and communication expenses, including data acquisition costs, licensing and other fee-related arrangements and a portion of our compensation expense that is tied directly to our data sales or overall financial performance, as discussed below. The following chart and table present our consolidated operating expenses (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change |
| Compensation and benefits | $ | 937 |
| | $ | 945 |
| | (1 | )% | | $ | 945 |
| | $ | 611 |
| | 55 | % |
| Professional services | 121 |
| | 137 | | (12 | ) | | 137 | | 139 | | (1 | ) |
| Acquisition-related transaction and integration costs | 36 |
| | 80 | | (56 | ) | | 80 | | 88 | | (9 | ) |
| Technology and communication | 397 |
| | 374 | | 6 |
| | 374 | | 203 | | 84 |
|
| Rent and occupancy | 69 |
| | 70 | | (1 | ) | | 70 | | 57 | | 21 |
|
| Selling, general and administrative | 155 |
| | 116 | | 34 |
| | 116 | | 116 | | — |
|
| Depreciation and amortization | 535 |
| | 610 | | (12 | ) | | 610 | | 374 | | 63 |
|
| Total operating expenses | $ | 2,250 |
| | $ | 2,332 |
| | (3 | )% | | $ | 2,332 |
| | $ | 1,588 |
| | 47 | % |
We expect our operating expenses to increase in absolute terms in future periods in connection with our acquisitions andthe growth of our business, and to vary from year to yearyear-to-year based on the type and level of our acquisitions, our integrations and other investments.
For the years ended December 31, 2017, 2016In 2019 and 2015, 14%, 18%2018, 12% and 12%13%, respectively, of our consolidated operating expenses were incurred in pounds sterling or euros. As the pound sterling or euro exchange rate changes,Due to fluctuations in the U.S. equivalent of operating expenses denominated in foreign currencies changes accordingly. Duedollar compared to the weakening of the pound sterling and euro, the last two years compared to the U.S. dollar, our consolidated operating expenses were lower by $14 million for the year ended December 31, 2017 from the comparable periodlower in 2016, and were lower by $40 million for the year ended December 31, 2016 from the comparable period2019 than in 2015.2018. See Item 7(A) “- Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk” below for additional information on the impact of currency fluctuations.information.
Compensation and Benefits Expenses
Compensation and benefits expense is our most significant operating expense and includes non-capitalized employee wages, bonuses, non-cash or stock compensation, certain severance costs, benefits and employer taxes. The bonus component of our compensation and benefits expense is based on both our financial performance and the individual employee performance and theperformance. The performance-based restricted stock compensation expense is also based on our financial performance. Therefore, our compensation and benefits expense will vary year to yearyear-to-year based on our financial performance and fluctuations in theour number of employees. The below chart summarizes the significant drivers of our compensation and benefits expense results for the periods presented (dollars in millions, except employee headcount).
As of December 31, 2017 we had 4,952 employees, compared to 5,631 employees as of December 31, 2016 |
| | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2019 | | 2018 | | Change |
| Employee headcount | 5,989 |
| | 5,161 |
| | 16 | % |
| Employee severance and retention costs excluding acquisitions | $ | 18 |
| | $ | 30 |
| | (41 | )% |
| Stock-based compensation expenses | $ | 139 |
| | $ | 130 |
| | 7 | % |
Employee headcount and 5,549 employees as of December 31, 2015. Our employee headcount decreased as of December 31, 2017 primarily due to the divestitures in 2017 of IDMS, Trayport and NYSE Governance Services, and employee terminations in connection with our integration of Interactive Data, partially offset by the acquisitions of NGX and TMX Atrium in 2017. Our employee headcount increased as of December 31, 2016 and 2015 primarily due to acquisitions of Securities Evaluations, Credit Market Analysis, Interactive Data and Trayport during 2016 and 2015, converting contractor roles to employees at NYSE, and hiring for clearing, technology, regulation and compliance. See “- Recent Developments” above.
Compensationcompensation and benefits expenses increased forin 2019 from 2018 primarily due the yearacquisitions of Simplifile in 2019 and CHX Holdings, Inc., the parent company of the Chicago Stock Exchange, or CHX, TMC Bonds and MERS in 2018 and the 2018 launch of Bakkt. Employee headcount also increased due to new employees in our ICE India office, who had previously been our contractors, during the three months ended December 31, 2016, from the comparable period2019. These new businesses resulted in 2015, primarily due to the increases in our employee headcount. We recognized $342 million inadditional compensation and benefits expenses relating to the Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis acquisitions during the year ended December 31, 2016, compared to $17expense of $57 million in 2019 from 2018. Stock-based compensation and benefits expenses relating to the Interactive Data and Trayport acquisitions during the year ended December 31, 2015, subsequent to their acquisitions.
We recorded $17 million, $33 million and $20 million in NYSE and Interactive Data employee severance costs during the years ended December 31, 2017, 2016 and 2015, respectively, with such costs included in the acquisition-related transaction and integration costs discussed below and primarily relatedtable above relate to executive departures. In addition, we incurred non-acquisition-related employee severance costs of $21 million, $10 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Non-cash compensation expenses recognized in our consolidated financial statements for employee stock optionsoption and restricted stock were $135 million, $123 million and $111 million for the years ended December 31, 2017, 2016 and 2015, respectively. The increase in non-cash compensation expenses in 2017 primarily relates to the integration of the Interactive Data employees into the ICE non-cash incentive plans, and the increase in 2016 primarily relates to a greater number of employees receiving non-cash awards due to the headcount increases discussed above.awards.
Professional Services Expenses
ThisProfessional services expense includes fees for consulting services received on strategic and technology initiatives, temporary labor, as well as regulatory, legal and accounting fees. This expensefees, and may fluctuate as a result of changes in consulting and technology services, temporary labor, and regulatory, accounting and legal proceedings.
Professional services expenses decreased the last two yearsin 2019 from 2018 primarily due to the continued reduction in professional serviceslower consulting service fees on regulatory, accounting, technology and contractors at NYSE. We eliminated or replaced certain contractor positions with full-time employees at NYSE in 2016 and 2015. In addition, during the year ended December 31, 2016, we recorded a credit from a third party service provider related to fees charged during 2015, and we incurred lower legal fees during the year ended December 31, 2016, from the comparable period in 2015. Legal fees, which are included in professional services expenses, primarily related to class action lawsuits in which NYSE is a defendant. These decreases werereference data services. This was partially offset by professional services expenses incurred by Interactive Data, Trayport, Securities Evaluationshigher legal fees associated with regulatory matters, litigation matters and Credit Market Analysis following their acquisitions in 2016 and 2015.consulting work related to strategic initiatives.
Acquisition-Related Transaction and Integration Costs
WeIn 2019, we incurred $36$2 million in acquisition-related transaction and integration costs, during the year ended December 31, 2017,primarily related to professional services costs from our 2019 acquisition of Simplifile and other strategic opportunities.
In 2018, we incurred $34 million in acquisition-related transaction and integration costs, primarily relating to employee terminations and lease terminations in connection with our integrations of Interactive Data, Securities Evaluations and Credit Market Analysis, and our acquisitions of
BondPoint, TMX Atrium, BofAML indices and NYSE National. Of this amount, $11 million was primarily related to the acquisitions. We incurred $25 million for Interactive Data, Securities Evaluations and Credit Market Analysis integration costs during the year ended December 31, 2017, primarily relating to employee and lease termination costs and professional services costs.
We incurred $80costs from our 2018 acquisitions, and a $5 million banker success fee in acquisition-related transaction andconnection with our acquisition of TMC Bonds. The integration costs during the year ended December 31, 2016, primarily relating to our integrations of Interactive Data and NYSE, legal and professional fees related to the Trayport CMA review, our investment in MERSCORP Holdings, Inc., owner of Mortgage Electronic Registrations Systems, Inc., or collectively MERS, our acquisitions of Securities Evaluations and Credit Market Analysis, and various other potential and discontinued acquisitions. Of this amount, $41 million was primarily related to the acquisitions and other transaction costs. We incurred $39 million for Interactive Data and NYSE integration costs during the year ended December 31, 2016, primarily relating to employee and lease termination costs and professional services costs. As of December 31, 2016, the integration of NYSE has been completed and we will no longer include any NYSE integration costs in the future.
We incurred $88 million in acquisition-related transaction and integration costs during the year ended December 31, 2015, primarily relating to our acquisitions of Interactive Data and Trayport and the integration of NYSE. Of this amount, $46 million was primarily related to the acquisition costs. We incurred $42 million for NYSE integration costs during the year ended December 31, 2015, primarily relating to employee and lease termination costs and professional services costs.by June 30, 2018.
We expect to continue to explore and pursue various potential acquisitions and other strategic opportunities to strengthen our competitive position and support our growth. As a result, we may incur acquisition-related transaction costs in future periods. See “- Non-GAAP Financial Measures” below.
Technology and Communication Expenses
Technology support services consist of costs for running our wholly-owned data centers, hosting costs paid to third-party data centers, and maintenance of our computer hardware and software required to support our technology.technology and cybersecurity. These costs are driven by system capacity, functionality and redundancy requirements. Communication expenses consist of costs for network connectionconnections for our electronic platforms and telecommunications costs,costs.
Technology and communications expense also includes fees paid for access to external market data. This expense also includesdata, licensing and other fee agreement expenses, which may be impacted by growth in electronic contract volume, our capacity requirements, changes in the number of telecommunications hubs and connections with customers to access our electronic platforms directly. Beginning in the second quarter of 2019, we have reflected amounts owed under certain third-party revenue share arrangements as technology and communication operating expenses rather than as had been previously recorded net within transaction and clearing revenues, which resulted in an increase in technology and communications expense of $37 million in 2019 from 2018.
TechnologyTotal technology and communications expenses also increased the last two years primarilyin 2019 from 2018, due to technology expenses incurred by Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis following their acquisitions$16 million in 2016 and 2015. In addition, during the last two years, we incurred increased hardware and software support costs related to our tradingacquisitions of CHX, TMC Bonds and clearing platformsMERS in 2018 and Simplifile in 2019, and our launch of Bakkt. The increase in 2019 was offset by additional costs related to data services.migrations, hardware support upgrades and cybersecurity investments of $17 million in 2018.
Rent and Occupancy Expenses
ThisRent and occupancy expense consists of costs relatedrelates to leased and owned property includingand includes rent, maintenance, real estate taxes, utilities and other related costs. We have significant operations located in and around Atlanta, New York and London with smaller offices located throughout the world. See Item 2 “- Properties” above for additional information regarding our leased and owned property.
The increase in rent and occupancy expenses for the year ended December 31, 2016, from the comparable period in 2015, is primarily due to rent and occupancy expenses relating to Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis subsequent to their acquisitions. Excluding the impact of the acquisitions, rent and occupancy expenses decreased the last two years primarily due to reduced rent and occupancy costs realized due to the continued consolidation of our Atlanta, New York and London office locations.
Selling, General and Administrative Expenses
This expense relates toSelling, general and administrative expenses frominclude marketing, advertising, public relations, insurance, bank service charges, dues and subscriptions, travel and entertainment, non-income taxes and other general and administrative costs.
Selling, general and administrative expenses increased for the year ended December 31, 2017,in 2019 from the comparable period in 2016,2018, primarily due to the$5 million in costs related to our 2018 acquisitions of Securities EvaluationsCHX, TMC Bonds, and Credit Market AnalysisMERS, our 2019 acquisition of Simplifile and $14 million in accruals relating to ongoing investigationsour launch of Bakkt, and inquiries during the year ended December 31, 2017. Refer to note 14 to our consolidated financial statementsincreased travel and related notes, which are included elsewhere in this Annual Report, for more information on the ongoing investigationsentertainment and inquiries. Selling,other general and administrative expenses increased for the year ended December 31, 2016, from the comparable period in 2015, primarily due to selling, general and administrative expenses incurredcosts, partially offset by Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis following their acquisitions in 2016 and 2015. Excluding the impact of the acquisitions, selling, general and administrative expenses decreased the last two years primarily due to the release of non-income tax-related reserves and lower marketing expenses.
tax reserves.
Depreciation and Amortization Expenses
Depreciation and amortization expense results from depreciation of long-lived assets such as buildings, leasehold improvements, planes,aircraft, hardware and networking equipment, software, furniture, fixtures and equipment over their estimated useful lives. This expense includes amortization of intangible assets obtained in our acquisitions of businesses, as well as on various licensing agreements, over their estimated useful lives. Intangible assets subject to amortization consist primarily of customer relationships, trading products with finite lives and technology. This expense also includes amortization of internally developedinternally-developed and purchased software over theirits estimated useful lives.life.
We recorded amortization expenses on the intangible assets acquired as part of our acquisitions, as well as on the other intangible assets, of $272 million, $323$311 million and $160$289 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. The decreaseAmortization expense increased in the amortization expenses recorded on the2019 from 2018, as a result of CHX, TMC Bonds and MERS intangible assets, forand the year ended December 31, 2017, from the comparable period in 2016, is primarily due to a reduction in amortization expenses recorded$31 million impairment loss on exchange registration intangible assets which became fully amortized (primarily related to certain of the NYSE intangible assets) and the divestitures of Trayport and NYSE Governance Services,on ICE Futures Singapore, partially offset by amortization expenses recordedthe 2018 $4 million impairment loss on the Securities Evaluations, Credit Market Analysis, NGX and TMX Atrium intangible assets. The increase in the amortization expenses recorded on theexchange registration intangible assets for the year ended December 31, 2016, from the comparable period in 2015, is primarily duerelated to amortization expenses recorded on the Interactive Data, Trayport, Securities Evaluationsour closure of ICE Futures Canada and Credit Market Analysis intangible assets, following their acquisitions.
In addition, we recognized a net loss of $6 million on the sale of NYSE Governance Services, which was recorded in depreciation and amortization expenses for the year ended December 31, 2017 (see “- Recent Developments” above), and we recorded an impairment of the Creditex customer relationship intangible asset of $33 million, which was recorded in depreciation and amortization expenses for the year ended December 31, 2016. In August 2016, we sold certain of Creditex’s U.S. voice brokerage operations to Tullett Prebon. During the third quarter of 2016, we discontinued Creditex’s U.K. voice brokerage operations. We continue to operate Creditex’s electronically traded markets and systems, post-trade connectivity platforms and intellectual property. In connection with the divestiture of the voice brokerage business, it was determined that the carrying value of the CDS Creditex customer relationship intangible asset was not fully recoverable and an impairment of the asset was recorded in September 2016 for $33 million.ICE Clear Canada.
We recorded depreciation expenses on our fixed assets of $257 million, $254$320 million and $213$293 million for the years ended December 31, 2017, 2016in 2019 and 2015, respectively, with the2018, respectively. The increase in 20162019 over 2018 was primarily relatingdue to our acquisitions of Interactive Data, Trayport, Securities Evaluationsdepreciation resulting from increased software development and Credit Market Analysis.networking equipment.
Consolidated Non-Operating Income (Expenses)(Expense)
Income and expenses incurred through activities outside of our core operations are considered non-operating. The following tables present our non-operating income (expenses) (dollars in millions):
| | | | Year Ended
December 31, | | | | Year Ended
December 31, | | | Year Ended
December 31, | | | | Year Ended
December 31, | | |
| | 2017 | | 2016 | | Change | | 2016 | | 2015 | | Change | 2019 | | 2018 | | Change | | 2018 | | 2017 | | Change |
| Other income (expense): | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | $ | 35 |
| | $ | 22 |
| | 55 | % | | $ | 22 |
| | $ | 8 |
| | 174 | % |
| Interest expense | $ | (187 | ) | | $ | (178 | ) | | 5 | % | | $ | (178 | ) | | $ | (97 | ) | | 83 | % | (285 | ) | | (244 | ) | | 17 |
| | (244 | ) | | (187 | ) | | 31 |
|
| Other income, net | 325 |
| | 40 |
| | n/a |
| | 40 |
| | — |
| | n/a |
| 58 |
| | 159 |
| | (63 | ) | | 159 |
| | 326 |
| | (51 | ) |
| Total other income (expense), net | $ | 138 |
| | $ | (138 | ) | | n/a |
| | $ | (138 | ) | | $ | (97 | ) | | 42 | % | $ | (192 | ) | | $ | (63 | ) | | 203 | % | | $ | (63 | ) | | $ | 147 |
| | n/a |
|
| | | | | | | | | | | | | | | | | | |
| | | | |
| Net income attributable to non-controlling interest | $ | (28 | ) | | $ | (27 | ) | | 5 | % | | $ | (27 | ) | | $ | (21 | ) | | 28 | % | $ | (27 | ) | | $ | (32 | ) | | (17 | )% | | $ | (32 | ) | | $ | (28 | ) | | 12 | % |
Interest Income
Interest income increased in 2019 from 2018 primarily due to a rise in short-term interest rates on various investments, as well as higher cash and restricted cash balances at ICE Clear Europe related to our guaranty fund contributions and increased regulatory capital.
Interest Expense
Interest expense increased in 2019 from 2018 primarily due to an increase in the principal and coupon of our bond refinancing in August 2018, as well as a rise in short-term interest rates impacting our Commercial Paper Program. See “- Debt” below.
Other income, net
In connection with our equity investment in Euroclear, we recognized dividend income of $19 million and $15 million in 2019 and 2018, respectively, which is included in other income.
In September 2019, we recorded promissory note impairment charges of $16 million on work performed by the original plan processor on the CAT. Due to delays and failures in implementation and functionality by the original plan processor, as well as recently-published proposals by the SEC for an amended timeline and implementation structure, we believe the risk that execution venues are not reimbursed has increased, resulting in this impairment.
Our equity method investments include the Options Clearing Corporation, or OCC, and prior to purchasing the remaining minority stake in MERS in October 2018, our majority investment in MERS. We recognized $62 million and $46 million in equity income as other income related to these investments during 2019 and 2018, respectively.
Prior to October 2018, we owned a majority stake in MERS and treated it as an equity method investment because we did not have the ability to control its operations. On October 3, 2018, we completed the purchase of all remaining interests of MERS and recognized a $110 million gain on our initial investment value as other income.
We own a 40% interest in the OCC, which is regulated by the SEC and the CFTC. On February 13, 2019, the SEC disapproved the OCC capital plan that was established in 2015. Following the SEC disapproval, the OCC also announced that it will not be providing a refund to clearing members or declaring a dividend to shareholders for the year ended December 31, 2017, from the comparable period2018, which resulted in 2016, primarily due to interest expense thathigher reported OCC 2018 net income than we had estimated. During 2019, we recognized relating to the $1.0 billion in senior notes issued in August 2017, partially offset by the repayment of $850$62 million of the 2.00% senior unsecured fixed rate notes due in October 2017, or the NYSE Notes, in September 2017. Interest expense increased for the year ended December 31, 2016, from the comparable period in 2015, primarily dueequity earnings as our share of estimated OCC profits, including $19 million related to the interest expense we recognized on the additional debt incurred to finance the Interactive Data acquisition in December 2015. See “- Debt” below.
On December 14, 2017, we sold Trayport to TMX Group for £550 million ($733 million based on the pound sterling/U.S. dollar exchange rate of 1.3331 as of December 14, 2017). We recognized a net gain of $110 million on the divestiture of Trayport,2018 earnings which was recorded as other incomerecognized during 2019. Refer to Note 4 to our consolidated financial statements, included in this Annual Report for the year ended December 31, 2017. See “- Recent Developments - Divestiture of Trayport and the Acquisitions of NGX and Shorcan Energy” above.additional details on our OCC investment.
In connection with Cetip’s merger with BM&FBOVESPA S.A.our adoption of Accounting Standards Update, or ASU, 2017-07, Compensation Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, now B3,or ASU 2017-07, we are recognizing the other components of net benefit cost of our defined benefit plans in the income statement as non-operating income on a full retrospective basis. The combined net periodic expense of these plans was $4 million and its subsequent sale, we recognized a $176 million realized investment gain in other income for the year ended December 31, 2017 and we recognized $9$8 million in foreign exchange losses2019 and transaction expenses in other expense for the year ended December 31, 2017. See “- Recent Developments - Cetip
Investment Gain” above. We recognized dividend income received relating to our investment in Cetip in other income, which was $5 million, $17 million and $16 million for the years ended December 31, 2017, 2016 and 2015,2018, respectively. We no longer receive any dividends from Cetip subsequent to its sale in the first quarter of 2017.
We account for our investments in MERS and The Options Clearing Corporation, or OCC, as equity method investments. We recognized $36 million, $25 million and $6 million in equity income related to these investments during the years ended December 31, 2017, 2016 and 2015, respectively, as other income.
We incurred foreign currency transaction losses of $4 million, $1$5 million and $14$2 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. This was primarily attributable to the fluctuations of the pound sterling and euro relative to the U.S. dollar. Foreign currency transaction gains
and losses are recorded in other income, (expense) and relate tonet, when the settlement of foreign currency assets, liabilities and payables that occur through our foreign operations that are received in non-functional currencies due to the increase or decrease in the period-end foreign currency exchange rates between periods. See Item 7A “- Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk” included elsewhere in this Annual Report for more information on these items.
We recognized interest income on our investments of $8 million, $3 million and $6 million during the years ended December 31, 2017, 2016 and 2015, respectively, which were recorded as other income. During the year ended December 31, 2015, we incurred $15 million in settlements and accruals for various outstanding legal matters (net of insurance proceeds), which was recorded in other expense.Non-controlling Interest
For consolidated subsidiaries in which our ownership is less than 100%, and for which we have control over the assets, liabilities and management of the entity, the outside stockholders’ interests are shown as non-controlling interest in our consolidated financial statements.interests. As of December 31, 2016,2019, our non-controlling interest includedinterests include those related to the operating results of our CDS clearing subsidiaries in which non-ICE limited partners held a 42.5% net profit sharing interest; ICE Endex in which Gasunie held a 21% ownership interest; and ICE Clear Netherlands in which ABN AMRO Clearing held a 25% ownership interest. For both ICE Endex and ICE Clear Netherlands, in addition to the non-controlling interest reported in the consolidated statements of income, we reported redeemable non-controlling interest in the consolidated balance sheets which represents the minority interest redemption fair value for each company.
During June 2017, we purchased both Gasunie’s 21% minority ownership interest in ICE Endex and ABN AMRO Clearing’s 25% minority ownership interest in ICE Clear Netherlands. Subsequent to these acquisitions, we own 100% of ICE Endex and ICE Clear Netherlands and will no longer include any non-controlling interest amounts for ICE Endex and ICE Clear Netherlands in our consolidated financial statements. During the year ended December 31, 2017, we purchased 12.6% of the net profit sharing interest in our CDS clearing subsidiaries from severaland the redeemable non-controlling interests of the non-ICE partners in Bakkt.
During September 2018, we purchased a 3.2% interest in a non-ICE limited partnerspartner of our CDS clearing subsidiaries, and the remaining non-ICE limited partners hold a 29.9% net profit sharing26.7% ownership interest in our CDS clearing subsidiaries as of December 31, 2017.2019. Refer to Note 3 to our consolidated financial statements contained elsewhere in this Annual Report.
In December 2018, Bakkt Holdings, LLC, or Bakkt, was capitalized with $183 million in initial funding with ICE as the majority owner, along with a group of other minority investors. We hold a call option over these interests subject to certain terms. Similarly, the non-ICE partners in Bakkt hold a put option to require us to repurchase their interests subject to certain terms. These minority interests are reflected as redeemable non-controlling interests in temporary equity within our consolidated balance sheet.
Consolidated Income Tax Provision
Consolidated income tax expense (benefit) was $(25) million, $580$521 million and $358$500 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. The change in consolidated income tax expense (benefit) between years is primarily due to the tax impact of changes in our pre-tax income and the changes in our effective tax rate each year.rate. Our effective tax rate was (1)%, 29%21% and 22% for the years ended December 31, 2017, 201620% in 2019 and 2015,2018, respectively.
The 2019 effective tax rates for the years ended December 31, 2017, 2016 and 2015 are lowerrate is higher than the federal statutory2018 effective tax rate primarily due to favorable U.S.the 2018 discrete tax benefits from the acquisition of MERS and U.K.the divestiture of Trayport exceeding the net increased tax law changes and favorable foreign incomebenefits recorded in 2019 from certain international tax rate differentials, partially offset by state income taxes. Favorable foreign income tax rate differentials result primarily from lower income tax rates inprovisions under the U.K. and various other lower tax jurisdictions as compared to the historical income tax rates in the U.S.TCJA.
During the fourth quarter of 2015, the U.K. reduced their corporate income tax rate from 20% to 19% effective April 1, 2017 and to 18% effective April 1, 2020. During the third quarter of 2016, the U.K. further reduced their corporate income tax rate from 18% to 17% effective April 1, 2020. DuringOn December 22, 2017, the TCJA reducedwas signed into law. The TCJA enacted broad changes to the U.S. corporatefederal income tax code, including reducing the federal corporation income tax rate from 35% to 21% effective January 1, 2018. See “- Recent Developments” above.. The reductionreductions in U.S. and U.K. corporate income tax rates resulted in deferred tax benefits in the respective periodsperiod of enactment. The impact of the deferred tax benefits forlowered the U.S. and U.K. corporate income2017 effective tax rate reductions for the years ended December 31, 2017, 2016 and 2015 lowered the effective tax rates by 30%, 2% and 4%, respectively, and resulted in deferred tax benefits of $764 million, $34 million and $60 million, respectively.
The decrease in the effective tax rate for the year ended December 31, 2017, from the comparable period in 2016, is primarily due to thea deferred tax benefit associated with the future U.S. income tax rate reduction and tax benefits associated with a divestiture in the second quarter of 2017, partially offset by the deferred tax benefit from the U.K. corporate income tax reduction in the third quarter of 2016, additional tax expense from an Illinois corporate income tax rate increase enacted in the third quarter of 2017, and an income tax expense increase due to a relatively higher U.S. mix of income in 2017. The increase in the effective tax rate for the year ended December 31, 2016, from the comparable period in 2015, is primarily due to the tax impact of foreign versus U.S. based pre-tax income, lower deferred tax benefits associated with the future U.K. income tax rate reductions, and greater favorable settlements with$764 million.
various taxing authorities in 2015, partially offset by a tax benefit from the early adoption of ASU 2016-09 in 2016. See note 12Note 13 to our consolidated financial statements and related notes, which are included elsewhere isin this Annual Report, for additional information on these tax items.
Quarterly Results of Operations
The following quarterly unaudited condensed consolidated statements of income data has been prepared on substantially the same basis as our audited consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our consolidated results of operations for the quarters presented. The historical results for any quarter do not necessarily indicate the results expected for any future period. This unaudited condensed consolidated quarterly data should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report. The following table sets forth quarterly consolidated statements of income data (in millions):
| | | | Three Months Ended, | Three Months Ended, |
| | December 31,
2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | December 31,
2016 | | September 30, 2016 | | June 30, 2016 | | March 31, 2016 | December 31,
2019 | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 | | December 31,
2018 | | September 30, 2018 | | June 30, 2018 | | March 31, 2018 |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Energy futures and options contracts | $ | 227 |
| | $ | 223 |
| | $ | 231 |
| | $ | 228 |
| | $ | 224 |
| | $ | 199 |
| | $ | 212 |
| | $ | 230 |
| $ | 243 |
| | $ | 265 |
| | $ | 255 |
| | $ | 229 |
| | $ | 257 |
| | $ | 223 |
| | $ | 250 |
| | $ | 235 |
|
| Agricultural and metals futures and options contracts | 49 |
| | 49 |
| | 62 |
| | 56 |
| | 47 |
| | 52 |
| | 67 |
| | 62 |
| 57 |
| | 60 |
| | 72 |
| | 62 |
| | 54 |
| | 58 |
| | 74 |
| | 65 |
|
| Interest rates and other financial futures and options contracts | 72 |
| | 82 |
| | 89 |
| | 83 |
| | 74 |
| | 70 |
| | 80 |
| | 94 |
| |
| Financial futures and options contracts | | 80 |
| | 91 |
| | 78 |
| | 83 |
| | 92 |
| | 77 |
| | 94 |
| | 91 |
|
| Cash equities and equity options | 365 |
| | 355 |
| | 390 |
| | 381 |
| | 426 |
| | 410 |
| | 454 |
| | 490 |
| 442 |
| | 401 |
| | 410 |
| | 390 |
| | 462 |
| | 335 |
| | 389 |
| | 438 |
|
| Other transactions | 45 |
| | 49 |
| | 45 |
| | 50 |
| | 47 |
| | 46 |
| | 47 |
| | 53 |
| |
| Fixed income and credit | | 96 |
| | 101 |
| | 80 |
| | 87 |
| | 83 |
| | 56 |
| | 45 |
| | 56 |
|
| OTC and other transactions | | 11 |
| | 11 |
| | 12 |
| | 11 |
| | 13 |
| | 11 |
| | 12 |
| | 13 |
|
| Total transaction and clearing, net | 758 |
| | 758 |
| | 817 |
| | 798 |
| | 818 |
| | 777 |
| | 860 |
| | 929 |
| 929 |
| | 929 |
| | 907 |
| | 862 |
| | 961 |
| | 760 |
| | 864 |
| | 898 |
|
| Pricing and analytics | 248 |
| | 242 |
| | 242 |
| | 238 |
| | 234 |
| | 209 |
| | 211 |
| | 204 |
| 274 |
| | 273 |
| | 270 |
| | 266 |
| | 264 |
| | 263 |
| | 262 |
| | 254 |
|
| Exchange data | 140 |
| | 136 |
| | 142 |
| | 138 |
| | 132 |
| | 136 |
| | 139 |
| | 128 |
| |
| Exchange data and feeds | | 176 |
| | 172 |
| | 180 |
| | 176 |
| | 174 |
| | 168 |
| | 164 |
| | 164 |
|
| Desktops and connectivity | 137 |
| | 140 |
| | 137 |
| | 144 |
| | 149 |
| | 144 |
| | 147 |
| | 145 |
| 109 |
| | 108 |
| | 103 |
| | 104 |
| | 101 |
| | 99 |
| | 100 |
| | 102 |
|
| Total data services | 525 |
| | 518 |
| | 521 |
| | 520 |
| | 515 |
| | 489 |
| | 497 |
| | 477 |
| 559 |
| | 553 |
| | 553 |
| | 546 |
| | 539 |
| | 530 |
| | 526 |
| | 520 |
|
| Listings | 102 |
| | 102 |
| | 107 |
| | 106 |
| | 105 |
| | 106 |
| | 105 |
| | 103 |
| 113 |
| | 114 |
| | 111 |
| | 111 |
| | 112 |
| | 112 |
| | 111 |
| | 109 |
|
| Other revenues | 54 |
| | 54 |
| | 49 |
| | 45 |
| | 46 |
| | 44 |
| | 42 |
| | 45 |
| 66 |
| | 67 |
| | 63 |
| | 64 |
| | 65 |
| | 61 |
| | 55 |
| | 53 |
|
| Total revenues | 1,439 |
| | 1,432 |
| | 1,494 |
| | 1,469 |
| | 1,484 |
| | 1,416 |
| | 1,504 |
| | 1,554 |
| 1,667 |
| | 1,663 |
| | 1,634 |
| | 1,583 |
| | 1,677 |
| | 1,463 |
| | 1,556 |
| | 1,580 |
|
| Transaction-based expenses | 295 |
| | 289 |
| | 316 |
| | 305 |
| | 346 |
| | 338 |
| | 375 |
| | 400 |
| 369 |
| | 327 |
| | 336 |
| | 313 |
| | 369 |
| | 263 |
| | 310 |
| | 355 |
|
| Total revenues, less transaction-based expenses | 1,144 |
| | 1,143 |
| | 1,178 |
| | 1,164 |
| | 1,138 |
| | 1,078 |
| | 1,129 |
| | 1,154 |
| 1,298 |
| | 1,336 |
| | 1,298 |
| | 1,270 |
| | 1,308 |
| | 1,200 |
| | 1,246 |
| | 1,225 |
|
| Compensation and benefits | 227 |
| | 231 |
| | 234 |
| | 245 |
| | 237 |
| | 236 |
| | 236 |
| | 236 |
| 274 |
| | 261 |
| | 259 |
| | 248 |
| | 262 |
| | 251 |
| | 241 |
| | 240 |
|
| Professional services | 27 |
| | 30 |
| | 32 |
| | 32 |
| | 36 |
| | 32 |
| | 37 |
| | 32 |
| 28 |
| | 35 |
| | 29 |
| | 33 |
| | 40 |
| | 32 |
| | 29 |
| | 30 |
|
| Acquisition-related transaction and integration costs | 9 |
| | 4 |
| | 9 |
| | 14 |
| | 19 |
| | 14 |
| | 20 |
| | 27 |
| 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | 6 |
| | 15 |
| | 12 |
|
| Technology and communication | 103 |
| | 99 |
| | 97 |
| | 98 |
| | 97 |
| | 93 |
| | 92 |
| | 92 |
| 123 |
| | 126 |
| | 113 |
| | 107 |
| | 112 |
| | 107 |
| | 108 |
| | 105 |
|
| Rent and occupancy | 17 |
| | 17 |
| | 17 |
| | 18 |
| | 18 |
| | 17 |
| | 17 |
| | 18 |
| 16 |
| | 17 |
| | 18 |
| | 17 |
| | 18 |
| | 17 |
| | 16 |
| | 17 |
|
| Selling, general and administrative | 38 |
| | 38 |
| | 38 |
| | 41 |
| | 33 |
| | 31 |
| | 30 |
| | 22 |
| 45 |
| | 33 |
| | 41 |
| | 42 |
| | 42 |
| | 37 |
| | 39 |
| | 33 |
|
Depreciation and amortization (1) | 131 |
| | 128 |
| | 142 |
| | 134 |
| | 140 |
| | 181 |
| | 146 |
| | 143 |
| |
| Depreciation and amortization | | 189 |
| | 158 |
| | 157 |
| | 158 |
| | 157 |
| | 148 |
| | 143 |
| | 138 |
|
| Total operating expenses | 552 |
| | 547 |
| | 569 |
| | 582 |
| | 580 |
| | 604 |
| | 578 |
| | 570 |
| 676 |
| | 630 |
| | 618 |
| | 605 |
| | 632 |
| | 598 |
| | 591 |
| | 575 |
|
| Operating income | 592 |
| | 596 |
| | 609 |
| | 582 |
| | 558 |
| | 474 |
| | 551 |
| | 584 |
| 622 |
| | 706 |
| | 680 |
| | 665 |
| | 676 |
| | 602 |
| | 655 |
| | 650 |
|
Other income (expense), net (2) | 77 |
| | (36 | ) | | (44 | ) | | 141 |
| | (28 | ) | | (31 | ) | | (35 | ) | | (44 | ) | |
Income tax expense (benefit) (3) | (562 | ) | | 185 |
| | 139 |
| | 213 |
| | 171 |
| | 93 |
| | 153 |
| | 163 |
| |
Other income (expense), net (1) | | (35 | ) | | (66 | ) | | (52 | ) | | (39 | ) | | 62 |
| | (48 | ) | | (44 | ) | | (33 | ) |
| Income tax expense | | 134 |
| | 103 |
| | 150 |
| | 134 |
| | 119 |
| | 89 |
| | 149 |
| | 143 |
|
| Net income | $ | 1,231 |
| | $ | 375 |
| | $ | 426 |
| | $ | 510 |
| | $ | 359 |
| | $ | 350 |
| | $ | 363 |
| | $ | 377 |
| $ | 453 |
| | $ | 537 |
| | $ | 478 |
| | $ | 492 |
| | $ | 619 |
| | $ | 465 |
| | $ | 462 |
| | $ | 474 |
|
| Net income attributable to non-controlling interest | (6 | ) | | (6 | ) | | (8 | ) | | (8 | ) | | (7 | ) | | (6 | ) | | (6 | ) | | (8 | ) | (5 | ) | | (8 | ) | | (6 | ) | | (8 | ) | | (8 | ) | | (7 | ) | | (7 | ) | | (10 | ) |
| Net income attributable to ICE | $ | 1,225 |
| | $ | 369 |
| | $ | 418 |
| | $ | 502 |
| | $ | 352 |
| | $ | 344 |
| | $ | 357 |
| | $ | 369 |
| |
| Net income attributable to Intercontinental Exchange, Inc. | | $ | 448 |
| | $ | 529 |
| | $ | 472 |
| | $ | 484 |
| | $ | 611 |
| | $ | 458 |
| | $ | 455 |
| | $ | 464 |
|
(1) The increase in the depreciation and amortization expenses for the three months ended September 30, 2016 is primarily due to the $33 million Creditex customer relationship intangible asset impairment. See “- Consolidated Operating Expenses” above.
(2) Other income (expense), net for the three months ended December 31, 20172018 includes a $110 million gain on our sale of Trayport, and for the three months ended March 31, 2017, includes a $176 million realized investment gain in connection with the saleour acquisition of our investment in Cetip. See “- Recent Developments” above.MERS.
(3) The decrease in the income tax expenses for the three months ended December 31, 2017 is primarily due to a $764 million deferred tax benefit associated with future U.S. income tax reductions, the decrease for the three months ended June 30, 2017 is primarily due to the tax benefit associated with a divestiture, and the decrease for the three months ended September 30, 2016 is primarily due to a deferred tax benefit associated with future U.K. income tax rate reductions. See “- Consolidated Income Tax Provision” above.
Liquidity and Capital Resources
Below are charts that reflect our capital allocation. The acquisition and integration costs in the chart below includes both the net cash paid for the acquisitions, net of cash received for divestitures, cash paid for equity investments, cash paid for non-controlling interest and theredeemable non-controlling interest, and acquisition-related transaction and integration costs, in each year.
We have financed our operations, growth and cash needs primarily through income from operations and borrowings under our various debt facilities. Our principal capital requirements have been to fund capital expenditures, working capital, strategic acquisitions and investments, stock repurchases, dividends to our shareholders and the continued development of our technology platforms that support our businesses.platforms. We believe that our cash on hand and cash flows from operations will be sufficient to repay our outstanding debt, as it matures. In the future,but we may also need to incur additional debt or issue additional equity securities which we may be unable to do or to do on favorable terms.in the future. See “- Future Capital Requirements” below.
See “- Recent Developments” above for a discussion of the acquisitions that we made during 2019. These acquisitions were funded from borrowing under our Commercial Paper Program along with cash flows from operations.
Our Commercial Paper Program enables us to borrow efficiently at reasonable short-term interest rates and provides us with the flexibility to de-lever using our strong annual cash flows from operating activities whenever our leverage becomes elevated as a result of investment or acquisition activities. We reduced our outstanding commercial paper during the year ended December 31, 2017 by $409had net issuances of $360 million primarily using net cash proceeds received from the sale of our investment in Cetip, the sale of Trayport and cash flows from operations, partially offset by acquisitions and investments we made in 2017. See “- Debt” below.
See “- Recent Developments” above for a discussion of the acquisitions and investments that we made during the year ended December 31, 2017. These cash acquisitions and investments were funded from borrowing under our Commercial Paper Program cash flows from operations and a portion of the proceeds received from our divestitures during the year ended December 31, 2017.2019.
Upon maturity of old issuances ofour commercial paper and to the extent old issuances are not repaid by cash on hand, we are exposed to the rollover risk of not being able to issue new commercial paper. To mitigate the rolloverthis risk, we maintain an undrawn back-stop bank revolving credit facility for an aggregate amount equaling at any timewhich meets or exceeds the amount issued under our Commercial Paper Program.Program at any time. If we were not able to issue new commercial paper, we have the option of drawing on the back-stop revolving facility, howeverfacility. However, electing to do so would result in higher interest expense. SeeFor a discussion of our Commercial Paper Program and other indebtedness, see “- Debt” below.
Consolidated cash and cash equivalents were $535$841 million and $407$724 million as of December 31, 20172019 and 2016,2018, respectively. We had $1.0$1.3 billion and $943 million$1.1 billion in short-term and long-term restricted cash and cash equivalents as of December 31, 20172019 and 2016, respectively and $432 million in long-term investments as of December 31, 2016 (relating to our investment in Cetip, which was sold in 2017). We consider all short-term, highly-liquid investments with original maturity dates of three months or less to be cash equivalents. We classify all investments with original maturity dates in excess of three months but less than one year as short-term investments and all investments that we intend to hold for more than one year as long-term investments. Cash and investments that are
not available for general use, either due to regulatory requirements or through restrictions in specific agreements, are classified as restricted cash and investments.2018, respectively.
As of December 31, 2017,2019, the amount of unrestricted cash held by our non-U.S. subsidiaries was $325$459 million. While we consider our non-U.S. earningsDue to be indefinitely reinvested overseas, if these cash balances are needed for our operations in the U.S., any repatriation by way of dividend may be subject to both U.S. federal and state income taxes, as adjusted for any non-U.S. tax credits. Such dividends may not be subject to U.S. federal tax under the TCJA and we will continue to monitor both federal and state interpretations, guidance and regulations concerning U.S. tax reform. However, we do not have any current needs or foreseeable future needs or other plans to repatriate cash by way of dividends from our non-U.S. subsidiaries. We will continue to evaluate our indefinite reinvestment assertion in light of any further U.S. tax reform, developments.the majority of our foreign earnings since January 1, 2018 have been subject to immediate U.S. income taxation, and consequently, the existing non-U.S. unrestricted cash balance can be distributed to the U.S. in the future with no material additional income tax consequences.
Our cash and cash equivalents and financial investments are managed as a global treasury portfolio of non-speculative financial instruments that are readily convertible into cash, such as overnight deposits, term deposits, money market funds, mutual funds for treasury investments, short duration fixed income investments and other money market instruments, thus ensuring high liquidity of financial assets. We may invest a portion of our cash in excess of short-term operating needs in investment-grade marketable debt securities, including government or government-sponsored agencies and corporate debt securities.
CertainRepurchases of these investments, with an original maturity of greater than three months, willour common stock may be classified as available-for-salemade from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with relevant accounting standards. Available-for-sale investments are carried at their fair values with unrealized gainsall applicable securities laws, rules and losses, reported as a component of accumulated other comprehensive income. Realized gainsregulations. In 2019 and losses, and declines in value deemed to be other-than-temporary on available-for-sale investments, are recognized currently in earnings. We do not have any investments classified as held-to-maturity or trading.
During the years ended December 31, 2017, 2016 and 2015,2018, we repurchased 14,966,616 shares, 902,92017.4 million shares and 14,343,84516.3 million shares, respectively, of our outstanding common stock at a cost of $949$1.5 billion and $1.2 billion, respectively. In 2019, we repurchased 16.1 million $50shares of our outstanding common stock at a cost of $1.4 billion under our Rule 10b5-1 trading plan and 1.3 million and $660shares at a cost of $100 million respectively. The shareson the open market. Shares repurchased are held in treasury stock. These repurchases were completed on the open market and under our
From time to time, we enter into Rule 10b5-1 trading plan. In connection withplans, as authorized by our acquisitionBoard of Interactive Data duringDirectors, to govern some or all of the fourth quarterrepurchases of 2015, we suspended our stock repurchase plan for a periodshares of time.common stock. The timing and extent of future repurchases that are not made pursuant to a Rule 10b5-1 trading plan will be at our discretion and will depend upon many conditions. Our management periodically reviews whether or not to be active in repurchasing our stock. In making a determination regarding any stock repurchases, we considermanagement considers multiple factors. The factors, may include:including overall stock market conditions, our common stock price movements,performance, the remaining amount authorized for repurchases by our boardBoard of directors,Directors, the potential impact of a stock repurchase program on our corporate debt ratings, our expected free cash flow and working capital needs, our current and future planned strategic growth initiatives, and other potential uses of our cash and capital resources.
In August 2016,September 2018, our boardBoard of directorsDirectors approved an aggregate of $1.0 billion for future repurchases of our common stock with no fixed expiration date. In September 2017, our board of directors approved an aggregate of $1.2$2.0 billion for future repurchases of our common stock with no fixed expiration date that becomesbecame effective as of January 1, 2018.2019. In December 2019, our Board of Directors approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective January 1, 2020. The $2.4 billion replaced the previous amount approved by the Board of Directors. We expect this authorization to provide us with capacity for buybacks over six quarters and flexibility to act opportunistically. We expect funding for any share repurchases to come from our operating cash flow or borrowings under our debt facilitiesCommercial Paper Program or our Commercial Paper Program.debt facilities.
Repurchases may be made from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with all applicable securities laws, rules and regulations. We have entered into a Rule 10b5-1 trading plan, as authorized by our board of directors, to govern some or all of the repurchases of our shares of common stock. We may discontinue the stock repurchases at any time and may amend or terminate thea Rule 10b5-1 trading plan at any time. The approval of our boardBoard of directorsDirectors for the share repurchases does not obligate us to acquire any particular amount of our common stock. In addition, our boardBoard of directorsDirectors may increase or decrease the amount of capacity we have for repurchases from time to time.
Cash Flow
The following table presents the major components of net increases (decreases)changes in cash, cash equivalents, and restricted cash and cash equivalents (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 2,085 |
| | $ | 2,149 |
| | $ | 1,311 |
|
| Investing activities | 92 |
| | (860 | ) | | (3,004 | ) |
| Financing activities | (1,971 | ) | | (1,462 | ) | | 1,976 |
|
| Effect of exchange rate changes | 12 |
| | (24 | ) | | (14 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | $ | 218 |
| | $ | (197 | ) | | $ | 269 |
|
The FASB has issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, that requires entities to show the changes in the total of cash, cash equivalents, restricted cash and cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. In the fourth quarter of 2017, we adopted ASU 2016-18 and reclassified changes in restricted cash from cash flow provided by (used in) investing activities to the total change in beginning-of-year and end-of-year total amounts shown on the consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015. This new standard is a change in cash flow statement presentation only. Refer to note 2 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on the impact of the adoption of ASU 2016-18. |
| | | | | | | | | | | |
| | Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 2,659 |
| | $ | 2,533 |
| | $ | 2,085 |
|
| Investing activities | (594 | ) | | (1,755 | ) | | 92 |
|
| Financing activities | (1,753 | ) | | (463 | ) | | (1,971 | ) |
| Effect of exchange rate changes | 4 |
| | (11 | ) | | 12 |
|
| Net increase in cash, cash equivalents, and restricted cash and cash equivalents | $ | 316 |
| | $ | 304 |
| | $ | 218 |
|
Operating Activities
Net cash provided by operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation and amortization and the effects of changes in working capital. Fluctuations in net cash provided by operating activities are primarily attributable to increases and decreases in our net income between periods and due to fluctuations in working capital.
The $64 million decrease in net cash provided by operating activities for the year ended December 31, 2017, from the comparable period in 2016, is primarily due to a $136 million contribution that was made to our pension plan in September 2017, compared to a $10 million contribution that was made to our pension plan in September 2016. The pension contribution in September 2017 allowed us to reach 99% funding of our pension obligation and allowed us to immunize the liability against future market fluctuations. For additional information on our pension plan, refer to note 15 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report.
The $838$126 million increase in net cash provided by operating activities for the year ended December 31, 2016,in 2019 from the comparable period in 2015,2018, is primarily a result of an increase in net income, excluding certain non-cash adjustments such as the 2018 non-cash gain on MERS and the $31 million impairment loss on the ICE Futures Singapore exchange registration intangible asset in 2019. The remaining increase is due to $393 million in cash provided by operating activities for Interactive Data, Trayport, Securities Evaluations and Credit Market Analysis for the year ended December 31, 2016, increase in the net income of our historical income statement excluding the acquisitions, and other fluctuations in our working capital (includingand the impacttiming of the increase in cash paid for income taxes in 2015).various payments such as transaction-related expenses and taxes.
Investing Activities
Consolidated net cash provided by (used in) investing activities for the years ended December 31, 2017, 2016in 2019 and 2015 primarily2018 relates to cash paid for acquisitions, cash received from divestitures, net cash received from the sale of our investment in Cetip, purchases of cost and equity method investments, proceeds from term deposits, a return of capital related to our investment in OCC, proceeds from investments related to MERS and changes in the capital expenditures and capitalized software development costs.
We paid cash for acquisitions, net of the cash of the companies acquired, of $423 million, $425$352 million and $3.8$1.2 billion respectively, for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively, primarily relating to the NGX, Shorcan Energy, BofAML indicesSimplifile acquisition during 2019 and TMX Atriumthe BondPoint, TMC Bonds and MERS acquisitions during the year ended December 31, 2017, the Securities Evaluations and Credit Market Analysis acquisitions during the year ended December 31, 2016, and the Interactive Data acquisition during the year ended December 31, 2015.2018. We receivedmade cash from our divestituresinvestments of $761$306 million during the year ended December 31, 2017, relating2018 related to the salesEuroclear and MERS.
In 2019, we had a $60 million return of Trayport, IDMS and NYSE Governance Services. We received net cash proceeds from the sale ofcapital related to our equity method investment in Cetipthe OCC. Refer to Note 4 to our consolidated financial statements, included in this Annual Report for additional details on our OCC investment.
We had capital expenditures of $438 million. We made purchases of cost and equity method investments of $327 million, $70$153 million and $60$134 million during the years ended December 31, 2017, 2016in 2019 and 2015, respectively, relating to our investments in Euroclear, MERS and OCC. See “- Recent Developments” above for more details on these acquisitions, divestitures and investments. We received proceeds from term deposits of $1.1 billion during the year ended December 31, 2015 relating to the repayments of outstanding debt.
Capital expenditures were $220 million, $250 million and $190 million for the years ended December 31, 2017, 2016 and 2015,2018, respectively, and we had capitalized software development expenditures of $137 million, $115$152 million and $87$146 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. The capital expenditures primarily relate to hardware and software purchases to continue the development and expansion of our electronic platforms, data services and clearing houses and leasehold improvements associated
with the new and renovated office spaces in Atlanta, New York, London and London.India. The software development expenditures primarily relate to the continued development and expansion of our electronic trading platforms, data services and clearing houses.
Financing Activities
Consolidated net cash used in financing activities for the year ended December 31, 2017in 2019 primarily relates to $984$1.5 billion in repurchases of common stock, $360 million in net proceeds from the 2022 Senior Notes and 2027 Senior Notes offerings, $850 million in repayments of the NYSE Notes, $409 million in net repaymentsborrowings under our Commercial Paper Program, $949 million in repurchases of common stock, $476$621 million in dividend payments to our shareholders, $174 million in acquisitions of non-controlling intereststockholders and redeemable non-controlling interest and $88 million in cash payments related to treasury shares received for restricted stock tax payments and stock options exercises. See “- Recent Developments” above and “- Debt” below.
Consolidated net cash used in financing activities for the year ended December 31, 2016 primarily relates to $949 million in net repayments under our Commercial Paper Program, $409 million in dividend payments to our shareholders, $54 million in cash payments related to treasury shares received for restricted stock tax payments and stock options exercises and $50 million in repurchases of common stock.
Consolidated net cash provided by financing activities for the year ended December 31, 2015 primarily relates to $2.5 billion in net proceeds received in connection with the offering of new senior notes and $1.7 billion in net borrowings under our commercial paper program, partially offset by $1.0 billion in net repayments under our debt facilities, $660 million in repurchases of common stock, $331 million in dividend payments to our shareholders, $128 million for the purchase of subsidiary shares from non-controlling interest holders and $45$65 million in cash payments related to treasury shares received for restricted stock tax payments and stock options exercises.
Consolidated net cash used in financing activities in 2018 primarily relates to $1.2 billion in repurchases of common stock, $600 million in repayments of our October 2018 Senior Notes, $555 million in dividend payments to our stockholders, $283 million in net repayments under our Commercial Paper Program, and $80 million in cash payments related to treasury shares received for restricted stock tax payments and stock options exercises, partially offset by $2.2 billion in net proceeds from our Senior Notes issued in 2018 (the September 2023, 2028 and 2048 Senior Notes). See Note 10 to our consolidated financial statements, included in this Annual Report.
Debt
As of December 31, 2019, we had $7.8 billion in outstanding debt, consisting of $6.5 billion of senior notes and $1.3 billion under the U.S. dollar commercial paper program, or the Commercial Paper Program. The commercial paper notes had
Our total debt, including short-term and long-term debt, consisted of the followingoriginal maturities ranging from two to 87 days as of December 31, 20172019, with a weighted average interest rate of 1.84% per annum, and 2016 (in millions):
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| Debt: | | | |
| Short-term debt: | | | |
| Commercial Paper | $ | 1,233 |
| | $ | 1,642 |
|
| 2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018) | 600 |
| | — |
|
| NYSE Notes (2.00% senior unsecured notes due October 5, 2017) | — |
| | 851 |
|
| Total short-term debt | 1,833 |
| | 2,493 |
|
| Long-term debt: | | | |
| 2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018) | — |
| | 598 |
|
| 2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020) | 1,244 |
| | 1,242 |
|
| 2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022) | 495 |
| | — |
|
| 2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023) | 791 |
| | 790 |
|
| 2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025) | 1,242 |
| | 1,241 |
|
| 2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027) | 495 |
| | — |
|
| Total long-term debt | 4,267 |
| | 3,871 |
|
| Total debt | $ | 6,100 |
| | $ | 6,364 |
|
Amended Credit Facilitya weighted average remaining maturity of 22 days. Commercial paper notes of $951 million with original maturities ranging from two to 77 days were outstanding as of December 31, 2018, with a weighted average interest rate of 2.48% per annum, and a weighted average remaining maturity of 12 days.
We had previously entered intocurrently have a $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, with a maturity date of November 13, 2020, pursuant to a credit agreement with Wells Fargo Bank, N.A., or Wells Fargo, as primary administrative agent, issuing lender and swing-line lender, Bank of America, N.A., as syndication agent, backup administrative agent and swing-line lender, and the lenders party thereto. On August 18, 2017, we agreed with the lenders to, amongst other items, extend the maturity date to August 18, 2022, herein referred to as the Amended Credit Facility. The Amended Credit Facility includes an option for us to propose an increase in the aggregate amount available for borrowing by up to $975 million, subject to the consent of the lenders funding the increase and certain other conditions.
Other amendments within the Amended Credit Facility include, but are not limited to, (i) eliminating the step-up in the commitment fee ratings-based grid that was scheduled to take effect in April 2019, (ii) removing ICE Europe Parent Limited as a party to the credit agreement, (iii) removing the guaranty by ICE in respect of ICE Europe Parent Limited, (iv) increasing the maximum leverage ratio to 3.50:1.00, and (v) up to two times, increasing the maximum leverage ratio from 3.50:1.00 to 4.00:1.00 for a period of one year following a material acquisition.
No amounts were outstanding under the Amended Credit Facility asAs of December 31, 2017. Amounts borrowed under the Amended Credit Facility may be prepaid at any time without premium or penalty. The Amended Credit Facility provides for a $3.4 billion multi-currency revolving facility, with sub-limits for non-dollar borrowings and letters2019, of credit and with a swing-line facility available on a same-day basis. Of the $3.4 billion that is currently available for borrowing under the Amended Credit Facility, $1.2$1.3 billion is required to back-stop the amount outstanding under our Commercial Paper Program as of December 31, 2017 and $100$160 million is required to support certain broker dealer subsidiary clearing house commitments. The amount required to back-stopbackstop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $2.1$1.9 billion available under the Amended Credit Facility as of December 31, 2017 is available to us to use for working capital and general corporate purposes, including, but not limited to, acting as a back-stop to future increases in the amounts outstanding under the Commercial Paper Program.
Borrowings under the Amended Credit Facility will bear interest on the principal amount outstanding at either (a) LIBOR plus an applicable margin rate or (b) a “base rate” plus an applicable margin rate; provided, however, that all loans denominated in a foreign currency will bear interest at LIBOR plus an applicable margin rate. The “base rate” equals the higher of (i) Wells Fargo’s prime rate, (ii) the federal funds rate plus 0.50%, or (iii) the one-month LIBOR rate plus 1.00%. The applicable margin rate is based upon our public long-term debt ratings and ranges from 0.875% to 1.50% on LIBOR borrowings and from 0.00% to 0.50% on base rate borrowings.
The Amended Credit Facility includes an unutilized revolving credit commitment fee that is equal to the unused maximum revolver amount, multiplied by an applicable commitment fee rate and is payable in arrears on a quarterly basis. The applicable commitment fee rate ranges from 0.08% to 0.20% and is determined based on our long-term debt rating. As of December 31, 2017, the applicable commitment fee rate was 0.125% based on our current long-term debt ratings.
Senior Notes
On August 17, 2017, we issued $1.0 billion in aggregate senior notes, including $500 million principal amount of 2.35% senior unsecured fixed rate notes due September 2022, or the 2022 Senior Notes, and $500 million principal amount of 3.10% senior unsecured fixed rate notes due September 2027, or the 2027 Senior Notes. We used the majority of the net proceeds from the 2022 Senior Notes and 2027 Senior Notes offering to fund the redemption of the NYSE Notes.
In November 2015, we issued $2.5 billion in aggregate senior notes, including $1.25 billion principal amount of 2.75% senior unsecured fixed rate notes due November 2020, or the 2020 Senior Notes, and $1.25 billion principal amount of 3.75% senior unsecured fixed rate notes due November 2025, or the 2025 Senior Notes. We used the net proceeds from the 2020 Senior Notes and 2025 Senior Notes offering, together with $1.6 billion of borrowings under our Commercial Paper Program, to finance the $4.1 billion cash portion of the purchase price of the acquisition of Interactive Data.
Commercial Paper Program
We have entered into our Commercial Paper Program, which is currently backed by the borrowing capacity available under the Amended Credit Facility, equal to the amount of the commercial paper that is issued and outstanding at any given point in time. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates (such as USD LIBOR). The fluctuation of these rates due to market conditions may impact our interest expense.
We repaid $409 million of net notes outstanding under the Commercial Paper Program during the year ended December 31, 2017 primarily using net cash proceeds received from the saleFor additional details of our investment in Cetip and the sale of Trayport. These repayments were partially offset by notes issued under the Commercial Paper Program during the year ended December 31, 2017 for the cash acquisitions and investments anddebt instruments, refer to repurchase our common stock. We used net proceeds from notes issued under the Commercial Paper Program during the year ended December 31, 2016 to finance part of the cash purchase price of the Securities Evaluations and Credit Market Analysis acquisitions and for general corporate purposes. We used net proceeds from notes issued under the Commercial Paper Program during the year ended December 31, 2015 to finance part of the cash portion of the purchase price of the Interactive Data acquisition and to pay related fees and expenses, to repurchase our common stock, and for general corporate purposes. We repaid a portion of the amounts outstanding under the Commercial Paper Program during the years ended December 31, 2017, 2016 and 2015 with cash flows from operations.
Commercial paper notes of $1.2 billion with original maturities ranging from two to 64 days were outstanding as of December 31, 2017 under our Commercial Paper Program. As of December 31, 2017, the weighted average interest rate on the $1.2 billion outstanding under our Commercial Paper Program was 1.49% per annum, with a weighted average maturity of 18 days.
Commercial paper notes of $1.6 billion with original maturities ranging from three to 68 days were outstanding as of December 31, 2016 under the Commercial Paper Program. As of December 31, 2016, the weighted average interest rate on the $1.6 billion outstanding under the Commercial Paper Program was 0.74% per annum, with a weighted average maturity of 18 days.
NYSE Notes
The $850 million, 2.00% senior unsecured fixed rate NYSE Notes were due in October 2017. We redeemed the NYSE Notes in full in September 2017 using the majority of the proceeds from the 2022 Senior Notes and 2027 Senior Notes offering.
Refer to noteNote 10 to our consolidated financial statements, and related notes, which are included elsewhere in this Annual Report, for additional information on our debt and debt facilities.Report.
Future Capital Requirements
Our future capital requirements will depend on many factors, including the rate of growth across our Trading and Clearing and Data and Listings segments, strategic plans and acquisitions, available sources for financing activities, required and discretionary technology and clearing initiatives, regulatory requirements, the timing and introduction of new products and enhancements to existing products, the geographic mix of our business and potential stock repurchases, and the continuing market acceptance of our electronic trading and clearing platforms. repurchases.
We currently expect to make aggregateincur capital expenditures (including operational and real estate capital expenditures) and to incur capitalized software development costs that are eligible for capitalization ranging in the aggregate between $300$290 million and $330$320 million for the year ended December 31, 2018,in 2020, which we believe will support the enhancement of our technology, business integration and the continued growth of our businesses.
In December 2019, our Board of Directors approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2020. We expect this authorization to provide us with capacity for buybacks over six quarters and flexibility to act opportunistically. Refer to Note 12 to our consolidated financial statements, included in this Annual Report, for additional details on our stock repurchase plans.
Our boardBoard of directorsDirectors has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determinedapproved quarterly by the board of directors or the audit committee of the board of directorsits Audit Committee taking into account factors such factors as our evolving business model, prevailing business conditions, our current and future planned strategic growth initiatives and our financial results and capital requirements, without a predetermined annual net income payout ratio. During the year ended December 31, 2017,2019, we paid cash dividends of $0.80$1.10 per share of our common stock in the aggregate, including 2017 quarterly dividends of $0.20$0.275 per share, for an aggregate payout of $476$621 million, in 2017, which includes the payment of dividend equivalents on unvested employee restricted stock units. Refer to note 11Note 12 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for details on the amounts of our quarterly dividend payouts for the last three years. For the first quarter of 2018,2020, we announced a $0.24$0.30 per share dividend which is a 20% increase over the prior dividend, which is payable on March 29, 201831, 2020 to shareholdersstockholders of record as of March 15, 2018.17, 2020.
As of December 31, 2017, we had $6.1 billion in outstanding debt. We currently have a $3.4 billion Amended Credit Facility. After factoring inOther than the $1.2 billion required to back-stopfacilities for the Commercial Paper Program as of December 31, 2017 and $100 million that is required to support certain subsidiary clearing house commitments, $2.1 billion ofICE Clearing Houses, our Amended Credit Facility is currently available for general corporate purposes. The Amended Credit Facility and our Commercial Paper Program are currently the only significant agreements or arrangements that we have with third parties for liquidity and capital resources.resources with third parties. See Notes 10 and 14 to our consolidated financial statements where discussed further. In the event of any strategic acquisitions, mergers or investments, or if we are required to raise capital for any reason or desire to return capital to our stockholders, we may incur additional debt, issue additional equity to raise necessary funds, repurchase additional shares of our common stock or pay a dividend. However, we cannot provide assurance that such financing or transactions will be available or successful, or that the terms of such financing or transactions will be favorable to us. See “- Debt” above.“-Risk Factors" and Note 10 to our consolidated financial statements, included in this Annual Report.
Non-GAAP Financial Measures
We use non-GAAPcertain financial measures internally to evaluate our performance and in makingmake financial and operational decisions. Whendecisions that are presented in a manner that adjusts from their equivalent GAAP measures or that supplement the information provided by our GAAP measures. We use these adjusted results because we believe they more clearly highlight trends in our business
that may not otherwise be apparent when relying solely on GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our core operating performance.
We use these measures in communicating certain aspects of our results and performance, including in this Annual Report, and believe that these measures, when viewed in conjunction with our GAAP results and the accompanying reconciliation, we believe that our presentation of these measures providescan provide investors with greater transparency and a greater understanding of factors affecting our financial condition and results of operations than GAAP measures alone. In addition, we believe the presentation of these measures is useful to investors for making period-to-period comparisoncomparisons of results because the items described below as adjustments to GAAP are not reflective of our core business performance.
These financial measures are not presented in accordance with, or as an alternative to, GAAP financial measures and may be different from non-GAAP measures used by other companies. We use these adjusted results because we believe they more clearly highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our core operating performance. We strongly recommend thatencourage investors to review the GAAP financial measures included in this Annual Report, including our consolidated financial statements, to aid in their analysis and the notes thereto.understanding of our performance and in making comparisons.
AdjustedThe table below outlines our adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted net income attributable to ICE common shareholdersstockholders and adjusted earnings per share, for the periods presented belowwhich are non-GAAP measures that are calculated by adding or subtracting themaking adjustments described below, which arefor items we view as not reflective of our cash operations and core business performance,performance. These measures, including the adjustments and their related income tax effect and other tax adjustments (in millions, except for percentages and per share amounts):, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Total revenues, less transaction-based expenses | $ | 2,128 |
| | $ | 2,102 |
| | $ | 2,062 |
| | $ | 2,501 |
| | $ | 2,397 |
| | $ | 1,276 |
| | $ | 4,629 |
| | $ | 4,499 |
| | $ | 3,338 |
|
| Operating expenses | 779 |
| | 825 |
| | 915 |
| | 1,471 |
| | 1,507 |
| | 673 |
| | 2,250 |
| | 2,332 |
| | 1,588 |
|
| Less: Interactive Data and NYSE transaction and integration costs and acquisition-related success fees | — |
| | 1 |
| | 24 |
| | 31 |
| | 45 |
| | 59 |
| | 31 |
| | 46 |
| | 83 |
|
| Less: Impairment on divestiture of NYSE Governance Services | — |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | 6 |
| | — |
| | — |
|
| Less: Accruals relating to ongoing investigations and inquiries | 14 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
|
| Less: Employee severance costs related to Creditex U.K. brokerage operations | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
|
| Less: Creditex customer relationship intangible asset impairment | — |
| | 33 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33 |
| | — |
|
| Less: Amortization of acquisition-related intangibles | 53 |
| | 72 |
| | 82 |
| | 208 |
| | 230 |
| | 58 |
| | 261 |
| | 302 |
| | 140 |
|
| Adjusted operating expenses | $ | 712 |
| | $ | 715 |
| | $ | 809 |
| | $ | 1,226 |
| | $ | 1,232 |
| | $ | 556 |
| | $ | 1,938 |
| | $ | 1,947 |
| | $ | 1,365 |
|
| Operating income | $ | 1,349 |
| | $ | 1,277 |
| | $ | 1,147 |
| | $ | 1,030 |
| | $ | 890 |
| | $ | 603 |
| | $ | 2,379 |
| | $ | 2,167 |
| | $ | 1,750 |
|
| Adjusted operating income | $ | 1,416 |
| | $ | 1,387 |
| | $ | 1,253 |
| | $ | 1,275 |
| | $ | 1,165 |
| | $ | 720 |
| | $ | 2,691 |
| | $ | 2,552 |
| | $ | 1,973 |
|
| Operating margin | 63 | % | | 61 | % | | 56 | % | | 41 | % | | 37 | % | | 47 | % | | 51 | % | | 48 | % | | 52 | % |
| Adjusted operating margin | 67 | % | | 66 | % | | 61 | % | | 51 | % | | 49 | % | | 56 | % | | 58 | % | | 57 | % | | 59 | % |
| | | | | | | | | | | | | | | | | | |
| Net income attributable to ICE | | | | | | | | | | | | | $ | 2,514 |
| | $ | 1,422 |
| | $ | 1,274 |
|
| Add: Interactive Data and NYSE transaction and integration costs and acquisition-related success fees | | | | | | | | | | | | | 31 |
| | 46 |
| | 83 |
|
| Add: Impairment on divestiture of NYSE Governance Services | | | | | | | | | | | | | 6 |
| | — |
| | — |
|
| Add: Accruals relating to ongoing investigations and inquiries | | | | | | | | | | | | | 14 |
| | — |
| | — |
|
| Add: Employee severance costs related to Creditex U.K. brokerage operations | | | | | | | | | | | | | — |
| | 4 |
| | — |
|
| Add: Creditex customer relationship intangible asset impairment | | | | | | | | | | | | | — |
| | 33 |
| | — |
|
| Add: Amortization of acquisition-related intangibles | | | | | | | | | | | | | 261 |
| | 302 |
| | 140 |
|
| Add: Litigation settlements and accruals, net | | | | | | | | | | | | | — |
| | — |
| | 15 |
|
| Add: Pre-acquisition interest expense on debt issued for Interactive Data acquisition | | | | | | | | | | | | | — |
| | — |
| | 5 |
|
| Less: Gain on divestiture of Trayport, net | | | | | | | | | | | | | (110 | ) | | — |
| | — |
|
| Less: Cetip investment gain, net | | | | | | | | | | | | | (167 | ) | | — |
| | — |
|
| Less: Income tax effect related to the items above | | | | | | | | | | | | | (43 | ) | | (143 | ) | | (83 | ) |
| Less: Tax adjustments on U.S. tax reform | | | | | | | | | | | | | (764 | ) | | — |
| | — |
|
| Add/(Less): Deferred tax adjustments on acquisition-related intangibles | | | | | | | | | | | | | 10 |
| | (22 | ) | | (82 | ) |
| Add: Other tax adjustments | | | | | | | | | | | | | — |
| | 23 |
| | 7 |
|
| Adjusted net income attributable to ICE | | | | | | | | | | | | | $ | 1,752 |
| | $ | 1,665 |
| | $ | 1,359 |
|
| | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | | | | | | | | | | | | $ | 4.27 |
| | $ | 2.39 |
| | $ | 2.29 |
|
| Diluted earnings per share | | | | | | | | | | | | | $ | 4.23 |
| | $ | 2.37 |
| | $ | 2.28 |
|
| | | | | | | | | | | | | | | | | | |
| Adjusted basic earnings per share | | | | | | | | | | | | | $ | 2.97 |
| | $ | 2.80 |
| | $ | 2.44 |
|
| Adjusted diluted earnings per share | | | | | | | | | | | | | $ | 2.95 |
| | $ | 2.78 |
| | $ | 2.43 |
|
| | | | | | | | | | | | | | | | | | |
| Basic weighted average common shares outstanding | | | | | | | | | | | | | 589 |
| | 595 |
| | 556 |
|
| Diluted weighted average common shares outstanding | | | | | | | | | | | | | 594 |
| | 599 |
| | 559 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Total revenues, less transaction-based expenses | $ | 2,542 |
| | $ | 2,420 |
| | $ | 2,128 |
| | $ | 2,660 |
| | $ | 2,559 |
| | $ | 2,510 |
| | $ | 5,202 |
| | $ | 4,979 |
| | $ | 4,638 |
|
| Operating expenses | 1,033 |
| | 911 |
| | 781 |
| | 1,496 |
| | 1,485 |
| | 1,478 |
| | 2,529 |
| | 2,396 |
| | 2,259 |
|
| Less: Interactive Data transaction and integration costs and acquisition-related success fees | — |
| | 6 |
| | — |
| | — |
| | 24 |
| | 31 |
| | — |
| | 30 |
| | 31 |
|
| Less: Amortization of acquisition-related intangibles | 94 |
| | 73 |
| | 53 |
| | 215 |
| | 214 |
| | 208 |
| | 309 |
| | 287 |
| | 261 |
|
| Less: Impairment of exchange registration intangible assets on ICE Futures Singapore | 31 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 31 |
| | — |
| | — |
|
| Less: Accruals relating to investigations and inquiries | — |
| | — |
| | 14 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
|
| Less: Impairment on divestiture of NYSE Governance Services | — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
| Less: Impairment of exchange registration intangible assets on closure of ICE Futures Canada and ICE Clear Canada | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
|
| Less: Employee severance costs related to ICE Futures Canada and ICE Clear Canada operations | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
|
| Adjusted operating expenses | $ | 908 |
|
| $ | 824 |
|
| $ | 714 |
|
| $ | 1,281 |
|
| $ | 1,247 |
|
| $ | 1,233 |
|
| $ | 2,189 |
|
| $ | 2,071 |
|
| $ | 1,947 |
|
| Operating income | $ | 1,509 |
|
| $ | 1,509 |
|
| $ | 1,347 |
|
| $ | 1,164 |
|
| $ | 1,074 |
|
| $ | 1,032 |
|
| $ | 2,673 |
|
| $ | 2,583 |
|
| $ | 2,379 |
|
| Adjusted operating income | $ | 1,634 |
|
| $ | 1,596 |
|
| $ | 1,414 |
|
| $ | 1,379 |
|
| $ | 1,312 |
|
| $ | 1,277 |
|
| $ | 3,013 |
|
| $ | 2,908 |
|
| $ | 2,691 |
|
| Operating margin | 59 | % |
| 62 | % |
| 63 | % |
| 44 | % |
| 42 | % |
| 41 | % |
| 51 | % |
| 52 | % |
| 51 | % |
| Adjusted operating margin | 64 | % |
| 66 | % |
| 66 | % |
| 52 | % |
| 51 | % |
| 51 | % |
| 58 | % |
| 58 | % |
| 58 | % |
| | | | | | | | | | | | | | | | | | |
| Net income attributable to ICE common stockholders | | | | | | | | | | | | | $ | 1,933 |
| | $ | 1,988 |
| | $ | 2,526 |
|
| Add: Interactive Data transaction and integration costs and acquisition-related success fees | | | | | | | | | | | | | — |
|
| 30 |
|
| 31 |
|
| Add: Amortization of acquisition-related intangibles | | | | | | | | | | | | | 309 |
|
| 287 |
|
| 261 |
|
| Add: Impairment of CAT promissory notes | | | | | | | | | | | | | 16 |
| | — |
| | — |
|
| Add: Impairment of exchange registration intangible assets on ICE Futures Singapore | | | | | | | | | | | | | 31 |
| | — |
| | — |
|
| Less: Gain on acquisition of MERS | | | | | | | | | | | | | — |
| | (110 | ) | | — |
|
| Add: Accruals relating to investigations and inquiries | | | | | | | | | | | | | — |
| | — |
| | 14 |
|
| Add: Impairment on divestiture of NYSE Governance Services | | | | | | | | | | | | | — |
| | — |
| | 6 |
|
| Add: Impairment of exchange registration intangible assets on closure of ICE Futures Canada and ICE Clear Canada | | | | | | | | | | | | | — |
| | 4 |
| | — |
|
| Add: Employee severance costs related to ICE Futures Canada and ICE Clear Canada operations | | | | | | | | | | | | | — |
| | 4 |
| | — |
|
| Add/(Less): Gain on divestiture of Trayport, net | | | | | | | | | | | | | — |
| | 1 |
| | (110 | ) |
| Less: Cetip investment gain, net | | | | | | | | | | | | | — |
| | — |
| | (167 | ) |
| Less: Income tax effect for the above items | | | | | | | | | | | | | (90 | ) | | (98 | ) | | (43 | ) |
| Less: Deferred tax adjustments from U.S. tax rate reduction | | | | | | | | | | | | | — |
| | (11 | ) | | (764 | ) |
| Add/(Less): Deferred tax adjustments on acquisition-related intangibles | | | | | | | | | | | | | (8 | ) | | (5 | ) | | 10 |
|
| Add/(Less): Other tax adjustments | | | | | | | | | | | | | 3 |
| | (13 | ) | | — |
|
| Adjusted net income attributable to ICE common stockholders | | | | | | | | | | | | | $ | 2,194 |
| | $ | 2,077 |
| | $ | 1,764 |
|
| | | | | | | | | | | | | | | | | | |
| Basic earnings per share attributable to ICE common stockholders | | | | | | | | | | | | | $ | 3.44 |
| | $ | 3.46 |
| | $ | 4.29 |
|
| Diluted earnings per share attributable to ICE common stockholders | | | | | | | | | | | | | $ | 3.42 |
| | $ | 3.43 |
| | $ | 4.25 |
|
| | | | | | | | | | | | | | | | | | |
| Adjusted basic earnings per share attributable to ICE common stockholders | | | | | | | | | | | | | $ | 3.91 |
| | $ | 3.61 |
| | $ | 2.99 |
|
| Adjusted diluted earnings per share attributable to ICE common stockholders | | | | | | | | | | | | | $ | 3.88 |
| | $ | 3.59 |
| | $ | 2.97 |
|
| | | | | | | | | | | | | | | | | | |
| Basic weighted average common shares outstanding | | | | | | | | | | | | | 561 |
| | 575 |
| | 589 |
|
| Diluted weighted average common shares outstanding | | | | | | | | | | | | | 565 |
| | 579 |
| | 594 |
|
Acquisition-related transaction costs are included as part of our core business expenses, except for those that are directly related to the announcement, closing, financing or termination of a transaction. However, we adjust for the acquisition-related transaction and integration costs relating to Interactive Data and NYSE are included in non-GAAP adjustments given the sizesmagnitude of these acquisitions. Asthe $5.6 billion purchase price of June 30, 2016, thethis acquisition. The integration of NYSE has beenInteractive Data was completed and we will no longer include any NYSE integration costs as non-GAAP
adjustments following this date.by June 2018. Amortization of acquisition-related intangibles are included in non-GAAP adjustments as excluding these non-cash expenses provides greater clarity regarding our financial strength and stability of cash operating results.
During
We include the year ended December 31, 2017,2019 impairment of exchange registration intangible assets on ICE Futures Singapore as a non-GAAP adjustment. This impairment is not based on our core business operations, but rather was a result of the estimated fair value of an acquired intangible asset falling below its carrying value. See Note 8 to our consolidated financial statements, included in this Annual Report.
We include the 2019 promissory note impairment charges on work performed by the original plan processor on the CAT as a non-GAAP adjustment. This is included as a non-GAAP adjustment as this is not considered a part of our core business operations. See additional discussion on the CAT, above, in Item 1(A) "-Risk Factors" in this Annual Report.
In addition, we also include the following items as non-GAAP adjustments, as each of these are not considered a part of our core business operations:
2018: the Cetipgain recognized on our initial majority investment in MERS in connection with our acquisition of 100% of the remaining MERS interests;
2018: the impairment loss on exchange registration intangible assets and employee severance costs related to the closure of ICE Futures Canada and ICE Clear Canada;
2017: the net gain on the divestiture of Trayport, and in 2018, a subsequent adjustment to reduce of the gain on the divestiture;
2017: the realized investment gain and the foreign exchange loss and transaction expenses on the sale of our investment in Cetip, as the sale of our investment in Cetip is not part of our core business operations. During the year ended December 31, 2017, we include as non-GAAP adjustments the net gain on the divestiture of Trayport, theCetip;
2017: accruals relating to ongoing investigations and inquiries,inquiries; and
2017: the NYSE Governance Services net impairment loss on its divestiture, as they are non-recurring items. During the year ended December 31, 2016, we include as non-GAAP adjustments the Creditex U.K. voice brokerage severance costs related to its discontinuance and the Creditex customer relationship intangible asset impairment expense, as they are non-recurring items. During the year ended December 31, 2015, we include as non-GAAP adjustments various litigation settlements and accruals and the interest expense on the senior notes and commercial paper we issued for the Interactive Data acquisition (from the issuance date of the new senior notes on November 24, 2015 and on the issuance dates of the commercial paper in early December 2015 to the acquisition date of Interactive Data on December 14, 2015), as they are not part of our core business operations or represent non-recurring items.divestiture.
The income tax effects relating to the items above are included in non-GAAP adjustments as well as deferred tax adjustments on acquisition-related intangibles and other tax adjustments. The tax items in non-GAAP adjustments are either the tax impacts of the pre-tax non-GAAP adjustments or are tax items as described below that are not in the normal course of business and are not indicative of our core business performance. The following tax-related items are included as non-GAAP adjustments:
The income tax effects of the pre-taxrelating to all non-GAAP adjustments for the year ended December 31, 2017 include tax benefits associated with the divestiture of NYSE Governance Services. Theadjustments;
Deferred tax adjustments on acquisition-related intangibles, including the impact of U.S. state tax reform mainly include thelaw changes and apportionment updates, as well as foreign tax law changes which resulted in deferred tax (benefit) expense of ($8 million), ($5 million) and $10 million in 2019, 2018 and 2017, respectively;
Deferred tax benefits of $11 million and $764 million deferred tax benefitin 2018 and 2017, respectively, resulting from changes in estimates as a result of the enactment of the TCJA in the last quarter of 2017, which reducesreduced the corporate income tax rate from 35% to 21%. Deferred tax adjustments on acquisition-related intangibles include the impact of U.S. state tax law; and apportionment changes which resulted in deferred tax expense of $10 million, deferred tax expense of $12 million, and deferred tax benefits of $22 million for the years ended December 31, 2017, 2016, and 2015, respectively. In addition, deferred tax adjustments on acquisition-related intangibles include $34 million and $60 million deferred tax benefits due to U.K. corporate income tax rate reductions for the years ended December 31, 2016 and 2015, respectively.
Other tax adjustments of $3 million in 2019 for the year ended December 31, 2016 relateadditional audit settlement payments primarily related to a $15 million valuation allowance on Singapore pre-acquisition net operating lossestax matters in conjunction with our acquisition of NYSE in 2013; and other deferred tax assets and an $8 million deferred tax adjustment with respect to our OCC equity method investment. Other tax adjustments forin 2018 including a $17 million tax benefit on the year ended December 31, 2015 represents a $7 million uncertain tax position relating to a retrospective foreign tax law changesale of Trayport, partially offset by an audit settlement for a pre-acquisition period.period in connection with our acquisition of NYSE in 2013.
For additional information on these items, refer to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report and “- Recent Developments,” “- Consolidated Operating Expenses”, “- Consolidated Non-Operating Income (Expenses)” and “- Consolidated“-Consolidated Income Tax Provision” above.
Off-Balance Sheet Arrangements
Except forAs described in Notes 3 and 14 to our consolidated financial statements, which are included elsewhere in this Annual Report, certain clearing house collateral that isand Bakkt custodial assets are reported off-balance sheet, wesheet. We do not have any relationships with unconsolidated entities or financial partnerships, often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Refer to note 13 to our consolidated financial statements and related notes, which are included elsewhere in this Annual Report, for more information on our clearing houses’ collateral.entities.
Contractual Obligations and Commercial Commitments
The following table presents for the periods indicated, our contractual obligations (which we intend to fund from our existing cash as well as cash flow from operations) and commercial commitments as of December 31, 20172019 (in millions):
| | | | Payments Due by Period | Payments Due by Period |
| | Total | | Less Than
1 Year | | 1-3 Years | | 4-5 Years | | After
5 Years | Total | | Less Than
1 Year | | 1-3 Years | | 4-5 Years | | After
5 Years |
| Contractual Obligations: | | | | | | | | | | | | | | | | | | |
| Short-term and long-term debt and interest | $ | 7,036 |
| | $ | 1,993 |
| | $ | 1,637 |
| | $ | 1,500 |
| | $ | 1,906 |
| $ | 10,265 |
| | $ | 2,794 |
| | $ | 891 |
| | $ | 1,522 |
| | $ | 5,058 |
|
| Operating lease obligations | 521 |
| | 78 |
| | 218 |
| | 63 |
| | 162 |
| 376 |
| | 62 |
| | 128 |
| | 86 |
| | 100 |
|
| Purchase obligations | 188 |
| | 101 |
| | 76 |
| | 11 |
| | — |
| 263 |
| | 187 |
| | 71 |
| | 5 |
| | — |
|
| Total contractual cash obligations | $ | 7,745 |
| | $ | 2,172 |
| | $ | 1,931 |
| | $ | 1,574 |
| | $ | 2,068 |
| $ | 10,904 |
| | $ | 3,043 |
| | $ | 1,090 |
| | $ | 1,613 |
| | $ | 5,158 |
|
Purchase obligations include our estimate of the minimum outstanding obligations under agreements to purchase goods or services that we believe are enforceable and legally binding and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable at any time without penalty.
We have excluded from the contractual obligations and commercial commitments tablelisted above $51.2$65.0 billion in cash margin deposits, guaranty funds and delivery contracts payable. Clearing members of our clearing houses are required to deposit original margin and variation margin and to make deposits to a guaranty fund. The cash deposits made to these margin accounts and to the guaranty fund are recorded in the consolidated balance sheet as current assets with corresponding current liabilities to the clearing members that deposited them. ICE NGX administers the physical delivery of energy trading contracts. It has an equal and offsetting claim to and from theirits respective participants on opposite sides of the physically settled contract. This balancephysically-settled contract, each of which is reflected as a delivery contract receivable with an offsetting delivery contract payable. See note 13Note 14 to our consolidated financial statements and related notes that are included elsewhere in this Annual Report for additional information on our clearing houses and the margin deposits, guaranty funds and delivery contracts payable.
We have also excluded unrecognized tax benefits, or UTBs, from the contractual obligations and commercial commitments table above.UTBs. As of December 31, 2017,2019, our cumulative UTBs were $115 million. Interest$103 million, and interest and penalties related to UTBs were $35 million as of December 31, 2017.$33 million. We are under examination by various tax authorities. We are unable to make a reasonable estimate of the periods of cash settlement because it is not possible to reasonably predict the amount of tax, interest and penalties, if any, that might be assessed by a tax authority or the timing of an assessment or payment. It is also not possible to reasonably predict whether or not the applicable statutes of limitations might expire without us being examined by any particular tax authority. See note 12Note 13 to our consolidated financial statements and related notes that are included elsewhere in this Annual Report for additional information on our UTBs.
As of December 31, 2017, in connection with our acquisition2019, we, through NYSE, have net obligations of NYSE, we have obligations$150 million related to our pension and other benefit programs. The date of payment under these net obligations cannot be determined and have been excluded from the table above. See note 15Note 16 to our consolidated financial statements and related notes that are included elsewhere in this Annual Report for additional information on our pension and other benefit programs.
We have a 40% ownership in OCC. UnderIn addition, the OCC’s capital plan,future funding of the OCC shareholders have committed to contribute up to $200 million in equity capital if certain capital thresholds are breached, including up to $80 millionimplementation and operation of the CAT is ultimately expected to be contributedprovided by NYSE, whichboth the SROs and broker-dealers. To date, however, funding has also been excluded fromprovided solely by the tableSROs, and future funding is expected to be repaid if industry member fees are approved by the SEC and subsequently collected by industry members. See "- Non-GAAP Measures" above.
New and Recently Adopted Accounting Pronouncements
Refer to Note 2 to our consolidated financial statements and related notes included elsewhere in this Annual Report for information on the new and recently adopted accounting pronouncements that are applicable to us.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these policies on our business operations is discussed throughout “- Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For a detailed discussion on the application of these and other accounting policies, see noteNote 2 to our consolidated financial statements and related notes included elsewhere in this Annual Report.
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period.
We evaluate our estimates and judgments on an ongoing basis, including those related to the accounting matters described below. We base our estimates and judgments on our historical experience and other factors that we believe to be reasonable under the circumstances when we make these estimates and judgments.judgments and re-evaluate them on a periodic basis. Based on these factors, we make estimates and judgments about, among other things, the carrying values of assets and liabilities that are not readily apparent from market prices or other independent sources and about the recognition and characterization of our revenues and expenses. The values and results based on these estimates and judgments could differ significantly under different assumptions or conditions and could change materially in the future.
We believe that the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements and could materially increase or decrease our reported results, assets and liabilities.
Goodwill and Other Identifiable Intangible Assets
We have significant intangible assets related to goodwillAssets acquired and other acquired intangible assets. Inliabilities assumed in connection with our acquisitions assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price of our acquisitionsan acquired company over the fair value of its identifiable net assets, acquired, including other identified intangible assets. We recognize specifically identifiable intangibles, such as customer relationships, trademarks, technology, trading products, data, exchange registrations, trade names and licenses when a specific right or contract is acquired. Our determination of the fair value of the intangible assets and whether or not these assets aremay be impaired following their acquisition requires us to makeapply significant judgments and requires us to usemake significant estimates and assumptions regarding estimated future cash flows. If we change our strategy or if market conditions shift, our judgments and estimates may change, which may result in adjustments to recorded asset balances. As of December 31, 2017, we had goodwill of $12.2 billion and net other intangible assets of $10.3 billion relating to our acquisitions and our purchase of trademarks and Internet domain names from various third parties. We do not amortize goodwill or other intangible assets with indefinite useful lives. Intangible assets with finite useful lives are amortized over their estimated useful lives.lives whereas goodwill and intangible assets with indefinite useful lives are not.
In performing the allocation of the acquisitions' purchase price allocation,to assets and liabilities, we consider, among other factors, the intended future use of the acquired assets, analysis of historicalpast financial performance and estimates of future performance of the acquired business. At the acquisition date, a preliminary allocation of the purchase price is recorded based upon a preliminary valuation.valuation performed with the assistance of a third-party valuation specialist. We continue to review and validateassess our estimates, assumptions and valuation methodologies underlying the preliminary valuation during the measurement period. Accordingly, these estimates and assumptions are subject to change,period provided by GAAP, which could have a material impact on our consolidated financial statements. The measurement period ends as soon as we receive the information about facts and circumstances that existed as of the acquisition date or we learn that more information is not obtainable, which usually does not exceed one year from the date of acquisition. Accordingly, these estimates and assumptions are subject to change, which could have a material impact on our consolidated financial statements. Estimation uncertainty may exist due to the sensitivity of the respective fair value to underlying assumptions about the future performance of an acquired business in our discounted cash flow models. Significant assumptions typically include revenue growth rates and expense synergies that form the basis of the forecasted results and the discount rate.
Our goodwill and other indefinite-lived intangible assets are evaluated for impairment annually in our fiscal fourth quarter or more frequently if conditions exist that indicate that the value may be impaired. We test our goodwill for impairment at the reporting unit level. These impairment evaluations are performed by comparing the carrying value of the goodwill of the reporting unit or other indefinite-lived intangibles to its estimated fair value. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. Welevel, and we have identified four reporting units: our Futures reporting unit, our Data and Listings reporting unit, our Cash Equities reporting unit, and our CDSFixed Income and Credit reporting unit. These impairment evaluations are performed by comparing the carrying value of the goodwill or other indefinite-lived intangibles to its estimated fair value.
Goodwill impairment testing consists of a two-step methodology. The initial step requires us to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill and other intangible assets, of such reporting unit. If the fair value exceeds the carrying value, no impairment loss is recognized and the second step, which is a calculation of the impairment, is not performed. However, if the carrying value of the reporting unit exceeds its fair value, an impairment charge is recorded equal to the extent that the carrying amount of goodwill exceeds its implied fair value. For annual goodwill impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If we conclude that this is the case, we must perform the two-step methodology described above. Otherwise, we can skip the two-step methodology and do not need to perform anyno further testing.testing is required. For annual indefinite-lived intangible asset impairment testing, we also have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the indefinite-lived intangible assets is less than its carrying amount. For our goodwill impairment testing, we have elected to bypass the qualitative assessment and apply the quantitative approach. For our testing of indefinite-lived intangible assets, we apply qualitative and quantitative approaches.
Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We have historically determined the fair value of our reporting units based on various valuation techniques, including discounted cash flow analysis and a multiple of earnings approach. In assessing whether goodwill and other intangible assets are impaired, we must make estimates and assumptions regarding future cash flows, long-term growth rates of our business, operating margins, discount rates, weighted average cost of capital and other factors to determine the fair value of our assets. These estimates and assumptions require management’s judgment, and changes to these estimates and assumptions, as a result of changing economic and competitive conditions, could materially affect the determination of fair value and/or impairment. The cash flows employed inDuring 2019, we recorded an impairment charge of $31 million on the discounted cash flow analysis are basedremaining value of exchange registration intangible assets on our most recent budgets and business plans and, when applicable, various growth rates have been assumed for years beyond the current business plan period. Future events could cause us to conclude that indicators of impairment exist for goodwill or other intangible assets. Impairment mayICE Futures Singapore as a result from, among other things, deterioration in the performance of our business, adverse market conditions, adverse changes in applicable laws and regulations, competition, or the sale or disposition of a reporting unit. Any resultingdecrease in fair value determined during our annual impairment loss could have a material adverse impact on our financial condition and results of operations. Our impairment analysis has not resulted in any impairment of goodwill through December 31, 2017.testing.
We are also required to evaluate other finite-lived intangible assets and property and equipment for impairment by first determining whether events or changes in circumstances indicate that the carrying value of these assets to be held and used may not be recoverable. If impairment indicators are present, then an estimate of undiscounted future cash flows produced by these long-lived assets is compared to the carrying value of those assets to determine if the asset is recoverable. If an asset is not recoverable, the loss is measured as the difference between fair value and carrying value of the impaired asset. Fair value of these assets is based on various valuation techniques, including discounted cash flow analysis.
In August 2016, we sold certain of Creditex’s U.S. voice brokerage operations to Tullett Prebon. During the third quarter of 2016, we discontinued Creditex’s U.K. voice brokerage operations. We continue to operate Creditex’s electronically traded markets and systems, post-trade connectivity platforms and intellectual property. After the sale and the discontinuance of the voice brokerage operations, it was determined that the carrying value of the CDS Creditex customer relationship intangible asset was not fully recoverable and an impairment of the asset was recorded in September 2016 for $33 million. The impairment was recorded as amortization expense in the consolidated statements of income for the year ended December 31, 2016.
Income Taxes
We are subject to income taxes in the U.S., U.K. and other foreign jurisdictions where we operate. The determination of our provision for income taxes and related accruals, deferred tax assets and liabilities requires significant judgment, the use of significant judgment, estimates, and the interpretation and application of complex tax laws. We recognize a current tax liability or tax asset for the estimated taxes payable or refundable on tax returns for the current year. We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of our assets and liabilities. We establish valuation allowances if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using current enacted tax rates in effect for the years in which those temporary differences and carryforwards are expected to reverse.
SEC Staff Accounting Bulletin No. 118, or SAB 118, has provided guidance for companies that havehad not completed their accounting for the income tax effects of the TCJA in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2017,2018, we have nothad completed our accounting for the tax effects of the enactment of the TCJA. We reaffirmed our position that we were not subject to transition tax under the TCJA however,as of December 31, 2017. In addition, we have madeconcluded that the $764 million of deferred tax benefit recorded in the 2017 financial statements was a reasonable estimate of the effectsTCJA’s impact on our deferred tax balances and in relation to the transition tax. In other cases, we have not been able to make a reasonable estimate and will continue to analyze the TCJA in order to finalize any related impacts within the measurement period. no further adjustments are necessary.
The FASB Staff also provided additional guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income or GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to include the tax expense in the year it is incurred. We have not completed our analysis of the effects of the GILTIthese provisions and will further consider the accountinghave made a policy election within the measurementto recognize such taxes as current period as provided for under SAB 118.expenses when incurred.
We do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50 percent likely to be realized. We recognize accrued interest and penalties related to uncertain income tax positions as income tax expense in the consolidated statements of income.
We operate within multiple domestic and foreign taxing jurisdictions and are subject to audit in these jurisdictions by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income among various tax jurisdictions. We record accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter. At any point in time, many tax years are subject to or in the process of being audited by various taxing authorities. To the extent our estimates of settlements change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Our income tax expense includes changes in our estimated liability for exposures associated with our various tax filing positions. Determining the income tax expense for these potential assessments requires management to make assumptions that are subject to factors such as proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations, and resolution of tax audits.
We believe the judgments and estimates discussed above are reasonable. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
ITEM 7 (A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our operating and financing activities, we are exposed to market risks such as interest rate risk, foreign currency exchange rate risk and credit risk. We have implemented policies and procedures designed to measure, manage, monitor and report risk exposures, which are regularly reviewed by the appropriate management and supervisory bodies.
Interest Rate Risk
We have exposure to market risk for changes in interest rates relating to our cash and cash equivalents, short-term investments, short-term and long-term restricted cash and cash equivalents, short-term and long-term investments and indebtedness. As of December 31, 20172019 and 2016,2018, our cash and cash equivalents, short-term investments and short-term and long-term restricted cash and cash equivalents and short-term and long-term investments were $1.6$2.2 billion and $1.4$2.0 billion, respectively, of which $293$282 million and $272$275 million, respectively, were denominated in pounds sterling, euros or Canadian
dollars. The dollars, and the remaining cash and cash equivalents, short-term investments and short-term and long-term restricted cash and cash equivalentsamounts are denominated in U.S. dollars. We do not use our investment portfolio for trading or other speculative purposes. A hypothetical 100 basis point decrease in long-termshort-term interest rates to zero basis points would decrease annual pre-tax earnings by $8$15 million as of December 31, 2017,2019, assuming no change in the amount or composition of our cash and cash equivalents short-term investments and short-term and long-term restricted cash and cash equivalents.
As of December 31, 2017,2019, we had $6.1$7.8 billion in outstanding debt, of which $4.9$6.5 billion relates to our senior notes, which bear interest at fixed interest rates. The remaining amount outstanding of $1.2$1.3 billion relates to theour Commercial Paper Program, which bears interest at fluctuating rates and, therefore, subjects us to interest rate risk.risk, and a subsidiary line of credit. A hypothetical 100 basis point increase in long-termshort-term interest rates relating to the amounts outstanding under theour Commercial Paper Program as of December 31, 20172019 would decrease annual pre-tax earnings by $12$13 million, assuming no change in the volume or composition of our outstanding indebtedness and no hedging activity. See Item 7 “- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt”Note 10 to our consolidated financial statements included elsewhere in this Annual Report.
The interest rates on our Commercial Paper Program are currently evaluated based upon current maturities and market conditions. The weighted average interest rate on our Commercial Paper Program increaseddecreased from 0.74%2.48% as of December 31, 20162018 to 1.49%1.84% as of December 31, 2017.2019. The increasedecrease in the Commercial Paper Program weighted average interest rate was primarily due to the decisions by the U.S. Federal Reserve in March 2017, in June 2017 and in December 2017 to increasedecrease the federal funds short-term interest rate by an aggregate 7525 basis points to 1.50%.in each of July, September and October of 2019. The Federal Reserve also signaled that they intend to continue to increase the federal fund short-termeffective interest rate over the next several years, and if this occurs, thisof commercial paper issuances will continue to increasefluctuate based on the weighted averagemovement in short-term interest rate on our Commercial Paper Program.rates along with shifts in supply and demand within the commercial paper market.
Foreign Currency Exchange Rate Risk
As an international business, we are subject to foreign currency exchange rate risk. We may experience gains or losses from foreign currency transactions in the future given that a significant part of our assets and liabilities are recorded in pounds sterling, Canadian dollars or euros, and a significant portion of our revenues and expenses are recorded in pounds sterling or euros. Certain assets, liabilities, revenues and expenses of foreign subsidiaries are denominated in the local functional currency of such subsidiaries. Our exposure to foreign denominated earnings for the years ended December 31, 2017in 2019 and 20162018 is presented by primary foreign currency in the following table (dollars in millions, except exchange rates):
| | | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | Year Ended December 31, 2019 | | Year Ended December 31, 2018 |
| | Pound Sterling | | Euro | | Pound Sterling | | Euro | Pound Sterling | | Euro | | Pound Sterling | | Euro |
| Average exchange rate to the U.S. dollar | $ | 1.2890 |
| | $ | 1.1297 |
| | $ | 1.3603 |
| | $ | 1.1075 |
| |
| Average exchange rate to the U.S. dollar for the prior year | $ | 1.3603 |
| | $ | 1.1075 |
| | $ | 1.5292 |
| | $ | 1.1117 |
| |
| Average exchange rate change from prior year | (5 | )% | | 2 | % | | (11 | )% | | — | % | |
| Average exchange rate to the U.S. dollar in the current year period | | $ | 1.2769 |
| | $ | 1.1195 |
| | $ | 1.3356 |
| | $ | 1.1813 |
|
| Average exchange rate to the U.S. dollar in the same period in the prior year | | $ | 1.3356 |
| | $ | 1.1813 |
| | $ | 1.2890 |
| | $ | 1.1297 |
|
| Average exchange rate increase (decrease) | | (4 | )% | | (5 | )% | | 4 | % | | 5 | % |
| Foreign denominated percentage of: | | | | | | | | | | | | | | |
| Revenues, less transaction-based expenses | 10 | % | | 4 | % | | 10 | % | | 5 | % | 8 | % | | 5 | % | | 9 | % | | 5 | % |
| Operating expenses | 12 | % | | 3 | % | | 14 | % | | 4 | % | 10 | % | | 2 | % | | 11 | % | | 2 | % |
| Operating income | 9 | % | | 6 | % | | 7 | % | | 7 | % | 7 | % | | 8 | % | | 7 | % | | 7 | % |
Impact of the currency fluctuations (1) on: | | | | | | | | | | | | | | |
| Revenues, less transaction-based expenses | $ | (26 | ) | | $ | 4 |
| | $ | (58 | ) | | $ | (1 | ) | $ | (19 | ) | | $ | (15 | ) | | $ | 16 |
| | $ | 10 |
|
| Operating expenses | $ | (14 | ) | | $ | 1 |
| | $ | (40 | ) | | $ | — |
| $ | (11 | ) | | $ | (3 | ) | | $ | 9 |
| | $ | 2 |
|
| Operating income | $ | (12 | ) | | $ | 3 |
| | $ | (18 | ) | | $ | (1 | ) | $ | (8 | ) | | $ | (12 | ) | | $ | 7 |
| | $ | 8 |
|
| |
| (1) | Represents the impact of currency fluctuation for the year compared to the same period in the prior year. |
We have a significant part of our assets, liabilities, revenues and expenses recorded in pounds sterling or euros. For the years ended December 31, 2017, 2016In 2019 and 2015, 15%, 15%2018, 13% and 15%14%, respectively, of our consolidated revenues, less transaction-based expenses, were denominated in pounds sterling or euros, and 14%, 18%,12% and 12%13%, respectively, of our consolidated operating expenses were denominated in pounds sterling or euros. As the pound sterling or euro exchange rate changes, the U.S. equivalent of revenues and expenses denominated in foreign currencies changes accordingly.
We have foreignForeign currency transaction risk related to the settlement of foreign currency denominated assets, liabilities and payables that occuroccurs through our operations, which are received in or paid in pounds sterling, Canadian dollars, or euros, due to the increase or decrease in the foreign currency exchange rates between periods. We hadincurred foreign currency transaction losses of $4 million, $1$5 million and $14$2 million for the years ended December 31, 2017, 2016in 2019 and 2015,2018, respectively. The foreign currency transactionstransaction losses were primarily attributable to the fluctuations of the pound sterling and euro relative to the U.S. dollar. A 10% adverse change in the underlying foreign currency exchange rates as of December 31, 2017 would result in a foreign currency transaction loss of $3 million,2019, assuming no change in the composition of the foreign currency denominated assets, liabilities and payables and assuming no hedging activity.
activity, would result in a foreign currency loss of $2 million.
We entered into foreign currency hedging transactions during years ended December 31, 2017, 20162019 and 20152018 as economic hedges to help mitigate a portion of our foreign exchange risk exposure and may enter into additional hedging transactions in the future to help mitigate our foreign exchange risk exposure. Although we may enter into additional hedging transactions in the future, to help mitigate our foreign exchange risk exposure, these hedging arrangements may not be effective, particularly in the event of imprecise forecasts of the levels of our non-U.S. denominated assets and liabilities.
We have foreign currency translation risk equal to our net investment in our foreign subsidiaries. The financial statements of these subsidiaries are translated into U.S. dollars using a current rate of exchange, with gains or losses included in the cumulative translation adjustment account, a component of equity. Our exposure to the net investment in foreign currencies is presented by primary foreign currencies in the table below (in millions):
| | | | As of December 31, 2017 | As of December 31, 2019 |
| | Position in pounds sterling | | Position in Canadian dollars | | Position in euros | Position in pounds sterling | | Position in Canadian dollars | | Position in euros |
| Assets | £ | 829 |
| | C$ | 1,654 |
| | € | 145 |
| £ | 805 |
| | C$ | 1,583 |
| | € | 151 |
|
| of which goodwill represents | 268 |
| | 162 |
| | 43 |
| 613 |
| | 408 |
| | 92 |
|
| Liabilities | 96 |
| | 1,026 |
| | 42 |
| 91 |
| | 1,178 |
| | 45 |
|
| Net currency position | £ | 733 |
| | C$ | 628 |
| | € | 103 |
| £ | 714 |
| | C$ | 405 |
| | € | 106 |
|
| Impact on consolidated equity of a 10% decrease in foreign currency exchange rates | $ | 99 |
| | $ | 50 |
| | $ | 12 |
| |
| Net currency position, in $USD | | $ | 947 |
| | $ | 312 |
| | $ | 118 |
|
| Negative impact on consolidated equity of a 10% decrease in foreign currency exchange rates | | $ | 95 |
| | $ | 31 |
| | $ | 12 |
|
As
Foreign currency translation adjustments are included as a component of December 31, 2017 and 2016, the portion of our equity attributable to accumulated other comprehensive loss fromwithin our balance sheet. See the table below for the portion of equity attributable to foreign currency translation was $136 million and $345 million, respectively. Asadjustments
as well as the activity by year included within our statement of December 31, 2017, we had net exposureother comprehensive income. The impact of pounds sterling, Canadian dollars and euros of £733 million ($990 million), C$628 million ($500 million), and €103 million ($124 million), respectively. Based on these December 31, 2017 net currency positions, a hypothetical 10% decrease of pound sterling against U.S. dollar would negatively impact our equity by $99 million, a hypothetical 10% decrease of Canadian dollar against U.S. dollar would negatively impact our equity by $50 million, and a hypothetical 10% decrease of euro against U.S. dollar would negatively impact our equity by $12 million. For the years ended December 31, 2017, 2016 and 2015,foreign currency exchange rate differences had a positive/(negative) impactin the table below were primarily driven by fluctuations of $209 million, ($300 million) and ($58 million), respectively, on our consolidated equity. The increase for the year ended December 31, 2017 is primarily duepound sterling as compared to the increase in the pound sterling/U.S. dollar exchange rate towhich were 1.3260, 1.2756 and 1.3510 as of December 31, 2019, 2018, and 2017, (from 1.2336 as of December 31, 2016) due to the strengthening pound sterling. The decrease for the year ended December 31, 2016 is primarily due to the decrease in the pound sterling/U.S. dollar exchange rate to 1.2336 as of December 31, 2016 (from 1.4868 as of December 31, 2015) due to the weakening pound sterling. The pound sterling decreased starting in June 2016 following the U.K. referendum that resulted in a vote for the U.K. to leave the EU. respectively.
|
| | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) from Foreign Currency Translation Adjustments (in millions) |
| Balance, as of January 1, 2017 | | $ | (345 | ) |
| Net current period other comprehensive income | | 209 |
|
| Balance, as of December 31, 2017 | | (136 | ) |
| Net current period other comprehensive loss | | (91 | ) |
| Balance, as of December 31, 2018 | | (227 | ) |
| Net current period other comprehensive income | | 50 |
|
| Balance, as of December 31, 2019 | | $ | (177 | ) |
The future impact on our business relating to the U.K. leaving the EU and the corresponding regulatory changes are uncertain at this time, including future impacts on currency exchange rates.
Credit Risk
We are exposed to credit risk in our operations in the event of a counterparty default. We limit our exposure to credit risk by rigorously selecting the counterparties with which we make our investments, monitoring them on an ongoing basis and execute agreements.executing agreements to protect our interests.
Clearing House Cash Deposit Risks
Our clearing housesThe ICE Clearing Houses hold material amounts of clearing member cash and cash equivalent deposits which are held or invested primarily to provide security of capital while minimizing credit, market and liquidity risks. Refer to note 13Note 14 to our consolidated financial statements which are included elsewhere in this Annual Report, for more information about clearing houseon the ICE Clearing Houses' cash deposits and delivery contracts,cash equivalent deposits, which were $51.2$65.0 billion as of December 31, 2017.2019. While we seek to achieve a reasonable rate of return which may generate interest income for our clearing members, we are primarily concerned with preservation of capital and managing the risks associated with these deposits. As the clearing housesICE Clearing Houses may pass on interest revenues (minus costs) to the clearing members, this could include negative or reduced yield due to market conditions. The following is a summary of the risks associated with these deposits and how these risks are mitigated.mitigated:
Credit Risk
When a clearing house has the ability to hold cash collateral at a central bank, the clearing house utilizes its access to the central bank system to minimize credit risk exposures. Credit risk is monitored by using exposure limits reflecting a number of factors including ratings assigned by rating agencies, CDS spreads and internal ratings, as well as the nature and maturity of transactions. We seek to substantially mitigate credit risk associated with investments by ensuring financial assets are placed with governments, well-capitalized financial institutions and other creditworthy counterparties.
| |
| • | Credit Risk: When a clearing house has the ability to hold cash collateral at a central bank, the clearing house utilizes its access to the central bank system to minimize credit risk exposures. Credit risk is managed by using exposure limits depending on the credit profile of the counterparty as well as the nature and maturity of transactions. Our investment objective is to invest in securities that preserve principal while maximizing yields, without significantly increasing risk. We seek to substantially mitigate the credit risk associated with investments by placing them with governments, well-capitalized financial institutions and other creditworthy counterparties. |
An ongoing review is performed to evaluate changes in the financial status of counterparties. In addition to the intrinsic creditworthiness of counterparties, our policies require diversification of counterparties (banks, financial institutions, bond issuers and funds) so as to avoid a concentration of risk.
| |
| • | Liquidity Risk: Liquidity risk is the risk a clearing house may not be able to meet its payment obligations in the right currency, in the right place and at the right time. To mitigate this risk, the clearing houses monitor liquidity requirements closely and maintain funds and assets in a manner which minimizes the risk of loss or delay in the access by the clearing house to such funds and assets. For example, holding funds with a central bank where possible or making only short term investments such as overnight reverse repurchase agreements serves to reduce liquidity risks. |
| |
| • | Interest Rate Risk: Interest rate risk is the risk that interest rates rise and cause the value of securities we hold or invest in to decline. If we were required to sell securities prior to maturity, and interest rates had risen, the sale might be made at a loss relative to the carrying value. Our clearing houses seek to manage this risk by making short term investments. For example, where possible and in accordance with regulatory requirements, the clearing houses invest cash pursuant to overnight reverse repurchase agreements or term reverse repurchase agreements with short dated |
Liquidity Risk
Liquidity risk is the risk a clearing house may not be able to meet its payment obligations in the right currency, in the right place and the right time. To mitigate this risk, the clearing houses monitor liquidity requirements closely and maintain funds and assets in a manner which minimizes the risk of loss or delay in the access by the clearing house to such funds and assets. For example, holding funds with a central bank where possible or making only short term investments such as overnight reverse repurchase agreements serves to reduce liquidity risks.
Interest Rate Risk
Interest rate risk is the risk that interest rates rise causing the value of purchased securities to decline. If we were required to sell securities prior to maturity, and interest rates had risen, the sale of the securities might be made at a loss relative to the latest market price. Our clearing houses seek to manage this risk by making short term investments of cash deposits. For example, where possible and in accordance with regulatory requirements, the clearing houses invest cash pursuant to overnight reverse repurchase agreements or term reverse repurchase agreements with short dated maturities. In addition, the clearing house investment guidelines allow for direct purchases of high quality sovereign debt (for example, U.S. Treasury securities) and supranational debt instruments (Euro cash deposits only) with short dated maturities.
Security Issuer Risk
| |
| • | Security Issuer Risk: Security issuer risk is the risk that an issuer of a security defaults on the payment when the security matures or debt is serviced. This risk is mitigated by limiting allowable investments under the reverse repurchase agreements to high quality sovereign or government agency debt and limiting any direct investments to high quality sovereign debt instruments. |
| |
| • | Investment Counterparty Risk: Investment counterparty risk is the risk that a reverse repurchase agreement counterparty might become insolvent and, thus, fail to meet its obligations to our clearing houses. We mitigate this risk by only engaging in transactions with high credit quality counterparties and by limiting the acceptable collateral to securities of a security defaults on its payment when the security matures. This risk is mitigated by limiting allowable investments under the reverse repurchase agreements to high quality sovereign or government agency debt and limiting any direct investments to high quality sovereign debt instruments. Investment Counterparty Risk
Investment counterparty risk is the risk that a reverse repurchase agreement counterparty might become insolvent and, thus, fail to meet its obligations to our clearing houses. We mitigate this risk by only engaging in transactions with high credit quality reverse repurchase agreement counterparties and by limiting the acceptable collateral under the repurchase agreement to high quality issuers. When engaging in reverse repurchase agreements, our clearing houses take delivery of the underlying reverse repurchase securities in custody accounts under clearing house control. Additionally, the securities purchased subject to reverse repurchase have a market value greater than the reverse repurchase amount. The typical haircut received for high quality sovereign debt is 2% of the reverse repurchase amount. Thus, in the event that a reverse repurchase counterparty defaults on its obligation to repurchase the underlying reverse repurchase securities, our clearing house will have possession of a security with a value potentially greater than the reverse repurchase counterparty’s obligation to the clearing house.
Our clearing houses take delivery of the securities underlying the reverse repurchase arrangement in custody accounts under clearing house control. Additionally, the securities purchased subject to reverse repurchase have a market value greater than the reverse repurchase amount. The typical haircut for high quality sovereign debt is 2% of the reverse repurchase amount which provides additional excess collateral. Thus, in the event that a reverse repurchase counterparty defaults on its obligation to repurchase the underlying reverse repurchase securities, our clearing house will have possession of a security with a value potentially greater than the counterparty’s obligation.
|
The ICE Clearing Houses may use third partythird-party investment advisors who make investments subject to the guidelines provided to them by theeach clearing house. Such investment advisors do not hold clearing member cash or cash equivalent deposits or the underlying investments. Clearing house property is held in custody accounts under clearing house control. Clearing house property is heldcontrol with credit worthy custodians including JPMorgan Chase Bank N.A., Citibank N.A., BNY Mellon, BMO Harris N.A. and Euroclear Bank Brussels (for non-U.S. dollar deposits). Each clearing house employsThe ICE Clearing Houses employ (or may employ) multiple investment advisors and custodians to ensure that in the event a single investment advisor or custodian is unable to fulfill its role, additional investment advisors or custodians are available as alternatives.
Cross-Currency Margin Deposit Risk
Each of our clearing houses, pursuant to their rules, may permit posting of cross-currency collateral to satisfy margin requirements (for example, accepting margin deposits denominated in U.S. dollars to secure a Euro margin obligation). The clearing houses | |
| • | Cross-Currency Margin Deposit Risk: Each of the ICE Clearing Houses may permit posting of cross-currency collateral to satisfy margin requirements (for example, accepting margin deposits denominated in U.S. dollars to secure a Euro margin obligation). The ICE Clearing Houses mitigate the risk of a decline in currency value exposure by applying a “haircut” to the currency posted as margin at a level viewed as sufficient to provide financial protection during periods of high currency volatility. Cross-currency balances are marked-to-market on a daily basis. Should the currency posted to satisfy margin requirements decline in value, the clearing member is required to increase its margin deposit on a same-day basis. |
Impact of Inflation
We have not been adversely affected by inflation as technological advances and competition have generally caused prices for the hardware and software that we use for our electronic platforms to remain constant. In the event of inflation, we believe that we will be able to pass on any price increases to our participants, as the prices that we charge are not governed by long-term contracts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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| | Page |
| Intercontinental Exchange, Inc. and Subsidiaries: | |
| Report of Management on Internal Control over Financial Reporting | |
| Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | |
| Report of Independent Registered Public Accounting Firm on Financial Statements | |
Consolidated Balance Sheets as of December 31, 20172019 and 20162018 | |
Consolidated Statements of Income for the Years Ended December 31, 2017, 20162019, 2018 and 20152017 | |
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 20162019, 2018 and 20152017 | |
Consolidated Statements of Changes in Equity Accumulated Other Comprehensive Income (Loss) and Redeemable Non-Controlling Interest for the Years Ended December 31, 2017, 20162019, 2018 and 20152017 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162019, 2018 and 20152017 | |
| Notes to Consolidated Financial Statements | |
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, accordingly, include certain amounts based on our best judgments and estimates.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15d-a5(f) under the Securities Exchange Act of 1934 (“Exchange Act”). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control over financial reporting is supported by a program of internal audits and appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel and a written Global Code of Business Conduct adopted by our Board of Directors, applicable to all of our directors and all officers and all of our employees.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013 framework). Based on our assessment, management believes that we maintained effective internal control over financial reporting as of December 31, 2017.
As permitted by SEC regulations, our management has excluded Natural Gas Exchange Inc. from its assessment of internal control over financial reporting as of December 31, 2017 since Natural Gas Exchange Inc. was acquired in a purchase business combination on December 14, 2017. Natural Gas Exchange Inc. is a wholly-owned subsidiary and had total and net assets not subject to our assessment of internal controls of $1.1 billion and $301 million, respectively, as of December 31, 2017.2019.
Our independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the Audit Committee, subject to ratification by our shareholders.stockholders. Ernst & Young LLP has audited and reported on our consolidated financial statements and the effectiveness of our internal control over financial reporting. The reports of our independent registered public accounting firm are contained in this Annual Report.
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| | |
| /s/ Jeffrey C. Sprecher | | /s/ Scott A. Hill |
| Jeffrey C. Sprecher | | Scott A. Hill |
| Chairman of the Board and | | Chief Financial Officer |
| Chief Executive Officer | | |
| | | |
February 7, 20186, 2020 | | February 7, 20186, 2020 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the ShareholdersStockholders and the Board of Directors of Intercontinental Exchange, Inc.
Opinion on Internal Control Overover Financial Reporting
We have audited Intercontinental Exchange, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Intercontinental Exchange, Inc. and Subsidiaries’Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.
As indicated in the accompanying “Report of Management on Internal Control over Financial Reporting”, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Natural Gas Exchange Inc., which is included in the 2017 consolidated financial statements of the Company and constituted $1.1 billion and $301 million of total and net assets, respectively, as of December 31, 2017. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Natural Gas Exchange Inc.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Intercontinental Exchange, Inc. and Subsidiariesthe Company as of December 31, 20172019 and 2016,2018, and the related consolidated statements of income, comprehensive income, changes in equity accumulated other comprehensive income (loss) and redeemable non-controlling interest, and cash flows for each of the three years in the period ended December 31, 2017 of2019, and the Company,related notes, and our report dated February 7, 20186, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Report of Management on Internal Control Overover Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Overover Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 7, 20186, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
To the ShareholdersStockholders and the Board of Directors of Intercontinental Exchange, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Intercontinental Exchange, Inc. and Subsidiaries (the Company) as of December 31, 20172019 and 2016,2018, and the related consolidated statements of income, comprehensive income, changes in equity accumulated other comprehensive income (loss) and redeemable non-controlling interest, and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated February 7, 20186, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical accounting matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Acquisition
| |
| Description of the Matter | As discussed in Note 3 to the consolidated financial statements, during 2019, the Company completed its acquisition of Simplifile, LC (“Simplifile”) for net consideration of $338 million. This transaction was accounted for as a business combination. |
Auditing the Company's accounting for its acquisition of Simplifile was complex due to the significant estimation in the Company’s determination of fair value of the customer relationship identified intangible asset of $104 million. The significant estimation was primarily due to sensitivity of the fair value to underlying assumptions about future performance of the acquired business in the Company’s discounted cash flow model used to measure the customer relationship intangible asset. These significant assumptions included the revenue and expense growth rates that form the basis of the forecasted results and the discount rate.
| |
| How We Addressed the | We tested the Company's controls over its accounting for acquisitions. For example, we |
| |
| Matter in Our Audit | tested controls over the estimation process supporting the recognition and measurement of the customer relationship intangible asset, which included testing controls over management’s review of assumptions used in its customer relationship valuation model. |
To test the estimated fair value of the customer relationship intangible asset, we performed audit procedures that included, among others, evaluating the valuation methodology and the significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the estimated fair value. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimate, including testing the revenue and expense growth rates that form the basis of the forecasted results and the discount rate. For example, we compared the significant assumptions to current industry, market and economic trends, to assumptions used to value similar assets in other acquisitions, to the historical results of the acquired business, and to the Company’s budgets and forecasts, in addition to performing sensitivity analysis over these assumptions. We also evaluated the adequacy of the Company’s disclosures included in Note 3 in relation to these acquisition matters.
Accounting for Income Taxes
| |
| Description of the Matter | As discussed in Note 13 to the consolidated financial statements, the Company operates in the United States and multiple international tax jurisdictions and is subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions. Consolidated income tax expense, including the liability for unrecognized tax benefits, is an estimate based on management’s understanding and interpretation of current enacted tax laws and tax rates of each tax jurisdiction. For the year-ended December 31, 2019, the Company recognized consolidated income tax expense of $521 million, and as of December 31, 2019, the Company accrued liabilities of $103 million for unrecognized tax benefits. |
Auditing the Company's accounting for consolidated income tax expense was complex because management’s calculation of consolidated income tax expense involves application and interpretation of complex tax laws, many of which were significantly modified as part of the Tax Cuts and Jobs Act. Further, the identification and measurement of unrecognized tax benefits requires significant management judgment and estimation. Each tax position may involve unique facts and circumstances to be evaluated, and there may be uncertainties around initial recognition and de-recognition of tax positions, including regulatory changes, litigation and examination activity.
| |
| How We Addressed the | We tested the Company’s controls that address the risks of material misstatement relating |
| |
| Matter in Our Audit | to the Company’s consolidated income tax expense. For example, we tested controls over management’s calculation of the federal, state and foreign components of income tax expense including management’s controls over the identification and ongoing review of its unrecognized tax benefits. |
To test consolidated income tax expense, we performed audit procedures that included, among others, recalculation of consolidated income tax expense and agreeing the data used in the calculations to the Company’s underlying books and records. We involved our tax professionals to evaluate the application of tax law to management’s calculation methodologies and tax positions. This included assessing the Company’s correspondence with the relevant tax authorities and evaluating third-party advice obtained by the Company. We also evaluated the assumptions the Company used to develop its tax positions and related unrecognized tax benefit amounts by jurisdiction. For example, we compared the estimated liabilities for unrecognized tax benefits to similar positions in prior periods and assessed management’s consideration of current tax controversy and litigation and trends in similar positions challenged by tax authorities. We also assessed the historical accuracy of management’s estimates of its unrecognized tax benefits by comparing the estimates with the resolution of those positions. We also evaluated the adequacy of the Company’s disclosures included in Note 13 in relation to these tax matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Atlanta, Georgia
February 7, 20186, 2020
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
| | | | As of December 31, | As of December 31, |
| | 2017 | | 2016 | 2019 | | 2018 |
| Assets: | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 535 |
| | $ | 407 |
| $ | 841 |
| | $ | 724 |
|
| Short-term restricted cash and cash equivalents | 769 |
| | 679 |
| 943 |
| | 818 |
|
| Short-term investments | 16 |
| | 23 |
| |
| Customer accounts receivable, net of allowance for doubtful accounts of $6 and $7 at December 31, 2017 and 2016, respectively | 903 |
| | 777 |
| |
| Customer accounts receivable, net of allowance for doubtful accounts of $8 and $7, respectively | | 988 |
| | 953 |
|
| Margin deposits, guaranty funds and delivery contracts receivable | 51,222 |
| | 55,150 |
| 64,987 |
| | 63,955 |
|
| Prepaid expenses and other current assets | 117 |
| | 97 |
| 220 |
| | 242 |
|
| Total current assets | 53,562 |
| | 57,133 |
| 67,979 |
| | 66,692 |
|
| Property and equipment, net | 1,246 |
| | 1,129 |
| 1,536 |
| | 1,241 |
|
| Other non-current assets: | | | | | | |
| Goodwill | 12,216 |
| | 12,291 |
| 13,342 |
| | 13,085 |
|
| Other intangible assets, net | 10,269 |
| | 10,420 |
| 10,258 |
| | 10,462 |
|
| Long-term restricted cash and cash equivalents | 264 |
| | 264 |
| 404 |
| | 330 |
|
| Long-term investments | — |
| | 432 |
| |
| Other non-current assets | 707 |
| | 334 |
| 974 |
| | 981 |
|
| Total other non-current assets | 23,456 |
| | 23,741 |
| 24,978 |
| | 24,858 |
|
| Total assets | $ | 78,264 |
| | $ | 82,003 |
| $ | 94,493 |
| | $ | 92,791 |
|
| | | | | | | |
| Liabilities and Equity: | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable and accrued liabilities | $ | 462 |
| | $ | 388 |
| $ | 505 |
| | $ | 521 |
|
| Section 31 fees payable | 128 |
| | 131 |
| 138 |
| | 105 |
|
| Accrued salaries and benefits | 227 |
| | 230 |
| 291 |
| | 280 |
|
| Deferred revenue | 121 |
| | 114 |
| 129 |
| | 135 |
|
| Short-term debt | 1,833 |
| | 2,493 |
| 2,569 |
| | 951 |
|
| Margin deposits, guaranty funds and delivery contracts payable | 51,222 |
| | 55,150 |
| 64,987 |
| | 63,955 |
|
| Other current liabilities | 178 |
| | 111 |
| 197 |
| | 161 |
|
| Total current liabilities | 54,171 |
| | 58,617 |
| 68,816 |
| | 66,108 |
|
| Non-current liabilities: | | | | | | |
| Non-current deferred tax liability, net | 2,283 |
| | 2,958 |
| 2,314 |
| | 2,337 |
|
| Long-term debt | 4,267 |
| | 3,871 |
| 5,250 |
| | 6,490 |
|
| Accrued employee benefits | 243 |
| | 430 |
| 198 |
| | 204 |
|
| Non-current operating lease liability | | 281 |
| | — |
|
| Other non-current liabilities | 348 |
| | 337 |
| 270 |
| | 350 |
|
| Total non-current liabilities | 7,141 |
| | 7,596 |
| 8,313 |
| | 9,381 |
|
| Total liabilities | 61,312 |
| | 66,213 |
| 77,129 |
| | 75,489 |
|
| Commitments and contingencies |
|
| |
|
| |
| Redeemable non-controlling interest | — |
| | 36 |
| |
| Commitments and contingencies: | |
|
| |
|
|
| Redeemable non-controlling interest in consolidated subsidiaries | | 78 |
| | 71 |
|
| Equity: | | | | | | |
| Intercontinental Exchange, Inc. shareholders’ equity: | | | | |
| Preferred stock, $0.01 par value; 100 shares authorized; no shares issued or outstanding at December 31, 2017 and 2016 | — |
| | — |
| |
| Common stock, $0.01 par value; 1,500 shares authorized; 600 and 583 shares issued and outstanding at December 31, 2017, respectively, and 596 and 595 shares issued and outstanding at December 31, 2016, respectively | 6 |
| | 6 |
| |
| Treasury stock, at cost; 17 and 1 shares at December 31, 2017 and 2016, respectively | (1,076 | ) | | (40 | ) | |
| Intercontinental Exchange, Inc. stockholders’ equity: | | | | |
| Preferred stock, $0.01 par value; 100 authorized; none issued or outstanding | | — |
| | — |
|
| Common stock, $0.01 par value; 1,500 authorized; 607 and 554 shares issued and outstanding at December 31, 2019, respectively, and 604 and 569 shares issued and outstanding at December 31, 2018, respectively | | 6 |
| | 6 |
|
| Treasury stock, at cost; 53 and 35 shares, respectively | | (3,879 | ) | | (2,354 | ) |
| Additional paid-in capital | 11,392 |
| | 11,306 |
| 11,742 |
| | 11,547 |
|
| Retained earnings | 6,825 |
| | 4,789 |
| 9,629 |
| | 8,317 |
|
| Accumulated other comprehensive loss | (223 | ) | | (344 | ) | (243 | ) | | (315 | ) |
| Total Intercontinental Exchange, Inc. shareholders’ equity | 16,924 |
| | 15,717 |
| |
| Total Intercontinental Exchange, Inc. stockholders’ equity | | 17,255 |
| | 17,201 |
|
| Non-controlling interest in consolidated subsidiaries | 28 |
| | 37 |
| 31 |
| | 30 |
|
| Total equity | 16,952 |
| | 15,754 |
| 17,286 |
| | 17,231 |
|
| Total liabilities and equity | $ | 78,264 |
| | $ | 82,003 |
| $ | 94,493 |
| | $ | 92,791 |
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Revenues: | | | | | | | | | | |
| Transaction and clearing, net | $ | 3,131 |
| | $ | 3,384 |
| | $ | 3,228 |
| $ | 3,627 |
| | $ | 3,483 |
| | $ | 3,131 |
|
| Data services | 2,084 |
| | 1,978 |
| | 871 |
| 2,211 |
| | 2,115 |
| | 2,084 |
|
| Listings | 417 |
| | 419 |
| | 405 |
| 449 |
| | 444 |
| | 426 |
|
| Other revenues | 202 |
| | 177 |
| | 178 |
| 260 |
| | 234 |
| | 202 |
|
| Total revenues | 5,834 |
| | 5,958 |
| | 4,682 |
| 6,547 |
| | 6,276 |
| | 5,843 |
|
| Transaction-based expenses: | | | | | | | | | | |
| Section 31 fees | 372 |
| | 389 |
| | 349 |
| 379 |
| | 357 |
| | 372 |
|
| Cash liquidity payments, routing and clearing | 833 |
| | 1,070 |
| | 995 |
| 966 |
| | 940 |
| | 833 |
|
| Total revenues, less transaction-based expenses | 4,629 |
| | 4,499 |
| | 3,338 |
| 5,202 |
| | 4,979 |
| | 4,638 |
|
| Operating expenses: | | | | | | | | | | |
| Compensation and benefits | 937 |
| | 945 |
| | 611 |
| 1,042 |
| | 994 |
| | 946 |
|
| Professional services | 121 |
| | 137 |
| | 139 |
| 125 |
| | 131 |
| | 121 |
|
| Acquisition-related transaction and integration costs | 36 |
| | 80 |
| | 88 |
| 2 |
| | 34 |
| | 36 |
|
| Technology and communication | 397 |
| | 374 |
| | 203 |
| 469 |
| | 432 |
| | 397 |
|
| Rent and occupancy | 69 |
| | 70 |
| | 57 |
| 68 |
| | 68 |
| | 69 |
|
| Selling, general and administrative | 155 |
| | 116 |
| | 116 |
| 161 |
| | 151 |
| | 155 |
|
| Depreciation and amortization | 535 |
| | 610 |
| | 374 |
| 662 |
| | 586 |
| | 535 |
|
| Total operating expenses | 2,250 |
| | 2,332 |
| | 1,588 |
| 2,529 |
| | 2,396 |
| | 2,259 |
|
| Operating income | 2,379 |
| | 2,167 |
| | 1,750 |
| 2,673 |
| | 2,583 |
| | 2,379 |
|
| Other income (expense): | | | | | | | | | | |
| Interest income | | 35 |
|
| 22 |
| | 8 |
|
| Interest expense | (187 | ) | | (178 | ) | | (97 | ) | (285 | ) | | (244 | ) | | (187 | ) |
| Other income, net | 325 |
| | 40 |
| | — |
| 58 |
| | 159 |
| | 326 |
|
| Other income (expense), net | 138 |
| | (138 | ) | | (97 | ) | (192 | ) | | (63 | ) | | 147 |
|
| Income before income tax expense (benefit) | 2,517 |
| | 2,029 |
| | 1,653 |
| 2,481 |
| | 2,520 |
| | 2,526 |
|
| Income tax expense (benefit) | (25 | ) | | 580 |
| | 358 |
| 521 |
| | 500 |
| | (28 | ) |
| Net income | $ | 2,542 |
| | $ | 1,449 |
| | $ | 1,295 |
| $ | 1,960 |
| | $ | 2,020 |
| | $ | 2,554 |
|
| Net income attributable to non-controlling interest | (28 | ) | | (27 | ) | | (21 | ) | (27 | ) | | (32 | ) | | (28 | ) |
| Net income attributable to Intercontinental Exchange, Inc. | $ | 2,514 |
| | $ | 1,422 |
| | $ | 1,274 |
| $ | 1,933 |
| | $ | 1,988 |
| | $ | 2,526 |
|
| Earnings per share attributable to Intercontinental Exchange, Inc. common shareholders: | | | | | | |
| Earnings per share attributable to Intercontinental Exchange, Inc. common stockholders: | | | | | | |
| Basic | $ | 4.27 |
| | $ | 2.39 |
| | $ | 2.29 |
| $ | 3.44 |
| | $ | 3.46 |
| | $ | 4.29 |
|
| Diluted | $ | 4.23 |
| | $ | 2.37 |
| | $ | 2.28 |
| $ | 3.42 |
| | $ | 3.43 |
| | $ | 4.25 |
|
| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic | 589 |
| | 595 |
| | 556 |
| 561 |
| | 575 |
| | 589 |
|
| Diluted | 594 |
| | 599 |
| | 559 |
| 565 |
| | 579 |
| | 594 |
|
| Dividend per share | $ | 0.80 |
| | $ | 0.68 |
| | $ | 0.58 |
| |
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Net income | $ | 2,542 |
| | $ | 1,449 |
| | $ | 1,295 |
| $ | 1,960 |
| | $ | 2,020 |
| | $ | 2,554 |
|
| Other comprehensive income (loss): | | | | | | | | | | |
| Foreign currency translation adjustments, net of tax benefit of ($6), ($22) and ($4) for the years ended December 31, 2017, 2016 and 2015, respectively | 133 |
| | (300 | ) | | (58 | ) | |
| Foreign currency translation adjustments, net of tax expense (benefit) of $1, ($1) and ($6) for 2019, 2018 and 2017, respectively, and net impact of $1 from adoption of ASU 2018-02 in 2018 | | 50 |
| | (91 | ) | | 133 |
|
| Change in fair value of available-for-sale securities | 68 |
| | 134 |
| | (81 | ) | — |
| | — |
| | 68 |
|
| Reclassification of realized gain on available-for-sale investment to other income | (176 | ) | | — |
| | — |
| — |
| | — |
| | (176 | ) |
| Change in equity method investment | | (1 | ) | | — |
| | — |
|
| Reclassification of foreign currency translation loss on sale of Trayport to other expense | 76 |
| | — |
| | — |
| — |
| | — |
| | 76 |
|
| Comprehensive income from equity method investment | — |
| | — |
| | 2 |
| |
| Employee benefit plan net gains (losses), net of tax expense of $8 and $7 for the years ended December 31, 2017 and 2016, respectively | 20 |
| | 10 |
| | (5 | ) | |
| Employee benefit plan net gains (losses), net of tax expense of $9, $9 and $8 in 2019, 2018 and 2017, respectively, and net impact of $25 from adoption of ASU 2018-02 in 2018 | | 23 |
| | (1 | ) | | 20 |
|
| Other comprehensive income (loss) | 121 |
| | (156 | ) | | (142 | ) | 72 |
| | (92 | ) | | 121 |
|
| Comprehensive income | $ | 2,663 |
| | $ | 1,293 |
| | $ | 1,153 |
| $ | 2,032 |
| | $ | 1,928 |
| | $ | 2,675 |
|
| Comprehensive income attributable to non-controlling interest | (28 | ) | | (27 | ) | | (21 | ) | (27 | ) | | (32 | ) | | (28 | ) |
| Comprehensive income attributable to Intercontinental Exchange, Inc. | $ | 2,635 |
| | $ | 1,266 |
| | $ | 1,132 |
| $ | 2,005 |
| | $ | 1,896 |
| | $ | 2,647 |
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity Accumulated Other Comprehensive Income (Loss)
and Redeemable Non-Controlling Interest
(In millions)
| | | | Intercontinental Exchange, Inc. Shareholders' Equity | | Non- Controlling Interest in Consolidated Subsidiaries | | Total Equity | | Redeemable Non-controlling Interest | Intercontinental Exchange, Inc. Stockholders' Equity | | Non- Controlling Interest in Consolidated Subsidiaries | | Total Equity | | Redeemable Non-controlling Interest |
| | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | |
| | Shares | | Value | | Shares | | Value | | Shares | | Value | | Shares | | Value | |
| Balance, as of January 1, 2015 | 579 |
| | $ | 6 |
| | (19 | ) | | $ | (743 | ) | | $ | 9,933 |
| | $ | 3,210 |
| | $ | (46 | ) | | $ | 32 |
| | $ | 12,392 |
| | $ | 165 |
| |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (142 | ) | | — |
| | (142 | ) | | — |
| |
| Stock consideration issued for Interactive Data and Trayport acquisitions | 45 |
| | — |
| | — |
| | — |
| | 2,197 |
| | — |
| | — |
| | — |
| | 2,197 |
| | — |
| |
| Exercise of common stock options | — |
| | — |
| | — |
| | — |
| | 19 |
| | — |
| | — |
| | — |
| | 19 |
| | — |
| |
| Repurchases of common stock | — |
| | — |
| | (14 | ) | | (660 | ) | | — |
| | — |
| | — |
| | — |
| | (660 | ) | | — |
| |
| Payments relating to treasury shares | — |
| | — |
| | (1 | ) | | (45 | ) | | — |
| | — |
| | — |
| | — |
| | (45 | ) | | — |
| |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 122 |
| | — |
| | — |
| | — |
| | 122 |
| | — |
| |
| Issuance of restricted stock | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Tax benefits from stock option plans | — |
| | — |
| | — |
| | — |
| | 19 |
| | — |
| | — |
| | — |
| | 19 |
| | — |
| |
| Adjustment to redemption value | — |
| | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) | | 4 |
| |
| Distributions of profits | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (16 | ) | | (16 | ) | | (11 | ) | |
| Dividends paid to shareholders | — |
| | — |
| | — |
| | — |
| | — |
| | (331 | ) | | — |
| | — |
| | (331 | ) | | — |
| |
| Purchase of subsidiary shares | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (128 | ) | |
| Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (21 | ) | | — |
| | 16 |
| | (5 | ) | | 5 |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,295 |
| | — |
| | — |
| | 1,295 |
| | — |
| |
| Balance, as of December 31, 2015 | 628 |
| | 6 |
| | (34 | ) | | (1,448 | ) | | 12,290 |
| | 4,148 |
| | (188 | ) | | 32 |
| | 14,840 |
| | 35 |
| |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (156 | ) | | — |
| | (156 | ) | | — |
| |
| Exercise of common stock options | 1 |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| |
| Treasury shares retired in connection with stock split | (35 | ) | | — |
| | 35 |
| | 1,512 |
| | (1,142 | ) | | (370 | ) | | — |
| | — |
| | — |
| | — |
| |
| Repurchases of common stock | — |
| | — |
| | (1 | ) | | (50 | ) | | — |
| | — |
| | — |
| | — |
| | (50 | ) | | — |
| |
| Payments relating to treasury shares | — |
| | — |
| | (1 | ) | | (54 | ) | | — |
| | — |
| | — |
| | — |
| | (54 | ) | | — |
| |
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 136 |
| | — |
| | — |
| | — |
| | 136 |
| | — |
| |
| Issuance of restricted stock | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Adjustment to redemption value | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) | | 1 |
| |
| Distributions of profits | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | (19 | ) | | (3 | ) | |
| Dividends paid to shareholders | — |
| | — |
| | — |
| | — |
| | — |
| | (409 | ) | | — |
| | — |
| | (409 | ) | | — |
| |
| Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) | | — |
| | 24 |
| | (3 | ) | | 3 |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,449 |
| | — |
| | — |
| | 1,449 |
| | — |
| |
| Balance, as of December 31, 2016 | 596 |
| | 6 |
| | (1 | ) | | (40 | ) | | 11,306 |
| | 4,789 |
| | (344 | ) | | 37 |
| | 15,754 |
| | 36 |
| |
| Balance, as of January 1, 2017 | | 596 |
| | 6 |
| | (1 | ) | | (40 | ) | | 11,306 |
| | 4,810 |
| | (344 | ) | | 37 |
| | 15,775 |
| | 36 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 121 |
| | — |
| | 121 |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 121 |
| | — |
| | 121 |
| | — |
|
| Exercise of common stock options | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
| | — |
| | 17 |
| | — |
|
| Repurchases of common stock | — |
| | — |
| | (15 | ) | | (949 | ) | | — |
| | — |
| | — |
| | — |
| | (949 | ) | | — |
| — |
| | — |
| | (15 | ) | | (949 | ) | | — |
| | — |
| | — |
| | — |
| | (949 | ) | | — |
|
| Payments relating to treasury shares | — |
| | — |
| | (1 | ) | | (88 | ) | | — |
| | — |
| | — |
| | — |
| | (88 | ) | | — |
| — |
| | — |
| | (1 | ) | | (88 | ) | | — |
| | — |
| | — |
| | — |
| | (88 | ) | | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 152 |
| | — |
| | — |
| | — |
| | 152 |
| | — |
| — |
| | — |
| | — |
| | — |
| | 152 |
| | — |
| | — |
| | — |
| | 152 |
| | — |
|
| Issuance of restricted stock | 4 |
| | — |
| | — |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| 4 |
| | — |
| | — |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Acquisition of non-controlling interest | — |
| | — |
| | — |
| | — |
| | (82 | ) | | — |
| | — |
| | (10 | ) | | (92 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | (82 | ) | | — |
| | — |
| | (10 | ) | | (92 | ) | | — |
|
| Distributions of profits | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26 | ) | | (26 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26 | ) | | (26 | ) | | — |
|
| Dividends paid to shareholders | — |
| | — |
| | — |
| | — |
| | — |
| | (476 | ) | | — |
| | — |
| | (476 | ) | | — |
| |
| Acquisition of redeemable non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) | | (37 | ) | |
| Dividends paid to stockholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (476 | ) | | — |
| | — |
| | (476 | ) | | — |
|
| Redeemable non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) | | (37 | ) |
| Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (28 | ) | | — |
| | 27 |
| | (1 | ) | | 1 |
| — |
| | — |
| | — |
| | — |
| | — |
| | (28 | ) | | — |
| | 27 |
| | (1 | ) | | 1 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 2,542 |
| | — |
| | — |
| | 2,542 |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | 2,554 |
| | — |
| | — |
| | 2,554 |
| | — |
|
| Balance, as of December 31, 2017 | 600 |
| | $ | 6 |
| | (17 | ) | | $ | (1,076 | ) | | $ | 11,392 |
| | $ | 6,825 |
| | $ | (223 | ) | | $ | 28 |
| | $ | 16,952 |
| | $ | — |
| 600 |
| | 6 |
| | (17 | ) | | (1,076 | ) | | 11,392 |
| | 6,858 |
| | (223 | ) | | 28 |
| | 16,985 |
| | — |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (66 | ) | | — |
| | (66 | ) | | — |
|
| Exercise of common stock options | | 1 |
| | — |
| | — |
| | — |
| | 32 |
| | — |
| | — |
| | — |
| | 32 |
| | — |
|
| Repurchases of common stock | | — |
| | — |
| | (16 | ) | | (1,198 | ) | | — |
| | — |
| | — |
| | — |
| | (1,198 | ) | | — |
|
| Payments relating to treasury shares | | — |
| | — |
| | (2 | ) | | (80 | ) | | — |
| | — |
| | — |
| | — |
| | (80 | ) | | — |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 146 |
| | — |
| | — |
| | — |
| | 146 |
| | — |
|
| Issuance of restricted stock | | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Changes in non-controlling interest | | — |
| | — |
| | — |
| | — |
| | (23 | ) | | — |
| | — |
| | (2 | ) | | (25 | ) | | — |
|
| Distributions of profits | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (28 | ) | | (28 | ) | | — |
|
| Dividends paid to stockholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (555 | ) | | — |
| | — |
| | (555 | ) | | — |
|
| Redeemable non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 71 |
|
| Impact of adoption of ASU 2018-02 to reclassify items stranded in other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 26 |
| | (26 | ) | | — |
| | — |
| | — |
|
| Net income attributable to non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | (32 | ) | | — |
| | 32 |
| | — |
| | — |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,020 |
| | — |
| | — |
| | 2,020 |
| | — |
|
| Balance, as of December 31, 2018 | | 604 |
| | 6 |
| | (35 | ) | | (2,354 | ) | | 11,547 |
| | 8,317 |
| | (315 | ) | | 30 |
| | 17,231 |
| | 71 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 72 |
| | — |
| | 72 |
| | — |
|
| Exercise of common stock options | | 1 |
| | — |
| | — |
| | — |
| | 23 |
| | — |
| | — |
| | — |
| | 23 |
| | — |
|
| Repurchases of common stock | | — |
| | — |
| | (17 | ) | | (1,460 | ) | | — |
| | — |
| | — |
| | — |
| | (1,460 | ) | | — |
|
| Payments relating to treasury shares | | — |
| | — |
| | (1 | ) | | (65 | ) | | — |
| | — |
| | — |
| | — |
| | (65 | ) | | — |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 143 |
| | — |
| | — |
| | — |
| | 143 |
| | 11 |
|
| Issuance under the employee stock purchase plan | | — |
| | — |
| | — |
| | — |
| | 29 |
| | — |
| | — |
| | — |
| | 29 |
| | — |
|
| Issuance of restricted stock | | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Distributions of profits | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) | | — |
|
| Dividends paid to stockholders | | — |
| | — |
| | — |
| | — |
| | — |
| | (621 | ) | | — |
| | — |
| | (621 | ) | | — |
|
| Net income attributable to non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) | | — |
| | 30 |
| | 3 |
| | (4 | ) |
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,960 |
| | — |
| | — |
| | 1,960 |
| | — |
|
| Balance, as of December 31, 2019 | | 607 |
| | $ | 6 |
| | (53 | ) | | $ | (3,879 | ) | | $ | 11,742 |
| | $ | 9,629 |
| | $ | (243 | ) | | $ | 31 |
| | $ | 17,286 |
| | $ | 78 |
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Income (Loss)
and Redeemable Non-Controlling Interest — (Continued)
(In millions)
|
| | | | | | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 | | 2015 |
| Accumulated other comprehensive income (loss) was as follows: | | | | | |
| Foreign currency translation adjustments | $ | (136 | ) | | $ | (345 | ) | | $ | (45 | ) |
| Fair value of available-for-sale securities | — |
| | 108 |
| | (26 | ) |
| Comprehensive income from equity method investment | 2 |
| | 2 |
| | 2 |
|
| Employee benefit plans adjustments | (89 | ) | | (109 | ) | | (119 | ) |
| Accumulated other comprehensive loss | $ | (223 | ) | | $ | (344 | ) | | $ | (188 | ) |
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Operating activities | | | | | | |
| Operating activities: | | | | | | |
| Net income | $ | 2,542 |
| | $ | 1,449 |
| | $ | 1,295 |
| $ | 1,960 |
| | $ | 2,020 |
| | $ | 2,554 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
| Depreciation and amortization | 535 |
| | 610 |
| | 374 |
| 662 |
| | 586 |
| | 535 |
|
| Stock-based compensation | 135 |
| | 124 |
| | 111 |
| 139 |
| | 130 |
| | 135 |
|
| Deferred taxes | (651 | ) | | 114 |
| | (108 | ) | (33 | ) | | 27 |
| | (654 | ) |
| Cetip realized investment gain, net | (114 | ) | | — |
| | — |
| — |
| | — |
| | (114 | ) |
| Trayport gain, net | (110 | ) | | — |
| | — |
| — |
| | — |
| | (110 | ) |
| Amortization of fair market value premium on NYSE Notes | — |
| | — |
| | (23 | ) | |
| Gain on acquisition of remaining MERS interest | | — |
| | (110 | ) | | — |
|
| Other | (22 | ) | | (6 | ) | | (17 | ) | (40 | ) | | (24 | ) | | (22 | ) |
| Changes in assets and liabilities: | | | | | | | | | | |
| Customer accounts receivable | (135 | ) | | (65 | ) | | (45 | ) | (30 | ) | | (44 | ) | | (135 | ) |
| Other current and non-current assets | (24 | ) | | 7 |
| | (5 | ) | (17 | ) | | (45 | ) | | (24 | ) |
| Section 31 fees payable | (2 | ) | | 14 |
| | (21 | ) | 34 |
| | (33 | ) | | (2 | ) |
| Deferred revenue | 17 |
| | 42 |
| | 27 |
| (18 | ) | | 1 |
| | 8 |
|
| Other current and non-current liabilities | (86 | ) | | (140 | ) | | (277 | ) | 2 |
| | 25 |
| | (86 | ) |
| Total adjustments | (457 | ) | | 700 |
| | 16 |
| 699 |
| | 513 |
| | (469 | ) |
| Net cash provided by operating activities | 2,085 |
| | 2,149 |
| | 1,311 |
| 2,659 |
| | 2,533 |
| | 2,085 |
|
| | | | | | | | | | | |
| Investing activities | | | | | | |
| Investing activities: | | | | | | |
| Capital expenditures | (220 | ) | | (250 | ) | | (190 | ) | (153 | ) | | (134 | ) | | (220 | ) |
| Capitalized software development costs | (137 | ) | | (115 | ) | | (87 | ) | (152 | ) | | (146 | ) | | (137 | ) |
| Proceeds from sale of Cetip, net | 438 |
| | — |
| | — |
| — |
| | — |
| | 438 |
|
| Cash paid for acquisitions, net of cash acquired | (423 | ) | | (425 | ) | | (3,751 | ) | (352 | ) | | (1,246 | ) | | (423 | ) |
| Return of capital from equity method investment | | 60 |
| | — |
| | — |
|
| Cash received from divestitures | 761 |
| | — |
| | — |
| — |
| | — |
| | 761 |
|
| Purchases of cost and equity method investments | (327 | ) | | (70 | ) | | (60 | ) | |
| Proceeds from term deposits | — |
| | — |
| | 1,089 |
| |
| Purchases of equity investments | | — |
| | (306 | ) | | (327 | ) |
| Proceeds from investments, net | | 9 |
| | 77 |
| | — |
|
| Other | — |
| | — |
| | (5 | ) | (6 | ) | | — |
| | — |
|
| Net cash provided by (used in) investing activities | 92 |
| | (860 | ) | | (3,004 | ) | (594 | ) | | (1,755 | ) | | 92 |
|
| | | | | | | | | | | |
| Financing activities | | | | | | |
| Financing activities: | | | | | | |
| Proceeds from debt facilities, net | 984 |
| | — |
| | 2,472 |
| 10 |
| | 2,213 |
| | 984 |
|
| Repayments of debt facilities | (850 | ) | | — |
| | (1,028 | ) | — |
| | (600 | ) | | (850 | ) |
| Proceeds from (repayments of) commercial paper, net | (409 | ) | | (949 | ) | | 1,686 |
| |
| Dividends to shareholders | (476 | ) | | (409 | ) | | (331 | ) | |
| Proceeds from/(repayments of) commercial paper, net | | 360 |
| | (283 | ) | | (409 | ) |
| Repurchases of common stock | (949 | ) | | (50 | ) | | (660 | ) | (1,460 | ) | | (1,198 | ) | | (949 | ) |
| Dividends to stockholders | | (621 | ) | | (555 | ) | | (476 | ) |
| Payments relating to treasury shares received for restricted stock tax payments and stock option exercises | (88 | ) | | (54 | ) | | (45 | ) | (65 | ) | | (80 | ) | | (88 | ) |
| Acquisition of non-controlling interest and redeemable non-controlling interest | (174 | ) | | — |
| | — |
| — |
| | (35 | ) | | (174 | ) |
| Purchase of subsidiary shares from non-controlling interest | — |
| | — |
| | (128 | ) | |
| Proceeds from issuance of redeemable non-controlling interest | | — |
| | 71 |
| | — |
|
| Other | (9 | ) | | — |
| | 10 |
| 23 |
| | 4 |
| | (9 | ) |
| Net cash provided by (used in) financing activities | (1,971 | ) | | (1,462 | ) | | 1,976 |
| |
| Net cash used in financing activities | | (1,753 | ) | | (463 | ) | | (1,971 | ) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents | 12 |
| | (24 | ) | | (14 | ) | 4 |
| | (11 | ) | | 12 |
|
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | 218 |
| | (197 | ) | | 269 |
| |
| Net increase in cash, cash equivalents, and restricted cash and cash equivalents | | 316 |
| | 304 |
| | 218 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year | 1,350 |
| | 1,547 |
| | 1,278 |
| 1,872 |
| | 1,568 |
| | 1,350 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at end of year | $ | 1,568 |
| | $ | 1,350 |
| | $ | 1,547 |
| $ | 2,188 |
| | $ | 1,872 |
| | $ | 1,568 |
|
| Supplemental cash flow disclosure | | | | | | |
| | | | | | | |
| Supplemental cash flow disclosures: | | | | | | |
| Cash paid for income taxes | $ | 594 |
| | $ | 460 |
| | $ | 542 |
| $ | 557 |
| | $ | 533 |
| | $ | 594 |
|
| Cash paid for interest | $ | 171 |
| | $ | 170 |
| | $ | 123 |
| $ | 280 |
| | $ | 202 |
| | $ | 171 |
|
| Supplemental non-cash investing and financing activities | | | | | | |
| Common stock and vested stock options issued for acquisitions | $ | — |
| | $ | — |
| | $ | 2,197 |
| |
| Treasury stock retirement | $ | — |
| | $ | 1,512 |
| | $ | — |
| |
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| |
| 1. | Description of Business |
Nature of Business and Organization
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing of a broad array of derivatives contracts and securities contracts across major asset classes, including energy and agricultural commodities, metals, interest rates, equities, equity derivatives, exchange tradedexchange-traded funds, or ETFs, credit derivatives, digital assets, bonds and currencies. Wecurrencies, and also offer end-to-endmortgage and technology services. In addition, we offer comprehensive data services and solutions to support the trading, investment, risk management and connectivity needs of customers around the world and across all major asset classes.
Our exchanges include derivative exchanges in the United States, or U.S., United Kingdom, or U.K., European Union or EU, Canada and Singapore, and cash equities, equity options and bond exchangestrading venues in the U.S. We also operate over-the-counter, or OTC, markets for physical energy, fixed income and credit default swaps, or CDS, trade execution. To serve global derivatives markets, we operate central counterparty clearing houses, or CCPs, in the U.S., U.K., EU, Canada and Singapore (Note 13)14). We offer a range of data services for global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through our markets, clearing houses, listings and market data services, we provide end-to-endcomprehensive solutions for our customers to manage risk and raise capital through liquid markets, benchmark products, access to capital markets and related services to support their ability to manage risk and raise capital.services.
| |
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements are presentedhave been prepared by us in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The consolidated financialThese statements include the accounts of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions between our wholly-owned and controlled subsidiaries have been eliminated in consolidation. As discussed in Note 3, we completed several acquisitions during the years ended December 31, 2017, 2016 and 2015 and have included the financial results of these companies in the consolidated financial statements effective from the respective acquisition dates. Also as discussed in Note 3, we completed the dispositions of several companies during the year ended December 31, 2017 and have included the financial results of these companies in the consolidated financial statements up to the respective disposition dates.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
Comprehensive Income
Other comprehensive income includes changes in unrealized gains and losses on financial instruments classified as available-for-sale, changes in fair value of net investment hedges, foreign currency translation adjustments, comprehensive income from equity method investments, and amortization of the difference in the projected benefit obligation and the accumulated benefit obligation associated with benefit plan liabilities, net of tax.
Non-controlling Interest
For consolidated subsidiaries in which our ownership is less than 100% and for which we have control over the assets and liabilities and the management of the entity, the outside stockholders’ interests are shown as non-controlling interests. For instances whereWhere outside stockholders’owners hold an option to require us to repurchase the outside stockholders’ interest,their interests, these interestsamounts are shown as redeemable non-controlling interests.interests and are subject to remeasurement when repurchase is probable (Note 3).
All intercompany balances and transactions between us and our wholly-owned and controlled subsidiaries have been eliminated in consolidation. The financial results of companies we acquire are included from the acquisition dates and the results of companies we sold are included up to the disposition dates. The accounting policies used to prepare these financial statements are the same as those used to prepare the consolidated financial statements in prior years except as described in these footnotes or for the adoption of new standards as outlined below.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying disclosures. Actual amounts could differ from those estimates.
Comprehensive Income
Other comprehensive income includes foreign currency translation adjustments, comprehensive income from equity method investments, and amortization of the difference in the projected benefit obligation and the accumulated benefit obligation associated with benefit plan liabilities, net of tax. Prior to the January 1, 2018 adoption of Accounting Standards Update, or ASU, No. 2016-01, see "-Recently Adopted Accounting Pronouncements" below, our other comprehensive income included changes in unrealized gains and losses on financial instruments classified as available-for-sale.
Segment and Geographic Information
We operate twoand present our results based on our 2 business segments: ourthe Trading and Clearing segment that comprises our transaction-based execution and ourclearing businesses and the Data and Listings segment.segment that comprises our subscription-based data services and securities listings businesses. This presentation is reflective of how our chief operating decision maker reviews and operates our business. Our Trading and Clearing segment comprises our transaction-based execution and clearing businesses. Our Data and Listings segment comprises our subscription-based data services and securities listings businesses. The majority of our identifiable assets are located in the U.S.U.S and U.K. (Note 18).
Cash and Cash Equivalents
We consider all short-term, highly liquid investments with original maturities at the purchase date of three months or less to be cash equivalents.
Short-Term and Long-Term Restricted Cash and Cash Equivalents
We classify all cash and cash equivalents and investments that are not available for immediate or general business use by us as restricted in the accompanying consolidated balance sheets (Note 5)6). The restricted cashThis includes cashamounts set aside due to regulatory requirements, earmarked for specific purposes, or restricted by specific agreements.
Short-Term and Long-Term Investments
We periodicallyalso invest a portion of our cashfunds in excess of short-term operating needs in term deposits and investment-grade marketable debt securities, including government or government sponsoredgovernment-sponsored agencies and corporate debt securities (Note 6).securities. These investments are classified as available-for-salecash equivalents, are short-term in accordance with U.S. GAAP. nature and carrying amount approximates fair value.
Investments
We do not have anymade various investments classified as held-to-maturity or trading. Additionally, we classifyin the equity securities of other companies. We also invest in mutual funds and fixed income mutual funds, heldsecurities. We classify all other investments that are not cash equivalents with original maturity dates of less than one year as short-term investments and all investments that we intend to hold for the purpose of providing future payments for the supplemental executive savings planmore than one year as long-term investments. Short-term and a component of the supplemental executive retirement plan, as available-for-sale securities. Available-for-salelong-term investments are included in other current and other non-current assets, respectively.
Investments in equity securities, or equity investments, are carried at their fair value, using primarily quoted priceswith changes in active markets for identical securities, withfair value, whether realized or unrealized, gains and losses, net of deferred income taxes, reported as a component of accumulated other comprehensive income. Realized gains and losses, and declines in value deemed to be other-than-temporary on available-for-sale investments, are recognized in earnings.net income. For those investments that do not have readily determinable fair market values, such as those which are not publicly-listed companies, we have made a fair value policy election under ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The costelection requires us to only adjust the fair value of securities soldsuch investments if and when there is based on the specific identification method.an observable price change in an orderly transaction of a similar or identical investment, with any change in fair value recognized in net income. Investments that we intend to hold for more than one year are classified as long-term investmentsother non-current assets in the accompanying consolidated balance sheets. See “Recently Adopted Accounting Pronouncements” below for the new financial instruments accounting standard and its impact on the accounting for our investments.
Cost and Equity Method Investments
We use the cost method to account for a non-marketable equity investment in an entity that we do not control and for which we do not have the ability to exercise significant influence over the entity’s operating and financial policies. When we do not have a controlling financial interest in an entity but exercise significant influence over the entity’s operating and financial policies, such investment isinvestments are accounted for using the equity method. We account for our investmentsmethod and included in MERSCORP Holdings, Inc., owner of Mortgage Electronic Registrations Systems, Inc., or collectively MERS, and Options Clearing Corporation, or OCC, as equity method investments. We recognized $36 million, $25 million and $6 million in equity income related to these investments during the years ended December 31, 2017, 2016 and 2015, respectively, as other income.non-current assets. We recognize dividend incomedividends when declared as a reduction in the carrying value of our equity method investments. Cost and equity method investments were $563 million and $208 million as of December 31, 2017 and 2016, respectively, and are classified as other non-current assets in the accompanying consolidated balance sheets. The increase in the cost and equity method investments during the year ended December 31, 2017 is primarily due to our investment in Euroclear plc, or Euroclear, and during the year ended December 31, 2016 is primarily due to our investment in MERS (Note 3). See “Recently Adopted and New Accounting Pronouncements” below for the new financial instruments accounting standard and its impact on the accounting for our investments.
Margin Deposits, Guaranty Funds and Delivery Contracts Receivable and Payable
Original margin, variation margin and with the exception of Natural Gas Exchange Inc., or NGX, guaranty funds held by our clearing houses for clearing members may be in the form of cash, government obligations, certain agency and corporate debt, letters of credit or gold (Note 13)14). Government, agencyWe hold the cash deposits at highly-rated financial institutions or through reverse repurchase agreements or direct investments. See "Credit Risk and corporate securities held for margin purposes are recorded at an amount that approximates fair value.Significant Customers", below. Cash and cash equivalent original margin, variation margin and guaranty fund deposits are reflected in the accompanying consolidated balance sheets as current assets and current liabilities. The amount of margin deposits on hand will fluctuate over time as a result of, among other things, the extent of open positions held at any point in time by market participants in contracts and the margin rates then in effect for such contracts. Changes in our margin accounts are not reflected in our consolidated statements of cash flows. Non-cash and cash equivalent original margin and guaranty fund deposits are not reflected in the accompanying consolidated balance sheets as the risks and rewards of these assets remain with the clearing members unless the clearing houses have sold or re-pledged the assets or in the event of a clearing member default, where the clearing member is no longer entitled to redeem the assets. Any income, gain or loss accrues to the clearing members.
ICE NGX, which we acquired in December 2017, owns a clearing house which administers the physical delivery of energy trading contracts. NGXIt serves as an intermediary counter-partycounterparty to both the buyer and seller. When physical delivery has occurred and/or settlement amounts have been determined, an asset is recorded as a delivery contract receivable for the fair value of the contract due from the buying participant, and an equal and offsetting delivery contract payable is recorded for the amountamounts owed to
or due from the selling participant.contract participants. Amounts recorded at period endperiod-end represent receivables and payables for deliveries that have occurred but for which payment has not been received or made. There is no impact on our consolidated statements of income as an equal amount is recognized as both an asset and a liability. ICE NGX also records unsettled variation margin equal to the fair value of open energy trading contracts as of the balance sheet date.
Property and Equipment
Property and equipment is recorded at cost, reduced by accumulated depreciation (Note 7). Depreciation and amortization expense related to property and equipment is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold improvements, the shorter of the initial lease term or the estimated useful life of the improvement. We review the remaining estimated useful lives of our property and equipment at each balance sheet date and will make adjustments to the estimated remaining useful lives whenever events or changes in circumstances indicate that the remaining useful lives have changed. Gains on disposals of property and equipment are included in other income and losses on disposals of property and equipment are included in depreciation expense. Maintenance and repair costs are expensed as incurred.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is maintained at a level that we believe to be sufficient to absorb probable losses in our accounts receivable portfolio. The allowance is based on several factors, including a continuous assessment of the collectability of each account. In circumstances where a specific customer’s inability to meet its financial obligations is known, we record a specific provision for bad debts against amounts due to reduce the receivable to the amount we reasonably believe will be collected. Accounts receivable are written offwritten-off against the allowance for doubtful accounts when collection efforts cease. A reconciliation of the beginning and ending amount of allowance for doubtful accounts is as follows for the years ended December 31,2019, 2018 and 2017 2016 and 2015 (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Beginning balance of allowance for doubtful accounts | $ | 7 |
| | $ | 6 |
| | $ | 7 |
|
| Bad debt expense | 10 |
| | 8 |
| | 4 |
|
| Charge-offs | (9 | ) | | (7 | ) | | (5 | ) |
| Ending balance of allowance for doubtful accounts | $ | 8 |
| | $ | 7 |
| | $ | 6 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Beginning balance of allowance for doubtful accounts | $ | 7 |
| | $ | 2 |
| | $ | 1 |
|
| Bad debt expense | 4 |
| | 5 |
| | 2 |
|
| Charge-offs | (5 | ) | | — |
| | (1 | ) |
| Ending balance of allowance for doubtful accounts | $ | 6 |
| | $ | 7 |
| | $ | 2 |
|
Bad debt expense in the table above is based on our historical collection experiences and our assessment of the collectability of specific accounts. Charge-offs in the table above represent the write-off of uncollectible receivables, net of recoveries. These amounts also include the impact of foreign currency translation adjustments.
Software Development Costs
We capitalize costs related to software we develop or obtain for internal use. The costs capitalized include both internal and external direct and incremental costs, related to software developed or obtained for internal use in accordance with U.S. GAAP. Software development costs incurred during the preliminary or maintenance project stages are expensed as incurred, while costs incurred during the application development stage are capitalized and are amortized using the straight-line method over the useful life of the software, not to exceed three years (except for Interactive Data’s and NYSE’s new platforms, which have eight year useful lives). Amortization of these capitalized costs begins only when the software becomes ready for its intended use.costs. General and administrative costs related to developing or obtaining such software are expensed as incurred. Development costs incurred during the preliminary or maintenance project stages are expensed as incurred. Costs incurred during the application development stage are capitalized and amortized using the straight-line method over the useful life of the software, generally not exceeding three years (except for certain ICE Data Services and NYSE platforms, which have seven-year useful lives). Amortization begins only when the software becomes ready for its intended use.
Accrued Employee Benefits
We have a defined benefit pension plan and other postretirement benefit plans, or collectively the “benefit plans,” covering certain of our U.S. operations. The benefit accrual for the pension plan is frozen. We recognize the funded status of the benefit plans in theour consolidated balance sheets, measure the fair value of plan assets and benefit obligations as of the date of our fiscal year-end, and provide additional disclosures in the footnotes to the consolidated financial statements (Note 15)16).
Benefit plan costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptionsare provided by a third-party specialist and include discount rates, health care cost trend rates, benefits earned, interest cost, expected return on assets, mortality rates and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. We immediately recognize in the consolidated statements of incomeHowever, certain of these unrecognized amounts are recognized when triggering events occur, such as when a settlement of pension obligations in
excess of total interest and service costs occurs. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension and other post-retirement obligations and future expense recognized.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets (Note 8). We recognize specifically identifiablespecifically-identifiable intangibles when a specific right or contract is acquired.acquired with the assistance of third-party valuation specialists. Goodwill has been allocated to our reporting units for purposes of impairment testing based on the portion of synergy, cost savings and other expected future cash flows expected to benefit the reporting units at the time of the acquisition. We test our goodwill for impairment at the reporting unit level. The reporting units identified for our goodwill testing are the Futures, Data and Listings, Cash Equities, Fixed Income and Credit Default Swap reporting units. Goodwill impairment testing is performed annually at the reporting unit level in the fiscal fourth quarter or more frequently if conditions exist that indicate that the assetit may be impaired.
We also evaluate indefinite-lived intangible assets for impairment annually in our fiscal fourth quarter or more frequently if conditions exist that indicate that thean asset may be impaired. Such evaluation includes either applying the optional qualitative screen to determine if it is not more likely than not that the fair value of the asset continues to exceed its carrying value or determining the fair value of the asset and comparing the fair value of the asset to its carrying value. If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment loss is recognized in earnings in an amount equal to the difference.
For both goodwill and indefinite livedindefinite-lived impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount. If we conclude that this is the case, we must perform additional testing of the asset or reporting unit. Otherwise, no further testing is necessary.
Other If the fair value of the goodwill or indefinite-lived intangible asset is less than for the divestiture of NYSE Governance Services as discussed in Note 3, we did not recordits carrying value, an impairment charge relatedloss is recognized in earnings in an amount equal to the difference. For our goodwill or indefinite livedimpairment testing, we have elected to bypass the qualitative assessment and apply the quantitative approach. For our testing of indefinite-lived intangible assets, during the years ended December 31, 2017, 2016 or 2015.we apply qualitative and quantitative approaches.
Impairment of Long-Lived Assets and Finite-Lived Intangible Assets
We review our property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability,When these indicators exist, we project undiscounted net future cash flows over the remaining life of such assets. If thesethe sum of the projected cash flows areis less than the carrying amount, an impairment indicator would exist. The impairment loss isexist, measured based upon the difference between the carrying amount and the fair value of the assets. Finite-lived intangible assets are generally amortized on ausing the straight-line basismethod or using an accelerated method over the lesser of their contractual or estimated useful lives.
During the third quarter of 2016, we discontinued Creditex’s U.K. voice brokerage operations and an impairment of the asset was recorded as amortization expense in September 2016 for $33 million (Note 8).
Derivatives and Hedging Activity
WePeriodically, we may use derivative financial instruments to limitmanage exposure to changes in foreign currency exchange rates. All derivatives are required to be recorded at fair valuevalue. We generally do not designate these derivatives as hedges for accounting purposes. Accordingly, changes in the accompanying consolidated balance sheets. Changes in the fair value of such derivative financial instruments are recognized in net income as they are not designated as hedges under U.S. GAAP.income.
From time to time, we may hedge the foreign currency translation of certain net investments by designating all or a portion of certain financial liabilities denominated in the same currency in accordance with U.S. GAAP. We entered into foreign currency hedging transactions during years ended December 31,2019, 2018 and 2017 2016 and 2015 as economic hedges to help mitigate a portion of our foreign exchange risk exposure. The gains and losses on these transactions were not material during these years.
Intellectual Property
All costs related to internally developed patents and trademarks are expensed as incurred. All costs related to purchased patents, trademarks and internet domain names are recorded as other intangible assets and are amortized onusing a straight-line basismethod over their estimated useful lives. All costs related to licensed patents are capitalized and amortized onusing a straight-line basismethod over the term of the license.
Income Taxes
We recognize income taxes under the liability method. We recognize a current tax liability or tax asset for the estimated taxes payable or refundable on tax returns for the current year. We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We establish valuation allowances if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using current enacted tax rates in effect.
SEC Staff Accounting Bulletin No. 118, or SAB 118, has provided guidance for companies that have not completed their accounting for the income tax effects of the Tax Cuts and Jobs Act, or TCJA, in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the TCJA, however, we have made a reasonable estimate of the effects on our deferred tax balances and in relation to the transition tax. In other cases, we have not been able to make a reasonable estimate and will continue to analyze the TCJA in order to finalize any related impacts within the measurement period. The Financial Accounting Standards Board, or FASB, Staff also provided additional guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income, or GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to include the tax expense in the year it is incurred. We have not completed our analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided for under SAB 118.
We do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50 percent likely to be realized. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
We are subject to tax in numerous domestic and foreign jurisdictions primarily based on our operations in these jurisdictions. Significant judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could have a material impact on our financial position or results of operations.
During 2018, we completed our accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act, or TCJA. We reaffirmed our position that we were not subject to transition tax as of December 31, 2017 under the TCJA. In addition, we concluded that the $764 million of deferred tax benefit recorded in the 2017 income tax provision was a reasonable estimate of the TCJA's effects on our deferred tax balances.
The Financial Accounting Standards Board, or FASB, provided guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as Global Intangible Low-Taxed Income in future years or to include the tax expense in the year it is incurred. We have completed our analysis of the effects of these provisions and have made a policy election to recognize such taxes as current period expenses when incurred.
We use a portfolio approach with respect to pension, postretirement benefits plan obligations and currency translation matters when we determine the timing and extent to which stranded income tax effects from items that were previously recorded in accumulated other comprehensive income are released.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable and collectability is reasonably assured. Our revenues primarily consist of transaction and clearing fee revenues for transactions executed and/or cleared through our global electronic derivatives trading and clearing platforms and cash equities trading andas well as revenues related to our data services fees and listing fees. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. We also evaluate all contracts in order to determine appropriate gross versus net revenue reporting.
Derivatives trading and clearingSubstantially all of our revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in our balance sheets as customer accounts receivable. We do not have obligations for warranties, returns or refunds to customers, other than rebates, which are settled each period and therefore do not result in variable consideration. We do not have significant revenue recognized overfrom performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our deferred revenue. Certain judgments and estimates are used in the period in whichidentification and timing of satisfaction of performance obligations and the related allocation of transaction price. We believe that these represent a faithful depiction of the transfer of services are provided, which is typically the date the transactions are executed or are cleared, except for a portion of clearing revenuesto our customers.
Deferred revenue represents our contract liabilities related to cleared contracts which have an ongoing clearing obligation that extends beyond the execution date. The transactionour annual, original and clearing feeother listings revenues are determined on the basis of the transaction and clearing fee charged for each contract traded on the exchanges. Derivatives transaction and clearing fees are recorded net of rebates of $749 million, $674 million and $563 million for the years ended December 31, 2017, 2016 and 2015, respectively. We offer rebates in certain of our markets primarily to support market liquidity and trading volume by providing qualified participants in those markets a discount to the applicable commission rate. Such rebates are calculated based on volumes traded. The increase in the rebates is due primarily to an increase in the number of participants in the rebate programs offered on various contracts, an increase in our traded volume and an increase in the number of rebate programs.
Cash trading fee revenues are paid by organizations based on their trading activity. Fees are assessed on a per share basis for trading in equity securities. The fees are applicable to all transactions that take place on any of our equity trading venues, and the fees vary based on the size and type of trade that is consummated and trading venue. The equity trading venues earn transaction fees for customer orders of equity securities matched internally, as well as for customer orders routed to other exchanges. Cash trading fees are recognized as earned, which is generally upon execution of the trade. Cash trading fees are recorded gross of liquidity rebates and routing charges. Liquidity payments made to cash and options trading customers and routing charges made to other exchanges are included in transaction-based expenses in the consolidated statements of income.
Listings revenues consist of original listing fees paid by issuers to list the initial securities on the various cash markets, other listing fees related to other corporate actions (including stock splits, sales of additional securities and merger and acquisitions), annual listing fees paid by companies whose financial instruments are listed on the cash markets,certain data services, clearing services and other services providedrevenues. Deferred revenue is our only significant contract asset or liability. See Note 9 for our discussion of deferred revenue balances, activity, and expected timing of recognition.
We have elected not to our listed companies and other companies. Original listing feesprovide disclosures about transaction price allocated to unsatisfied performance obligations if contract durations are assessed primarily based onless than one year, or if we are not required to estimate the number of shares that the issuer
initially lists. Original listing fees are recognized as revenue on a straight-line basis over the estimated service periods of 5 years for NYSE Arca and NYSE American and 9 years for NYSE. Other corporate action listing fees are recognized as revenue on a straight-line basis over the estimated service periods of 3 years for NYSE Arca and NYSE American and 6 years for NYSE. The service periods are determined separately for eachtransaction price. For all of our listing venues (Note 9). Annual listing fees are billed at the beginning of the yearcontracts with customers, except for listings and are recognized on a pro rata basis over the calendar year.
Data services revenues include marketcertain data access fees charged to customers that trade on the electronic platform. The market data access amount for each company is based on the number of users at each company trading on the electronic platform. For our bilateral OTC data services, monthly trading commissions are recognized as transaction and clearing fee revenues. Any customer’s market data access fees in excess of that customer’s commissions on trading activity are recognized as market data access revenues. Data services, revenues in our derivatives markets also include terminal and license fees received from data vendors in exchange for the provision of real-time futures price information and market data access fees. Market data fees are charged to data vendors on a monthly basis based on the number and type of terminals they have providing futures data. Some of our data vendors also pay an annual license fee, which is deferred and recognized as revenue ratably over the period of the annual license.
We collect market data revenues from our cash equity and options consortium-based data products and, to a lesser extent, for New York Stock Exchange proprietary data products. Consortium-based data fees are determined by securities industry plans. Consortium-based data revenues that coordinated market data distribution generates (net of administration costs) are distributed to participating markets on the basis of the Regulation NMS formula. We collect fees from vendors for the right to distribute market data to third parties and a service fee from vendors for direct connection to market data. These fees are recognized as revenue as services are rendered.
We also charge customers for accessing our data services through Secure Financial Transaction Infrastructure, or SFTI, and colocation services. SFTI is a physical network infrastructure that connects our markets and other major market centers with market participants and allows those participants to receive data feeds. We also offer data analytics services which include a number of products such as forward curves, index and valuation services.
Revenue for subscription based contracts is recognized ratably over the life of the contract and revenue for usage based contracts is recognized in the month that the products/services are provided. Certain of our businesses collect fees for installation/set-up services which, if deemed a separate deliverable with standalone value, are recognized upon delivery as long as the remaining criteria for recognition of revenue have been achieved. Revenue for installation/set-up services, that do not meet the criteria for separation, is recognized ratably either over the contractual term or the expected client relationship life. Revenue for professional services is recognized as the services are provided. Revenue for hardware is recognized when installation is completed and the related services go-live.
Other revenues primarily consist of various fees for services provided to our customers, including interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, exchange membership fees and agricultural grading and certification fees. These fees are recognized as revenue as services are rendered.
On January 1, 2018, we were required to adopt ASC 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs- Contracts with Customers. The new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations are short term in nature and there is no significant variable consideration. In addition, we have elected the practical expedient of excluding sales taxes from transaction prices. We have assessed the costs incurred to customersobtain or fulfill a contract with a customer and significant judgments in measurement and recognition. determined them to be immaterial.
See “Recently Adopted Accounting Pronouncements” below for the new revenue recognition accounting standard and New Accounting Pronouncements,” and Note 4 where discussed further.its impact on our revenues.
Activity Assessment Fees and Section 31 Fees
We pay the Securities and Exchange Commission, or SEC, fees pursuant to Section 31 of the Securities Exchange Act of 1934 for transactions executed on our U.S. equities and options exchanges. These Section 31 fees are designed to recover the costs to the government for supervising and regulating the securities markets and securities professionals. We (or the Options Clearing Corporation, or OCC, on our behalf), in turn, collect activity assessment fees, which are included in transaction and clearing fees in the accompanying consolidated statements of income, from member
organizations clearing or settling trades on the U.S. equities and options exchanges and recognize these amounts as revenue when invoiced. Fees received are included in cash at the time of receipt and, as required by law, the amount due to the SEC is remitted semi-annually and recorded as an accrued liability until paid. The activity assessment fees are designed so that they are equal to the Section 31 fees paid by us to the SEC. As a result, Section 31 fees do not have an impact on our net income.
Stock-Based Compensation
We currently sponsor employeestock option plans, restricted stock plans and director stock optionour Employee Stock Purchase Plan, or ESPP, to provide additional and incentive-based compensation to our employees and directors (Note 11). Stock options and restricted stock plans (Note 11). U.S. GAAP requiresare granted at the measurementdiscretion of the Compensation Committee of the Board of Directors. We measure and recognition ofrecognize compensation expensesexpense for all share-based payment awards, made to employees and directors, including employee stock options, and restricted stock and shares purchased under the ESPP based on estimated fair values. U.S. GAAP requires companies to estimate the fair value of stock option awardsvalues on the date of grant using an option-pricing model.grant. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expense over the requisite service period in our consolidated financial statements.period.
We use the Black-Scholes option pricing model for purposes of valuing stock option awards. Our determination of fairto value of stock option awards on the date of grant using the Black-Scholes option pricing model is affected by our stock price as well as assumptions regarding a numbershares purchased as part of our ESPP. The values estimated by the model are affected by the price of our stock as well as subjective variables. These variables that include assumed interest rates, our expected dividend yield, our expected share price volatility over the term of the awards and actual and projected employee stock option exercise behavior. Under our ESPP, employees may purchase shares of our common stock at a price equal to 85% of the lesser of the fair market value of the stock on the first or the last trading day of each offering period. We record compensation expenses related to the 15% discount given to our participating employees.
Treasury Stock
We record treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasury stock (Note 11)12). We retired all ofIn the event it occurs in the future, our outstanding treasury shares effective October 27, 2016, the record date of our 5-for-1 stock split (which has already been reflected in our results retroactively). Our accounting policy upon the formal retirement of treasury stock is to deduct the par value from common stock and to reflect any excess of cost over par value as a deduction from additional paid-in capital (to the extent created by previous issuances of the shares) and retained earnings.
Credit Risk and Significant Customers
Our clearing houses haveare exposed to credit risk foras a result of maintaining certain of the clearing member cash deposits at various financial institutions (Note 13)14). Cash deposit accounts are established at larger money center bankslarge, highly-rated financial institutions and structured toentered into so that they restrict the rights of offset or imposition of liens by the banks. Our clearing houses monitor the cash deposits and mitigate credit risk by keeping such deposits in several financial institutions, ensuring that its overall credit risk exposure to any individual financial institution remains within acceptable concentration limits, and by ensuring that the financial institutions have high investment grade ratings. We also limit our risk of loss by holding the majority of the cash deposits in cash accounts at the Federal Reserve Bank of Chicago, high quality short-term sovereign debt reverse repurchase agreements with several different counterparty banks or direct investments in short-term high quality sovereign and supranational debt issues.issues primarily with original maturities of less than three months. While we seek to achieve a reasonable rate of return which may generate interest income for our clearing members, we are primarily concerned with preservation of capital and managing the risks associated with these deposits. As the clearing houses may pass on interest revenues, minus costs, to the members, this could include negative or reduced yield due to market conditions.
When engaging in reverse repurchase agreements, our clearing houses take delivery of the underlying securities in custody accounts under clearing house control. Additionally, the securities purchased subject to reverse repurchase have a market value greater than the reverse repurchase amount. The typical haircut received for high quality sovereign debt is 2% of the reverse repurchase amount. Thus, in the event that a reverse repurchase counterparty defaults on its obligation to repurchase the underlying reverse repurchase securities, our clearing house will have possession of securities with a value potentially greater than the reverse repurchase counterparty’s obligation to the clearing house.
ICE Clear Credit, a systemically important financial market utility as designated by the Financial Stability Oversight Council, held $18.5 billion of itsmaintains a U.S. dollar cash margin in cash accountsaccount at the Federal Reserve Bank of Chicago as of December 31, 2017.2019. ICE Clear Europe has establishedmaintains a Euro-denominatedeuro-denominated account at the De Nederlandsche Bank, or DNB, the central bank of the Netherlands. This account providesNetherlands, as well as pounds sterling- and euro-denominated accounts at the Bank of England, or BOE, the central bank of the U.K. These accounts provide the flexibility for ICE Clear Europe to place Euro-denominatedeuro- and pounds sterling-denominated cash margin securely at a national bank,banks, in particular during periods when liquidity in the Euroeuro and pounds sterling repo markets may temporarily become contracted, such as over a quarter or year end. As of December 31, 2017, ICE Clear Europe held €3.3 billion ($4.0 billion based on the euro/U.S. dollar exchange rate of 1.2003 as of December 31, 2017) at DNB.contracted. Such accounts are intended to decrease ICE Clear Credit and ICE Clear Europe’s custodial, liquidity and operational risk as compared to alternative custodial and investment arrangements.
Our futures businesses have minimal credit risk as the majority of their transaction revenues are currently cleared through our clearing houses. Our accounts receivable related to market data revenues, cash trading, listing revenues, technology revenues, CDS transaction revenues and bilateral over-the-counterOTC energy transaction revenues subjects us to credit (collection) risk, as we do not require these customers to post collateral. We limit our risk of loss by terminating access to trade, toremain listed or receive data for entities with delinquent accounts. The concentration of risk on accounts receivable is also mitigated by the large number of entities comprising our customer base.
Our accounts receivable are stated at cost.the billed amount. Excluding clearing members, there were no individual accounts receivable balances greater than 10% of total consolidated accounts receivable as of December 31, 20172019 or December 31, 2016.2018. No single
customer accounted for more than 10% of total consolidated revenues during any2019, 2018 or 2017.
Leases
Operating lease right-of-use assets and liabilities are recorded at the lease commencement date based on the present value of the years ended December 31, 2017, 2016 or 2015.
Leases
lease payments to be made over the lease term using an estimated incremental borrowing rate. We expense rent from non-cancellable operating leases, net of sublease income,monthly on a straight-line basis, based on future minimum lease payments. The net costs areas a reduction to the right-of-use asset. Rent expense is included in rent and occupancy expenses and technology and communication expenses in the accompanying consolidated statements of income (Note 14)(Notes 2 and 15). See "Recently Adopted Accounting Pronouncements," below, for the new lease accounting standard and its impact on our financial statements.
Acquisition-Related Transaction and Integration Costs
We incurredincur incremental direct acquisition-related transaction costs relating to variousour completed and potential acquisitions and other strategic opportunities to strengthen our competitive position and support growth. The acquisition-related transaction costs includeopportunities. This includes fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms, deal-related bonuses to certain of our employees, as well as costs associated with credit facilities and other external costs directly related to the proposed or closed transactions. We also incurred
Acquisition-related transaction and integration costs during the years ended December 31, 2017 and 2016 relating to our integration of Interactive Data and during the years ended December 31, 2016 and 2015 relating to our integration of NYSE. Integration costs primarily related to employee termination costs, deal related bonuses, lease termination costs and professional services costs incurred relating to the integrations. As of June 30, 2016, the integration of NYSE has been completed.
were nominal in 2019. The acquisition-related transaction and integration costs incurred during the year ended December 31,2018 primarily relate to employee termination and lease termination costs related to our Interactive Data acquisition, professional services costs resulting from our 2018 acquisitions and a $5 million banker success fee in connection with our acquisition of TMC Bonds. The acquisition-related transaction and integration costs incurred during 2017 primarily relate to costs incurred for our Interactive Data integration, legal and professional fees related to the review of Trayport by the U.K. Competition and Markets Authority, or the CMA, review, and various other costs incurred for our other acquisitions that closed during 2017. The acquisition-related transaction and integration costs incurred during the year ended December 31, 2016 primarily relate to costs incurred for ourof Interactive Data and NYSE integrations, legal and professional fees related to the Trayport CMA review, our investment in MERS, our acquisition of Securities Evaluations and Credit Market Analysis, and various other potential and discontinued acquisitions. The acquisition-related transaction and integration costs incurred during the year ended December 31, 2015 primarily relate to the integration costs incurred for our NYSE integration and the acquisition-related transaction costs related to our Interactive Data and Trayport acquisitions. See Note 3 for additional information on our acquisitions.was completed by June 30, 2018.
Fair Value of Financial Instruments
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (Note 16). Fair value is the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Our financial instruments consist primarily of cash and cash equivalents,certain short-term and long-term restricted cashassets and investments, short-term and long-term investments,liabilities, customer accounts receivable, margin deposits and guaranty funds, equity investments, and short-term and long-term debt and other short-term assets and liabilities.(Note 17).
The fair value of our financial instruments is measured based on a three-level hierarchy:
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| • | Level 1 inputs — quoted prices for identical assets or liabilities in active markets. |
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| • | Level 2 inputs — observable inputs other than Level 1 inputs such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable. |
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| • | Level 3 inputs — unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Foreign Currency Translation Adjustments and Foreign Currency Transaction Gains and Losses
Our functional and reporting currency is the U.S. dollar. We have exposure to foreign currency translation risk equal togains and losses arising from our net investment in certain U.K., continental European, Asian and Canadian subsidiaries. The revenues, expenses and financial results of these subsidiaries are recorded in the functional currency of the countries that these subsidiaries are located in, which are primarily pounds sterling and euros. The financial statements of these subsidiaries are translated into U.S. dollars using a current rate of exchange, with gains or losses, net of tax as applicable, included in the cumulative translation adjustment account, a component of equity. As of December 31, 20172019 and 2016,2018, the portion
of our equity attributable to accumulated other comprehensive loss from foreign currency translation adjustments was $136$177 million and $345$227 million, respectively.
We have foreign currency transaction gains and losses related to the settlement of foreign currency denominated assets, liabilities and payables that occur through our operations. TheThese transaction gaingains and losses are due to the increase or decrease in the foreign currency exchange rates between periods. Forward contracts on foreign currencies are entered into to manage the foreign currency exchange rate risk. Gains and losses from foreign currency transactions are included in other income (expense) in the accompanying consolidated statements of income and resulted in net losses of $5 million, $2 million and $4 million $1 millionin 2019, 2018 and $14 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Earnings Per Common Share
Basic earnings per common share is calculated using the weighted average common shares outstanding during the year. Common equivalent shares from stock options and restricted stock awards, using the treasury stock method, are included in the diluted per share calculations unless the effect of inclusion would be antidilutive (Note 18)19).
Recently Adopted and New Accounting Pronouncements
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| Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements |
ASU No. 2016-02, Leases, requires entities to recognize both assets and liabilities arising from finance and operating leases, along with additional qualitative and quantitative disclosures. | Adopted on January 1, 2019. | Further disclosures and details on our adoption are discussed below. |
ASU 2018-07, Compensation–Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees. Under this new guidance, the existing employee guidance will now apply to nonemployee share-based transactions. | Effective for fiscal years beginning after December 15, 2018. Adopted on January 1, 2019. | This guidance will be applied to all new awards granted after the date of adoption, and adoption did not have a material impact on our consolidated financial statements or related disclosures.
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ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, or ASU 2018-14 was issued in August 2018 and removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. | Effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We elected early adoption and adopted on December 31, 2019. The amendments in ASU 2018-14 are required to be applied retrospectively. | Upon adoption we eliminated certain disclosure requirements related to our defined benefit plans that were previously disclosed in Note 16. Certain other disclosure requirements described in Subtopic 715-20 were not applicable to us. |
Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, collectively referred to as ASC 606.
| Adopted retrospectively on January 1, 2018 and restated each prior period presented. | Further disclosures and details on our adoption are discussed below. |
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| Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements |
ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component in the same line item as other related compensation costs, and the other components of net benefit cost in the income statement outside of operating income. The guidance only allows the service cost component of net benefit cost to be eligible for capitalization. | Adopted on January 1, 2018 and applied retrospectively to each prior period presented | We have a pension plan, a U.S. nonqualified supplemental executive retirement plan, and post-retirement defined benefit plans that are all impacted by the guidance. Each of these plans are frozen and do not have a service cost component, which means the expense or benefit recognized under each plan represents other components of net benefit cost as defined in the guidance. The combined net periodic (expense) benefit of these plans was ($8 million) and $9 million in 2018 and 2017, respectively, and was previously reported as an adjustment to compensation and benefits expenses in the accompanying consolidated statements of income. Following our adoption, these amounts were reclassified to be included in other income, net, and these adjustments had no impact on net income.
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| ASU No. 2016-01, which provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except (i) those accounted for under the equity method of accounting or (ii) those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. See "Investments" section above for additional detail. | Adopted on January 1, 2018. | Our adoption did not result in any fair value adjustments on the date of adoption.
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| In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, which provided guidance for companies that have not completed their accounting for the income tax effects of the TCJA. | In the period of enactment of the TCJA, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2018, we completed our accounting for the tax effects of the enactment of the TCJA. | As of December 31, 2018, we reaffirmed our position that we were not subject to transition tax under the TCJA. In addition, we concluded that the $764 million deferred tax benefit recorded as of December 31, 2017 was a reasonable estimate of the TCJA impact on our deferred tax.
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In January 2018, the FASB staff issued Question & Answer Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, stating that a company may either elect to treat taxes due on future inclusions of its non-U.S. income in its U.S. taxable income under the newly enacted Global Intangible Low-Taxed Income provisions as a current period expense when incurred, or factor them into the company’s measurement of its deferred taxes. | In 2018, we completed our analysis of the two different accounting policies.
| As of December 31, 2018, we made a policy election to recognize such tax as a current period expense when incurred.
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| Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements |
ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulative Other Comprehensive Income, or ASU 2018-02, gave entities the option to reclassify to retained earnings certain tax effects related to items in accumulated other comprehensive income, or OCI, that have been stranded in OCI as a result of the enactment of the TCJA. | Effective for fiscal years beginning after December 15, 2018 with early adoption permitted. We elected early adoption and adopted in the fourth quarter of 2018. | The impact of our adoption was a balance sheet reclassification from OCI to retained earnings of $26 million, which was reflected in our consolidated balance sheet as of December 31, 2018. In connection with our adoption, we made a policy election to use a portfolio approach with respect to pension, postretirement benefit plan obligations and currency translation matters when we determine the timing and extent to which stranded income tax effects from items that were previously recorded in accumulated other comprehensive income are released.
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ASU 2016-18, Statement of Cash Flows: Restricted Cash, or ASU 2016-18, required us to show the changes in the total of cash, cash equivalents and restricted cash and cash equivalents in the statement of cash flows. | Adopted in the fourth quarter of 2017. | We no longer present transfers between cash, cash equivalents and restricted cash and cash equivalents in the statement of cash flows. We reclassified changes in restricted cash from cash flows provided by (used in) investing activities, to the total change in beginning and end-of-period balances. Our statements of cash flows for 2019, 2018 and 2017 reflect this change.
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Accounting Pronouncements Not Yet Adopted in These Financial Statements |
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| Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements |
ASU No. 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments applies to all financial instruments carried at amortized cost including held-to-maturity debt securities and trade receivables. Requires financial assets carried at amortized cost to be presented at the net amount expected to be collected and requires entities to record credit losses through an allowance for credit losses on available-for-sale debt securities. | We adopted on January 1, 2020. Our adoption was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements. | We have evaluated this guidance to determine the impact on our consolidated financial statements. Based on our assessment, we concluded the impact of adoption of this guidance not to be material.
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Adoption of ASC 606, Revenues from Contracts with Customers
The FASB has issued ASC Topic 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, collectively referred to as ASC 606. ASC 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most currentcustomers. ASC 606 superseded prior revenue recognition guidance. This guidance and requires us to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidanceASC 606 requires enhanced disclosures, including (i) revenue recognition policies used to identify performance obligations to customers and (ii) the use of significant judgments in measurement and recognition. The new guidance may be applied
On January 1, 2018, we adopted ASC 606 retrospectively toand restated each prior period presented or retrospectively with the cumulative effect recognized aspresented. Our adoption of the date of adoption. We will apply the guidance retrospectively to each prior period presented, and provide the relevant disclosures beginning in the first interim period (March 31, 2018 quarterly results) and annual period (December 31, 2018 annual results) in which we adopt the guidance.
The adoptionASC 606 accelerated the timing of recognition of a portion of original listing fees related to our New York Stock Exchange, or NYSE, businesses, which priorbusinesses. In addition, and to a lesser extent, the adoption have been deferred over an estimated customer lifedecelerated the timing of up to nine years.recognition of a portion of clearing fee revenues. The impact of our adoption of ASC 606 on our performance obligations in our clearing business was minimal. Revenue recognition related to ourall other trading, clearing and data businesses remains substantiallyremained unchanged.
Adoption Our adoption of the standard related to ASC 606 willwas subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.
Our adoption of ASC 606 had the following impact on our reported results as follows,for the prior periods presented, driven primarily by the accelerated recognition of listings fee revenuerevenues in our NYSE businessbusinesses (in millions, except earnings per share):
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| | As Reported | New Revenue Standard Adjustment | As Adjusted* |
| Year ended December 31, 2017 | | | |
| Total revenues | $ | 5,834 |
| $ | 10 |
| $ | 5,844 |
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| Total revenues, less transaction-based expenses | 4,629 |
| 10 |
| 4,639 |
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| Income tax benefit** | (25 | ) | (2 | ) | (27 | ) |
| Net income attributable to Intercontinental Exchange, Inc. | 2,514 |
| 12 |
| 2,526 |
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| Diluted earnings per share | $ | 4.23 |
| $ | 0.02 |
| $ | 4.25 |
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| | | | | | | | | | | |
| | As Reported | | New Revenue Standard Adjustment | | As Adjusted |
| Year ended December 31, 2017 | | | | | |
| Total revenues | $ | 5,834 |
| | $ | 9 |
| | $ | 5,843 |
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| Total revenues, less transaction-based expenses | 4,629 |
| | 9 |
| | 4,638 |
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| Income tax benefit | (25 | ) | | (3 | ) | | (28 | ) |
| Net income attributable to Intercontinental Exchange, Inc. | 2,514 |
| | 12 |
| | 2,526 |
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| Diluted earnings per share | $ | 4.23 |
| | $ | 0.02 |
| | $ | 4.25 |
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| | As Reported | New Revenue Standard Adjustment | As Adjusted* |
| Year ended December 31, 2016 | | | |
| Total revenues | $ | 5,958 |
| $ | 12 |
| $ | 5,970 |
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| Total revenues, less transaction-based expenses | 4,499 |
| 12 |
| 4,511 |
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| Income tax expense | 580 |
| 5 |
| 585 |
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| Net income attributable to Intercontinental Exchange, Inc. | 1,422 |
| 7 |
| 1,429 |
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| Diluted earnings per share | $ | 2.37 |
| $ | 0.01 |
| $ | 2.38 |
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| | As Reported | | New Revenue Standard Adjustment | | As Adjusted |
| As of December 31, 2017 | | | | | |
| Deferred revenue, current | $ | 121 |
| | $ | 4 |
| | $ | 125 |
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| Deferred revenue, non-current | 143 |
| | (52 | ) | | 91 |
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| Net deferred tax liabilities | 2,280 |
| | 15 |
| | 2,295 |
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| Retained earnings | 6,825 |
| | 33 |
| | 6,858 |
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| | As Reported | New Revenue Standard Adjustment | As Adjusted* |
| Year ended December 31, 2015 | | | |
| Total revenues | $ | 4,682 |
| $ | 19 |
| $ | 4,701 |
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| Total revenues, less transaction-based expenses | 3,338 |
| 19 |
| 3,357 |
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| Income tax expense | 358 |
| 8 |
| 366 |
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| Net income attributable to Intercontinental Exchange, Inc. | 1,274 |
| 11 |
| 1,285 |
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| Diluted earnings per share | $ | 2.28 |
| $ | 0.02 |
| $ | 2.30 |
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| | As Reported | New Revenue Standard Adjustment | As Adjusted* |
| As of December 31, 2017 | | | |
| Deferred revenue, current | $ | 121 |
| $ | (2 | ) | $ | 119 |
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| Deferred revenue, non-current | 143 |
| (45 | ) | 98 |
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| Net deferred tax liabilities | 2,280 |
| 13 |
| 2,293 |
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| Retained earnings | 6,825 |
| 34 |
| 6,859 |
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| | | | | | | | | |
| | As Reported | New Revenue Standard Adjustment | As Adjusted* |
| As of December 31, 2016 | | | |
| Deferred revenue, current | $ | 114 |
| $ | 1 |
| $ | 115 |
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| Deferred revenue, non-current | 123 |
| (38 | ) | 85 |
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| Net deferred tax liabilities | 2,954 |
| 15 |
| 2,969 |
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| Retained earnings | 4,789 |
| 22 |
| 4,811 |
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*We were required to adopt ASC 606 on January 1, 2018. Adjusted figures in the tables above do not impact the 2017 financial results included in this report. The adjustments will be retrospectively reflected in the financial results beginning with the quarter ending March 31, 2018.
**The 2017 income tax benefit adjustment in the table above includes a $6 million deferred tax benefit resulting from the U.S. corporate income tax reduction as part of the TCJA enactment in the fourth quarter of 2017.
Additional disclosures related to our future adoption of ASC 606 are disclosedprovided in Note 4.5.
The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and MeasurementAdoption of Financial Assets and Financial Liabilities, or ASU 2016-01. ASU 2016-01 provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. We were required to adopt ASU 2016-01 on2016-02, Leases
On January 1, 2018. Our cost method investments, including our investment in Euroclear (Note 3) and our 1.8% stake in Coinbase Global, Inc.2019, we adopted ASU 2016-02, Leases, among others, will be impacted by our adoption of ASU 2016-01 beginning in the first quarter of 2018. These companies do not currently have readily determinable fair market values as they are not publicly listed companies. Therefore, in accordance with ASU 2016-01, we will only adjust the fair value of these investments if and when there is an observable price change in an orderly transaction, and any change in the fair value will be recognized in net income.
The FASB has issued Accounting Standards Update No. 2016-02, Leases, or ASU 2016-02.ASU 2016-02 This standard requires an entity to recognizerecognition of both assets and liabilities arising from financingfinance and operating leases, along with additional qualitative and quantitative disclosures. A lessee shouldASU 2016-02 requires lessees to recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing itsa right to use the underlying asset over the lease term, and a corresponding lease liability on the balance sheet. Our operating leases primarily relate to our leased office space and data center facilities, and we do not have any leases classified as finance leases.
We adopted ASU 2016-02 using the modified retrospective transition method and did not restate prior periods. Using the modified retrospective approach, we applied the provisions of ASU 2016-02 beginning in the period of adoption, and elected the package of practical expedients available to us. There was no impact to the opening balance of retained earnings as a result of a cumulative-effect adjustment on the adoption date. We elected the practical expedient to not reassess lease classifications, but alternatively to carry forward our historical classifications. In addition, we elected the practical expedient of not separating lease and non-lease components as our lease arrangements are not highly dependent on other underlying assets. Our implementation of the amended lease guidance was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.
At lease inception, we review the service arrangement and components of a contract to identify if a lease or embedded lease arrangement exists. An indicator of a contract containing a lease is when we have the right to control and use an identified asset over a period of time in exchange for consideration. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, using our estimated incremental borrowing rate. Upon adoption of ASU 2016-02, we made the policy election to not record existing or future leases with a term of 12 months or less on the balance sheet, and to recognize lease expense on a straight-line basis over the lease term. In transition, lesseesFor these leases, the impact on adoption was nominal. We have also made policy elections related to capitalization thresholds and lessorsdiscount rates. We have elected to use a portfolio approach in consideration of our incremental borrowing rate to our population of lease agreements. Upon adoption, our incremental borrowing rate was determined based on our recent debt issuances that we believe are requiredreflective of current borrowing rates. Subsequent to recognizeadoption, current incremental borrowing rates were used. Certain lease agreements include options to extend, renew or terminate the lease agreement. As of December 31, 2019, the weighted-average remaining lease term was 6.7 years and measure leases at the beginningweighted average discount rate was 3.5%. Our lease agreements do not contain any residual value guarantees.
Upon adoption of the earliest period presented using a modified retrospective approach. ASU 2016-02, we recorded $368 million in operating lease liabilities, of which $53 million is requiredincluded in other current liabilities and $315 million is included in non-current operating lease liabilities within our accompanying consolidated balance sheet. We also recorded $317 million in operating lease right-of-use assets that are included as a component of property and equipment, net, in our balance sheet and are recorded in an amount equal to be adopted at the beginningour lease liability, adjusted for any remaining unamortized lease incentives such as our deferred rent balances. As part of our first quarteradoption, we eliminated $51 million in deferred rent liabilities, of fiscal 2019, with earlywhich $2 million had previously been included in other current liabilities and $49 million had been included in other non-current liabilities on our balance sheet. On the date of adoption, permitted. We willdeferred
rent liabilities were reclassified and presented as a reduction to the right-of-use asset, included in property and equipment, net, on our consolidated balance sheet. Our adoption did not adopt ASU 2016-02 early, but we are currently evaluating this guidance to determine the potentialhave an impact on our consolidated financial statements.income statement.
The FASB has issued Accounting Standards Update No. 2016-18, Statement of Cash Flows: Restricted Cash, or ASU 2016-18, that requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. AsWe recognize rent expense monthly on a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities also have to disclose the nature of their restricted cash and restricted cash equivalent balances. ASU 2016-18 is required to be adopted at the beginning of our first quarter of fiscal 2018, with early adoption permitted. The standard is required to be applied retrospectively when adopted, and to provide the relevant disclosures in the first interim and annual periods in which we adopt the guidance. In the fourth quarter of 2017, we early adopted ASU 2016-18 and reclassified changes in restricted cash from cash flow provided by (used in) investing activities to the total change in beginning-of-year and end-of-year total amounts shown on the consolidated
statements of cash flowsstraight-line basis for the years ended December 31, 2017, 2016 and 2015. The impact of adopting this new standard only resulted in a change in cash flow statement presentation and related disclosures. See Note 5 for additional details on our restricted cash balances. The following table provides a reconciliation of cash and cash equivalents, short-term restricted cash and cash equivalents, and long-term restricted cash and cash equivalents reported within our consolidated balance sheets that sum to the total of the same such amounts shown in our consolidated statements of cash flows (in millions).
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| | As of December 31, |
| | 2017 | | 2016 | | 2015 |
| Cash and cash equivalents | $ | 535 |
| | $ | 407 |
| | $ | 627 |
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| Short-term restricted cash and cash equivalents | 769 |
| | 679 |
| | 657 |
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| Long-term restricted cash and cash equivalents | 264 |
| | 264 |
| | 263 |
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| Total cash, cash equivalents and restricted cash and cash equivalents shown in our statements of cash flows | $ | 1,568 |
| | $ | 1,350 |
| | $ | 1,547 |
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The FASB has issued Accounting Standards Update No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07. The amendments in this update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component in the same line item as other related compensation costs, and the other components of net benefit cost in the income statement outside ofeach respective operating income. The guidance only allows the service cost component of net benefit cost to be eligible for capitalization. We were required to adopt ASU 2017-07 on January 1, 2018. We will apply the guidance retrospectively to each prior period presented when adopted, and provide the relevant disclosures in the first interim period (March 31, 2018 quarterly results) and annual period (December 31, 2018 annual results) in which we adopt the guidance. We have a pension plan, a U.S. nonqualified supplemental executive retirement plan, and post-retirement defined benefit plans that are all impacted by the guidance. Each of the plans are frozen and do not have a service cost component, which means the expense or benefit recognized under each plan represents other components of net benefit cost as defined in the guidance. The combined net periodic benefit of these plans are $9 million and $8 million for the years ended December 31, 2017 and 2016, respectively, and are reportedlease, as a reduction to compensationthe right-of-use asset. We recognized $41 million, $38 million and benefits expenses$39 million of rent expense for office space as rent and occupancy expense in 2019, 2018, and 2017, respectively, and $21 million, $21 million and $19 million of rent expense for data center facilities as technology and communication expense in 2019, 2018, and 2017, respectively, within our consolidated income statement. We do not have any significant variable lease costs related to building and maintenance costs, real estate taxes, or other charges.
Details of our lease asset and liability balances are as follows (in millions):
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| | | | | | |
| | | As of December 31, 2019 | | As of January 1, 2019 |
| Right-of-use lease assets | | $287 | | $317 |
| | | | | |
| Current operating lease liability | | 53 |
| | 53 |
|
| Non-current operating lease liability | | 281 |
| | 315 |
|
| Total operating lease liability | | $334 | | $368 |
As of December 31, 2019, we estimate that our operating lease liability will be recognized in the accompanying consolidated statements of income. These amounts will be reportedfollowing years (in millions): |
| | | |
| 2020 | 62 |
|
| 2021 | 65 |
|
| 2022 | 63 |
|
| 2023 | 45 |
|
| 2024 | 41 |
|
| Thereafter | 100 |
|
| Lease liability amounts repayable | 376 |
|
| Interest costs | 42 |
|
| Total operating lease liability | $ | 334 |
|
Supplemental cash flow information and non-cash activity related to our operating leases are as other income, net in the consolidated statements of income when applying the guidance retroactively. See Note 15 for further discussion of our pension and other benefit programs.follows:
|
| | | |
| | Year Ended December 31, 2019 |
| Cash paid for amounts included in the measurement of operating lease liability | $ | 65 |
|
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 389 |
|
| |
| 3. | Acquisitions Investments and Divestitures |
Divestiture of Trayport and the Acquisitions of Natural Gas Exchange Inc. and Shorcan Energy Brokers Inc.
On December 11, 2015, |
| | | |
| Company | Acquisition Date | Primary Segment | Description |
Simplifile, LC, or Simplifile
| June 12, 2019 | Trading and Clearing | Simplifile offers an array of mortgage services, primarily serving as an electronic liaison between lenders, settlement agents and county recording offices, streamlining the local recording of residential mortgage transactions. The transaction expands the ICE Mortgage Services portfolio, which includes MERS. See below for the Simplifile purchase price allocation. |
|
| | | |
| Company | Acquisition Date | Primary Segment | Description |
MERSCORP Holdings, Inc., or MERS
| October 3, 2018 | Trading and Clearing | MERS was previously a privately held, member-based organization that owned and managed the MERS System, made up of lenders, servicers, sub-servicers, investors and government institutions. MERS is now part of ICE Mortgage Services. Further disclosures and details on our acquisition of MERS is discussed below. |
| TMC Bonds, LLC, or TMC Bonds | July 23, 2018 | Trading and Clearing | TMC Bonds is an electronic fixed income marketplace, supporting anonymous trading across multiple protocols in various asset classes, including municipals, corporates, treasuries, agencies and certificates of deposit. See below for the TMC Bonds purchase price allocation. |
| CHX Holdings, Inc., the parent company of the Chicago Stock Exchange, Inc., or CHX | July 18, 2018 | Trading and Clearing | CHX, now named NYSE Chicago, is a full-service stock exchange including trading, data and corporate listings services. NYSE Chicago operates as a registered national securities exchange.
|
| BondPoint | January 2, 2018 | Trading and Clearing | BondPoint was acquired from Virtu Financial, Inc. and is a provider of electronic fixed income trading solutions for the buy-side and sell-side, offering access to centralized liquidity and automated trade execution services through its alternative trading system, or ATS. See below for the BondPoint purchase price allocation. |
| Bank of America Merrill Lynch, or BofAML’s, Global Research division’s index business, now named ICE BofA indices | October 20, 2017 | Data and Listings | The ICE BofA indices are the second largest group of fixed income indices as measured by assets under management, or AUM, globally. |
| TMX Atrium | May 1, 2017 | Data and Listings | TMX Atrium was acquired from TMX Group and is a global extranet and wireless services business, from TMX Group. TMX Atrium provides low-latency access to markets and market data across 12 countries, more than 30 major trading venues, and ultra-low latency wireless connectivity to access markets and market data in the Toronto, New Jersey and Chicago metro areas. The wireless assets consist of microwave and millimeter networks that transport market data and provide private bandwidth. |
| National Stock Exchange, Inc., now named NYSE National | January 31, 2017 | Trading and Clearing | National Stock Exchange, Inc. gave the NYSE group of exchanges, or the NYSE Group, a new U.S. exchange license and is distinct from NYSE Group’s other listings exchanges because NYSE National is only a trading venue and not a listings market. NYSE Group’s other listings exchanges, NYSE, NYSE American, NYSE Arca and NYSE Chicago, have unique market models designed for corporate and ETF issuers. After closing the transaction, NYSE National ceased operations on February 1, 2017. NYSE National re-launched operations and commenced trading in May 2018. |
During 2019, our consolidated subsidiary, Bakkt Holdings, LLC, or Bakkt, acquired two other companies which are not material to our operations.
Additional MERS Acquisition Considerations
In June 2016, we acquired a majority equity position in MERS and entered into a software development agreement to rebuild the MERS System, a national electronic registry that tracks the changes in servicing rights and beneficial ownership interests in U.S.-based mortgage loans. We treated the investment as an equity method investment since we did not have the ability to control the operations of MERS. On July 20, 2018, we exercised our option to purchase all of the remaining equity interests of MERS as a result of satisfying our deliverables under the software development agreement. On October 3, 2018, we completed the purchase of all remaining interests and, accordingly, own 100% of Trayport in a stock transaction. The total purchase price was $620 million, comprisedMERS. On that date, we gained control of 12.6 million sharesMERS, began to include MERS's results as part of our common stock. Trayport isconsolidated operations, and recorded a software company that licenses its technology to serve exchanges, OTC brokers and traders to facilitate electronic and hybrid trade execution primarily in the energy markets.
The U.K. Competition and Markets Authority, or the CMA, undertook a review of our acquisition of Trayport under the merger control laws of the U.K. In October 2016, the CMA issued its findings and ordered a divestment of Trayport to remedy what the CMA determined to be a substantial lessening of competition. In November 2016, we filed an appeal with the Competition Appeal Tribunal, or the CAT, to challenge the CMA’s decision. In March 2017, the CAT upheld the CMA decision that we should divest Trayport. Following the CAT’s judgment, we asked for leave to appeal the CAT’s decision at the U.K. Court of Appeals. In May 2017, the U.K. Court of Appeals denied our request for leave to appeal and we were obligated to sell Trayport by January 2018.
On December 14, 2017, we sold Trayport to TMX Group for £550 million ($733 million based on the pound sterling/U.S. dollar exchange rate of 1.3331 as of December 14, 2017). We recognized a net gain of $110 million gain on the divestiture of Trayport, which was recordedour initial investment value as other income within our Data and Listings segment in the accompanying consolidated statements of income for the year ended December 31, 2017. The net gain is equal to the $733 million in gross proceeds received less the adjusted carrying value of Trayport’s net assets of $607 million (which is equal to the $531 million carrying value of Trayport plus $76 million in accumulated other comprehensive loss from foreign currency translation) and less $16 million in costs to sell Trayport. See Note 8 for information on the Trayport goodwill and other intangibles assets.
The gross proceeds included a combination of £350 million ($466 million) in cash and £200 million ($267 million) in value relating to our acquisitions of Natural Gas Exchange, Inc., or NGX, and Shorcan Energy Brokers Inc., or Shorcan Energy, both wholly-owned subsidiaries of TMX Group. Trayport was included in our Data and Listings segment and NGX and Shorcan Energy are included in our Trading and Clearing segment. NGX, headquartered in Calgary, provides electronic execution, central counterpartynon-operating income.
clearingAcquisition Purchase Prices and data servicesAllocation
The following summarizes our purchase price allocation for material acquisitions to the North American natural gas, electricity and oil markets. Shorcan Energy offers brokerage services for the North American crude oil markets.
The NGX and Shorcan Energy purchase price was allocated to the preliminaryrespective net tangible and identifiable intangible assets and liabilities based on their respective estimated fair values as of December 14, 2017. The preliminary identifiable intangible assets acquired were $202 million, including exchange registrations and licenses for $143 million, which have been assigned an indefinite useful life, and customer relationship intangible assets for $53 million, which have been assigned useful lives of 20 years. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was $121 million and was recorded as goodwill. See Note 13 for discussion of NGX margin and delivery contracts receivables and payables. We have not yet obtained all of the information related to the fair value of the acquired assets and liabilities related to the acquisition to finalize the purchase price allocation. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of the identifiable intangible assets, income taxes and certain other tangible assets and liabilities.
The functional currency of Trayport was the pound sterling, as this was the currency in which Trayport operated. The $620 million in Trayport net assets were recorded on our December 11, 2015 opening balance sheet at a pound sterling/U.S. dollar exchange rate of 1.5218 (£407 million). Because our consolidated financial statements are presented in U.S. dollars, we translated the Trayport net assets into U.S. dollars at the exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against the pound sterling affected the value of the Trayport balance sheet, with gains or losses included in the cumulative translation adjustment account, a component of equity. As a result of the decrease in the pound sterling/U.S. dollar exchange rate to 1.3331 as of December 14, 2017, the portion of our equity attributable to the Trayport net assets in accumulated other comprehensive loss from foreign currency translation was $76 million. In connection with the divestiture on December 14, 2017, the $76 million in the Trayport foreign currency translation loss was reclassified out of accumulated other comprehensive loss and recognized as part of the net gain on the divestiture as discussed above.
As of June 30, 2017, we classified Trayport as held for sale and ceased depreciation and amortization of the property and equipment and other intangible assets. Subsequent to its divestiture on December 14, 2017, there are no longer any Trayport assets and liabilities classified as held for sale.
Acquisition of Interactive Data
On December 14, 2015, we acquired 100% of Interactive Data in a stock and cash transaction. The total purchase price was $5.6 billion comprised of cash consideration of $4.1 billion and 32.3 million shares of our common stock. The cash consideration is gross of $301 million of cash held by Interactive Data on the date of the acquisition. The fair value ofFor each acquisition, the shares issued was $1.6 billion based on the average share price of our common stock of $48.90 per share on December 14, 2015. The cash consideration was funded from $2.5 billion of net proceeds received on November 24, 2015 in connection with the offering of new senior notes and $1.6 billion of borrowing under our commercial paper program. The Interactive Data acquisition was included in our Data and Listings segment.
The financial information in the table below summarizes the combined results of operations of ICE and Interactive Data, on a pro forma basis, as though the companies had been combined as of the beginning of the period presented. The pro forma financial information combines the historical results for us and Interactive Data for the year ended December 31, 2015 in the following table (in millions, except per share amounts). |
| | | |
| | Year Ended December 31, 2015 |
| Total revenues, less transaction-based expenses | $ | 4,231 |
|
| Operating income | 1,977 |
|
| Net income attributable to Intercontinental Exchange, Inc. | 1,364 |
|
| Earnings per share attributable to Intercontinental Exchange, Inc. common shareholders: | |
| Basic | $ | 2.41 |
|
| Diluted | $ | 2.39 |
|
Other Acquisitions
On January 2, 2018, we acquired 100% of BondPoint from Virtu Financial, Inc. for $400 million in cash. BondPoint is a leading provider of electronic fixed income trading solutions for the buy-side and sell-side offering access to centralized liquidity and automated trade execution services through its alternative trading system, or ATS, and provides trading services to more than 500 financial services firms. The BondPoint acquisition will be included in our Trading and Clearing segment starting in the first quarter of 2018.
On October 20, 2017, we acquired Bank of America Merrill Lynch, or BofAML’s, Global Research division’s index business. BofAML indices are the second largest group of fixed income indices as measured by assets under management, or AUM, globally. The AUM benchmarked against our combined fixed income indices is nearly $1 trillion, and the indices have been re-branded as the ICE BofAML indices. The BofAML acquisition was included in our Data and Listings segment.
On May 1, 2017, we acquired 100% of TMX Atrium, a global extranet and wireless services business, from TMX Group. TMX Atrium provides low-latency access to markets and market data across 12 countries, more than 30 major trading venues, and ultra-low latency wireless connectivity to access markets and market data in the Toronto, New Jersey and Chicago metro areas. The wireless assets consist of microwave and millimeter networks that transport market data and provide private bandwidth. The TMX Atrium acquisition was included in our Data and Listings segment.
On January 31, 2017, we acquired 100% of National Stock Exchange, Inc., now named NYSE National. The acquisition gives the NYSE Group a fourth U.S. exchange license. NYSE National is distinct from NYSE Group’s three listings exchanges because NYSE National will only be a trading venue and will not be a listings market. NYSE Group’s three listings exchanges, NYSE, NYSE American and NYSE Arca, have unique market models designed for corporate and exchange traded fund, or ETF, issuers. After closing the transaction, NYSE National ceased operations on February 1, 2017. Subject to regulatory approvals, NYSE Group anticipates re-launching operations on NYSE National, Inc. in the second quarter of 2018. The NYSE National acquisition was included in our Trading and Clearing segment.
On October 3, 2016, we acquired from S&P Global 100% of Standard & Poor’s Securities Evaluations, Inc., or SPSE, and 100% of Credit Market Analysis for $431 million in cash. The cash consideration was funded from borrowings under our commercial paper program. SPSE, which has been renamed Securities Evaluations, is a provider of fixed income evaluated pricing and Credit Market Analysis is a provider of independent data for the OTC markets, including credit derivatives and bonds. The SPSE and Credit Market Analysis purchase price was allocated to the net tangible and identifiable intangible assets and liabilities based on their estimated fair values as of October 3, 2016. The identifiable intangible assets acquired were $171 million, including customer relationship intangible assets for $135 million, which have been assigned useful lives of 15 to 20 years, and data/databases intangible assets for $29 million, which have been assigned useful lives of 5 to 10 years. The excess of the purchase price over the net tangible and identifiable intangible assets was $312 million and washas been recorded as goodwillgoodwill. Cash consideration was gross of $12 million cash held by Simplifile and was recorded in our Data and Listings segment.
Investments and Divestitures
On October 24, 2017, we acquired a 4.7% stake in Euroclear for €275$15 million in cash ($327 million basedheld by TMC Bonds on the euro/U.S. dollar exchange ratedate of 1.1903 as of October 24, 2017). During December 2017, we reached an agreement to buy an additional 5.1% stake in Euroclear for €243 million in cash ($292 million based on the euro/U.S. dollar exchange rate of 1.2003 as of December 31, 2017) and expect to receive necessary regulatory approval during the first quarter of 2018. Upon closing, we will own a 9.8% stake in Euroclear for a total investment of €518 million ($619 million based on the exchange rates above). Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes. We account for our investment in Euroclear as a cost method investment and we classify it as an other non-current asset in the accompanying consolidated balance sheet as of December 31, 2017. As discussed in Note 2, subsequent to the adoption of ASU 2016-01 on January 1, 2018, we would only adjust the fair value of our investment in Euroclear if there is an observable price change in an orderly Euroclear transaction and any change in the fair value will be recognized in net income.each respective acquisition.
For consolidated subsidiaries in which our ownership is less than 100% and for which we have control over the assets, liabilities and management of the entity, the outside stockholders’ interests are shown as non-controlling interest in our consolidated financial statements. As of December 31, 2016, non-controlling interest included those related to the operating results of our CDS clearing subsidiaries in which non-ICE limited partners held a 42.5% net profit sharing interest; ICE Endex in which Gasunie held a 21% ownership interest; and ICE Clear Netherlands in which ABN AMRO Clearing Bank N.V. held a 25% ownership interest. For both ICE Endex and ICE Clear Netherlands, in addition to the non-controlling interest reported in the consolidated statements of income, we reported redeemable non-controlling interest in the consolidated balance sheets which represents the minority interest redemption fair value for each company. |
| | | | | | | | | | | | | | | | | |
| | Acquisition Purchase Price Allocation (dollars in millions) |
| | Simplifile
(Preliminary) | | Useful Life (Years) | | TMC Bonds | | Useful Life (Years) | | BondPoint | | Useful Life (Years) |
| | | | | | |
| Customer relationship intangibles | $ | 104 |
| | 20 | | $ | 253 |
| | 15 | | $ | 123 |
| | 15 |
| Developed technology intangibles | 7 |
| | 7 | | 7 |
| | 3 | | 7 |
| | 3 |
| Trade name intangibles | 2 |
| | 5 | | — |
| | | | — |
| | |
| Total identifiable intangible assets | 113 |
| | | | 260 |
| | | | 130 |
| | |
| Goodwill | 218 |
| | | | 423 |
| | | | 267 |
| | |
| Other working capital adjustments | 7 |
| | | | 17 |
| | | | 3 |
| | |
| Total purchase price cash consideration | $ | 338 |
| | | | $ | 700 |
| | | | $ | 400 |
| | |
Non-Controlling Interest
During June 2017 we purchased both Gasunie’s 21% minority ownership interest in ICE Endex and ABN AMRO Clearing Bank N.V.’s 25% minority ownership interest in ICE Clear Netherlands. Subsequent to these acquisitions, we own 100% of ICE Endex and ICE Clear Netherlands and will no longer include any non-controlling interest amounts for ICE Endex and ICE Clear Netherlandseither company in our consolidated financial statements.
During the year ended December 31, 2017, we purchased 12.6% of the net profit sharing interest in our CDS clearing subsidiaries from several non-ICE limited partners and thein September 2018, we purchased an additional 3.2% interest. The remaining non-ICE limited partners hold a 29.9% net profit sharing interest in our CDS clearing subsidiaries hold a 26.7% ownership interest as of December 31, 2017.2019.
In December 2018, Bakkt Holdings, LLC, or Bakkt, was capitalized with $183 million in initial funding by us as majority owner, along with a group of other minority investors. We hold a call option over these interests subject to certain terms. Similarly, the non-ICE partners in Bakkt hold a put option to require us to repurchase their interests subject to certain terms. These minority interests are reflected as redeemable non-controlling interests in temporary equity within our consolidated balance sheet.
Bakkt is an integrated platform that enables consumers and institutions to transact in digital assets. Bakkt was approved by the New York State Department of Financial Services to take custody of digital assets through Bakkt Trust Company, LLC, a qualified custodian. Bakkt Trust Company, LLC takes custody of bitcoin for physically-delivered futures, creating the first fully regulated marketplace for trading, clearing and custodial solutions of physically-delivered digital asset futures, and is supported by ICE Futures U.S. and ICE Clear U.S.
Divestiture of Trayport and the Acquisitions of Natural Gas Exchange Inc. and Shorcan Energy Brokers Inc.
In December 2015, we acquired 100% of Trayport for $620 million, in a stock transaction comprised of 12.6 million shares of our common stock. The CMA subsequently undertook a review of our acquisition of Trayport under the merger control laws of the U.K. and we were ultimately obligated to sell Trayport by January 2018. We sold Trayport to TMX Group in December 2017 for £550 million ($733 million). The gross proceeds included a combination of cash and in value relating to our acquisitions of Natural Gas Exchange, Inc., or NGX, now named ICE NGX, and Shorcan Energy Brokers Inc., or Shorcan Energy, from TMX Group. Shorcan Energy is now named CalRock Brokers, Inc., or CalRock. We recognized a net gain of $110 million in other income on the transaction. The net gain was equal to the $733 million in gross proceeds received less the adjusted carrying value of Trayport’s net assets of $607 million ($531 million carrying value plus $76 million in accumulated other comprehensive loss from foreign currency translation) less $16 million in disposition costs.
Trayport was included in our Data and Listings segment and ICE NGX and CalRock are primarily included in our Trading and Clearing segment. ICE NGX, headquartered in Calgary, provides electronic execution, central counterparty clearing and data services to the physical North American natural gas, electricity and oil markets. CalRock offers brokerage services for the North American crude oil markets. The ICE NGX and CalRock purchase price was allocated to their net tangible and identifiable intangible assets and liabilities based on their estimated fair values on the acquisition date. Our allocation to
identifiable intangible assets was $198 million, including $140 million for exchange registrations and licenses, which were assigned an indefinite useful life, and $53 million for customer relationship intangible assets, which were assigned useful lives of 20 years. The excess of the purchase price over the allocated net tangible and identifiable intangible asset value was $123 million and was recorded as goodwill.
Other Divestitures
On June 1, 2017, we sold NYSE Governance Services, to Marlin Heritage, L.P. NYSE Governance Services providesa provider of governance, and compliance, analytics and education solutionstools for organizations and their boards of directors, through dynamic learning solutions.
to Marlin Heritage, L.P. We recognized a net loss of $6 million on the divestiture of NYSE Governance Services, which was recorded as amortization expensean impairment loss within our Data and Listings segment in the accompanying consolidated statements of income for the year ended December 31,in 2017.
On March 31, 2017, we sold Interactive Data Managed Solutions, or IDMS, a unit of Interactive Data, to FactSet. IDMS is a managed solutions and portal provider for the global wealth management industry. There was no0 gain or loss recognized on the sale of IDMS.
On June 30, 2016, we acquired a majority equity position in MERS. MERS is a privately held, member-based organization that owns and manages the MERS® System and is made up of thousands of lenders, servicers, sub-servicers, investors and government institutions. In addition, we have entered into a software development agreement to rebuild the MERS® System to benefit the U.S. residential mortgage finance market. The MERS® System is a national electronic registry that tracks the changes in servicing rights and beneficial ownership interests in U.S.-based mortgage loans. The terms of the MERS acquisition include a right for us to purchase all of the remaining equity interests of MERS after we satisfy our deliverables under the software development agreement. In addition, the MERS equity holders may exercise a put option to require us to purchase all of the remaining equity interests of MERS. Each of these terms is subject to certain price provisions. Because we do not have the ability to control MERS’ operations, we have recorded the purchase as an equity method investment and our ratable share of net income (loss) in MERS in future periods will be recorded in our consolidated statements of income as equity earnings of our unconsolidated subsidiaries, below operating income in other income (loss).
| |
| 4. | Revenue Recognition (Disclosures related to the adoption of ASC 606 on January 1, 2018)Investments |
InOur equity investments, including our investments in Euroclear plc, or Euroclear, and Coinbase Global, Inc., or Coinbase, among others, are subject to valuation under ASU 2016-01. See Note 2,17 for a discussion of our determination of fair value of our financial instruments.
Investment in Euroclear
During 2017, we disclosepurchased a 4.7% stake in Euroclear valued at €276 million ($327 million). Upon purchasing this stake, we agreed to participate on the accounting policies associatedEuroclear Board of Directors. During the same period, we negotiated an additional purchase which closed on February 21, 2018 following regulatory approval. This provided us with our material revenue streams that are appliedan additional 5.1% stake in Euroclear for a purchase price of €246 million in cash ($304 million). As of December 31, 2019, we own a 9.8% stake in Euroclear for a total investment of $631 million. Euroclear is classified as an equity investment and included in other non-current assets in our consolidated financial statements. On January 1,balance sheets.
Euroclear is a provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes. In 2019 and 2018, we were requiredrecognized dividend income of $19 million and $15 million, respectively, from Euroclear, included in other income.
Investment in Cetip
Until March 29, 2017, we held a 12% ownership interest in Cetip, S.A., or Cetip, classified as a long-term investment. On that date, in connection with the merger of Cetip with BM&FBOVESPA S.A., which changed its name to adopt ASC 606B3 S.A. - Brasil, Bolsa, Balcão, or B3, we recognized a $176 million realized investment gain in other income (expense), net, and $9 million in foreign exchange losses and transaction expenses in other income (expense), net. We recognized dividend income received relating to our investment in Cetip in other income of $5 million in 2017.
Equity Method Investments
We recognized $62 million, $46 million and $36 million as other income during 2019, 2018 and 2017, respectively, related to our equity method investments in OCC and MERS, discussed below. We had previously accounted for our investment in MERS as an equity method investment before completing our acquisition of 100% of MERS on October 3, 2018 (Note 3).
Investment in OCC
We own a full retrospective basis40% interest in the Options Clearing Corporation, or OCC, through a direct investment by the New York Stock Exchange, or NYSE, that we treat as an equity method investment. As of December 31, 2019, OCC is our only equity method investment and beginningis included in other non-current assets in the accompanying consolidated balance sheets. OCC serves as a clearing house for securities options, security futures, commodity futures and options on futures traded on various independent exchanges. OCC clears securities options traded on NYSE Arca and NYSE Amex Options, along with other non-affiliated exchanges, and is regulated by the SEC as a registered clearing agency and by the Commodity Futures Trading Commission, or CFTC, as a derivatives clearing organization. Under the equity method of accounting, each reporting period we adjust the carrying value of our OCC investment on our balance sheet by recognizing our pro-rata 40% share of the earnings or losses of OCC, with a corresponding adjustment in our statement of income to other income, after eliminating
any intra-entity income or expenses. In addition, if and when OCC issues cash dividends to us, we deduct the amount of these dividends from the carrying amount of our investment.
OCC adopted a new capital plan during the first quarter of 2018 will restate each prior reporting period presented as if ASC 606 had always been applied. The adoption2015, which raised $150 million in equity capital from OCC's shareholders, including $60 million contributed by us. Pursuant to the terms of ASC 606 does not have a material impact on the measurement or recognitioncapital plan, in exchange for the contributions of revenue in any prior or current reporting periods; however, additional disclosuresequity capital from its shareholders, OCC was required, by ASC 606 are provided below for comparability purposes. Our adoption of ASC 606 was subject to determination by its board of directors and compliance with legal requirements, to pay an annual dividend to its shareholders on a pro rata basis. The dividend was intended to be equal to the same internal controls over financial reportingamount (i) of after-tax income of OCC, in excess of the amount required to maintain its target capital requirement and satisfy other capital requirements, and (ii) remaining after refunds to its clearing members equal to 50% of distributable earnings before tax. Related to that capital plan, from 2015-2017 we applyreceived a total of $31 million in dividends from OCC.
Subsequent to our consolidated financial statements. Terms$60 million investment, certain industry participants appealed the SEC's approval of the OCC capital plan in the U.S. Court of Appeals, and in August 2017, the Court of Appeals remanded the capital plan to the SEC. On February 13, 2019, the SEC disapproved the OCC capital plan established in 2015. Consistent with the SEC's disapproval of the OCC capital plan, the OCC returned our original $60 million contribution during 2019 as used below relatea result of the disapproval, including $16 million returned during the three months ended December 31, 2019.
Following the SEC disapproval, the OCC also announced that it would not be providing a refund to how they are definedclearing members or declaring a dividend to shareholders for the year ended December 31, 2018, which resulted in ASC 606.
Substantially allhigher reported OCC 2018 net income than we had estimated. Therefore, during 2019, we adjusted equity earnings in OCC by recording an additional $19 million earnings in other income to reflect our share of our revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in our balance sheets as customer accounts receivable. We do not have obligations for warranties, returns or refunds to customers, other than the rebates discussed further below, which are settled each period and therefore do not result in variable consideration. We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our deferred revenue. Deferred revenue represents our contract liabilities related to our annual, original and other listings revenues as well as certain data services, clearing services and other revenues. Deferred revenue is the only significant contract asset or liability impacted by our adoption of ASC 606. See Note 9 for our discussion on deferred revenue balances, activity, and expected timing of recognition. We have elected not to provide disclosures about transaction price allocated to unsatisfied performance obligations if contract durations are less than one-year, or if we are not required to estimate the transaction price. For all of our contracts with customers, except for listings and certain data and clearing services, our performance obligations are short term in nature and there is no significant variable consideration. See below for further descriptions of our revenue contracts.OCC's 2018 net income. In addition, we recognized $43 million in 2019 of equity earnings as our share of OCC's estimated 2019 profits, which is also included in other income.
Investments Related to MERS Prior to Acquisition
As a result of our acquisition of a majority equity position in MERS in June 2016, MERS was required to have elected the practical expedient of excluding sales taxes from transaction prices. We have assessed the costs incurredcash or investments reserved in order to obtain or fulfill a contract with a customer and determined them to be immaterial.
Certain judgments and estimates were used in the identification and timing of satisfaction of performance obligations and the related allocation of transaction price. We believe that these represent a faithful depictionsatisfy terms of the transfergoverning agreements of servicesthe acquisition. The reserve was satisfied with fixed income securities, including treasuries, corporates and municipals. The balance of the reserve was primarily used to our customers.cover settlement amounts from all litigation and claims arising from the operations of MERS prior to the acquisition of the majority equity position. As of December 31, 2019 and 2018, it amounted to $42 million and $81 million, respectively, including interest, and was included in prepaid expenses and other current assets and non-current assets, offset by an equal amount due to former MERS equity holders and was reflected in other current liabilities and other non-current liabilities. During 2019, we sold $41 million of these investments and distributed the proceeds to the original MERS shareholders (Note 17).
Our primary revenue contract classifications are described below. Though we discuss additional revenue details in our “Management Discussion and Analysis of Financial Condition and Results of Operations,” theThese categories below best represent those that depictwith similar economic characteristics of the nature, amount, timing and uncertainty of our revenues and cash flows.
| |
| • | Transaction and clearing, net - Transaction and clearing revenues represent fees charged for the performance obligations of derivatives trading and clearing, cash, equity options and fixed income trading, as well as mortgage and technology services. In our derivatives markets, we earn transaction and clearing revenues from both counterparties to each contract that is traded and/or cleared, and in our equity and equity options markets, we receive trade execution fees. In our fixed income trading markets, we earn transaction fees on the trade execution of agency trades, commissions and net markups and markdowns on riskless principal trades. In our mortgage services market we earn fees for the registration and electronic recording of residential mortgage transactions. |
Transaction and clearing, net - Transaction and clearing revenues represent fees charged for the performance obligations of derivatives trading and clearing, and from our cash trading and equity options exchanges. The derivatives trading and clearing fees contain two2 performance obligations: 1)(1) trade execution/clearing novation and 2)(2) risk management of open interest. WeWhile we allocate the transaction price between these two2 performance obligations; however both of theseobligations, since they generally occurare satisfied almost simultaneously, therefore,there is no significant deferral results as we have no further obligation to the customer at that time.of revenue. Cash trading, and equity options, mortgage services and fixed income fees contain one1 performance obligation related to trade execution. Trade executioneach transaction which occurs instantaneously, therefore, thereand the revenue is no need to allocaterecorded at the transaction price and no deferral results as we have no further obligation topoint in time of the customer at that time.transaction. Our transaction and clearing revenues are reported net of rebates, except for the NYSE transaction-based expenses. Rebates were $860 million, $844 million and $749 million in 2019, 2018 and 2017, respectively. Transaction and clearing fees can be variable based on trade volume discounts used in the determination of rebates, however virtually all volume discounts are calculated and recorded on a monthly basis. Transaction
and clearing fees, as well as any volume discounts rebated to our customers, are calculated and billed monthly in accordance with our published fee schedules. WeIn our NYSE businesses, we make liquidity payments to certain customers, as well as charge routing fees related to orders in our NYSE businessmarkets which are routed to other markets for execution and recognize those payments as a cost of revenue. In addition, we pay NYSE regulatory oversight fees to the SEC and collect equal amounts from our customers. These are also considered a cost of revenue, and both of these NYSE-related fees are included in
transaction-based expenses. Transaction and clearing revenues and the related transaction-based expenses are all recognized in our Trading and Clearing segment. In certain of our revenue share arrangements with third parties we control the delivered contract; in these arrangements we are acting as a principal and the revenue is recorded gross.
| |
| • | Data services - Data service revenuesrepresent the following: |
Data services - Data service revenuesrepresent the following:
| |
| ◦ | Pricing and analytics services consisting of an extensive set of independent evaluated pricing services focused primarily on fixed income and international equityprovide global securities valuation services,evaluations, reference data, market data, end of dayindices, risk analytics, derivatives pricing fixed income equityand other information designed to meet our customers' portfolio analytics andmanagement, trading, risk management, analytics. |
| |
◦ | Desktopreporting and connectivity services which comprise technology-based information platforms, feeds and connectivity. These include trading applications, desktop solutions and data feeds to support trading, voice brokers and investment functions.regulatory compliance needs. |
| |
| ◦ | Exchange data and feeds services which represent subscription fees forprovide real-time, historical and derived pricing data, order book and transaction information related to our trading venues, as well as data from a broad array of third-party trading venues and news feeds. |
| |
| ◦ | Desktops and connectivity services provide the provision ofconnection to our marketexchanges, clearing houses and data that is created from activity in our Tradingcenters and Clearing segment.comprise hosting, colocation, infrastructure, technology-based information platforms, workstations and connectivity solutions through the ICE Global Network. |
The nature and timing of each contract type for the data services above are similar in nature. Data services revenues are primarily subscription-based, billed monthly, quarterly or annually in advance and recognized ratably over time as our performance obligations of data delivery are met consistently throughout the period. Considering these contracts primarily consist of single performance obligations with fixed prices, there is no variable consideration and no need to allocate the transaction price. In certain of our data contracts, where third parties are involved, we arrange for the third party to transfer the services to our customers; in these arrangements we are acting as an agent and revenue is recorded net. All data services fees are included in our Data and Listings segment.
| |
| • | Listings - Listings revenues include original and annual listings fees, and other corporate action fees. Each distinct listing fee is allocated to multiple performance obligations including original and incremental listing and investor relations services, as well as a customer’s material right to renew the option to list on our exchanges. In performing this allocation, the standalone selling price of the listing services is based on the original and annual listing fees and the standalone selling price of the investor relations services is based on its market value. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Revenue related to the investor relations performance obligation is recognized ratably over the period these services are provided, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges. Listings fees related to other corporate actions are considered contract modifications of our listing contracts and are recognized ratably over time as customers continue to list on our exchanges. All listings fees are recognized in our Data and Listings segment. |
Listings - Listing revenues include original, annual, and other corporate action fees. Under ASC 606, each distinct listing fee is allocated to multiple performance obligations including original and incremental listing and investor relations services, as well as a customer’s material right to renew the option to list on our exchanges. In performing this allocation, the standalone selling price of the listing services is based on the original and annual listing fees and the standalone selling price of the investor relation services is based on its market value. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Upon our adoption of the ASC 606 framework, the amount of revenue related to the investor relations performance obligation is recognized ratably over a two-year period, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges, which is generally estimated to be over a period of up to 9 years for NYSE and 5 years for NYSE Arca and NYSE American. Listings fees related to other corporate actions are considered contract modifications of our listing contracts and are recognized ratably over time as customers continue to list on our exchanges, which is generally estimated to be a period of 6 years for NYSE and 3 years for NYSE Arca and NYSE American. All listings fees are recognized in our Data & Listings segment.
Other revenues - Other revenueprimarily includes interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, exchange membership fees and agricultural grading and certification fees. Other revenues are recognized either in our Trading and Clearing segment or Data and Listings segment based on the nature of the revenue. Generally, fees for other revenues contain one performance obligation. Services for other revenues are primarily satisfied at a point in time, therefore, there is no need to allocate the fee and no deferral results as we have no further obligation to the customer at that time.
| |
| • | Other revenues- Other revenuesprimarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, technology development fees, exchange membership fees and agricultural grading and certification fees. Generally, fees for other revenues contain one performance obligation. Because these contracts primarily consist of single performance obligations with fixed prices, there is no variable consideration and no need to allocate the transaction price. Services for other revenues are primarily satisfied at a point in time. Therefore, there is no need to allocate the fee and no deferral results as we have no further obligation to the customer at that time. Other revenues are recognized in our Trading and Clearing segment. |
The following table depicts the disaggregation of our revenue according to business line and segment (in millions) prior to our adoption of ASC 606;. Amounts here have been aggregated as such, the segment totals herethey follow consistent revenue recognition patterns, and are consistent with the segment totalsinformation in Note 17:18:
|
| | | | | | | | | | | |
| | Trading & Clearing Segment | | Data & Listings Segment | | Total Consolidated |
| Year ended December 31, 2019 | | | | | |
| Transaction and clearing, net | $ | 3,627 |
| | $ | — |
| | $ | 3,627 |
|
| Data services | — |
| | 2,211 |
| | 2,211 |
|
| Listings | — |
| | 449 |
| | 449 |
|
| Other revenues | 260 |
| | — |
| | 260 |
|
| Total revenues | 3,887 |
| | 2,660 |
| | 6,547 |
|
| Transaction-based expenses | 1,345 |
| | — |
| | 1,345 |
|
| Total revenues, less transaction-based expenses | $ | 2,542 |
| | $ | 2,660 |
| | $ | 5,202 |
|
| | | | | | |
| Timing of Revenue Recognition | | | | | |
| Services transferred at a point in time | $ | 2,194 |
| | $ | — |
| | $ | 2,194 |
|
| Services transferred over time | 348 |
| | 2,660 |
| | 3,008 |
|
| Total revenues, less transaction-based expenses | $ | 2,542 |
| | $ | 2,660 |
| | $ | 5,202 |
|
|
| | | | | | | | | | | |
| | Trading & Clearing Segment | | Data & Listings Segment | | Total Consolidated |
| Year ended December 31, 2018 | | | | | |
| Transaction and clearing, net | $ | 3,483 |
| | $ | — |
| | $ | 3,483 |
|
| Data services | — |
| | 2,115 |
| | 2,115 |
|
| Listings | — |
| | 444 |
| | 444 |
|
| Other revenues | 234 |
| | — |
| | 234 |
|
| Total revenues | 3,717 |
| | 2,559 |
| | 6,276 |
|
| Transaction-based expenses | 1,297 |
| | — |
| | 1,297 |
|
| Total revenues, less transaction-based expenses | $ | 2,420 |
| | $ | 2,559 |
| | $ | 4,979 |
|
| | | | | | |
| Timing of Revenue Recognition | | | | | |
| Services transferred at a point in time | $ | 2,074 |
| | $ | — |
| | $ | 2,074 |
|
| Services transferred over time | 346 |
| | 2,559 |
| | 2,905 |
|
| Total revenues, less transaction-based expenses | $ | 2,420 |
| | $ | 2,559 |
| | $ | 4,979 |
|
|
| | | | | | | | | | | |
| | Trading & Clearing Segment | | Data & Listings Segment | | Total Consolidated |
| Year ended December 31, 2017 | | | | | |
| Transaction and clearing, net | $ | 3,131 |
| | $ | — |
| | $ | 3,131 |
|
| Data services | — |
| | 2,084 |
| | 2,084 |
|
| Listings | — |
| | 426 |
| | 426 |
|
| Other revenues | 202 |
| | — |
| | 202 |
|
| Total revenues | 3,333 |
| | 2,510 |
| | 5,843 |
|
| Transaction-based expenses | 1,205 |
| | — |
| | 1,205 |
|
| Total revenues, less transaction-based expenses | $ | 2,128 |
| | $ | 2,510 |
| | $ | 4,638 |
|
| | | | | | |
| Timing of Revenue Recognition | | | | | |
| Services transferred at a point in time | $ | 1,813 |
| | $ | — |
| | $ | 1,813 |
|
| Services transferred over time | 315 |
| | 2,510 |
| | 2,825 |
|
| Total revenues, less transaction-based expenses | $ | 2,128 |
| | $ | 2,510 |
| | $ | 4,638 |
|
The Trading and Clearing segment revenues above include $247 million, $248 million, and $226 million in 2019, 2018 and 2017, respectively, for services transferred over time related to risk management of open interest performance obligations. A majority of these performance obligations are performed over a short period of time of one month or less. |
| | | | | | | | | |
| | Trading & Clearing Segment | Data & Listings Segment | Total Consolidated |
| Year ended December 31, 2017 | | | |
| Transaction and clearing, net | $ | 3,131 |
| $ | — |
| $ | 3,131 |
|
| Data services | — |
| 2,084 |
| 2,084 |
|
| Listings | — |
| 417 |
| 417 |
|
| Other revenues | 202 |
| — |
| 202 |
|
| Total revenues | 3,333 |
| 2,501 |
| 5,834 |
|
| Transaction-based expenses | 1,205 |
| — |
| 1,205 |
|
| Total revenues, less transaction-based expenses | $ | 2,128 |
| $ | 2,501 |
| $ | 4,629 |
|
| | | | |
| Timing of Revenue Recognition | | | |
| Services transferred at a point in time | $ | 1,897 |
| $ | — |
| $ | 1,897 |
|
| Services transferred over time | 231 |
| 2,501 |
| 2,732 |
|
| Total revenues, less transaction-based expenses | $ | 2,128 |
| $ | 2,501 |
| $ | 4,629 |
|
|
| | | | | | | | | |
| | Trading & Clearing Segment | Data & Listings Segment | Total Consolidated |
| Year ended December 31, 2016 | | | |
| Transaction and clearing, net | $ | 3,384 |
| $ | — |
| $ | 3,384 |
|
| Data services | — |
| 1,978 |
| 1,978 |
|
| Listings | — |
| 419 |
| 419 |
|
| Other revenues | 177 |
| — |
| 177 |
|
| Total revenues | 3,561 |
| 2,397 |
| 5,958 |
|
| Transaction-based expenses | 1,459 |
| — |
| 1,459 |
|
| Total revenues, less transaction-based expenses | $ | 2,102 |
| $ | 2,397 |
| $ | 4,499 |
|
| | | | |
| Timing of Revenue Recognition | | | |
| Services transferred at a point in time | $ | 1,874 |
| $ | — |
| $ | 1,874 |
|
| Services transferred over time | 228 |
| 2,397 |
| 2,625 |
|
| Total revenues, less transaction-based expenses | $ | 2,102 |
| $ | 2,397 |
| $ | 4,499 |
|
|
| | | | | | | | | |
| | Trading & Clearing Segment | Data & Listings Segment | Total Consolidated |
| Year ended December 31, 2015 | | | |
| Transaction and clearing, net | $ | 3,228 |
| $ | — |
| $ | 3,228 |
|
| Data services | — |
| 871 |
| 871 |
|
| Listings | — |
| 405 |
| 405 |
|
| Other revenues | 178 |
| — |
| 178 |
|
| Total revenues | 3,406 |
| 1,276 |
| 4,682 |
|
| Transaction-based expenses | 1,344 |
| — |
| 1,344 |
|
| Total revenues, less transaction-based expenses | $ | 2,062 |
| $ | 1,276 |
| $ | 3,338 |
|
| | | | |
| Timing of Revenue Recognition | | | |
| Services transferred at a point in time | $ | 1,841 |
| $ | — |
| $ | 1,841 |
|
| Services transferred over time | 221 |
| 1,276 |
| 1,497 |
|
| Total revenues, less transaction-based expenses | $ | 2,062 |
| $ | 1,276 |
| $ | 3,338 |
|
| |
5.6. | Short-Term and Long-Term Restricted Cash and Cash Equivalents |
We own ICE Futures Europe which operates as a U.K. Recognized Investment Exchange. As a U.K. Recognized Investment Exchange, ICE Futures Europeand is required by the U.K. Financial Conduct Authority in the U.K. to restrict the use of themaintain financial resources sufficient to properly perform its relevant functions equivalent to a minimum of six months of operating expenditures,costs, subject to certain deductions, which is held in cash or cash equivalents or investments, at all times. As of both
December 31, 20172019 and 2016,2018, the amount held for this amount for ICE Futures Europepurpose was $77 million. Such amounts are reflected as$90 million and is included in short-term restricted cash and cash equivalents in the accompanying consolidated balance sheets.equivalents.
AsICE Clear Europe operates as a U.K. Recognized Clearing House,House. As such, ICE Clear Europe is required by the Bank of EnglandBOE and the European Market Infrastructure Regulation, or EMIR, to restrict as cash, cash equivalents or investments an amount to reflect an estimate of the capital required to wind down or restructure the activities of the clearing house, cover operational, legal and business risks and to reserve capital to meet credit, counterparty and market risks not covered by the membersmembers' margin and guaranty funds. As such, it is calculated taking into account the operating expenditures, revenues and credit exposures associated with the assets and investments. As of December 31, 20172019 and 2016, the regulatory capital restricted cash for ICE Clear Europe was $4232018, $465 million and $352$435 million, respectively, and was reflected asare included in short-term restricted cash and cash equivalents in the accompanying consolidated balance sheets.held for these purposes. The increase in the regulatory capital restricted cash at ICE Clear Europe as of December 31, 20172019 was primarily due to additional costs incurred due to the growth of our clearing businesses, a related increase in costs and the consequential additional regulatory capital buffers required by the Bank of England.BOE. ICE Clear Europe, in addition to being regulated by the Bank of England,BOE, is also regulated by the Commodity Futures Trading Commission, or CFTC as a U.S. Derivatives Clearing Organizations,Organization, or DCO. The regulatory capital available to ICE Clear Europe, as described above, exceeds the CFTC requirements.
Our CFTC regulated U.S. Designated Contract Market, or DCM, ICE Futures U.S., our CFTC regulated U.S. DCOs, ICE Clear U.S. and ICE Clear Credit, our CFTC regulated U.S. Swap Data Repository, or SDR, ICE Trade Vault, and our U.S. Swap Execution Facility, or SEF, ICE Swap Trade, are required to maintain financial resources with a value at least equal to theincluding cash, in an amount that would cover certain operating costs for a one-year period, including maintaining cash or a committed line of credit, subject to certain deductions, to satisfy at least six months of such operating costs at all times. As of December 31, 20172019 and 2016,2018, the financial resources reserved necessary to satisfy CFTC financial resource requirements for the DCM, U.S. DCOs, SDR and SEF were $193$239 million and $192$213 million, respectively, and was reflectedincluded as short-term restricted cash and cash equivalents in the accompanying consolidated balance sheets.equivalents. For our U.S. DCOs, ICE Clear U.S. and ICE Clear Credit, these amounts include voluntarily-held additional reserves consistent with the EMIR requirements to cover operational, legal and business risks and to reserve capital to meet credit, counterparty and market risks not covered by the member margin and guaranty funds.
Our clearing houses, other than ICE NGX, require that each clearing member to make deposits to a fund known as the guaranty fund. The amounts in the guaranty fund will serve to secure the obligations of a clearing member to our clearing houses and may be used to cover losses in excess of the margin and clearing firm accounts sustained by our clearing houses in the event of a default of a clearing member. As of December 31, 20172019 and 2016; ICE Clear Europe has contributed $100 million of its own cash as part of its futures and options guaranty fund; ICE Clear Europe has contributed $50 million as part of its CDS guaranty fund; ICE Clear Credit has contributed $50 million as part of its CDS guaranty fund; ICE Clear U.S. has contributed $50 million as part of its futures and options guaranty fund; and ICE Clear Canada, ICE Clear Netherlands and ICE Clear Singapore have each also contributed a2018, our combined $4 million in cash to their respective guaranty funds. These cash contributions from the clearing houses to the guaranty funds of our clearing houses are reflected as$404 million and $320 million, respectively. In January 2019, we increased our contribution to ICE Clear Europe’s guaranty fund by $27 million and in March 2019, we increased our ICE Clear U.S. guaranty fund contribution by $7 million. In September 2019, we increased our ICE Clear U.S. guaranty fund contribution by $35 million in connection with the launch of Bakkt, solely applicable to any losses associated with a default in Bitcoin contracts and other digital asset contracts that ICE Clear U.S. might clear in the future associated with Bakkt operations. In addition, we have a $15 million first-loss amount related to ICE NGX insurance and included in our contribution to its guaranty fund. All of these contributions are included in long-term restricted cash and cash equivalents in the accompanying consolidated balance sheets as of December 31, 2017 and 2016.equivalents. See Note 1314 for additional information on the guaranty funds and our contributions of cash to our clearing houses guaranty funds.
As of December 31, 20172019 and 2016,2018, there is $64$104 million and $44$67 million, respectively, of additional combined cash reflected asincluded in short-term restricted cash and cash equivalents in the accompanying consolidated balance sheets related to other regulated entities and exchanges, including ICE Benchmark Administration, ICE Clear Netherlands, ICE Clear Canada, ICE Trade Vault U.K., ICE Endex, ICE Clear Singapore, ICE NGX. As of December 31, 2019, short-term restricted cash includes the clearing member requirements of ICE Securities Executions & Clearing, LLC and NGX.restricted cash related to the launch of Bakkt Trust Company, LLC. The increase in the regulatory capital restricted cash as of December 31, 20172019 was primarily due to additional costs incurred due to the growth of these businesses and the acquisition of NGX in December 2017 (Note 3).businesses.
As of December 31, 20172019 and 2016, there is $222018, we have $45 million and $24$23 million, respectively, of additional restricted cash, primarily related to escrow for recent acquisitions and was reflected asincluded in short-term or long-term restricted cash and cash equivalents in the accompanying consolidated balance sheets.equivalents.
| |
6. | Short-Term and Long-Term Investments |
As of December 31, 2017, our short-term investments consist of available-for-sale securities as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| Mutual funds | $ | 16 |
| | $ | — |
| | $ | — |
| | $ | 16 |
|
As of December 31, 2016, our short-term and long-term investments consist of available-for-sale securities as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| Cetip equity securities | $ | 324 |
| | $ | 108 |
| | $ | — |
| | $ | 432 |
|
| Mutual funds | 23 |
| | — |
| | — |
| | 23 |
|
| Total available-for-sale securities | $ | 347 |
| | $ | 108 |
| | $ | — |
| | $ | 455 |
|
Until March 29, 2017, we held a 12% ownership interest in Cetip, S.A., or Cetip, which we classified as an available-for-sale long-term investment. Cetip was recorded at its fair value using its quoted market price. Changes in the fair value of available-for-sale securities are reflected in accumulated other comprehensive income, and include the effects of both stock price and foreign currency translation fluctuations. The unrealized holding gains and losses are excluded from earnings and reported in other comprehensive income until realized. Realized gains and losses, and declines in value deemed to be other-than-temporary, are recognized in earnings.
We acquired the common stock of Cetip for an aggregate consideration of $514 million in cash in July 2011. During the year ended December 31, 2013, we recognized an impairment loss on our Cetip investment of $190 million, primarily due to unfavorable foreign exchange rate changes, which was equal to the difference between the $324 million fair value as of December 31, 2013 and the original investment cost of $514 million. The $324 million fair value of the Cetip investment as of December 31, 2013 became our new cost basis. The long-term investment in equity securities as of December 31, 2016 represents our investment in Cetip, which was valued at $432 million, including a $108 million accumulated unrealized gain.
On March 29, 2017, Cetip and BM&FBOVESPA S.A. finalized a merger agreement. BM&FBOVESPA S.A., which changed its name to B3 S.A. - Brasil, Bolsa, Balcao, or B3, following the merger with Cetip, is a stock exchange and operator of registration, clearing, custodial and settlement services for equities, financial securities, indices, rates, commodities and currencies and is located in São Paulo, Brazil. The merger valued our Cetip investment at $500 million. We received the proceeds in cash and in B3 common stock.
The cash component was valued at $319 million, which was subject to Brazilian capital gains tax of $28 million that was remitted to the Brazilian tax authorities in March 2017. We received net cash proceeds in April 2017 of $286 million, which is net of a foreign exchange loss of $6 million that was incurred in April 2017. We received 29,623,756 B3 common shares valued at their quoted market price of $181 million. In April 2017, we sold the B3 common shares for net proceeds of $152 million, which is net of a capital gain tax of $26 million that was remitted to the Brazilian tax authorities and further transaction expenses of $3 million that were incurred in April 2017. We used the $438 million in net cash and stock proceeds received from the merger and sale of B3 shares to pay down amounts outstanding under our Commercial Paper Program and for share repurchases.
The $500 million fair value of our investment in Cetip included an accumulated unrealized gain of $176 million, based on the $324 million cost basis. In connection with the sale of our equity investment in Cetip, the $176 million, accumulated unrealized gain was reclassified out of accumulated other comprehensive income and was recognized in other income as a realized investment gain in the accompanying consolidated statement of income for the year ended December 31, 2017.
Equity and fixed income mutual funds are held for the purpose of providing future payments for the supplemental executive savings plan and the supplemental executive retirement plan (Note 15) and are classified as available-for-sale securities.
Property and equipment consisted of the following as of December 31, 2017 and 2016 (in millions, except years)millions):
|
| | | | | | | | | |
| | As of December 31, | | Depreciation Period (Years) |
| | 2019 | | 2018 | |
| Software and internally developed software | $ | 1,056 |
| | $ | 919 |
| | 3 to 7 |
| Computer and network equipment | 742 |
| | 682 |
| | 3 to 5 |
| Land | 146 |
| | 145 |
| | N/A |
| Buildings and building improvements | 309 |
| | 294 |
| | 15 to 40 |
| Right-of-use lease assets | 287 |
| | — |
| | 1 to 16 |
| Leasehold improvements | 269 |
| | 242 |
| | 4 to 12 |
| Equipment, aircraft and office furniture | 233 |
| | 225 |
| | 4 to 15 |
| | 3,042 |
| | 2,507 |
| | |
| Less accumulated depreciation and amortization | (1,506 | ) | | (1,266 | ) | | |
| Property and equipment, net | $ | 1,536 |
| | $ | 1,241 |
| | |
|
| | | | | | | | | |
| | As of December 31, | | Depreciation Period (Years) |
| | 2017 | | 2016 | |
| Software and internally developed software | $ | 766 |
| | $ | 600 |
| | 1 to 8 |
| Computer and network equipment | 575 |
| | 483 |
| | 1 to 5 |
| Land | 137 |
| | 136 |
| | N/A |
| Buildings and building improvements | 289 |
| | 259 |
| | 2.5 to 40 |
| Leasehold improvements | 234 |
| | 216 |
| | 1 to 17 |
| Equipment, aircraft and office furniture | 275 |
| | 242 |
| | 1 to 12 |
| | 2,276 |
| | 1,936 |
| | |
| Less accumulated depreciation and amortization | (1,030 | ) | | (807 | ) | | |
| Property and equipment, net | $ | 1,246 |
| | $ | 1,129 |
| | |
For the years ended December 31,In 2019, 2018 and 2017, 2016 and 2015, amortization of software and internally developed software was $135$175 million, $113$160 million and $89$135 million, respectively, and depreciation of all other property and equipment was $145 million, $133 million and $122 million, $142 millionrespectively. As of December 31, 2019 and $124 million, respectively. The2018, unamortized software and internally developed software balances were $269was $301 million and $207$298 million, as of December 31, 2017 and 2016, respectively.
| |
| 8. | Goodwill and Other Intangible Assets |
The following is a summary of the activity in theour goodwill balance for the years ended December 31, 2017 and 2016 (in millions):
|
| | | |
| Goodwill balance at January 1, 2018 | $ | 12,216 |
|
| Acquisitions | 889 |
|
| Foreign currency translation | (38 | ) |
| Other activity, net | 18 |
|
| Goodwill balance at December 31, 2018 | 13,085 |
|
| Acquisitions | 235 |
|
| Foreign currency translation | 20 |
|
| Other activity, net | 2 |
|
| Goodwill balance at December 31, 2019 | $ | 13,342 |
|
|
| | | |
| Goodwill balance at January 1, 2016 | $ | 12,079 |
|
| Acquisitions | 307 |
|
| Foreign currency translation | (135 | ) |
| Other activity, net | 40 |
|
| Goodwill balance at December 31, 2016 | 12,291 |
|
| Acquisitions | 211 |
|
| Divestitures | (344 | ) |
| Foreign currency translation | 63 |
|
| Other activity, net | (5 | ) |
| Goodwill balance at December 31, 2017 | $ | 12,216 |
|
The following is a summary of the activity in theour other intangible assets balance for the years ended December 31, 2017 and 2016 (in millions):
|
| | | |
| Other intangible assets balance at January 1, 2018 | $ | 10,269 |
|
| Acquisitions | 548 |
|
| Foreign currency translation | (45 | ) |
| Amortization of other intangible assets | (289 | ) |
| Other activity, net | (21 | ) |
| Other intangible assets balance at December 31, 2018 | 10,462 |
|
| Acquisitions | 116 |
|
| Foreign currency translation | 24 |
|
| ICE Futures Singapore exchange registration intangible assets impairment | (31 | ) |
| Amortization of other intangible assets | (311 | ) |
| Other activity, net | (2 | ) |
| Other intangible assets balance at December 31, 2019 | $ | 10,258 |
|
|
| | | |
| Other intangible assets balance at January 1, 2016 | $ | 10,758 |
|
| Acquisitions | 180 |
|
| Foreign currency translation | (155 | ) |
| Creditex customer relationship intangible asset impairment | (33 | ) |
| Amortization of other intangible assets | (323 | ) |
| Other activity, net | (7 | ) |
| Other intangible assets balance at December 31, 2016 | 10,420 |
|
| Acquisitions | 274 |
|
| Divestitures | (216 | ) |
| Foreign currency translation | 69 |
|
| Amortization of other intangible assets | (272 | ) |
| Other activity, net | (6 | ) |
| Other intangible assets balance at December 31, 2017 | $ | 10,269 |
|
We completed several acquisitions, including Simplifile, during 2019, and BondPoint, CHX Holdings, Inc., TMC Bonds and MERS during 2018 (Note 3).
Foreign currency translation adjustments result from a portion of our goodwill and other intangible assets being held at our U.K., EU and Canadian subsidiaries, whose functional currencies are not the acquisitionsU.S. dollar. The table above includes an impairment charge of NGX, Shorcan Energy,$31 million recorded during 2019 on the BofAML indices, TMX Atriumremaining value of exchange registration intangible assets on ICE Futures Singapore as a result of a decrease in fair value determined during our annual impairment testing. ICE Futures Singapore is part of our Trading and NYSE NationalClearing segment. In addition, the table includes an impairment charge of $4 million recorded during 2018 on the remaining value of exchange registration intangible assets in connection with the July 2018 closure of ICE Futures Canada and sold Trayport,ICE Clear Canada. ICE Futures Canada and ICE Clear Canada were part of our Trading and Clearing segment. Other than these impairments and the impairment related to the 2017 NYSE Governance Services and IDMSdivestiture (Note 3), we did not recognize any other impairment losses on goodwill or other intangible assets during the year ended December 31, 2017 and completed the acquisitions of Securities Evaluations and Credit Market Analysis during the year ended December 31, 2016 (Note 3).2019, 2018 or 2017. The changes in other activity, net, in the tables above primarily relate to adjustments to the fair value of the net tangible assets and identifiable intangible assets and liabilities relating to the acquisitions, with a corresponding adjustment to goodwill.
The foreign currency translation adjustments in the tables above resulted from a portion of our goodwill and other intangible assets being held at our U.K., EU and Canadian subsidiaries, some of whose functional currencies are not the U.S. dollar. The foreign currency translation decrease for the year ended December 31, 2016 is primarily due to certain of our goodwill and intangible assets being recorded in pound sterling, which decreased in value due to the weakening pound sterling exchange rate following the U.K. referendum vote in June 2016 to leave the EU.
In 2016, we sold certain of Creditex’s U.S. voice brokerage operations to Tullett Prebon and we discontinued Creditex’s U.K. voice brokerage operations. We continue to operate Creditex’s electronically traded markets and systems, post-trade connectivity platforms and intellectual property. Based on an analysis of these factors, it was determined that the carrying value of the Creditex customer relationship intangible asset was not fully recoverable and an impairment of the asset was recorded in September 2016 for $33 million based on a discounted cash flow calculation. The impairment was recorded as amortization expense within our Trading and Clearing segment in the accompanying consolidated statement of income for the year ended December 31, 2016.
Other intangible assets and the related accumulated amortization consisted of the following as of December 31, 2017 and 2016 (in millions, except years)millions):
|
| | | | | | | | | |
| | As of December 31, | | Useful Life (Years) |
| | 2019 | | 2018 | |
| Customer relationships | $ | 4,510 |
| | $ | 4,406 |
| | 3 to 25 |
| Technology | 544 |
| | 524 |
| | 2.5 to 11 |
| Trading products with finite lives | 237 |
| | 237 |
| | 20 |
| Data/databases | 150 |
| | 150 |
| | 4 to 10 |
| Market data provider relationships | 11 |
| | 11 |
| | 20 |
| Non-compete agreements | 42 |
| | 39 |
| | 1 to 5 |
| Other | 36 |
| | 36 |
| | 1 to 5 |
| | 5,530 |
| | 5,403 |
| | |
| Less accumulated amortization | (1,811 | ) | | (1,532 | ) | | |
| Total finite-lived intangible assets, net | 3,719 |
| | 3,871 |
| | |
| Exchange registrations, licenses and contracts with indefinite lives | 6,228 |
| | 6,253 |
| | |
| Trade names and trademarks with indefinite lives | 280 |
| | 280 |
| | |
| In-process research and development | 23 |
| | 49 |
| | |
| Other | 8 |
| | 9 |
| | |
| Total indefinite-lived intangible assets | 6,539 |
| | 6,591 |
| | |
| Total other intangible assets, net | $ | 10,258 |
| | $ | 10,462 |
| | |
|
| | | | | | | | | |
| | As of December 31, | | Useful Life (Years) |
| | 2017 | | 2016 | |
| Customer relationships | $ | 3,923 |
| | $ | 4,063 |
| | 3 to 25 |
| Technology | 461 |
| | 438 |
| | 2.5 to 11 |
| Trading products with finite lives | 237 |
| | 237 |
| | 20 |
| Russell licensing rights | — |
| | 184 |
| | 10 |
| Data/databases | 150 |
| | 145 |
| | 4 to 10 |
| Market data provider relationships | 11 |
| | 11 |
| | 20 |
| Non-compete agreements | 38 |
| | 38 |
| | 1 to 5 |
| Other | 33 |
| | 31 |
| | 1 to 5 |
| | 4,853 |
| | 5,147 |
| | |
| Less accumulated amortization | (1,200 | ) | | (1,220 | ) | | |
| Total finite-lived intangible assets, net | 3,653 |
| | 3,927 |
| | |
| Exchange registrations, licenses and contracts with indefinite lives | 6,243 |
| | 6,083 |
| | |
| Trade names and trademarks with indefinite lives | 280 |
| | 294 |
| | |
| In-process research and development | 85 |
| | 108 |
| | |
| Other | 8 |
| | 8 |
| | |
| Total indefinite-lived intangible assets | 6,616 |
| | 6,493 |
| | |
| Total other intangible assets, net | $ | 10,269 |
| | $ | 10,420 |
| | |
We previously held an exclusive license arrangement to list futuresIn 2019, 2018 and options contracts on the Russell indexes, including the Russell 2000®, Russell 1000® and other related indexes. That license terminated during 2017, and the related intangible asset for Russell licensing rights was fully amortized.
For the years ended December 31, 2017, 2016 and 2015, amortization of other intangible assets was $272$311 million, $323$289 million and $160$272 million, respectively. Collectively, the remaining weighted average useful lives of the finite-lived intangible assets is 19.117.1 years as of December 31, 2017.2019. We expect future amortization expense from the finite-lived intangible assets as of December 31, 20172019 to be as follows (in millions):
|
| | | |
| 2020 | $ | 278 |
|
| 2021 | 261 |
|
| 2022 | 254 |
|
| 2023 | 247 |
|
| 2024 | 290 |
|
| Thereafter | 2,389 |
|
| | $ | 3,719 |
|
|
| | | |
| 2018 | $ | 260 |
|
| 2019 | 254 |
|
| 2020 | 216 |
|
| 2021 | 205 |
|
| 2022 | 200 |
|
| Thereafter | 2,518 |
|
| | $ | 3,653 |
|
DeferredOur contract liabilities, or deferred revenue, represents cashrepresent consideration received that is yet to be recognized as revenue. Total deferred revenue was $264$201 million as of December 31, 2017,2019, including $121$129 million in current deferred revenue and $143$72 million in other non-current deferred revenue.liabilities. Total deferred revenue was $237$217 million as of December 31, 2016,2018, including $114$135 million in current deferred revenue and $123$82 million in other non-current deferred revenue.liabilities. See Note 25 for a description of our annual
listing, original listing, other listings and data services revenues and the revenue recognition policy for each of these revenue streams. The changes in our deferred revenue during the years
ended December 31, 20172019 and 20162018 are as follows (in millions): | | | | Annual Listing Revenue | | Original Listing Revenues | | Other Listing Revenues | | Data Services and Other Revenues | | Total | Annual Listing Revenue | | Original Listing Revenues | | Other Listing Revenues | | Data Services and Other Revenues | | Total |
| Deferred revenue balance at January 1, 2016 | $ | — |
| | $ | 50 |
| | $ | 59 |
| | $ | 81 |
| | $ | 190 |
| |
| Deferred revenue balance at January 1, 2018 | | $ | — |
| | $ | 25 |
| | $ | 98 |
| | $ | 93 |
| | $ | 216 |
|
| Additions | 363 |
| | 25 |
| | 71 |
| | 467 |
| | 926 |
| 384 |
| | 24 |
| | 38 |
| | 366 |
| | 812 |
|
| Amortization | (363 | ) | | (9 | ) | | (47 | ) | | (460 | ) | | (879 | ) | (384 | ) | | (24 | ) | | (36 | ) | | (367 | ) | | (811 | ) |
| Deferred revenue balance at December 31, 2016 | — |
| | 66 |
| | 83 |
| | 88 |
| | 237 |
| |
| Deferred revenue balance at December 31, 2018 | | — |
| | 25 |
| | 100 |
| | 92 |
| | 217 |
|
| Additions | 368 |
| | 22 |
| | 54 |
| | 421 |
| | 865 |
| 384 |
| | 17 |
| | 36 |
| | 394 |
| | 831 |
|
| Amortization | (368 | ) | | (11 | ) | | (39 | ) | | (421 | ) | | (839 | ) | (384 | ) | | (23 | ) | | (42 | ) | | (398 | ) | | (847 | ) |
| Acquisitions, net of divestitures (Note 3) | — |
| | — |
| | — |
| | 1 |
| | 1 |
| |
| Deferred revenue balance at December 31, 2017 | $ | — |
| | $ | 77 |
| | $ | 98 |
| | $ | 89 |
| | $ | 264 |
| |
| Deferred revenue balance at December 31, 2019 | | $ | — |
| | $ | 19 |
| | $ | 94 |
| | $ | 88 |
| | $ | 201 |
|
Included in the amortization recognized in 2017, $1142019, $122 million relatesrelated to the deferred revenue balance as of January 1, 2017.2019. Included in the amortization recognized in 2016, $982018, $114 million relatesrelated to the deferred revenue balance as of January 1, 2016.2018. As of December 31, 2017,2019, we estimate that our deferred revenue will be recognized in the following years (in millions): | |
| Original Listing Revenues |
| Other Listing Revenues |
| Data Services and Other Revenues |
| Total | Original Listing Revenues |
| Other Listing Revenues |
| Data Services and Other Revenues |
| Total |
| 2018 | $ | 14 |
|
| $ | 24 |
|
| $ | 83 |
|
| $ | 121 |
| |
| 2019 | 12 |
|
| 28 |
|
| 5 |
|
| 45 |
| |
| 2020 | 12 |
|
| 21 |
|
| 1 |
|
| 34 |
| $ | 15 |
| | $ | 31 |
| | $ | 83 |
| | $ | 129 |
|
| 2021 | 11 |
|
| 14 |
|
| — |
|
| 25 |
| 4 |
| | 24 |
| | 4 |
| | 32 |
|
| 2022 | 10 |
|
| 9 |
|
| — |
|
| 19 |
| — |
| | 21 |
| | 1 |
| | 22 |
|
| 2023 | | — |
| | 11 |
| | — |
| | 11 |
|
| 2024 | | — |
| | 6 |
| | — |
| | 6 |
|
| Thereafter | 18 |
|
| 2 |
|
| — |
|
| 20 |
| — |
| | 1 |
| | — |
| | 1 |
|
| Total | $ | 77 |
|
| $ | 98 |
|
| $ | 89 |
|
| $ | 264 |
| $ | 19 |
| | $ | 94 |
| | $ | 88 |
| | $ | 201 |
|
Our total debt, including short-term and long-term debt, consisted of the following as of December 31, 2017 and 2016 (in millions):
|
| | | | | | | |
| | As of December 31, |
| | 2019 | | 2018 |
| Debt: | | | |
| Short-term debt: | | | |
| Commercial Paper | $ | 1,311 |
| | $ | 951 |
|
| 2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020) | 1,248 |
| | — |
|
| Other short-term debt | 10 |
| | — |
|
| Total short-term debt | 2,569 |
| | 951 |
|
| Long-term debt: | | | |
| 2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020) | — |
| | 1,246 |
|
| 2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022) | 497 |
| | 496 |
|
| 2023 Senior Notes (3.45% senior unsecured notes due September 21, 2023) | 398 |
| | 397 |
|
| 2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023) | 794 |
| | 793 |
|
| 2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025) | 1,244 |
| | 1,243 |
|
| 2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027) | 496 |
| | 496 |
|
| 2028 Senior Notes (3.75% senior unsecured notes due September 21, 2028) | 592 |
| | 591 |
|
| 2048 Senior Notes (4.25% senior unsecured notes due September 21, 2048) | 1,229 |
| | 1,228 |
|
| Total long-term debt | 5,250 |
| | 6,490 |
|
| Total debt | $ | 7,819 |
| | $ | 7,441 |
|
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| Debt: | | | |
| Short-term debt: | | | |
| Commercial Paper | $ | 1,233 |
| | $ | 1,642 |
|
| 2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018) | 600 |
| | — |
|
| NYSE Notes (2.00% senior unsecured notes due October 5, 2017) | — |
| | 851 |
|
| Total short-term debt | 1,833 |
| | 2,493 |
|
| Long-term debt: | | | |
| 2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018) | — |
| | 598 |
|
| 2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020) | 1,244 |
| | 1,242 |
|
| 2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022) | 495 |
| | — |
|
| 2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023) | 791 |
| | 790 |
|
| 2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025) | 1,242 |
| | 1,241 |
|
| 2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027) | 495 |
| | — |
|
| Total long-term debt | 4,267 |
| | 3,871 |
|
| Total debt | $ | 6,100 |
| | $ | 6,364 |
|
Amended Credit FacilityFacilities
We had previously entered intohave a $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, with a maturity date of November 13, 2020, pursuant to a credit agreement with Wells Fargo Bank, N.A., or Wells Fargo, as primary administrative agent,
issuing lender and swing-line lender, Bank of America, N.A., as syndication agent, backup administrative agent and swing-line lender, and the lenders party thereto. On August 18, 2017,9, 2018, we agreed withextended the lenders to, amongst other items, extend thefinal maturity date toof the Credit Facility from August 18, 2022 herein referred to August 9, 2023, and made certain other changes. We incurred debt issuance costs of $2 million relating to the Credit Facility and these costs are included in the accompanying consolidated balance sheet as other non-current assets to be amortized over the Amendedlife of the Credit Facility.
The Amended Credit Facility includes an option for us to propose an increase in the aggregate amount available for borrowing by up to $975 million, subject to the consent of the lenders funding the increase and certain other conditions.
Other amendments within the Amended Credit Facility include, but are not limited to, (i) eliminating the step-up in the commitment fee ratings-based grid that was scheduled to take effect in April 2019, (ii) removing ICE Europe Parent Limited as a party to the credit agreement, (iii) removing the guaranty by ICE in respect of ICE Europe Parent Limited, (iv) increasing the maximum leverage ratio to 3.50:1.00, and (v) up to two times, increasing the maximum leverage ratio from 3.50:1.00 to 4.00:1.00 for a period of one year following a material acquisition.
No NaN amounts were outstanding under the Amended Credit Facility as of December 31, 2017. We incurred debt issuance costs2019. As of $5 million relating to the Amended Credit Facility and they are presented in the accompanying consolidated balance sheet as other non-current assets and will be amortized over the lifeDecember 31, 2019, of the Amended Credit Facility.
Amounts borrowed under the Amended Credit Facility may be prepaid at any time without premium or penalty. The Amended Credit Facility provides for a $3.4 billion multi-currency revolving facility, with sub-limits for non-dollar borrowings and letters of credit and with a swing-line facility available on a same-day basis. Of the $3.4 billion that is currently available for borrowing under the Amended Credit Facility, $1.2$1.3 billion is required to back-stop the amount outstanding under our U.S. dollar commercial paper program, or the Commercial Paper Program, as of December 31, 2017 and $100$160 million is required to support certain broker dealer subsidiary clearing house commitments (Note 13).commitments. The amount required to back-stopbackstop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $2.1$1.9 billion available under the Amended Credit Facility as of December 31, 2017 is available to us to use for working capital and general corporate purposes including, but not limited to, acting as a back-stop to future increases in the amounts outstanding under the Commercial Paper Program.
Borrowings under the Amended Credit Facility will bear interest on the principal amount outstanding at either (a) LIBOR plusWe also pay an applicable margin rate or (b) a “base rate” plus an applicable margin rate; provided, however, that all loans denominated in a foreign currency will bear interest at LIBOR plus an applicable margin rate. The “base rate” equals the higher of (i) Wells Fargo’s prime rate, (ii) the federal funds rate plus 0.50%, or (iii) the one-month LIBOR rate plus 1.00%. The applicable margin rate is based upon our public long-term debt ratings and ranges from 0.875% to 1.50% on LIBOR borrowings and from 0.00% to 0.50% on base rate borrowings.
The Amended Credit Facility includes an unutilized revolving creditannual commitment fee that is equal to the unused maximum revolver amount, multiplied by an applicable commitment fee rate and isfor unutilized amounts payable in arrears onat a quarterly basis. The applicable commitment fee rate that ranges from 0.08% to 0.20% and is determined based on our long-term debt rating. As of December 31, 2017,2019, the applicable commitment fee rate was 0.125% based on our current long-term debt ratings.. Amounts borrowed under the facility may be prepaid at any time without premium or penalty.
The Amended Credit Facility also contains customary representations and warranties, covenants and events of default, including a leverage ratio, as well as limitations on liens on our assets, indebtedness of non-obligor subsidiaries, the sale of all or substantially all of our assets, and other matters.
Senior NotesDuring 2019, a subsidiary of ours entered into a new $20 million line of credit for their general corporate purposes. As of December 31, 2019, the subsidiary had borrowed $10 million, which is reflected as “other short-term debt” in the table above.
On August 17, 2017, we issued $1.0 billion in aggregate senior notes, including $500Commercial Paper Program
Our Commercial Paper Program is currently backed by the borrowing capacity available under the Credit Facility, as described above. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates (such as USD LIBOR) which fluctuate due to market conditions and as a result may impact our interest expense.
We had net issuances of $360 million principal amountunder the Commercial Paper Program during 2019, the proceeds of 2.35% senior unsecured fixed rate notes due September 2022, or the 2022 Senior Notes, and $500 million principal amount of 3.10% senior unsecured fixed rate notes due September 2027, or the 2027 Senior Notes. Wewhich were used the majority of the net proceeds from the 2022 Senior Notes and 2027 Senior Notes offering to fund the redemptionacquisition of Simplifile and for general corporate purposes. We repaid $283 million of net notes outstanding under the Commercial Paper Program during 2018 primarily using cash flows from operations and cash proceeds received from our 2018 bond issuance. This was partially offset by notes we issued under the program during 2018, the proceeds of which were used to fund acquisitions and investments and repurchase our common stock. We repaid $409 million of net notes outstanding under the Commercial Paper Program during 2017 primarily using net cash proceeds received from the sales of Cetip and Trayport. We repaid a portion of the NYSE Notes.amounts outstanding under the program during 2019, 2018 and 2017 with cash flows from operations.
We incurred debt issuance costsCommercial paper notes of $8$1.3 billion with original maturities ranging from two to 87 days were outstanding as of December 31, 2019 with a weighted average interest rate of 1.84% per annum, and a weighted average remaining maturity of 22 days. Commercial paper notes of $951 million relatingwith original maturities ranging from two to the issuance77 days were outstanding as of the 2022 December 31, 2018, with a weighted average interest rate of 2.48% per annum, and a weighted average remaining maturity of 12 days.
Senior Notes and the 2027 Senior Notes and they are presented in the accompanying consolidated balance sheet as a deduction from the carrying amount of the related debt liability and will be amortized over the life of the 2022 Senior Notes and the 2027 Senior Notes. The 2022Notes:
| |
| • | 2023, 2028 and 2048 Senior Notes: In August 2018, we issued $2.25 billion in new aggregate unsecured fixed-rate senior notes, including $400 million, 3.45% notes due in 2023, or the 2023 Senior Notes, $600 million, 3.75% notes due in 2028, or the 2028 Senior Notes, and $1.25 billion, 4.25% notes due in 2048, or the 2048 Senior Notes. We used the proceeds from the offering for general corporate purposes, including to fund the redemption of the $600 million, 2.50% Senior Notes due October 2018 and to refinance all of our issuances under our Commercial Paper Program that resulted from acquisitions and investments in 2018. We incurred debt issuance costs of $21 million relating to these Senior Notes that we recorded as a deduction from the carrying amount of the debt and which is being amortized over the respective note lives. |
| |
| • | 2022 and 2027 Senior Notes:In August 2017, we issued $1.0 billion in aggregate senior unsecured fixed-rate notes, including $500 million, 2.35% notes due September 2022, or the 2022 Senior Notes, and $500 million, 3.10% notes due September 2027, or the 2027 Senior Notes. We used the majority of the proceeds of the offering to fund the redemption in September 2017 of $850 million, 2.00% senior unsecured fixed-rate NYSE Notes prior to the October 2017 maturity date. We incurred debt issuance costs of $8 million relating to these Senior Notes that we recorded as a deduction from the carrying amount of the debt and which is being amortized over the respective note lives. |
| |
| • | 2020 and 2025 Senior Notes:In November 2015, we issued $2.5 billion in aggregate senior unsecured fixed-rate notes, including $1.25 billion, 2.75% notes due December 2020, or the 2020 Senior Notes, and $1.25 billion, 3.75% notes due December 2025, or the 2025 Senior Notes. We used the proceeds from the offering, together with $1.6 billion of borrowings under our Commercial Paper Program, to finance the cash portion of the purchase price of Interactive Data. |
| |
| • | October 2023 Senior Notes: In October 2013, we issued $800 million, 4.00% senior unsecured fixed-rate notes due October 2023, or the October 2023 Senior Notes. We used the net proceeds from the October 2023 Senior Notes to finance a portion of the purchase price of the acquisition of NYSE. |
All of our Senior Notes contain affirmative and negative covenants, including, but not limited to, certain redemption rights, limitations on liens and indebtedness and limitations on certain mergers, sales, dispositions and lease-back transactions.
In November 2015, we issued $2.5 billion in aggregate senior notes, including $1.25 billion principal amount of 2.75% senior unsecured fixed rate notes due November 2020, or the 2020 Senior Notes, and $1.25 billion principal amount of 3.75% senior unsecured fixed rate notes due November 2025, or the 2025 Senior Notes. We used the net proceeds from the 2020 Senior Notes and 2025 Senior Notes offering, together with $1.6 billion of borrowings under our Commercial Paper Program, to finance the $4.1 billion cash portion of the purchase price of the acquisition of Interactive Data. The 2020 Senior Notes and 2025 Senior Notes contain affirmative and negative covenants, including, but not limited to, certain redemption rights, limitations on liens and indebtedness, limitations on certain mergers, sales, dispositions and lease-back transactions.
Commercial Paper Program
We have entered into a U.S. dollar commercial paper program, or the Commercial Paper Program. Our Commercial Paper Program is currently backed by the borrowing capacity available under the Amended Credit Facility, equal to the amount of the commercial paper that is issued and outstanding at any given point in time. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates (such as USD LIBOR). The fluctuation of these rates due to market conditions may impact our interest expense.
We repaid $409 million of net notes outstanding under the Commercial Paper Program during the year ended December 31, 2017 primarily using net cash proceeds received from the sale of our investment in Cetip and the sale of Trayport. These repayments were partially offset by notes issued under the Commercial Paper Program during the year ended December 31, 2017 for the cash acquisitions and investments and to repurchase our common stock. See Note 3 for a discussion of our 2017 acquisitions, investments and divestitures. We used net proceeds from notes issued under the Commercial Paper Program during the year ended December 31, 2016 to finance part of the cash purchase price of the Securities Evaluations and Credit Market Analysis acquisitions and for general corporate purposes. We used net proceeds from notes issued under the Commercial Paper Program during the year ended December 31, 2015 to finance part of the cash portion of the purchase price of the Interactive Data acquisition and to pay related fees and expenses, to repurchase our common stock, and for general corporate purposes. We repaid a portion of the amounts outstanding under the Commercial Paper Program during the years ended December 31, 2017, 2016 and 2015 with cash flows from operations.
Commercial paper notes of $1.2 billion with original maturities ranging from two to 64 days were outstanding as of December 31, 2017 under our Commercial Paper Program. As of December 31, 2017, the weighted average interest rate on the $1.2 billion outstanding under our Commercial Paper Program was 1.49% per annum, with a weighted average maturity of 18 days. Commercial paper notes of $1.6 billion with original maturities ranging from three to 68 days were outstanding as of December 31, 2016 under the Commercial Paper Program. As of December 31, 2016, the weighted average interest rate on the $1.6 billion outstanding under the Commercial Paper Program was 0.74% per annum, with a weighted average maturity of 18 days.
NYSE Notes
The $850 million, 2.00% senior unsecured fixed rate NYSE Notes were due in October 2017. We redeemed the NYSE Notes in full in September 2017 using the majority of the proceeds from the 2022 Senior Notes and 2027 Senior Notes offering.
We previously provided condensed consolidating financial statements for Intercontinental Exchange, Inc., or ICE (Parent), NYSE Holdings LLC and the subsidiary non-guarantors in a footnote to our consolidated financial statements. However, in connection with the NYSE Notes being redeemed in full in September 2017, all guarantees between ICE and NYSE Holdings LLC were terminated and we are no longer required to include a condensed consolidating financial statements footnote in our quarterly and annual filings.
Debt Repayment Schedule
As of December 31, 2017,2019, the outstanding debt repayment schedule is as follows (in millions):
|
| | | |
| 2020 | $ | 2,574 |
|
| 2021 | — |
|
| 2022 | 500 |
|
| 2023 | 1,200 |
|
| 2024 | — |
|
| Thereafter | 3,600 |
|
| Principal amounts repayable | 7,874 |
|
| Debt issuance costs | (35 | ) |
| Unamortized balance discounts on bonds, net | (20 | ) |
| Total debt outstanding | $ | 7,819 |
|
|
| | | |
| 2018 | $ | 1,835 |
|
| 2019 | — |
|
| 2020 | 1,250 |
|
| 2021 | — |
|
| 2022 | 500 |
|
| Thereafter | 2,550 |
|
| Principal amounts repayable | 6,135 |
|
| Debt issuance costs | (27 | ) |
| Unamortized balance of fair value adjustments and discounts on bonds, net | (8 | ) |
| Total debt outstanding | $ | 6,100 |
|
| |
| 11. | EquityShare-Based Compensation |
We currently sponsor employee and director stock option and restricted stock plans. Employee and director stock-basedThe non-cash compensation expenses recognized for both stock options and restricted stock in the accompanying consolidated statements of income waswere $139 million, $130 million and $135 million $123in 2019, 2018 and 2017, respectively, net of $14 million, $15 million and $111 million for the years ended December 31, 2017, 2016 and 2015, respectively. The amount expensed for the years ended December 31, 2017, 2016 and 2015 is net of $18 million, $13 million and $11 million, respectively, of stock-based compensation that was capitalized as software development costs.
In March 2016, we early adopted Accounting Standards Update No. 2016-09, Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, on a prospective basis. Under the requirements of ASU 2016-09, we recognized $15 million in excess tax benefits for tax deductions in excess of cumulative compensation expenses for financial reporting purposes for the year ended December 31, 2016 through our consolidated statement of income. For the year ended December 31, 2015, we recognized excess tax benefits of $19 million as an increase to the additional paid-in capital balance.
As of December 31, 2017,2019, we had 39.734.2 million shares in total under various equity plans that are available for future issuance as stock option and restricted stock awards.
Stock Option Plans
Stock options are granted at the discretion of the compensation committee of the board of directors. All stock options are granted atwith an exercise price equal to the fair value of theour common stock on the date of grant. The grant date fair value is based on the closing stock price on the date of grant as well as certain other assumptions. The fair value of the stock options on the date of grant is recognized as expense ratably over the vesting period, net of estimated forfeitures.date. We may grant, under provisions of the plans, both incentive stock options and nonqualified stock options. The options generally vest over three years but can vest at different intervals based on the compensation committee’s determination and the terms of the equity plans. Generally, options may generally be exercised up to ten years after the date of grant, but generally expire either 14 or 60 days after termination of employment unless an employee’s employment agreement specifies otherwise.employment. The shares of common stock issued under our stock option plans are made available from authorized and unissued common stock or treasury shares.
The fair value is based on our closing stock price on the date of grant as well as certain other assumptions. Compensation expense arising from option grants is recognized ratably over the vesting period based on the grant date fair value, net of estimated forfeitures.
The following is a summary of our stock options for the years ended December 31, 2017, 2016 and 2015:option activity:
|
| | | | | | |
| | Number of Options (in thousands) | | Weighted Average
Exercise Price per
Option |
| Outstanding at January 1, 2017 | 3,879 |
| | $ | 36.05 |
|
| Granted | 731 |
| | 57.34 |
|
| Exercised | (597 | ) | | 27.97 |
|
| Outstanding at December 31, 2017 | 4,013 |
| | 41.13 |
|
| Granted | 535 |
| | 67.23 |
|
| Exercised | (908 | ) | | 34.84 |
|
| Forfeited | (30 | ) | | 58.01 |
|
| Outstanding at December 31, 2018 | 3,610 |
| | 46.44 |
|
| Granted | 493 |
| | 76.16 |
|
| Exercised | (598 | ) | | 38.96 |
|
| Forfeited | (4 | ) | | 77.58 |
|
| Outstanding at December 31, 2019 | 3,501 |
| | 51.87 |
|
|
| | | | | | |
| | Number of Options | | Weighted Average
Exercise Price per
Option |
| Outstanding at January 1, 2015 | 3,814,335 |
| | $ | 27.21 |
|
| Granted | 882,335 |
| | 41.59 |
|
| Exercised | (823,915 | ) | | 20.40 |
|
| Outstanding at December 31, 2015 | 3,872,755 |
| | 31.93 |
|
| Granted | 751,615 |
| | 50.01 |
|
| Exercised | (745,665 | ) | | 28.73 |
|
| Outstanding at December 31, 2016 | 3,878,705 |
| | 36.05 |
|
| Granted | 730,913 |
| | 57.34 |
|
| Exercised | (596,230 | ) | | 27.97 |
|
| Outstanding at December 31, 2017 | 4,013,388 |
| | 41.13 |
|
Details of stock options outstanding as of December 31, 2019 are as follows:
|
| | | | | | | | | | | | |
| | Number of Options (in thousands) | | Weighted Average
Exercise Price | | Weighted Average
Remaining
Contractual Life
(Years) | | Aggregate
Intrinsic
Value
(In millions) |
| Vested or expected to vest | 3,501 |
| | $ | 51.87 |
| | 5.9 | | $ | 142 |
|
| Exercisable | 2,445 |
| | $ | 44.35 |
| | 4.9 | | $ | 118 |
|
Details of stock options exercised during 2019, 2018 and 2017 are as follows:
|
| | | | | | | | | | | | |
| | Number of Options | | Weighted Average
Exercise Price | | Weighted Average
Remaining
Contractual Life
(Years) | | Aggregate
Intrinsic
Value
(In millions) |
| Vested or expected to vest | 4,013,388 |
| | $ | 41.13 |
| | 6.6 | | $ | 118 |
|
| Exercisable | 2,989,950 |
| | $ | 36.36 |
| | 5.8 | | $ | 102 |
|
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| Options exercised: | | 2019 | | 2018 | | 2017 |
| Total intrinsic value of options exercised (in millions) | | $ | 26 |
| | $ | 36 |
| | $ | 22 |
|
The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $22 million, $18 million and $22 million, respectively.
|
| | | | | | | | | | | | |
| | | As of December 31, |
| Options outstanding: | | 2019
| | 2018 | | 2017 |
| Number of options exercisable (in millions) | | 2.4 |
| | 2.6 |
| | 3.0 |
|
| Weighted-average exercise price | | $ | 44.35 |
| | $ | 40.22 |
| | $ | 36.36 |
|
As of December 31, 2017,2019, there waswere $8 million in total unrecognized compensation costs related to stock options. These costsoptions, which are expected to be recognized over a weighted average period of 1.71.4 years as the stock options vest.
Of the options outstanding at December 31, 2017, 2,989,950 were exercisable at a weighted-average exercise price of $36.36. Of the options outstanding at December 31, 2016, 2,787,525 were exercisable at a weighted-average exercise price of $31.61. Of the options outstanding at December 31, 2015, 2,699,865 were exercisable at a weighted-average exercise price of $27.87.
We use the Black-Scholes option pricing model for purposes of valuingto value our stock option awards. During the years ended December 31,2019, 2018 and 2017, 2016 and 2015, we used the assumptions in the table below to compute the value of all options for shares of common stock granted to employees:value:
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| Assumptions: | | 2019 | | 2018 | | 2017 |
| Risk-free interest rate | | 2.49 | % | | 2.67 | % | | 1.84 | % |
| Expected life in years | | 5.9 |
| | 6.0 |
| | 5.0 |
|
| Expected volatility | | 20 | % | | 20 | % | | 21 | % |
| Expected dividend yield | | 1.44 | % | | 1.43 | % | | 1.40 | % |
| Estimated weighted-average fair value of options granted per share | | $ | 15.45 |
| | $ | 14.08 |
| | $ | 10.50 |
|
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| Assumptions | | 2017 | | 2016 | | 2015 |
| Risk-free interest rate | | 1.84 | % | | 1.51 | % | | 1.08 | % |
| Expected life in years | | 5.0 |
| | 5.0 |
| | 5.0 |
|
| Expected volatility | | 21 | % | | 24 | % | | 24 | % |
| Expected dividend yield | | 1.40 | % | | 1.36 | % | | 1.25 | % |
| Estimated fair value of options granted per share | | $ | 10.50 |
| | $ | 9.88 |
| | $ | 8.19 |
|
The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the timedate of grant. The expected life computation is derived from historical exercise patterns and anticipated future exercise patterns. Expected volatilities arevolatility is based on historical volatility data of our stock.
Restricted Stock Plans
Restricted stock unitsshares are granted at the discretion of the compensation committee of the board of directors. We granted 3,274,358, 3,251,017used as an incentive to attract and 3,457,590 time-basedretain qualified employees and performance-based restricted stock units during the years ended December 31, 2017, 2016to increase stockholder returns with actual performance linked to both short and 2015, respectively, including 2,364,288, 2,325,985 and 1,871,785 time-based restricted stock units during the years ended December 31, 2017, 2016 and 2015, respectively.long-term stockholder return as well as retention objectives. The grant date fair value of each award is based on the closing stock price of our stock at the date of grant. The fair value of the time-based restricted stock units on the date of grant is recognized as expense ratably over the vesting period, which is typically three years, net of forfeitures.
Granted but unvested shares are generally forfeited upon termination of employment. When restricted stock is forfeited,employment, whereby compensation costs previously recognized for unvested shares are reversed. Until the shares vest and are issued, the participants have no voting or dividend rights and the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. Unvested restricted stock earns dividend equivalents which are paid in cash on the vesting date.
WeThe grant date fair value of time-based restricted stock units is recognized as expense ratably over the vesting period, which is typically three years, net of forfeitures. Our equity plans include a change in control provision that may accelerate vesting on both the time-based and performance-based restricted shares if the awards are not assumed by an acquirer in the case of a change in control.
For awards with performance conditions, we recognize compensation costs, net of forfeitures, using an accelerated attribution method over the vesting period for awards with performance conditions.period. Compensation costs for such awards are recognized only if it is probable that the performance condition will be satisfied. If we initially determine that it is not probable that the performance condition will beof being satisfied and later determine that it is, probable that the performance condition will be satisfied, or vice versa, the effect of the change in estimatea cumulative catch-up adjustment is accounted forretroactively recorded in the period of change by recording a cumulative catch-up adjustment to retroactively applybased on the new estimate. We recognize the remaining compensation costs over the remaining vesting period. Our compensation committee, pursuant to the terms of the equity plans and the authority delegated to it by our board of directors, can make equitable adjustments to the performance condition in recognition of unusual or non-recurring events.
In January 2017,February 2019, we reserved a maximum of 1,534,2181.1 million restricted shares for potential issuance as performance-based restricted shares forto certain of our employees. These restrictedThe number of shares wereultimately granted under this award is based on our actual financial performance as compared to financial performance targets set by our Board of Directors and its Compensation Committee for the year ending December 31, 2019, and is also subject to a market condition that could have reduced the number of shares that were awarded ifreduction based on how our 20172019 total shareholderstockholder return, fell belowor TSR, compared to that of the 2017 return of the S&P 500 Index and if we achieved above target financial performance level. Our total shareholder return for the year ended December 31, 2017 was higher than the 2017 return of the S&P 500 Index. Therefore,In 2019, no TSR share reduction was required. Based on our actual 20172019 financial performance as compared to the 20172019 financial performance level thresholds, 767,1090.5 million restricted shares were awarded, which resulted in $43$39 million in compensation expenses that will be expensed over the three-year accelerated vesting period, including $26$20 million that was expensed during the year ended December 31, 2017.2019.
The grant date fair valuesvalue of the awards with a market condition wereis estimated based on a simulation of various outcomes and includes inputs such as our stock price on the grant date, the valuation of historical awards with market conditions, the relatively low likelihood that the market condition will affect the number of shares granted (as the market condition only affects shares granted in excess of certain financial performance targets), and our expectation of achieving the financial performance targets. The grant date fair value of the awards, when considering the impact of the market condition on fair value, was determined to not be materially different from our stock price on the respective grant dates.
Restricted shares are used as an incentive to attract and retain qualified employees and to increase shareholder returns with actual performance linked to both short and long-term shareholder return. Our equity plans include a change in control provision that may accelerate vesting on both the time-based and performance-based restricted shares if the awards are not assumed by an acquirer in the case of a change in control. The following is a summary of the nonvested restricted shares under all plans discussed above for the years ended December 31, 2017, 2016 and 2015: above:
|
| | | | | |
| | Number of
Restricted
Stock Shares (in thousands) | | Weighted Average
Grant-Date Fair
Value per Share |
| Nonvested at January 1, 2017 | 6,436 | | $ | 45.86 |
|
| Granted | 3,274 | | 57.61 |
|
| Vested | (3,509) | | 44.64 |
|
| Forfeited | (453) | | 52.38 |
|
| Nonvested at December 31, 2017 | 5,748 | | 52.78 |
|
| Granted | 1,994 | | 67.88 |
|
|
| | | | | |
| | Number of
Restricted
Stock Shares (in thousands) | | Weighted Average
Grant-Date Fair
Value per Share |
| Vested | (2,819) | | 50.21 |
|
| Forfeited | (453) | | 58.42 |
|
| Nonvested at December 31, 2018 | 4,470 | | 60.56 |
|
| Granted | 1,697 | | 76.85 |
|
| Vested | (2,269) | | 57.92 |
|
| Forfeited | (231) | | 67.66 |
|
| Nonvested at December 31, 2019 | 3,667 | | 69.29 |
|
|
| | | | | |
| | Number of
Restricted
Stock Shares | | Weighted Average
Grant-Date Fair
Value per Share |
| Nonvested at January 1, 2015 | 5,354,975 | | $ | 35.36 |
|
| Granted | 3,457,590 | | 42.09 |
|
| Vested | (2,182,805) | | 31.98 |
|
| Forfeited | (358,585) | | 33.90 |
|
| Nonvested at December 31, 2015 | 6,271,175 | | 39.99 |
|
| Granted | 3,251,017 | | 50.06 |
|
| Vested | (2,640,640) | | 38.05 |
|
| Forfeited | (445,681) | | 45.51 |
|
| Nonvested at December 31, 2016 | 6,435,871 | | 45.86 |
|
| Granted | 3,274,358 | | 57.61 |
|
| Vested | (3,508,814) | | 44.64 |
|
| Forfeited | (448,211) | | 52.38 |
|
| Nonvested at December 31, 2017 | 5,753,204 | | 52.78 |
|
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
Time-based restricted stock units granted
(in thousands) (1) | | 997 |
| | 1,153 |
| | 2,364 |
|
Total fair value of restricted stock vested under all restricted stock plans
(in millions) | | $ | 173 |
| | $ | 206 |
| | $ | 206 |
|
Restricted stock(1) The remaining shares granted in the table above include both time-based and performance-based grants. are performance-based.
Performance-based restricted shares have been presented to reflect the actual shares to be issued based on the achievement of past performance targets, also considering the impact of any market conditions. Non-vested performance-based restricted shares granted are presented in the table above at the maximumtarget number of restricted shares that would vest if the maximum performance targets are met. As of December 31, 2017,2019, there were $142$106 million in total unrecognized compensation costs related to the time-based restricted stock and the performance-based restricted stock. These costs are expected to be recognized over a weighted-average period of 1.31.1 years as the restricted stock vests. During
Employee Stock Purchase Plan
In May 2018, our stockholders approved our ESPP, under which we have reserved and may sell up to 25 million shares of our common stock to employees. The ESPP grants participating employees the years endedright to acquire our stock in increments of 1% of eligible pay, with a maximum contribution of 25% of eligible pay, subject to applicable annual Internal Revenue Service, or IRS, limitations. Under our ESPP, participating employees are limited to $25,000 of common stock annually, and a maximum of 1,250 shares of common stock each offering period. There are 2 offering periods each year, from January 1st (or the first trading day thereafter) through June 30th (or the last trading day prior to such date) and from July 1st (or the first trading day thereafter) through December 31st (or the last trading day prior to such date). The purchase price per share of common stock is 85% of the lesser of the fair market value of the stock on the first or the last trading day of each offering period. We recorded compensation expenses of $7 million and $4 million during 2019 and 2018, respectively, related to the 15% discount given to our participating employees.
Bakkt Incentive Units
In February 2019, our Board approved the adoption of the Bakkt Equity Incentive Plan to issue various Bakkt equity unit awards. Under this plan, as of December 31, 2017, 2016 and 2015, the total fair value of restricted stock vested under all restricted stock plans was $2062019, Bakkt has 82 million, $1304 million and $969 million respectively.of its preferred, common and phantom incentive units, respectively, outstanding. These awards were made to certain employees and Board members. The units are unvested at the issuance date, are subject to the vesting terms in the award agreements and upon vesting are converted into Bakkt equity or cash.
Treasury Stock
During the years ended December 31,2019, 2018 and 2017, 2016 and 2015, we received 1,503,4531.0 million shares, 1,074,1621.5 million shares and 979,2951.5 million shares, respectively, of common stock from certain of our employees related to satisfy tax withholdings we made by us on our employee’stheir behalf for restricted stock and stock option exercises. We recorded the receipt of the shares as treasury stock. Treasury stock activity is presented in the accompanying consolidated statements of changes in equity, accumulated other comprehensive income (loss) and redeemable non-controlling interest.
In connection with the record date for a 5-for-1 stock split on October 27, 2016, all shares of common stock held by us as treasury shares were canceled and extinguished. Therefore, as of the close of market on October 27, 2016, all 35,273,515 outstanding treasury stock shares were retired. In connection with the retirement, of the $1.5 billion value assigned to the treasury stock shares, $1.1 billion was allocated to additional paid-in capital and $370 million was allocated to retained earnings. The amount allocated to additional paid-in capital was determined based on the paid-in capital per share generated from the historical issuances of these treasury shares.
Stock Repurchase Program
During the years ended December 31, 2017, 2016 and 2015, we repurchased 14,966,616 shares, 902,920 shares and 14,343,845 shares, respectively, of our outstanding common stock at a cost of $949 million, $50 million and $660 million, respectively. The shares repurchased are held in treasury stock. These repurchases were completed on the open market and under our 10b5-1 trading plan. In connection with our acquisition of Interactive Data during the fourth quarter of 2015, we suspended our stockWe periodically review whether to repurchase plan for a period of time. The timing and extent of future repurchases that are not made pursuant to a Rule 10b5-1 trading plan will be at our discretion and will depend upon many conditions. Our management periodically reviews whether or not to be active in repurchasing our stock. In making a determination regarding the timing and extent of any stock repurchases, we consider multiple factors. The factors that may include: overall stock market conditions, our common stock price movements,
performance, the remaining amount authorized for repurchases by our board of directors,Board, the potential impact of a stock repurchase program on our corporate debt ratings, our expected free cash flow and working capital needs, our current and future planned strategic growth initiatives, and other potential uses of our cash and capital resources.
In August 2016,September 2017, our board of directorsBoard approved an aggregate of $1.0$1.2 billion for future repurchases of our common stock with no fixed expiration date. In September 2017,2018, our board of directorsBoard approved an aggregate of $1.2$2.0 billion for future repurchases with no fixed expiration date. In December 2019, our Board approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2018. 2020. The $2.4 billion replaced the previous amount approved by the Board of Directors.
During 2019, 2018 and 2017, we repurchased 17.4 million shares, 16.3 million shares and 15.0 million shares, respectively, of our outstanding common stock at a cost of $1.5 billion, $1.2 billion and $949 million, respectively, excluding shares withheld upon vesting of equity awards. The shares repurchased are held in treasury stock.
We expect funding for any shareto fund repurchases to come from our operating cash flow, or borrowings under our debt facilities or commercial paper program.
our Commercial Paper Program. Repurchases may be made from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with all applicable securities laws, rules and regulations. We have entered into a Rule 10b5-1 trading plan, as authorized by our board of directors,Board, to govern some or all of the repurchases of our shares of common stock. We may discontinue the stock repurchases at any time and may amend or terminate the Rule 10b5-1 trading plan at any time. The approval of our board of directorsBoard for the share repurchases does not obligate us to acquire any particular amount of our common stock. In addition, our board of directorsBoard may increase or decrease the amount of capacity we haveavailable for repurchases from time to time. We repurchased shares
The table below sets forth the information with respect to purchases made by or on behalf of ICE or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock in the open market during the periods presented as follows:
|
| | | | | | | | | | | | | | | | | |
| | Shares Repurchased (in thousands) | | Average Repurchase Price Per Share | | Amount of Repurchases (in millions) | | Total cumulative year-to-date shares purchased as part of publicly announced plans or programs
(in thousands) | | Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs as of the end of the quarter
(in millions) |
| 2019 | | | | | | | | | |
| Fourth quarter | 3,661 |
| | $ | 92.86 |
| | $ | 340 |
| | 17,432 |
| | $ | 540 |
|
| Third quarter | 3,730 |
| | $ | 91.16 |
| | 340 |
| | 13,771 |
| | $ | 880 |
|
| Second quarter | 4,170 |
| | $ | 81.53 |
| | 340 |
| | 10,041 |
| | $ | 1,220 |
|
| First quarter | 5,871 |
| | $ | 74.95 |
| | 440 |
| | 5,871 |
| | $ | 1,560 |
|
Total common stock repurchases(1) | 17,432 |
| | $ | 83.75 |
| | $ | 1,460 |
| | | |
|
| | | | | | | | | | |
| 2018 | | | | | | | | | |
| Fourth quarter | 1,863 |
| | $ | 74.99 |
| | $ | 139 |
| | 16,257 |
| | $ | 2 |
|
| Third quarter | 3,991 |
| | $ | 75.17 |
| | 300 |
| | 14,394 |
| | $ | 141 |
|
| Second quarter | 6,298 |
| | $ | 72.81 |
| | 459 |
| | 10,403 |
| | $ | 441 |
|
| First quarter | 4,105 |
| | $ | 73.08 |
| | 300 |
| | 4,105 |
| | $ | 900 |
|
Total common stock repurchases(2) | 16,257 |
| | $ | 73.71 |
| | $ | 1,198 |
| | | |
|
| | | | | | | | | | |
| 2017 | | | | | | | | | |
| Fourth quarter | 3,498 |
| | $ | 68.62 |
| | $ | 240 |
| | 14,967 |
| | $ | 51 |
|
| Third quarter | 3,642 |
| | $ | 65.90 |
| | 240 |
| | 11,469 |
| | $ | 291 |
|
| Second quarter | 3,916 |
| | $ | 61.28 |
| | 240 |
| | 7,828 |
| | $ | 531 |
|
| First quarter | 3,911 |
| | $ | 58.49 |
| | 229 |
| | 3,911 |
| | $ | 771 |
|
| Total open market common stock repurchases | 14,967 |
| | $ | 63.39 |
| | $ | 949 |
| | | |
|
|
| | | | | | | | | | |
| | Number of Shares | | Average Repurchase Price Per Share | | Amount (in millions) |
| 2017 | | | | | |
| Fourth quarter | 3,497,574 |
| | $ | 68.62 |
| | $ | 240 |
|
| Third quarter | 3,641,529 |
| | 65.90 |
| | 240 |
|
| Second quarter | 3,916,487 |
| | 61.28 |
| | 240 |
|
| First quarter | 3,911,026 |
| | 58.49 |
| | 229 |
|
| Total open market common stock repurchases | 14,966,616 |
| | | | $ | 949 |
|
| | | | | | |
| 2016 | | | | | |
| Fourth quarter | 902,920 |
| | $ | 55.42 |
| | $ | 50 |
|
| Third quarter | — |
| | — |
| | — |
|
| Second quarter | — |
| | — |
| | — |
|
| First quarter | — |
| | — |
| | — |
|
| Total open market common stock repurchases | 902,920 |
| | | | $ | 50 |
|
| | | | | | |
| 2015 | | | | | |
| Fourth quarter | 1,163,975 |
| | $ | 47.14 |
| | $ | 56 |
|
| Third quarter | 4,455,675 |
| | 46.27 |
| | 206 |
|
| Second quarter | 4,362,695 |
| | 46.44 |
| | 202 |
|
| First quarter | 4,361,500 |
| | 45.06 |
| | 196 |
|
| Total open market common stock repurchases | 14,343,845 |
| | | | $ | 660 |
|
(2) Includes 2.2 million shares purchased on the open market at a cost of $159 million and 14.1 million shares purchased under our Rule 10b5-1 trading plan at a cost of $1.0 billion.
Dividends
The declaration of dividends is subject to the discretion of our board of directors,Board, and may be affected by various factors, including our future earnings, financial condition, capital requirements, levels of indebtedness, credit ratings, our current and future planned
strategic growth initiatives and other considerations which our boardBoard of directorsDirectors deem relevant. Our board of directorsBoard has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the boardBoard or audit committee of the board of directorsits Audit Committee, taking into account such factors as our evolving business model, prevailing business conditions and our financial results and capital requirements, without a predetermined annual net income payout ratio. We declared and paid cash dividends per share during the periods presented as follows:
|
| | | | | | | |
| | Dividends Per Share | | Amount (in millions) |
| 2019 | | | |
| Fourth quarter | $ | 0.275 |
| | $ | 154 |
|
| Third quarter | 0.275 |
| | 155 |
|
| Second quarter | 0.275 |
| | 155 |
|
| First quarter | 0.275 |
| | 157 |
|
| Total cash dividends declared and paid | $ | 1.10 |
| | $ | 621 |
|
| | | | |
| 2018 | | | |
| Fourth quarter | $ | 0.24 |
| | $ | 138 |
|
| Third quarter | 0.24 |
| | 138 |
|
| Second quarter | 0.24 |
| | 139 |
|
| First quarter | 0.24 |
| | 140 |
|
| Total cash dividends declared and paid | $ | 0.96 |
| | $ | 555 |
|
| | | | |
| 2017 | | | |
| Fourth quarter | $ | 0.20 |
| | $ | 118 |
|
| Third quarter | 0.20 |
| | 119 |
|
| Second quarter | 0.20 |
| | 119 |
|
| First quarter | 0.20 |
| | 120 |
|
| Total cash dividends declared and paid | $ | 0.80 |
| | $ | 476 |
|
Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income (loss) (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Changes in Accumulated Other Comprehensive Income (Loss) by Component |
| | | Foreign currency translation adjustments | | Comprehensive income from equity method investment | | Employee benefit plans adjustments | | Fair value of available-for-sale securities | | Total |
| |
| Balance, as of January 1, 2017 | | $ | (345 | ) | | $ | 2 |
| | $ | (109 | ) | | $ | 108 |
| | $ | (344 | ) |
| Other comprehensive income (loss) | | 203 |
| | — |
| | 28 |
| | (108 | ) | | 123 |
|
| Income tax benefit (expense) | | 6 |
| | — |
| | (8 | ) | | — |
| | (2 | ) |
| Net current period other comprehensive income (loss) | | 209 |
| | — |
| | 20 |
| | (108 | ) | | 121 |
|
| Balance, as of December 31, 2017 | | (136 | ) | | 2 |
| — |
| (89 | ) | — |
| — |
| | (223 | ) |
| Other comprehensive income (loss) | | (91 | ) | | — |
| | 33 |
| | — |
| | (58 | ) |
| Net impact of adoption of ASU 2018-02 | | (1 | ) | | — |
| | (25 | ) | | — |
| | (26 | ) |
| Income tax benefit (expense) | | 1 |
| | — |
| | (9 | ) | | — |
| | (8 | ) |
| Net current period other comprehensive income (loss) | | (91 | ) | | — |
| | (1 | ) | | — |
| | (92 | ) |
| Balance, as of December 31, 2018 | | (227 | ) | | 2 |
| — |
| (90 | ) | — |
| — |
| | (315 | ) |
| Other comprehensive income (loss) | | 51 |
| | (1 | ) | | 32 |
| | — |
| | 82 |
|
| Income tax benefit (expense) | | (1 | ) | | — |
| | (9 | ) | | — |
| | (10 | ) |
| Net current period other comprehensive income (loss) | | 50 |
| | (1 | ) | | 23 |
| | — |
| | 72 |
|
| Balance, as of December 31, 2019 | | (177 | ) | | 1 |
| | (67 | ) | | — |
| | (243 | ) |
|
| | | | | | | |
| | Dividends Per Share | | Amount (in millions) |
| 2017 | | | |
| Fourth quarter | $ | 0.20 |
| | $ | 118 |
|
| Third quarter | 0.20 |
| | 119 |
|
| Second quarter | 0.20 |
| | 119 |
|
| First quarter | 0.20 |
| | 120 |
|
| Total cash dividends declared and paid | 0.80 |
| | $ | 476 |
|
| | | | |
| 2016 | | | |
| Fourth quarter | $ | 0.17 |
| | $ | 102 |
|
| Third quarter | 0.17 |
| | 102 |
|
| Second quarter | 0.17 |
| | 103 |
|
| First quarter | 0.17 |
| | 102 |
|
| Total cash dividends declared and paid | $ | 0.68 |
| | $ | 409 |
|
| | | | |
| 2015 | | | |
| Fourth quarter | $ | 0.15 |
| | $ | 90 |
|
| Third quarter | 0.15 |
| | 83 |
|
| Second quarter | 0.15 |
| | 85 |
|
| First quarter | 0.13 |
| | 73 |
|
| Total cash dividends declared and paid | $ | 0.58 |
| | $ | 331 |
|
Income before income taxes and the income tax provision consisted of the following for the years ended December 31, 2017, 2016 and 2015 (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Income before income taxes | | | | | |
| Domestic | $ | 1,333 |
| | $ | 1,371 |
| | $ | 1,308 |
|
| Foreign | 1,148 |
| | 1,149 |
| | 1,218 |
|
| Total | $ | 2,481 |
| | $ | 2,520 |
| | $ | 2,526 |
|
| | | | | | |
| Income tax provision | | | | | |
| Current tax expense: | | | | | |
| Federal | $ | 189 |
| | $ | 140 |
| | $ | 266 |
|
| State | 124 |
| | 107 |
| | 92 |
|
| Foreign | 241 |
| | 226 |
| | 268 |
|
| Total | $ | 554 |
| | $ | 473 |
| | $ | 626 |
|
| | | | | | |
| Deferred tax expense (benefit): | | | | | |
| Federal | $ | (21 | ) | | $ | 29 |
| | $ | (677 | ) |
| State | (4 | ) | | 9 |
| | 33 |
|
| Foreign | (8 | ) | | (11 | ) | | (10 | ) |
| | $ | (33 | ) | | $ | 27 |
| | $ | (654 | ) |
| Total income tax expense (benefit) | $ | 521 |
| | $ | 500 |
| | $ | (28 | ) |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Income before income taxes | | | | | |
| Domestic | $ | 1,299 |
| | $ | 1,043 |
| | $ | 824 |
|
| Foreign | 1,218 |
| | 986 |
| | 829 |
|
| | $ | 2,517 |
| | $ | 2,029 |
| | $ | 1,653 |
|
| Income tax provision | | | | | |
| Current tax expense: | | | | | |
| Federal | $ | 266 |
| | $ | 258 |
| | $ | 250 |
|
| State | 92 |
| | 5 |
| | 46 |
|
| Foreign | 268 |
| | 203 |
| | 170 |
|
| | $ | 626 |
| | $ | 466 |
| | $ | 466 |
|
| Deferred tax expense (benefit): | | | | | |
| Federal | $ | (674 | ) | | $ | 65 |
| | $ | (7 | ) |
| State | 33 |
| | 76 |
| | (40 | ) |
| Foreign | (10 | ) | | (27 | ) | | (61 | ) |
| | $ | (651 | ) | | $ | 114 |
| | $ | (108 | ) |
| Total income tax expense (benefit) | $ | (25 | ) | | $ | 580 |
| | $ | 358 |
|
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for the years ended December 31, 2017, 2016 and 2015 is as follows:
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Statutory federal income tax rate | 21 | % | | 21 | % | | 35 | % |
| State and local income taxes, net of federal benefit | 4 |
| | 3 |
| | 3 |
|
| Foreign tax rate differential | (1 | ) | | (1 | ) | | (7 | ) |
| Current year tax benefit from foreign derived intangible income | (1 | ) | | — |
| | — |
|
| Deferred tax benefit due to tax law changes | — |
| | — |
| | (30 | ) |
| Other | (2 | ) | | (3 | ) | | (2 | ) |
| Total provision for income taxes | 21 | % | | 20 | % | | (1 | )% |
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Statutory federal income tax rate | 35 | % | | 35 | % | | 35 | % |
| State and local income taxes, net of federal benefit | 3 |
| | 3 |
| | 2 |
|
| Foreign tax rate differential | (7 | ) | | (7 | ) | | (7 | ) |
| Deferred tax benefit due to tax law changes | (30 | ) | | (2 | ) | | (4 | ) |
| Uncertain tax positions | — |
| | — |
| | (3 | ) |
| Other | (2 | ) | | — |
| | (1 | ) |
| Total provision for income taxes | (1 | )% | | 29 | % | | 22 | % |
On December 22, 2017, the TCJA was signed into law (Note 2). The effective tax rates forTCJA reduced the years ended December 31, 2017, 2016 and 2015 are lower than the federal statutory rate primarily due to favorable U.S. and U.K. tax law changes and favorable foreigncorporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the foreign tax rate differentials partially offset by state income taxes.in 2019 and 2018 are significantly lower than they had been in previous years. Favorable foreign income tax rate differentials result primarily from lower income tax rates in the U.K. and various other lower tax jurisdictions as compared to the historical income tax rates in the U.S.
On December 22, 2017, the TCJA was signed into law (Note 2). The TCJA reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. We arewere required to revalue our U.S. deferred tax assets and liabilities at the new federal corporate income tax rate as of the date of enactment of the TCJA and to include the rate change effect in the tax provision for the period ended December 31, 2017. As a result, we recognized a $764 million deferred tax benefit based on a reasonable estimate of the deferred tax assets and liabilities as of December 22, 2017. This significantly reduced the effective tax rate for the period ended December 31, 2017 in comparison to the effective tax rates forin the last two comparable periods.
During the fourth quarter of 2015, the U.K. reduced the corporate incomeother years presented. The 2017 effective tax rate from 20% to 19%would have been 29% without this deferred tax benefit.
Our effective April 1, 2017 and to 18% effective April 1, 2020. During the third quarter of 2016, the U.K. further reduced their corporate income tax rate from 18% to 17% effective April 1, 2020. The reduction in the future U.S. and U.K. corporate income tax rates resultedwere 21% and 20% in deferred2019 and 2018, respectively. The difference is primarily driven by the 2018 discrete tax benefits.benefits from the acquisition of MERS and the divestiture of Trayport exceeding the net increased tax benefits recorded in 2019 from certain international tax provisions under the TCJA, including the tax benefit from Foreign-Derived Intangible Income, or FDII. The impact of the deferred tax benefits for2019 FDII benefit is outlined in the U.S. and U.K. corporate income tax rate reductions for the years ended December 31, 2017, 2016 and 2015 collectively lowered the effective tax rates by 30%, 2% and 4%, respectively, and resulted in deferred tax benefits of $764 million, $34 million and $60 million, respectively.
The decrease in theabove effective tax rate forreconciliation.
The 2018 effective tax rate was lower than the year ended December 31, 2017 from the comparable period in 2016, is primarily due to the deferredeffective tax benefit associated with the TCJA and tax benefits associated with a divestiture in the second quarter of 2017, partially offset byrate excluding the deferred tax benefit from the U.K. corporate incomeU.S. tax reduction in the third quarter of 2016, additional tax expense from an Illinois corporate income tax rate increase enacted in the third quarter of 2017, and an income tax expense increase due to a relatively higher U.S. mix of income in 2017. The increase in the effective tax rate for the year ended December 31, 2016, from the comparable period in 2015,law changes. This is primarily due to the lower U.S. corporate income tax impactrate that became effective January 1, 2018. In addition, the 2018 effective tax rate was further reduced due to tax benefits from the acquisition of foreign versus U.S. based pre-tax income, lowerMERS and the divestiture
of Trayport, and deferred tax benefits associated with the future U.K. income tax rate reductions, and greater favorable settlements with various taxing authoritiesfrom changes in 2015, partially offset by aestimates. The tax benefit from the early adoptionacquisition of ASU 2016-09MERS is included in 2016."Other" in the above effective tax rate reconciliation.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As a result of the enactment of TCJA on December 22, 2017, we revalued the U.S. deferred tax assets and liabilities at the new federal corporate income tax rate of 21%, for the period ended December 31, 2017. Therefore, the ending balance of the net deferred tax liability for that period is significantly lower compared to the prior periods’ balances. The following table summarizes the significant components of our deferred tax liabilities and assets as of December 31, 20172019 and 20162018 (in millions):
|
| | | | | | | |
| | As of December 31, |
| | 2019 | | 2018 |
| Deferred tax assets: | | | |
| Deferred and stock-based compensation | $ | 82 |
| | $ | 89 |
|
| Pension | 4 |
| | 12 |
|
| Liability reserve | 38 |
| | 35 |
|
| Tax credits | 2 |
| | 3 |
|
| Loss carryforward | 129 |
| | 138 |
|
| Deferred revenue | 22 |
| | 24 |
|
| Other | 42 |
| | 55 |
|
| Total | 319 |
| | 356 |
|
| Valuation allowance | (119 | ) | | (119 | ) |
| Total deferred tax assets, net of valuation allowance | $ | 200 |
| | $ | 237 |
|
| Deferred tax liabilities: | | | |
| Property and equipment | $ | (132 | ) | | $ | (133 | ) |
| Acquired intangibles | (2,382 | ) | | (2,439 | ) |
| Total deferred tax liabilities | $ | (2,514 | ) | | $ | (2,572 | ) |
| Net deferred tax liabilities | $ | (2,314 | ) | | $ | (2,335 | ) |
| Reported as: | | | |
| Net non-current deferred tax assets | $ | — |
| | $ | 2 |
|
| Net non-current deferred tax liabilities | (2,314 | ) | | (2,337 | ) |
| Net deferred tax liabilities | $ | (2,314 | ) | | $ | (2,335 | ) |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Deferred tax assets: | | | |
| Deferred and stock-based compensation | $ | 105 |
| | $ | 166 |
|
| Pension | 16 |
| | 89 |
|
| Liability reserve | 37 |
| | 52 |
|
| Tax credits | 12 |
| | 64 |
|
| Loss carryforward | 147 |
| | 127 |
|
| Deferred revenue | 39 |
| | 38 |
|
| Other | 42 |
| | 47 |
|
| Total | 398 |
| | 583 |
|
| Valuation allowance | (126 | ) | | (122 | ) |
| Total deferred tax assets, net of valuation allowance | $ | 272 |
| | $ | 461 |
|
| Deferred tax liabilities: | | | |
| Property and equipment | $ | (99 | ) | | $ | (113 | ) |
| Acquired intangibles | (2,453 | ) | | (3,302 | ) |
| Total deferred tax liabilities | $ | (2,552 | ) | | $ | (3,415 | ) |
| Net deferred tax liabilities | $ | (2,280 | ) | | $ | (2,954 | ) |
| Reported as: | | | |
| Net non-current deferred tax assets | $ | 3 |
| | $ | 4 |
|
| Net non-current deferred tax liabilities | (2,283 | ) | | (2,958 | ) |
| Net deferred tax liabilities | $ | (2,280 | ) | | $ | (2,954 | ) |
A reconciliation of the beginning and ending amount of deferred income tax valuation allowance is as follows for the years ended December 31, 2017, 2016 and 2015 (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Beginning balance of deferred income tax valuation allowance | $ | 119 |
| | $ | 126 |
| | $ | 122 |
|
| Charges against goodwill | 1 |
| | — |
| | 15 |
|
| Decreases | (1 | ) | | (7 | ) | | (11 | ) |
| Ending balance of deferred income tax valuation allowance | $ | 119 |
| | $ | 119 |
| | $ | 126 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Beginning balance of deferred income tax valuation allowance | $ | 122 |
| | $ | 72 |
| | $ | 75 |
|
| Increases charged to income tax expense | — |
| | 28 |
| | 1 |
|
| Charges against goodwill | 15 |
| | 22 |
| | 1 |
|
| Decreases | (11 | ) | | — |
| | (5 | ) |
| Ending balance of deferred income tax valuation allowance | $ | 126 |
| | $ | 122 |
| | $ | 72 |
|
We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we believe that it is more likely than not that some or all of the deferred tax assets will not be realized. We recorded a valuation allowance for deferred tax assets of $126 million and $122$119 million as of both December 31, 20172019 and 2016, respectively. Increases charged to income tax expense2018. Decreases in 2018 primarily relate to utilization of certain deferred tax assets on foreign net operating and capital losses that we dodid not expect to be realizablerealizable. Decreases in future periods. Increases charged against goodwill primarily relate to deferred tax assets arising on the 2017 acquisition of National Stock Exchange and the 2016 acquisition of a foreign branch that we do not expect to be realizable in future periods. Decreases for the year ended December 31, 2017 relate to the U.S. corporate income tax rate reduction from 35% to 21% and the net impact from the divestitures of Trayport and IDMS. Decreases for the year ended December 31, 2015Increases charged against goodwill primarily relate to net operating loss carryforwards that we determined would be available to offset income in future periods.deferred tax assets arising on the 2017 acquisition of National Stock Exchange.
As part of U.S. tax reform, the TCJA imposesimposed a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits, as computed under U.S. tax principles. As we arewere in an aggregate net foreign deficit position for U.S. tax purposes as of December 31, 2017, we arewere not liable for the transition tax.
OurEffective January 1, 2018, the majority of our 2019 and 2018 current undistributed earnings of our non-U.S. subsidiaries had $4.5 billionbecame subject to the Global Intangible Low-Taxed Income provisions under the TCJA and, as such, are subject to immediate U.S. income taxation and can be distributed to the U.S. with no material additional income tax consequences in the
future. Consequently, these earnings are not considered to be indefinitely reinvested and the related tax impact is included in our income tax provision for the periods ended December 31, 2019 and 2018, respectively.
However, our non-U.S. subsidiaries’ cumulative undistributed earnings as of December 31, 2017. This amount represents2017 and the post-income tax2019 and 2018 current undistributed earnings under U.S. GAAP principles. The earnings from our non-U.S. subsidiariesthat are not subject to the Global Intangible Low-Taxed Income provisions are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made in the accompanying consolidated financial statements. Further, a determination of the unrecognized deferred tax liability is not practicable.
Any future distribution by way of dividend An estimate of these non-U.S.indefinitely reinvested undistributed earnings may subject us to bothas of December 31, 2019, based on post-income tax earnings under U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and withholding taxes payable to various non-U.S. countries. Such dividends may not be
subject to U.S. federal tax under the TCJA and we will continue to monitor both federal and state interpretations, guidance and regulations concerning U.S. tax reform. We will continue to evaluate our indefinite reinvestment assertion in light of any further developments.GAAP, is $5.2 billion.
SAB 118 has provided guidance for companies that havehad not completed their accounting for the income tax effects of the TCJA in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2017,During 2018, we have not completed our accounting for the tax effects of the enactment of the TCJA. We reaffirmed our position that we were not subject to transition tax under the TCJA however,as of December 31, 2017, and therefore, we have madedid not record any transition tax during the measurement period. We also concluded that the $764 million deferred tax benefit recorded in the 2017 tax provision was a reasonable estimate of the effectsimpact of the TCJA on our deferred tax balances, and in relation to the transition tax. In other cases, we have not been able to make a reasonable estimate and will continue to analyze the TCJA in order to finalize any related impacts withinthat no further adjustments were necessary during the measurement period. The FASB Staff also provided additional guidance to address the accounting for the effects of the provisions related to the taxation of GILTI, noting that companies should make
In 2018 we adopted an accounting policy electionregarding the treatment of taxes due on future inclusion of non-U.S. income in U.S. taxable income under the Global Intangible Low-Taxed Income provisions as a current period expense when incurred. Therefore, no deferred tax related to recognize deferred taxes for temporary basis differences expected to reversethese provisions has been recorded as GILTI in future yearsof December 31, 2019 or to include the tax expense in the year it is incurred. We have not completed our analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided for under SAB 118 (Note 2).2018.
As of December 31, 20172019 and 2016,2018, we have gross U.S. federal net operating loss carryforwards of $89$119 million and $59$133 million, respectively, and gross state and local net operating loss carryforwards of $353$110 million and $293$201 million, respectively. The increases for U.Sdecreases of federal and state and local net operating loss carryforwards isare primarily due to acquisitions during 2017.utilization of certain net operating losses in the current year, partially offset by additions related to acquisitions. The majority of the new additions are not expected to be realizable in future periods and have related valuation allowance. The remainingnet operating loss carryforwards are available to offset future taxable income until they begin to expire, with material amounts beginning in 2019.2026. In addition, as of December 31, 20172019 and 2016,2018, we have gross foreign net operating loss carryforwards of $253$282 million and $116$285 million, respectively. The majority of gross foreign net operating losses are not expected to be realizable in future periods and have related valuation allowances.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31, 2017, 2016 and 2015 (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Beginning balance of unrecognized tax benefits | 98 |
| | $ | 115 |
| | 112 |
|
| Additions based on tax positions taken in current year | 17 |
| | 13 |
| | 10 |
|
| Additions based on tax positions taken in prior years | 9 |
| | 7 |
| | 9 |
|
| Reductions based on tax positions taken in prior years | (1 | ) | | — |
| | — |
|
| Reductions resulting from statute of limitation lapses | (13 | ) | | (19 | ) | | (8 | ) |
| Reductions related to settlements with taxing authorities | (7 | ) | | (18 | ) | | (8 | ) |
| Ending balance of unrecognized tax benefits | $ | 103 |
| | $ | 98 |
| | $ | 115 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Beginning balance of unrecognized tax benefits | $ | 112 |
| | $ | 107 |
| | $ | 145 |
|
| Additions related to acquisitions | — |
| | 22 |
| | 7 |
|
| Additions based on tax positions taken in current year | 10 |
| | 9 |
| | 9 |
|
| Additions based on tax positions taken in prior years | 9 |
| | — |
| | 34 |
|
| Reductions based on tax positions taken in prior years | — |
| | (1 | ) | | (51 | ) |
| Reductions resulting from statute of limitation lapses | (8 | ) | | (3 | ) | | (12 | ) |
| Reductions related to settlements with taxing authorities | (8 | ) | | (22 | ) | | (25 | ) |
| Ending balance of unrecognized tax benefits | $ | 115 |
| | $ | 112 |
| | $ | 107 |
|
As of December 31, 20172019 and 2016,2018, the balance of unrecognized tax benefits which would, if recognized, affect our effective tax rate was $77$85 million and $76$81 million, respectively. It is reasonably possible, as a result of settlements of ongoing audits or statute of limitations expirations, unrecognized tax benefits could increase as much as $10$17 million and decrease as much as $39$13 million within the next twelve12 months. Of the $115$103 million in unrecognized tax benefits as of December 31, 2017, $692019, $90 million is recorded as other non-current liabilities and $47$13 million is recorded as other current liabilities in the accompanying consolidated balance sheet.liabilities.
We recognize interest and penalties accrued on income tax uncertainties and accrued penalties as a component of income tax expense. For the years ended December 31,In 2019, 2018 and 2017, 2016 and 2015, we recognized $1$5 million, $1 million($6 million) and $12 million,($1 million), respectively, of income tax benefitexpense/(benefit) for interest and penalties. AccruedAs of December 31, 2019 and 2018, accrued interest and penalties were $35$33 million as of both December 31, 2017 and 2016.$28 million, respectively. Of the $35$33 million in accrued interest and penalties as of December 31, 2017, $252019, $23 million is recorded as other non-current liabilities and $10 million is recorded as other current liabilities in the accompanying consolidated balance sheet.
We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table summarizes open tax years by major jurisdiction:
|
| |
| Jurisdiction | Open Tax Years |
| U.S. Federal | 20142016 - 20172019 |
| U.S. States | 20072008 - 20172019 |
|
| |
| U.K. | 20152018 - 20172019 |
| Netherlands | 20122013 - 20172019 |
Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, including interest and penalties, have been provided for any adjustments expected to result from open tax years.
| |
13.14. | Clearing OrganizationsOperations |
We operate regulated6 clearing houses, each of which acts as a central counterparty that becomes the buyer to every seller and the seller to every buyer for its clearing members. Through this central counterparty function, the clearing houses provide financial security for each transaction for the settlement and clearanceduration of derivative contracts. Thethe position by limiting counterparty credit risk.
Our clearing houses include ICE Clear Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada, ICE Clear Netherlands, ICE Clear Singaporeare responsible for providing clearing services to each of our futures exchanges, and NGX (referredin some cases outside of our execution venues, and are as follows, referred to herein collectively as the “ICE"the ICE Clearing Houses”).Houses":
ICE Clear Europe performs the clearing and settlement for all futures and options contracts traded through ICE Futures Europe and ICE Endex, for energy futures and options contracts trading through ICE Futures U.S., and for CDS contracts submitted for clearing in Europe. |
| | | | | | |
| Clearing House | | Products Cleared | | Exchange where Executed | | Location |
| ICE Clear Europe | | Energy, agricultural, interest rates and equity index futures and options contracts and OTC European CDS instruments | | ICE Futures Europe, ICE Futures U.S., ICE Endex and third-party venues | | U.K. |
| ICE Clear U.S. | | Agricultural, metals, FX and equity index futures and options contracts and digital assets futures contracts | | ICE Futures U.S. | | U.S. |
| ICE Clear Credit | | North American, European, Asian-Pacific and Emerging Market CDS instruments | | Creditex, OTC and third-party venues | | U.S. |
| ICE Clear Netherlands | | Derivatives on equities and equity indices traded on regulated markets | | ICE Endex | | The Netherlands |
| ICE Clear Singapore | | Energy, metals and financial futures products | | ICE Futures Singapore | | Singapore |
| ICE NGX | | Physical North American natural gas, electricity and oil futures | | ICE NGX | | Canada |
ICE Clear Credit performs the clearing and settlement for CDS contracts submitted for clearing in North America.
ICE Clear U.S. performs the clearing and settlement of agricultural, metals, currencies and financial futures and options contracts traded through ICE Futures U.S.
ICE Clear Canada performs the clearing and settlement for all futures and options contracts traded through ICE Futures Canada.
ICE Clear Netherlands offers clearing for Dutch equity options.
ICE Clear Singapore performs the clearing and settlement for all futures and options contracts traded through ICE Futures Singapore.
NGX performs clearing and settlement for North American natural gas, electricity and oil markets and was acquired in December 2017 (Note 3).Original & Variation Margin
Each of the ICE Clearing Houses generally requires all clearing members or participants to maintaindeposit collateral in cash on deposit or pledge certain assets, which may include government obligations, non-government obligations, letters of credit or gold to guarantee performance of the clearing members’ or participants’ open positions. Such amounts in totalpledged assets. The collateral deposits are known as “original margin.” TheIn addition, the ICE Clearing Houses may make intraday original margin calls in circumstances where market conditions require additional protection. The daily profits and losses fromto and tofrom the ICE Clearing Houses due to the marking-to-market of open contracts is known as “variation margin.” With the exception of ICE NGX’s physical natural gas and physical power products discussed separately below, the ICE Clearing Houses mark all outstanding contracts to market, and therefore pay and collect variation margin, at least once daily,daily.
The amounts that the clearing members and in some cases multiple times throughout the day. For NGX’s physical natural gas and power products, NGX marks all outstanding contractsparticipants are required to market daily, but only collects variation margin when a participant’s open position falls outside a specified percentage of its pledged collateral. Marking-to-market allows themaintain are determined by proprietary risk models established by each ICE Clearing Houses to identify any clearing members or participants thatHouse and reviewed by the relevant regulators, independent model validators, risk committees and the boards of directors of the respective ICE Clearing House. The amounts required may be unable to satisfy the financial obligations resulting from changes in the prices of their open contracts before those financial obligations become exceptionally large and jeopardize the abilityfluctuate over time. Each of the ICE Clearing Houses is a separate legal entity and is not subject to ensure financial performancethe liabilities of the others, or the obligations of the members of the other ICE Clearing Houses.
Should a particular clearing members’member or participants’participant fail to deposit its original margin or fail to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge its open positions.positions and use their original margin and guaranty fund deposits to pay any amount owed. In the event that the defaulting clearing member's deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses will first use their respective contributions to the guaranty fund, often referred to as Skin In The Game, or SITG, to pay any remaining amount owed. In the event that the SITG is not sufficient, the ICE Clearing Houses may utilize the respective guaranty fund deposits, or collect additional funds from their respective non-defaulting clearing members on a pro-rata basis, to pay any remaining amount owed.
As of December 31, 2019 and 2018, the ICE Clearing Houses have received or have been pledged $126.0 billion and $121.4 billion, respectively, in cash and non-cash collateral in original margin and guaranty fund deposits to cover price movements of underlying contracts for both periods.
Guaranty Funds & ICE Contribution
As described above, mechanisms have been created, called guaranty funds, to provide partial protection in the event of a clearing member default. With the exception of ICE NGX, each of the ICE Clearing Houses requires that each clearing member make deposits into a guaranty fund.
In addition, we have contributed our own capital which could be used if a defaulting clearing member’s original margin and guaranty fund knowndeposits are insufficient. Such amounts are recorded as long-term restricted cash and cash equivalents in our balance sheets and are as follows (in millions):
|
| | | | | | | | | | | |
| | | ICE Portion of Guaranty Fund Contribution | | Default insurance |
| | | As of December 31, | | As of December 31, |
| Clearing House | | 2019 | | 2018 | | 2019 | | 2018 |
| ICE Clear Europe | | $233 | | $206 | | $75 | | N/A |
| ICE Clear U.S. | | 103 |
| | 61 |
| | 25 |
| | N/A |
| ICE Clear Credit | | 50 |
| | 50 |
| | 50 |
| | N/A |
| ICE Clear Netherlands | | 2 |
| | 2 |
| | N/A |
| | N/A |
| ICE Clear Singapore | | 1 |
| | 1 |
| | N/A |
| | N/A |
| ICE NGX | | 15 |
| | N/A |
| | 100 |
| | $100 |
| Total | | $404 | | $320 | | $250 | | $100 |
In September 2019, we added a “guaranty fund,” which is maintained by the relevant ICE Clearing House. These amounts servelayer of insurance to secure the obligations of aour clearing member default protection. The default insurance has a three-year term that commenced September 17, 2019, for the following clearing houses in the following amounts: ICE Clear Credit - $50 million; ICE Clear Europe - $75 million; and, ICE Clear US - $25 million. The default insurance layer resides after and in addition to the ICE Clearing House to which it has madeClear Credit, ICE Clear Europe, and ICE Clear U.S. SITG contributions and before the guaranty fund depositcontributions of the non-defaulting clearing members.
Similar to SITG, the default insurance layer is not intended to replace or reduce the position risk-based amount of the guaranty fund. As a result, the default insurance layer is not a factor that is included in the calculation of the clearing members’ guaranty fund contribution requirement. Instead, it serves as a new, additional, distinct, and may be usedseparate default resource that should serve to cover losses sustained byfurther protect the respective ICE Clearing Housenon-defaulting clearing members’ guaranty fund contributions from being mutualized in the event of a defaultdefault.
As of a clearing member.December 31, 2019, ICE NGX maintains a guaranty fund utilizing a $100 million letter of credit that has beenand a default insurance policy, discussed below.
Cash and Cash Equivalent Deposits
We have recorded cash and cash equivalent margin deposits and amounts due in our balance sheets as current assets with corresponding current liabilities to the clearing members. As of December 31, 2019, our cash and cash equivalent margin deposits are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | ICE Clear Europe (1) | | ICE Clear
Credit | | ICE Clear U.S. | | ICE NGX | | Other ICE Clearing Houses | | Total |
| Original margin | $ | 28,318 |
| | $ | 22,145 |
| | $ | 6,802 |
| | $ | — |
| | $ | 2 |
| | $ | 57,267 |
|
| Unsettled variation margin, net | — |
| | — |
| | — |
| | 255 |
| | — |
| | 255 |
|
| Guaranty fund | 4,144 |
| | 2,268 |
| — |
| 463 |
| | — |
| | 5 |
| | 6,880 |
|
| Delivery contracts receivable/payable, net | — |
| | — |
| | — |
| | 585 |
| | — |
| | 585 |
|
| Total | $ | 32,462 |
| | $ | 24,413 |
| | $ | 7,265 |
| | $ | 840 |
| | $ | 7 |
| | $ | 64,987 |
|
As of December 31, 2018, our cash and cash equivalent deposits, are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | ICE Clear Europe (2) | | ICE Clear
Credit | | ICE Clear U.S. | | ICE NGX | | Other ICE Clearing Houses | | Total |
| Original margin | $ | 27,597 |
| | $ | 22,770 |
| | $ | 6,260 |
| | $ | — |
| | $ | 3 |
| | $ | 56,630 |
|
| Unsettled variation margin, net | — |
| | — |
| | — |
| | 417 |
| | — |
| | 417 |
|
| Guaranty fund | 3,267 |
| | 2,456 |
| | 460 |
| | — |
| | 5 |
| | 6,188 |
|
| Delivery contracts receivable/payable, net | — |
| | — |
| | — |
| | 720 |
| | — |
| | 720 |
|
| Total | $ | 30,864 |
| | $ | 25,226 |
| | $ | 6,720 |
| | $ | 1,137 |
| | $ | 8 |
| | $ | 63,955 |
|
(1) $27.4 billion and $5.1 billion is related to futures/options and CDS, respectively.
(2) $25.8 billion and $5.1 billion is related to futures/options and CDS, respectively.
Our cash and cash equivalent margin and guaranty fund deposits are maintained in accounts with national banks and reputable financial institutions or secured through direct investments, primarily in U.S. Treasury securities with original maturities of less than three months, or reverse repurchase agreements with primarily overnight maturities.
To provide a tool to address the liquidity needs of our clearing houses and manage the liquidation of margin and guaranty fund deposits held in the form of cash and high quality sovereign debt, ICE Clear Europe, ICE Clear Credit and ICE Clear U.S. have entered into Committed Repurchase Agreement Facilities, or Committed Repo. Additionally, ICE Clear Credit and ICE Clear Netherlands have entered into Committed FX Facilities to support these liquidity needs. As of December 31, 2019 the following facilities were in place:
| |
| • | ICE Clear Europe: $1.0 billion in Committed Repo to finance U.S. dollar, euro and pound sterling deposits. |
| |
| • | ICE Clear Credit: $300 million in Committed Repo to finance U.S. dollar and euro deposits, €250 million in Committed Repo to finance euro deposits, and €1.9 billion in Committed FX Facilities to finance euro payment obligations. |
| |
| • | ICE Clear U.S.: $400 million in Committed Repo to finance U.S. dollar deposits. |
| |
| • | ICE Clear Netherlands: €10 million in Committed FX Facilities to finance euro payment obligations. |
Details of our cash and cash equivalent deposits are as follows (in millions):
|
| | | | | | | | | | | |
| Clearing House | | Investment Type | | | As of
December 31, 2019 | | As of
December 31, 2018 |
| ICE Clear Europe | | National Bank Account (1) | | | $ | 9,667 |
| | $ | 8,647 |
|
| ICE Clear Europe | | Reverse repo | | | 19,187 |
| | 18,097 |
|
| ICE Clear Europe | | Sovereign Debt
| | | 3,591 |
| | 4,035 |
|
| ICE Clear Europe | | Demand deposits | | | 17 |
| | 85 |
|
| ICE Clear Credit | | National Bank Account (2) | | | 19,480 |
| | 19,484 |
|
| ICE Clear Credit | | Reverse repo | | | 2,411 |
| | 1,935 |
|
| ICE Clear Credit | | Demand deposits | | | 2,522 |
| | 3,807 |
|
| ICE Clear U.S. | | Reverse repo | | | 4,320 |
| | 4,380 |
|
| ICE Clear U.S. | | Sovereign Debt
| | | 2,945 |
| | 2,340 |
|
| Other ICE Clearing Houses | | Demand deposits | | | 7 |
| | 8 |
|
| ICE NGX | | Unsettled Variation Margin and Delivery Contracts Receivable/Payable | | | 840 |
| | 1,137 |
|
| Total |
| | | | 64,987 |
| | 63,955 |
|
(1) As of December 31, 2019, ICE Clear Europe held €8.0 billion ($9.0 billion based on the euro/U.S. dollar exchange rate of 1.1212 as of December 31, 2019) at De Nederlandsche Bank, or DNB, £500 million ($663 million based on the pound sterling/U.S. dollar exchange rate of 1.3260 as of December 31, 2019) at the Bank of England, or BOE and €10 million ($11 million based on the above exchange rate) at the BOE. As of December 31, 2018, ICE Clear Europe held €7.0 billion ($8.0 billion based on the euro/U.S. dollar exchange rate of 1.1466 as of December 31, 2018) at DNB, and £500 million ($638 million based on the pound sterling/U.S. dollar exchange rate of 1.2756 as of December 31, 2018) at the BOE.
(2)ICE Clear Credit is a systemically important financial market utility, or SIFMU, as designated by the Financial Stability Oversight Council, and holds its U.S. dollar cash margin in cash accounts at the Federal Reserve Bank of Chicago.
Other Deposits
In addition to the cash deposits above, the ICE Clearing Houses have also received other assets from clearing members, which include government obligations, and may include other non-cash collateral such as letters of credit or gold to mitigate credit risk. For certain deposits, we may impose discount or “haircut” rates to ensure adequate collateral if market values fluctuate. The value-related risks and rewards of these assets remain with the clearing members. Any gain or loss accrues to the clearing member. The ICE Clearing Houses do not, in the ordinary course, rehypothecate or re-pledge these assets. These pledged assets are not reflected in our balance sheets, and are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 |
| | ICE Clear
Europe | | ICE Clear
Credit | | ICE Clear U.S. | | ICE NGX | | | Total |
| Original margin: | | | | | | | | | | |
| Government securities at face value | $ | 30,635 |
| | $ | 13,710 |
| | $ | 12,633 |
| | $ | — |
| | | $ | 56,978 |
|
| Letters of credit | — |
| | — |
| | — |
| | 2,469 |
| | | 2,469 |
|
| ICE NGX cash deposits | — |
| | — |
| | — |
| | 362 |
| | | 362 |
|
| Total | $ | 30,635 |
| | $ | 13,710 |
| | $ | 12,633 |
| | $ | 2,831 |
| | | $ | 59,809 |
|
| Guaranty fund: | | | | | | | | | | |
| Government securities at face value | $ | 475 |
| | $ | 523 |
| | $ | 243 |
| | $ | — |
| | | $ | 1,241 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2018 |
| | ICE Clear
Europe | | ICE Clear
Credit | | ICE Clear U.S. | | ICE NGX | | | Total |
| Original margin: | | | | | | | | | | |
| Government securities at face value | $ | 29,887 |
| | $ | 12,990 |
| | $ | 10,208 |
| | $ | — |
| | | $ | 53,085 |
|
| Letters of credit | — |
| | — |
| | — |
| | 2,556 |
| | | 2,556 |
|
| ICE NGX cash deposits | — |
| | — |
| | — |
| | 605 |
| | | 605 |
|
| Total | $ | 29,887 |
| | $ | 12,990 |
| | $ | 10,208 |
| | $ | 3,161 |
| | | $ | 56,246 |
|
| Guaranty fund: | | | | | | | | | | |
| Government securities at face value | $ | 654 |
| | $ | 256 |
| | $ | 264 |
| | $ | — |
| | | $ | 1,174 |
|
ICE NGX
ICE NGX is the central counterparty to participants on opposite sides of its physically-settled contracts, and the balance related to delivered but unpaid contracts is recorded as a delivery contract net receivable, with an offsetting delivery contract net payable in our balance sheets. Unsettled variation margin equal to the fair value of open contracts is recorded as of each balance sheet date. ICE NGX marks all outstanding contracts to market daily, but only collects variation margin when a clearing member's or participant’s open position falls outside a specified percentage of its pledged collateral.
ICE NGX requires participants to maintain cash or letters of credit to serve as collateral in the event of default. The cash is maintained in a segregated bank account, held in trust and remains the property of the participant, therefore, it is not included in our balance sheets. ICE NGX maintains the following accounts with a third-party Canadian chartered bank which are available in the event of physical settlement shortfalls, subject to certain conditions:
|
| | | | | | |
| Account Type: | | As of December 31, 2019 (In C$ millions) | | As of December 31, 2019 (In $USD millions) |
| Daylight liquidity facility | | C$300 | | $231 |
| Overdraft facility | | 20 |
| | 15 |
|
| Total | | C$320 | | $246 |
As of December 31, 2019, ICE NGX maintains a guaranty fund of $100 million funded by a letter of credit issued by a major Canadian chartered bank, and backed by a default insurance policy underwritten by Export Development Corporation,Canada, or EDC, a Crown corporation operated at arm’s length from the Canadian government agency.government. In the event of a participant default where athe participant’s collateral becomesis depleted, any remainingthe shortfall would be covered by a draw down on the letter of credit following which ICE NGX would payfile a claim under the first $15 million in losses per its deductible anddefault insurance to recover additional losses under the insurance policy up to $100 million. We have provided a parent guarantymillion beyond the $15 million first-loss amount that ICE NGX is responsible for under the default insurance policy.
Clearing House Exposure
The net notional value of $100 million in favor of the major Canadian chartered bank and we voluntarily reserved $100 million of our Amended Credit Facility to backstop that parent guaranty (Note 11).
We have contributed cash of $150 million, $50 million and $50 million to the guaranty funds of ICE Clear Europe, ICE Clear Credit and ICE Clear US, respectively,unsettled contracts was $2.8 trillion as of December 31, 2017, and such amounts are at risk and could be used in the event of a clearing member default where the amount of the defaulting clearing member’s original margin and guaranty fund deposits are insufficient. We have also contributed $4 million in cash in total to the guaranty funds of ICE Clear Canada, ICE Clear Netherlands and ICE Clear Singapore. The $254 million combined contributions to the guaranty funds as of December 31, 2017 and 2016 are included in long-term restricted cash and cash equivalents in the accompanying consolidated balance sheets (Note 5).
For ICE Clear Europe, if a futures and options clearing member’s deposits are depleted and a default occurs, then a $100 million contribution made by us to the ICE Clear Europe guaranty fund would be utilized after the available funds of the defaulting clearing member but before all other amounts within the guaranty fund. The $100 million is solely available in the event of an ICE Clear Europe futures and options clearing member default. We have contributed $50 million to the ICE Clear Europe CDS guaranty fund and it would be utilized after the available funds of the defaulting CDS clearing member but before all other amounts within the CDS guaranty fund. The $50 million contribution to the ICE Clear U.S. guaranty fund and the $50 million contribution to the ICE Clear Credit guaranty fund would be utilized after the available funds of the defaulting clearing member but before all other amounts within the guaranty fund.
Each of the ICE Clearing Houses has equal and offsetting claims to and from their respective clearing members or participants on opposite sides of each cleared contract. This arrangement allows the ICE Clearing Houses to serve as the central financial counterparty on every cleared contract.2019. Each ICE Clearing House bears financial counterparty credit risk in the event that market movements create conditions that leadand provides a central counterparty guarantee, or performance guarantee, to its clearing members or participants failing to meetparticipants. To reduce their financial obligations to that ICE Clearing House. Accordingly,exposure, the ICE Clearing Houses account for this central counterparty guarantee ashave a performance guarantee. Given that each contract is marginedrisk management program with both initial and marked-to-market or settled at least once daily for each clearing member, or inongoing membership standards. Excluding the caseeffects of NGX, collateralized for each participant,original and variation margin, guaranty fund and collateral requirements, the ICE Clearing Houses’ maximum estimated exposure for this guarantee excluding the effects of original and variation margin requirements and mandatory deposits to the applicable guaranty fund by clearing members and collateral from its participants, is $78.3$108.8 billion as of December 31, 2017,2019, which represents the maximum estimated value by the ICE Clearing Houses of a hypothetical one dayone-day movement in pricing of the underlying unsettled contracts. This amount is based on calculationsvalue was determined using proprietary risk management software that simulates gains and losses based on historical market prices, volatility and other factors present at that point in time for those particular unsettled contracts. Future actual market price volatility could result in the exposure being significantly different than the amount estimated by the ICE Clearing Houses. The net notional value of unsettled contracts was $2.6 trillion as of December 31, 2017. this amount.
We also performed calculations to determine the fair value of our counterparty performance guarantee taking into consideration factors such as daily settlement of contracts, margining and collateral requirements, other elements of our risk management program, historical evidence of default payments, and estimated probability of potential default payouts by the ICE Clearing Houses. Based on these analyses, the estimated counterparty performance guarantyguarantee liability was determined to be nominal and no liability was recorded as of December 31, 20172019 and 2016.
2018. The ICE Clearing Houses seek to reduce their exposure through a risk management program that includes initial and ongoing financial standards for clearing member and participant admission and continued membership, original and variation margin and collateral requirements, and mandatory deposits to the guaranty fund. The amounts that the clearing members and participants are required to maintain in the original margin, guaranty fund and collateral accounts are determined by standardized parameters established by the risk management departments and reviewed by the risk committees and the boards of directors of each of the ICE Clearing Houses and may fluctuate over time. As of December 31, 2017 and 2016, the ICE Clearing Houses have received or have been pledged $92.6 billion and $95.7 billion, respectively, in cash and non-cash collateral in original margin and guaranty fund deposits to cover price movements of underlying contracts for both periods. With the exception of NGX, the ICE Clearing Houses also have powers of assessment that provide the ability to collect additional funds from their clearing members to cover a defaulting member’s remaining obligations up to the limits established under the respective rules of each ICE Clearing House.
Should a particular clearing member or participant fail to deposit original margin, provide collateral, or fail to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge the clearing member’s or participant’s open positions and use their original margin and guaranty fund deposits to make up any amount owed. In the event that those deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses may utilize the respective guaranty fund deposits of their respective clearing members on a pro-rata basis for that purpose.
NGX administers the physical delivery of energy trading contracts. It hasnever experienced an equal and offsetting claim to and from their respective participants on opposite sides of the physically settled contract. The balance related to delivered but unpaid contracts is reflected as a delivery contract net receivable with an offsetting delivery contract net payable in the accompanying consolidated balance sheet as of December 31, 2017. NGX also records unsettled variation margin equal to the fair value of open energy trading contracts as of the balance sheet date. Fair value is determined based on the difference between the trade price when the contract was entered into and the settlement price and is considered a Level 2 fair value measurement. There is no impact to the consolidated statements of income for either delivery contracts receivable/payable and unsettled variation margin, as an equivalent amount is recognized in both the assets and liabilities.
In connection with the NGX physical delivery of the energy trading contracts, we maintain a daylight liquidity facility with a major Canadian chartered bank in the amount of C$300 million. This facility may be used on settlement day to effect payments through the settlement accounts and it is intended to cover any intra-day shortfalls due to timing of payments and receipts. In the event that amounts drawn on settlement day do not clear to zero by the end of the day, we must repay the deficiency on the following business day. In addition, a C$20 million overdraft facility is in place with the same major Canadian chartered bank and is available to repay the daylight liquidity facility on the business day following a settlement day.
As of December 31, 2017, our cash margin deposits, unsettled variation margin, guaranty fund and delivery contracts receivable/payable are as follows for the ICE Clearing Houses (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | ICE Clear
Europe | | ICE Clear
Credit | | ICE Clear U.S. | | NGX | | Other ICE Clearing Houses | | Total |
| Original margin | $ | 19,792 |
| | $ | 20,703 |
| | $ | 3,898 |
| | $ | — |
| | $ | 126 |
| | $ | 44,519 |
|
| Unsettled variation margin, net | — |
| | — |
| | — |
| | 227 |
| | 1 |
| | 228 |
|
| Guaranty fund | 3,037 |
| | 2,607 |
| | 299 |
| | — |
| | 23 |
| | 5,966 |
|
| Delivery contracts receivable/payable, net | — |
| | — |
| | — |
| | 509 |
| | — |
| | 509 |
|
| Total | $ | 22,829 |
| | $ | 23,310 |
| | $ | 4,197 |
| | $ | 736 |
| | $ | 150 |
| | $ | 51,222 |
|
As of December 31, 2016, our cash margin deposits and guaranty fund are as follows for the ICE Clearing Houses (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | ICE Clear
Europe | | ICE Clear
Credit | | ICE Clear U.S. | | Other ICE Clearing Houses | | Total |
| Original margin | $ | 27,046 |
| | $ | 16,833 |
| | $ | 6,184 |
| | $ | 107 |
| | $ | 50,170 |
|
| Guaranty fund | 2,444 |
| | 2,135 |
| | 316 |
| | 85 |
| | 4,980 |
|
| Total | $ | 29,490 |
| | $ | 18,968 |
| | $ | 6,500 |
| | $ | 192 |
| | $ | 55,150 |
|
We have recorded these cash deposits and amounts due in the accompanying consolidated balance sheets as current assets with corresponding current liabilities to the clearing members of the relevant ICE Clearing House. All cash, securities and amounts due are available only to meet the financial obligations of that clearing member to the relevant ICE Clearing House. ICE Clear Europe, ICE Clear Credit, ICE Clear US, ICE Clear Canada, ICE Clear Netherlands, ICE Clear Singapore and NGX are separate legal entities and are not subject to the liabilities of the other ICE Clearing Houses or the obligations of the members of the other ICE Clearing Houses. The amount of these cash deposits and amounts due may fluctuate due to the types of margin collateral choices available to clearing members and the change in the amount of deposits required. As a result, these assets and corresponding liabilities may vary significantly over time.
Of the cash held by the ICE Clearing Houses, as of December 31, 2017, $24.7 billion is secured in reverse repurchase agreements with primarily overnight maturities or direct investment in government securities. ICE Clear Credit, as a systemically important financial market utility as designated by the Financial Stability Oversight Council, held $18.5 billion of its U.S. dollar cash in the guaranty fund and in original margin in cash accounts at the Federal Reserve Bank of Chicago as of December 31, 2017. During the quarter ended September 30, 2017, ICE Clear Europe established a Euro-denominated account at the De Nederlandsche Bank, or DNB, the central bank of the Netherlands. This account provides the flexibility for ICE Clear Europe to place Euro-denominated cash margin securely at a national bank, in particular during periods when liquidity in the Euro repo markets may temporarily become contracted, such as over a quarter or year end. As of December 31, 2017, ICE Clear Europe held €3.3 billion ($4.0 billion based on the euro/U.S. dollar exchange rate of 1.2003 as of December 31, 2017) at DNB. The remaining cash deposits at the ICE Clearing Houses are held in demand deposit accounts at large, highly rated financial institutions and direct investments primarily in U.S. Treasury securities with original maturities of less than three months, plus certain U.S. Treasury Securities that extend beyond 12-months which we consider to be Level 1 securities. The carrying value of these securities approximates their fair value due to the short-term nature of the instruments and repurchase agreements.
Of the $22.8 billion of ICE Clear Europe cash deposits as of December 31, 2017, which are primarily held in U.S. dollars, euros and pounds sterling, $18.5 billion relates to futures and options products and $4.3 billion relates to cleared OTC European CDS instruments. ICE Clear Europe offers a separate clearing platform, risk model and risk pool for futures and options products that is distinct from those associated with cleared OTC European CDS instruments.
In addition to the cash deposits for original margin and the guaranty fund, the ICE Clearing Houses have also received other assets from clearing members, which include government obligations, and may include other non-cash collateral such as certain agency and corporate debt, letters of credit or gold to mitigate credit risk. These assets are not reflected in the accompanying consolidated balance sheets as the risks and rewards of these assets remain with the clearing members unless the ICE Clearing Houses have sold or re-pledged the assets or in the eventincident of a clearing member default wherewhich has required the clearing member is no longer entitled to redeem the assets. Any income, gain or loss accrues to the clearing member. For certain non-cash deposits, the ICE Clearing Houses may impose discount or “haircut” rates to ensure adequate collateral levels to account for fluctuations in the market value of these deposits.
NGX requires participants to maintain cash or letters of credit to serve as collateral in the event of a participant default. The cash is maintained in a segregated bank account which is subject to a collateral agreement between the bank, the participant and NGX. Per the agreement, NGX serves in the capacity of a trustee. The cash is held by NGX in trust for and on behalfuse of the participant; however, the cash remains the propertyguaranty funds of the participant and may only be accessed by NGX if there is evidence of default. The rules governing when the cash can be accessed by NGX are listed in the Contracting Party Agreement, a standardized agreement signed by each
participant that also allows for netting of positive and negative exposure. Since the cash is held in trust and remains the property of the participant, it is not included in the accompanying consolidated balance sheet.
As of December 31, 2017 and 2016, the assets pledged by thenon-defaulting clearing members as original margin, which includes cash deposits held in trust at NGX, and guaranty fund deposits for eachor the assets of the ICE Clearing Houses are detailed below (in millions):Houses.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2017 | | As of December 31, 2016 |
| | ICE Clear
Europe | | ICE Clear
Credit | | ICE Clear U.S. | | NGX | | Other ICE Clearing Houses | | ICE Clear
Europe | | ICE Clear
Credit | | ICE Clear U.S. | | Other ICE Clearing Houses |
| Original margin: | | | | | | | | | | | | | | | | | |
| Government securities at face value | $ | 23,496 |
| | $ | 5,699 |
| | $ | 9,581 |
| | $ | — |
| | $ | 18 |
| | $ | 22,961 |
| | $ | 6,013 |
| | $ | 10,542 |
| | $ | 37 |
|
| Letters of credit | — |
| | — |
| | — |
| | 1,663 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| NGX cash deposits | — |
| | — |
| | — |
| | 233 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 368 |
|
| Total | $ | 23,496 |
| | $ | 5,699 |
| | $ | 9,581 |
| | $ | 1,896 |
| | $ | 18 |
| | $ | 22,961 |
| | $ | 6,013 |
| | $ | 10,542 |
| | $ | 405 |
|
| Guaranty fund: | | | | | | | | | | | | | | | | | |
| Government securities at face value | $ | 323 |
| | $ | 176 |
| | $ | 169 |
| | $ | — |
| | $ | 2 |
| | $ | 217 |
| | $ | 178 |
| | $ | 147 |
| | $ | 40 |
|
| |
14.15. | Commitments and Contingencies |
Leases
We have lease agreements for office space, equipment facilities and certain computer equipment under lease agreementsfor varying periods that expire at various dates through 2028. Our leases typically contain terms which may include renewal options, rent escalations, rent holidays and leasehold improvement incentives. We had no capital leases as of December 31, 2017 and 2016. Rental expense under these leases, included in the accompanying consolidated statements of income in rent and occupancy and technology and communication expenses, totaled $65 million, $65 million and $53 million for the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017, future minimum lease payments under these non-cancelable operating agreements are as follows (in millions): |
| | | |
| 2018 | $ | 78 |
|
| 2019 | 75 |
|
| 2020 | 72 |
|
| 2021 | 71 |
|
| 2022 | 63 |
|
| Thereafter | 162 |
|
| Total | $ | 521 |
|
Redeemable Non-controlling Interest
As part of the ICE Endex purchase agreement, Gasunie had a put option to sell to us, and we had a call option to purchase from Gasunie, Gasunie’s entire 21% remaining ownership in ICE Endex at fair market value. As part of the ICE Clear Netherlands acquisition, ABN AMRO Clearing Bank N.V. had a put option to sell to us, and we had a call option to purchase from ABN AMRO, ABN AMRO’s entire remaining 25% ownership in ICE Clear Netherlands at fair market value. Since the likelihood of us acquiring both of the non-controlling interests in the future was probable, we recorded the full redemption fair value of $36 million as of December 31, 2016 relating to ICE Endex and ICE Clear Netherlands as mezzanine equity and classified the related balance as “redeemable non-controlling interest” in our accompanying consolidated balance sheet and the proportionate share of profits was recorded as net income attributable to non-controlling interest in our consolidated statements of income. Changes in the redemption value of the non-controlling interest are recorded to the redeemable non-controlling interest balance in full as they occur. During June 2017, we purchased both Gasunie’s 21% minority ownership interest in ICE Endex and ABN AMRO Clearing Bank N.V.’s 25% minority ownership interest in ICE Clear Netherlands. Subsequent to these acquisitions, we own 100% of ICE Endex and ICE Clear Netherlands and will no longer include any non-controlling interest amounts for ICE Endex and ICE Clear Netherlands in our consolidated financial statements.
Prior to the our acquisition of NYSE, NYSE completed the sale of a significant equity interest in NYSE American Options, one2029. All of our two U.S. options exchanges, to seven external investors. Under the termsleases are classified as operating leases. For details of the sale, the external investors had the option to require us to repurchase a portion of the equity interest on an annual basis. In June 2015 we repurchased the remaining 16% of the interest for $128 million in cash. Effective from July 1, 2015, all of the profits from NYSE American Options are retained by us as we now own 100% of NYSE American Options.
our lease assets, lease liabilities and rent expense see Note 2.
Legal Proceedings
We are subject to legal proceedings, claims and investigations that arise in the ordinary course of our business. We establish accrualsrecord estimated expenses and reserves for those matters in circumstances when a loss contingency is considered probable and the related amount is reasonably estimable. Any such accruals may be adjusted as circumstances change. Assessments of losses are inherently subjective and involve unpredictable factors. We do not believe that the resolution of these legal matters, including the matters described below, will have a material adverse effect on our consolidated financial condition, results of operations, or liquidity. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially and adversely affected by any developments relating to the legal proceedings, claims and investigations. The matters described below all relate to our operation of NYSE. A range of possible losses related to the cases below cannot be reasonably estimated at this time, except as otherwise disclosed below.
City of Providence Litigation
In April 2014, New York Stock Exchange LLC and NYSE Arca, Inc., two of our subsidiaries, were among more than 40 financial institutions and exchanges named as defendants in four4 purported class action lawsuits filed in the U.S. District Court for the Southern District of New York, or the Southern District, by the City of Providence, Rhode Island, and other plaintiffs. In subsequent consolidated amended complaints, the plaintiffs asserted claims against the exchange defendants and Barclays PLC, or Barclays, a subsidiary of which operates an alternative trading systemATS known as Barclays LX, on behalf of a class of “all public investors” who bought or sold stock from April 18, 2009 to the present on the U.S.-based equity exchanges operated by the exchange defendants or on Barclays LX.
In August 2015, the district court issued an opinion and order grantinggranted the defendants’ motions to dismiss and dismissingdismissed the second amended complaint in its entirety with prejudice. The court held that the plaintiffs had failed to sufficiently state a claim against the defendants under Sections 10(b) and 6(b) of the Exchange Act, and additionally that some of the claims against the exchanges were barred by the doctrine of self-regulatory organization immunity. In September 2015, the plaintiffs filed a notice ofan appeal of the dismissal of the lawsuit to the U.S. Court of Appeals for the Second Circuit, or the Second Circuit. The appeal was briefed and argued during 2016.
On December 19,In 2017, the Second Circuit issued a decision vacating the dismissal and remanding the case to the district court for further proceedings. The Second Circuit held that the claims against the exchanges were not barred by the doctrine of self-regulatory organization immunity because (according to the Second Circuit) the exchanges were not carrying out regulatory functions while operating their markets and engaging in the challenged conduct at issue, and that the plaintiffs had adequately pleaded claims against the defendants under Section 10(b) of the Exchange Act. The Second Circuit directed that, on remand, the district court should address and
rule upon various other defenses raised by the exchanges in their motion to dismiss (which the district court did not address in its prior opinion and order).
In 2018, the defendant exchanges then filed a new motion to dismiss seeking dismissal on grounds other than those considered by the Second Circuit in its remand decision. On May 28, 2019, the district court denied the motion. The exchanges disagree with various aspectsfiled a motion in the district court on June 17, 2019 asking the court to certify the matter for an immediate appeal to the U.S. Court of Appeals for the Second Circuit and on July 16, 2019, the court denied the exchanges' motion. On July 25, 2019, the exchanges filed answers to the second amended complaint, denying the principal allegations of the Second Circuit’s decision,plaintiffs, denying liability in the matter, and onasserting various affirmative defenses. The discovery period in the matter commenced and is scheduled to continue through 2020.
LIBOR Litigation
On January 15, 2019 and January 31, 2018, filed a petition for rehearing and/or rehearing en banc.
In May 2014, three2019, 2 virtually identical purported class action lawsuitscomplaints were filed (and later amended)by, respectively, Putnam Bank, a savings bank based in Putnam, Connecticut, and 2 municipal pension funds affiliated with the City of Livonia, Michigan in the U.S. District Court for the Southern District by Harold Lanier against the securities exchanges that are participants in each of the three national market system data distribution plans - the Consolidated Tape Association/Consolidated Quotation Plan, the Nasdaq UTP Plan, and the Options Price Reporting Authority, or the Plans, - which are established under the Exchange Act and regulated by the SEC. New York Stock Exchange LLC, NYSE Arca, Inc.against ICE and NYSE American (NYSE Americanseveral of its subsidiaries, including ICE Benchmark Administration Limited (“IBA”) (the “ICE Defendants”), as well as 18 multinational banks and various of their respective subsidiaries and affiliates (the “Panel Bank Defendants”). On March 4, 2019, a virtually identical complaint was formerly known as NYSE MKT), which are our subsidiaries, were among the defendants named in one or more of the suits, in which Lanier claimed to suefiled on behalf of himselffour retirement and benefit funds affiliated with the Hawaii Sheet Metal Workers Union. IBA is the administrator for various regulated benchmarks, including the ICE LIBOR benchmark that is calculated daily based upon the submissions from a reference panel (which includes the Panel Bank Defendants). On July 1, 2019, the various plaintiffs referenced above filed a consolidated amended complaint against the ICE and Panel Bank Defendants.
The plaintiffs seek to litigate on behalf of a purported class of all other similarly situated subscribersU.S.-based persons or entities who transacted with a Panel Bank Defendant by receiving a payment on an interest rate indexed to a one-month or three-month USD LIBOR-benchmarked rate during the period from February 1, 2014 to the market data disseminatedpresent. The plaintiffs allege that the ICE and Panel Bank Defendants engaged in a conspiracy to set the LIBOR benchmark at artificially low levels, with an alleged purpose and effect of depressing payments by the Plans. Lanier’s allegations included thatPanel Bank Defendants to members of the exchange participants inpurported class.
As with the Plans breached agreements with subscribers by disseminating market data inindividual complaints, the consolidated amended complaint asserts a discriminatory manner in thatclaim for violations of the Sherman and Clayton Antitrust Acts and seeks unspecified treble damages and other “preferred” customers allegedly received their data faster than the proposed class. In September 2014, the defendants movedrelief. The ICE and Panel Bank Defendants filed motions to dismiss the consolidated amended complaints, and in April 2015, thecomplaint on August 30, 2019. The district court issued an opinion and order granting the motion and dismissing the three lawsuits with prejudice. In September 2016, the Second Circuit entered an order affirming the dismissal of the lawsuits. In November 2016, the Second Circuit denied a petition filed by Lanier, relating only to the lawsuit involving the Options Price Reporting Authority plan, seeking a rehearing by the panel of judges that decided the appeal or, in the alternative, for review by the full Second Circuit. Lanier has not sought review of these matters by the U.S. Supreme Court and we consider this matter closed.
In December 2015, our subsidiaries New York Stock Exchange LLC and NYSE American received an inquiry from the Enforcement staff of the New York regional office, or the Staff, of the SEC regarding a July 8, 2015 outageheard oral arguments on the NYSE markets, during which trading was suspended for approximately 3.5 hours in all symbols. The Staff’s investigation proceeded throughout 2016. On December 29, 2016, NYSE received a Wells Notice stating thatmotions on January 30, 2020, and the Staff have made a preliminary determinationparties are awaiting the court's decision. ICE intends to recommend thatvigorously defend the SEC file an enforcement action in connection with how NYSE responded on July 8, 2015 to the circumstances leading into the suspension of trading that day. NYSE disputes the appropriateness of the proposed charges, believes there are substantial defenses, and has made a written submission to the Staff in response to the Wells Notice setting forth such points. If the Staff determines to maintain its recommendation contained in the Wells Notice, the Commissioners of the SEC will need to determine whether to authorize the filing of an enforcement action. For this matter and other SEC investigative matters, we have recorded an aggregate of $14 million in expense accruals during the year ended December 31, 2017.
matter.
Tax Audits
We are engaged in ongoing discussions and audits with taxing authorities on various tax matters, the resolutions of which are uncertain. Currently, there are matters that may lead to assessments involving us or one of our subsidiaries, some of which may not be resolved for several years. Based on currently available information, we believe we have adequately provided for any assessments that could result from those proceedings where it is more likely than not that we will be assessed. We continuously review our positions as these matters progress.
| |
15.16. | Pension and Other Benefit Programs |
Defined Benefit Pension Plan
We have a pension plan covering employees in certain of our U.S. operations. Theoperations whose benefit accrual for the pension plan ishas been frozen. Retirement benefits are derived from a formula, which is based on length of service and compensation. Based on this calculation, we may contribute
We did 0t make any contributions to our pension plan to the extent such contributions may be deducted for income tax purposes.
during 2019 or 2018. During the year ended December 31, 2017, in connection with our de-risking strategy, we contributed $136 million to our pension plan. At the same time, we changed the plan’s target allocation from 65% equity securities and 35% fixed income securities, to 5% equity securities and 95% fixed income securities. The fixed income allocation includes corporate bonds of companies from diversified industries and U.S. government bonds. As a result of this contribution and change in investment policy, we anticipate that there will be less need for pension contributions in future years, and the pension plan will not be required to pay the Pension Benefit Guaranty Corporation variable rate premiums. Income is expected to be lower than it was in prior periods because the expected return on plan assets is lower.
During the years ended December 31, 2016 and 2015, we contributed $10 million each year to our pension plan. During the year ended December 31, 2018, weWe do not expect to make contributions to the pension plan.plan in 2020. We will continue to monitor the plan’s funded status, and we will consider modifying the plan’s investment policy based on the actuarial and funding characteristics of the retirement plan, the demographic profile of plan participants, and our business objectives. Our long-term objective is to keep the plan at or near full funding, while minimizing the risk inherent in pension plans.
Based on the valuation techniques described in Note 16, theThe fair values of our pension plan assets as of December 31, 2017,2019, by asset category, are as follows (in millions):
| | | | Fair Value Measurements | | Fair Value Measurements |
| Asset Category | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| Cash | $ | 164 |
| | $ | — |
| | $ | — |
| | $ | 164 |
| | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 7 |
|
| Equity securities: | | | | | | | | | | | | | | | |
| U.S. large-cap | — |
| | 30 |
| | — |
| | 30 |
| | — |
| | 25 |
| | — |
| | 25 |
|
| U.S. small-cap | — |
| | 8 |
| | — |
| | 8 |
| | — |
| | 7 |
| | — |
| | 7 |
|
| International | — |
| | 15 |
| | — |
| | 15 |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Fixed income securities | 335 |
| | 314 |
| | 3 |
| | 652 |
| | 137 |
| | 751 |
| | 6 |
| | 894 |
|
| Total | $ | 499 |
| | $ | 367 |
| | $ | 3 |
| | $ | 869 |
| | $ | 144 |
| | $ | 796 |
| | $ | 6 |
| | $ | 946 |
|
The above table excludes trades pending settlement with a net obligation of $52 million as of December 31, 2019. These trades settled in January 2020.
The fair values of our pension plan assets as of December 31, 2016,2018, by asset category, are as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Fair Value Measurements |
| Asset Category | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| Cash | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 8 |
|
| Equity securities: | | | | | | | | |
| U.S. large-cap | | — |
| | 21 |
| | — |
| | 21 |
|
| U.S. small-cap | | — |
| | 5 |
| | — |
| | 5 |
|
| International | | — |
| | 11 |
| | — |
| | 11 |
|
| Fixed income securities | | 127 |
| | 640 |
| | 7 |
| | 774 |
|
| Total | | $ | 135 |
| | $ | 677 |
| | $ | 7 |
| | $ | 819 |
|
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements |
| Asset Category | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| Cash | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | 21 |
|
| Equity securities: |
| |
| |
| |
|
| U.S. large-cap | — |
| | 247 |
| | — |
| | 247 |
|
| U.S. small-cap | — |
| | 68 |
| | — |
| | 68 |
|
| International | — |
| | 134 |
| | — |
| | 134 |
|
| Fixed income securities | 106 |
| | 102 |
| | 3 |
| | 211 |
|
| Total | $ | 127 |
| | $ | 551 |
| | $ | 3 |
| | $ | 681 |
|
The above table excludes trades pending settlement with a net obligation of $25 million as of December 31, 2018. These trades settled in January 2019.
The measurement dates for the pension plan are December 31, 20172019 and 2016.2018. The following table provides a summary of the changes in the pension plan’s benefit obligations and the fair value of assets measured using the valuation techniques described in Note 17, as of December 31, 20172019 and 20162018 and a statement of funded status of the pension plan as of December 31, 20172019 and 20162018 (in millions):
| | | | As of December 31, | As of December 31, |
| | 2017 | | 2016 | 2019 | | 2018 |
| Change in benefit obligation: | | |
| | | |
| Benefit obligation at beginning of year | $ | 853 |
| | $ | 861 |
| $ | 791 |
| | $ | 875 |
|
| Interest cost | 27 |
| | 27 |
| 28 |
| | 26 |
|
| Actuarial loss | 44 |
| | 14 |
| |
| Actuarial (gain) loss | | 90 |
| | (61 | ) |
| Benefits paid | (49 | ) | | (49 | ) | (48 | ) | | (49 | ) |
| Benefit obligation at year end | $ | 875 |
| | $ | 853 |
| $ | 861 |
| | $ | 791 |
|
| Change in plan assets: | | |
| | | |
| Fair value of plan assets at beginning of year | $ | 681 |
| | $ | 666 |
| $ | 794 |
| | $ | 869 |
|
| Actual return on plan assets | 101 |
| | 54 |
| 148 |
| | (26 | ) |
| Contributions | 136 |
| | 10 |
| — |
| | — |
|
| Benefits paid | (49 | ) | | (49 | ) | (48 | ) | | (49 | ) |
| Fair value of plan assets at end of year | $ | 869 |
| | $ | 681 |
| $ | 894 |
| | $ | 794 |
|
| Funded status | $ | (6 | ) | | $ | (172 | ) | $ | 33 |
| | $ | 3 |
|
| Accumulated benefit obligation | $ | 875 |
| | $ | 853 |
| $ | 861 |
| | $ | 791 |
|
| Amounts recognized in the accompanying consolidated balance sheets: | | |
| | | |
| Accrued employee benefits | $ | (6 | ) | | $ | (172 | ) | |
| Accrued pension plan asset | | $ | 33 |
| | $ | 3 |
|
The following shows the components of the pension plan expense (benefit) in the accompanying consolidated statements of income are set forth below for the years ended December 31,2019, 2018 and 2017 2016 and 2015 (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Interest cost | $ | 28 |
| | $ | 26 |
| | $ | 27 |
|
| Estimated return on plan assets | (31 | ) | | (29 | ) | | (44 | ) |
| Amortization of loss | 3 |
| | 4 |
| | 2 |
|
| Aggregate pension expense (benefit) | $ | — |
| | $ | 1 |
| | $ | (15 | ) |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Interest cost | $ | 27 |
| | $ | 27 |
| | $ | 34 |
|
| Estimated return on plan assets | (44 | ) | | (44 | ) | | (46 | ) |
| Amortization of loss | 2 |
| | 1 |
| | 2 |
|
| Aggregate pension benefit | $ | (15 | ) | | $ | (16 | ) | | $ | (10 | ) |
We use a market-related value of plan assets when determining the estimated return on plan assets. Gains/losses on plan assets are amortized over a four yearfour-year period and accumulate in other comprehensive income. We recognize deferred gains and losses in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year.
The following table shows the projected payments for the pension plan based on actuarial assumptions (in millions):
|
| | | |
| 2020 | $ | 49 |
|
| 2021 | 50 |
|
| 2022 | 49 |
|
| 2023 | 49 |
|
| 2024 | 49 |
|
| Next 5 years | 243 |
|
|
| | | |
| 2018 | $ | 50 |
|
| 2019 | 50 |
|
| 2020 | 49 |
|
| 2021 | 49 |
|
| 2022 | 49 |
|
| Next 5 years | 247 |
|
Supplemental Executive Retirement Plan
We have a U.S. nonqualified supplemental executive retirement plan, or SERP, which provides supplemental retirement benefits for certain employees. The future benefit accrual of the SERP plan is frozen. To provide for the future payments of these benefits, we have purchased insurance on the lives of certain of the participants through company-owned policies. As of December 31, 20172019 and 2016,2018, the cash surrender value of such policies was $55$58 million and $53$57 million, respectively, and is included in other non-current assets in the accompanying consolidated balance sheets. We also acquired a SERP through both the ICE NGX acquisition.and CHX acquisitions. The following table provides a summary of the changes in the SERP benefit obligations (in millions):
|
| | | | | | | |
| | As of December 31, |
| | 2019 | | 2018 |
| Change in benefit obligation: | | | |
| Benefit obligation at beginning of year | $ | 41 |
| | $ | 49 |
|
| Interest cost | 1 |
| | 1 |
|
| Actuarial (gain) loss | 4 |
| | (2 | ) |
| Benefits paid | (5 | ) | | (7 | ) |
| Benefit obligation at year end | $ | 41 |
| | $ | 41 |
|
| Funded status | $ | (41 | ) | | $ | (41 | ) |
| Amounts recognized in the accompanying consolidated balance sheets: | | | |
| Other current liabilities | $ | (5 | ) | | $ | (5 | ) |
| Accrued employee benefits | (36 | ) | | (36 | ) |
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| Change in benefit obligation: | | | |
| Benefit obligation at beginning of year | $ | 54 |
| | $ | 61 |
|
| Interest cost | 1 |
| | 1 |
|
| Actuarial loss | 2 |
| | 1 |
|
| Benefits paid | (8 | ) | | (9 | ) |
| Benefit obligation at year end | $ | 49 |
| | $ | 54 |
|
| Funded status | $ | (49 | ) | | $ | (54 | ) |
| Amounts recognized in the accompanying consolidated balance sheets: |
|
| |
|
|
| Other current liabilities | $ | (7 | ) | | $ | (8 | ) |
| Accrued employee benefits | (42 | ) | | (46 | ) |
SERP plan expense in the accompanying consolidated statements of income was $1 million $1 millioneach year in 2019, 2018 and $2 million for the years ended December 31, 2017 2016 and 2015, respectively, and primarily consisted of interest cost. The following table shows the projected payments for the SERP plan based on the actuarial assumptions (in millions):
|
| | | |
| Projected SERP Plan Payments | |
| 2020 | $ | 5 |
|
| 2021 | 5 |
|
| 2022 | 4 |
|
| 2023 | 4 |
|
| 2024 | 3 |
|
| Next 5 years | 13 |
|
|
| | | |
| Projected SERP Plan Payments | |
| 2018 | $ | 7 |
|
| 2019 | 5 |
|
| 2020 | 5 |
|
| 2021 | 5 |
|
| 2022 | 5 |
|
| Next 5 years | 15 |
|
Pension and SERP Plans Assumptions
The weighted-average assumptions used to develop the actuarial present value of the projected benefit obligation and net periodic pension/SERP costs for years ended December 31,in 2019, 2018 and 2017 2016 and 2015 are set forth below:
|
| | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Weighted-average discount rate for determining benefit obligations (pension/SERP plans) | 3.0% / 2.7% | | 4.0% / 3.8% | | 3.4% / 3.1% |
| Weighted-average discount rate for determining interest costs (pension/SERP plans) | 3.7% / 3.5% | | 3.0% / 2.7% | | 3.2% / 2.6% |
| Expected long-term rate of return on plan assets (pension/SERP plans) | 3.9% / N/A | | 3.5% / N/A | | 6.5% / N/A |
| Rate of compensation increase | N/A | | N/A | | N/A |
|
| | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Weighted-average discount rate for determining benefit obligations (pension/SERP plans) | 3.4%/3.1% | | 3.9%/3.4% | | 4.0%/3.4% |
| Weighted-average discount rate for determining interest costs (pension/SERP plans) | 3.2%/2.6% | | 3.3%/2.5% | | 3.8%/3.2% |
| Expected long-term rate of return on plan assets (pension/SERP plans) | 6.5%/N/A | | 6.5%/N/A | | 6.5%/N/A |
| Rate of compensation increase | N/A | | N/A | | N/A |
The assumed discount rate reflects the market rates for high-quality corporate bonds currently available. The discount rate was determined by considering the average of pension yield curves constructed on a large population of high quality corporate bonds. The resulting discount rates reflect the matching of plan liability cash flows to yield curves. To develop the expected long-term rate of return on assets assumption, we considered the historical returns and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio.
The determination of the interest cost component utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to each year’s discounted cash flow.
Post-retirement Benefit Plans
Our defined benefit plans provide certain health care and life insurance benefits for certain eligible retired NYSE U.S. employees. These post-retirement benefit plans, which may be modified in accordance with their terms, are fully frozen. The net periodic post-retirement benefit costs were $2 million, $5 million $7and $5 million in 2019, 2018 and $8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The defined benefit plans are unfunded and we currently do not expect to fund the post-retirement benefit plans. The weighted-average discount rate for determining the benefit obligation as of December 31, 20172019 and 20162018 is 3.4%3.0% and 3.9%4.0%, respectively. The weighted-average discount rate for determining the interest cost as of December 31, 20172019 and 20162018 is 3.2%3.7% and 3.3%3.0%, respectively. The following table shows the actuarial determined benefit obligation, interest costs, employee contributions, actuarial (gain) loss, benefits paid during the periods and the accrued employee benefits (in millions):
|
| | | | | | | |
| | As of December 31, |
| | 2019 | | 2018 |
| Benefit obligation at the end of year | $ | 142 |
| | $ | 154 |
|
| Interest cost | 5 |
| | 5 |
|
| Actuarial gain | (8 | ) | | (19 | ) |
| Employee contributions | 3 |
| | 3 |
|
| Benefits paid | (12 | ) | | (13 | ) |
| Amounts recognized in the accompanying consolidated balance sheets: | | | |
| Other current liabilities | $ | (8 | ) | | $ | (10 | ) |
| Accrued employee benefits | (134 | ) | | (144 | ) |
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| Benefit obligation at the end of year | $ | 179 |
| | $ | 200 |
|
| Interest cost | 5 |
| | 7 |
|
| Actuarial gain | (16 | ) | | (20 | ) |
| Employee contributions | 3 |
| | 3 |
|
| Benefits paid | (14 | ) | | (14 | ) |
| Amounts recognized in the accompanying consolidated balance sheets: | | | |
| Other current liabilities | $ | (11 | ) | | $ | (11 | ) |
| Accrued employee benefits | (168 | ) | | (189 | ) |
The following table shows the payments projected for our post-retirement benefit plans (net of expected Medicare subsidy receipts of $10$11 million in aggregate over the next ten fiscal years) based on actuarial assumptions (in millions):
|
| | | | |
| Projected Post-Retirement Benefit by Year: | | Projected Payment |
|
| 2020 | | $ | 8 |
|
| 2021 | | 8 |
|
| 2022 | | 8 |
|
| 2023 | | 8 |
|
| 2024 | | 8 |
|
| Next 5 years | | 39 |
|
|
| | | |
| 2018 | $ | 11 |
|
| 2019 | 11 |
|
| 2020 | 11 |
|
| 2021 | 11 |
|
| 2022 | 11 |
|
| Next 5 years | 54 |
|
For measurement purposes, we assumed a 7.7%6.7% annual rate of increase in the per capita cost of covered health care benefits in 20172019 which will decrease on a graduated basis to 4.5% in the year 2038 and thereafter. The following table shows the effect of a one-percentage-point increase and decrease in assumed health care cost trend rates (in millions):
|
| | | | | | | |
| Assumed Health Care Cost Trend Rate | 1% Increase | | 1% Decrease |
| Effect of post-retirement benefit obligation | $ | 20 |
| | $ | (17 | ) |
| Effect on total of service and interest cost components | 1 |
| | (1 | ) |
Accumulated Other Comprehensive Loss
The accumulated other comprehensive loss, after tax, as of December 31, 2017,2019, consisted of the following amounts that have not yet been recognized in net periodic benefit cost (in millions):
|
| | | | | | | | | | | | | | | |
| | Pension Plans | | SERP Plans | | Post-retirement Benefit Plans | | Total |
| Unrecognized net actuarial losses (gains), after tax | $ | 87 |
| | $ | 6 |
| | $ | (26 | ) | | $ | 67 |
|
|
| | | | | | | | | | | | | | | |
| | Pension Plans | | SERP Plans | | Post-retirement Benefit Plans | | Total |
| Unrecognized net actuarial losses (gains), after tax | $ | 93 |
| | $ | 4 |
| | $ | (8 | ) | | $ | 89 |
|
The amount of prior actuarial loss included in accumulated other comprehensive income related to the pension, SERP and postretirement plans as of December 31, 2017, which are expected to be recognized in net periodic benefit cost in the coming year, is estimated to be (in millions): |
| | | | | | | | | | | | | | | |
| | Pension Plans | | SERP Plans | | Post-retirement Benefit Plans | | Total |
| Loss recognition | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
Other Benefit Plans and Defined Contribution Plans
Our U.S. employees are eligible to participate in 401(k) and profit sharing plans and our non-U.S. employees are eligible to participate in defined contribution pension plans. Total contributions under the 401(k), profit sharing and defined contribution pension plans were $42 million, $39 million and $38 million $31 millionin 2019, 2018 and $21 million for the years ended December 31, 2017, 2016 and 2015, respectively. No discretionary or profit sharing contributions were made during the years ended December 31, 2017, 20162019, 2018 or 2015.2017.
| |
16.17. | Fair Value Measurements |
Our financial instruments consist primarily of cash and cash equivalents, short-term and long-term restricted cash and cash equivalents, short-term and long-term investments, customer accounts receivable, margin deposits and guaranty funds, cost and equity method investments, short-term and long-term debt and certain other short-term assets and liabilities. The fair value of our financial instruments are measured based on a three-level hierarchy:
Level 1 inputs — quoted prices for identical assets or liabilities in active markets.
Level 2 inputs — observable inputs other than Level 1 inputs such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable.
Level 3 inputs — unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
We use Level 1 inputs to determine fair value. The Level 1 assets consist of U.S. Treasury and other foreign government securities, equity and other securities listed in active markets, and investments in publicly traded mutual funds held for the purpose of providing future payments of the SERP and SESP plans.
Financial assets and liabilities recorded or disclosed at fair value in the accompanying consolidated balance sheets as of December 31, 20172019 and 20162018 are classified in their entirety based on the lowest level of input that is significant to the asset or liability’s fair value measurement. Financial instruments measured at fair value on a recurring basis as of December 31, 2017
Our mutual funds are as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets at fair value: | | | | | | | |
| U.S. Treasury and Other Foreign Government Securities | $ | 734 |
| | $ | — |
| | $ | — |
| | $ | 734 |
|
| Mutual Funds | 16 |
| | — |
| | — |
| | 16 |
|
| Total assets at fair value | $ | 750 |
| | $ | — |
| | $ | — |
| | $ | 750 |
|
Financial instruments measured at fair value on a recurring basis as of December 31, 2016 are as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets at fair value: | | | | | | | |
| Long-term Investment in Equity Securities | $ | 432 |
| | $ | — |
| | $ | — |
| | $ | 432 |
|
U.S. Treasury and Other Foreign Government Securities
| 500 |
| | — |
| | — |
| | 500 |
|
| Mutual Funds | 23 |
| | — |
| | — |
| | 23 |
|
| Total assets at fair value | $ | 955 |
| | $ | — |
| | $ | — |
| | $ | 955 |
|
As of December 31, 2017, we held $734 million in U.S. Treasury and other foreign government securities which are considered cash equivalents. Of these securities, $534 million were recorded as short-term restricted cash and cash equivalents and $200 million were recorded as long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet as of December 31, 2017. As of December 31, 2016, we held $500 million in U.S. Treasury and other foreign government securities. Of these securities, $350 million were recorded as short-term restricted cash and cash equivalents and $150 million were recorded as long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet as of December 31, 2016. We account for the U.S. Treasury securities held using the available-for-sale method.
The long-term investment in equity securities as of December 31, 2016 represents our investment in Cetip, recorded at its fair value using its quoted market price. Cetip was sold in March 2017 (Note 6). Mutual funds represent equity and fixed income mutual funds held for the purpose of providing future payments for the SERPsupplemental executive savings plan and SESP andSERP. These mutual funds are classified as available-for-sale securitiesequity investments and measured at fair value using Level 1 inputs with adjustments recorded in net income (Note 15)16).
MERS is part of our ICE Mortgage Services business and held fixed income investments in 2019 as part of a reserve fund in order to satisfy the original terms of the governing documents of our June 2016 acquisition of a majority equity position in MERS (Note 4). The majority of these investments are held in U.S. Treasuries and measured at fair value using Level 1 inputs with adjustments recorded to other current liabilities. The remaining amount of the reserve fund is held in other fixed income investments and measured using Level 2 inputs.
Excluding our equity investments without a readily determinable fair value, all other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.
We did not use Level 3 inputs to determine the fair value of assets or liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016. 2019 or 2018.
We measure certain assets, such as intangible assets, and cost and equity method investments, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. As of December 31, 20172019 and 2016,2018, except for the fair value adjustments related to our ICE Futures Canada, ICE Clear Canada and ICE Futures Singapore exchange registration intangible assets (Note 8), none of theseour intangible assets were required to be recorded at fair value since no other impairments were recorded.
We measure certain equity investments at fair value on a non-recurring basis using our policy election under ASU No. 2016-01 (Note 2). During 2019, we evaluated transactions involving these investments and concluded that no fair value adjustments were required under this election.
See Note 1314 for the fair value considerations related to our margin deposits, guaranty funds and delivery contracts receivable.
As of December 31, 2017,The table below displays the fair value of our $495 million 2027 Senior Notes was $500 million, the fair valuedebt as of our $1.24 billion 2025 Senior Notes was $1.32 billion, the fair value of our $791 million 2023 Senior notes was $842 million, the fair value of our $495 million 2022 Senior Notes was $495 million, the fair value of our $1.24 billion 2020 Senior Notes was $1.26 billion,December 31, 2019 and the fair value of our $600 million 2018 Senior Notes was $601 million.December 31, 2018. The fair values of theseour fixed rate notes were estimated using quoted market prices for these instruments. The fair value of our commercial paper includes a discount and other short-term debt approximates the carryingpar value since the interest rates of
interest on this short-term debt approximate market rates as of December 31, 2017. Excluding our cost2019 and equity method investments, all other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.December 31, 2018.
|
| | | | | | | | | | | | | | | |
| | As of December 31, 2019 | | As of December 31, 2018 |
| | (in millions) | | (in millions) |
| Debt: | Carrying Amount | | Fair value | | Carrying Amount | | Fair value |
| Commercial Paper | $ | 1,311 |
| | $ | 1,314 |
| | $ | 951 |
| | $ | 953 |
|
| Other short-term debt | 10 |
| | 10 |
| | — |
| | — |
|
| 2020 Senior Notes | 1,248 |
| | 1,259 |
| | 1,246 |
| | 1,244 |
|
| 2022 Senior Notes | 497 |
| | 505 |
| | 496 |
| | 484 |
|
| 2023 Senior Notes | 398 |
| | 420 |
| | 397 |
| | 402 |
|
| October 2023 Senior Notes | 794 |
| | 855 |
| | 793 |
| | 821 |
|
| 2025 Senior Notes | 1,244 |
| | 1,355 |
| | 1,243 |
| | 1,258 |
|
| 2027 Senior Notes | 496 |
| | 526 |
| | 496 |
| | 477 |
|
| 2028 Senior Notes | 592 |
| | 657 |
| | 591 |
| | 599 |
|
| 2048 Senior Notes | 1,229 |
| | 1,490 |
| | 1,228 |
| | 1,236 |
|
| Total debt | $ | 7,819 |
| | $ | 8,391 |
| | $ | 7,441 |
| | $ | 7,474 |
|
We operate twoOur reportable business segments: our Trading and Clearing segment and our Data and Listings segment. This presentation is reflective of how our chief operating decision maker reviews and operates our business. Our Trading and Clearing segment comprises our transaction-based execution and clearing businesses. Our Data and Listings segment comprises our subscription-based data services and our securities listings businesses.businesses, which are both largely subscription-based. Our chief operating decision maker does not review total assets or statements of income below operating income by segments; therefore, such information is not presented below. Our two2 segments do not engage in intersegment transactions.
Certain prior year’s segment expenses for the year ended December 31, 2016 have been reclassified to conform to our current year’s segment financial statement presentation. This reclassification increased the operating expenses for the Data and Listings segment by $55 million, while decreasing the operating expenses for the Trading and Clearing segment by the same amount.
Financial data for our business segments is as follows for the years ended December 31,in 2019, 2018 and 2017 2016 and 2015 (in millions):
|
| | | | | | | | | | | |
| | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated |
| Year Ended December 31, 2017 | | | | | |
| Revenues, less transaction-based expenses | $ | 2,128 |
| | $ | 2,501 |
| | $ | 4,629 |
|
| Operating expenses | 779 |
| | 1,471 |
| | 2,250 |
|
| Operating income | 1,349 |
| | 1,030 |
| | 2,379 |
|
| Year Ended December 31, 2016 | | | | | |
| Revenues, less transaction-based expenses | $ | 2,102 |
| | $ | 2,397 |
| | $ | 4,499 |
|
| Operating expenses | 825 |
| | 1,507 |
| | 2,332 |
|
| Operating income | 1,277 |
| | 890 |
| | 2,167 |
|
| Year Ended December 31, 2015 | | | | | |
| Revenues, less transaction-based expenses | $ | 2,062 |
| | $ | 1,276 |
| | $ | 3,338 |
|
| Operating expenses | 915 |
| | 673 |
| | 1,588 |
|
| Operating income | 1,147 |
| | 603 |
| | 1,750 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | | Year Ended
December 31, 2018 | | Year Ended
December 31, 2017 |
| | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated | | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated | | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated |
| Revenues: | | | | | | | | | | | | | | | | | |
| Energy futures and options contracts | $ | 992 |
| | $ | — |
| | $ | 992 |
| | $ | 965 |
| | $ | — |
| | $ | 965 |
| | $ | 909 |
| | $ | — |
| | $ | 909 |
|
| Agricultural and metals futures and options contracts | 251 |
| | — |
| | 251 |
| | 251 |
| | — |
| | 251 |
| | 216 |
| | — |
| | 216 |
|
| Financial futures and options contracts | 332 |
| | — |
| | 332 |
| | 354 |
| | — |
| | 354 |
| | 326 |
| | — |
| | 326 |
|
| Cash equities and equity options | 1,643 |
| | — |
| | 1,643 |
| | 1,624 |
| | — |
| | 1,624 |
| | 1,491 |
| | — |
| | 1,491 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | | Year Ended
December 31, 2018 | | Year Ended
December 31, 2017 |
| | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated | | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated | | Trading and Clearing Segment | | Data and Listings Segment | | Consolidated |
| Fixed income and credit | 364 |
| | — |
| | 364 |
| | 240 |
| | — |
| | 240 |
| | 139 |
| | — |
| | 139 |
|
| OTC and other transactions | 45 |
| | — |
| | 45 |
| | 49 |
| | — |
| | 49 |
| | 50 |
| | — |
| | 50 |
|
| Pricing and analytics | — |
| | 1,083 |
| | 1,083 |
| | — |
| | 1,043 |
| | 1,043 |
| | — |
| | 970 |
| | 970 |
|
| Exchange data and feeds | — |
| | 704 |
| | 704 |
| | — |
| | 670 |
| | 670 |
| | — |
| | 632 |
| | 632 |
|
| Desktops and connectivity | — |
| | 424 |
| | 424 |
| | — |
| | 402 |
| | 402 |
| | — |
| | 482 |
| | 482 |
|
| Listings | — |
| | 449 |
| | 449 |
| | — |
| | 444 |
| | 444 |
| | — |
| | 426 |
| | 426 |
|
| Other revenues | 260 |
| | — |
| | 260 |
| | 234 |
| | — |
| | 234 |
| | 202 |
| | — |
| | 202 |
|
| Revenues | 3,887 |
| | 2,660 |
| | 6,547 |
| | 3,717 |
| | 2,559 |
| | 6,276 |
| | 3,333 |
| | 2,510 |
| | 5,843 |
|
| Transaction-based expenses | 1,345 |
| | — |
| | 1,345 |
| | 1,297 |
| | — |
| | 1,297 |
| | 1,205 |
| | — |
| | 1,205 |
|
| Revenues, less transaction-based expenses | 2,542 |
| | 2,660 |
| | 5,202 |
| | 2,420 |
| | 2,559 |
| | 4,979 |
| | 2,128 |
| | 2,510 |
| | 4,638 |
|
| Operating expenses | 1,033 |
| | 1,496 |
| | 2,529 |
| | 911 |
| | 1,485 |
| | 2,396 |
| | 781 |
| | 1,478 |
| | 2,259 |
|
| Operating income | $ | 1,509 |
| | $ | 1,164 |
| | $ | 2,673 |
| | $ | 1,509 |
| | $ | 1,074 |
| | $ | 2,583 |
| | $ | 1,347 |
| | $ | 1,032 |
| | $ | 2,379 |
|
Revenue from two1 clearing member of the Trading and Clearing segment comprised $368 million, or 14% of our Trading and Clearing revenues, less transaction-based expenses in 2019. Revenue from 1 clearing member of the Trading and Clearing segment comprised $406 million, or 17% of our Trading and Clearing revenues less transaction-based expenses in 2018. Revenue from 2 clearing members of the Trading and Clearing segment comprised a combined $477 million, or 22% of our Trading and Clearing revenues for the year ended December 31, 2017 and revenue from one clearing member of the Trading and Clearing segment comprised $221 million or 11% of our Trading and Clearing revenues for the year ended December 31, 2016.in 2017. Clearing members are primarily intermediaries and represent a broad range of principal trading firms. If a clearing member ceased its operations, we believe that the trading firms would continue to conduct transactions and would clear those transactions through another clearing member firm. No additional customers or clearing members accounted for more than 10% of our segment revenues or consolidated revenues for the years ended December 31, 2017, 2016in 2019, 2018 and 2015.2017.
Geographical Information
The following represents our revenues, less transaction-based expenses, net assets and net property and equipment based on the geographic location (in millions): |
| | | | | | | | | | | |
| | United States | | Foreign Countries | | Total |
| Revenues, less transaction-based expenses: | | | | | |
| Year ended December 31, 2019 | $ | 3,290 |
| | $ | 1,912 |
| | $ | 5,202 |
|
| Year ended December 31, 2018 | $ | 3,087 |
| | $ | 1,892 |
| | $ | 4,979 |
|
| Year ended December 31, 2017 | $ | 2,807 |
| | $ | 1,831 |
| | $ | 4,638 |
|
| Net assets: | | | | |
|
| As of December 31, 2019 | $ | 9,038 |
| | $ | 8,248 |
| | $ | 17,286 |
|
| As of December 31, 2018 | $ | 9,226 |
| | $ | 8,005 |
| | $ | 17,231 |
|
| Property and equipment, net: | | | | |
|
| As of December 31, 2019 | $ | 1,353 |
| | $ | 183 |
| | $ | 1,536 |
|
| As of December 31, 2018 | $ | 1,125 |
| | $ | 116 |
| | $ | 1,241 |
|
|
| | | | | | | | | | | |
| | United States | | Foreign Countries | | Total |
| Revenues, less transaction-based expenses: | | | | | |
| Year ended December 31, 2017 | $ | 2,794 |
| | $ | 1,835 |
| | $ | 4,629 |
|
| Year ended December 31, 2016 | $ | 2,744 |
| | $ | 1,755 |
| | $ | 4,499 |
|
| Year ended December 31, 2015 | $ | 1,973 |
| | $ | 1,365 |
| | $ | 3,338 |
|
| Net assets: | | | | | |
| As of December 31, 2017 | $ | 9,124 |
| | $ | 7,828 |
| | $ | 16,952 |
|
| As of December 31, 2016 | $ | 7,877 |
| | $ | 7,913 |
| | $ | 15,790 |
|
| Property and equipment, net: | | | | | |
| As of December 31, 2017 | $ | 1,134 |
| | $ | 112 |
| | $ | 1,246 |
|
| As of December 31, 2016 | $ | 1,009 |
| | $ | 120 |
| | $ | 1,129 |
|
The foreign countries category above primarily relates to the U.K. and to a lesser extent, EU, Israel, Canada and Singapore.
| |
18.19. | Earnings Per Common Share |
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the years ended December 31,in 2019, 2018 and 2017 2016 and 2015 (in millions, except per share amounts):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| Basic: | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| Basic: | | | | | |
| Net income attributable to Intercontinental Exchange, Inc. | $ | 2,514 |
| | $ | 1,422 |
| | $ | 1,274 |
|
| Weighted average common shares outstanding | 589 |
| | 595 |
| | 556 |
|
| Basic earnings per common share | $ | 4.27 |
| | $ | 2.39 |
| | $ | 2.29 |
|
| Diluted: | | | | | |
| Weighted average common shares outstanding | 589 |
| | 595 |
| | 556 |
|
| Effect of dilutive securities - stock options and restricted stock | 5 |
| | 4 |
| | 3 |
|
| Diluted weighted average common shares outstanding | 594 |
| | 599 |
| | 559 |
|
| Diluted earnings per common share | $ | 4.23 |
| | $ | 2.37 |
| | $ | 2.28 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| Net income attributable to Intercontinental Exchange, Inc. | $ | 1,933 |
| | $ | 1,988 |
| | $ | 2,526 |
|
| Weighted average common shares outstanding | 561 |
| | 575 |
| | 589 |
|
| Basic earnings per common share | $ | 3.44 |
| | $ | 3.46 |
| | $ | 4.29 |
|
| Diluted: | | | | | |
| Weighted average common shares outstanding | 561 |
| | 575 |
| | 589 |
|
| Effect of dilutive securities - stock options and restricted stock | 4 |
| | 4 |
| | 5 |
|
| Diluted weighted average common shares outstanding | 565 |
| | 579 |
| | 594 |
|
| Diluted earnings per common share | $ | 3.42 |
| | $ | 3.43 |
| | $ | 4.25 |
|
Basic earnings per common share is calculated using the weighted average common shares outstanding during the periods. The weighted average common shares outstanding decreased for the year ended December 31,in 2019 from 2018, and in 2018 from 2017, from the prior year period, primarily due to stock repurchases during 2017 (Note 11). The weighted average common shares outstanding increased for the year ended December 31, 2016, over the prior year period, primarily due to stock issued for the Interactive Data and Trayport acquisitions, partially offset by stock repurchases. We issued 32.3 million shares of our common stock to Interactive Data stockholders and 12.6 million shares of our common stock to Trayport stockholders, which are weighted to show these additional shares outstanding for periods after the respective acquisition dates (Note 3)12).
Common equivalent shares from stock options and restricted stock awards, using the treasury stock method, are included in the diluted per share calculations unless the effect of their inclusion would be antidilutive. During the years ended December 31,2019, 2018 and 2017 2016454,000, 471,000 and 2015, 694,343, 724,918 and 836,405694,000 outstanding stock options, respectively, were not included in the computation of diluted earnings per common share because to do so would have had an antidilutive effect. As of both December 31, 20172019 and 2016,2018, there were 88,930 and 110,26589,000 restricted stock units respectively, that were vested but have not been issued that are included in the computation of basic and diluted earnings per share. Certain figures in the table above may not recalculate due to rounding.
19.20.Quarterly Financial Data (Unaudited)
The following table has been prepared from our financial records and reflects all adjustments that are necessary for a fair presentation of the results of operations for the interim periods presented (in millions, except per share amounts):
|
| | | | | | | | | | | | | | | |
| | 1st Qtr | | 2nd Qtr | | 3rd Qtr | | 4th Qtr |
| Year Ended December 31, 2019 | | | | | | | |
| Revenues, less transaction-based expenses | $ | 1,270 |
| | $ | 1,298 |
| | $ | 1,336 |
| | $ | 1,298 |
|
| Operating income | 665 |
| | 680 |
| | 706 |
| | 622 |
|
| Net income attributable to Intercontinental Exchange, Inc. | 484 |
| | 472 |
| | 529 |
| | 448 |
|
Earnings per common share: (a) | | | | | | | |
| Basic | $ | 0.85 |
| | $ | 0.84 |
| | $ | 0.95 |
| | $ | 0.81 |
|
| Diluted | $ | 0.85 |
| | $ | 0.84 |
| | $ | 0.94 |
| | $ | 0.80 |
|
| | | | | | | | |
| Year Ended December 31, 2018 | | | | | | | |
| Revenues, less transaction-based expenses | $ | 1,225 |
| | $ | 1,246 |
| | $ | 1,200 |
| | $ | 1,308 |
|
| Operating income | 650 |
| | 655 |
| | 602 |
| | 676 |
|
Net income attributable to Intercontinental Exchange, Inc.(b) | 464 |
| | 455 |
| | 458 |
| | 611 |
|
Earnings per common share: (a) | | | | | | | |
| Basic | $ | 0.80 |
| | $ | 0.79 |
| | $ | 0.80 |
| | $ | 1.07 |
|
| Diluted | $ | 0.79 |
| | $ | 0.78 |
| | $ | 0.79 |
| | $ | 1.07 |
|
|
| | | | | | | | | | | | | | | |
| | 1st Qtr | | 2nd Qtr | | 3rd Qtr | | 4th Qtr |
| Year Ended December 31, 2017 | | | | | | | |
| Revenues, less transaction-based expenses | $ | 1,164 |
| | $ | 1,178 |
| | $ | 1,143 |
| | $ | 1,144 |
|
| Operating income | 582 |
| | 609 |
| | 596 |
| | 592 |
|
Net income attributable to Intercontinental Exchange, Inc.(a) | 502 |
| | 418 |
| | 369 |
| | 1,225 |
|
Earnings per common share(b): | | | | | | | |
| Basic | $ | 0.84 |
| | $ | 0.71 |
| | $ | 0.63 |
| | $ | 2.10 |
|
| Diluted | $ | 0.84 |
| | $ | 0.70 |
| | $ | 0.62 |
| | $ | 2.08 |
|
| | | | | | | | |
| Year Ended December 31, 2016 | | | | | | | |
| Revenues, less transaction-based expenses | $ | 1,154 |
| | $ | 1,129 |
| | $ | 1,078 |
| | $ | 1,138 |
|
| Operating income | 584 |
| | 551 |
| | 474 |
| | 558 |
|
| Net income attributable to Intercontinental Exchange, Inc. | 369 |
| | 357 |
| | 344 |
| | 352 |
|
Earnings per common share(b): | | | | | | | |
| Basic | $ | 0.62 |
| | $ | 0.60 |
| | $ | 0.58 |
| | $ | 0.59 |
|
| Diluted | $ | 0.62 |
| | $ | 0.60 |
| | $ | 0.57 |
| | $ | 0.59 |
|
| |
| (a) | We recognized a $176 million realized investment gain on our sale of Cetip in other income for the three months ended March 31, 2017 (Note 6), we recognized a $764 million gain relating to the deferred tax benefit associated with future U.S. income tax rate reductions for the three months ended December 31, 2017 (Note 12), and we recognized a $110 million gain on our sale of Trayport in other income for the three months ended December 31, 2017 (Note 3). |
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(b) | The annual earnings per common share may not equal the sum of the individual quarter’s earnings per common share due to rounding. |
(b) We recognized a $110 million gain on our acquisition of MERS in other income for the three months ended December 31, 2018 (Note 3).
On February 5, 2020, we agreed to acquire Bridge2 Solutions, a leading provider of loyalty solutions for merchants and consumers, contingent on completion of Hart-Scott-Rodino review. Following the completion of the transaction, Bakkt intends to acquire Bridge2 Solutions from us. Bridge2 Solutions enables some of the world’s leading brands to engage customers and drive loyalty. It powers incentive and employee perk programs for companies across a wide spectrum of industries.
We have evaluated subsequent events and determined that no other events or transactions met the definition of a subsequent event for purposes of recognition or disclosure in the accompanying consolidated financial statements except those events disclosed in Note 3.disclosure.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9 (A). CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Management’s Annual Report on Internal Control over Financial Reporting and the Attestation Report of the Independent Registered Public Accounting Firm. Management’s report on its assessment of the effectiveness of our internal control over financial reporting as of December 31, 20172019 and the attestation report of Ernst & Young LLP on our internal control over financial reporting are set forth in Part II, Item 8 of this Annual Report.
(c) Changes in Internal Controls over Financial Reporting. Except as described below, there There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. As a result, no corrective actions were taken. During the quarter ended December 31, 2017, we acquired NGX and are in the process of integrating the acquired business into our overall internal control over financial reporting process. As permitted under applicable regulations, we have excluded NGX from the assessment of internal control over financial reporting as of December 31, 2017.
ITEM 9 (B). OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our Board of Directors set forth under the caption “Item 1 — Election of Directors — Nominees for Election as Directors at the 20172020 Annual Meeting” in our Proxy Statement for our 20182020 Annual Meeting of Stockholders (“20182020 Proxy Statement”) is incorporated herein by reference. Information relating to our executive officers is, pursuant to Instruction 3 of Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K, set forth below under the caption “Executive“Information about our Executive Officers.” Information regarding compliance by our directors and executive officers and owners of more than ten percent of our Common Stock with the reporting requirements of Section 16(a) of the Exchange Act (Item 405 of Regulation S-K), set forth under the caption “Section“Delinquent 16(a) of the Securities Exchange Act Beneficial Ownership Reporting Compliance”Reports” in the 20182020 Proxy Statement is incorporated herein by reference. Information relating to our financial expert serving on our Audit Committee (Item 407(d)(5) of Regulation S-K), our Nominating and Corporate Governance Committee (Item 407(c)(3) of Regulation S-K), and our Audit Committee (Item 407(d)(4) of Regulation S-K) is set forth under the caption “Meetings and Committees of the Board of Directors” in our 20182020 Proxy Statement and is incorporated herein by reference.
Executive Officers
Set forth below, in accordance with General Instruction G(3) of Form 10-K, and Instruction 3 to Item 401(b) of Regulation S-K, is information regarding our executive officers:
|
| | |
| Name | Age | Title |
| Jeffrey C. Sprecher | 6264 | Chairman of the Board and Chief Executive Officer |
| Charles A. Vice | 5456 | Vice Chairman |
| Scott A. Hill | 5052 | Chief Financial Officer |
| Benjamin R. Jackson | 4547 | President |
| David S. Goone | 5759 | Chief Strategy Officer |
Johnathan H. ShortLynn C. Martin | 5243 | President, ICE Data Services |
Andrew J. Surdykowski
| 49 | General Counsel and Corporate Secretary |
| Mark P. Wassersug | 4850 | Chief Operating Officer |
Thomas W. Farley | 42 | President of NYSE |
Jeffrey C. Sprecher. Mr. Sprecher has been a director and our Chief Executive Officer since our inception and has served as Chairman of our Board of Directors since November 2002. As our Chief Executive Officer, he is responsible for our strategic direction, operational and financial performance. Mr. Sprecher acquired Continental Power Exchange, or CPEX, our predecessor company, in 1997. Prior to acquiring CPEX, Mr. Sprecher held a number of positions, including President, over a fourteen-year period with Western Power Group, Inc., a developer, owner and operator of large central-station power plants. While with Western Power, he was responsible for a number of significant financings. Mr. Sprecher holds a B.S. degree in Chemical Engineering from the University of Wisconsin and an MBA from Pepperdine University.
Charles A. Vice. Mr. Vice has served as Vice Chairman since November 2017. On January 21, 2020, we announced that Mr. Vice will retire on March 31, 2020. Previously, he served as Chief Operating Officer from July 2001 to November 2017 and President from October 2005 to November 2017. As Vice Chairman, Mr. Vice oversees global technology, information security and operations.For over 25 years, he has been a leader in the application of information technology in the energy and financial services industries. Prior to the founding of ICE in 2000, Mr. Vice was a Director at CPEX, an electronic market for trading electric power. Before joining the CPEX startup in 1994, he was a Principal at Energy Management Associates, where he provided consulting services to the electric power and natural gas industries. Mr. Vice earned a BS degree in Mechanical Engineering from the University of Alabama and an MBA from the Owen Graduate School of Management at Vanderbilt University. He serves on the Board of Visitors at the Owen School and the Leadership Board of the University of Alabama College of Engineering where he is a Distinguished Engineering Fellow.
Scott A. Hill. Mr. Hill has served as Chief Financial Officer since May 2007. As our Chief Financial Officer, he is responsible for overseeing all aspects of our finance and accounting functions, including treasury, tax, cash managementaudit and controls, business development, human resources and investor relations. In addition, Mr. Hill oversees our global clearing operations. Prior to joining us, Mr. Hill spent 16 years as an international finance executive for IBM. He oversaw IBM’s worldwide financial forecasts and measurements from 2006 through 2007, working alongside the Chief Financial Officer of IBM and with all of the company’s global business units. Prior to that, Mr. Hill was Vice President and Controller of IBM Japan’s multi-billion dollar business operation from 2003 through 2005. He currently serves on the Board of Directors of VVC Exploration Corporation and serves on the Audit Committee. Mr. Hill earned his BBA in Finance from the University of Texas at Austin and his MBA from New York University.
Benjamin R. Jackson. Mr. Jackson has served as President since November 2017. Mr. Jackson oversees ICE's global technology, information security, operations and is responsible for coordinating our global futures and OTC trading businesses. Additionally, he leads the integration planning and execution of our acquisitions and joint ventures.ventures as well coordinating sales, marketing and public relation endeavors. He also serves on the Commodity Futures Trading CommissionCFTC Energy and Environmental Markets Advisory Committee. Mr. Jackson previously served as Chief Commercial Officer, and prior to that President and Chief Operating Officer of ICE Futures U.S. Mr. Jackson joined us in July 2011 from SunGard, a leading software and technology provider to commodity market participants. At SunGard, he led the company’s energy and commodities business segment as Senior Executive Vice President. Prior to that, Mr. Jackson served as President of SunGard’s Kiodex commodity risk management platform. Mr. Jackson earned a Bachelor of Science degree in economics from John Carroll University with supporting studies at the London School of Economics and Political Science.
David S. Goone. Mr. Goone has served as Chief Strategy Officer since March 2001. He is responsible for all aspects of our product line, including futures products and capabilities for ICE’s electronic platform. Mr. Goone is a Director of Maroon Holding LLC,ICE Mortgage Services, the governing Board of MERSCORP Holdings, Inc., where we have a majority ownership. Mr. Goone also represents us on industry boards including the Options Clearing Corporation, National Futures Association and the Depository Trust & Clearing Corporation. Prior to joining us, Mr. Goone served as the Managing Director and Head of Product Development and Sales at the Chicago Mercantile Exchange where he worked for nine years. From 1989 through 1992, Mr. Goone was Vice President at Indosuez Carr Futures, where he developed institutional and corporate business. Prior to joining Indosuez, Mr. Goone worked at Chase Manhattan Bank, where he developed and managed their exchange-traded foreign currency options operation at the Chicago Mercantile Exchange. Mr. Goone holds a B.S. degree in Accountancy from the University of Illinois at Urbana-Champaign.
Johnathan H. Short. Lynn C. Martin.Ms. Martin has served as President of ICE Data Services since July 2015 and as President and Chief Operating Officer of ICE Data Services from July 2015 to September 2019. She is responsible for managing our global data businesses, including exchange data, pricing and analytics, reference data, indices, desktop, feeds and connectivity services that cover all major asset classes. She has served on the SEC’s Fixed Income Market Structure Advisory Committee since its formation in 2017. Prior to her current role, Ms. Martin served in a number of leadership roles, including Chief Operating Officer of ICE Clear U.S., Chief Executive Officer of NYSE Liffe U.S. and Chief Executive Officer of New York Portfolio Clearing. Prior to joining NYSE Euronext, Ms. Martin worked at IBM in their Global Services organization where she served a variety of functions, predominately as a project manager within the financial services practice. Ms. Martin holds a B.S. in Computer Science from Manhattan College and a M.A. in Statistics from Columbia University. Ms. Martin serves on the Manhattan College Board of Trustees as well as the Advisory Board of the School of Science.
Andrew J. Surdykowski.Mr. ShortSurdykowski has served as General Counsel and Corporate Secretary since June 2004. In his role as General Counsel, heOctober 2018. He is responsible for managingoverseeing our legal regulatory and government affairs. As Corporate Secretary, he is also responsible for a variety of ouraffairs globally, including public company compliance, corporate governance matters.matters and serving as our key legal advisor. Previously Mr. Surdykowski was SVP, Associate General Counsel and Assistant Corporate Secretary. Prior to joining us in 2005, Mr. ShortSurdykowski was a partnercorporate attorney at McKenna, Long & Aldridge LLP, a national law firm now known as Dentons. Mr. ShortAt McKenna, Long & Aldridge, he practiced in the corporate law group and represented a broad array of McKenna, Long & Aldridge from November 1994 until he joined usclients in June 2004. From April 1991 until October 1994, he practiced in the commercial litigation department of the law firm.matters dealing with securities, mergers and acquisitions, corporate governance, finance and private equity. Mr. ShortSurdykowski holds a J.D. degree from the Georgia State University of Florida, College of Law, and a B.S. in AccountingManagement from the UniversityGeorgia Institute of Florida, Fisher School of Accounting.Technology.
Mark P. Wassersug. Mr. Wassersug has served as Chief Operating Officer since November 2017. Mr. Wassersug leadsis responsible for the day-to-day operations including ITand support of global infrastructure, data centers, networks and corporate IT systems that support ICE and its subsidiaries including the New York Stock Exchange, ICE's global derivatives trading and clearing businesses, and multiple data centersanalytics, reporting and engineering.delivery platforms. Mr. Wassersug is also responsible for the customer service teams and oversees all disaster recovers and business continuity planning and operations. Previously, Mr. Wassersug wasserved as SVP of Operations. Prior to joining us in 2001, Mr. Wassersug worked as a strategic planning and technology consultant in Internet infrastructure and ecommerce for Exodus Communication. Mr. Wassersug earned a Bachelor of Science degree in Civil Engineering from Lehigh University and completed a Master of Business Administrationan MBA at the Goizueta Business School at Emory University.
Thomas W. Farley. Mr. Farley has served as President of the NYSE since May 2014. He joined the NYSE as Chief Operating Officer following the closing of the NYSE Euronext acquisition in November 2013. Prior to this role, Mr. Farley served as our Senior Vice President of Financial Markets from June 2012 to November 2013 where he oversaw the development of initiatives within our OTC financial markets. Mr. Farley joined Intercontinental Exchange, Inc. in February 2007 as President of ICE Futures U.S., a position that he held until June 2012. Mr. Farley also represents us on the Options Clearing Corporation Board of Directors. From July 2006 to January 2007, Mr. Farley was President of SunGard Kiodex, a risk management technology provider to the commodity derivatives markets. From October 2000 to July 2006, Mr. Farley served as Kiodex’s Chief Financial Officer and he also served as Kiodex’s Chief Operating Officer from January 2003 to July 2006. Prior to Kiodex, Mr. Farley held positions in investment banking and private equity. Mr. Farley holds a B.A. in Political Science from Georgetown University and is a Chartered Financial Analyst.
Code of Ethics
We have adopted a Global Code of Business Conduct that applies to all of our employees, officers and directors. Our Global Code of Business Conduct meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, and applies to our Chief Executive Officer and Chief Financial Officer (who is the principal financial officer), as well as all other employees, as indicated above. Our Global Code of Business Conduct also meets the requirements of a code of ethics and business conduct under the New York Stock Exchange listing standards. Our Global Code of Business Conduct is available on our website at www.theice.com under the heading “About, ICE,” “Investors”“Investors & Media” then “Governance.” We intend to disclose promptly on our website any substantive amendments to our Global Code of Business Conduct. We will also provide a copy of the Global Code of Business Conduct to stockholders at no charge upon written request.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation set forth under the captions “Item 1 — Election of Directors — Non-Employee Directors Compensation,” “Compensation Discussion & Analysis,” “Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” in our 20182020 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding ownership of our common stock by certain persons as set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 20182020 Proxy Statement is incorporated herein by reference. In addition, information in tabular form relating to securities authorized for issuance under our equity compensation plans is set forth under the caption “Equity Compensation Plan Information” in this Annual Report and “Equity”“Share-Based Compensation” and “Pension and Other Benefit Programs” as described in Notes 11 and 1516 to our consolidated financial statements in this Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and transactions between our company and certain of our affiliates as set forth under the caption “Certain Relationships and Related Transactions” in our 20182020 Proxy Statement is incorporated herein by reference. In addition, information regarding our directors’ independence (Item 407(a) of Regulation S-K) as set forth under the caption “Item 1 — Election of Directors — Nominees for Election as Directors at the 20182020 Annual Meeting” in our 20182020 Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services of our independent registered public accounting firm, Ernst & Young LLP, is set forth under the caption “Information About the Company’s Independent Registered Public Accounting Firm Fees and Services” in our 20182020 Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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(a) | Documents Filed as Part of this Report. |
(a) Documents Filed as Part of this Report.
(1) Financial Statements
Our consolidated financial statements and the related reports of management and our independent registered public accounting firm which are required to be filed as part of this Report are included in this Annual Report on Form 10-K. These consolidated financial statements are as follows:
Consolidated Balance Sheets as of December 31, 20172019 and 2016.2018.
Consolidated Statements of Income for the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
Consolidated Statements of Changes in Equity Accumulated Other Comprehensive Income (Loss) and Redeemable Non-Controlling Interest for the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162019, 2018 and 2015.2017.
Notes to Consolidated Financial Statements.
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(2) | Financial Statement Schedules |
(2) Financial Statement Schedules
Schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes, thereto.
(3) Exhibits
See (b) below.
(b) Exhibits
The exhibits listed below under “Index to Exhibits” are filed with or incorporated by reference in this Report. Where such filing is made by incorporation by reference to a previously filed registration statement or report, such registration statement or report is identified in parentheses. We will furnish any exhibit upon request to Investor Relations, 5660 New Northside Drive, Atlanta, Georgia 30328.
ITEM 16.FORM 10-K SUMMARY
Not applicable.
INDEX TO EXHIBITS
The following exhibits are filed with this Report. We will furnish any exhibit upon request to Intercontinental Exchange, Inc., Investor Relations, 5660 New Northside Drive, Third Floor, Atlanta, Georgia 30328.
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Exhibit Number | | Description of Document |
2.1 | — | Stock Purchase Agreement, dated as of October 27, 2017 and amended as of December 13, 2017, by and among IntercontinentalExchange International, Inc., TMX Group Limited, TMX Group US Inc. and, solely for the purposes set forth in the preamble thereto, Intercontinental Exchange, Inc.* |
2.2 | | |
| 3.1 | — | |
|
| | |
| 3.2 | — | |
| 4.1 | — | Indenture dated as of October 8, 2013 among Intercontinental Exchange, Inc., as issuer, IntercontinentalExchange Inc. and Baseball Merger Sub, LLC, as guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on October 8, 2013, File No. 333-187402). |
|
| | |
| 4.2 | — | First Supplemental Indenture dated as of October 8, 2013 among Intercontinental Exchange, Inc., as issuer,
Intercontinental Exchange Holdings, Inc. and Baseball Merger Sub, LLC, as guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on October 8, 2013, File No. 333-187402). |
| 4.3 | — | |
4.4 | — | |
4.54.4 | — | Indenture dated as of November 24, 2015 among Intercontinental Exchange, Inc., as issuer, NYSE Holdings LLC, as guarantor, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on November 24, 2015, File No. 001-36198). |
4.64.5 | — | First Supplemental Indenture dated as of November 24, 2015 among Intercontinental Exchange, Inc., as issuer,
NYSE Holdings LLC, as guarantor, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on November 24, 2015, File No. 001-36198). |
4.74.6 | — | |
4.84.7 | — | |
4.94.8 | — | Second Supplemental Indenture dated as of August 17, 2017 among Intercontinental Exchange, Inc., as issuer, NYSE Holdings LLC, as guarantor, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on August 17, 2017, File No. 001-36198). |
4.104.9 | — | |
4.114.10 | — | |
| 4.11 | — | |
| 4.12 | — | |
| 4.13 | — |
|
| 4.14 | — | |
| 4.15 | — | |
| 4.16 | | |
| 10.1 | — | |
| 10.2 | — | |
|
| | |
| 10.3 | — | |
| 10.4 | — | |
| 10.5 | — | |
10.6 | — | |
10.710.6 | — | |
| 10.7 | — | |
| 10.8 | — | |
10.9 | — | |
|
| | |
10.1010.9 | — | |
10.1110.10 | — | |
10.1210.11 | — | |
10.1310.12 | — | |
10.1410.13 | | |
10.1510.14 | — | |
| 10.15 | — |
|
| 10.16 | — | |
10.17 | — |
|
10.1810.17 | — |
|
10.1910.18 | — | Contribution and Asset Transfer Agreement, dated as of May 11, 2000, by and between IntercontinentalExchange, LLC, Continental Power Exchange, Inc., and Jeffrey C. Sprecher (incorporated by reference to Exhibit 10.31 to Intercontinental Exchange Holdings, Inc.’s Registration Statement on Form S-1 filed with the SEC on October 25, 2005, File No. 333-123500). |
10.2010.19 | — | First Amendment to Contribution and Asset Transfer Agreement, dated as of May 17, 2000, by and among IntercontinentalExchange, LLC, Continental Power Exchange, Inc., and Jeffrey C. Sprecher (incorporated by reference to Exhibit 10.32 to Intercontinental Exchange Holdings, Inc.’s Registration Statement on Form S-1 filed with the SEC on October 25, 2005, File No. 333-123500). |
10.2110.20 | — | Second Amendment to Contribution and Asset Transfer Agreement, dated as of October 24, 2005, by and among Intercontinental Exchange Holdings, Inc., Continental Power Exchange, Inc., and Jeffrey C. Sprecher (incorporated by reference to Exhibit 10.33 to Intercontinental Exchange Holdings, Inc.’s Registration Statement on Form S-1 filed with the SEC on October 25, 2005, File No. 333-123500). |
10.22 |
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| 10.21 | — | |
10.2310.22 | — | |
| 10.23 | — | |
| 10.24 | — | |
| 10.25 | — | |
| 10.26 | | |
| 10.27 | — | Credit Agreement dated as of April 3, 2014 among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, Wells Fargo Bank, National Association, as administrative agent, issuing lender and swingline lender, Bank of America, N.A., as syndication agent, and each of the lenders party thereto for an aggregate $3.0 billion five-year senior unsecured revolving credit facility (incorporated by reference to Exhibit 10.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on April 7, 2014). |
10.2510.28 | — | First Amendment to Credit Agreement dated as of May 15, 2015 amending Credit Agreement originally dated April 3, 2014 among Intercontinental Exchange, Inc. (formerly known as IntercontinentalExchange Group, Inc.) and ICE Europe Parent Limited, as borrowers, Wells Fargo Bank, National Association, as administrative agent, issuing lender and swingline lender, Bank of America N.A., as syndication agent, and each of the lenders party thereto for an aggregate $3.0 billion five-year senior unsecured revolving credit facility (incorporated by reference to Exhibit 10.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on May 19, 2015, File No. 001-36198). |
10.2610.29 | — | Second Amendment to Credit Agreement dated as of November 9, 2015 among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, amending that certain Credit Agreement, dated April 3, 2014 (as amended by the First Amendment to Credit Agreement, dated as of May 15, 2015) among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, (incorporated by reference to Exhibit 10.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on November 13, 2015, File No. 001-36198). |
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10.2710.30 | — | Third Amendment to Credit Agreement dated as of November 13, 2015 among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, amending that certain Credit Agreement, dated as of April 3, 2014 (as amended by the First Amendment to Credit Agreement, dated as of May 15, 2015 and the Second Amendment to Credit Agreement, dated as of November 9, 2015) among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, (incorporated by reference to Exhibit 10.2 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on November 13, 2015, File No. 001-36198). |
10.2810.31 | — | The Fourth Amendment to Credit Agreement, dated as of August 18, 2017 among Intercontinental Exchange, Inc. as borrower, NYSE Holdings LLC as guarantor, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, amending that certain Credit Agreement, dated as of April 3, 2014 among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (as amended by the First Amendment to Credit Agreement, dated as of May 15, 2015, the Second Amendment to Credit Agreement, dated as of November 9, 2015, and the Third Amendment to Credit Agreement, dated as of November 13, 2015) (incorporated by reference to Exhibit 10.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on August 21, 2017, File No. 001-36198). |
10.29 |
| | |
| 10.32 | — | The Fifth Amendment to Credit Agreement, dated as of August 18, 2017 among Intercontinental Exchange, Inc. as borrower, NYSE Holdings LLC as guarantor, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, amending that certain Credit Agreement, dated as of April 3, 2014 among Intercontinental Exchange, Inc. and ICE Europe Parent Limited, as borrowers, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (as amended by the First Amendment to Credit Agreement, dated as of May 15, 2015, the Second Amendment to Credit Agreement, dated as of November 9, 2015, the Third Amendment to Credit Agreement, dated as of November 13, 2015 and the Fourth Amendment to Credit Agreement, dated as of August 18, 2017) (incorporated by reference to Exhibit 10.2 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on August 21, 2017, File No. 001-36198). |
10.3010.33 | — | FormThe Sixth Amendment to Credit Agreement, dated as of Agreement Relating to Noncompetition and Other Covenants signed by each of the non-employee directors and byAugust 9, 2018 among Intercontinental Exchange, Inc. as borrower, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, amending that certain Credit Agreement, dated as of April 3, 2014 among Intercontinental Exchange, Inc., as borrower, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (as amended by the First Amendment to Credit Agreement, dated as of May 15, 2015, the Second Amendment to Credit Agreement, dated as of November 9, 2015, the Third Amendment to Credit Agreement, dated as of November 13, 2015, the Fourth Amendment to Credit Agreement, dated as of August 18, 2017, and the Fifth Amendment to Credit Agreement, dated as of August 18, 2017) (incorporated by reference to Exhibit 10.1 to Intercontinental Exchange, Inc.’s Current Report on Form 8-K filed with the SEC on May 17, 2016,August 9, 2018, File No. 001-36198). |
12.1 | — | |
| 21.1 | — | |
| 23.1 | — | |
| 24.1 | — | |
| 31.1 | — | |
| 31.2 | — | |
| 32.1 | — | |
| 32.2 | — | |
| 101 | — | The following materials from Intercontinental Exchange, Inc.’s Annual Report on Form 10-K for the year ended December 31, 20172019 formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity Accumulated Other Comprehensive Income (Loss) and Redeemable Non-Controlling Interest, (iv) the Consolidated Statements of Comprehensive Income, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.** |
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*104 | Certain exhibits and similar attachments to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted exhibit or other attachment will be furnished supplementally to the Securities and Exchange Commission upon request. |
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** | As provided in Rule 406T of Regulation S-T, this information is “furnished” and not “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unlessThe cover page from Intercontinental Exchange, Inc. specifically incorporates it by reference.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, formatted in Inline XBRL. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | Intercontinental Exchange, Inc. (Registrant) |
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Date: February 7, 20186, 2020 | | By: | /s/ Jeffrey C. Sprecher |
| | | | Jeffrey C. Sprecher |
| | | | Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey C. Sprecher and Scott A. Hill, and each of them his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report for the calendar year ended December 31, 2017in 2019 and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of the date indicated.
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| Signatures | Title | Date |
| /s/ Jeffrey C. Sprecher | Chairman of the Board and Chief | February 7, 20186, 2020 |
| Jeffrey C. Sprecher | Chief Executive Officer (principal executive officer) | |
| | | |
| /s/ Scott A. Hill | Chief Financial Officer
(principal financial
officer) | February 7, 20186, 2020 |
| Scott A. Hill | |
| | | |
/s/ Dean S. MathisonJames W. Namkung | Chief Accounting Officer and Corporate Controller (principal accounting officer) | February 7, 20186, 2020 |
Dean S. MathisonJames W. Namkung
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| | | |
| /s/ Sharon Y. Bowen | Director | February 7, 20186, 2020 |
/s/ Sharon Y. Bowen | | |
| | |
/s/ Ann M. Cairns | Director | February 7, 2018 |
Ann M. Cairns | | |
| | | |
| /s/ Charles R. Crisp | Director | February 7, 20186, 2020 |
| Charles R. Crisp | | |
| | | |
| /s/ Duriya M. Farooqui | Director | February 7, 20186, 2020 |
| Duriya M. Farooqui | | |
| | | |
| /s/ Jean-Marc Forneri | Director | February 7, 20186, 2020 |
| Jean-Marc Forneri | | |
| | | |
/s/ FredrickFrederick W. Hatfield | Director | February 7, 20186, 2020 |
FredrickFrederick W. Hatfield | | |
|
| | |
| /s/ Lord Hague of Richmond | Director | February 7, 20186, 2020 |
| The Rt. Hon. the Lord Hague of Richmond | | |
|
| | |
| | | |
| /s/ Thomas E. Noonan | Director | February 7, 20186, 2020 |
| Thomas E. Noonan | | |
| | | |
| /s/ Frederic V. Salerno | Director | February 7, 20186, 2020 |
| Frederic V. Salerno | | |
| | | |
| /s/ Judith A. Sprieser | Director | February 7, 20186, 2020 |
| Judith A. Sprieser | | |
| | | |
| /s/ Vincent Tese | Director | February 7, 20186, 2020 |
| Vincent Tese | | |
