UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 2020
OR
| |
☐ | 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: 001-34774
Cboe Global Markets, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 20-5446972 |
(State or Other Jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
400 South LaSalle Street, Chicago, Illinois | 60605 |
(Address of Principal Executive Offices) | (Zip Code) |
(312) 786-5600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
Common Stock, par value $0.01 per share | | CBOE | | CboeBZX |
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. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ◻
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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | |
Large Accelerated filer | ☒ | Accelerated Filer | ◻ | Non-accelerated Filer | ◻ |
| | | | | |
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 ⌧
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
| | |
Class |
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Common Stock, par value $0.01 per share | |
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TABLE OF CONTENTS
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| Condensed Consolidated Balance Sheets—As of | 7 |
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| 10 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
CERTAIN DEFINED TERMS
Throughout this document, unless otherwise specified or the context so requires:
● | “Cboe,” “we,” “us,” “our” or “the Company” refers to Cboe Global Markets, Inc. and its subsidiaries. |
● | “ADV” means average daily volume. |
● | “ADNV” means average daily notional value. |
● | “AFM” refers to the Netherlands Authority for the Financial Markets. |
● | “Bats Global Markets” and “Bats” refer to our wholly-owned subsidiary Bats Global Markets, Inc., now known as Cboe Bats, LLC, and its subsidiaries. |
● | “BYX” refers to Cboe BYX Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc. |
“BZX” refers to Cboe BZX Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “C2” refers to Cboe C2 Exchange, Inc. a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “Cboe Chi-X Europe” refers to Cboe Chi-X Europe Limited, a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “Cboe Europe Equities” refers to the combined businesses of Cboe Europe and Cboe NL. |
● | “Cboe Europe” refers to Cboe Europe Limited, a wholly-owned subsidiary of Cboe Global Markets, Inc., the U.K. operator of our Multilateral Trading Facility (“MTF”), our Regulated Market (“RM”), and our Approved Publication Arrangement (“APA”) under its Recognized Investment Exchange (“RIE”) status. |
● | “Cboe FX” refers to Cboe FX Markets, LLC, a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “Cboe NL” refers to Cboe Europe BV, a wholly-owned subsidiary of Cboe Global Markets, Inc., the Netherlands operator of our MTF, RM, and APA. |
● | “Cboe Options” refers to Cboe Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “Cboe SEF” refers to Cboe SEF, LLC, a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “Cboe Trading” refers to Cboe Trading, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc., operated in the United States. |
● | “CFE” refers to Cboe Futures Exchange, LLC, a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “CFTC” refers to the U.S. Commodity Futures Trading Commission. |
● | “EDGA” refers to Cboe EDGA Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “EDGX” refers to Cboe EDGX Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “ESMA” refers to the European Securities and Markets Authority. |
● | “EuroCCP” refers to European Central Counterparty N.V., a wholly-owned subsidiary of Cboe Global Markets, Inc. |
● | “Exchanges” refers to Cboe Options, C2, BZX, BYX, EDGX, and EDGA. |
● | “FASB” refers to the Financial Accounting Standards Board. |
● | “FCA” refers to the U.K. Financial Conduct Authority. |
● | “FINRA” refers to the Financial Industry Regulatory Authority. |
● | “GAAP” refers to Generally Accepted Accounting Principles in the United States. |
● | “MATCHNow” refers to TriAct Canada Marketplace LP, a wholly-owned subsidiary of Cboe Global Markets, Inc., the operator of our Canadian Alternative Trading System (“ATS”) called MATCHNow. |
● | “Merger” refers to our acquisition of Bats Global Markets, completed on February 28, 2017. |
● | “OCC” refers to The Options Clearing Corporation. |
● | “OPRA” refers to Options Price Reporting Authority, LLC. |
● | “SEC” refers to the U.S. Securities and Exchange Commission. |
● | “SPX” refers to our S&P 500 Index exchange-traded options products. |
● | “TPH” refers to either a Trading Permit Holder or a Trading Privilege Holder. |
● | “VIX” refers to our Cboe Volatility Index exchange traded options and futures products. |
3
TRADEMARK AND OTHER INFORMATION
Cboe®, Cboe Global Markets®, Bats®, BYX®, BZX®, Cboe Options Institute®, Cboe Vest®, Cboe Volatility Index®, CFE®, EDGA®, EDGX®, EuroCCP®, Hybrid®, LiveVol®, MATCHNow®, Silexx® and VIX® are registered trademarks, and Cboe Futures ExchangeSM, C2SM, f(t)optionsSM, HanweckSM, and C2Trade AlertSM are service marks of Cboe Global Markets, Inc. and its subsidiaries. Standard & Poor's®, S&P®, S&P 100®, S&P 500® and SPX® are registered trademarks of Standard & Poor's Financial Services LLC and have been licensed for use by Cboe Exchange, Inc. Dow Jones®, Dow Jones Industrial Average®, DJIA® and Dow Jones Indices are registered trademarks or service marks of Dow Jones Trademark Holdings, LLC, used under license. Russell® and the Russell index names are registered trademarks of Frank Russell Company, used under license. FTSE® and the FTSE indices are trademarks and service marks of FTSE International Limited, used under license. All other trademarks and service marks are the property of their respective owners.
MSCI and the MSCI index names are service marks of MSCI Inc. (“MSCI”) or its affiliates and have been licensed for use by us. Any derivative indices and any financial products based on the derivative indices (“MCSI-Based Products”) are not sponsored, guaranteed or endorsed by MSCI, its affiliates or any other party involved in, or related to, making or compiling such MSCI index. Neither MSCI, its affiliates nor any other party involved in, or related to, making or compiling any MSCI index makes any representations regarding the advisability of investing in such MSCI-Based Products; makes any warranty, express or implied; or bears any liability as to the results to be obtained by any person or any entity from the use of any such MSCI index or any data included therein. No purchaser, seller or holder of any MSCI-Based Product, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote any security without first contacting MSCI to determine whether MSCI’s permission is required.
This Quarterly Report on Form 10-Q includes market share and industry data that we obtained from industry publications and surveys, reports of governmental agencies and internal company surveys. Industry publications and surveys generally state that the information they contain has been obtained from sources believed to be reliable, but we cannot assure you that this information is accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on the most currently available market data. While we are not aware of any misstatements regarding industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors. We refer you to the “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the SEC.
4
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “might,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. All statements that reflect our expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements, including statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Report. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks and uncertainties described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the SEC.
While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our 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.
Some factors that could cause actual results to differ include:
● | the impact of the novel coronavirus (“COVID-19”) pandemic, including changes to trading behavior broadly in the |
● | the loss of our right to exclusively list and trade certain index options and futures products; |
● | economic, political and market conditions; |
● | compliance with legal and regulatory obligations; |
● | price competition and consolidation in our industry; |
● | decreases in trading or clearing volumes, market data fees or a shift in the mix of products traded on our exchanges; |
● | legislative or regulatory changes; |
● | our ability to protect our systems and communication networks from security risks, cybersecurity risks, insider threats and unauthorized disclosure of confidential information; |
● | increasing competition by foreign and domestic entities; |
● | our dependence on and exposure to risk from third parties; |
● | fluctuations to currency exchange rates; |
● | our index providers' ability to maintain the quality and integrity of their indices and to perform under our agreements; |
● | our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights; |
● | our ability to attract and retain skilled management and other personnel; |
● | our ability to minimize the risks, including our credit and default risks, associated with operating a European clearinghouse; |
● | our ability to accommodate trading and clearing volume and transaction traffic, including significant increases, without failure or degradation of performance of our systems; |
● | misconduct by those who use our markets or our |
● | challenges to our use of open source software code; |
● | our ability to meet our compliance obligations, including managing potential conflicts between our regulatory responsibilities and our for-profit status; |
● | damage to our reputation; |
● | the ability of our compliance and risk management methods to effectively monitor and manage our risks; |
● | our ability to manage our growth and strategic acquisitions or alliances effectively; |
● | restrictions imposed by our debt obligations and our ability to make payments on or refinance our debt obligations; |
● | our ability to maintain an investment grade credit rating; |
5
● | impairment of our goodwill, long-lived assets, investments or intangible assets; and |
● | the accuracy of our estimates and expectations. |
5
For a detailed discussion of these and other factors that might affect our performance, see Part II, Item 1A of this Report. We do not undertake, and expressly disclaim, any duty to update any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this filing.
6
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(in millions, except par value data and share amounts)
| | | | | | | |
|
| March 31, |
| December 31, |
| ||
| | 2020 | | 2019 | | ||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 165.2 | | $ | 229.3 | |
Financial investments | | | 43.6 | | | 71.0 | |
Accounts receivable, net of $1.2 allowance for credit losses at March 31, 2020 and $0.7 at December 31, 2019 | | | 396.5 | | | 234.7 | |
Income taxes receivable | |
| 11.5 | |
| 56.8 | |
Other current assets | |
| 15.3 | |
| 15.8 | |
Total current assets | |
| 632.1 | |
| 607.6 | |
| | | | | | | |
Investments | |
| 62.3 | |
| 61.2 | |
Property and equipment, net | | | 70.7 | | | 47.0 | |
Property held for sale | | | 21.1 | | | 21.1 | |
Operating lease right of use assets | | | 114.0 | | | 53.4 | |
Goodwill | | | 2,725.4 | | | 2,682.1 | |
Intangible assets, net | | | 1,555.5 | | | 1,589.9 | |
Other assets, net | |
| 56.4 | |
| 51.6 | |
Total assets | | $ | 5,237.5 | | $ | 5,113.9 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 208.1 | | $ | 171.9 | |
Section 31 fees payable | | | 129.1 | | | 99.0 | |
Deferred revenue | | | 17.2 | | | 4.5 | |
Income taxes payable | | | 2.9 | |
| 4.0 | |
Current portion of contingent consideration liability | |
| 0.8 | |
| 2.2 | |
Total current liabilities | |
| 358.1 | |
| 281.6 | |
| | | | | | | |
Long-term debt | |
| 868.1 | | | 867.6 | |
Unrecognized tax benefits | |
| 142.1 | | | 135.9 | |
Deferred income taxes | |
| 392.2 | | | 399.7 | |
Non-current operating lease liabilities | | | 128.3 | | | 46.7 | |
Contingent consideration liabilities | | | 16.7 | | | — | |
Other non-current liabilities | | | 21.9 | |
| 26.8 | |
Total liabilities | | | 1,927.4 | | | 1,758.3 | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Preferred stock, $0.01 par value: 20,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2020 and December 31, 2019 | | | — | | | — | |
Common stock, $0.01 par value: 325,000,000 shares authorized, 125,944,478 and 109,719,823 shares issued and outstanding, respectively at March 31, 2020 and 125,701,889 and 110,656,892 shares issued and outstanding, respectively at December 31, 2019 | |
| 1.2 | |
| 1.2 | |
Common stock in treasury, at cost, 16,224,655 shares at March 31, 2020 and 15,044,997 shares at December 31, 2019 | |
| (1,020.5) | |
| (887.1) | |
Additional paid-in capital | |
| 2,699.7 | |
| 2,691.3 | |
Retained earnings | |
| 1,629.6 | |
| 1,512.6 | |
Accumulated other comprehensive income, net | |
| 0.1 | |
| 37.6 | |
Total stockholders’ equity | |
| 3,310.1 | |
| 3,355.6 | |
Total liabilities and stockholders’ equity | | $ | 5,237.5 | | $ | 5,113.9 | |
| | | | | | | |
|
| September 30, |
| December 31, |
| ||
| | 2020 | | 2019 | | ||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 212.7 | | $ | 229.3 | |
Financial investments | | | 22.8 | | | 71.0 | |
Accounts receivable, net of $0.8 allowance for credit losses at September 30, 2020 and $0.7 at December 31, 2019 | | | 283.3 | | | 234.7 | |
Margin deposits and clearing funds | | | 771.9 | | | — | |
Income taxes receivable | |
| 58.3 | |
| 56.8 | |
Other current assets | |
| 33.3 | |
| 15.8 | |
Total current assets | |
| 1,382.3 | |
| 607.6 | |
| | | | | | | |
Investments | |
| 53.2 | |
| 61.2 | |
Property and equipment, net | | | 82.6 | | | 47.0 | |
Property held for sale | | | 13.0 | | | 21.1 | |
Operating lease right of use assets | | | 116.1 | | | 53.4 | |
Goodwill | | | 2,781.5 | | | 2,682.1 | |
Intangible assets, net | | | 1,580.4 | | | 1,589.9 | |
Other assets, net | |
| 67.7 | |
| 51.6 | |
Total assets | | $ | 6,076.8 | | $ | 5,113.9 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 211.6 | | $ | 171.9 | |
Section 31 fees payable | | | 39.7 | | | 99.0 | |
Deferred revenue | | | 13.7 | | | 4.5 | |
Margin deposits and clearing funds | | | 771.9 | | | — | |
Income taxes payable | | | 3.2 | |
| 4.0 | |
Current portion of long-term debt | | | 70.0 | | | — | |
Current portion of contingent consideration liabilities | |
| 18.2 | |
| 2.2 | |
Total current liabilities | |
| 1,128.3 | |
| 281.6 | |
| | | | | | | |
Long-term debt | |
| 869.1 | | | 867.6 | |
Unrecognized tax benefits | |
| 157.3 | | | 135.9 | |
Deferred income taxes | |
| 396.8 | | | 399.7 | |
Non-current operating lease liabilities | | | 135.6 | | | 46.7 | |
Contingent consideration liabilities | | | 19.7 | | | — | |
Other non-current liabilities | | | 25.5 | |
| 26.8 | |
Total liabilities | | | 2,732.3 | | | 1,758.3 | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Preferred stock, $0.01 par value: 20,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 | | | — | | | — | |
Common stock, $0.01 par value: 325,000,000 shares authorized, 125,996,924 and 108,311,921 shares issued and outstanding, respectively at September 30, 2020 and 125,701,889 and 110,656,892 shares issued and outstanding, respectively at December 31, 2019 | |
| 1.2 | |
| 1.2 | |
Common stock in treasury, at cost, 17,685,003 shares at September 30, 2020 and 15,044,997 shares at December 31, 2019 | |
| (1,162.4) | |
| (887.1) | |
Additional paid-in capital | |
| 2,708.9 | |
| 2,691.3 | |
Retained earnings | |
| 1,767.8 | |
| 1,512.6 | |
Accumulated other comprehensive income, net | |
| 29.0 | |
| 37.6 | |
Total stockholders’ equity | |
| 3,344.5 | |
| 3,355.6 | |
Total liabilities and stockholders’ equity | | $ | 6,076.8 | | $ | 5,113.9 | |
See accompanying notes to condensed consolidated financial statements.
7
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
(in millions, except per share data)
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2020 |
| 2019 |
| ||
Revenues: | | | | | | | |
Transaction fees | | $ | 661.5 | | $ | 430.4 | |
Access and capacity fees | | | 57.7 | | | 54.4 | |
Market data fees | |
| 56.2 | |
| 51.6 | |
Regulatory fees | |
| 136.8 | |
| 58.7 | |
Other revenue | |
| 9.3 | |
| 7.5 | |
Total revenues | |
| 921.5 | |
| 602.6 | |
Cost of revenues: | | | | | | | |
Liquidity payments | |
| 392.4 | |
| 243.7 | |
Routing and clearing | | | 16.0 | | | 9.2 | |
Section 31 fees | | | 127.4 | | | 48.2 | |
Royalty fees | |
| 27.4 | |
| 21.0 | |
Total cost of revenues | |
| 563.2 | |
| 322.1 | |
Revenues less cost of revenues | |
| 358.3 | |
| 280.5 | |
Operating expenses: | | | | | | | |
Compensation and benefits | |
| 53.3 | |
| 48.1 | |
Depreciation and amortization | |
| 40.5 | |
| 47.2 | |
Technology support services | |
| 11.9 | |
| 11.9 | |
Professional fees and outside services | |
| 14.9 | |
| 16.2 | |
Travel and promotional expenses | |
| 2.1 | |
| 2.6 | |
Facilities costs | |
| 4.1 | |
| 2.1 | |
Acquisition-related costs | |
| 0.8 | |
| 2.3 | |
Other expenses | | | 4.3 | | | 3.6 | |
Total operating expenses | |
| 131.9 | |
| 134.0 | |
Operating income | |
| 226.4 | |
| 146.5 | |
Non-operating expenses: | | | | | | | |
Interest expense, net | |
| (7.3) | |
| (9.9) | |
Other expense, net | |
| (1.6) | |
| (8.8) | |
Income before income tax provision | |
| 217.5 | |
| 127.8 | |
Income tax provision | |
| 60.1 | |
| 32.6 | |
Net income | | | 157.4 | | | 95.2 | |
Net loss attributable to redeemable noncontrolling interest | | | — | | | 0.2 | |
Net income excluding redeemable noncontrolling interest | | | 157.4 | | | 95.4 | |
Change in redemption value of redeemable noncontrolling interest | | | — | | | (0.2) | |
Net income allocated to participating securities | | | (0.4) | | | (0.6) | |
Net income allocated to common stockholders | | $ | 157.0 | | $ | 94.6 | |
Basic earnings per share | | $ | 1.42 | | $ | 0.85 | |
Diluted earnings per share | | $ | 1.42 | | $ | 0.85 | |
| | | | | | | |
Basic weighted average shares outstanding | | | 110.4 | | | 111.5 | |
Diluted weighted average shares outstanding | | | 110.6 | | | 111.7 | |
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||
Revenues: | | | | | | | | | | | | | |
Transaction and clearing fees | | $ | 545.5 | | $ | 465.8 | | $ | 1,825.3 | | $ | 1,322.0 | |
Access and capacity fees | | | 60.6 | | | 55.7 | | | 174.0 | | | 164.6 | |
Market data fees | |
| 59.5 | |
| 56.3 | |
| 174.4 | |
| 159.7 | |
Regulatory fees | |
| 113.8 | |
| 88.1 | |
| 379.3 | |
| 226.5 | |
Other revenue | |
| 13.3 | |
| 9.5 | |
| 29.9 | |
| 24.7 | |
Total revenues | |
| 792.7 | |
| 675.4 | |
| 2,582.9 | |
| 1,897.5 | |
Cost of revenues: | | | | | | | | | | | | | |
Liquidity payments | |
| 359.4 | |
| 269.7 | |
| 1,167.4 | |
| 749.2 | |
Routing and clearing | | | 14.9 | | | 9.3 | | | 48.6 | | | 27.7 | |
Section 31 fees | | | 105.4 | | | 79.4 | | | 351.8 | | | 197.9 | |
Royalty fees | |
| 17.6 | |
| 22.9 | |
| 64.4 | |
| 65.8 | |
Other | |
| 3.4 | |
| 0.1 | |
| 3.5 | |
| 0.3 | |
Total cost of revenues | |
| 500.7 | |
| 381.4 | |
| 1,635.7 | |
| 1,040.9 | |
Revenues less cost of revenues | |
| 292.0 | |
| 294.0 | |
| 947.2 | |
| 856.6 | |
Operating expenses: | | | | | | | | | | | | | |
Compensation and benefits | |
| 59.2 | |
| 49.7 | |
| 167.4 | |
| 150.0 | |
Depreciation and amortization | |
| 39.5 | |
| 42.9 | |
| 118.0 | |
| 133.8 | |
Technology support services | |
| 15.1 | |
| 10.6 | |
| 39.5 | |
| 34.3 | |
Professional fees and outside services | |
| 15.8 | |
| 17.5 | |
| 43.0 | |
| 52.9 | |
Travel and promotional expenses | |
| 1.2 | |
| 2.7 | |
| 4.2 | |
| 8.3 | |
Facilities costs | |
| 4.5 | |
| 2.7 | |
| 12.7 | |
| 7.8 | |
Acquisition-related costs | |
| 6.2 | |
| 16.7 | |
| 16.4 | |
| 39.8 | |
Other expenses | | | 11.2 | | | 3.8 | | | 18.6 | | | 11.7 | |
Total operating expenses | |
| 152.7 | |
| 146.6 | |
| 419.8 | |
| 438.6 | |
Operating income | |
| 139.3 | |
| 147.4 | |
| 527.4 | |
| 418.0 | |
Non-operating (expenses) income: | | | | | | | | | | | | | |
Interest expense, net | |
| (9.5) | |
| (8.2) | |
| (24.1) | |
| (28.1) | |
Other income (expense), net | |
| 33.6 | |
| 1.7 | |
| 34.2 | |
| (2.7) | |
Income before income tax provision | |
| 163.4 | |
| 140.9 | |
| 537.5 | |
| 387.2 | |
Income tax provision | |
| 53.5 | |
| 35.0 | |
| 156.6 | |
| 102.7 | |
Net income | | | 109.9 | | | 105.9 | | | 380.9 | | | 284.5 | |
Net loss attributable to redeemable noncontrolling interest | | | — | | | 0.1 | | | — | | | 4.1 | |
Net income excluding redeemable noncontrolling interest | | | 109.9 | | | 106.0 | | | 380.9 | | | 288.6 | |
Change in redemption value of redeemable noncontrolling interest | | | — | | | (0.1) | | | — | | | (0.5) | |
Net income allocated to participating securities | | | (0.3) | | | (0.4) | | | (1.0) | | | (1.5) | |
Net income allocated to common stockholders | | $ | 109.6 | | $ | 105.5 | | $ | 379.9 | | $ | 286.6 | |
Basic earnings per share | | $ | 1.01 | | $ | 0.95 | | $ | 3.47 | | $ | 2.57 | |
Diluted earnings per share | | $ | 1.01 | | $ | 0.94 | | $ | 3.46 | | $ | 2.56 | |
| | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 108.7 | | | 111.6 | | | 109.5 | | | 111.6 | |
Diluted weighted average shares outstanding | | | 108.8 | | | 111.9 | | | 109.8 | | | 112.0 | |
See accompanying notes to condensed consolidated financial statements.
8
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(in millions)
| | | | | | | |
|
| Three Months Ended March 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Net income | | $ | 157.4 | | $ | 95.2 | |
Other comprehensive (loss) income, net of income tax: | | | | | | | |
Foreign currency translation adjustments | |
| (37.5) | | | 14.7 | |
Comprehensive income | | | 119.9 | | | 109.9 | |
Comprehensive loss attributable to redeemable noncontrolling interest | | | — | | | 0.2 | |
Comprehensive income excluding redeemable noncontrolling interest | | | 119.9 | | | 110.1 | |
Change in redemption value of redeemable noncontrolling interest | | | — | | | (0.2) | |
Comprehensive income allocated to participating securities | | | (0.4) | | | (0.6) | |
Comprehensive income allocated to common stockholders, net of income tax | | $ | 119.5 | | $ | 109.3 | |
| | | | | | | | | | | | | |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Net income | | $ | 109.9 | | $ | 105.9 | | $ | 380.9 | | $ | 284.5 | |
Other comprehensive income (loss), net of income tax: | | | | | | | | | | | | | |
Foreign currency translation adjustments | |
| 31.6 | | | (17.2) | |
| (9.4) | | | (20.6) | |
Unrealized holding losses on financial investments | |
| — | |
| — | |
| (0.3) | |
| — | |
Post-retirement benefit obligations | | | — | | | — | | | 1.1 | | | — | |
Comprehensive income | | | 141.5 | | | 88.7 | | | 372.3 | | | 263.9 | |
Comprehensive loss attributable to redeemable noncontrolling interest | | | — | | | 0.1 | | | — | | | 4.1 | |
Comprehensive income excluding redeemable noncontrolling interest | | | 141.5 | | | 88.8 | | | 372.3 | | | 268.0 | |
Change in redemption value of redeemable noncontrolling interest | | | — | | | (0.1) | | | — | | | (0.5) | |
Comprehensive income allocated to participating securities | | | (0.3) | | | (0.4) | | | (1.0) | | | (1.5) | |
Comprehensive income allocated to common stockholders, net of income tax | | $ | 141.2 | | $ | 88.3 | | $ | 371.3 | | $ | 266.0 | |
See accompanying notes to condensed consolidated financial statements.
9
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine months ended March 31,September 30, 2020 and March 31,September 30, 2019
(unaudited)
(in millions, except per share amount)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | |
| | | | | | | | | Additional | | | | other | | Total | | Redeemable | | |||||||
| | Preferred | | Common | | Treasury | | paid-in | | Retained | | comprehensive | | stockholders’ | | Noncontrolling | | ||||||||
|
| Stock |
| Stock |
| Stock |
| capital |
| earnings |
| income, net |
| equity |
| Interest | | ||||||||
Balance at December 31, 2019 |
| $ | — | | $ | 1.2 | | $ | (887.1) | | $ | 2,691.3 | | $ | 1,512.6 | | $ | 37.6 | | $ | 3,355.6 | | $ | — | |
Transition adjustment for adoption of Current Expected Credit Losses standard at January 1, 2020 | | | — | | | — | | | — | | | — | | | (0.4) | | | — | | | (0.4) | | | — | |
Cash dividends on common stock of $0.36 per share | | | — | | | — | | | — | | | — | | | (40.0) | | | — | | | (40.0) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | 8.3 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (13.9) | | | — | | | — | | | — | | | (13.9) | | | — | |
Purchase of common stock | | | — | | | — | | | (119.5) | | | — | | | — | | | — | | | (119.5) | | | — | |
Shares issued under employee stock purchase plan | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | 0.1 | | | — | |
Net income | | | — | | | — | | | — | | | — | | | 157.4 | | | — | | | 157.4 | | | — | |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | — | | | (37.5) | | | (37.5) | | | — | |
Balance at March 31, 2020 | | $ | — | | $ | 1.2 | | $ | (1,020.5) | | $ | 2,699.7 | | $ | 1,629.6 | | $ | 0.1 | | $ | 3,310.1 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | |
| | | | | | | | | Additional | | | | other | | Total | | Redeemable | | |||||||
| | Preferred | | Common | | Treasury | | paid-in | | Retained | | comprehensive | | stockholders’ | | Noncontrolling | | ||||||||
|
| Stock |
| Stock |
| Stock |
| capital |
| earnings |
| income (loss), net |
| equity |
| Interest | | ||||||||
Balance at December 31, 2019 |
| $ | — | | $ | 1.2 | | $ | (887.1) | | $ | 2,691.3 | | $ | 1,512.6 | | $ | 37.6 | | $ | 3,355.6 | | $ | — | |
Transition adjustment for adoption of Current Expected Credit Losses standard at January 1, 2020 | | | — | | | — | | | — | | | — | | | (0.4) | | | — | | | (0.4) | | | — | |
Cash dividends on common stock of $0.36 per share | | | — | | | — | | | — | | | — | | | (40.0) | | | — | | | (40.0) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 8.3 | | | — | | | — | | | 8.3 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (13.9) | | | — | | | — | | | — | | | (13.9) | | | — | |
Purchase of common stock | | | — | | | — | | | (119.5) | | | — | | | — | | | — | | | (119.5) | | | — | |
Shares issued under employee stock purchase plan | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | 0.1 | | | — | |
Net income | | | — | | | — | | | — | | | — | | | 157.4 | | | — | | | 157.4 | | | — | |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | — | | | (37.5) | | | (37.5) | | | — | |
Balance at March 31, 2020 | | $ | — | | $ | 1.2 | | $ | (1,020.5) | | $ | 2,699.7 | | $ | 1,629.6 | | $ | 0.1 | | $ | 3,310.1 | | $ | — | |
Cash dividends on common stock of $0.36 per share | | | — | | | — | | | — | | | — | | | (39.5) | | | — | | | (39.5) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 4.6 | | | — | | | — | | | 4.6 | | | — | |
Exercise of common stock options | | | — | | | — | | | — | | | 0.2 | | | — | | | — | | | 0.2 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (0.2) | | | — | | | — | | | — | | | (0.2) | | | — | |
Purchase of common stock | | | — | | | — | | | (99.8) | | | — | | | — | | | — | | | (99.8) | | | — | |
Net income | | | — | | | — | | | — | | | — | | | 113.6 | | | — | | | 113.6 | | | — | |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | — | | | (2.7) | | | (2.7) | | | — | |
Balance at June 30, 2020 | | $ | — | | $ | 1.2 | | $ | (1,120.5) | | $ | 2,704.5 | | $ | 1,703.7 | | $ | (2.6) | | $ | 3,286.3 | | $ | — | |
Cash dividends on common stock of $0.42 per share | | | — | | | — | | | — | | | — | | | (45.8) | | | — | | | (45.8) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 4.4 | | | — | | | — | | | 4.4 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (0.1) | | | — | | | — | | | — | | | (0.1) | | | — | |
Purchase of common stock | | | — | | | — | | | (41.8) | | | — | | | — | | | — | | | (41.8) | | | — | |
Net income | | | — | | | — | | | — | | | — | | | 109.9 | | | — | | | 109.9 | | | — | |
Other comprehensive income | | | — | | | — | | | — | | | — | | | — | | | 31.6 | | | 31.6 | | | — | |
Balance at September 30, 2020 | | $ | — | | $ | 1.2 | | $ | (1,162.4) | | $ | 2,708.9 | | $ | 1,767.8 | | $ | 29.0 | | $ | 3,344.5 | | $ | — | |
10
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (continued)
(unaudited)
(in millions, except per share amount)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | |
| | | | | | | | | Additional | | | | other | | Total | | Redeemable | | |||||||
| | Preferred | | Common | | Treasury | | paid-in | | Retained | | comprehensive | | stockholders’ | | Noncontrolling | | ||||||||
|
| Stock |
| Stock |
| Stock |
| capital |
| earnings |
| income, net |
| equity |
| Interest |
| ||||||||
Balance at December 31, 2018 | | $ | — | | $ | 1.2 | | $ | (720.1) | | $ | 2,660.2 | | $ | 1,288.2 | | $ | 11.5 | | $ | 3,241.0 | | $ | 9.4 | |
Cash dividends on common stock of $0.31 per share | | | — | | | — | | | — | | | — | | | (34.8) | | | — | | | (34.8) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 5.4 | | | — | | | — | | | 5.4 | | | — | |
Exercise of common stock options | | | — | | | — | | | — | | | 8.1 | | | — | | | — | | | 8.1 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (10.0) | | | — | | | — | | | — | | | (10.0) | | | — | |
Purchase of common stock | | | — | | | — | | | (35.0) | | | — | | | — | | | — | | | (35.0) | | | — | |
Shares issued under employee stock purchase plan | | | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | | | — | |
Net income excluding noncontrolling interest | | | — | | | — | | | — | | | — | | | 95.4 | | | — | | | 95.4 | | | — | |
Other comprehensive income | | | — | | | — | | | — | | | — | | | — | | | 14.7 | | | 14.7 | | | — | |
Net loss attributable to redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (0.2) | |
Redemption value adjustment of redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | (0.2) | | | — | | | (0.2) | | | 0.2 | |
Balance at March 31, 2019 | | $ | — | | $ | 1.2 | | $ | (764.3) | | $ | 2,673.7 | | $ | 1,348.6 | | $ | 26.2 | | $ | 3,285.4 | | $ | 9.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | |
| | | | | | | | | Additional | | | | other | | Total | | Redeemable | | |||||||
| | Preferred | | Common | | Treasury | | paid-in | | Retained | | comprehensive | | stockholders’ | | Noncontrolling | | ||||||||
|
| Stock |
| Stock |
| Stock |
| capital |
| earnings |
| income (loss), net |
| equity |
| Interest |
| ||||||||
Balance at December 31, 2018 | | $ | — | | $ | 1.2 | | $ | (720.1) | | $ | 2,660.2 | | $ | 1,288.2 | | $ | 11.5 | | $ | 3,241.0 | | $ | 9.4 | |
Cash dividends on common stock of $0.31 per share | | | — | | | — | | | — | | | — | | | (34.8) | | | — | | | (34.8) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 5.4 | | | — | | | — | | | 5.4 | | | — | |
Exercise of common stock options | ��� | | — | | | — | | | — | | | 8.1 | | | — | | | — | | | 8.1 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (10.0) | | | — | | | — | | | — | | | (10.0) | | | — | |
Purchase of common stock | | | — | | | — | | | (35.0) | | | — | | | — | | | — | | | (35.0) | | | — | |
Shares issued under employee stock purchase plan | | | — | | | — | | | 0.8 | | | — | | | — | | | — | | | 0.8 | | | — | |
Net income excluding noncontrolling interest | | | — | | | — | | | — | | | — | | | 95.4 | | | — | | | 95.4 | | | — | |
Other comprehensive income | | | — | | | — | | | — | | | — | | | — | | | 14.7 | | | 14.7 | | | — | |
Net loss attributable to redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (0.2) | |
Redemption value adjustment of redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | (0.2) | | | — | | | (0.2) | | | 0.2 | |
Balance at March 31, 2019 | | $ | — | | $ | 1.2 | | $ | (764.3) | | $ | 2,673.7 | | $ | 1,348.6 | | $ | 26.2 | | $ | 3,285.4 | | $ | 9.4 | |
Cash dividends on common stock of $0.31 per share | | | — | | | — | | | — | | | — | | | (34.8) | | | — | | | (34.8) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 6.3 | | | — | | | — | | | 6.3 | | | — | |
Exercise of common stock options | | | — | | | — | | | — | | | 0.4 | | | — | | | — | | | 0.4 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (0.4) | | | — | | | — | | | — | | | (0.4) | | | — | |
Shares issued under employee stock purchase plan | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | | — | |
Net income excluding noncontrolling interest | | | — | | | — | | | — | | | — | | | 88.3 | | | — | | | 88.3 | | | — | |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | — | | | (18.1) | | | (18.1) | | | — | |
Net loss attributable to redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3.8) | |
Redemption value adjustment of redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | (0.2) | | | — | | | (0.2) | | | 0.2 | |
Balance at June 30, 2019 | | $ | — | | $ | 1.2 | | $ | (764.6) | | $ | 2,680.4 | | $ | 1,401.9 | | $ | 8.1 | | $ | 3,327.0 | | $ | 5.8 | |
Cash dividends on common stock of $0.36 per share | | | — | | | — | | | — | | | — | | | (40.4) | | | — | | | (40.4) | | | — | |
Stock-based compensation | | | — | | | — | | | — | | | 5.3 | | | — | | | — | | | 5.3 | | | — | |
Exercise of common stock options | | | — | | | — | | | — | | | 0.8 | | | — | | | — | | | 0.8 | | | — | |
Repurchases of common stock from employee stock plans | | | — | | | — | | | (0.3) | | | — | | | — | | | — | | | (0.3) | | | — | |
Purchase of common stock | | | — | | | — | | | (52.4) | | | — | | | — | | | — | | | (52.4) | | | — | |
Shares issued under employee stock purchase plan | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net income excluding noncontrolling interest | | | — | | | — | | | — | | | — | | | 106.0 | | | — | | | 106.0 | | | — | |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | — | | | (17.2) | | | (17.2) | | | — | |
Net loss attributable to redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (0.1) | |
Redemption value adjustment of redeemable noncontrolling interest | | | — | | | — | | | — | | | — | | | (0.1) | | | — | | | (0.1) | | | 0.1 | |
Deconsolidation of former subsidiary with noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5.8) | |
Balance at September 30, 2019 | | $ | — | | $ | 1.2 | | $ | (817.3) | | $ | 2,686.5 | | $ | 1,467.4 | | $ | (9.1) | | $ | 3,328.7 | | $ | — | |
See accompanying notes to condensed consolidated financial statements.statements.
1011
Cboe Global Markets, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
| | | | | | | |
|
| Three Months Ended March 31, | | ||||
| | 2020 |
| 2019 |
| ||
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 157.4 | | $ | 95.2 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 40.5 | |
| 47.2 | |
Amortization of debt issuance cost and debt discount | | | 0.5 | | | 0.6 | |
Change in fair value of contingent consideration | | | — | | | 0.8 | |
Realized gain on available-for-sale securities | | | (0.4) | | | (0.2) | |
Provision for credit losses | | | 0.7 | | | 0.3 | |
Provision for deferred income taxes | | | (3.8) | | | (5.4) | |
Stock-based compensation expense | | | 8.3 | | | 5.4 | |
Loss on disposition of property | | | — | | | 0.4 | |
Equity in investments | | | (0.5) | | | (0.5) | |
Changes in assets and liabilities: | | | | | | | |
Accounts receivable | | | (164.1) | | | 37.5 | |
Income taxes receivable | | | 45.3 | | | 30.1 | |
Other current assets | | | 0.8 | | | (4.3) | |
Other assets | | | (6.2) | | | — | |
Accounts payable and accrued liabilities | | | 37.4 | | | (67.0) | |
Section 31 fees payable | | | 30.1 | | | (32.4) | |
Deferred revenue | | | 11.4 | | | 9.7 | |
Income taxes payable | | | (0.8) | | | (1.6) | |
Unrecognized tax benefits | | | 6.2 | | | 6.3 | |
Other liabilities | | | 0.5 | | | (4.1) | |
Net cash provided by operating activities | |
| 163.3 | | | 118.0 | |
Cash flows from investing activities: | |
| | | | | |
Acquisitions, net of cash acquired | |
| (61.6) | | | — | |
Purchases of available-for-sale financial investments | |
| (24.5) | | | (29.5) | |
Proceeds from maturities of available-for-sale financial investments | | | 47.3 | | | 35.3 | |
Return of capital from investments | |
| — | | | 22.0 | |
Contributions to investments | | | (1.6) | | | — | |
Purchases of property and equipment | |
| (10.6) | | | (5.8) | |
Net cash (used in) provided by investing activities | |
| (51.0) | | | 22.0 | |
Cash flows from financing activities: | |
| | | | | |
Cash dividends paid on common stock | |
| (40.0) | | | (34.8) | |
Repurchases of common stock from employee stock plans | |
| (13.9) | | | (10.0) | |
Exercise of common stock options | |
| — | | | 8.1 | |
Payment of contingent consideration from acquisition | | | (2.3) | | | — | |
Purchase of common stock | |
| (119.5) | | | (35.0) | |
Net cash used in financing activities | | | (175.7) | | | (71.7) | |
Effect of foreign currency exchange rates on cash and cash equivalents | | | (0.7) | | | 2.8 | |
(Decrease) increase in cash and cash equivalents | | | (64.1) | | | 71.1 | |
Cash and cash equivalents: | | | | | | | |
Beginning of period | | | 229.3 | | | 275.1 | |
End of period | | $ | 165.2 | | $ | 346.2 | |
Supplemental disclosure of cash transactions: | | | | | | | |
Cash paid for income taxes | | $ | 13.5 | | $ | 2.2 | |
Cash paid for interest | | | 1.6 | | | 14.3 | |
Supplemental disclosure of noncash investing activities: | | | | | | | |
Accounts receivable acquired | | $ | 0.7 | | | — | |
Goodwill acquired | |
| 60.4 | | | — | |
Intangible assets acquired | |
| 20.3 | | | — | |
Accounts payable and accrued expenses assumed | | | (1.4) | | | — | |
Deferred revenue acquired | | | (1.3) | | | — | |
Contingent consideration related to acquisitions | | | (17.5) | | | — | |
| | | | | | | |
|
| Nine Months Ended September 30, | | ||||
| | 2020 |
| 2019 |
| ||
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 380.9 | | $ | 284.5 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 118.0 | |
| 133.8 | |
Amortization of debt issuance cost and debt discount | | | 1.5 | | | 1.7 | |
Change in fair value of contingent consideration | | | — | | | 2.4 | |
Realized gain on available-for-sale securities | | | (0.4) | | | (1.2) | |
Provision for accounts receivable credit losses | | | 0.1 | | | 0.8 | |
Provision for deferred income taxes | | | (8.8) | | | (18.4) | |
Provision for notes receivable credit losses | | | 6.7 | | | — | |
Stock-based compensation expense | | | 17.3 | | | 17.0 | |
Impairment of property held for sale | | | 8.1 | | | 6.1 | |
Loss related to deconsolidation of former subsidiary | | | — | | | 2.0 | |
Impairment of goodwill | | | — | | | 10.5 | |
Equity in investments | | | (0.9) | | | (1.7) | |
Impairment of investment | | | 4.1 | | | — | |
Bargain purchase gain | | | (32.6) | | | — | |
Changes in assets and liabilities: | | | | | | | |
Accounts receivable | | | (43.3) | | | 49.8 | |
Restricted cash and cash equivalents (margin deposits and clearing funds) | | | 771.9 | | | — | |
Income taxes receivable | | | 0.2 | | | 5.4 | |
Other current assets | | | (5.9) | | | (14.8) | |
Other assets | | | (17.2) | | | — | |
Accounts payable and accrued liabilities | | | 21.4 | | | (39.4) | |
Section 31 fees payable | | | (59.4) | | | (55.7) | |
Deferred revenue | | | 7.9 | | | (0.3) | |
Income taxes payable | | | (1.5) | | | (3.1) | |
Unrecognized tax benefits | | | 21.4 | | | 20.0 | |
Other liabilities | | | (0.1) | | | (4.3) | |
Net cash provided by operating activities | |
| 1,189.4 | | | 395.1 | |
Cash flows from investing activities: | |
| | | | | |
Acquisitions, net of cash acquired | |
| (103.3) | | | — | |
Purchases of available-for-sale financial investments | |
| (154.9) | | | (61.8) | |
Proceeds from maturities of available-for-sale financial investments | | | 202.5 | | | 98.0 | |
Return of capital from investments | |
| — | | | 22.0 | |
Contributions to investments | | | (11.7) | | | — | |
Purchases of property and equipment | |
| (37.2) | | | (26.9) | |
Net cash (used in) provided by investing activities | |
| (104.6) | | | 31.3 | |
Cash flows from financing activities: | |
| | | | | |
Principal payments of long-term debt | |
| — | | | (350.0) | |
Proceeds from credit facility | | | 70.0 | | | — | |
Cash dividends on common stock | |
| (125.3) | | | (110.0) | |
Repurchases of common stock from employee stock plans | |
| (14.2) | | | (10.7) | |
Exercise of common stock options | |
| 0.2 | | | 9.1 | |
Payment of contingent consideration from acquisition | | | (2.2) | | | — | |
Purchase of common stock | |
| (261.1) | | | (87.4) | |
Net cash used in financing activities | | | (332.6) | | | (549.0) | |
Effect of foreign currency exchange rates on cash, cash equivalents, and restricted cash and cash equivalents | | | 3.1 | | | (2.5) | |
Increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | | | 755.3 | | | (125.1) | |
Cash, cash equivalents, and restricted cash and cash equivalents: | | | | | | | |
Beginning of period | | | 229.3 | | | 275.1 | |
End of period | | $ | 984.6 | | $ | 150.0 | |
Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents: | | | | | | | |
Cash and cash equivalents | | | 212.7 | | | 150.0 | |
Restricted cash and cash equivalents (margin deposits and clearing funds) | | | 771.9 | | | — | |
Total | | $ | 984.6 | | $ | 150.0 | |
Supplemental disclosure of cash transactions: | | | | | | | |
Cash paid for income taxes | | $ | 145.4 | | $ | 98.9 | |
Cash paid for interest | | | 27.3 | | | 31.0 | |
Supplemental disclosure of noncash investing activities: | | | | | | | |
Note receivable issued in connection with deconsolidation of former subsidiary | | $ | — | | $ | 3.7 | |
Investment recognized in connection with deconsolidation of former subsidiary | | | — | | | 2.9 | |
Net assets of former subsidiary deconsolidated | | | — | | | 14.5 | |
Accounts receivable acquired | | | 6.4 | | | — | |
Income taxes receivable acquired | |
| 1.6 | | | — | |
Other current assets acquired | |
| 4.8 | | | — | |
Goodwill acquired | |
| 105.9 | | | — | |
Intangible assets acquired | |
| 91.3 | | | — | |
Property and equipment, net acquired | |
| 3.5 | | | — | |
Accounts payable and accrued expenses assumed | | | (14.7) | | | — | |
Income taxes payable assumed | | | (0.9) | | | — | |
Deferred revenue acquired | | | (1.3) | | | — | |
Contingent consideration related to acquisitions | | | (37.9) | | | — | |
Deferred income taxes acquired | | | (7.3) | | | — | |
See accompanying notes to condensed consolidated financial statements.
1112
Cboe Global Markets, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Cboe Global Markets, Inc. is one of the world’s largest exchange holding companies, offeringprovides cutting-edge trading and investment solutions to investors around the world. The Company is committed to defining markets to benefit its participants and drive the global marketplace forward through product innovation, leading edge technology, and seamless trading solutions.
Cboe offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S., Canadian and European equities, exchange-traded products (“ETPs”), global foreign exchange (“FX”) and multi-asset volatility products based on the VIX Index, recognized as the world’s premier gauge of U.S. equity market volatility.
Cboe’s subsidiaries include the largest options exchange and the third largest stock exchange operator in the U.S. In addition, the Company operates one of the largest equities stock exchanges by value traded in Europe, and owns EuroCCP, a leading pan-European equities clearinghouse. Cboe also is a leading market globally for ETP listings and trading.
The Company is headquartered in Chicago with offices in Kansas City, New York, London, San Francisco, Sarasota Springs, Toronto, Belfast, Amsterdam, Singapore, Hong Kong, and Ecuador.
Basis of Presentation
These interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and reported amounts of revenues and expenses. On an ongoing basis, management evaluates its estimates based upon historical experience, observance of trends, information available from outside sources and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included.
The results of operations for interim periods are not necessarily indicative of the results of operations for the full year.
For those consolidated subsidiaries in which the Company’s ownership is less than 100% and for which the Company has control over the assets and liabilities and the management of the entity, the outside stockholders’ interest is shown as noncontrolling interest.
Segment information
The Company has 5 business segments: Options, North American Equities (formerly U.S. Equities,Equities), Futures, European Equities, and Global FX, which is reflective of how the Company’s chief operating decision-maker reviews and operates the business. See Note 1415 (“Segment Reporting”) for more information.
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Significant Accounting Policies
With the exception of the change in the accounting for expected credit losses as a result of the adoption of Accounting Standards Update (“ASU”) 2016-13 (as discussed below in “Recent Accounting Pronouncements Adopted”), and the new accounting policies for margin deposits and clearing funds as a result of the acquisition of EuroCCP, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, that are of significance, or potential significance, to the Company.
Accounts Receivable, net
Accounts receivable are concentrated with the Company’s member firms and market data distributors and are carried at amortized cost. The Company nets transaction fees and liquidity payments for each member firm on a monthly basis and recognizes the total owed from a member firm as accounts receivable, net, and the total owed to a member firm as accounts payable and accrued liabilities in the condensed consolidated balance sheets. On a periodic basis, management evaluates the Company’s accounts receivable and records an allowance for expected credit losses using an aging schedule. The aging schedule applies loss rates based on historical loss information and, as deemed necessary, is adjusted for differences in the nature of the receivables that exist at the reporting date from the historical period. Due to the short-term nature of the accounts receivable, changes in future economic conditions are not expected to have a significant impact on the expected credit losses.
The accounts receivable are presented net of allowance for credit losses on the condensed consolidated balance sheets and the associated losses are presented in other operating expenses on the condensed consolidated statements of income.
Margin Deposits and Clearing Funds
Margin deposits and clearing funds in the form of cash contributions by EuroCCP’s clearing participants where title has transferred to EuroCCP are included as current assets with equal and offsetting current liabilities in the condensed consolidated balance sheet. These margin deposits and clearing funds are deposited with De Nederlandsche Bank (“DNB”), can only be used for specified EuroCCP operations, and fluctuate over time due to changes in deposit requirements. Certain non-cash margin deposits and clearing fund deposits, as well as interoperability fund deposits, are not reflected in the accompanying condensed consolidated balance sheet, as EuroCCP does not take legal ownership of these balances. Cash held as margin deposits and clearing fund deposits may be invested at an approved bank in accordance with EuroCCP’s investment policy, and any interest or gain received, or loss incurred on invested funds is recorded in other revenue in the condensed consolidated statements of income.
Recent Accounting Pronouncements - Adopted
In June 2016, the FASB issued ASU 2016-13, Credit Losses. This update replaces the incurred loss impairment methodology in GAAP with a methodology that requires management to estimate an expected lifetime credit loss on financial assets. This includes accounts receivable and notes receivable, which is included in other assets, net on the condensed consolidated balance sheets. The update also amends the impairment model for available-for-sale debt securities. The forward-looking expected lifetime credit loss model generally will result in the earlier recognition of credit losses. For public entities, the update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted this ASU on January 1, 2020 using the modified retrospective approach and willdid not restate comparative periods. Upon the adoption of the standard, the Company recognized an immaterial cumulative-effect adjustment to retained earnings for the estimate of current expected lifetime credit loss on the financial instruments within the scope of the standard, including accounts receivable, net. Accounts receivable related to clearing operations are fully collateralized, which minimizes credit loss exposure. Based on the Company’s high turnover and collectability of accounts receivable, as well as the monthly billing process for the majority of revenue, there was not a significant variance in the recognized loss between the incurred loss impairment methodology under the prior standard and the expected lifetime credit loss model under this ASU. The financial instruments other than accounts receivable, net that are within the scope of the standard were not materially impacted by
14
the standard. The impact to the condensed consolidated balance sheetssheet was immaterial in nature and there was no impact to the condensed consolidated statements of income and cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For public entities, the update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company prospectively adopted the updatethis ASU on January 1, 2020 using the prospective approach, which did not result in a material impact to the condensed consolidated financial statements.statements and disclosures.
13
Recent Accounting Pronouncements - Issued, not yet Adopted
There are no applicable material accounting pronouncements that have been issued but are not yet adopted as of March 31,September 30, 2020.
2. REVENUE RECOGNITION
The Company’s main types of revenue contracts are:
● | Transaction and clearing fees - Transaction fees represent fees charged by the Company for meeting the point-in-time performance obligation of executing a trade on its markets. These fees can be variable based on trade volume tiered |
● | Access and capacity fees - Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. Facilities, systems services and other fees are generally monthly fee-based. These fees are billed monthly in accordance with the Company’s published fee schedules and recognized on a monthly basis when the performance obligations are met. All access and capacity fees associated with the trading floor are recognized over time in the Options segment, as the performance obligations are met. |
● | Market data fees - Market data fees represent the fees received by the Company from the U.S. tape plans and fees charged to customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.S. Exchanges based on a known formula. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company’s published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data to meet its performance obligation. U.S. tape plan market data is recognized in the |
● | Regulatory fees - There are 2 types of regulatory fees that the Company recognizes. The first type represents fees collected by the Company to cover the Section 31 fees charged to the Exchanges by the SEC for meeting the point-in-time performance obligation of executing a trade on its markets. The fees |
1415
charged to customers are based on the fee set by the SEC per notional value of U.S. Equities exchange transactions and per round turn of Options transactions executed on the Company’s U.S. securities markets. These fees are calculated and billed monthly and are recognized in the North American Equities and Options segments. As the Exchanges are responsible for the ultimate payment to the SEC, the Exchanges are considered the principal in these transactions. Regulatory fees also include the options regulatory fee (“ORF”) which supports the Company’s regulatory oversight function in the Options segment, along with other miscellaneous regulatory fees, and neither can be used for non-regulatory purposes. The ORF and miscellaneous fees are recognized when the performance obligation is fulfilled. |
● | Other revenue - Other revenue primarily includes revenue from various licensing agreements, net interest income from clearing operations, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s websites. |
All revenue recognized in the condensed consolidated statements of income is considered to be revenue from contracts with customers.customers, with the exception of net interest income from clearing operations. The following table depicts the disaggregation of revenue according to product line and segment (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | North | | | | | | | | | | | Corporate | | | | ||
| | | | | American | | | | | European | | Global | | Items and | | | | ||||
|
| Options |
| Equities |
| Futures |
| Equities |
| FX |
| Eliminations |
| Total | |||||||
Three Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | |
Transaction and clearing fees | | $ | 241.4 | | $ | 253.0 | | $ | 16.8 | | $ | 23.4 | | $ | 10.9 | | $ | — | | $ | 545.5 |
Access and capacity fees | | | 27.5 | | | 21.2 | | | 4.4 | | | 5.4 | | | 2.1 | | | — | | | 60.6 |
Market data fees | | | 19.8 | | | 34.3 | | | 1.7 | | | 3.5 | | | 0.2 | | | — | | | 59.5 |
Regulatory fees | | | 19.7 | | | 94.1 | | | — | | | — | | | — | | | — | | | 113.8 |
Other revenue | | | 4.4 | | | 1.0 | | | 1.1 | | | 6.8 | | | — | | | — | | | 13.3 |
| | $ | 312.8 | | $ | 403.6 | | $ | 24.0 | | $ | 39.1 | | $ | 13.2 | | $ | — | | $ | 792.7 |
Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 265.5 | | $ | 348.1 | | $ | 17.9 | | $ | 30.2 | | $ | 10.9 | | $ | — | | $ | 672.6 |
Services transferred over time | | | 47.3 | | | 55.5 | | | 6.1 | | | 8.9 | | | 2.3 | | | — | | | 120.1 |
| | $ | 312.8 | | $ | 403.6 | | $ | 24.0 | | $ | 39.1 | | $ | 13.2 | | $ | — | | $ | 792.7 |
| | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | | | | | |
Transaction and clearing fees | | $ | 207.1 | | $ | 199.4 | | $ | 31.2 | | $ | 16.9 | | $ | 11.2 | | $ | — | | $ | 465.8 |
Access and capacity fees | | | 26.0 | | | 20.1 | | | 4.0 | | | 3.9 | | | 1.7 | | | — | | | 55.7 |
Market data fees | | | 13.8 | | | 37.7 | | | 1.6 | | | 3.0 | | | 0.2 | | | — | | | 56.3 |
Regulatory fees | | | 15.9 | | | 72.2 | | | — | | | — | | | — | | | — | | | 88.1 |
Other revenue | | | 3.3 | | | 1.3 | | | 2.8 | | | 2.1 | | | — | | | — | | | 9.5 |
| | $ | 266.1 | | $ | 330.7 | | $ | 39.6 | | $ | 25.9 | | $ | 13.1 | | $ | — | | $ | 675.4 |
Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 226.3 | | $ | 272.9 | | $ | 34.0 | | $ | 19.0 | | $ | 11.2 | | $ | — | | $ | 563.4 |
Services transferred over time | | | 39.8 | | | 57.8 | | | 5.6 | | | 6.9 | | | 1.9 | | | — | | | 112.0 |
| | $ | 266.1 | | $ | 330.7 | | $ | 39.6 | | $ | 25.9 | | $ | 13.1 | | $ | — | | $ | 675.4 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | U.S. | | | | | European | | Global | | | | |||
|
| Options |
| Equities |
| Futures |
| Equities |
| FX |
| Total | ||||||
Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | |
Transaction fees | | $ | 284.2 | | $ | 304.0 | | $ | 35.9 | | $ | 22.3 | | $ | 15.1 | | $ | 661.5 |
Access and capacity fees | | | 27.2 | | | 20.0 | | | 4.0 | | | 4.9 | | | 1.6 | | | 57.7 |
Market data fees | | | 17.2 | | | 34.0 | | | 1.6 | | | 3.2 | | | 0.2 | | | 56.2 |
Regulatory fees | | | 22.3 | | | 114.5 | | | — | | | — | | | — | | | 136.8 |
Other revenue | | | 5.6 | | | 1.2 | | | — | | | 2.5 | | | — | | | 9.3 |
| | $ | 356.5 | | $ | 473.7 | | $ | 41.5 | | $ | 32.9 | | $ | 16.9 | | $ | 921.5 |
Timing of revenue recognition | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 312.1 | | $ | 419.7 | | $ | 35.9 | | $ | 24.8 | | $ | 15.1 | | $ | 807.6 |
Services transferred over time | | | 44.4 | | | 54.0 | | | 5.6 | | | 8.1 | | | 1.8 | | | 113.9 |
| | $ | 356.5 | | $ | 473.7 | | $ | 41.5 | | $ | 32.9 | | $ | 16.9 | | $ | 921.5 |
| | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | |
Transaction fees | | $ | 173.8 | | $ | 198.9 | | $ | 24.6 | | $ | 21.1 | | $ | 12.0 | | $ | 430.4 |
Access and capacity fees | | | 26.0 | | | 19.0 | | | 3.7 | | | 4.0 | | | 1.7 | | | 54.4 |
Market data fees | | | 13.7 | | | 32.9 | | | 1.7 | | | 3.2 | | | 0.1 | | | 51.6 |
Regulatory fees | | | 14.5 | | | 43.7 | | | 0.5 | | | — | | | — | | | 58.7 |
Other revenue | | | 4.1 | | | 1.3 | | | — | | | 2.0 | | | 0.1 | | | 7.5 |
| | $ | 232.1 | | $ | 295.8 | | $ | 30.5 | | $ | 30.3 | | $ | 13.9 | | $ | 602.6 |
Timing of revenue recognition | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 192.4 | | $ | 243.9 | | $ | 25.1 | | $ | 23.1 | | $ | 12.1 | | $ | 496.6 |
Services transferred over time | | | 39.7 | | | 51.9 | | | 5.4 | | | 7.2 | | | 1.8 | | | 106.0 |
| | $ | 232.1 | | $ | 295.8 | | $ | 30.5 | | $ | 30.3 | | $ | 13.9 | | $ | 602.6 |
16
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| North |
| | |
| | |
| | |
| Corporate |
| | | ||
| | | | | American | | | | | European | | Global | | Items and | | | | ||||
| | Options | | Equities | | Futures | | Equities | | FX | | Eliminations | | Total | |||||||
Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | | |
Transaction and clearing fees | | $ | 776.4 | | $ | 882.1 | | $ | 68.5 | | $ | 60.9 | | $ | 37.4 | | $ | — | | $ | 1,825.3 |
Access and capacity fees | | | 78.6 | | | 62.1 | | | 12.5 | | | 15.0 | | | 5.8 | | | — | | | 174.0 |
Market data fees | | | 54.8 | | | 104.1 | | | 5.0 | | | 9.9 | | | 0.6 | | | — | | | 174.4 |
Regulatory fees | | | 63.0 | | | 316.3 | | | — | | | — | | | — | | | — | | | 379.3 |
Other revenue | | | 14.1 | | | 3.2 | | | 1.1 | | | 11.5 | | | — | | | — | | | 29.9 |
| | $ | 986.9 | | $ | 1,367.8 | | $ | 87.1 | | $ | 97.3 | | $ | 43.8 | | $ | — | | $ | 2,582.9 |
Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 853.5 | | $ | 1,201.6 | | $ | 69.6 | | $ | 72.4 | | $ | 37.4 | | $ | — | | $ | 2,234.5 |
Services transferred over time | | | 133.4 | | | 166.2 | | | 17.5 | | | 24.9 | | | 6.4 | | | — | | | 348.4 |
| | $ | 986.9 | | $ | 1,367.8 | | $ | 87.1 | | $ | 97.3 | | $ | 43.8 | | $ | — | | $ | 2,582.9 |
| | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2019 | | | | | | | | | | | | | | | | | | | | | |
Transaction and clearing fees | | $ | 565.7 | | $ | 580.3 | | $ | 84.1 | | $ | 57.5 | | $ | 34.4 | | $ | — | | $ | 1,322.0 |
Access and capacity fees | | | 77.6 | | | 58.7 | | | 11.5 | | | 11.8 | | | 5.0 | | | — | | | 164.6 |
Market data fees | | | 41.5 | | | 103.4 | | | 4.9 | | | 9.4 | | | 0.5 | | | — | | | 159.7 |
Regulatory fees | | | 47.1 | | | 178.9 | | | 0.5 | | | — | | | — | | | — | | | 226.5 |
Other revenue | | | 11.3 | | | 3.9 | | | 2.9 | | | 6.2 | | | 0.2 | | | 0.2 | | | 24.7 |
| | $ | 743.2 | | $ | 925.2 | | $ | 103.9 | | $ | 84.9 | | $ | 40.1 | | $ | 0.2 | | $ | 1,897.5 |
Timing of revenue recognition | | | | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 624.1 | | $ | 763.1 | | $ | 87.5 | | $ | 63.7 | | $ | 34.6 | | $ | 0.2 | | $ | 1,573.2 |
Services transferred over time | | | 119.1 | | | 162.1 | | | 16.4 | | | 21.2 | | | 5.5 | | | — | | | 324.3 |
| | $ | 743.2 | | $ | 925.2 | | $ | 103.9 | | $ | 84.9 | | $ | 40.1 | | $ | 0.2 | | $ | 1,897.5 |
Contract liabilities as of March 31,September 30, 2020 primarily represent prepayments of transaction fees and certain access and capacity and market data fees to the Exchanges. The revenue recognized from contract liabilities and the remaining balance is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Balance at January 1, 2020 |
| Cash |
| Revenue |
| Balance at |
| Balance at January 1, 2020 |
| Cash |
| Revenue |
| Balance at | ||||||||
Liquidity provider sliding scale (1) | | $ | — | | $ | 9.6 | | $ | (2.4) | | $ | 7.2 | | $ | — | | $ | 9.6 | | $ | (7.2) | | $ | 2.4 |
Other, net | | | 4.5 | | | 13.2 | | | (7.6) | | | 10.1 | | | 4.5 | | | 31.1 | | | (24.3) | | | 11.3 |
Total deferred revenue | | $ | 4.5 | | $ | 22.8 | | $ | (10.0) | | $ | 17.3 | | $ | 4.5 | | $ | 40.7 | | $ | (31.5) | | $ | 13.7 |
(1) | Liquidity providers are eligible to participate in the sliding scale program, which involves prepayment of transaction fees, and to receive reduced fees based on the achievement of certain volume thresholds within a calendar month. These transaction fees are amortized and recorded ratably as the transactions occur over the period. |
3. ACQUISITIONS
Acquisition-related costs relate to acquisitions and other strategic opportunities, including the Merger. The Company expensed $0.8 million of acquisition-related costs during the three months ended March 31, 2020 that included $0.7 million of professional fees, and $0.1 million of compensation-related costs. The Company expensed $2.3 million of acquisition-related costs during the three months ended March 31, 2019 that included $1.3 million of compensation-related costs and $1.0 million of professional fees. These acquisition-related expenses are included in acquisition-related costs in the condensed consolidated statements of income.
15
On February 3, 2020, the Company purchased Hanweck Associates, LLC (“Hanweck”) and the assets of FT Providers, LLC (“FT Options”). Hanweck and FT Options are both providers of risk analytics market data and included in the Company’s Options segment. On June 1, 2020, the Company purchased the assets of Trade Alert, LLC (“Trade Alert”), a real-time alerts and order flow analysis service provider included in the Company’s Options segment. On August 4, 2020, the Company completed the acquisition of MATCHNow, one of the largest equities ATSs in Canada, which is included in the Company’s North American Equities segment. Of thethese acquisitions’ aggregate purchase price, $60.4$105.9 million was allocated to goodwill, $20.3$59.0 million was allocated to intangible assets, and $0.4$2.2 million was allocated to working capital. In connection with these acquisitions, approximately $17.5$37.9 million in contingent consideration (in the aggregate) related to future financial performance of the acquired business or developmental milestones has been recorded in the Company’s condensed consolidated financial statements. These amounts represent the allocation of the purchase price and are subject to revision during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. See below for further discussion of intangible assets acquired.
17
On July 1, 2020, the Company completed the acquisition of the remaining 80% interest in EuroCCP, a pan-European equities clearinghouse, which is included in the Company’s European Equities segment. Of the acquisition’s purchase price of the remaining consideration, $32.3 million was allocated to intangible assets and $56.0 million was allocated to working capital upon consolidation. Prior to signing the agreement to acquire the remaining 80% of EuroCCP, the Company agreed on the purchase price with the other shareholders, as they were looking to liquidate their investments in EuroCCP. That agreement gave way to a $32.6 million bargain purchase gain, which is included in other non-operating income, net in the condensed consolidated statement of income. These amounts represent the allocation of the purchase price and are subject to revision during the remainder of the measurement period, a period not to exceed twelve months from the acquisition date. In connection with the acquisition, EuroCCP put in place a committed revolving credit facility of up to €1.5 billion, see Note 11 (“Debt”) for more information. See below for further discussion of intangible assets acquired.
The following table presents the details of intangible assets at the dates of acquisition. All acquired intangible assets with finite lives are amortized using the straight-line method.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hanweck | | Useful Life (Years) | | FT Options | | Useful Life (Years) | | Trade Alert | | Useful Life (Years) | | EuroCCP | | Useful Life (Years) | | MATCHNow | | Useful Life (Years) | |||||
Trading registrations and licenses | | $ | — | | | | $ | — | | | | $ | — | | | | $ | 28.1 | | Indefinite | | $ | 18.4 | | Indefinite |
Customer relationships | | | 4.9 | | 13 | | | 2.2 | | 13 | | | 0.7 | | 13 | | | — | | | | | 17.4 | | 15 |
Technology | | | 2.1 | | 4 | | | 0.9 | | 4 | | | 0.3 | | 4 | | | 3.6 | | 6 | | | 0.7 | | 7 |
Trademarks and tradenames | | | 7.0 | | 10 | | | 3.2 | | 10 | | | 1.0 | | 10 | | | 0.6 | | 10 | | | 0.2 | | 2 |
Total identifiable intangible assets | | $ | 14.0 | | | | $ | 6.3 | | | | $ | 2.0 | | | | $ | 32.3 | | | | $ | 36.7 | | |
Acquisition-related costs relate to acquisitions and other strategic opportunities, including the Merger. The Company expensed $6.2 million of acquisition-related costs during the three months ended September 30, 2020, which included $6.2 million of professional fees and other expenses. The Company expensed $16.7 million of acquisition-related costs during the three months ended September 30, 2019 that included $12.7 million of compensation-related costs, $2.0 million of general and administrative expenses, $1.7 million of professional fees, and $0.3 million of termination fees related to an assigned lease agreement. These acquisition-related expenses are included in acquisition-related costs in the condensed consolidated statements of income.
The Company expensed $16.4 million of acquisition-related costs during the nine months ended September 30, 2020, which primarily included $8.3 million of professional fees and other expenses and $8.1 million of impairment charges related to facilities. The Company expensed $39.8 million of acquisition-related costs during the nine months ended September 30, 2019 that included $10.5 million of impairment of goodwill charges, $6.1 million of impairment charges related to facilities, $16.1 million of compensation-related costs, $2.0 million of general and administrative expenses, $3.7 million of professional fees and $1.4 million of termination fees related to an assigned lease agreement. These acquisition-related expenses are included in acquisition-related costs in the condensed consolidated statements of income.
18
4. INVESTMENTS
As of March 31,September 30, 2020 and December 31, 2019, the Company’s investments were comprised of the following (in millions):
| | | | | | | | | | | | |
| | March 31, | | December 31, | | September 30, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Equity Method Investments: | | | | | | | ||||||
Equity method investments: | | | | | | | ||||||
Investment in Signal Trading Systems, LLC | | $ | 13.5 | | $ | 12.6 | | $ | 12.5 | | $ | 12.6 |
Investment in EuroCCP | |
| 9.8 | |
| 10.3 | | | — | | | 10.3 |
Total equity method investments | | | 23.3 | | | 22.9 | | | 12.5 | | | 22.9 |
| | | | | | | | | | | | |
Other Equity Investments: | | | | | | | ||||||
Other equity investments: | | | | | | | ||||||
Investment in Eris Exchange Holdings, LLC | | | 20.8 | | | 20.8 | | | 20.0 | | | 20.8 |
Investment in American Financial Exchange, LLC | | | 8.6 | | | 8.6 | | | 10.6 | | | 8.6 |
Investment in Cboe Vest Financial Group, Inc. | | | 2.9 | | | 2.9 | | | 2.9 | | | 2.9 |
Investment in Eris Digital Holdings, LLC | | | 0.8 | | | — | ||||||
Investment in OCC | | | 0.3 | | | 0.3 | | | 0.3 | | | 0.3 |
Other equity investments | |
| 6.4 | |
| 5.7 | |
| 6.1 | |
| 5.7 |
Total other equity investments | | | 39.0 | | | 38.3 | | | 40.7 | | | 38.3 |
| | | | | | | | | | | | |
Total investments | | $ | 62.3 | | $ | 61.2 | | $ | 53.2 | | $ | 61.2 |
Equity Method Investments
Equity method investments include investments in Signal Trading Systems, LLC, a 50% joint venture with FlexTrade System, Inc. to develop and market a multi-asset front-end order entry system, and until the third quarter of 2020, EuroCCP, a Dutch domiciled clearing house.clearinghouse. EuroCCP is one of 3 interoperable central counterparties, or CCPs, used to clear trades conducted on Cboe Europe Limited’s and Cboe Europe NL’s markets. As of June 30, 2020, Cboe Europe Limited ownsowned 20% of EuroCCP and canwas able to exercise significant influence over the entity as an equal shareholder with 4 other investors. As announced on December 10, 2019, theThe Company plans to acquireacquired the remaining 80% interest in EuroCCP. The closing ofEuroCCP on July 1, 2020, see Note 3 (“Acquisitions”) for more information. Subsequent to the transaction is subject to various conditions, including the receipt of regulatory approvals. As a result, the timing of the closing is uncertain butacquisition, the Company presently anticipatesaccounts for EuroCCP as a closingwholly-owned subsidiary in the second quarter of 2020.condensed consolidated financial statements.
Other Equity Investments
The carrying amount of other equity investments totaled $39.0$40.7 million as of March 31,September 30, 2020 and $38.3 million as of December 31, 2019, respectively, and is included in investments in the condensed consolidated balance sheets. The Company accounts for these investments using the measurement alternative primarily as a resultgiven the absence of readily determinable fair values for the respective investments and due to the Company’s inability to exercise significant influence asover the Company is a smaller shareholder of these investments and without readily determinable fair values.based upon the respective ownership interests held. As of March 31,September 30, 2020, other equity investments primarily reflect a 20% investment in OCC and minority investments in American Financial Exchange, LLC (“AFX”), CurveGlobal, Cboe Vest Financial Group, Inc. (“Vest”), Eris Exchange Holdings, LLC, and Eris ExchangeDigital Holdings, LLC.
The Company’s contributed capital to OCC has been recorded under investments in the condensed consolidated balance sheets as of March 31,September 30, 2020 and December 31, 2019. Under OCC’s current capital management policy, which was approved by the SEC on January 24, 2020, if OCC’s equity capital falls below certain defined thresholds, OCC can access additional capital through an operational loss fee charged to clearing members. None of OCC’s shareholders
16
(including (including Cboe Options) has any obligation to contribute capital to OCC under the capital management policy, nor does any shareholder have the right to receive dividends from OCC under such policy. As such, the Company reversed the $8.8 million OCC dividend declared in 2018, which was to be paid in 2019, in other expense, net in the condensed consolidated statement of income for the threenine months ended March 31,September 30, 2019.
19
In August 2019, the Company’s ownership in Vest was restructured, including a partial sale of its interest to a third-party. As a result of the restructuring, the Company’s ownership and voting interests decreased to less than 20% and less than 5%, respectively, and the Company deconsolidated Vest and changed the accounting methodology to be in line with the other equity investments. The deconsolidation resulted in a reduction of net assets of $14.5 million and noncontrolling interest of $5.8 million, as well as recognition of $2.9 million investment for the Company’s remaining ownership interest. Additionally, the Company recorded an interest-bearing note receivable of $3.7 million for the consideration received from the third-party, which was recorded in other assets, net in the condensed consolidated balance sheets as of March 31,September 30, 2020 and December 31, 2019, respectively.
In May 2020, Eris Exchange Holdings, LLC completed a restructuring transaction to spin out Eris Digital Holdings, LLC into a stand-alone entity. The restructuring qualifies as an exchange of ownership interest, though it required no additional consideration exchanged to execute the exchange of units. The restructuring did not result in a change in number of units owned by the Company or a substantial change in the Company’s ownership interest percentage. NaN gain or loss is recognized as a result of the restructuring. The Company’s investment in Eris Digital Holdings, LLC is included within “Other equity investments” in the above table.
In August 2020, the Company recorded within the condensed consolidated statements of income an impairment charge of $4.1 million on its investment in AFX based on management’s assessment of the fair value of the investment.
5. FINANCIAL INVESTMENTS
The Company’s financial investments with original or acquired maturities longer than three months, but that mature in less than one year from the condensed consolidated balance sheet date and any money market funds that are considered cash and cash equivalents are classified as current assets. The Company’s marketable securities are also classified as current assets within financial investments. The Company’s financial investments are summarized as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2020 | ||||||||||||||||||||
|
| Cost basis |
| Unrealized gains |
| Unrealized losses |
| Fair value |
| Cost basis |
| Unrealized gains |
| Unrealized losses |
| Fair value | ||||||||
Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 25.2 | | $ | — | | $ | — | | $ | 25.2 | | $ | 0.5 | | $ | — | | $ | — | | $ | 0.5 |
Trading securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Marketable securities (1) | | | 18.4 | | | — | | | — | | | 18.4 | | | 22.3 | | | — | | | — | | | 22.3 |
Total financial investments | | $ | 43.6 | | $ | — | | $ | — | | $ | 43.6 | | $ | 22.8 | | $ | — | | $ | — | | $ | 22.8 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| Cost basis |
| Unrealized gains |
| Unrealized losses |
| Fair value | ||||
Available-for-sale securities: | | | | | | | | | | | | |
U.S. Treasury securities | | $ | 47.6 | | $ | — | | $ | — | | $ | 47.6 |
Trading securities: | | | | | | | | | | | | |
Marketable securities (1) | | | 23.4 | | | — | | | — | | | 23.4 |
Total financial investments | | $ | 71.0 | | $ | — | | $ | — | | $ | 71.0 |
(1) | The marketable securities are primarily mutual funds maintained for non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. See Note |
20
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of March 31,September 30, 2020 and December 31, 2019 (in millions):
| | | | | | | | | | | | |
| | March 31, | | December 31, | | September 30, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Construction in progress | | $ | 26.0 | | $ | 1.2 | | $ | 1.8 | | $ | 1.2 |
Furniture and equipment | |
| 166.4 | |
| 164.4 | |
| 219.0 | |
| 164.4 |
Total property and equipment | |
| 192.4 | |
| 165.6 | |
| 220.8 | |
| 165.6 |
Less accumulated depreciation | |
| (121.7) | |
| (118.6) | |
| (138.2) | |
| (118.6) |
Property and equipment, net | | $ | 70.7 | | $ | 47.0 | | $ | 82.6 | | $ | 47.0 |
17
Depreciation expense using the straight-line method was $6.2$6.9 million and $5.9 million for the three months ended March 31,September 30, 2020 and 2019, respectively, and $19.3 million and $18.2 million for the nine months ended September 30, 2020 and 2019, respectively.
As a result of the Merger, there iswas a reduction in employee workspace needed in Chicago, which led to the decision to market for sale the headquarters location. The Company classified the associated land, building, and certain furniture and equipment of the headquarters location as held for sale, performed an impairment assessment, and ceased depreciation effective May 1, 2019, as the Company anticipates selling the property held for sale. As of March 31,September 30, 2020, the total value of the property classified as property held for sale on the condensed consolidated balance sheet was $21.1$13.0 million. As a result of an evaluation of the headquarters location’s classification as held for sale during the second quarter of 2020, an impairment assessment was performed and an additional impairment charge of $8.1 million was recorded in acquisition-related costs within the Options segment in the accompanying condensed consolidated statements of income. The impact of ceasing depreciation of the property held for sale did not result in a material impact to the condensed consolidated financial statements.
7. CREDIT LOSSES
Current expected credit losses are estimated for accounts receivable and notes receivable. The notes receivable included within other assets, net on the condensed consolidated balance sheets primarily relate to the consolidated audit trail (“CAT”), which involves the creation of an audit trail that strives to enhance regulators’ ability to monitor trading activity in the U.S. markets through a phased implementation. While the funding of the CAT is ultimately expected to be provided by both SROs (which includes the Exchanges) and industry members, until fee filings associated with the funding model are effective with or approved by the SEC, the funding to date has solely been provided by the SROs. The funding by the SROs has been done in exchange for promissory notes, which are expected to be repaid once such industry member fees are collected. Until the fee filings associated with the funding model are effective with or approved by the SEC, the SROs may continue to incur additional significant costs. The allowance for notes receivable credit losses associated with the CAT is calculated using a probability of default methodology. Due to the potential changes in the CAT funding model, an additional $6.7 million was recorded to the allowance for notes receivable in the three months ended September 30, 2020. Accounts receivable represent amounts due from the Company’s member firms. The allowance for accounts receivable credit losses is calculated using an aging schedule. The following represents the changes in allowance for credit losses during the threenine months ended March 31,September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at January 1, 2020 | | Current period provision for expected credit losses | | Writeoffs charged against the allowance | | Recoveries collected | | Balance at March 31, 2020 | | Balance at January 1, 2020 | | Current period provision for expected credit losses | | Write-offs charged against the allowance | | Recoveries collected | | Balance at September 30, 2020 | ||||||||||
Allowance for notes receivable credit losses | | $ | 23.4 | | $ | — | | $ | — | | $ | — | | $ | 23.4 | | $ | 23.4 | | $ | 6.7 | | $ | — | | $ | — | | $ | 30.1 |
Allowance for accounts receivable credit losses | | | 1.1 | | | 0.1 | | | — | | | — | | | 1.2 | | | 1.1 | | | — | | | (0.2) | | | (0.1) | | | 0.8 |
Total allowance for credit losses | | $ | 24.5 | | $ | 0.1 | | $ | — | | $ | — | | $ | 24.6 | | $ | 24.5 | | $ | 6.7 | | $ | (0.2) | | $ | (0.1) | | $ | 30.9 |
21
8. OTHER ASSETS, NET
Other assets, net consisted of the following as of March 31,September 30, 2020 and December 31, 2019 (in millions):
| | | | | | | | | | | | |
| | March 31, | | December 31, | | September 30, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Software development work in progress | | $ | 0.3 | | $ | 2.6 | | $ | 5.6 | | $ | 2.6 |
Data processing software | | | 85.9 | | | 84.3 | | | 91.1 | | | 84.3 |
Less accumulated depreciation and amortization | |
| (57.9) | |
| (57.2) | |
| (61.6) | |
| (57.2) |
Data processing software, net | |
| 28.3 | |
| 29.7 | |
| 35.1 | |
| 29.7 |
Other assets (1) | | | 28.1 | | | 21.9 | | | 32.6 | | | 21.9 |
Other assets, net | | $ | 56.4 | | $ | 51.6 | | $ | 67.7 | | $ | 51.6 |
(1) | At |
18
Amortization expense related to data processing software was $1.8$1.7 million and $3.5$3.6 million for the three months ended March 31,September 30, 2020 and 2019, respectively, and $5.2 million and $10.5 million for the nine months ended September 30, 2020 and 2019, respectively.
9. GOODWILL AND INTANGIBLE ASSETS, NET
The following table presents the details of goodwill by segment (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | |
| | | | U.S. | | European | | | | | | | | | | North American | | European | | | | | | | ||||||
|
| Options |
| Equities |
| Equities |
| Global FX |
| Total |
| Options |
| Equities |
| Equities |
| Global FX |
| Total | ||||||||||
Balance as of December 31, 2019 | | $ | 239.4 | | $ | 1,740.4 | | $ | 435.1 | | $ | 267.2 | | $ | 2,682.1 | | $ | 239.4 | | $ | 1,740.4 | | $ | 435.1 | | $ | 267.2 | | $ | 2,682.1 |
Additions | |
| 60.4 | | | — | | | — | | | — | |
| 60.4 | |
| 66.4 | | | 39.5 | | | — | | | — | |
| 105.9 |
Changes in foreign currency exchange rates | |
| — | |
| — | |
| (17.1) | |
| — | |
| (17.1) | |
| — | |
| 0.2 | |
| (6.7) | |
| — | |
| (6.5) |
Balance as of March 31, 2020 | | $ | 299.8 | | $ | 1,740.4 | | $ | 418.0 | | $ | 267.2 | | $ | 2,725.4 | |||||||||||||||
Balance as of September 30, 2020 | | $ | 305.8 | | $ | 1,780.1 | | $ | 428.4 | | $ | 267.2 | | $ | 2,781.5 |
Goodwill has been allocated to specific reporting units for purposes of impairment testing - Options, U.S.North American Equities, European Equities and Global FX. NaN goodwill has been allocated to Futures. Goodwill impairment testing is performed annually in the fiscal fourth quarter or more frequently if conditions exist that indicate that the asset may be impaired.
The following table presents the details of the intangible assets (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. | | European | | | | | | | | | | North American | | European | | | | | | | ||||||
|
| Options |
| Equities |
| Equities |
| Global FX |
| Total |
| Options |
| Equities |
| Equities | | Global FX |
| Total | ||||||||||
Balance as of December 31, 2019 | | $ | 166.6 | | $ | 921.4 | | $ | 363.7 | | $ | 138.2 | | $ | 1,589.9 | | $ | 166.6 | | $ | 921.4 | | $ | 363.7 | | $ | 138.2 | | $ | 1,589.9 |
Additions | | | 20.3 | |
| — | |
| — | |
| — | | | 20.3 | | | 22.3 | |
| 36.7 | |
| 32.3 | |
| — | | | 91.3 |
Amortization | |
| (3.9) | |
| (16.0) | |
| (5.9) | | | (6.7) | |
| (32.5) | |
| (11.6) | |
| (45.7) | |
| (17.4) | | | (18.8) | |
| (93.5) |
Changes in foreign currency exchange rates | |
| — | |
| — | |
| (22.2) | |
| — | |
| (22.2) | |
| — | |
| 0.2 | |
| (7.5) | |
| — | |
| (7.3) |
Balance as of March 31, 2020 | | $ | 183.0 | | $ | 905.4 | | $ | 335.6 | | $ | 131.5 | | $ | 1,555.5 | |||||||||||||||
Balance as of September 30, 2020 | | $ | 177.3 | | $ | 912.6 | | $ | 371.1 | | $ | 119.4 | | $ | 1,580.4 |
For the three months ended March 31,September 30, 2020 and 2019, amortization expense was $32.5$30.9 million and $37.5$33.4 million, respectively. For the nine months ended September 30, 2020 and 2019, amortization expense was $93.5 million and $105.1 million, respectively. The estimated future amortization expense is $89.9$31.1 million for the remainder of 2020, $107.9$112.4 million for 2021, $95.4$99.5 million for 2022, $84.7$88.4 million for 2023, $63.8$67.0 million for 2024, and $53.6$56.5 million for 2025.
The following tables present the categories of intangible assets as of March 31, 2020 and December 31, 2019 (in millions):
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted |
| | March 31, 2020 | | Average | ||||||||||
| | | | U.S. | | European | | | | | Amortization | |||
|
| Options |
| Equities |
| Equities |
| Global FX |
| Period (in years) | ||||
Trading registrations and licenses | | $ | 95.5 | | $ | 572.7 | | $ | 171.0 | | $ | — | | Indefinite |
Customer relationships | |
| 45.9 | |
| 222.9 | |
| 159.3 | |
| 140.0 | | 17 |
Market data customer relationships | |
| 53.6 | |
| 322.0 | |
| 59.7 | |
| 64.4 | | 12 |
Technology | |
| 27.8 | |
| 22.5 | |
| 22.4 | |
| 22.5 | | 4 |
Trademarks and tradenames | |
| 11.9 | |
| 6.0 | |
| 1.8 | |
| 1.2 | | 10 |
Accumulated amortization | |
| (51.7) | |
| (240.7) | |
| (78.6) | |
| (96.6) | | |
| | $ | 183.0 | | $ | 905.4 | | $ | 335.6 | | $ | 131.5 | | |
1922
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted |
| | December 31, 2019 | | Average | ||||||||||
| | | | U.S. | | European | | | | | Amortization | |||
|
| Options |
| Equities |
| Equities |
| Global FX |
| Period (in years) | ||||
Trading registrations and licenses | | $ | 95.5 | | $ | 572.7 | | $ | 182.2 | | $ | — | | Indefinite |
Customer relationships | |
| 38.8 | |
| 222.9 | |
| 169.7 | |
| 140.0 | | 17 |
Market data customer relationships | |
| 53.6 | |
| 322.0 | |
| 63.6 | |
| 64.4 | | 12 |
Technology | |
| 24.8 | |
| 22.5 | |
| 23.9 | |
| 22.5 | | 4 |
Trademarks and tradenames | |
| 1.7 | |
| 6.0 | |
| 1.9 | |
| 1.2 | | 6 |
Accumulated amortization | |
| (47.8) | |
| (224.7) | |
| (77.6) | |
| (89.9) | | |
| | $ | 166.6 | | $ | 921.4 | | $ | 363.7 | | $ | 138.2 | | |
The following tables present the categories of intangible assets as of September 30, 2020 and December 31, 2019 (in millions):
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | September 30, 2020 | | Weighted | ||||||||||
| | | | | North | | | | | | | | Average | |
| | | | American | | European | | | | | Amortization | |||
|
| Options |
| Equities |
| Equities |
| Global FX |
| Period (in years) | ||||
Trading registrations and licenses | | $ | 95.5 | | $ | 591.1 | | $ | 207.2 | | $ | — | | Indefinite |
Customer relationships | |
| 46.6 | |
| 240.5 | |
| 165.7 | |
| 140.0 | | 17 |
Market data customer relationships | |
| 53.6 | |
| 322.0 | |
| 62.1 | |
| 64.4 | | 11 |
Technology | |
| 28.1 | |
| 23.2 | |
| 27.1 | |
| 22.5 | | 4 |
Trademarks and tradenames | |
| 12.9 | |
| 6.2 | |
| 2.5 | |
| 1.2 | | 9 |
Accumulated amortization | |
| (59.4) | |
| (270.4) | |
| (93.5) | |
| (108.7) | | |
| | $ | 177.3 | | $ | 912.6 | | $ | 371.1 | | $ | 119.4 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | December 31, 2019 | | Weighted | ||||||||||
| | | | | North | | | | | | | | Average | |
| | | | American | | European | | | | | Amortization | |||
|
| Options |
| Equities |
| Equities |
| Global FX |
| Period (in years) | ||||
Trading registrations and licenses | | $ | 95.5 | | $ | 572.7 | | $ | 182.2 | | $ | — | | Indefinite |
Customer relationships | |
| 38.8 | |
| 222.9 | |
| 169.7 | |
| 140.0 | | 17 |
Market data customer relationships | |
| 53.6 | |
| 322.0 | |
| 63.6 | |
| 64.4 | | 12 |
Technology | |
| 24.8 | |
| 22.5 | |
| 23.9 | |
| 22.5 | | 4 |
Trademarks and tradenames | |
| 1.7 | |
| 6.0 | |
| 1.9 | |
| 1.2 | | 6 |
Accumulated amortization | |
| (47.8) | |
| (224.7) | |
| (77.6) | |
| (89.9) | | |
| | $ | 166.6 | | $ | 921.4 | | $ | 363.7 | | $ | 138.2 | | |
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following as of March 31,September 30, 2020 and December 31, 2019 (in millions):
| | | | | | | | | | | | |
|
| March 31, 2020 |
| December 31, 2019 |
| September 30, 2020 |
| December 31, 2019 | ||||
Compensation and benefit-related liabilities | | $ | 14.9 | | $ | 35.2 | | $ | 35.2 | | $ | 35.2 |
Termination benefits | | | 1.2 | | | 6.7 | | | 0.4 | | | 6.7 |
Royalties | | | 24.9 | | | 18.6 | | | 16.3 | | | 18.6 |
Accrued liabilities | |
| 143.7 | | | 77.8 | |
| 49.5 | | | 29.3 |
Rebates payable | | | 81.5 | | | 48.5 | ||||||
Marketing fee payable | |
| 14.2 | | | 12.6 | |
| 12.8 | | | 12.6 |
Accounts payable | |
| 9.2 | | | 21.0 | |
| 15.9 | | | 21.0 |
Total accounts payable and accrued liabilities | | $ | 208.1 | | $ | 171.9 | | $ | 211.6 | | $ | 171.9 |
23
11. DEBT
The Company’s debt consisted of the following as of March 31,September 30, 2020 and December 31, 2019 (in millions):
| | | | | | |
|
| March 31, 2020 |
| December 31, 2019 | ||
$300 million Term Loan Agreement due December 2021, floating rate | | $ | 222.7 | | $ | 222.4 |
$650 million fixed rate Senior Notes due January 2027, stated rate of 3.650% | |
| 645.4 | |
| 645.2 |
Revolving Credit Agreement | | | — | | | — |
Total debt | | $ | 868.1 | | $ | 867.6 |
Term Loan Agreement
On March 22, 2018, the Company, as borrower, entered into a new Term Loan Credit Agreement (the “Term Loan Agreement”) with Bank of America, N.A. (“Bank of America”), as administrative agent and initial lender, and the several banks and other financial institutions from time to time party thereto as lenders. Bank of America also acted as sole lead arranger and sole bookrunner with respect to the Term Loan Agreement. The Term Loan Agreement provides for a senior unsecured term loan facility in an aggregate principal amount of $300 million. The proceeds of the loan under the Term Loan Agreement were used to repay the $300 million of outstanding indebtedness under the prior term loan agreement entered into on December 15, 2016.
Loans under the Term Loan Agreement bear interest, at the Company’s option, at either (i) the London Interbank Offered Rate (“LIBOR”) periodically fixed for an interest period (as selected by the Company) of one, two, three or six months plus a margin (based on our public debt ratings) ranging from 1.00 percent per annum to 1.50 percent per annum or (ii) a daily floating rate based on the agent’s prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on our public debt ratings) ranging from 0 percent per
20
annum to 0.50 percent per annum. The Company was required to pay an up-front fee of 0.05 percent to the agent for the entry into the Term Loan Agreement.
The Term Loan Agreement, which matures on December 15, 2021, contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default and indemnification provisions in favor of the lenders thereunder. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by the Company’s subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require the Company to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. At March 31, 2020, the Company was in compliance with these covenants.
3.650% Senior Notes
On January 12, 2017, the Company entered into an indenture (the “Indenture”), by and between the Company and Wells Fargo Bank, National Association, as trustee, in connection with the issuance of $650 million aggregate principal amount of the Company’s 3.650% Senior Notes due 2027 (“3.650% Senior Notes”). The form and terms of the 3.650% Senior Notes were established pursuant to an Officer’s Certificate, dated as of January 12, 2017, supplementing the Indenture. The Company used a portion of the net proceeds from the 3.650% Senior Notes to fund, in part, the Merger, including the payment of related fees and expenses and the repayment of Bats’ existing indebtedness, and the remainder for general corporate purposes. The 3.650% Senior Notes mature on January 12, 2027 and bear interest at the rate of 3.650% per annum, payable semi-annually in arrears on January 12 and July 12 of each year, commencing July 12, 2017.
The 3.650% Senior Notes are unsecured obligations of the Company and rank equally with all of the Company’s other existing and future unsecured, senior indebtedness, but are effectively junior to the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness, and will be structurally subordinated to the secured and unsecured indebtedness of the Company’s subsidiaries.
The Company has the option to redeem some or all of the 3.650% Senior Notes, at any time in whole or from time to time in part, at the redemption prices set forth in the Officer’s Certificate. The Company may also be required to offer to repurchase the 3.650% Senior Notes upon the occurrence of a Change of Control Triggering Event (as such term is defined in the Officer’s Certificate) at a repurchase price equal to 101% of the aggregate principal amount of 3.650% Senior Notes to be repurchased.
Indenture
Under the Indenture, the Company may issue debt securities, which includes the 3.650% Senior Notes, at any time and from time to time, in one or more series without limitation on the aggregate principal amount. The Indenture governing the 3.650% Senior Notes contains customary restrictions, including a limitation that restricts the Company’s ability and the ability of certain of the Company’s subsidiaries to create or incur secured debt. Such Indenture also limits certain sale and leaseback transactions and contains customary events of default. At March 31, 2020, the Company was in compliance with these covenants.
| | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | ||
$300 million Term Loan Agreement due December 2021, floating rate | | $ | 223.4 | | $ | 222.4 |
$650 million fixed rate Senior Notes due January 2027, stated rate of 3.650% | |
| 645.7 | |
| 645.2 |
Revolving Credit Agreement |
| | 70.0 | | | — |
EuroCCP Credit |
|
| — | | | — |
Total debt | | $ | 939.1 | | $ | 867.6 |
Term Loan Agreement
On March 22, 2018, the Company, as borrower, entered into a new Term Loan Credit Agreement (the “Term Loan Agreement”) with Bank of America, N.A. (“Bank of America”), as administrative agent and initial lender, and the several banks and other financial institutions from time to time party thereto as lenders. Bank of America also acted as sole lead arranger and sole bookrunner with respect to the Term Loan Agreement. The Term Loan Agreement provides for a senior unsecured term loan facility in an aggregate principal amount of $300 million. The proceeds of the loan under the Term Loan Agreement were used to repay the $300 million of outstanding indebtedness under the prior term loan agreement entered into on December 15, 2016.
Loans under the Term Loan Agreement bear interest, at the Company’s option, at either (i) the London Interbank Offered Rate (“LIBOR”) periodically fixed for an interest period (as selected by the Company) of one, two, three or six months plus a margin (based on our public debt ratings) ranging from 1.00 percent per annum to 1.50 percent per annum or (ii) a daily floating rate based on the agent’s prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on our public debt ratings) ranging from 0 percent per annum to 0.50 percent per annum. The Company was required to pay an up-front fee of 0.05 percent to the agent for the entry into the Term Loan Agreement.
The Term Loan Agreement, which matures on December 15, 2021, contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default, including cross-defaults from the Company’s other indebtedness, and indemnification provisions in favor of the lenders thereunder. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by the Company’s subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require the Company to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. At September 30, 2020, the Company was in compliance with these covenants.
On May 29, 2020, the Company amended the Term Loan Agreement to, among other items, (i) permit liens on assets of the EuroCCP settlement and clearing business that secures indebtedness incurred in support of its settlement and clearing activities, and permit the Company’s subsidiaries to incur such indebtedness, provided that such amounts are repaid within 35 days; and (ii) provide that the LIBOR, as used in the Term Loan Agreement, may be succeeded by one or more secured overnight financing rates (“SOFR”) published by the Federal Reserve Bank of New York or another alternate benchmark rate giving due consideration to any evolving or then-existing convention for similar agreements.
3.650% Senior Notes
On January 12, 2017, the Company entered into an indenture (the “Indenture”), by and between the Company and Wells Fargo Bank, National Association, as trustee, in connection with the issuance of $650 million aggregate principal amount of the Company’s 3.650% Senior Notes due 2027 (“3.650% Senior Notes”). The form and terms of the 3.650% Senior Notes were established pursuant to an Officer’s Certificate, dated as of January 12, 2017, supplementing
24
the Indenture. The Company used a portion of the net proceeds from the 3.650% Senior Notes to fund, in part, the Merger, including the payment of related fees and expenses and the repayment of Bats’ existing indebtedness, and the remainder for general corporate purposes. The 3.650% Senior Notes mature on January 12, 2027 and bear interest at the rate of 3.650% per annum, payable semi-annually in arrears on January 12 and July 12 of each year, commencing July 12, 2017.
The 3.650% Senior Notes are unsecured obligations of the Company and rank equally with all of the Company’s other existing and future unsecured, senior indebtedness, but are effectively junior to the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness, and will be structurally subordinated to the secured and unsecured indebtedness of the Company’s subsidiaries.
The Company has the option to redeem some or all of the 3.650% Senior Notes, at any time in whole or from time to time in part, at the redemption prices set forth in the Officer’s Certificate. The Company may also be required to offer to repurchase the 3.650% Senior Notes upon the occurrence of a Change of Control Triggering Event (as such term is defined in the Officer’s Certificate) at a repurchase price equal to 101% of the aggregate principal amount of 3.650% Senior Notes to be repurchased.
Indenture
Under the Indenture, the Company may issue debt securities, which includes the 3.650% Senior Notes, at any time and from time to time, in one or more series without limitation on the aggregate principal amount. The Indenture governing the 3.650% Senior Notes contains customary restrictions, including a limitation that restricts the Company’s ability and the ability of certain of the Company’s subsidiaries to create or incur secured debt. Such Indenture also limits certain sale and leaseback transactions and contains customary events of default. At September 30, 2020, the Company was in compliance with these covenants.
Revolving Credit Agreement
On December 15, 2016, the Company, as borrower, entered into a syndicated Credit Agreement (the “Revolving Credit Agreement”) with Bank of America, as administrative agent and as swing line lender, as well as certain lenders named therein (the “Revolving Lenders”).
The Revolving Credit Agreement provides for a senior unsecured $150 million five-year revolving credit facility (the “Revolving Credit Facility”) that includes a $25 million swing line sub-facility. The Company may also, subject to the agreement of the applicable lenders, increase the commitments under the Revolving Credit Facility by up to $100 million, for a total of $250 million. Subject to specified conditions, the Company may designate 1 or more of its subsidiaries as additional borrowers under the Revolving Credit Agreement provided that the Company guarantees all borrowings and other obligations of any such subsidiaries. As of September 30, 2020, 0 subsidiaries were designated as additional borrowers.
Funds borrowed under the Revolving Credit Agreement may be used to fund working capital and for other general corporate purposes. As of September 30, 2020, borrowings in the amount of $70 million were outstanding under the Revolving Credit Agreement and $80 million of borrowing capacity was available for the purposes permitted by the Revolving Credit Agreement.
Loans under the Revolving Credit Agreement will bear interest, at the Company’s option, at either (i) LIBOR periodically fixed for an interest period (as selected by the Company) of one, two, three or six months plus a margin (based on the Company’s public debt ratings) ranging from 1.00 percent per annum to 1.75 percent per annum or (ii) a daily floating rate based on the prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on the Company’s public debt ratings) ranging from 0 percent per annum to 0.75 percent per annum.
Subject to certain conditions stated in the Revolving Credit Agreement, the Company may borrow, prepay and reborrow amounts under the Revolving Credit Facility at any time during the term of the Revolving Credit Agreement.
25
The Revolving Credit Agreement will terminate and all amounts owing thereunder will be due and payable on December 15, 2021, unless the commitments are terminated earlier, either at the Company’s request or, if an event of default occurs, by the Revolving Lenders (or automatically in the case of certain bankruptcy-related events). The Revolving Credit Agreement contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default, including cross-defaults from the Company’s other indebtedness, and indemnification provisions in favor of the Revolving Lenders. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by the Company’s subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require the Company to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. At September 30, 2020, the Company was in compliance with these covenants.
On May 29, 2020, the Company amended the Revolving Credit Agreement to, among other items, (i) permit liens on assets of the EuroCCP settlement and clearing business that secures indebtedness incurred in support of its settlement and clearing activities, and permit the Company’s subsidiaries to incur such indebtedness, provided that such amounts are repaid within 35 days; and (ii) provide that the LIBOR, as used in the Revolving Credit Agreement, may be succeeded by one or more secured overnight financing rates (“SOFR”) published by the Federal Reserve Bank of New York or another alternate benchmark rate giving due consideration to any evolving or then-existing convention for similar agreements.
EuroCCP Credit Facility
On July 1, 2020, EuroCCP, as borrower, the Company, as guarantor, entered into a Facility Agreement (the “Facility”) with Bank of America Merrill Lynch International Designated Activity Company, as co-ordinator, facility agent, lender, sole lead arranger and sole bookrunner, Citibank N.A., as security agent, and certain other lenders named therein.
The Facility provides for a €1.5 billion committed syndicated multicurrency revolving and swingline credit facility (i) that is available to be drawn by EuroCCP (as borrower) towards (a) financing unsettled amounts in connection with the settlement of transactions in securities and other items processed through EuroCCP’s clearing system and (b) financing any other liability or liquidity requirement of EuroCCP incurred in the operation of its clearing system and (ii) under which the scheduled interest and fees on borrowings (but not the principal amount of any borrowings) are guaranteed by the Company. Subject to certain conditions, EuroCCP is able to increase the commitments under the Facility by up to €500 million, to a total of €2.0 billion.
Borrowings under the Facility are secured by cash, eligible government bonds and eligible equity assets deposited by EuroCCP into secured accounts. In addition, EuroCCP must ensure that at all times the aggregate of (a) each clearing participant’s contribution to the relevant clearing fund, (b) each clearing participant’s margin amount and (c) any cash equities purchased using the proceeds of the assets described in (a) and (b), less the amount of any such clearing participant contribution, margin amount or cash equities which have been transferred to (or secured in favor of) any provider of settlement or custody services to EuroCCP, is not less than €500 million. As of September 30, 2020, 0 borrowings were outstanding under the Facility. Accordingly, at September 30, 2020, €1.5 billion of borrowing capacity was available for the purposes permitted by the Facility.
Borrowings under the Facility’s revolving loans and non-U.S. dollar swingline loans bear interest at the relevant floating base rate plus a margin of 1.75 percent per annum and (subject to certain conditions) borrowings under the Facility’s U.S. dollar swingline loans bear interest as the higher of the relevant agent’s prime commercial lending rate for U.S. dollars and 0.5 percent per annum over the federal funds effective rate. A commitment fee of 0.30 percent per annum is payable on the unused and uncalled amount of the Facility during the availability period.
Subject to certain conditions stated in the Facility, EuroCCP may borrow, prepay and reborrow amounts under the Facility at any time during the term of the Facility. The Facility will terminate and all amounts owing thereunder will be due and payable on 364 days from the date of the agreement, unless the commitments are terminated earlier, either at
26
the request of EuroCCP or, if an event of default occurs, by the Lenders (or automatically in the case of certain bankruptcy-related events).
The Facility contains customary representations, warranties and covenants for facilities of its type, including events of default of the Company and EuroCCP and indemnification provisions in favor of the Lenders. In particular, the covenants include restrictions regarding the incurrence of liens by EuroCCP and its subsidiaries, and an event of default will be triggered if EuroCCP ceases its business, subject to certain exceptions in each case. There is also a requirement for the net worth of (a) the Company to be no less than $1.75 billion on the date of each drawdown and delivery of compliance certificates and (b) EuroCCP to be the higher of €24 million and any such amount required for EuroCCP to meet minimum liquidity regulations under applicable regulation at all times. At September 30, 2020, the Company and EuroCCP were in compliance with these covenants.
Loan and Notes Payments and Contractual Interest
The future expected loan repayments related to the Term Loan Agreement, the 3.650% Senior Notes, and the Revolving Credit Agreement as of September 30, 2020 are as follows (in millions):
| | | |
Remainder of 2020 |
| $ | 70.0 |
2021 | | | 225.0 |
2022 | | | — |
2023 | | | — |
2024 | | | — |
Thereafter | | | 650.0 |
Principal amounts repayable | | | 945.0 |
Debt issuance cost | | | (2.3) |
Unamortized discounts on notes | | | (3.6) |
Total debt outstanding | | $ | 939.1 |
Interest expense recognized on the Term Loan Agreement, the 3.650% Senior Notes, and the Revolving Credit Agreement is included in interest expense, net in the condensed consolidated statements of income. The Company is also obligated to pay commitment fees under the terms of the Facility and Revolving Credit Agreement which are also included in interest expense, net. Interest expense, net recognized in the condensed consolidated statements of income for the three and nine months ended September 30, 2020 and 2019 is as follows (in millions):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Components of interest expense: | | | | | | | | | | | | |
Contractual interest | | $ | 6.8 | | $ | 8.3 | | $ | 21.2 | | $ | 28.0 |
Amortization of debt discount and issuance costs | |
| 2.8 | |
| 0.5 | |
| 3.8 | |
| 1.7 |
Interest expense | | $ | 9.6 | | $ | 8.8 | | $ | 25.0 | | $ | 29.7 |
Interest income | | | (0.1) | | | (0.6) | | | (0.9) | | | (1.6) |
Interest expense, net | | $ | 9.5 | | $ | 8.2 | | $ | 24.1 | | $ | 28.1 |
27
12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET
The following represents the changes in accumulated other comprehensive income (loss), net by component (in millions):
| | | | | | | | | | | | |
| | Foreign | | | | | | | | Total Accumulated | ||
| | Currency |
| Unrealized | | | | Other | ||||
| | Translation |
| Investment | | Post-Retirement | | Comprehensive | ||||
|
| Adjustment |
| Gain (Loss) |
| Benefits |
| Income (Loss) | ||||
Balance at December 31, 2019 | | $ | 38.2 | | $ | 0.2 | | $ | (0.8) | | $ | 37.6 |
Other comprehensive (loss) income | |
| (9.4) | | | (0.3) | | | 1.1 | | | (8.6) |
Balance at September 30, 2020 | | $ | 28.8 | | $ | (0.1) | | $ | 0.3 | | $ | 29.0 |
13. CLEARING OPERATIONS
EuroCCP is a European equities central counterparty that provides post-trade services to stock exchanges, MTFs and for over-the-counter (“OTC”) equities trades. EuroCCP clears equities from 18 European markets and from the United States, as well as Depositary Receipts, ETFs, and exchange traded currencies (“ETCs”). Through a novation process, EuroCCP becomes the buyer for every seller and the seller for every buyer, thereby protecting clearing participants from counterparty risk and allowing the settlement of trades in the event of a clearing participant default.
EuroCCP only assumes the guarantor role if it has an equal and offsetting claim against a clearing participant. During the period from July 1, 2020, the date the Company acquired EuroCCP, through September 30, 2020, there were no events of default for which a liability is required to be recognized in accordance with GAAP.
Clearing Participant Deposits
EuroCCP generally requires all clearing participants to deposit collateral to help mitigate EuroCCP’s exposure to credit risk in the event that a clearing participant fails to meet a financial or contractual obligation.
Margin Deposits
Margin deposits, which are predominately in the form of cash and cash equivalents, are deposits made by each clearing participant to EuroCCP to cover some or all of the credit risk of its failure to fulfill its obligations in the trade. EuroCCP maintains and manages all cash deposits related to margin deposits. Substantially all risks and rewards of margin deposit ownership, including net interest income, belong to EuroCCP and are recorded in other revenue on the condensed consolidated statements of income. In the event of a default, EuroCCP can access the defaulting participant’s margin deposits to cover the defaulting participant’s losses. For more information, see “Default and Liquidity Waterfalls” below.
Clearing Funds
The clearing fund mutualizes the risk of default among all clearing participants. The entire clearing fund is available to cover potential losses in the event that the margin deposits and the clearing fund deposits of a defaulting clearing participant are inadequate to fulfill that clearing participant’s outstanding financial obligations. In the event of a default, EuroCCP is generally required to liquidate the defaulting clearing participant’s open positions. To the extent that the positions remain open, EuroCCP is required to assume the defaulting clearing participant’s obligations related to the open positions. Clearing participants are required to make contributions to the clearing fund that are proportional to their risk exposure in the form of cash or non-cash contributions, which generally consist of highly liquid securities.
28
Interoperability Fund
EuroCCP has entered into interoperable arrangements with 2 other central counterparties (“CCPs”). Under these arrangements, margin is required to and from the other CCPs and is deposited in an interoperability fund. The interoperability fund consists of collateral pledged by EuroCCP to the other interoperable CCPs, to cover margin calls EuroCCP received from other interoperable CCPs. For EuroCCP, the collateral pledged by the clearing participants is maintained in an interoperability fund designated account. EuroCCP does not have any economic interest or ownership in the collateral; therefore, these balances are not included in the condensed consolidated balance sheet.
As of September 30, 2020, total clearing participant deposits were as follows:
| | | | | | | | | |
| | September 30, 2020 | |||||||
| | Cash Contributions |
| Non-Cash Contributions (1) |
| Total Contributions | |||
| | (in millions) | |||||||
Margin deposits | | $ | 461.3 | | $ | 353.8 | | $ | 815.1 |
Clearing funds | | | 310.6 | | | 62.4 | | | 373.0 |
Interoperability funds (1) | | | 474.3 | | | 130.9 | | | 605.2 |
Total | | $ | 1,246.2 | | $ | 547.1 | | $ | 1,793.3 |
(1) These amounts are not reflected in the condensed consolidated balance sheet, as EuroCCP does not take legal ownership of these balances.
Default and Liquidity Waterfalls
The default waterfall is the priority order in which the capital resources are expected to be utilized in the event of a default where the defaulting clearing participant’s collateral would not be sufficient to cover the cost to liquidate its portfolio. If a default occurs and the defaulting clearing participant’s collateral, including margin deposits, clearing fund deposits, and pledged assets into the interoperability fund, are depleted, then additional capital is utilized in the following order:
In addition to the default waterfall, the liquidity waterfall is the priority order in which the liquidity resources are expected to be utilized for EuroCCP’s ordinary course business operations and in situations when additional liquidity resources and liquidity measures may be activated in case of a potential liquidity shortfall. Liquidity, intraday or overnight, is mainly required for securities settlement. In ordinary course business circumstances, liquidity resources include the collateral directly deposited with EuroCCP, FX swap arrangements, and reverse repurchase agreements, as well as the use of the Facility.
14. FAIR VALUE MEASUREMENT
Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous
29
its subsidiaries as additional borrowers under the Revolving Credit Agreement provided that the Company guarantees all borrowings and other obligations of any such subsidiaries. As of March 31, 2020, 0 subsidiaries were designated as additional borrowers.
Funds borrowed under the Revolving Credit Agreement may be used to fund working capital and for other general corporate purposes. As of March 31, 2020, 0 borrowings were outstanding under the Revolving Credit Agreement. Accordingly, at March 31, 2020, $150 million of borrowing capacity was available for the purposes permitted by the Revolving Credit Agreement.
Loans under the Revolving Credit Agreement will bear interest, at the Company’s option, at either (i) LIBOR periodically fixed for an interest period (as selected by the Company) of one, two, three or six months plus a margin (based on the Company’s public debt ratings) ranging from 1.00 percent per annum to 1.75 percent per annum or (ii) a daily floating rate based on the prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on the Company’s public debt ratings) ranging from 0 percent per annum to 0.75 percent per annum.
Subject to certain conditions stated in the Revolving Credit Agreement, the Company may borrow, prepay and reborrow amounts under the Revolving Credit Facility at any time during the term of the Revolving Credit Agreement. The Revolving Credit Agreement will terminate and all amounts owing thereunder will be due and payable on December 15, 2021, unless the commitments are terminated earlier, either at the Company’s request or, if an event of default occurs, by the Revolving Lenders (or automatically in the case of certain bankruptcy-related events). The Revolving Credit Agreement contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default and indemnification provisions in favor of the Revolving Lenders. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by the Company’s subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require the Company to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. At March 31, 2020, the Company was in compliance with these covenants.
Loan and Notes Payments and Contractual Interest
The future expected loan repayments related to the Term Loan Agreement and the 3.650% Senior Notes as of March 31, 2020 are as follows (in millions):
| | | |
Remainder of 2020 |
| $ | — |
2021 | | | 225.0 |
2022 | | | — |
2023 | | | — |
2024 | | | — |
Thereafter | | | 650.0 |
Principal amounts repayable | | | 875.0 |
Debt issuance cost | | | (3.0) |
Unamortized discounts on notes | | | (3.9) |
Total debt outstanding | | $ | 868.1 |
22
Interest expense recognized on the Term Loan Agreement and the 3.650% Senior Notes is included in interest expense, net in the condensed consolidated statements of income, for the three months ended March 31, 2020 and 2019 is as follows (in millions):
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2020 |
| 2019 |
| ||
Components of interest expense: | | | | | | | |
Contractual interest | | $ | 7.5 | | $ | 9.8 | |
Amortization of debt discount | |
| 0.1 | |
| 0.2 | |
Amortization of debt issuance costs | |
| 0.4 | |
| 0.4 | |
Interest expense | | $ | 8.0 | | $ | 10.4 | |
Interest income | | | (0.7) | | | (0.5) | |
Interest expense, net | | $ | 7.3 | | $ | 9.9 | |
12. ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
The following represents the changes in accumulated other comprehensive income, net by component (in millions):
| | | | | | | | | | | | |
| | Foreign | | | | | | | | Total Accumulated | ||
| | Currency |
| Unrealized | | | | Other | ||||
| | Translation |
| Investment | | Post-Retirement | | Comprehensive | ||||
|
| Adjustment |
| Gain (Loss) |
| Benefits |
| Income (Loss) | ||||
Balance at December 31, 2019 | | $ | 38.2 | | $ | 0.2 | | $ | (0.8) | | $ | 37.6 |
Other comprehensive loss | |
| (37.5) | | | — | | | — | | | (37.5) |
Balance at March 31, 2020 | | $ | 0.7 | | $ | 0.2 | | $ | (0.8) | | $ | 0.1 |
13. FAIR VALUE MEASUREMENT
Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk.
The Company applied FASB ASC 820, Fair Value Measurement, which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:
● | Level 1—Unadjusted inputs based on quoted markets for identical assets or liabilities. |
● | Level 2—Observable inputs, either direct or indirect, not including Level 1 measurements, corroborated by market data or based upon quoted prices in non-active markets. |
● | Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in
The Company has included a tabular disclosure for financial assets and liabilities that are measured at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in millions):
30 The following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring basis: Financial Investments Financial investments consist of highly liquid U.S. Treasury securities and marketable securities held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. The deferred compensation plan assets have an equal and offsetting deferred compensation plan liability based on the value of the deferred compensation plan assets. These securities are valued by obtaining feeds from a number of live data sources, including active market makers and inter-dealer brokers and therefore categorized as Level 1. See Note 16 (“Employee Benefit Plans”) for more information. Contingent Consideration Liabilities In connection with the
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets, such as goodwill and intangible assets, are measured at fair value on a non-recurring basis. For goodwill, the process involves using a market approach and income approach (using discounted estimated cash flows) to determine the fair value of each reporting unit on a stand-alone basis. That fair value is compared to the carrying amount of the reporting unit, including its recorded goodwill. In connection with the annual impairment evaluation of goodwill and indefinite life intangibles, impairment is considered to have occurred if the fair value of the reporting unit is lower than the carrying amount of the reporting unit. For the intangible assets, the process also involves using a discounted cash flow method to determine the fair value of each intangible asset. Impairment is considered to have occurred if the fair value of the intangible asset is lower than its carrying amount. The Company did not perform an impairment test during the three months ended Equity investments without readily determinable fair values that are valued using the measurement alternative are measured at fair value on a non-recurring basis. During the nine months ended September 30, 2020, no observable transactions or impairments impacted the measurements of the investments accounted for as other equity investments. In addition, property held for sale as of 31 Fair Value of Assets and Liabilities The following table presents the Company’s fair value hierarchy for certain assets and liabilities held by the Company as of
Certain financial assets and liabilities, including cash and cash equivalents, accounts receivable, margin deposits and clearing funds, income tax receivable, accounts payable and Section 31 fees payable, are not measured at fair value on a recurring basis, but the carrying values approximate fair value due to their liquid or short-term nature. Debt The carrying amount of debt approximates its fair value based on quoted LIBOR or using a fixed rate at
Information on Level 3 Financial Liabilities The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities during the three and nine months ended
32
The Company reports 5 business segments: Options, Options. The Options segment includes listed options on market indices (“index options”), mostly on an exclusive basis, as well as on non-exclusive “multi-listed” options, such as options on the stocks of individual corporations (“equity options”) and options on ETPs, such as exchange-traded funds (“ETFs”) and exchange-traded notes (“ETNs”). These options trade on Cboe Options, C2, BZX, and EDGX. Cboe Options is the Company’s primary options market and offers trading in listed options through a single system, known as the Hybrid trading model, which integrates electronic trading and traditional open outcry trading on the Cboe Options trading floor in Chicago. There
Futures. The Futures segment includes the business of the Company’s futures exchange, CFE, which includes offerings for trading VIX futures and other futures products, as well as revenue generated from the sale of proprietary market data and from access and capacity services. European Equities. The European Equities segment includes the pan-European listed equities transaction services, ETPs, exchange traded commodities, and international depository receipts that occur on MTFs operated by Cboe Europe Equities. It also includes the listings business where ETPs can be listed on
Global FX. The Global FX segment includes institutional FX trading services that occur on the Cboe FX platform, non-deliverable forward FX transactions offered for execution on Cboe SEF, as well as revenue generated from the sale of proprietary market data and from access and capacity services. Summarized financial data of reportable segments was as follows (in millions):
Employees are eligible to participate in the Cboe Options SMART Plan (“SMART Plan”). The SMART Plan is a defined contribution plan, which is qualified under Internal Revenue Code Section 401(k). In addition, eligible employees may participate in the Supplemental Employee Retirement Plan, Executive Retirement Plan and Deferred Compensation Plan. Effective January 1, 2017, the Executive Retirement Plan is closed to new executive officers and employees. Each plan is a defined contribution plan that is non-qualified under the Internal Revenue Code. The Deferred Compensation Plan assets, held in a rabbi trust, are subject to the claims of general creditors of the Company and totaled For employees of Cboe Europe, For employees of EuroCCP, the Company contributes to an employee-selected stakeholder contribution plan. The Company’s contribution amounted to $0.2 million for the three and nine months ended
17. REGULATORY CAPITAL As a broker-dealer registered with the SEC, Cboe Trading is subject to the SEC’s Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, as defined therein. The SEC’s requirement also provides that equity capital may not be withdrawn or a cash dividend paid if certain minimum net capital requirements are not met. Cboe Trading computes the net capital requirements under the basic method provided for in Rule 15c3-1. As of As entities regulated by the FCA, Cboe Europe
On March 8, 2019, Cboe Europe NL received approval from the Dutch Ministry of Finance to operate a RM, a MTF, and an approved publication arrangement in the Netherlands. As a RM, Cboe Europe NL is subject to minimum capital requirements, as established by the Dutch Ministry of Finance in the license dated March 8, 2019. As of On April 1, 2014, EuroCCP was granted authorization under European Market Infrastructure Regulation (“EMIR”) by the National Competent Authority, DNB. EuroCCP is required by the EMIR, to maintain a minimum amount of capital to reflect an estimate of the capital required to wind down or restructure the activities of the clearinghouse, cover operational, legal and business risks and to reserve capital to meet credit, counterparty and market risks not covered by the clearing participants’ collateral and clearing funds. At September 30, 2020, EuroCCP net capital was $59.2 million, which exceeded the EMIR capital requirement of The Investment Industry Regulatory Organization of Canada (“IIROC”) sets and monitors regulatory capital requirements for MATCHNow to protect its clients and counterparties. MATCHNow is required to maintain a prescribed minimum level of risk adjusted capital (“RAC”) of $0.2 million in accordance with such requirements as IIROC may from time to time prescribe. At September 30, 2020, MATCHNow had RAC of $1.0 million, which was $0.8 million in excess of its required RAC of $0.2 million. As a designated contract market regulated by the CFTC, CFE is required to meet two capital adequacy tests: (i) its financial resources must be equal to at least twelve months of its projected operating costs and (ii) its unencumbered, liquid financial assets, which may include a line of credit, must be equal to at least six months of its projected operating costs. As of As a swap execution facility regulated by the CFTC, Cboe SEF is required to meet two capital adequacy tests: (i) its financial resources must be equal to at least twelve months of its projected operating costs and (ii) its unencumbered, liquid financial assets must be equal to at least six months of its projected operating costs. As of 35 exceeded this amount. Additionally, as of
Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of actual forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period. Vesting may be accelerated for certain officers and employees as a result of attaining certain age and service based requirements in the Company’s long-term incentive plan and award agreements. The Company recognized stock-based compensation expense of The activity in the Company’s stock options and restricted stock, consisting of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) for the Stock Options The following table summarizes stock options activity during the
The total intrinsic value of stock options exercised was RSAs and RSUs The following table summarizes RSA and RSU activity during the
RSAs granted to non-employee members of the board of directors have a one-year vesting period and vesting accelerates upon the occurrence of a change in control of the Company. Unvested portions of the RSAs will be forfeited if the director leaves the board of directors prior to the applicable vesting date. The RSAs have voting rights and entitle the holder to receive dividends. 36 RSUs entitle the holder to 1 share of common stock upon vesting, typically vest over a three year period, and vesting accelerates upon the occurrence of a change in control or a termination of employment following a change in In connection with the Merger, each award of restricted Bats common stock (“Bats restricted shares”) granted under any of the Bats Plans that was unvested immediately prior to the effective time of the Merger was assumed by the Company and converted into an award of restricted shares of our common stock, subject to the same terms and conditions (including vesting schedule) that applied to the applicable Bats restricted shares immediately prior to the effective time of the Merger (but taking into account any changes, including any acceleration of vesting of such Bats restricted shares, occurring by reason provided for in the agreement related to the Merger). During the PSUs The following table summarizes restricted stock units contingent upon achievement of performance conditions, also known as PSUs, activity during the
PSUs include awards related to earnings per share during the performance period as well as awards related to total shareholder return during the performance period. The Company used the Monte Carlo valuation model method to estimate the fair value of the total shareholder return PSUs which incorporated the following assumptions: risk-free interest rate (1.36)%, three-year volatility (21.0)% and three-year correlation with S&P 500 Index (0.25). Each of these performance shares has a performance condition under which the number of units ultimately awarded will vary from 0% to 200% of the original grant, with each unit representing the contingent right to receive 1 share of the Company’s common stock. The vesting period for the PSUs contingent on the achievement of performance conditions is three years. For each of the performance awards, the PSUs will be settled in shares of the Company’s common stock following vesting of the PSU assuming that the participant has been continuously employed during the vesting period, subject to acceleration in the event of a change in control of the Company, or a termination of employment following a change in control, or in the event of a participant’s earlier death or disability. Participants have no voting rights with respect to the PSUs until the issuance of the shares of common stock. Dividends are accrued by the Company and will be paid after the associated performance conditions are achieved and the PSUs are settled in shares of the Company’s common stock. In the As of 37 Employee Stock Purchase Plan In May 2018, the Company’s stockholders approved an Employee Stock Purchase Plan, (“ESPP”), under which a total of 750,000 shares of the Company’s common stock was made available for purchase to employees. The ESPP is a broad-based plan that permits employees to contribute up to 10% of wages and base salary to purchase shares of the Company’s common stock at a discount, subject to applicable annual Internal Revenue Service limitations. Under the ESPP, a participant may not purchase more than a maximum of 312 shares of the Company’s common stock during any single offering period. No participant may accrue options to purchase shares of the Company’s common stock at a rate that exceeds $25,000 in fair market value of the Company’s common stock (determined at the time such options are granted) for each calendar year in which such rights are outstanding at any time. The exercise price per share of common stock shall be 90% (for eligible U.S. employees) or 85% (for eligible international employees) of the lesser of the fair value of the stock on the first day of the applicable offering period or the applicable exercise date. The Company records compensation expense over the offering period related to the discount that is given to employees, which totaled
Common Stock The Company’s common stock is listed on Cboe BZX under the trading symbol CBOE. As of Common Stock in Treasury, at Cost The Company accounts for the purchase of treasury stock under the cost method with the shares of stock repurchased reflected as a reduction to Cboe stockholders’ equity and included in common stock in treasury, at cost in the condensed consolidated balance sheets. Shares repurchased under the Company’s share repurchase program are available to be redistributed. When treasury shares are redistributed, they are recorded at the average cost of the treasury
shares acquired. The Company held Share Repurchase Program In 2011, the board of directors approved an initial authorization for the Company to repurchase shares of its outstanding common stock of $100 million and approved additional authorizations of $100 million in each of 2012, 2013, 2014, 2015 and 2016, $150 million in February 2018, $100 million in August 2018, 38 The table below shows the repurchased shares of common stock under the Company’s share repurchase program during the periods presented as follows:
Since inception of the program through As of Purchase of Common Stock from Employees The Company purchased Preferred Stock The Company has authorized the issuance of 20,000,000 shares of preferred stock, par value $0.01 per share, issuable from time to time in one or more series. As of Dividends During the three months ended Each share of common stock, including RSAs, RSUs, and PSUs, is entitled to receive dividend and dividend equivalents, respectively, if, as and when declared by the board of directors of the Company. The Company’s expectation is to continue to pay dividends. The decision to pay a dividend, however, remains within the discretion of the Company’s board of directors and may be affected by various factors, including our earnings, financial condition, capital requirements, level of indebtedness and other considerations our board of directors deems relevant. Future debt obligations and statutory provisions, among other things, may limit, or in some cases prohibit, our ability to pay dividends.
As a holding company, the Company’s ability to declare and continue to pay dividends in the future with respect to its common stock will also be dependent upon the ability of its subsidiaries to pay dividends to it under applicable corporate law.
The Company records income tax expense during interim periods based on the best estimate of the full year’s 39 The effective The Company petitioned the
The computation of basic net income per common share is calculated by reducing net income for the period by dividends paid or declared and undistributed net income for the period that are allocated to participating securities to arrive at net income allocated to common stockholders. Net income allocated to common stockholders is divided by the weighted average number of common shares outstanding during the period to determine net income per share allocated to common stockholders. The computation of diluted net income per share is calculated by dividing net income allocated to common stockholders by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The dilutive effect is calculated using the more dilutive of the two-class or treasury stock method. Additionally, the change in the redemption value for the noncontrolling interest reduces net income allocated to common stockholders.
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share data) for the three and nine months ended
For the periods presented, the Company did not have shares of stock-based compensation that would have an anti-dilutive effect on the computation of diluted net income per common share. 40
Legal Proceedings As of The Company reviews its legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the condensed consolidated financial statements to not be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company’s assessment of whether a loss is remote, reasonably possible, or probable is based on its assessment of the ultimate outcome of the matter following all appeals. As of
other legal proceedings, if any, has been incurred. While the consequences of certain unresolved proceedings are not presently determinable, the outcome of any proceeding is inherently uncertain and an adverse outcome from certain matters could have a material effect on the financial position, results of operations, or cash flows of the Company in any given reporting period. Except as set forth herein, there have been no material changes during the period covered by this Form 10-Q from the legal proceedings disclosures in the Annual Report on Form 10-K for the year ended December 31, 2019. City of Providence On April 18, 2014, the City of Providence, Rhode Island filed a securities class action lawsuit in the Southern District of New York against Bats and Direct Edge Holdings LLC, as well as 14 other securities exchanges. The action purports to be brought on behalf of all public investors who purchased and/or sold shares of stock in the United States since April 18, 2009 on a registered public stock exchange (“Exchange Defendants”) or a U.S.-based alternate trading venue and were injured as a result of the alleged misconduct detailed in the complaint, which includes allegations that the Exchange Defendants committed fraud through a variety of business practices associated with, among other things, what is commonly referred to as high frequency trading. On May 2, 2014 and May 20, 2014, American European Insurance Company and Harel Insurance Co., Ltd. each filed substantially similar class action lawsuits against the Exchange Defendants which were ultimately consolidated with the City of Providence, Rhode Island securities class action lawsuit. On June 18, 2015, the Southern District of New York (the “Lower Court”) held oral argument on the pending Motion to Dismiss and thereafter, on August 26, 2015, the Lower Court issued an Opinion and Order granting Exchange Defendants’ Motion to Dismiss, dismissing the complaint in full. Plaintiff filed a Notice of Appeal of the dismissal on September 24, 2015 and its appeal brief on January 7, 2016. Respondent's brief was filed on April 7, 2016 and oral argument was held on August 24, 2016. Following oral argument, the Court of Appeals issued an order requesting that the SEC submit an amicus brief on whether the Lower Court had jurisdiction and whether the Exchange Defendants have immunity in the claims alleged. The SEC filed its amicus brief with the Court of Appeals on November 28, 2016 and Plaintiff and the Exchange Defendants filed their respective supplemental response briefs on December 12, 2016. On December 19, 2017, the Court of Appeals reversed the Lower Court’s dismissal and remanded the case back to the Lower Court. On March 13, 2018, the Court of Appeals denied the Exchange Defendants’ motion for re-hearing. The Exchange Defendants filed their opening brief for their motion to dismiss May 18, 2018, Plaintiffs’ response was filed June 15, 2018 and the Exchange Defendants’ reply was filed June 29, 2018. On May 28, 2019, the Lower Court issued an opinion and order denying the Exchange Defendants’ motion to dismiss. On June 17, 2019, the Exchange Defendants filed a motion seeking interlocutory appeal of the May 28, 2019 dismissal order, which was denied July 16, 2019. Exchange Defendants filed their answers on July 25, 2019. The discovery period in the matter commenced and is 41 scheduled to continue through 2020. Given the preliminary nature of the proceedings, the Company is unable to estimate what, if any, liability may result from this litigation. However, the Company believes that the claims are without merit and intends to litigate the matter vigorously. SIFMA Securities Industry Financial Markets Association (“SIFMA”) has filed a number of denial of access applications with the SEC to set aside proposed rule changes to establish or modify fees for Cboe Options, C2, BZX, BYX, EDGX and EDGA (the “Exchanges”) market data products and related services (the “Challenged Fees”). The Challenged Fees were held in abeyance pending a decision, which was issued by the SEC on October 16, 2018, on a separate SIFMA denial of access application regarding fees proposed by Nasdaq and the NYSE for their respective market data products. NASDAQ and NYSE filed petitions for review (“PFRs”) with the Court of Appeals for the D.C. Circuit (“D.C. Circuit”) seeking to appeal the SEC’s opinion (“Bellwether Case”). On June 5, 2020, the D.C. Circuit granted the PFRs and vacated the SEC’s finding that SIFMA could challenge generally applicable market data fees as a denial of access under Section 19(d) of the Exchange Act. In a second order entered on October 16, 2018, the SEC issued an order (the “Order”) that remanded the stayed Challenged Fees and ordered the Exchanges to: (i) within six months of the Order, provide notice to the SEC of developed or identified fair procedures for assessing the Challenged Fees (the “Procedures”) and (ii) within one year of the Order, apply the Procedures to the Challenged Fees and submit to the SEC a record explaining the Exchanges’ conclusions. On October 26, 2018, the Exchanges filed a motion to reconsider the Order with the SEC. On November 21, 2018, the Exchanges filed with the SEC a joinder motion to NYSE’s prior motion for stay of the Order. On December 3, 2018, SIFMA filed a response to NYSE’s motion for stay. Nasdaq withdrew its motion to reconsider the Order with the SEC on December 4, 2018, and on December 5, 2018, filed a Petition for Review with the 42 VIX Litigation On March 20, 2018, a putative class action complaint captioned Tomasulo v. Cboe Exchange, Inc., et al., No. 18-cv-02025 was filed in federal district court for the Northern District of Illinois alleging that the Company intentionally designed its products, operated its platforms, and formulated the method for calculating VIX and the Special Opening Quotation, (i.e., the special VIX value designed by the Company and calculated on the settlement date of VIX derivatives prior to the opening of trading), in a manner that could be collusively manipulated by a group of entities named as John Doe defendants. A number of similar putative class actions, some of which do not name the Company as a party, were filed in federal court in Illinois and New York on behalf of investors in certain volatility-related products. On June 14, 2018, the Judicial Panel on Multidistrict Litigation centralized the putative class actions in the federal district court for the Northern District of Illinois. On September 28, 2018, plaintiffs filed a master, consolidated complaint that is a putative class action alleging various claims against the Company and John Doe defendants in the federal district court for the Northern District of Illinois. The claims asserted against the Company
consist of a Securities Exchange Act fraud claim, Other As self-regulatory organizations under the jurisdiction of the SEC, Cboe Options, C2, BZX, BYX, EDGX and EDGA are subject to routine reviews and inspections by the SEC. As a designated contract market under the jurisdiction of the CFTC, CFE is subject to routine rule enforcement reviews and In addition, while Cboe Europe, 43 the DNB or Dutch Authority for Financial Markets in relation to any regulatory enforcement action. For Cboe NL, also domiciled in the Netherlands, it is likely that any actions would be taken in the Dutch courts in relation to litigation or Dutch Authority for Financial Markets in relation to any regulatory enforcement action. As MATCHNow is domiciled in Canada, it is likely that any action would be taken in the Canadian courts in relation to litigation or by the IIROC or Ontario Securities Commission in relation to any regulatory enforcement action. The Company is also currently a party to various other legal proceedings in addition to those already mentioned. Management does not believe that the likely outcome of any of these other reviews, inspections, investigations or other legal proceedings is expected to have a material impact on the Company’s financial position, results of operations, liquidity or capital resources. See also Note 7 (“Credit Losses”) for information on promissory notes related to the CAT. See also Note Contractual Obligations See Note See Note 23 (“Leases”) for information on lease obligations.
The Company currently leases office space, data centers, remote network operations centers, and equipment under non-cancelable operating leases with third parties as of
In September 2019, the Company signed a new lease to secure approximately 185,000 square feet of office space within the Old Post Office building in Chicago, Illinois, which will serve as the Company’s new global headquarters. The initial term of the lease Additionally, in September 2019, the Company signed a new lease to secure approximately 40,000 square feet of office space within the Chicago Board of Trade Building in Chicago, Illinois, where the Company plans to build a new trading floor and office space. The initial term of the lease 44 The following table presents the supplemental balance sheet information related to leases as of
The following table presents operating lease costs and other information as of and for the three and nine months ended
The maturities of the lease liabilities are as follows as of
24. SUBSEQUENT EVENTS On October 28, 2020, the Company announced that its board of directors declared a quarterly cash dividend of $0.42 per share. The dividend is payable December 15, 2020 to stockholders of record at the close of business November 30, 2020. There have been no additional subsequent events that would require disclosure in, or adjustment to, the condensed consolidated financial statements as of and for the
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, included in Item 1 in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and as contained in that report, the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This discussion contains forward-looking information. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Overview Cboe Global Markets, Inc. Cboe offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S., Canadian and European equities, exchange-traded products (“ETPs”), global foreign exchange (“FX”) and Cboe’s subsidiaries include the largest options exchange and the third largest stock exchange operator in the U.S. In addition, the Company operates one of the largest The Company is headquartered in Chicago with offices in Kansas City, New York, London, San Francisco, Sarasota Springs, Toronto, Belfast, Amsterdam, Singapore, Hong Kong, and Ecuador. Business Segments The Company reports five business segments: Options, Options.
47 from the U.S. equities tape plans, the sale of proprietary market data, routing services, access and capacity services and advertising activity from ETF.com.
Futures. European Equities. The European Equities segment includes the pan-European listed equities transaction services, ETPs, exchange traded commodities, and international depository receipts that occur on MTFs operated by Cboe Europe Equities. It also includes the listings business where ETPs can be listed on Global FX. General Factors Affecting Results of Operations In broad terms, our business performance is impacted by a number of drivers, including macroeconomic events affecting the risk and return of financial assets, investor sentiment, the regulatory environment for capital markets, geopolitical events, national and local tax policies, central bank policies and changing technology, particularly in the financial services industry.
A number of significant structural, political and monetary issues and the COVID-19 pandemic continue to confront the global economy, and instability could continue, resulting in an increased or subdued level of market volatility, changes in trading volumes and greater uncertainty. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. We are closely monitoring developments around COVID-19 and following guidance provided by governmental and public health agencies. In response to COVID-19, we have provided frequent communications to employees, customers, regulators, critical vendors, technology equipment suppliers, data and disaster recovery centers, and other service providers and instructed non-essential employees to work from home on a temporary basis, implemented travel restrictions, and 48 addressing COVID-19. As of the date of this report, it is too early to determine the full impact this virus may have on the global financial markets and the overall economy. Our business and operations could be materially and adversely affected by the effects of COVID-19, however, the extent to which our results could be affected by COVID-19 largely depends on future developments which cannot be accurately predicted and are uncertain. Further, changes in trading behavior,
open outcry trading, market disruptions and other future developments caused by the effects of COVID-19 could impact trading volumes and the demand for our products, market data, and services, which could have a material adverse effect on our business, financial condition, operating results and cash flows for the remainder of fiscal year 2020 and could be material during any future period impacted either directly or indirectly by this pandemic. Components of Revenues Transaction and Clearing Fees Transaction fees represent fees charged by the Company for the performance obligation of executing a trade on its markets. These fees can be variable based on trade volume tiered Access and Capacity Fees Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. Facilities, systems services and other fees are generally monthly fee-based. These fees are billed monthly in accordance with the Company’s published fee schedules and recognized on a monthly basis when the performance obligation is met. All access and capacity fees associated with the trading floor are recognized in the Options segment. There is no remaining performance obligation after revenue is recognized. Market Data Fees Market data fees represent the fees from the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.S. Exchanges based on a known formula using trading and/or quoting activity. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company’s published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data. U.S. tape plan market data is recognized in the Regulatory Fees Regulatory fees primarily represent fees collected by the Company to cover the Section 31 fees charged to the Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by the SEC. Consistent with industry practice, the fees charged to customers are based on the fee set by the SEC per notional value of 49 neither can be used for non-regulatory purposes. The ORF and miscellaneous fees are recognized when the performance obligation is fulfilled. Other Revenue Other revenue primarily includes among other items, revenue from various licensing agreements, interest income from clearing operations, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s websites.
Components of Cost of Revenues Liquidity Payments Liquidity payments are directly correlated to the volume of securities traded on our markets. As stated above, we record the liquidity rebates paid to market participants providing liquidity, in the case of C2, BZX, EDGX, and Cboe Europe Equities, as cost of revenue. BYX and EDGA offer a pricing model pursuant to which we rebate liquidity takers for executing against an order resting on our book, which is also recorded as a cost of revenue. Routing and Clearing Various rules require that U.S. options and equities trade executions occur at the National Best Bid/Offer (“NBBO”) displayed by any exchange. Linkage order routing consists of the cost incurred to provide a service whereby Cboe equities and options exchanges deliver orders to other execution venues when there is a potential for obtaining a better execution price or when instructed to directly route an order to another venue by the order provider. The service affords exchange order flow providers an opportunity to obtain the best available execution price and may also result in cost benefits to those clients. Such an offering improves our competitive position and provides an opportunity to attract orders which would otherwise bypass our exchanges. We utilize third-party brokers or our broker-dealer, Cboe Trading, to facilitate such delivery. Section 31 Fees Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) are assessed fees pursuant to the Exchange Act designed to recover the costs to the U.S. government of supervision and regulation of securities markets and securities professionals. We treat these fees as a pass-through charge to customers executing eligible listed equities and listed equity options trades. Accordingly, we recognize the amount that we are charged under Section 31 as a cost of revenues and the corresponding amount that we charge our customers as regulatory transaction fees revenue. Since the regulatory transaction fees recorded in revenues are equal to the Section 31 fees recorded in cost of revenues, there is no impact on our operating income. CFE, Cboe Europe Limited and Cboe FX are not U.S. national securities exchanges, and accordingly are not charged Section 31 fees. Royalty Fees Royalty fees primarily consist of license fees paid by us for the use of underlying indices in our proprietary products usually based on contracts traded. The Company has licenses with the owners of the S&P 500 Index, S&P 100 Index and certain other S&P indices, FTSE Russell indices, the DJIA, MSCI, and certain other index products. This category also includes fees related to the dissemination of market data related to S&P indices and PULse system terminal fees. Components of Operating Expenses Compensation and Benefits Compensation and benefits represent our largest expense category and tend to be driven by our staffing requirements, financial performance, and the general dynamics of the employment market. Stock-based compensation is 50 a non-cash expense related to equity awards. Stock-based compensation can vary depending on the quantity and fair value of the award on the date of grant and the related service period. Depreciation and Amortization Depreciation and amortization expense results from the depreciation of long-lived assets purchased, the amortization of purchased and internally developed software, and the amortization of intangible assets.
Technology Support Services Technology support services consists primarily of costs related to the maintenance of computer equipment supporting our system architecture, circuits supporting our wide area network, support for production software, fees paid to information vendors for displaying data and off-site system hosting fees. Professional Fees and Outside Services Professional fees and outside services consist primarily of consulting services, which include: supplemental staff activities primarily related to systems development and maintenance, legal, regulatory and audit, and tax advisory services. Travel and Promotional Expenses Travel and promotional expenses primarily consist of advertising, costs for special events, sponsorship of industry conferences, options education seminars and travel-related expenses. Facilities Costs Facilities costs primarily consist of expenses related to owned and leased properties including rent, maintenance, utilities, real estate taxes and telecommunications costs. Acquisition-Related Costs Acquisition-related costs relate to acquisitions and other strategic opportunities, including the Merger. The acquisition-related costs include fees for investment banking advisors, lawyers, accountants, tax advisors, public relations firms, severance and retention costs, impairment of goodwill, capitalized software and facilities, and other external costs directly related to the mergers and acquisitions, as well as compensation-related expenses. Other Expenses Other expenses represent costs necessary to support our operations that are not already included in the above categories. Non-Operating Expense Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other expense. These activities primarily include interest earned on the investing of excess cash, interest expense related to outstanding debt facilities, dividend income, income and unrealized gains and losses related to investments held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, and equity earnings or losses from our investments in other business ventures.
Financial Summary The following summarizes changes in financial performance for the three and nine months ended
The following summarizes changes in certain operational and financial metrics for the
The following table includes operational and financial metrics for our Options, North American Equities, Futures, European Equities, and Global FX segments. Canadian Equities financial metrics represent activity for the period of August 4, 2020 through September 30, 2020. These metrics are reviewed by our senior management in evaluating the performance of our business. The following summarizes changes in certain operational and financial metrics for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
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The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions):
57 The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions):
Revenues Total revenues for the three and nine months ended
Transaction and Clearing Fees Transaction and clearing fees increased for the three and nine months ended
Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and
Royalty Fees Royalty fees primarily consist of
Components of Operating Expenses Compensation and Benefits Compensation and benefits represent our largest expense category and tend to be driven by our staffing requirements, financial performance, and the general dynamics of the employment market. Stock-based compensation is
Depreciation and Amortization Depreciation and amortization expense results from the depreciation of long-lived assets purchased, the amortization of purchased and internally developed software, and the amortization of intangible assets. Technology Support Services Technology support services consists primarily of costs related to the maintenance of computer equipment supporting our system architecture, circuits supporting our wide area network, support for production software, fees paid to information vendors for displaying data and off-site system hosting fees. Professional Fees and Outside Services Professional fees and outside services consist primarily of consulting services, which include: supplemental staff activities primarily related to systems development and maintenance, legal, regulatory and audit, and tax advisory services. Travel and Promotional Expenses Travel and promotional expenses primarily consist of advertising, costs for special events, sponsorship of industry conferences, options education seminars and travel-related expenses. Facilities Costs Facilities costs primarily consist of expenses related to owned and leased properties including rent, maintenance, utilities, real estate taxes and telecommunications costs. Acquisition-Related Costs Acquisition-related costs relate to acquisitions and other strategic opportunities, including the Merger. The acquisition-related costs include fees for investment banking advisors, lawyers, accountants, tax advisors, public relations firms, severance and retention costs, impairment of goodwill, capitalized software and facilities, and other external costs directly related to the mergers and acquisitions, as well as compensation-related expenses. Other Expenses Other expenses represent costs necessary to support our operations that are not already included in the above categories. Non-Operating Expense Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other expense. These activities primarily include interest earned on the investing of excess cash, interest expense related to outstanding debt facilities, dividend income, income and unrealized gains and losses related to investments held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, and equity earnings or losses from our investments in other business ventures. 51 Financial Summary The following summarizes changes in financial performance for the three and nine months ended September 30, 2020 and 2019 and certain non-GAAP financial measures. These non-GAAP financials measures assist management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items management believes do not reflect our underlying operations. Please see the footnotes below for additional information and reconciliations from our condensed consolidated financial statements. “YTD” represents the nine-month period ended September 30th.
52 The following summarizes changes in certain operational and financial metrics for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019: 53 The following table includes operational and financial metrics for our Options, North American Equities, Futures, European Equities, and Global FX segments. Canadian Equities financial metrics represent activity for the period of August 4, 2020 through September 30, 2020. These metrics are reviewed by our senior management in evaluating the performance of our business. The following summarizes changes in certain operational and financial metrics for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
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56 The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions):
57 The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions):
Revenues
Transaction and Clearing Fees Transaction and clearing fees increased for the three and nine months ended
Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. Facilities, systems services and other fees are generally monthly fee-based. These fees are billed monthly in accordance with the Company’s published fee schedules and recognized on a monthly basis when the performance obligation is met. All access and capacity fees associated with the trading floor are recognized in the Options segment. There is no remaining performance obligation after revenue is recognized. Market Data Fees Market data fees represent the fees from the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.S. Exchanges based on a known formula using trading and/or quoting activity. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company’s published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data. U.S. tape plan market data is recognized in the North American Equities and Options segments. Proprietary market data fees are recognized across all segments. Regulatory Fees Regulatory fees primarily represent fees collected by the Company to cover the Section 31 fees
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Other Revenue Other revenue primarily includes among other items, revenue from various licensing agreements, interest income from clearing operations, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s websites. Components of Cost of Revenues
Liquidity payments are directly correlated to the volume of securities traded on our markets. As stated above, we record the liquidity rebates paid to market participants providing liquidity, in the case of C2, BZX, EDGX, and Cboe Europe Equities, as cost of
Access and Capacity Fees Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. Facilities, systems services and other fees are generally monthly fee-based. These fees are billed monthly in accordance with the Company’s published fee schedules and recognized on a monthly basis when the performance obligation is met. All access and capacity fees associated with the trading floor are recognized in the Options segment. There is no remaining performance obligation after revenue is recognized. Market Data Fees Market data fees represent the fees from the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.S. Exchanges based on a known formula using trading and/or quoting activity. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company’s published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data. U.S. tape plan market data is recognized in the North American Equities and Options segments. Proprietary market data fees are recognized across all segments. Regulatory Fees Regulatory fees primarily represent fees collected by the Company to cover the Section 31 fees charged to the Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by the SEC. Consistent with industry practice, the fees charged to customers are based on the fee set by the SEC per notional value of U.S. Equities exchange transactions and per round turn of Options transactions executed on the Company’s U.S. securities markets. These fees are calculated and billed monthly and are recognized in the North American Equities and Options segments. As the Exchanges are responsible for the ultimate payment to the SEC, the Exchanges are considered the principals in these transactions. Regulatory fees also include the options regulatory fee (“ORF”) which supports the Company’s regulatory oversight function in the Options segment, along with other miscellaneous regulatory fees, and 49 neither can be used for non-regulatory purposes. The ORF and miscellaneous fees are recognized when the performance obligation is fulfilled. Other Revenue Other revenue primarily includes among other items, revenue from various licensing agreements, interest income from clearing operations, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s websites. Components of Cost of Revenues Liquidity Payments Liquidity payments are directly correlated to the volume of securities traded on our markets. As stated above, we record the liquidity rebates paid to market participants providing liquidity, in the case of C2, BZX, EDGX, and Cboe Europe Equities, as cost of revenue. BYX and EDGA offer a pricing model pursuant to which we rebate liquidity takers for executing against an order resting on our book, which is also recorded as a cost of revenue. Routing and Clearing Various rules require that U.S. options and equities trade executions occur at the National Best Bid/Offer (“NBBO”) displayed by any exchange. Linkage order routing consists of the cost incurred to provide a service whereby Cboe equities and options exchanges deliver orders to other execution venues when there is a potential for obtaining a better execution price or when instructed to directly route an order to another venue by the order provider. The service affords exchange order flow providers an opportunity to obtain the best available execution price and may also result in cost benefits to those clients. Such an offering improves our competitive position and provides an opportunity to attract orders which would otherwise bypass our exchanges. We utilize third-party brokers or our broker-dealer, Cboe Trading, to facilitate such delivery. Section 31 Fees Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) are assessed fees pursuant to the Exchange Act designed to recover the costs to the U.S. government of supervision and regulation of securities markets and securities professionals. We treat these fees as a pass-through charge to customers executing eligible listed equities and listed equity options trades. Accordingly, we recognize the amount that we are charged under Section 31 as a cost of revenues and the corresponding amount that we charge our customers as regulatory transaction fees revenue. Since the regulatory transaction fees recorded in revenues are equal to the Section 31 fees recorded in cost of revenues, there is no impact on our operating income. CFE, Cboe Europe Limited and Cboe FX are not U.S. national securities exchanges, and accordingly are not charged Section 31 fees. Royalty Fees Royalty fees primarily consist of license fees paid by us for the use of underlying indices in our proprietary products usually based on contracts traded. The Company has licenses with the owners of the S&P 500 Index, S&P 100 Index and certain other S&P indices, FTSE Russell indices, the DJIA, MSCI, and certain other index products. This category also includes fees related to the dissemination of market data related to S&P indices and PULse system terminal fees. Components of Operating Expenses Compensation and Benefits Compensation and benefits represent our largest expense category and tend to be driven by our staffing requirements, financial performance, and the general dynamics of the employment market. Stock-based compensation is 50 a non-cash expense related to equity awards. Stock-based compensation can vary depending on the quantity and fair value of the award on the date of grant and the related service period. Depreciation and Amortization Depreciation and amortization expense results from the depreciation of long-lived assets purchased, the amortization of purchased and internally developed software, and the amortization of intangible assets. Technology Support Services Technology support services consists primarily of costs related to the maintenance of computer equipment supporting our system architecture, circuits supporting our wide area network, support for production software, fees paid to information vendors for displaying data and off-site system hosting fees. Professional Fees and Outside Services Professional fees and outside services consist primarily of consulting services, which include: supplemental staff activities primarily related to systems development and maintenance, legal, regulatory and audit, and tax advisory services. Travel and Promotional Expenses Travel and promotional expenses primarily consist of advertising, costs for special events, sponsorship of industry conferences, options education seminars and travel-related expenses. Facilities Costs Facilities costs primarily consist of expenses related to owned and leased properties including rent, maintenance, utilities, real estate taxes and telecommunications costs. Acquisition-Related Costs Acquisition-related costs relate to acquisitions and other strategic opportunities, including the Merger. The acquisition-related costs include fees for investment banking advisors, lawyers, accountants, tax advisors, public relations firms, severance and retention costs, impairment of goodwill, capitalized software and facilities, and other external costs directly related to the mergers and acquisitions, as well as compensation-related expenses. Other Expenses Other expenses represent costs necessary to support our operations that are not already included in the above categories. Non-Operating Expense Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other expense. These activities primarily include interest earned on the investing of excess cash, interest expense related to outstanding debt facilities, dividend income, income and unrealized gains and losses related to investments held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, and equity earnings or losses from our investments in other business ventures. 51 Financial Summary The following summarizes changes in financial performance for the three and nine months ended September 30, 2020 and 2019 and certain non-GAAP financial measures. These non-GAAP financials measures assist management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items management believes do not reflect our underlying operations. Please see the footnotes below for additional information and reconciliations from our condensed consolidated financial statements. “YTD” represents the nine-month period ended September 30th.
52 The following summarizes changes in certain operational and financial metrics for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019: 53 The following table includes operational and financial metrics for our Options, North American Equities, Futures, European Equities, and Global FX segments. Canadian Equities financial metrics represent activity for the period of August 4, 2020 through September 30, 2020. These metrics are reviewed by our senior management in evaluating the performance of our business. The following summarizes changes in certain operational and financial metrics for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
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56 The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions):
57 The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions):
Revenues Total revenues for the three and nine months ended September 30, 2020 increased $117.3 million, or 17.4%, and $685.4 million, or 36.1%, respectively, compared to the prior periods, primarily due to increased transaction and clearing fees of $79.7 million, or 17.1%, and $503.3 million, or 38.1%, respectively, as a result of increased market volumes in the U.S. Equities exchanges and Options segment, coupled with an increase in regulatory fees. The following summarizes changes in revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
Transaction and Clearing Fees Transaction and clearing fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily due to a 43.5% increase in U.S. Equities exchange market ADV and a 43.9% increase in multi-listed options ADV, partially offset by a 30.0% decrease in index options ADV and a 38.4% decrease in Futures ADV, when compared to the same period in 2019. For the nine months ended September 30, 2020, the increase was primarily due to a 56.3% increase in U.S. Equities exchange market ADV and a 47.4% increase in overall options market ADV, including a 49.1% increase in multi-listed ADV, when compared to the same period in 2019. Access Fees and Capacity Fees Access and capacity fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to an increase in logical port revenue in the European Equities and North American Equities segments. Market Data Fees Market data fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to additional revenue attributed to the acquisitions of Hanweck, FT Options, and Trade 58 Alert during 2020, partially offset by a decrease in tape plan market data revenue within the North American Equities segment resulting from a decrease in market share for the three and nine months ended September 30, 2020. Regulatory Fees Regulatory fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily due to an increase in Section 31 fees as a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from a rate of $20.70 per million dollars of covered sales for the three months ended September 30, 2019 to a rate of $22.10 per million dollars of covered sales during the three months ended September 30, 2020. For the nine months ended September 30, 2020, the increase was primarily due to an increase in Section 31 fees as a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from an average rate of $17.70 per million dollars of covered sales for the nine months ended September 30, 2019 to an average rate of $21.90 per million dollars of covered sales during the nine months ended September 30, 2020. Other Revenue Other revenue increased for the three months and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to additional net interest income from EuroCCP, which the Company acquired in the third quarter of 2020. Cost of Revenues Cost of revenues increased for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges, which increased $89.7 million, coupled with an increase in Section 31 fees within the North American Equities and Options segments, which increased $21.1 million and $4.9 million, respectively. Cost of revenues increased for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges, which increased $418.2 million, coupled with an increase in Section 31 fees within the North American Equities and Options segments, which increased $136.8 million and $17.1 million, respectively. The following summarizes changes in cost of revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
Liquidity Payments Liquidity payments increased for the three and nine months ended September 30, 2020 compared to the same period in 2019 primarily due to higher liquidity payments as a result of an increase in volumes traded on the U.S. Equities and Options exchanges. Routing and Clearing The increase in routing and clearing fees for the three and nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to an increase in routed trades in the North American Equities segment. 59 Section 31 Fees Section 31 fees increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019. For the three months ended September 30, 2020, the increase was primarily a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from a rate of $20.70 per million dollars of covered sales for the three months ended September 30, 2019 to a rate of $22.10 per million dollars of covered sales during the three months ended September 30, 2020. For the nine months ended September 30, 2020, the increase was primarily a result of higher volumes in the North American Equities segment, coupled with an increase in the Section 31 fee rate, from an average rate of $17.70 per million dollars of covered sales for the nine months ended September 30, 2019 to an average rate of $21.90 per million dollars of covered sales during the nine months ended September 30, 2020. Royalty Fees Royalty fees decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to a decline in trading volume in licensed products. Revenues Less Cost of Revenues Revenues less cost of revenues decreased $2.0 million, or 0.7%, for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a $15.6 million, or 8.4% decrease in transaction and clearing fees less liquidity payments and routing and clearing costs, partially offset by a $5.3 million, or 23.1% decrease in royalty fees, a $4.9 million, or 8.8% increase in access and capacity fees, and a $3.2 million, or 5.7% increase in market data fees. Revenues less cost of revenues increased $90.6 million, or 10.6%, for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to a $64.2 million, or 11.8%, increase in transaction and clearing fees less liquidity payments and routing and clearing costs and a $14.7 million, or 9.2% increase in market data fees. The following tables summarize the components of revenues less cost of revenues for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:
Transaction and Clearing Fees Less Liquidity Payments and Routing and Clearing Costs Transaction and clearing fees less liquidity payments and routing and clearing costs (“Net Transaction and Clearing Fees”) decreased for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a 30.0% decrease in index options ADV and a 38.4% decrease in Futures ADV. Net Transaction and Clearing Fees increased for the nine months ended September 30, 2020 primarily due to a 47.4% increase in overall options market ADV, including a 49.1% increase in multi-listed options ADV, and a 56.3% increase in U.S. Equities exchange market ADV, when compared to the same period in 2019. 60 Access and Capacity Fees Access and capacity fees increased for the three and nine months ended Market Data Fees Market data fees increased for the three and nine months ended Regulatory Fees, less Section 31 Fees Regulatory fees, less Section 31 Fees, decreased Royalty Fees Royalty fees decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to a decline in trading volume in licensed products. Other Other revenue increased for the three months and nine months ended Operating Expenses Total operating expenses increased $6.1 million, or 4.2%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to
61 Compensation and Benefits Compensation and benefits increased for the three and nine months ended Depreciation and Amortization Depreciation and amortization decreased for the three and nine months ended Technology Support Services Technology support services
Professional Fees and Outside Services Professional fees and outside services decreased for the three and nine months ended Travel and Promotional Expenses Travel and promotional expenses decreased for the three and nine months ended Facilities Costs Facilities costs increased for the three and nine months ended Acquisition-Related Costs Acquisition-related costs decreased for the three and nine months ended 62 due to severance costs incurred in the third quarter of 2019, coupled with the write down of goodwill attributed to a Other Expenses Other expenses increased for the three and nine months ended Operating Income As a result of the items above, operating income for the three and nine months ended Interest Expense, Net Net interest expense Other Expense, Net Net other expense decreased for the three and nine months ended Income Before Income Tax Provision As a result of the above, income before income tax provision for the three months ended
Income Tax Provision The effective tax rate from continuing operations was Net Income As a result of the items above, net income for the three months ended As a result of the items above, net income for the nine months ended September 30, 2020 was $380.9 million compared to $284.5 million for the nine months ended September 30, 2019, an increase of $96.4 million. 63 Segment Operating Results We report results from our five segments: Options,
The following summarizes our total revenues by segment:
The following summarizes our revenues less cost of revenues by segment:
Options The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Options segment:
Revenues less cost of revenues increased Revenues less cost of revenues increased $62.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 49.1% increase in multi-listed options ADV, coupled with an 11.1% increase in index options RPC and an increase in proprietary market data revenue as a result of the acquisitions of Hanweck, FT Options, and Trade Alert. For the nine months ended September 30, 2020, the Options segment’s operating income increased $78.7 million compared to the nine months ended September 30, 2019, primarily due to higher revenues less cost of revenues. Operating expenses decreased
66 North American Equities The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our North American Equities segment:
Revenues less cost of revenues increased $0.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a 33.3% increase in volumes traded on our U.S. Equities exchanges. For the three months ended September 30, 2020, the North American Equities segment’s operating income decreased $3.3 million compared to the three months ended September 30, 2019, primarily due to an increase in operating expenses. Operating expenses increased $3.7 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to an increase in other expenses, partially offset by a decline in depreciation and amortization. Revenues less cost of revenues increased $27.7 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 58.3% increase in volumes traded on our U.S. Equities exchanges. For the nine months ended September 30, 2020, the North American Equities segment’s operating income increased $27.6 million compared to the nine months ended September 30, 2019, primarily due to higher revenues less cost of revenues. Operating expenses increased $0.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase in other expenses and compensation and benefits, offset by a decline in depreciation and amortization and travel and promotional expenses. Futures The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Futures segment:
Revenues less cost of revenues
European Equities The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our European Equities segment:
*Not meaningful
Revenues less cost of revenues increased Revenues less cost of revenues increased $13.0 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due primarily due to additional revenue attributable to the acquisition of EuroCCP. For the nine months ended September 30, 2020, the European Equities segment’s operating income increased $7.9 million compared to the nine months ended September 30, 2019, primarily due to higher revenues less cost of revenues. Operating expenses increased $5.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to an increase in compensation and 68 Global FX The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Global FX segment:
Revenues less cost of revenues remained relatively flat for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. For the three months ended September 30, 2020, the Global FX segment’s operating income increased $1.9 million compared to the three months ended September 30, 2019, primarily due to a decline in operating expenses. Operating expenses decreased $1.8 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a decrease in depreciation and amortization, compensation and benefits, and professional fees and outside services. Revenues less cost of revenues increased $3.7 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a 5.7% increase in Global FX market ADNV. For the nine months ended September 30, 2020, the Global FX segment’s operating income increased $8.0 million compared to the nine months ended September 30, 2019, due to a decline in operating expenses, coupled with higher revenues less costs of revenues. Operating expenses decreased $4.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a decrease in depreciation and amortization, professional fees and outside services, and travel and promotional expenses, partially offset by an increase in compensation and benefits.
Liquidity and Capital Resources Below are charts that reflect elements of our capital allocation: We expect our cash on hand at Our long-term cash needs will depend on many factors, including an introduction of new products, enhancements of current products, the geographic mix of our business and any potential acquisitions. We believe our cash from operations and the availability under our revolving credit facility will meet any long-term needs unless a significant acquisition is identified, in which case we expect that we would be able to borrow the necessary funds to 70 complete such an acquisition. In addition, we do not expect COVID-19 to have a material impact on our liquidity or capital resources, including cash from operations or uses of cash, or change our ability to access capital markets in the near term or the foreseeable future. Cash and cash equivalents include cash in banks and all non-restricted, highly liquid investments with original maturities of three months or less at the time of purchase. Cash and cash equivalents as of Our cash and cash equivalents held outside of the United States in various foreign subsidiaries totaled
Our financial investments include deferred compensation plan assets as well as investments with original or acquired maturities longer than three months but that mature in less than one year from the balance sheet date and are recorded at fair value. As of Cash Flow The following table summarizes our cash flow data for the
Net Cash Flows Provided by Operating Activities During the 71 change in unrecognized tax benefits of $21.4 million, and the stock-based compensation expense of $17.3 million, partially offset by the change in Section 31 fees payable of Net cash flows provided by operating activities were Net Cash Flows (Used in) Provided by Investing Activities Net cash flows (used in) provided by investing activities were Net Cash Flows Used in Financing Activities Net cash flows used in financing activities for the
Financial Assets The following summarizes our financial assets, excluding margin deposits and clearing funds, as of
72 Debt The following summarizes our debt obligations as of
As of In addition to the debt outstanding, as of Dividends The Company’s expectation is to continue to pay dividends. The decision to pay a dividend, however, remains within the discretion of the Company's board of directors and may be affected by various factors, including our earnings, financial condition, capital requirements, level of indebtedness and other considerations our board of directors deems relevant. Future debt obligations and statutory provisions, among other things, may limit, or in some cases prohibit, our ability to pay dividends. Share Repurchase Program In 2011, the board of directors approved an initial authorization for the Company to repurchase shares of its outstanding common stock of $100 million and approved additional authorizations of $100 million in each of 2012, 2013, 2014, 2015 and 2016, $150 million in February 2018, $100 million in August 2018,
Under the program, for the three months ended As of OCC Capital Plan The Company’s contributed capital to OCC has been recorded under investments in the condensed consolidated balance sheets as of 73 policy, nor does any shareholder have the right to receive dividends from OCC under such policy. OCC did not pay its shareholders any dividend or other return on the retained portion of their capital contributions. As such, the Company reversed the $8.8 million OCC dividend declared in 2018, which was to be paid in 2019, in other expense, net in the condensed consolidated statement of income for the Commercial Commitments and Contractual Obligations As of Off Balance Sheet Arrangements
Item 3. Quantitative and Qualitative Disclosures about Market Risk As a result of our operating activities, we are exposed to market risks such as foreign currency exchange rate risk, equity risk, credit risk, Foreign Currency Exchange Rate Risk Our operations in Europe, Canada and Asia are subject to
For the three and nine months ended
74 Equity Risk Our investment in European and Canadian operations is exposed to volatility in currency exchange rates through translation of our net assets or equity to U.S. dollars. The assets and liabilities of our European business are denominated in British pounds or Euros. The assets and liabilities of our Canadian business are denominated in Canadian dollars. Fluctuations in currency exchange rates may create volatility in our reported results as we are required to translate foreign currency reported statements of financial condition and operational results into U.S. dollars for consolidated reporting. The translation of these non-U.S. dollar statements of financial condition into U.S. dollars for consolidated reporting results in a cumulative translation adjustment, which is recorded in accumulated other comprehensive income (loss) within stockholders’ equity on our condensed consolidated balance sheet. Our primary exposure to this equity risk as of
Credit Risk We are exposed to credit risk from third parties, including customers, counterparties and clearing agents. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. We limit our exposure to credit risk by considering such risk when selecting the counterparties with which we make investments and execute agreements. We do not have counterparty credit risk with respect to trades matched on our exchanges in the U.S., Canada, and Europe. With respect to listed equities, we deliver matched trades of our customers to the National Security Clearing Corporation (“NSCC”) without taking on counterparty risk for those trades. NSCC acts as a central counterparty on all equity transactions occurring on BZX, BYX, EDGX and EDGA and, as such, guarantees clearance and settlement of all of our matched equity trades. Similarly, with respect to U.S. listed equity options and futures, we deliver matched trades of our customers to the OCC, which acts as a central counterparty on all transactions occurring on Cboe Options, C2, BZX, EDGX and CFE and, as such, guarantees clearance and settlement of all of our matched options and futures trades.
With respect to orders Cboe Trading routes to other markets for execution on behalf of our customers, Cboe Trading is exposed to some counterparty credit risk in the case of failure to perform on the part of our clearing firms, Morgan Stanley & Co. LLC (“Morgan Stanley”) or Wedbush Securities, Inc. (“Wedbush”). Morgan Stanley and Wedbush guarantee trades until one day after the trade date, after which time NSCC provides a guarantee. Thus, Cboe Trading is potentially exposed to credit risk to the counterparty to a trade routed to another market center between the trade date and one day after the trade date in the event that Morgan Stanley or Wedbush fails. We believe that any potential requirement for us to make payments under these guarantees is remote and accordingly, have not recorded any liability in the condensed consolidated financial statements for these guarantees. Historically, we have not incurred any liability due to a customer’s failure to satisfy its contractual obligations as counterparty to a system trade. Credit difficulties or insolvency, or the perceived possibility of credit difficulties or 75 insolvency, of one or more larger or more visible market participants could also result in market-wide credit difficulties or other market disruptions. We do not have counterparty credit risk with respect to institutional spot FX trades occurring on our platform because Cboe FX is not a counterparty to any FX transactions. All transactions occurring on our platform occur bilaterally between two banks or prime brokers as counterparties to the trade. While Cboe FX does not have direct counterparty risk, Cboe FX may suffer a decrease in transaction volume if a bank or prime broker experiences an event that causes other prime brokers to decrease or revoke the credit available to the prime broker experiencing the event. Therefore, Cboe FX may have risk that is related to the credit of the banks and prime brokers that trade FX on the Cboe FX platform. We also have credit risk related to transaction fees that are billed in arrears to customers on a monthly basis. Our potential exposure to credit losses on these transactions is represented by the receivable balances in our balance sheet. Our customers are financial institutions whose ability to satisfy their contractual obligations may be impacted by volatile securities markets. As a result of the acquisition of EuroCCP on July 1, 2020, the Company is exposed to further credit risk through our clearing operations. EuroCCP holds material amounts of clearing participant collateral, both cash and non-cash deposits, which are held or invested primarily to provide security of capital while minimizing credit risk as well as liquidity and market risks. The following is a summary of the risks associated with these deposits and how these risks are mitigated:
76 On a regular basis, we review and evaluate changes in the status of our counterparties’ creditworthiness. Credit losses such as those described above could adversely affect our condensed consolidated financial position and results of operations. Any such effects to date have been minimal. Interest Rate Risk We have exposure to market risk for changes in interest rates relating to our cash and cash equivalents, financial investments, and indebtedness. As of As of Liquidity Risk We are exposed to liquidity risk in relation to the cross-acceleration and cross-default provisions within the Term Loan Agreement and the Revolving Credit
Item 4. Controls and Procedures a)Disclosure controls and procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective. b)Internal controls over financial reporting. No changes occurred in the Company’s internal control over financial reporting during
PART II—OTHER INFORMATION Item 1. Legal Proceedings. Cboe Global Markets, Inc. incorporates herein by reference the discussion set forth in Note
Consolidated Data Plans On May 6, 2020, the SEC issued a final order (the “Order”) that would require U.S. equities exchanges and FINRA to develop and file a new consolidated data plan (the “Plan”) that would replace the three current U.S. equities tape data plans and require certain governance provisions, such as changes to the voting structure. Pursuant to the Order, the Company and the other U.S. equities exchanges and FINRA are required to file the proposed Plan for public comment before the SEC takes any definitive action on such new plan. Until and if the SEC approves a new plan, the current data plans will continue to govern. On June 29, 2020, the Company filed a Petition for Review in the Court of Appeals for the D.C. Circuit (the “D.C. Circuit”) asserting the Order is unlawful. On October 14, 2020, the D.C. Circuit issued an order setting forth a briefing schedule and briefing will conclude on March 12, 2021. The Order may cause the Company’s equities exchanges, BZX, BYX, EDGX, and EDGA, to require additional resources to comply with or challenge the Order and it may have a material impact on our business, financial condition and operating results if, for example, there is a negative impact on the market data fees the Company’s equities exchanges are able to charge. The Company intends to litigate the matter vigorously. Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Share repurchase program In 2011, the board of directors approved an initial authorization for the Company to repurchase shares of its outstanding common stock of $100 million and approved additional authorizations of $100 million in each of 2012, 2013, 2014, 2015 and 2016, $150 million in February 2018, and $100 million in August 2018, 78 The table below shows the purchases of equity securities by the Company which settled during the three months ended
Purchase of common stock from employees The table below reflects the acquisition of common stock by the Company in the three months ended
Use of Proceeds None. Item 3. Defaults upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None.
Item 6. Exhibits.
SIGNATURES Pursuant to the requirements 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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