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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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

    

April 24, 2020

Common Stock, par value $0.01 per share

109,720,335 shares

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

7

Item 1.

Financial Statements (unaudited)

7

Condensed Consolidated Balance Sheets—As of March 31, 2020 and December 31, 2019

7

Condensed Consolidated Statements of Income—Three Months Ended March 31, 2020 and 2019

8

Condensed Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2020 and 2019

9

Condensed Consolidated Statements of Changes in Stockholders’ Equity—Three Months Ended March 31, 2020 and 2019

10

Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2020 and 2019

11

Notes to Condensed Consolidated Financial Statements

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

62

Item 4.

Controls and Procedures

65

PART II. OTHER INFORMATION

66

Item 1.

Legal Proceedings

66

Item 1A.

Risk Factors

66

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

69

SIGNATURES

70

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.
“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.
“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®, Hybrid®, LiveVol®, Silexx® and VIX® are registered trademarks, and Cboe Futures ExchangeSM, and C2SM 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 market as well as due to the temporary suspension of open outcry trading in response to COVID-19;
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 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 accommodate trading 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 products;
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;
our ability to maintain an investment grade credit rating;
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, no 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

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

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

See accompanying notes to condensed consolidated financial statements.

9

Cboe Global Markets, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three months ended March 31, 2020 and March 31, 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, 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

See accompanying notes to condensed consolidated financial statements.

10

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)


See accompanying notes to condensed consolidated financial statements.

11

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, offering 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. 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 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, 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 five business segments: Options, U.S. 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 14 (“Segment Reporting”) for more information.

12

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”), 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.

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 will not restate comparative periods. Upon the adoption of the standard, the Company recognized an immaterial cumulative-effect adjustment to retained earnings for the expected lifetime credit loss on the financial instruments within the scope of the standard, including accounts receivable, net. 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 the standard. The impact to the condensed consolidated balance sheets 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 update on January 1, 2020, which did not result in a material impact to the condensed consolidated financial statements.

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, 2020.

2.   REVENUE RECOGNITION

The Company’s main types of revenue contracts are:

Transaction 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 discounts, however, as all tiered discounts are calculated monthly, the actual discount is recorded on a monthly basis. Transaction fees, as well as any tiered volume discounts, are calculated and billed monthly in accordance with the Company’s published fee schedules. Transaction fees are recognized across all segments.
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 U.S. Equities and Options segments. Proprietary market data fees are recognized across all segments.
Regulatory fees - There are two 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 charged to customers are based on the fee set by the SEC per notional value of the transaction executed on the Company’s U.S. securities markets. These fees are calculated and billed monthly and are recognized in the U.S. 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, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s websites.

14

All revenue recognized in the condensed consolidated statements of income is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line and segment (in millions):

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

$