REVENUE RECOGNITION

3 Months Ended

Mar. 31, 2020

REVENUE RECOGNITION

REVENUE RECOGNITION

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.

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	$	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

Contract liabilities as of March 31, 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 Additions		Revenue Recognition		Balance at March 31, 2020
Liquidity provider sliding scale (1)	$	—	$	9.6	$	(2.4)	$	7.2
Other, net		4.5		13.2		(7.6)		10.1
Total deferred revenue	$	4.5	$	22.8	$	(10.0)	$	17.3

(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.