CME GROUP INC. 
The following discussion is provided as a supplement to, and should be read in conjunction with, the accompanying unaudited consolidated financial statements and notes in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2020 . References in this discussion and analysis to "we" and "our" are toCME Group Inc. (CME Group ) and its consolidated subsidiaries, collectively. References to "exchange" are toChicago Mercantile Exchange Inc. (CME), theBoard of Trade of theCity of Chicago, Inc. (CBOT),New York Mercantile Exchange, Inc. (NYMEX), andCommodity Exchange, Inc. (COMEX), collectively, unless otherwise noted. RESULTS OF OPERATIONS Financial Highlights The following summarizes significant changes in our financial performance for the periods presented. Quarter Ended March 31, (dollars in millions, except per share data) 2021 2020 Change Total revenues$ 1,253.3 $ 1,522.1 (18) % Total expenses 528.2 562.2 (6) Operating margin 57.9 % 63.1 % Non-operating income (expense)$ 27.2 $ 29.4 (7) Effective tax rate 23.6 % 22.5 % Net income attributable to CME Group$ 574.4 $ 766.2 (25) Diluted earnings per common share attributable to CME Group 1.60 2.14 (25) Cash flows from operating activities 602.7 757.1 (20) Revenues Quarter Ended March 31, (dollars in millions) 2021 2020 Change Clearing and transaction fees$ 1,007.0 $ 1,278.8 (21) % Market data and information services 144.2 131.5 10 Other 102.1 111.8 (9) Total Revenues$ 1,253.3 $ 1,522.1 (18) Clearing and Transaction Fees Futures and Options Contracts The following table summarizes our total contract volume, revenue and average rate per contract for futures and options. Total contract volume includes contracts that are traded on our exchange and cleared through our clearing house and certain cleared-only contracts. Volume is measured in round turns, which is considered a completed transaction that involves a purchase and an offsetting sale of a contract. Average rate per contract is determined by dividing total clearing and transaction fees by total contract volume. Contract volume and average rate per contract disclosures exclude trading volume for the cash markets business and interest rate swaps volume. Quarter Ended March 31, 2021 2020 Change Total contract volume (in millions) 1,331.5 1,674.8 (21) % Clearing and transaction fees (in millions)$ 875.6 $ 1,133.0 (23) Average rate per contract$ 0.658 $ 0.676 (3) We estimate the following net changes in clearing and transaction fees based on a change in total contract volume and a change in average rate per contract for futures and options during the first quarter of 2021 when compared with the same period in 2020. 22 -------------------------------------------------------------------------------- Table of Contents (in millions) Quarter
Ended
Decrease due to change in total contract volume $
(225.9)
Decrease due to change in average rate per contract
(31.5)
Net decrease in clearing and transaction fees $
(257.4)
Average rate per contract is impacted by our rate structure, including
volume-based incentives; product mix; trading venue, and the percentage of
volume executed by customers who are members compared with non-member customers.
Due to the relationship between average rate per contract and contract volume,
the change in clearing and transaction fees attributable to changes in each is
only an approximation.
Contract Volume
The following table summarizes average daily contract volume. Contract volume
can be influenced by many factors, including political and economic conditions,
the regulatory environment and market competition.
Quarter Ended
March 31,
(amounts in thousands) 2021 2020 Change
Average Daily Volume by Product Line:
Interest rates 10,349 13,813 (25) %
Equity indexes 6,117 6,498 (6)
Foreign exchange 852 1,079 (21)
Agricultural commodities 1,471 1,506 (2)
Energy 2,363 3,228 (27)
Metals 675 889 (24)
Aggregate average daily volume 21,827 27,013 (19)
Average Daily Volume by Venue:
CME Globex 20,436 24,582 (17)
Open outcry 678 1,281 (47)
Privately negotiated 713 1,150 (38)
Aggregate average daily volume 21,827 27,013 (19)
Electronic Volume as a Percentage of Total Volume 94 % 91 %
Overall market volatility declined throughout the first quarter of 2021
following very high volatility in the first quarter of 2020. During the first
quarter of 2020, the Federal Reserve made the unexpected decision to lower the
federal funds rate due to the economic concerns from the COVID-19 pandemic and
announced their intent not to raise them for the foreseeable future. This
resulted in significant volatility within the financial and equity markets in
the first quarter of 2020 which subsided by the end of 2020. In addition, lower
producer price competition within the oil markets combined with lower energy
demands during the COVID-19 pandemic resulted in lower market volatility within
the energy market during the first quarter of 2021.
Following the Illinois stay at home orders in March 2020 , we closed the trading
floor in Chicago . We began a limited re-opening of the trading floor in the
third quarter of 2020. In May 2021 , we announced that only the Eurodollar
options pit will remain open. We will not reopen the remaining trading floor
pits.
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Interest Rate Products
The following table summarizes average daily contract volume for our key
interest rate products. Eurodollar Front 8 futures include contracts expiring in
two years or less. Eurodollar Back 32 futures include contracts with expirations
after two years through ten years.
Quarter Ended
March 31,
(amounts in thousands) 2021 2020 Change
Eurodollar futures and options:
Front 8 futures 1,262 2,596 (51) %
Back 32 futures 1,414 892 58
Options 1,106 2,384 (54)
U.S. Treasury futures and options:
10-Year 2,820 3,191 (12)
5-Year 1,463 1,699 (14)
Treasury Bond 658 638 3
2-Year 502 945 (47)
Federal Funds futures and options 100 501 (80)
In the first quarter 2021, overall interest rate contract volume decreased when compared with the same period in 2020, which we believe resulted from low interest rate volatility. Interest rate volatility decreased following theFederal Reserve's decision to cut interest rates to near zero in early 2020 and its indication that it would not raise interest rates in the foreseeable future in response to the economic impact of the COVID-19 pandemic. The decrease in volume was partially offset by an increase in Back 32 futures volume, which we believe resulted from market participants' expectations for future increases in interest rates within the next few years. Equity Index Products The following table summarizes average daily contract volume for our key equity index products. Quarter Ended March 31, (amounts in thousands) 2021 2020 Change E-mini S&P 500 futures and options 3,485 4,251 (18) % E-mini NASDAQ 100 futures and options 1,724 1,293 33 E-mini Russell 2000 futures and options
416 310 34
Equity index contract volume decreased in the first quarter of 2021 when
compared with the same period in 2020. Volatility within the broad-based
indexes, including the S&P 500, subsided in the first quarter of 2021 following
significant equity market volatility in early 2020 resulting from uncertainty
surrounding the economic impact of governmental and business actions to combat
the COVID-19 pandemic. However, there was an increase in volatility within the
narrow-based indexes, which experienced a market repricing in the first quarter
of 2021. We believe this increase in volatility contributed to an increase in
E-mini NASDAQ 100 and E-mini Russell 2000 contracts. Average daily contract
volume in the first quarter 2021 also included Micro-E-mini equity index
contract volume of approximately 2.5 million compared to approximately 1.4
million in 2020. Micro-E-mini equity index contracts have a notional size of
one-tenth of the traditional E-mini contracts.
Foreign Exchange Products
The following table summarizes average daily contract volume for our key foreign
exchange products.
Quarter Ended
March 31,
(amounts in thousands) 2021 2020 Change
Euro 229 285 (20) %
Australian dollar 120 131 (9)
Japanese yen 112 198 (44)
British Pound 100 133 (25)
In the first quarter of 2021, foreign exchange contract volume decreased when
compared with the same period in 2020. Market volatility subsided following very
high foreign exchange volatility in the first quarter of 2020 caused by
significant uncertainty
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surrounding the economic impacts of the governmental and business actions to
combat the COVID-19 pandemic. We believe these factors led to the decrease in
foreign exchange contract volume.
Agricultural Commodity Products
The following table summarizes average daily contract volume for our key
agricultural commodity products.
Quarter Ended
March 31,
(amounts in thousands) 2021 2020 Change
Corn 511 436 17 %
Soybean 328 289 14
Wheat 197 251 (22)
Overall commodity contract volume remained relatively flat in the first quarter
of 2021 compared with the same period in 2020. We believe the increase in corn
and soybean volume was the result of an increase in demand in commodities from
China . The decrease in wheat volume was largely due to low price volatility.
Energy Products
The following table summarizes average daily contract volume for our key energy
products.
Quarter Ended
March 31,
(amounts in thousands) 2021 2020 Change
WTI crude oil 1,265 1,792 (29) %
Natural gas 569 742 (23)
Refined products 382 497 (23)
Overall energy contract volume decreased in the first quarter when compared with
the same period in 2020, which we believe was largely due to a decrease in price
volatility. The crude oil market remains less volatile as the market continues
to rebalance from a reduction in demand caused by the COVID-19 pandemic.
Metal Products
The following table summarizes average daily volume for our key metal products.
Quarter Ended
March 31,
(amounts in thousands) 2021 2020 Change
Gold 404 608 (34) %
Silver 128 125 2
Copper 120 121 (1)
In the first quarter 2021, metal contract volume decreased when compared with
the same period in 2020. The decrease in gold volume can be attributed to lower
overall market volatility. In early 2020, investors were using gold and other
precious metals as safe-haven investments in the first quarter of 2020 as a
result of uncertainty within other markets caused by the COVID-19 pandemic.
Average Rate per Contract
The average rate per contract decreased in the first quarter 2021 when compared
with the same period in 2020. The decrease was largely due to the increase in
the micro-E-mini equity index contract volume, which have a lower average rate
per contract compared with a standard E-mini contract. Micro-E-mini equity index
contracts have a notional size of one-tenth of the traditional E-mini contracts.
This decrease was partially offset by the rate impact of higher non-member
volume as a percentage of total volume.
25-------------------------------------------------------------------------------- Table of Contents Cash Markets Business Total clearing and transaction fees revenues in the first quarter 2021 include$115.1 million of transaction fees attributable to the cash markets business compared with$124.4 million in the first quarter of 2020. This revenue primarily includesBrokerTec Americas LLC's fixed income volume and EBS's foreign exchange volume. Quarter Ended March 31, (amounts in millions) 2021 2020 Change BrokerTec U.S.'s fixed income transaction fees$ 45.5 $ 50.3 (10) % EBS's foreign exchange transaction fees 45.3 52.5 (14) The related average daily notional value for the first quarter of 2021 were as follows: Quarter Ended March 31, (amounts in billions) 2021 2020 Change U.S. Treasury$ 136.0 $ 192.8 (29) % European Repo (in euros) 287.3 262.6 9 Spot FX 72.7 97.9 (26) Overall average daily notional value for the cash markets business decreased in the first quarter 2021 when compared with the same period in 2020. The decrease in trading is largely due to lower volatility as the first quarter of 2020 saw high volatility as a result of the uncertainty surrounding the COVID-19 pandemic. In addition, market participants' expectation of potentially low interest rates for an extended period of time contributed to lower volumes in the first quarter of 2021. Concentration of Revenue We bill a substantial portion of our clearing and transaction fees directly to our clearing firms. The majority of clearing and transaction fees received from clearing firms represent charges for trades executed and cleared on behalf of their customers. One individual firm represented approximately 11% of our clearing and transaction fees in the first quarter of 2021. Should a clearing firm withdraw, we believe that the customer portion of the firm's trading activity would likely transfer to another clearing firm of the exchange. Therefore, we do not believe we are exposed to significant risk from the ongoing loss of revenue received from or through a particular clearing firm. Other Sources of Revenue During the first quarter of 2021, overall market data and information services revenue increased when compared with the same period in 2020 largely due to price increases for certain products. The two largest resellers of our market data represented approximately 33% of our market data and information services revenue in the first quarter of 2021. Despite this concentration, we consider exposure to significant risk of revenue loss to be minimal. In the event that one of these vendors no longer subscribes to our market data, we believe the majority of that vendor's customers would likely subscribe to our market data through another reseller. Additionally, several of our largest institutional customers that utilize services from our two largest resellers report usage and remit payment of their fees directly to us. In the first quarter of 2021, the decrease in other revenue when compared with the same period in 2020 was largely due to a decrease in processing services revenue and custody fees. 26
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Expenses
Quarter Ended
March 31,
(dollars in millions) 2021 2020 Change
Compensation and benefits $ 225.0 $ 207.5 8 %
Technology 48.2 47.7 1
Professional fees and outside services 37.4 41.7 (10)
Amortization of purchased intangibles 60.6 77.3 (22)
Depreciation and amortization 37.6 35.3 6
Licensing and other fee agreements 64.7 73.9 (12)
Other 54.7 78.8 (31)
Total Expenses $ 528.2 $ 562.2 (6)
Operating expenses decreased by $34.0 million in the first quarter of 2021 when
compared with the same period in 2020. The following table shows the estimated
impacts of key factors resulting in the change in operating expenses:
Quarter Ended,
March 31, 2021
Change as a
Amount of Percentage of
(dollars in millions) Change Total Expenses
Intangible and fixed asset impairments $ (22.8) (4) %
Amortization of purchased intangibles (16.7) (3)
Licensing and other fee agreements (9.2) (2)
Bonus expense (8.7) (1)
Employee severance and restructuring 10.8 2
Non-qualified deferred compensation plans 12.0 2
Other expenses, net 0.6 -
Total decrease $ (34.0) (6) %
Decreases in operating expenses in the first quarter of 2021 when compared with
the same period in 2020 were as follows:
•In the first quarter of 2020, we recognized higher impairment charges on
certain intangibles and fixed assets due to the disposal of various businesses.
•Amortization of purchased intangibles was lower during the first quarter of
2021, as intangible assets related to CME Group's optimization business were
classified as held for sale following approval of the IHS Markit joint venture
by the company's Board of Directors. Amortization is no longer taken on
intangible assets once they are classified as held for sale.
•A decrease in licensing and other fee agreements expense was due to lower
volumes for certain equity products in the first quarter of 2021 compared to the
same period in 2020.
•Bonus expense decreased due to performance relative to our 2021 cash earnings
target when compared with 2020 performance relative to our 2020 cash earnings
target.
Increases in operating expenses in first quarter of 2021 when compared with the
same period in 2020 were as follows:
•An increase in our non-qualified deferred compensation liability during the
first quarter of 2021, the impact of which does not affect net income because of
an equal and offsetting change in investment income, contributed to an increase
in compensation and benefits expense.
•Employee severance cost was higher during the first quarter of 2021 due to a
higher reduction in workforce compared to the same period in 2020.
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Non-Operating Income (Expense)
Quarter Ended
March 31,
(dollars in millions) 2021 2020 Change
Investment income $ 30.9 $ 95.9 (68) %
Interest and other borrowing costs (41.5) (40.9) 1
Equity in net earnings (losses) of unconsolidated subsidiaries 56.2 51.2 10
Other non-operating income (expense) (18.4) (76.8) (76)
Total Non-Operating $ 27.2 $ 29.4 (7)
Investment income. Investment income decreased in the first quarter of 2021 when
compared with the same period in 2020, largely due to a decrease in earnings
from cash performance bond and guaranty fund contributions that are reinvested.
The decrease in earnings resulted from lower rates of interest earned in the
cash account at the Federal Reserve Bank of Chicago following significant
interest rate cuts in early 2020 by the Federal Reserve despite an increase in
average reinvestment balance.
Equity in net earnings (losses) of unconsolidated subsidiaries. In the first
quarter of 2021 when compared with the same period of 2020, higher income
generated from our S&P/Dow Jones Indices LLC (S&P/DJI) business venture
contributed to an increase in equity in net earnings (losses) of unconsolidated
subsidiaries.
Other income (expense). Other expenses decreased in the first quarter of 2021
when compared with the same period in 2020. We recognized lower expenses during
the first quarter of 2021 related to a reduction in the distribution of interest
earned on performance bond collateral reinvestments to the clearing firms due to
lower interest income earned on our reinvestment.
Income Tax Provision
The following table summarizes the effective tax rates for the periods
presented:
2021 2020
Quarter ended March 31 23.6 % 22.5 %
The overall effective tax rate increased in the first quarter of 2021 when
compared with the same period in 2020. The effective tax rate was higher in the
first quarter of 2021 due to a benefit recognized in the first quarter of 2020
resulting from the settlement of various tax audits.
Liquidity and Capital Resources
Sources and Uses of Cash. Net cash provided by operating activities decreased in
the first quarter of 2021 when compared with the same period in 2020 largely due
to a decrease in trading volume. Net cash used in investing activities was lower
in the first quarter of 2021 compared with the same period in 2020 largely due
to a decrease in purchases of property. Cash used in financing activities was
lower in the first quarter of 2021 when compared with the same period in 2020
due to net repayments of commercial paper made in the first quarter of 2020.
Debt Instruments. The following table summarizes our debt outstanding at
March 31, 2021 :
(in millions) Par Value
Fixed rate notes due
€ 15.0
Fixed rate notes due
$ 500.0
Fixed rate notes due
$ 700.0
_______________
(1)We maintained a forward-starting interest rate swap agreement that modified
the interest obligation associated with these notes so that the interest payable
on the notes effectively became fixed at a rate of 3.32%.
(2)We maintained a forward-starting interest rate swap agreement that modified
the interest obligation associated with these notes so that the interest payable
on the notes effectively became fixed at a rate of 3.11%.
(3)We maintained a forward-starting interest rate swap agreement that modified
the interest obligation associated with these notes so that the interest payable
effectively became fixed at a rate of 4.73%.
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We maintain a $2.4 billion multi-currency revolving senior credit facility with
various financial institutions, which matures in November 2022 . The proceeds
from this facility can be used for general corporate purposes, which includes
providing liquidity for our clearing house in certain circumstances at CME
Group's discretion and, if necessary, for maturities of commercial paper. As
long as we are not in default under this facility, we have the option to
increase it up to $3.0 billion with the consent of the agent and lenders
providing the additional funds. This facility is voluntarily pre-payable from
time to time without premium or penalty. Under this facility, we are required to
remain in compliance with a consolidated net worth test, which is defined as our
consolidated shareholders' equity at September 30, 2017 , giving effect to share
repurchases made and special dividends paid during the term of the agreements
(and in no event greater than $2.0 billion in aggregate), multiplied by 0.65. We
currently do not have any borrowings outstanding under this facility, but any
commercial paper balance if or when outstanding can be backstopped against this
facility.
We maintain a 364-day multi-currency revolving secured credit facility with a
consortium of domestic and international banks to be used in certain situations
by the clearing house. The facility provides for borrowings of up to $7.0
billion . We may use the proceeds to provide temporary liquidity in the unlikely
event a clearing firm fails to promptly discharge an obligation to CME Clearing,
in the event of a liquidity constraint or default by a depositary (custodian for
our collateral), in the event of a temporary disruption with the domestic
payments system that would delay payment of settlement variation between us and
our clearing firms, or in other cases as provided by the CME rulebook. Clearing
firm guaranty fund contributions received in the form of cash or U.S. Treasury
securities as well as the performance bond assets (pursuant to the CME rulebook)
can be used to collateralize the facility. At March 31, 2021 , guaranty fund
contributions available to collateralize the facility totaled $8.5 billion . We
have the option to request an increase in the line from $7.0 billion to $10.0
billion . Our 364-day facility contains a requirement that CME remain in
compliance with a consolidated tangible net worth test, defined as CME
consolidated shareholder's equity less intangible assets (as defined in the
agreement), of not less than $800.0 million . We currently do not have any
borrowings outstanding under this facility.
The indentures governing our fixed rate notes, our $2.4 billion multi-currency
revolving senior credit facility and our 364-day multi-currency revolving
secured credit facility for $7.0 billion do not contain specific covenants that
restrict the ability to pay dividends. These documents, however, do contain
other customary financial and operating covenants that place restrictions on the
operations of the company that could indirectly affect the ability to pay
dividends.
At March 31, 2021 , we have excess borrowing capacity for general corporate
purposes of approximately $2.4 billion under our multi-currency revolving senior
credit facility.
At March 31, 2021 , we were in compliance with the various financial covenant
requirements of all our debt facilities.
CME Group , as a holding company, has no operations of its own. Instead, it
relies on dividends declared and paid to it by its subsidiaries in order to
provide the funds which it uses to pay dividends to its shareholders.
To satisfy our performance bond obligation with Singapore Exchange Limited, we
may pledge irrevocable standby letters of credit. At March 31, 2021 , the letters
of credit totaled $310.0 million . We also maintain a $350.0 million line of
credit to meet our obligations under this agreement.
The following table summarizes our credit ratings at March 31, 2021 :
Short-Term Long-Term
Rating Agency Debt Rating Debt Rating Outlook
Standard & Poor's A1+ AA- Stable
Moody's Investors Service P1 Aa3 Stable
Given our cash flow generation, our ability to pay down debt levels and our
ability to refinance existing debt facilities if necessary, we expect to
maintain an investment grade rating. If our ratings are downgraded below
investment grade due to a change of control, we are required to make an offer to
repurchase our fixed rate notes at a price equal to 101% of the principal
amount, plus accrued and unpaid interest.
Liquidity and Cash Management. Cash and cash equivalents totaled $0.9 billion
and $1.6 billion at March 31, 2021 and December 31, 2020 , respectively. The
balance retained in cash and cash equivalents is a function of anticipated or
possible short-term cash needs, prevailing interest rates, our corporate
investment policy and alternative investment choices. A majority of our cash and
cash equivalents balance is invested in money market mutual funds that invest
only in U.S. Treasury securities, U.S. government agency securities and U.S.
Treasury security reverse repurchase agreements and short-term bank deposits.
Our exposure to credit and liquidity risk is minimal given the nature of the
investments. Cash that is not available for general corporate purposes because
of regulatory requirements or other restrictions is classified as restricted
cash and is included in other current assets or other assets in the consolidated
balance sheets.
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Table of Contents OnMay 4, 2021 ,CME Group's board of directors declared a regular quarterly dividend of$0.90 per share payable onJune 25, 2021 to the shareholders of record as ofJune 10, 2021 . Regulatory Requirements. CME is regulated by the CFTC as aU.S. Derivatives Clearing Organization (DCO). DCOs are required to maintain capital, as defined by the CFTC, in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities, or a line of credit at least equal to six months of projected operating expenses. CME was designated by theFinancial Stability Oversight Council as a systemically important financial market utility under Title VIII of Dodd-Frank. As a result, CME must comply with CFTC regulations applicable to a systemically important DCO for financial resources and liquidity resources. CME is in compliance with all DCO financial requirements. CME, CBOT, NYMEX and COMEX are regulated by the CFTC as Designated Contract Markets (DCM). DCMs are required to maintain capital, as defined by the CFTC, in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities or a line of credit at least equal to six months of projected operating expenses. Our DCMs are in compliance with all DCM financial requirements.BrokerTec Americas LLC is required to maintain sufficient net capital under Securities Exchange Act Rule 15c3-1 (the Net Capital Rule). The Net Capital Rule focuses on liquidity and is designed to protect securities customers, counterparties, and creditors by requiring that broker-dealers have sufficient liquid resources on hand at all times to satisfy claims promptly. Rule 15c3-3, or the customer protection rule, which complements rule 15c3-1, is designed to ensure that customer property (securities and funds) in the custody of broker-dealers is adequately safeguarded. By law, both of these rules apply to the activities of registered broker-dealers, but not to unregistered affiliates. The firm began operating as a (k)(2)(i) broker dealer inNovember 2017 following notification to theFinancial Industry Regulatory Authority and theSEC . A company operating under the (k)(2)(i) exemption is not required to lock up customer funds as would otherwise be required under Rule 15c3-3 of the Securities Exchange Act.
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