INTERCONTINENTAL EXCHANGE, INC.
In this Quarterly Report on Form 10-Q, unless otherwise indicated, the terms
"Intercontinental Exchange," "ICE," "we," "us," "our," "our company" and "our
business" refer to Intercontinental Exchange, Inc., together with its
consolidated subsidiaries. References to "ICE Products" mean products listed on
one or more of our markets. All references to "options" or "options contracts"
in the context of our futures products refer to options on futures contracts.
Solely for convenience, references in this Quarterly Report to any trademarks,
service marks and trade names owned by ICE are listed without the ®, ™ and ©
symbols, but we will assert, to the fullest extent under applicable law, our
rights to these trademarks, service marks and trade names.
We also include references to third-party trademarks, trade names and service
marks in this Quarterly Report. Except as otherwise expressly noted, our use or
display of any such trademarks, trade names or service marks is not an
endorsement or sponsorship and does not indicate any relationship between us and
the parties who own such marks and names.
The following discussion should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this Quarterly
Report. Due to rounding, figures in tables may not sum exactly.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the sections entitled "Notes to
Consolidated Financial Statements," "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contains "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Any statements contained herein that are not
statements of historical fact may be forward-looking statements.
These forward-looking statements relate to future events or our future financial
performance and are based on our present beliefs and assumptions as well as the
information currently available to us. They involve known and unknown risks,
uncertainties and other factors that may cause our results, levels of activity,
performance, cash flows, financial position or achievements to differ materially
from those expressed or implied by these statements.
Forward-looking statements may be introduced by or contain terminology such as
"may," "will," "should," "could," "would," "targets," "goal," "expect,"
"intend," "plan," "anticipate," "believe," "estimate," "predict," "potential,"
"continue," or the antonyms of these terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, cash flows, financial position or achievements.
Accordingly, we caution you not to place undue reliance on any forward-looking
statements we may make.
Factors that may affect our performance and the accuracy of any forward-looking
statements include, but are not limited to, those listed below:
•conditions in global financial markets and domestic and international economic,
political and social conditions;
•the impacts of the COVID-19 pandemic on our business, results of operations and
financial condition as well as the broader business environment;
•the impact of the introduction of or any changes in laws, regulations, rules or
government policies with respect to financial markets, climate change, increased
regulatory scrutiny or enforcement actions and our ability to comply with these
requirements;
•volatility in commodity prices, equity prices and price volatility of financial
benchmarks and instruments such as interest rates, credit spreads, equity
indices, foreign exchange rates, and mortgage origination and refinancing
trends;
•the business environment in which we operate and trends in our industry,
including trading volumes, clearing, data services, mortgage lending volumes,
fees, changing regulations, competition and consolidation;
•our ability to minimize the risks associated with operating clearing houses in
multiple jurisdictions;
•our equity and options exchanges' compliance with their respective regulatory
and oversight responsibilities;
•the resilience of our electronic platforms and soundness of our business
continuity and disaster recovery plans;
•changes in renewal rates of subscription-based data revenues;
•our ability to execute our growth strategy, identify and effectively pursue,
implement and integrate acquisitions and strategic alliances and realize the
synergies and benefits of such transactions within the expected time frame;
•the performance and reliability of our trading, clearing and mortgage
technologies and those of third-party service providers;
•our ability to keep pace with technological developments and client
preferences;
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•our ability to ensure that the technology we utilize is not vulnerable to
cyber-attacks, hacking and other cybersecurity risks or other disruptive events
or to minimize the impact of any such events;
•our ability to keep information and data relating to the customers of the users
of the software and services provided by our ICE Mortgage Technology business
confidential;
•our ability to identify trends and adjust our business to benefit from such
trends, including trends in the U.S. mortgage industry such as interest rates,
new home purchases, refinancing activity, and home builder and buyer sentiment,
among others;
•our ability to evolve our benchmarks and indices in a manner that maintains or
enhances their reliability and relevance;
•the accuracy of our cost and other financial estimates and our belief that cash
flows from operations will be sufficient to service our debt and to fund our
operational and capital expenditure needs;
•our ability to incur additional debt;
•our ability to maintain existing market participants and data and mortgage
technology customers, and to attract new ones;
•our ability to offer additional products and services, leverage our risk
management capabilities and enhance our technology in a timely and
cost-effective fashion;
•our ability to attract and retain key talent;
•our ability to protect our intellectual property rights and to operate our
business without violating the intellectual property rights of others;
•potential adverse results of threatened or pending litigation and regulatory
actions and proceedings;
•our ability to realize the expected benefits of our acquisition of Ellie Mae
and our majority investment in Bakkt, which could result in additional
unanticipated costs and risks; and
•our ability to detect illegal activity such as fraud, money laundering, tax
evasion and ransomware scams through digital currency transactions that are
easily exploited.
These risks and other factors include those set forth in Part 1, Item 1(A) under
the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2019 , or our 2019 Form 10-K, as filed with the SEC on February 6,
2020 and our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2020 and June 30, 2020 , as filed with the SEC on April 30, 2020 and July 30,
2020 , respectively. Due to the uncertain nature of these factors, management
cannot assess the impact of each factor on the business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement
is made, and we undertake no obligation to update any of these statements to
reflect events or circumstances occurring after the date of this Quarterly
Report. New factors may emerge and it is not possible to predict all factors
that may affect our business and prospects.
Overview
We are a leading provider of marketplace infrastructure, data services and
technology solutions to a broad range of customers including financial
institutions, corporations and government entities. Through our markets,
clearinghouses, listings, data and technology offerings, we provide
comprehensive workflow solutions that enable our customers to manage risk, raise
capital and operate their businesses more efficiently. We operate regulated
marketplaces for listing, trading and clearing of a broad array of derivatives
contracts and securities across major asset classes including: energy and
agricultural commodities, metals, interest rates, equities, exchange-traded
funds, or ETFs, credit derivatives, digital assets, bonds and currencies. In
addition, we offer comprehensive data services to support the trading,
investment, risk management and connectivity needs of customers around the world
and across asset classes. We also offer technology solutions that support the
U.S. residential mortgage industry from application and loan origination,
through to final settlement.
We operate marketplaces and provide data services in the U.S. , U.K. , EU, Canada
and Singapore , and offer technology and data solutions to the U.S. mortgage
industry. Our business is conducted as two reportable business segments, our
Trading and Clearing segment and our Data and Listings segment, and the majority
of our identifiable assets are located in the U.S. and U.K.
Recent Developments
COVID-19
The coronavirus (COVID-19) pandemic has created economic and financial
disruptions globally and has led governmental authorities to take unprecedented
measures to mitigate the spread of the disease, including travel bans, border
closings,
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business closures, quarantines and shelter-in-place orders, and to take actions
designed to stabilize markets and promote economic growth.
From an operational perspective, our businesses, including our exchanges,
clearing houses, listing venues, data services businesses, and mortgage
platforms, have remained open and we do not have any plans to close any of our
business operations as a result of the COVID-19 pandemic. However, due to the
COVID-19 pandemic, we have taken preventative measures and implemented
contingency plans, and currently most of our employees are working remotely. In
response to government mandates, we closed all of our office facilities between
early March and late April 2020 , with only our operationally essential employees
working on-site at our facilities for business continuity purposes. As various
governments began easing orders requiring office closures in late April, we
began a phased re-opening of certain of our office facilities allowing a limited
number of operationally non-essential workers to also work on-site. In
particular, NYSE, one of our subsidiaries, has partially re-opened its trading
floors since initiating fully electronic trading for its exchanges and
temporarily closing all trading floors in March 2020 . Those employees working
on-site are utilizing an alternating framework to allow for social distancing.
These measures are in compliance, as necessary, with local government mandates
and social distancing directives. We continue to monitor local government
mandates in determining our office re-openings, re-closures and work-related
travel.
Global health concerns relating to COVID-19 and preventive measures taken to
reduce its spread have created significant volatility in the financial markets,
which has resulted in higher trading volumes for some of our products and
increased demand for our services.
The extent of the impact of the pandemic on our business will depend largely on
future developments, including the duration and spread of the outbreak, its
severity and the actions taken to contain the disease or treat its impact. We
continue to monitor this dynamic situation, including guidance and regulations
issued by U.S. and other governmental authorities. In light of the rapidly
evolving nature of the COVID-19 outbreak, we are not able at this time to
estimate the ultimate effect of the pandemic on our business, results of
operations or financial condition in the future.
Acquisition of Ellie Mae
On September 4, 2020 , we acquired Ellie Mae for aggregate consideration of $11.4
billion from private equity firm Thoma Bravo. Ellie Mae is a cloud-based
technology solution provider for the mortgage finance industry. Through its
digital lending platform, Ellie Mae provides technology solutions to
participants in the mortgage supply chain, including over 3,000 customers and
thousands of partners and investors who participate on its open network.
Originators rely on Ellie Mae to securely manage the exchange of data across the
mortgage ecosystem to enable the origination of mortgages while adhering to
various local, state and federal compliance requirements. Ellie Mae is a part of
ICE Mortgage Technology and is included in our Trading and Clearing segment as
of September 30, 2020 . From the acquisition date through September 30, 2020 ,
Ellie Mae revenues of $75 million , which are included in our transaction and
clearing revenues, and operating expenses of $56 million were recorded for the
nine and three months ended September 30, 2020 .
The purchase price consisted of $9.5 billion in cash, as adjusted for $335
million of cash and cash equivalents held by Ellie Mae on the date of
acquisition, and $1.9 billion , or 18.4 million shares of our common stock, based
on our stock price on the acquisition date. ICE funded the cash portion of the
purchase price with net proceeds from our offering of new senior notes in August
2020 , together with the issuance of commercial paper and borrowings under a new
senior unsecured term loan facility.
Acquisition of Bridge2 Solutions
On February 21, 2020 , we acquired Bridge2 Solutions, a leading provider of
loyalty solutions for merchants and consumers. Bridge2 Solutions enables some of
the world's leading brands to engage customers and drive loyalty. It powers
incentive and employee perk programs for companies across a wide spectrum of
industries.
Regulation
Our activities and the markets in which we operate are subject to regulations
that impact us as well as our customers, and, in turn, meaningfully influence
our activities, the manner in which we operate and our strategy. We are
primarily subject to the jurisdiction of regulatory agencies in the U.S. , U.K. ,
EU, Canada , Singapore and Abu Dhabi Global Markets. Failure to satisfy
regulatory requirements can or may give rise to sanctions by the applicable
regulator.
Global policy makers have undertaken reviews of their existing legal framework
governing financial markets in connection with regulatory reform, and have
either passed new laws and regulations, or are in the process of debating and/or
enacting new laws and regulations that apply to our business and to our
customers' businesses. During most of 2020,
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global policy makers have been focused on the impact of and responses to the
COVID-19 pandemic. As a consequence, many regulatory initiatives have been
postponed. Legislative and regulatory actions may impact the way in which we or
our customers conduct business and may create uncertainty, which could affect
trading volumes or demand for market data. See Part 1, Item 1 "Business -
Regulation" and Part 1, Item 1(A) "Risk Factors" included in our 2019 Form 10-K
for a discussion of the primary regulations applicable to our business and
certain risks associated with those regulations.
The key areas in the evolving regulatory landscape that are likely to impact our
business are:
•Brexit timing and implications. On January 31, 2020 , the U.K. officially
withdrew from the EU. In connection with the U.K.'s withdrawal from the EU, the
U.K. and the EU entered into a withdrawal agreement, which, amongst other
things, includes a transitional period until December 31, 2020 , during which EU
law will continue to apply in and to the U.K.
•Continued access by EU market participants to U.K. CCPs and exchanges. Under
the terms of the withdrawal agreement, EU law will continue to apply in and to
the U.K. for a transitional period until December 31, 2020 . During such time, EU
market participants will be able to continue clearing through U.K. CCPs such as
ICE Clear Europe , and accessing U.K. trading venues, such as ICE Futures Europe .
The European Commission , or EC, adopted an 18-month temporary equivalence
decision for U.K. CCPs, which will apply beginning on January 1, 2021 . In
addition, ICE Clear Europe has been recognized by the European Securities and
Markets Authority, or ESMA, as a third country central counterparty in
accordance with the European Markets Infrastructure Regulation, or EMIR. This
recognition will take effect once the transition arrangement between the U.K.
and EU ends. Separately, ICE Futures Europe and ICE Endex will continue to be
able to permit access by EU and U.K. persons to transact on their platforms,
even in the absence of any trade agreement being entered into by the U.K. and EU
prior to the end of the transitional period and/or any trading venue equivalence
decisions by the Financial Conduct Authority , or FCA , or the EC. The lack of
equivalence decisions for trading venues, however, may result in increased costs
for certain EU and U.K. market participants which could impact trading on ICE
Futures Europe and ICE Endex. The impact to our business and corresponding
regulatory changes remain uncertain at this time. We are monitoring the impact
to our business as a result of these discussions and are pursuing avenues to
facilitate continued access for EU and U.K. customers to our services in the
event that the transition period ends without any equivalence determination for
trading venues being made.
•The regulatory structure applicable to non-EU clearing houses. On January 1,
2020 , EMIR 2.2 became effective, which revises the EU's current regulatory and
supervisory structure for EU and non-EU clearing houses. In September 2020 , the
delegated regulations on the criteria for determining whether a non-EU clearing
house is systemically important to the EU entered into force and, for those
non-EU clearing houses that are systemically important to the EU, ESMA will
assess whether compliance with the clearing house's home country regulation
satisfies compliance with EU requirements. ESMA has recognized ICE Clear Europe
as a third country CCP under EMIR and determined that it is a Tier 2 CCP on the
basis that it is systemically important to the financial stability of the EU or
one or more of its Member States. ESMA's continuing implementation of these
delegated regulations could impact one or more of our other non-EU clearing
houses.
•Requirement that European exchanges and CCPs offer non-discriminatory access.
The non-discriminatory access provisions of the Markets in Financial Instruments
Directive II, or MiFID II, would require our European exchanges and CCPs to
offer access to third parties on commercially reasonable terms. In addition,
MiFID II could require our European exchanges and CCPs to allow participants to
trade and/or clear at other venues, which may encourage competing venues to
offer lookalikes of our products. On July 3, 2020 , the application of these
non-discriminatory access requirements for exchange-traded derivatives was
postponed until July 3, 2021 .
•Market data requirements. Our U.K. and EU derivatives exchanges could be
impacted by changes to requirements related to the dissemination of market data.
In its December 2019 report to the EC, ESMA recommended against, among other
things, outright regulation of market data prices, however ESMA suggested that
users could gain transparency into how market data prices are set with the help
of new supervisory guidance and targeted changes to the MiFID II/Markets in
Financial Instruments Regulation text. The EC is considering ESMA's report and
is considering further legislative action in this area.
In June 2020 , NYSE, Nasdaq and Cboe Global Markets filed petitions for review of
the SIP Order with the U.S. Court of Appeals for the District of Columbia . In
August 2020 , the SEC adopted a change to Rule 608 that eliminates the provision
allowing market data fee changes proposed by the National Market System Plans,
or NMS Plans, to become immediately effective. Further, in August 2020 , the
exchanges and the Financial Industry Regulatory Authority , or FINRA , submitted
to the SEC a proposed new, single NMS Plan to replace the three existing NMS
Plans that govern the dissemination of real-time, consolidated equity market
data for NMS stocks, in accordance with an SEC order directing the exchanges and
FINRA to submit such a plan. This proposed new single NMS Plan would not replace
the current NMS Plans until it is published for comment and approved by the SEC .
Approval of the new SIP
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Plan by the SEC may affect NYSE's revenues from the sale of consolidated market
data since all the market data fees for consolidated market data would be
required to be re-filed with the SEC and would not be effective until approved.
•Position limits. The adoption and implementation of position limit rules in the
U.S. and the EU could have an impact on our commodities business if comparable
trading venues in foreign jurisdictions are not subject to equivalent rules.
Position limits became effective in the EU beginning January 2018 under MiFID II
and are relevant to the markets operated by ICE Futures Europe and ICE Endex. In
July 2020 , the EC published a legislative proposal for amendments to MiFID II
which narrowed the scope of the position limits regime by restricting the scope
of the position limits to critical or significant contracts. In October 2020 ,
the CFTC finalized its position limit rulemaking which replaced the CFTC's prior
Dodd-Frank position limit efforts. There is potential for further divergence
between MiFID II and U.S. position limit rules if the EU does not make changes
to MiFID II or makes changes inconsistent with U.S. regulations.
•Benchmarks Regulation. In July 2020 , the EC published a legislative proposal
reviewing the EU Benchmarks Regulation, or BMR, and included a proposal to
provide the EC with the power to designate a replacement benchmark for contracts
referencing a benchmark in cessation. In June 2020 , the U.K. Government
announced its intention to amend the U.K.'s regulatory framework for benchmarks
to ensure the FCA has the power to manage and direct any wind-down period prior
to a LIBOR cessation, including powers to direct a methodology change for a
critical benchmark. Increasing the powers of the FCA to change the methodology
of a benchmark or the underlying market represented by a benchmark, such as
LIBOR, could result in increased risks to the administrator and users of such
benchmark, such as the operator of a derivatives market.
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Consolidated Financial Highlights
The following summarizes our results and significant changes in our consolidated
financial performance for the periods presented (dollars in millions, except per
share amounts and YTD represents the nine-month periods ended September 30th ):
[[Image Removed: ice-20200930_g1.jpg]][[Image Removed: ice-20200930_g2.jpg]][[Image Removed: ice-20200930_g3.jpg]][[Image Removed: ice-20200930_g4.jpg]][[Image Removed: ice-20200930_g5.jpg]][[Image Removed: ice-20200930_g6.jpg]]
Nine Months Ended September 30, Three Months Ended September 30,
2020 2019 Change 2020 2019 Change
Revenues, less transaction-based
expenses $ 4,365 $ 3,904 12 % $ 1,411 $ 1,336 6 %
Operating expenses $ 2,112 $ 1,853 14 % $ 784 $ 630 25 %
Adjusted operating expenses(1) $ 1,783 $ 1,619 10 % $ 611 $ 551 11 %
Operating income $ 2,253 $ 2,051 10 % $ 627 $ 706 (11) %
Adjusted operating income(1) $ 2,582 $ 2,285 13% $ 800 $ 785 2 %
Operating margin 52 % 53 % (1 pt) 44 % 53 % (9 pts)
Adjusted operating margin(1) 59 % 59 % - 57 % 59 % (2 pts)
Other income (expense), net $ (161) $ (157) 2 % $ (44) $ (66) (34) %
Income tax expense $ 512 $ 387 32 % $ 189 $ 103 82 %
Effective tax rate 24 % 20 % 4 pts 32 % 16 % 16 pts
Net income attributable to ICE $ 1,563 $ 1,485 5 % $ 390 $ 529 (26) %
Adjusted net income attributable to
ICE(1) $ 1,861 $ 1,660 12 % $ 569 $ 599 (5) %
Diluted earnings per share attributable
to ICE common stockholders $ 2.83 $ 2.62 8 % $ 0.71 $ 0.94 (24) %
Adjusted diluted earnings per share
attributable to ICE common
stockholders(1) $ 3.37 $ 2.93 15 % $ 1.03 $ 1.06 (3) %
Cash flows from operating activities $ 1,815 $ 1,882 (4) %
(1) The adjusted figures exclude items that are not reflective of our ongoing
core operations and business performance. Adjusted net income attributable to
ICE and adjusted diluted earnings per share attributable to ICE common
stockholders are presented net of taxes. These adjusted numbers are not
calculated in accordance with U.S. GAAP. See "- Non-GAAP Financial Measures"
below.
•Revenues, less transaction-based expenses, increased $461 million and $75
million for the nine and three months ended September 30, 2020 , respectively,
from the comparable periods in 2019. See "-Trading and Clearing
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Segment" and "Data and Listings Segment" below for a discussion of the
significant changes in our revenues. The increase in revenues during the nine
and three months ended September 30, 2020 includes $2 million in unfavorable
foreign exchange effects and $8 million in favorable foreign exchange effects,
respectively, arising from fluctuations in the U.S. dollar from the comparable
periods in 2019. See Item 3 "Quantitative and Qualitative Disclosures About
Market Risk-Foreign Currency Exchange Rate Risk" below for additional
information on the impact of currency fluctuations.
•Operating expenses increased $259 million and $154 million for the nine and
three months ended September 30, 2020 , respectively, from the comparable periods
in 2019. See "-Consolidated Operating Expenses" below for a discussion of the
significant changes in our operating expenses. The increase in operating
expenses includes minimal foreign exchange effect during the nine months ended
September 30, 2020 and $4 million in unfavorable foreign exchange effects for
the three months ended September 30, 2020 arising from fluctuations in the U.S.
dollar from the comparable periods in 2019. See Item 3 "Quantitative and
Qualitative Disclosures About Market Risk-Foreign Currency Exchange Rate Risk"
below for additional information on the impact of currency fluctuations.
Variability in Quarterly Comparisons
Our business environment has been characterized by:
•globalization of marketplaces, customers and competitors;
•commodity, interest rate and financial markets uncertainty;
•growing demand for data to inform customers' risk management and investment
decisions;
•evolving, increasing and disparate regulation across multiple jurisdictions;
•price volatility increasing customers' demand for risk management services;
•increasing focus on capital and cost efficiencies;
•customers' preference to manage risk in markets demonstrating the greatest
depth of liquidity and product diversity;
•the evolution of existing products and new product innovation to serve emerging
customer needs and changing industry agreements;
•rising demand for speed, data, data capacity and connectivity by market
participants, necessitating increased investment in technology; and
•consolidation and increasing competition among global markets for trading,
clearing and listings.
For additional information regarding the factors that affect our results of
operations, see Item 1(A) "Risk Factors" included in our 2019 Form 10-K, and
Part II, Item 1(A) "Risk Factors" below.
Segment Results
Our business is conducted through two reportable business segments:
•Trading and Clearing, which comprises our transaction-based execution and
clearing businesses; and
•Data and Listings, which comprises our subscription-based data services and
securities listings businesses.
While revenues are recorded specifically in the segment in which they are earned
or to which they relate, a significant portion of our operating expenses are
not solely related to a specific segment because the expenses serve functions
that are necessary for the operation of both segments. We use a pro-rata revenue
approach as the allocation method for the expenses that do not relate solely to
one segment. Further, we did not allocate expenses to specific revenue streams
within these segments since such an allocation is not reasonably possible. Our
two segments do not engage in intersegment transactions.
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Trading and Clearing Segment
The following presents selected statements of income data for our Trading and
Clearing segment (dollars in millions and YTD represents the nine-month periods
ended September 30th ):
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(1) The adjusted numbers in the charts above are calculated by excluding items
that are not reflective of our cash operations and core business performance. As
a result, these adjusted numbers are not calculated in accordance with U.S.
GAAP. See "- Non-GAAP Financial Measures" below.
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Nine Months Ended September Three Months Ended September
30, 30,
2020 2019 Change 2020 2019 Change
Revenues:
Energy futures and options contracts
15 %$ 229 $ 265 (14) % Agricultural and metals futures and options contracts 197 194 1 54 60 (11) Financial futures and options contracts 275 252 9 76 91 (16) Cash equities and equity options 1,934 1,201 61 593 401 48 Fixed income and credit 424 268 59 191 101 89 OTC and other transactions 38 34 13 12 11 13 Transaction and clearing, net 3,726 2,698 38 1,155 929 24 Other revenues 224 194 15 75 67 12 Revenues 3,950 2,892 37 1,230 996 24 Transaction-based expenses 1,646 976 69 519 327 59 Revenues, less transaction-based expenses 2,304 1,916 20 711 669 6 Other operating expenses 691 554 25 243 195 25 Depreciation and amortization 217 177 22 87 60 43 Acquisition-related transaction and integration costs 90 1 n/a 76 - n/a Operating expenses 998 732 36 406 255 59 Operating income$ 1,306 $ 1,184 10 %$ 305 $ 414 (26) % Transaction and Clearing Revenues Our transaction and clearing revenues consist of fees collected from our derivatives, fixed income, cash equities and equity options trading, derivatives clearing and mortgage technology services. Because transaction and clearing revenues are generally assessed on a per-contract basis, revenues and profitability fluctuate with changes in contract volume and due to product mix. Rates per-contract, or RPC, are driven by the number of contracts or securities traded and the fees charged per contract, net of certain rebates. Our per-contract transaction and clearing revenues will depend upon many factors, including, but not limited to, market conditions, transaction and clearing volume, product mix, pricing, applicable revenue sharing and market making agreements, and new product introductions. For the nine months endedSeptember 30, 2020 and 2019, 19% and 20%, respectively, of our Trading and Clearing segment revenues, less transaction-based expenses, were billed in pounds sterling or euros and for the three months endedSeptember 30, 2020 and 2019, 17% and 19%, respectively, of our Trading and Clearing segment revenues, less transaction-based expenses, were billed in pounds sterling or euros. For the nine months endedSeptember 30, 2020 as compared to the same period in 2019, foreign currency fluctuations due to the strengthening of theU.S. dollar compared to the euro resulted in a decrease of$2 million to our Trading and Clearing segment revenues, less transaction-based expenses. For the three months endedSeptember 30, 2020 as compared to the same period in 2019, foreign currency fluctuations due to the weakening of theU.S. dollar compared to the pound sterling and euro resulted in an increase of$6 million to our Trading and Clearing segment revenues, less transaction-based expenses. See Item 3 "- Quantitative and Qualitative Disclosures About Market Risk -Foreign Currency Exchange Rate Risk" below for additional information on the impact of currency fluctuations. Our transaction and clearing revenues are presented net of rebates. We offer rebates in certain of our markets primarily to support market liquidity and trading volume by providing qualified participants in those markets a discount to the applicable commission rate. Such rebates are calculated based on volumes traded. We recorded rebates of$742 million and$653 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$217 million and$218 million for the three months endedSeptember 30, 2020 and 2019, respectively. The increase in rebates for the nine months endedSeptember 30, 2020 from the comparable period in 2019 was primarily due to the increase in volumes traded. Rebates were flat for the three months endedSeptember 30, 2020 from the comparable period in 2019. •Energy Futures and Options Contracts: Total energy volume increased 20% and revenues increased 15% for the nine months endedSeptember 30, 2020 from the comparable period in 2019 and volume decreased 8% and revenues decreased 14% for the three months endedSeptember 30, 2020 from the comparable period in 2019. -Total oil volume increased 16% for the nine months endedSeptember 30, 2020 from the comparable period in 2019 due to increased risk management activity driven by shifting supply/demand dynamics related to various geopolitical events and the emergence of COVID-19. Total oil volume decreased 15% for the three months endedSeptember 30, 2020 from the comparable period in 2019 as the third quarter of 2019 40 -------------------------------------------------------------------------------- benefited from a sharp increase in price volatility related to increased geopolitical tensions across theMiddle East . -Our global natural gas futures and options volume increased 29% and 8% for the nine and three months endedSeptember 30, 2020 , respectively. The volume increase in our North American natural gas products was primarily driven by shifting supply/demand dynamics as the price of West Texas Intermediate crude oil, the benchmark forU.S. crude oil, remained at relatively low levels leading to lower levels of shale production and thus, reduced supply ofU.S. natural gas. In addition, the strength in our European TTF gas volumes was driven by the continued emergence of TTF as not only the European benchmark, but also the emerging global benchmark, for natural gas as the commodity continues to globalize. •Agricultural and Metals Futures and Options Contracts: In our agricultural and metals futures and options markets total volume increased 1% for the nine months endedSeptember 30, 2020 and decreased 9% for the three months endedSeptember 30, 2020 from the comparable periods in 2019, and revenues increased 1% for the nine months endedSeptember 30, 2020 and decreased 11% for the three months endedSeptember 30, 2020 from the comparable periods in 2019. The overall increase in agricultural volumes for the nine months endedSeptember 30, 2020 was primarily driven by price volatility resulting from shifting supply/demand dynamics related to COVID-19, the sharp decline in global oil prices and varying global weather patterns. The overall decrease in agricultural volumes for the three months endedSeptember 30, 2020 was primarily driven by lower commodity price volatility than the prior year period. -Sugar futures and options volumes increased 9% and decreased 14% for the nine and three months endedSeptember 30, 2020 , respectively, from the comparable periods in 2019. -Other agricultural and metal futures and options volume decreased 5% for both the nine and three months endedSeptember 30, 2020 from the comparable periods in 2019. •Financial Futures and Options Contracts: In our financial futures and options markets total volume decreased 1% and 24%, respectively, for the nine and three months endedSeptember 30, 2020 from the comparable periods in 2019 and revenues increased 9% and decreased 16%, respectively, for the nine and three months endedSeptember 30, 2020 from the comparable periods in 2019. -Interest rate futures and options volume decreased 4% and 27% for the nine and three months endedSeptember 30, 2020 , respectively, from the comparable periods in 2019 and revenue decreased 1% and 26% for the nine and three months endedSeptember 30, 2020 , respectively, from the comparable periods in 2019. The interest rate futures and options volume decrease for the nine and three months endedSeptember 30, 2020 was primarily driven by the impact of quantitative easing measures implemented by major central banks in response to COVID-19. Interest rate futures and options revenues were$151 million and$152 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$40 million and$55 million for the three months endedSeptember 30, 2020 and 2019, respectively. -Other financial futures and options volume, which includes our MSCI®, FTSE® and NYSE FANG+ equity index products, increased 15% and decreased 9% for the nine and three months endedSeptember 30, 2020 , respectively, from the comparable periods in 2019. Other financial futures and options volume increased for the nine months endedSeptember 30, 2020 , due to increased equity market volatility driven by accelerating adoption of MSCI® index futures and options as well as uncertainty related to COVID-19. Lower equity index futures and options volumes in the three months endedSeptember 30, 2020 were partially offset by positive trends across our FX futures and options complex, particularly theU.S. Dollar Index futures and options. Other financial futures and options revenues were$124 million and$100 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$36 million and$36 million for the three months endedSeptember 30, 2020 and 2019, respectively. •Cash Equities and Equity Options: Cash equities handled volume increased 45% and 29% for the nine and three months endedSeptember 30, 2020 , respectively, from the comparable periods in 2019 due to heightened volatility driven by uncertainty related to COVID-19 and various geopolitical events. Cash equities revenues, net of transaction-based expenses, were$216 million and$153 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$53 million and$51 million for the three months endedSeptember 30, 2020 and 2019, respectively. 41 -------------------------------------------------------------------------------- Equity options volume increased 53% and 74% for the nine and three months endedSeptember 30, 2020 , respectively, from the comparable periods in 2019 primarily due to higher industry volumes and heightened volatility driven by uncertainty related to COVID-19 and various geopolitical events. Equity options revenues, net of transaction-based expenses, were$72 million for both the nine months endedSeptember 30, 2020 and 2019 and$21 million and$23 million for the three months endedSeptember 30, 2020 and 2019, respectively. •Fixed Income and Credit: Fixed income and credit includes revenues from ICE Mortgage Technology, ICE Bonds and CDS execution and clearing. CDS clearing revenues were$117 million and$102 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$33 million and$35 million for the three months endedSeptember 30, 2020 and 2019, respectively. The notional value of CDS cleared was$14.6 trillion and$11.9 trillion for the nine months endedSeptember 30, 2020 and 2019, respectively, and$3.6 trillion and$4.3 trillion for the three months endedSeptember 30, 2020 and 2019, respectively. The increase in CDS clearing revenues for the nine months endedSeptember 30, 2020 from the comparable period in 2019 included record buy-side activity in terms of index notional amount cleared during the period driven by heightened market volatility related to COVID-19. Mortgage services revenues were$238 million and$90 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$140 million and$42 million for the three months endedSeptember 30, 2020 and 2019, respectively. The increase in mortgage services revenues was primarily driven by the acquisitions ofEllie Mae inSeptember 2020 and Simplifile inJune 2019 . •OTC and Other Transactions: OTC and other transactions include revenues from our OTC energy business and other trade confirmation services. Other Revenues Other revenues primarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of ourU.S. securities exchanges, designated market maker service fees, technology development fees, exchange membership fees and agricultural grading and certification fees. The increase in other revenues for the nine and three months endedSeptember 30, 2020 from the comparable periods in 2019 was primarily due to increased interest income earned on certain clearing margin deposits reflecting higher balances, increased regulatory fees and the acquisitions ofEllie Mae and Bridge2 Solutions. Selected Operating Data The following charts and tables present trading activity in our futures and options markets by commodity type based on the total number of contracts traded, as well as futures and options rate per contract (in millions, except for percentages and rate per contract amounts and YTD represents the nine-month periods endedSeptember 30th ):
Volume and Rate per Contract
[[Image Removed: ice-20200930_g12.jpg]][[Image Removed: ice-20200930_g13.jpg]][[Image Removed: ice-20200930_g14.jpg]]
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Nine Months Ended September Three Months Ended
30, September 30,
2020 2019 Change 2020 2019 Change
Number of contracts traded (in
millions):
Energy futures and options 600 502 20 % 163 177 (8) %
Agricultural and metals futures and
options 86 85 1 24 26 (9)
Financial futures and options 487 491 (1) 133 174 (24)
Total 1,173 1,078 9 % 320 377 (15) %
Nine Months Ended September Three Months Ended
30, September 30,
2020 2019 Change 2020 2019 Change
Average Daily Volume of contracts
traded (in thousands):
Energy futures and options 3,176 2,671 19 % 2,545 2,762 (8) %
Agricultural and metals futures and
options 456 453 1 376 414 (9)
Financial futures and options 2,531 2,565 (1) 2,024 2,650 (24)
Total 6,163 5,689 8 % 4,945 5,826 (15) %
Nine Months Ended September Three Months Ended
30, September 30,
2020 2019 Change 2020 2019 Change
Rate per contract:
Energy futures and options $ 1.43 $ 1.49 (4) % $ 1.40 $ 1.50 (6) %
Agricultural and metals futures and
options $ 2.29 $ 2.28 - % $ 2.23 $ 2.27 (2) %
Financial futures and options $ 0.56 $ 0.51 10 % $ 0.56 $ 0.52 9 %
Open interest is the aggregate number of contracts (long or short) that clearing
members hold either for their own account or on behalf of their clients. Open
interest refers to the total number of contracts that are currently "open," - in
other words, contracts that have been traded but not yet liquidated by either an
offsetting trade, exercise, expiration or assignment. Open interest is also a
measure of the future activity remaining to be closed out in terms of the number
of contracts that members and their clients continue to hold in the particular
contract and by the number of contracts held for each contract month listed by
the exchange. The following charts and table present our quarter-end open
interest for our futures and options contracts (in thousands, except for
percentages):
Open Interest
[[Image Removed: ice-20200930_g15.jpg]][[Image Removed: ice-20200930_g16.jpg]][[Image Removed: ice-20200930_g17.jpg]]
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As
of
2020 2019 Change
Open interest - in thousands of contracts:
Energy futures and options 41,358 37,621 10 %
Agricultural and metals futures and options 3,607 3,873 (7)
Financial futures and options 29,109 34,740 (16)
Total 74,074 76,234 (3) %
The following charts and table present selected cash and equity options trading
data (all trading volume below is presented as average net daily trading volume,
or ADV, and is single counted and YTD represents the nine-month periods ended
September 30th ):
[[Image Removed: ice-20200930_g18.jpg]][[Image Removed: ice-20200930_g19.jpg]][[Image Removed: ice-20200930_g20.jpg]][[Image Removed: ice-20200930_g21.jpg]]
Nine Months Ended September 30, Three Months Ended September 30,
2020 2019 Change 2020 2019 Change
NYSE cash equities:
Total cash handled volume (shares in
millions) 2,552 1,760 45 % 2,151 1,666 29 %
Total cash market share matched 22.6 % 24.2 % (1.6) pts 21.2 % 23.5 %
(2.3) pts
NYSE equity options (contracts in thousands): NYSE equity options volume 4,862 3,185 53 % 5,328 3,062 74 % Total equity options volume 26,701 17,478 53 % 28,085 17,767 58 % NYSE share of total equity options 18.2 % 18.2 % - 19.0 % 17.2 %
1.7 pts
Revenue capture or rate per contract: Cash equities rate per contract (per 100 shares)$0.045 $0.046 (3) %$0.038 $0.049 (21) % Equity options rate per contract$0.08 $0.12 (34) %$0.06 $0.12 (46) % 44
-------------------------------------------------------------------------------- Handled volume represents the total number of shares of equity securities, ETFs and crossing session activity internally matched on our exchanges or routed to and executed on an external market center. Matched volume represents the total number of shares of equity securities, ETFs and crossing session activity executed on our exchanges. Transaction-Based Expenses Our equities and equity options markets pay fees to theSEC pursuant to Section 31 of the Exchange Act. Section 31 fees are recorded on a gross basis as a component of transaction and clearing fee revenue. These Section 31 fees are assessed to recover the government's costs of supervising and regulating the securities markets and professionals and are subject to change. We, in turn, collect corresponding activity assessment fees from member organizations clearing or settling trades on the equities and options exchanges, and recognize these amounts in our transaction and clearing revenues when invoiced. The activity assessment fees are designed to equal the Section 31 fees. As a result, activity assessment fees and the corresponding Section 31 fees do not have an impact on our net income, although the timing of payment by us will vary from collections. Section 31 fees were$465 million and$274 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$145 million and$105 million for the three months endedSeptember 30, 2020 and 2019, respectively. The fees we collect are included in cash at the time of receipt and we remit the amounts to theSEC semi-annually as required. The total amount is included in accrued liabilities and was$53 million as ofSeptember 30, 2020 . We make liquidity payments to cash and options trading customers, as well as routing charges made to other exchanges which are included in transaction-based expenses. We incur routing charges when we do not have the best bid or offer in the market for a security that a customer is trying to buy or sell on one of our securities exchanges. In that case, we route the customer's order to the external market center that displays the best bid or offer. The external market center charges us a fee per share (denominated in tenths of a cent per share) for routing to its system. We record routing charges on a gross basis as a component of transaction and clearing fee revenue. Cash liquidity payments, routing and clearing fees were$1.2 billion and$702 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and$374 million and$222 million for the three months endedSeptember 30, 2020 and 2019, respectively. Operating Expenses, Operating Income and Operating Margin The following chart summarizes our Trading and Clearing segment's operating expenses, operating income and operating margin (dollars in millions). See "- Consolidated Operating Expenses" below for a discussion of the significant changes in our operating expenses. Trading and Clearing Segment: Nine Months Ended September 30, Three Months Ended September 30, 2020 2019 Change 2020 2019 Change Operating expenses $ 998$ 732 36 % $ 406$ 255 59 % Adjusted operating expenses(1) $ 813$ 662 23 % $ 282$ 231 21 % Operating income$ 1,306 $ 1,184 10 % $ 305$ 414 (26) % Adjusted operating income(1)$ 1,491 $ 1,254 19 % $ 429$ 438 (1) % Operating margin 57 % 62 % (5 pts) 43 % 62 % (19 pts) Adjusted operating margin(1) 65 % 65 % - 61 % 65 % (4 pts) (1) The adjusted figures exclude items that are not reflective of our ongoing core operations and business performance. These adjusted numbers are not calculated in accordance withU.S. GAAP. See "- Non-GAAP Financial Measures" below. 45 -------------------------------------------------------------------------------- Data and Listings Segment The following charts and table present our selected statements of income data for our Data and Listings segment (dollars in millions and YTD represents the nine-month periods endedSeptember 30th ): [[Image Removed: ice-20200930_g22.jpg]] [[Image Removed: ice-20200930_g23.jpg]][[Image Removed: ice-20200930_g24.jpg]][[Image Removed: ice-20200930_g25.jpg]][[Image Removed: ice-20200930_g26.jpg]] (1) The adjusted numbers in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance withU.S. GAAP. See "- Non-GAAP Financial Measures" below. 46 --------------------------------------------------------------------------------
Nine Months Ended September Three Months Ended
30, September 30,
2020 2019 Change 2020 2019 Change
Revenues:
Pricing and analytics $ 845 $ 809 4 % $ 287 $ 273 5 %
Exchange data and feeds 552 528 4 189 172 9
Desktops and connectivity 330 315 5 113 108 4
Data services 1,727 1,652 5 589 553 6
Listings 334 336 (1) 111 114 (2)
Revenues 2,061 1,988 4 700 667 5
Other operating expenses 837 825 2 285 277 3
Depreciation and amortization 277 296 (6) 93 98 (4)
Operating expenses 1,114 1,121 (1) 378 375 1
Operating income $ 947 $ 867 9 % $ 322 $ 292 10 %
Our Data and Listings segment represents largely subscription-based, or
recurring, revenues from data services and listings services offered across our
trading and clearing businesses and ICE Data Services . Through ICE Data
Services , we generate revenues from a range of global financial and commodity
markets, including pricing and reference data, exchange data, analytics, feeds,
index services, desktops and connectivity solutions. Through NYSE, NYSE American
and NYSE Arca, we generate listings revenue related to the provision of listings
services for public companies and ETFs, and related corporate actions for listed
companies.
For both the nine and three months ended September 30, 2020 and the nine and
three months ended September 30, 2019 , 7% of our Data and Listings segment
revenues were billed in pounds sterling or euros (all relating to our data
services revenues). As the pound sterling or euro exchange rate changes, the
U.S. equivalent of revenues denominated in foreign currencies changes
accordingly. Foreign currency fluctuations resulted in minimal foreign exchange
impact during the nine months ended September 30, 2020 on our Data and Listings
segment revenues. Due to the weakening of the U.S. dollar compared to the pound
sterling and euro, for the three months ended September 30, 2020 as compared to
the same period in 2019, foreign currency fluctuations resulted in an increase
of $2 million to our Data and Listings segment revenues.
Our data services revenues are primarily subscription-based and increased 5% and
6% for the nine and three months ended September 30, 2020 from the comparable
periods in 2019, respectively. The increase in revenues was primarily due to the
strong retention rate of existing customers, the addition of new customers,
increased purchases by existing customers and increases in pricing of our
products.
•Pricing and Analytics: Our pricing and analytics revenues increased 4% and 5%
for the nine and three months ended September 30, 2020 , respectively, from the
comparable periods in 2019. The increase in revenue was due to strength in our
index businesses and continued growth in our pricing and reference data business
driven by the strong retention rate of existing customers, the addition of new
customers, increased purchases by existing customers and increases in pricing of
our products.
•Exchange Data and Feeds: Our exchange data and feeds revenues increased 4% and
9% for the nine and three months ended September 30, 2020 from the comparable
periods in 2019, respectively. The increase in revenue was largely due to growth
in NYSE exchange data during the three months ended September 30, 2020 , as well
as continued growth in our futures exchange data and our consolidated feed
offering, which was driven by the strong retention rate of existing customers,
the addition of new customers and increases in pricing of our products.
•Desktops and Connectivity: Our desktop and connectivity revenues increased 5%
and 4% for the nine and three months ended September 30, 2020 , respectively,
from the comparable periods in 2019. The increase in revenue was driven
primarily by growth in our connectivity services including the ICE Global
Network, coupled with stronger desktop revenues.
Annual Subscription Value, or ASV, represents, at a point in time, the data
services revenues subscribed for the succeeding 12 months. ASV does not include
new sales, contract terminations or price changes that may occur during that
12-month period. ASV also does not include certain data services revenue streams
that are not subscription-based. Revenue from ASV businesses has historically
represented approximately 90% of our data revenues. Thus, while it is an
indicative forward-looking metric, it does not provide a growth forecast of the
next 12 months of data services revenues.
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As of September 30, 2020 , ASV was $2.098 billion , which increased 5.8% compared
to the ASV as of September 30, 2019 . This does not adjust for year-over-year
foreign exchange fluctuations or impacts of acquisitions.
Listings Revenues
Listings revenues in our securities markets arise from fees applicable to
companies listed on our cash equities exchanges- original listing fees and
annual listing fees. Original listing fees consist of two components: initial
listing fees and fees related to corporate actions. Initial listing fees,
subject to a minimum and maximum amount, are based on the number of shares that
a company initially lists. All listings fees are billed upfront and the
identified performance obligations are satisfied over time. Revenue related to
the investor relations performance obligation is recognized ratably over the
period these services are provided, with the remaining revenue recognized
ratably over time as customers continue to list on our exchanges.
In addition, we earn corporate actions-related listing fees in connection with
actions involving the issuance of new shares, such as stock splits, rights
issues and sales of additional securities, as well as mergers and acquisitions.
Listings fees related to other corporate actions are considered contract
modifications of our listing contracts and are recognized ratably over time as
customers continue to list on our exchanges.
Our listings revenues decreased 1% and 2% for the nine and three months ended
September 30, 2020 , respectively, compared to the comparable periods in 2019.
Operating Expenses, Operating Income and Operating Margin
The following chart summarizes our Data and Listings segment's operating
expenses, operating income and operating margin (dollars in millions). See
"- Consolidated Operating Expenses" below for a discussion of the significant
changes in our operating expenses.
Data and Listings Segment: Nine Months Ended September 30, Three Months Ended September 30,
2020 2019 Change 2020 2019 Change
Operating expenses $ 1,114 $ 1,121 (1) % $ 378 $ 375 1 %
Adjusted operating expenses(1) $ 970 $ 957 1 % $ 329 $ 320 3 %
Operating income $ 947 $ 867 9 % $ 322 $ 292 10 %
Adjusted operating income(1) $ 1,091 $ 1,031 6 % $ 371 $ 347 7 %
Operating margin 46 % 44 % 2 pts 46 % 44 % 2 pts
Adjusted operating margin(1) 53 % 52 % 1 pt 53 % 52 % 1 pt
(1) The adjusted figures exclude items that are not reflective of our ongoing
core operations and business performance. These adjusted numbers are not
calculated in accordance with U.S. GAAP. See "- Non-GAAP Financial Measures"
below.
48
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Consolidated Operating Expenses
The following presents our consolidated operating expenses (dollars in millions
and YTD represents the nine-month periods ended September 30th ):
[[Image Removed: ice-20200930_g27.jpg]]
Nine Months Ended September Three Months Ended September
30, 30,
2020 2019 Change 2020 2019 Change
Compensation and benefits $ 849 $ 768 11 % $ 298 $ 261 14 %
Professional services 100 97 3 37 35 9
Acquisition-related transaction and
integration costs 90 1 n/a 76 - n/a
Technology and communication 388 346 12 131 126 4
Rent and occupancy 59 52 15 19 17 13
Selling, general and administrative 132 116 14 43 33 29
Depreciation and amortization 494 473 4 180 158 14
Total operating expenses $ 2,112 $ 1,853 14 % $ 784 $ 630 25 %
The majority of our operating expenses do not vary directly with changes in our
volume and revenues, except for certain technology and communication expenses,
including data acquisition costs, licensing and other fee-related arrangements
and a portion of our compensation expense that is tied directly to our data
sales or overall financial performance.
We expect our operating expenses to increase in absolute terms in future periods
in connection with the growth of our business, and to vary from year-to-year
based on the type and level of our acquisitions, our integrations and other
investments.
For the nine months ended September 30, 2020 and 2019, 11% and 12%,
respectively, of our operating expenses were billed in pounds sterling or euros
and for the three months ended September 30, 2020 and 2019, 10% and 12%,
49
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respectively, of our operating expenses were billed in pounds sterling or euros.
Due to fluctuations in the U.S. dollar compared to the pound sterling and euro,
our consolidated operating expenses increased $4 million during the three months
ended September 30, 2020 from the comparable period in 2019, and there was a
minimal effect on the nine months ended September 30, 2020 from the comparable
period in 2019. See Item 3 "- Quantitative and Qualitative Disclosures About
Market Risk - Foreign Currency Exchange Rate Risk" below for additional
information.
Compensation and Benefits Expenses
Compensation and benefits expense is our most significant operating expense and
includes non-capitalized employee wages, bonuses, non-cash or stock
compensation, certain severance costs, benefits and employer taxes. The bonus
component of our compensation and benefits expense is based on both our
financial performance and individual employee performance. The performance-based
restricted stock compensation expense is also based on our financial
performance. Therefore, our compensation and benefits expense will vary
year-to-year based on our financial performance and fluctuations in our number
of employees. The below chart summarizes the significant drivers of our
compensation and benefits expense results for the periods presented (dollars in
millions, except employee headcount).
Nine Months Ended September Three Months Ended September
30, 30,
2020 2019 Change 2020 2019 Change
Employee headcount 8,445 5,435 55 %
Stock-based compensation expenses $ 95 $ 100 (6) % $ 34 $ 36 (7) %
Employee headcount increased for the nine months ended September 30, 2020 from
the comparable period in 2019 primarily due to new employees at Ellie Mae,
Bridge2 Solutions and in our ICE India office, who had previously been our
contractors. Total compensation and benefits expenses increased for the nine and
three months ended September 30, 2020 from the comparable periods in 2019
primarily due to $50 million and $24 million , respectively, in additional costs
related to the acquisitions of Ellie Mae , Simplifile and Bridge2 Solutions and
the establishment of ICE India, as well as increases of $20 million and $9
million , respectively, of expenses related to other increases in employee
headcount and 2020 merit pay. The stock-based compensation expenses in the table
above relate to employee stock option and restricted stock awards.
Professional Services Expenses
Professional services expense includes fees for consulting services received on
strategic and technology initiatives, temporary labor, as well as regulatory,
legal and accounting fees, and may fluctuate as a result of changes in the use
of these services in our business.
Professional services expenses increased for the nine and three months ended
September 30, 2020 from the comparable periods in 2019 due to increased costs
associated with regulatory and litigation matters and our acquisition of Ellie
Mae .
Acquisition-Related Transaction and Integration Costs
We incurred $90 million and $76 million in acquisition-related transaction costs
for the nine and three months ended September 30, 2020 , respectively, primarily
related to our September 2020 acquisition of Ellie Mae and our February 2020
Bakkt acquisition of Bridge2 Solutions. The Bridge2 Solutions acquisition costs
include expenses of $10 million resulting from a Bakkt incentive award market
condition estimation adjustment that was directly related to the March 2020
capital call to fund the acquisition of Bridge2 Solutions. For the nine months
ended September 30, 2019 , we incurred $1 million in acquisition-related
transaction and integration costs and for the three months ended September 30,
2019 , such costs were nominal.
We expect to continue to explore and pursue various potential acquisitions and
other strategic opportunities to strengthen our competitive position and support
our growth. As a result, we may incur acquisition-related transaction costs in
future periods.
Technology and Communication Expenses
Technology support services consist of costs for running our wholly-owned data
centers, hosting costs paid to third-party data centers and maintenance of our
computer hardware and software required to support our technology and
cybersecurity. These costs are driven by system capacity, functionality and
redundancy requirements. Communication expenses consist of costs for network
connections for our electronic platforms and telecommunications costs.
Technology and communications expense also includes fees paid for access to
external market data, licensing and other fee agreement expenses. Technology and
communications expenses may be impacted by growth in electronic contract volume,
our capacity requirements, changes in the number of telecommunications hubs and
connections with customers
50
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to access our electronic platforms directly. Beginning in the second quarter of
2019, we have reflected amounts owed under certain third-party revenue share
arrangements as technology and communication operating expenses rather than as
had been previously recorded net within transaction and clearing revenues, which
resulted in an increase in technology and communications expense of $14 million
for the nine months ended September 30, 2020 as compared to the comparable
period in 2019. Technology and communications expenses also increased by $15
million for the nine months ended September 30, 2020 related to increased 2020
third-party revenue share fees. In addition, for the nine and three months ended
September 30, 2020 total technology and communications expenses increased $15
million and $9 million , respectively, due to our acquisitions of Ellie Mae and
Bridge2 Solutions in 2020 and Simplifile in 2019, partially offset by lower data
services costs.
Rent and Occupancy Expenses
Rent and occupancy expense relates to leased and owned property and includes
rent, maintenance, real estate taxes, utilities and other related costs. We have
significant operations located in and around Atlanta, New York , Pleasanton,
London and Hyderabad with smaller offices located throughout the world.
Rent and occupancy expenses increased for the nine and three months ended
September 30, 2020 from the comparable periods in 2019 primarily due to the
early termination of our NYSE Chicago office lease and the acquisition of Ellie
Mae .
Selling, General and Administrative Expenses
Selling, general and administrative expenses include marketing, advertising,
public relations, insurance, bank service charges, dues and subscriptions,
travel and entertainment, non-income taxes and other general and administrative
costs.
Selling, general and administrative expenses increased for the nine months ended
September 30, 2020 from the comparable period in 2019 primarily due to a $10
million charitable contribution in support of COVID-19 relief efforts, $8
million in accruals for investigations and inquiries and due to our acquisition
of Ellie Mae , partially offset by lower travel expenses. Selling, general and
administrative expenses increased for the three months ended September 30, 2020
from the comparable period in 2019 primarily due to an increase in accruals for
investigations and inquiries, marketing costs and other taxes and fees, as well
as due to our acquisition of Ellie Mae .
Depreciation and Amortization Expenses
Depreciation and amortization expense results from depreciation of long-lived
assets such as buildings, leasehold improvements, aircraft, hardware and
networking equipment, software, furniture, fixtures and equipment over their
estimated useful lives. This expense includes amortization of intangible assets
obtained in our acquisitions of businesses, as well as on various licensing
agreements, over their estimated useful lives. Intangible assets subject to
amortization consist primarily of customer relationships, trading products with
finite lives and technology. This expense also includes amortization of
internally-developed and purchased software over its estimated useful life.
We recorded amortization expenses on intangible assets acquired as part of our
acquisitions, as well as on other intangible assets, of $236 million and $235
million for the nine months ended September 30, 2020 and 2019, respectively, and
$95 million and $79 million for the three months ended September 30, 2020 and
2019, respectively. Amortization expense increased for the nine and three months
ended September 30, 2020 from the comparable periods in 2019 primarily due to
$23 million in amortization expenses recorded on the Ellie Mae intangible assets
following our acquisition, partially offset by certain Interactive Data
intangible assets that became fully amortized in the fourth quarter of 2019.
We recorded depreciation expenses on our fixed assets of $258 million and $238
million for the nine months ended September 30, 2020 and 2019, respectively, and
$85 million and $79 million for the three months ended September 30, 2020 and
2019, respectively. Depreciation expense increased for the nine and three months
ended September 30, 2020 from the comparable periods in 2019 primarily due to
depreciation resulting from increased software development and networking
equipment and due to our September 2020 acquisition of Ellie Mae .
51--------------------------------------------------------------------------------
Consolidated Non-Operating Income (Expense) Income and expenses incurred through activities outside of our core operations are considered non-operating. The following tables present our non-operating income (expenses) (dollars in millions):
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