Cboe Global Markets 10Q 2019 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2019


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

For the transition period from to

Commission file number: 001-34774

Cboe Global Markets, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-5446972
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

400 South LaSalle Street, Chicago, Illinois	60605
(Address of Principal Executive Offices)	(Zip Code)

(312) 786-5600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, par value $0.01 per share	CBOE	CboeBZX

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated filer	☒	Accelerated Filer	◻	Non-accelerated Filer	◻

Smaller Reporting Company	☐	Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:


Class		October 25, 2019
Common Stock, par value $0.01 per share		110,861,270 shares

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TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION		8
Item 1.	Financial Statements (unaudited)	‌8
	Condensed Consolidated Balance Sheets—As of September 30, 2019 and December 31, 2018	8
	Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2019 and 2018	9
	Condensed Consolidated Statements of Comprehensive Income—Three and Nine Months Ended September 30, 2019 and 2018	10
	Condensed Consolidated Statement of Changes in Stockholders’ Equity—Three and Nine Months Ended September 30, 2019 and 2018	11
	Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2019 and 2018	13
	Notes to Condensed Consolidated Financial Statements	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	65

PART II. OTHER INFORMATION		66
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68

SIGNATURES		69

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CERTAIN DEFINED TERMS

Throughout this document, unless otherwise specified or the context so requires:

●

"Cboe," "we," "us," "our" or "the Company" refers to Cboe Global Markets, Inc. and its subsidiaries.

●

"ADV" means average daily volume.

●

"ADNV" means average daily notional value.

●

"Bats Global Markets" and "Bats" refer to our wholly-owned subsidiary Bats Global Markets, Inc., now known as Cboe Bats, LLC, and its subsidiaries.

●

"BYX" refers to Cboe BYX Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"BZX" refers to Cboe BZX Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"C2" refers to Cboe C2 Exchange, Inc. a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"Cboe Chi-X Europe" refers to our broker-dealer entity, Cboe Chi-X Europe Limited, a wholly-owned subsidiary of Cboe Global Markets, Inc., operated in the U.K.

●

"Cboe Europe Limited" refers to Cboe Europe Limited, a wholly-owned subsidiary of Cboe Global Markets, Inc., the U.K. operator of our Multilateral Trading Facility ("MTF"), and our Regulated Market ("RM"), under Cboe Europe Limited’s Recognized Investment Exchange ("RIE") status, an Approved Publication Arrangement ("APA") and a Benchmark Administrator ("BA").

●

"Cboe Europe B.V." refers to Cboe Europe B.V., a wholly-owned subsidiary of Cboe Europe Limited, the Dutch operator of our European Union ("EU") MTF, RM, and APA.

●

"Cboe FX" refers to Cboe FX Holdings, LLC, a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"Cboe Options" refers to Cboe Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"Cboe SEF" refers to Cboe SEF, LLC, our swap execution facility that is a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"Cboe Trading" refers to our broker-dealer entity, Cboe Trading, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc., operated in the United States.

●

"CFE" refers to Cboe Futures Exchange, LLC, a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"CFTC" refers to the U.S. Commodity Futures Trading Commission.

●

"EDGA" refers to Cboe EDGA Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"EDGX" refers to Cboe EDGX Exchange, Inc., a wholly-owned subsidiary of Cboe Global Markets, Inc.

●

"Exchange Act" refers to the Securities Exchange Act of 1934.

●

"Exchanges" refers to Cboe Options, C2, BZX, BYX, EDGX, and EDGA.

●

"FASB" refers to the Financial Accounting Standards Board.

●

"FCA" refers to the U.K. Financial Conduct Authority.

●

“FINRA” refers to the Financial Industry Regulatory Authority.

●

"GAAP" refers to Generally Accepted Accounting Principles in the United States.

●

"Merger" refers to our acquisition of Bats Global Markets, completed on February 28, 2017.

●

"OCC" refers to a service provider for central counterparty clearing for options and futures also known as The Options Clearing Corporation.

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●

"OPRA" refers to Options Price Reporting Authority, LLC.

●

"SEC" refers to the U.S. Securities and Exchange Commission.

●

"SPX" refers to our S&P 500 Index exchange-traded options products.

●

“TPH” refers to either a Trading Permit Holder or a Trading Privilege Holder.

●

"VIX" refers to the Cboe Volatility Index methodology.

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TRADEMARK AND OTHER INFORMATION

Cboe^®, Cboe Global Markets^®, Bats^®, BXTR^®, BYX^®, BZX^®, Cboe Options Institute^®, Cboe Vest^®, Cboe Volatility Index^®, CFE^®, EDGA^®, EDGX^®, FLEX^®, LiveVol^®, OEX^®, Silexx^®, XEO^®, and VIX^® are registered trademarks, and Cboe Futures Exchange^SM, C2^SM, and SPX^SM are service marks of Cboe Exchange, Inc. or its affiliates. Standard & Poor's^®, S&P^®, S&P 100^® and S&P 500^® are registered trademarks of Standard & Poor's Financial Services LLC and have been licensed for use by Cboe Exchange, Inc. Dow Jones^®, Dow Jones Industrial Average^®, DJIA^® and Dow Jones Indexes are registered trademarks or service marks of Dow Jones Trademark Holdings, LLC, used under license. MSCI, and the MSCI index names are service marks of MSCI Inc., used under license. Russell^® and the Russell index names are registered trademarks of Frank Russell Company, used under license. FTSE^® and the FTSE indexes are trademarks and service marks of FTSE International Limited, used under license. All other trademarks and service marks are the property of their respective owners.

This Quarterly Report on Form 10-Q includes market share and industry data that we obtained from industry publications and surveys, reports of governmental agencies and internal company surveys. Industry publications and surveys generally state that the information they contain has been obtained from sources believed to be reliable, but we cannot assure you that this information is accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on the most currently available market data. While we are not aware of any misstatements regarding industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors. We refer you to the “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the SEC.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. You can identify these statements by forward-looking words such as "may," "might," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," and the negative of these terms and other comparable terminology. All statements that reflect our expectations, assumptions or projections about the future other than statements of historical fact are forward-looking statements, including statements in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of this Report. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks and uncertainties described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the SEC.

While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Some factors that could cause actual results to differ include:

●

the loss of our right to exclusively list and trade certain index options and futures products;

●

economic, political and market conditions;

●

compliance with legal and regulatory obligations;

●

price competition and consolidation in our industry;

●

decreases in trading volumes, market data fees or a shift in the mix of products traded on our exchanges;

●

legislative or regulatory changes;

●

our ability to protect our systems and communication networks from security risks, cybersecurity risks, insider threats and unauthorized disclosure of confidential information;

●

increasing competition by foreign and domestic entities;

●

our dependence on and exposure to risk from third parties;

●

fluctuations to currency exchange rates;

●

our index providers' ability to maintain the quality and integrity of their indexes and to perform under our agreements;

●

our ability to operate our business without violating the intellectual property rights of others and the costs associated with protecting our intellectual property rights;

●

our ability to attract and retain skilled management and other personnel, including those experienced with post acquisition integration;

●

our ability to accommodate trading volume and transaction traffic, including significant increases, without failure or degradation of performance of our systems;

●

misconduct by those who use our markets or our products;

●

challenges to our use of open source software code;

●

our ability to meet our compliance obligations, including managing potential conflicts between our regulatory responsibilities and our for-profit status;

●

damage to our reputation;

●

the ability of our compliance and risk management methods to effectively monitor and manage our risks;

●

our ability to manage our growth and strategic acquisitions or alliances effectively;

●

restrictions imposed by our debt obligations;

●

our ability to maintain an investment grade credit rating;

●

impairment of our goodwill, investments or intangible assets; and

●

the accuracy of our estimates and expectations.

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For a detailed discussion of these and other factors that might affect our performance, see Part II, Item 1A of this Report. We do not undertake, and expressly disclaim, any duty to update any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this filing.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Cboe Global Markets, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

(in millions, except par value data and share amounts)


	September 30,		December 31,
	2019		2018
Assets
Current Assets:
Cash and cash equivalents	$	150.0	$	275.1
Financial investments		21.4		35.7
Accounts receivables, net		235.5		287.3
Income taxes receivable		65.0		70.4
Other current assets		17.6		15.2
Total Current Assets		489.5		683.7
Investments		69.7		86.2
Land		—		4.9
Property and equipment, net		49.0		71.7
Property held for sale		21.0		—
Operating lease right of use assets		53.4		—
Goodwill		2,663.4		2,691.4
Intangible assets, net		1,598.6		1,720.2
Other assets, net		74.7		62.9
Total Assets	$	5,019.3	$	5,321.0
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	159.2	$	198.5
Section 31 fees payable		25.4		81.1
Deferred revenue		8.1		8.5
Income taxes payable		—		4.1
Current portion of long-term debt		—		299.8
Contingent consideration liability		6.3		3.9
Total Current Liabilities		199.0		595.9

Long-term debt		867.1		915.6
Income tax liability		134.8		114.9
Deferred income taxes		418.2		436.8
Non-current operating lease liabilities		47.4		—
Other non-current liabilities		24.1		7.4
Total Liabilities		1,690.6		2,070.6
Commitments and Contingencies

Redeemable Noncontrolling Interest		—		9.4

Stockholders’ Equity:
Preferred stock, $0.01 par value: 20,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2019 and December 31, 2018		—		—
Common stock, $0.01 par value: 325,000,000 shares authorized, 125,683,151 and 111,255,022 shares issued and outstanding, respectively at September 30, 2019 and 125,080,496 and 111,601,976 shares issued and outstanding, respectively at December 31, 2018		1.2		1.2
Common stock in treasury, at cost, 14,428,129 shares at September 30, 2019 and 13,478,520 shares at December 31, 2018		(817.3)		(720.1)
Additional paid-in capital		2,686.5		2,660.2
Retained earnings		1,467.4		1,288.2
Accumulated other comprehensive income (loss), net		(9.1)		11.5
Total Stockholders’ Equity		3,328.7		3,241.0
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity	$	5,019.3	$	5,321.0

See accompanying notes to condensed consolidated financial statements.

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Cboe Global Markets, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(unaudited)

(in millions, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues:
Transaction fees	$	465.8	$	411.8	$	1,322.0	$	1,423.7
Access and capacity fees		55.7		53.6		164.6		156.4
Market data fees		56.3		47.6		159.7		154.3
Regulatory fees		88.1		55.2		226.5		260.8
Other revenue		9.5		7.7		24.7		25.9
Total revenues		675.4		575.9		1,897.5		2,021.1
Cost of revenues:
Liquidity payments		269.7		229.2		749.2		803.2
Routing and clearing		9.3		8.7		27.7		28.8
Section 31 fees		79.4		46.8		197.9		236.7
Royalty fees		22.9		20.7		65.8		69.9
Other		0.1		—		0.3		—
Total cost of revenues		381.4		305.4		1,040.9		1,138.6
Revenues less cost of revenues		294.0		270.5		856.6		882.5
Operating expenses:
Compensation and benefits		49.7		51.8		150.0		168.1
Depreciation and amortization		42.9		50.3		133.8		154.9
Technology support services		10.6		10.6		34.3		34.5
Professional fees and outside services		17.5		16.6		52.9		51.9
Travel and promotional expenses		2.7		2.6		8.3		9.8
Facilities costs		2.7		3.3		7.8		8.6
Acquisition-related costs		16.7		5.9		39.8		23.3
Other expenses		3.8		3.3		11.7		8.5
Total operating expenses		146.6		144.4		438.6		459.6
Operating income		147.4		126.1		418.0		422.9
Non-operating (expenses) income:
Interest expense, net		(8.2)		(9.6)		(28.1)		(28.5)
Other (expense) income		1.7		(0.2)		(2.7)		1.1
Income before income tax provision		140.9		116.3		387.2		395.5
Income tax provision		35.0		30.6		102.7		108.7
Net income		105.9		85.7		284.5		286.8
Net loss attributable to redeemable noncontrolling interest		0.1		0.3		4.1		0.9
Net income excluding redeemable noncontrolling interest		106.0		86.0		288.6		287.7
Change in redemption value of redeemable noncontrolling interest		(0.1)		(0.3)		(0.5)		(0.9)
Net income allocated to participating securities		(0.4)		(0.7)		(1.5)		(2.1)
Net income allocated to common stockholders	$	105.5	$	85.0	$	286.6	$	284.7
Basic earnings per share	$	0.95	$	0.76	$	2.57	$	2.54
Diluted earnings per share	$	0.94	$	0.76	$	2.56	$	2.53

Basic weighted average shares outstanding		111.6		111.4		111.6		112.0
Diluted weighted average shares outstanding		111.9		111.8		112.0		112.4

See accompanying notes to condensed consolidated financial statements.

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Cboe Global Markets, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income	$	105.9	$	85.7	$	284.5	$	286.8
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(17.2)		(9.1)		(20.6)		(23.9)
Post-retirement benefit obligations		—		—		—		(1.0)
Comprehensive income		88.7		76.6		263.9		261.9
Comprehensive loss attributable to redeemable noncontrolling interest		0.1		0.3		4.1		0.9
Comprehensive income excluding redeemable noncontrolling interest		88.8		76.9		268.0		262.8
Change in redemption value of redeemable noncontrolling interest		(0.1)		(0.3)		(0.5)		(0.9)
Comprehensive income allocated to participating securities		(0.4)		(0.7)		(1.5)		(2.1)
Comprehensive income allocated to common stockholders, net of tax	$	88.3	$	75.9	$	266.0	$	259.8

See accompanying notes to condensed consolidated financial statements.

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Cboe Global Markets, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders’ Equity

Three and Nine months ended September 30, 2019 and September 30, 2018

(unaudited)

(in millions, except per share amount)


											Accumulated
							Additional				other		Total		Redeemable
	Preferred		Common		Treasury		paid-in		Retained		comprehensive		stockholders’		Noncontrolling
	Stock		Stock		Stock		capital		earnings		income (loss), net		equity		Interest
Balance at December 31, 2018	$	—	$	1.2	$	(720.1)	$	2,660.2	$	1,288.2	$	11.5	$	3,241.0	$	9.4
Cash dividends on common stock of $0.31 per share		—		—		—		—		(34.8)		—		(34.8)		—
Stock-based compensation		—		—		—		5.4		—		—		5.4		—
Exercise of common stock options		—		—		—		8.1		—		—		8.1		—
Common stock repurchased from employee stock plans		—		—		(10.0)		—		—		—		(10.0)		—
Purchase of common stock		—		—		(35.0)		—		—		—		(35.0)		—
Shares issued under employee stock purchase plan		—		—		0.8		—		—		—		0.8		—
Net income excluding noncontrolling interest		—		—		—		—		95.4		—		95.4		—
Other comprehensive income		—		—		—		—		—		14.7		14.7		—
Net loss attributable to redeemable noncontrolling interest		—		—		—		—		—		—		—		(0.2)
Redemption value adjustment of redeemable noncontrolling interest		—		—		—		—		(0.2)		—		(0.2)		0.2
Balance at March 31, 2019	$	—	$	1.2	$	(764.3)	$	2,673.7	$	1,348.6	$	26.2	$	3,285.4	$	9.4
Cash dividends on common stock of $0.31 per share		—		—		—		—		(34.8)		—		(34.8)		—
Stock-based compensation		—		—		—		6.3		—		—		6.3		—
Exercise of common stock options		—		—		—		0.4		—		—		0.4		—
Common stock repurchased from employee stock plans		—		—		(0.4)		—		—		—		(0.4)		—
Purchase of common stock		—		—		—		—		—		—		—		—
Shares issued under employee stock purchase plan		—		—		0.1		—		—		—		0.1		—
Net income excluding noncontrolling interest		—		—		—		—		88.3		—		88.3		—
Other comprehensive income		—		—		—		—		—		(18.1)		(18.1)		—
Net loss attributable to redeemable noncontrolling interest		—		—		—		—		—		—		—		(3.8)
Redemption value adjustment of redeemable noncontrolling interest		—		—		—		—		(0.2)		—		(0.2)		0.2
Balance at June 30, 2019	$	—	$	1.2	$	(764.6)	$	2,680.4	$	1,401.9	$	8.1	$	3,327.0	$	5.8
Cash dividends on common stock of $0.36 per share		—		—		—		—		(40.4)		—		(40.4)		—
Stock-based compensation		—		—		—		5.3		—		—		5.3		—
Exercise of common stock options		—		—		—		0.8		—		—		0.8		—
Common stock repurchased from employee stock plans		—		—		(0.3)		—		—		—		(0.3)		—
Purchase of common stock		—		—		(52.4)		—		—		—		(52.4)		—
Net income excluding noncontrolling interest		—		—		—		—		106.0		—		106.0		—
Other comprehensive income		—		—		—		—		—		(17.2)		(17.2)		—
Net loss attributable to redeemable noncontrolling interest		—		—		—		—		—		—		—		(0.1)
Redemption value adjustment of redeemable noncontrolling interest		—		—		—		—		(0.1)		—		(0.1)		0.1
Deconsolidation of former subsidiary with noncontrolling interest		—		—		—		—		—		—		—		(5.8)
Balance at September 30, 2019	$	—	$	1.2	$	(817.3)	$	2,686.5	$	1,467.4	$	(9.1)	$	3,328.7	$	—

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											Accumulated
							Additional				other		Total		Redeemable
	Preferred		Common		Treasury		paid-in		Retained		comprehensive		stockholders’		Noncontrolling
	Stock		Stock		Stock		capital		earnings		income, net		equity		Interest
Balance at December 31, 2017	$	—	$	1.2	$	(558.3)	$	2,623.7	$	993.3	$	50.7	$	3,110.6	$	9.4
Cash dividends on common stock of $0.27 per share		—		—		—		—		(30.6)		—		(30.6)		—
Stock-based compensation		—		—		—		11.0		—		—		11.0		—
Common stock repurchased from employee stock plans		—		—		(59.3)		0.6		—		—		(58.7)		—
Net income excluding noncontrolling interest		—		—		—		—		118.4		—		118.4		—
Other comprehensive income		—		—		—		—		—		24.8		24.8		—
Net loss attributable to redeemable noncontrolling interest		—		—		—		—		—		—		—		(0.3)
Redemption value adjustment of redeemable noncontrolling interest		—		—		—		—		(0.3)		—		(0.3)		0.3
Balance at March 31, 2018	$	—	$	1.2	$	(617.6)	$	2,635.3	$	1,080.8	$	75.5	$	3,175.2	$	9.4
Cash dividends on common stock of $0.27 per share		—		—		—		—		(30.4)		—		(30.4)		—
Stock-based compensation		—		—		—		10.0		—		—		10.0		—
Common stock repurchased from employee stock plans		—		—		43.5		0.8		—		—		44.3		—
Purchase of common stock		—		—		(91.8)		—		—		—		(91.8)		—
Net income excluding noncontrolling interest		—		—		—		—		83.3		—		83.3		—
Other comprehensive income		—		—		—		—		—		(41.3)		(41.3)		—
Net loss attributable to redeemable noncontrolling interest		—		—		—		—		0.6		—		0.6		(0.3)
Redemption value adjustment of redeemable noncontrolling interest		—		—		—		—		(0.3)		—		(0.3)		0.3
Balance at June 30, 2018	$	—	$	1.2	$	(665.9)	$	2,646.1	$	1,134.0	$	34.2	$	3,149.6	$	9.4
Cash dividends on common stock of $0.31 per share		—		—		—		—		(34.6)		—		(34.6)		—
Stock-based compensation		—		—		—		8.4		—		—		8.4		—
Purchase of common stock		—		—		(49.1)		—		—		—		(49.1)		—
Net income excluding noncontrolling interest		—		—		—		—		86.0		—		86.0		—
Other comprehensive income		—		—		—		—		—		(8.4)		(8.4)		—
Net loss attributable to redeemable noncontrolling interest		—		—		—		—		0.3		—		0.3		(0.3)
Redemption value adjustment of redeemable noncontrolling interest		—		—		—		—		(0.3)		—		(0.3)		0.3
Balance at September 30, 2018	$	—	$	1.2	$	(715.0)	$	2,654.5	$	1,185.4	$	25.8	$	3,151.9	$	9.4

See accompanying notes to condensed consolidated financial statements.

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Cboe Global Markets, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in millions)


	Nine Months Ended September 30,
	2019		2018
Cash Flows from Operating Activities:
Net income	$	284.5	$	286.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		133.8		154.9
Amortization of debt issuance cost and debt discount		1.7		1.8
Change in fair value of contingent consideration		2.4		3.0
Realized gain on available-for-sale securities		(1.2)		(1.2)
Provision for uncollectable accounts receivable		0.8		—
Provision for deferred income taxes		(18.4)		(10.3)
Stock-based compensation expense		17.0		29.4
Loss on disposition of property		—		1.0
Impairment of assets held for sale		6.1		—
Loss related to deconsolidation of former subsidiary		2.0		—
Impairment of goodwill		10.5		—
Equity in investments		(1.7)		(1.2)
Changes in assets and liabilities:
Accounts receivable		49.8		(3.8)
Income taxes receivable		5.4		(42.6)
Other prepaid expenses		(14.8)		—
Other current assets		—		(13.1)
Accounts payable and accrued liabilities		(39.4)		(3.8)
Section 31 fees payable		(55.7)		(90.5)
Deferred revenue		(0.3)		(2.0)
Income taxes payable		(3.1)		(3.7)
Income tax liability		20.0		2.9
Other liabilities		(4.3)		0.5
Net Cash Flows provided by Operating Activities		395.1		308.1
Cash Flows from Investing Activities:
Purchases of available-for-sale financial investments		(61.8)		(131.2)
Proceeds from maturities of available-for-sale financial investments		98.0		178.7
Return of capital from investments		22.0		—
Purchases of investments		—		(1.8)
Purchases of property and equipment		(26.9)		(27.8)
Net Cash Flows provided by Investing Activities		31.3		17.9
Cash Flows from Financing Activities:
Proceeds from long-term debt		—		300.0
Principal payments of long-term debt		(350.0)		(325.0)
Proceeds from credit facility		—		39.0
Payments of credit facility		—		(39.0)
Dividends paid		(110.0)		(95.6)
Purchase of unrestricted stock from employees		(10.7)		(15.8)
Proceeds from exercise of stock-based compensation		9.1		1.6
Payment of contingent consideration from acquisition		—		(56.6)
Purchase of common stock under announced program		(87.4)		(140.9)
Net Cash Flows used in Financing Activities		(549.0)		(332.3)
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash equivalents		(2.5)		(0.4)
Decrease in Cash and Cash Equivalents		(125.1)		(6.7)
Cash and Cash Equivalents:
Beginning of Period		275.1		143.5
End of Period	$	150.0	$	136.8
Supplemental disclosure of cash transactions:
Cash paid for income taxes	$	98.9	$	161.7
Interest paid		31.0		33.2
Supplemental disclosure of noncash investing activities:
Note receivable issued in connection with deconsolidation of former subsidiary	$	3.7		—
Investment recognized in connection with deconsolidation of former subsidiary		2.9		—
Net assets of former subsidiary deconsolidated		14.5		—

See accompanying notes to condensed consolidated financial statements.

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Cboe Global Markets, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Cboe Global Markets, Inc. is one of the world’s largest exchange holding companies, offering cutting-edge trading and investment solutions to investors around the world. The Company is committed to relentless innovation, connecting global markets with world-class technology, and providing seamless solutions that enhance the customer experience.

Cboe offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S. and European equities, exchange-traded products (“ETPs”), global foreign exchange (“FX”) and multi-asset volatility products based on the VIX Index, the world’s barometer for equity market volatility.

Cboe’s trading venues include the largest options exchange in the U.S. by volume. In addition, the Company is one of the largest stock exchange operators by volume in the U.S. and a leading market globally for ETP trading.

The Company is headquartered in Chicago with offices in Kansas City, New York, London, San Francisco, Amsterdam, Singapore, Hong Kong, and Ecuador.

Basis of Presentation

These interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, valuation of redeemable noncontrolling interest and reported amounts of revenues and expenses. On an ongoing basis, management evaluates its estimates based upon historical experience, observance of trends, information available from outside sources and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included.

The results of operations for interim periods are not necessarily indicative of the results of operations for the full year.

For those consolidated subsidiaries in which the Company’s ownership is less than 100% and for which the Company has control over the assets and liabilities and the management of the entity, the outside stockholders’ interest is shown as noncontrolling interest.

Segment information

Significant Accounting Policies

With the exception of the change for the accounting of leases as a result of the adoption of Topic 842 (as discussed below in “Recent Accounting Pronouncements Adopted”), there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended

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December 31, 2018, that are of significance, or potential significance, to the Company.

Leases

The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, operating leases are included in operating lease right of use (“ROU”) assets, accrued liabilities, and non-current operating lease liabilities on the condensed consolidated balance sheet as of September 30, 2019. The Company currently does not have any finance leases.

ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the lease liabilities, as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s leases. The Company elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short-term leases.

Recent Accounting Pronouncements - Adopted

In February 2016, the FASB issued ASU 2016-02, Leases. This update requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding ROU asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases ASU 2018-11, Leases (Topic 842) Targeted Improvements, ASU 2018-20, Leases (Topic 842) Narrow-Scope Improvements for Lessors, and ASU 2019-01, Leases (Topic 842) Codification Improvements, to clarify the implementation guidance. This updated guidance provides an optional transition method, which allows for the initial application of the new accounting standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption. These updates are effective for annual and interim periods beginning after December 15, 2018. The Company adopted the new ASUs on January 1, 2019, using the alternative transition approach and will not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess contracts to determine if they contain leases, lease classification and initial direct costs. The Company’s application of the new standard resulted in changes to the balance sheet but did not have an impact on our consolidated income statements and statements of cash flows. See Note 22 (“Leases”) for more information.

Recent Accounting Pronouncements - Issued, not yet Adopted

In June 2016, the FASB issued ASU 2016-13, Credit Losses. This update replaces the incurred loss impairment methodology in current GAAP with a methodology that requires management to estimate an expected lifetime credit loss on financial assets. For public entities, the update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating this guidance and assessing the impact the ASU could have on the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For public entities, the update is effective for fiscal years and

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interim periods within those fiscal years, beginning after December 15, 2019. Certain disclosures in the new guidance will need to be applied on a retrospective basis and others on a prospective basis. The Company is in the process of evaluating this guidance and assessing the impact the ASU could have on the consolidated financial statements.

2. REVENUE RECOGNITION

The Company’s main types of revenue contracts are:

●

Transaction fees - Transaction fees represent fees charged by the Company for the performance obligation of executing a trade on its markets. These fees can be variable based on trade volume tiered discounts, however, as all tiered discounts are calculated monthly, the actual discount is recorded on a monthly basis. Transaction fees, as well as any tiered volume discounts, are calculated and billed monthly in accordance with the Company’s published fee schedules. Transaction fees are recognized across all segments. The Company also pays liquidity payments to customers based on its published fee schedules. The Company uses these payments to improve the liquidity on its markets and therefore recognizes those payments as a cost of revenue.

●

Access and capacity fees - Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. These fees are billed monthly in accordance with the Company’s published fee schedules and recognized on a monthly basis when the performance obligation is met. Facilities, systems services and other fees are generally monthly fee-based, although certain services are influenced by trading volume or other defined metrics, while others are based solely on demand. All fees associated with the trading floor are recognized in the Options segment. There is no remaining performance obligation after revenue is recognized. This caption is a combination of the previous captions “access fees” and “exchange services and other fees” as the Company migrates all Exchanges to the Bats technology. The prior period presented has been updated to conform to the current period presentation.

●

Market data fees - Market data fees represent the fees received by the Company from the U.S. tape plans and fees charged to customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.S. Exchanges based on a known formula. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company’s published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data. U.S. tape plan market data is recognized in the U.S. Equities and Options segments. Proprietary market data fees are recognized across all segments.

●

Regulatory fees - There are 2 types of regulatory fees that the Company recognizes. The first type represents fees collected by the Company to cover the Section 31 fees charged to the Exchanges by the SEC. The fees charged to customers are based on the fee set by the SEC per notional value of the transaction executed on the Company’s U.S. securities markets. These fees are calculated and billed monthly and are recognized in the U.S. Equities and Options segments. As the Exchanges are responsible for the ultimate payment to the SEC, the Exchanges are considered the principal in these transactions. Regulatory fees also include the options regulatory fee (“ORF”) which supports the Company’s regulatory oversight function in the Options segment and other miscellaneous regulatory fees and cannot be used for non-regulatory purposes.

●

Other revenue - Other revenue primarily includes revenue from various licensing agreements, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s website.

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


											Corporate
			U.S.				European		Global		Items and
	Options		Equities		Futures		Equities		FX		Eliminations		Total
Three Months Ended September 30, 2019
Transaction fees	$	207.1	$	199.4	$	31.2	$	16.9	$	11.2	$	—	$	465.8
Access and capacity fees		26.0		20.1		4.0		3.9		1.7		—		55.7
Market data fees		13.8		37.7		1.6		3.0		0.2		—		56.3
Regulatory fees		15.9		72.2		—		—		—		—		88.1
Other revenue		3.3		1.3		2.8		2.1		—		—		9.5
	$	266.1	$	330.7	$	39.6	$	25.9	$	13.1	$	—	$	675.4
Timing of revenue recognition
Services transferred at a point in time	$	226.3	$	272.9	$	34.0	$	19.0	$	11.2	$	—	$	563.4
Services transferred over time		39.8		57.8		5.6		6.9		1.9		—		112.0
	$	266.1	$	330.7	$	39.6	$	25.9	$	13.1	$	—	$	675.4

Three Months Ended September 30, 2018
Transaction fees	$	175.2	$	176.7	$	25.7	$	22.4	$	11.8	$	—	$	411.8
Access and capacity fees		25.1		19.5		3.8		3.6		1.6		—		53.6
Market data fees		10.6		32.0		1.7		3.1		0.2		—		47.6
Regulatory fees		12.6		42.6		—		—		—		—		55.2
Other revenue		5.1		1.1		—		1.5		—		—		7.7
	$	228.6	$	271.9	$	31.2	$	30.6	$	13.6	$	—	$	575.9
Timing of revenue recognition
Services transferred at a point in time	$	192.9	$	220.4	$	25.7	$	23.9	$	11.8	$	—	$	474.7
Services transferred over time		35.7		51.5		5.5		6.7		1.8		—		101.2
	$	228.6	$	271.9	$	31.2	$	30.6	$	13.6	$	—	$	575.9


											Corporate
			U.S.				European		Global		Items and
	Options		Equities		Futures		Equities		FX		Eliminations		Total
Nine Months Ended September 30, 2019
Transaction fees	$	565.7	$	580.3	$	84.1	$	57.5	$	34.4	$	—	$	1,322.0
Access and capacity fees		77.6		58.7		11.5		11.8		5.0		—		164.6
Market data fees		41.5		103.4		4.9		9.4		0.5		—		159.7
Regulatory fees		47.1		178.9		0.5		—		—		—		226.5
Other revenue		11.3		3.9		2.9		6.2		0.2		0.2		24.7
	$	743.2	$	925.2	$	103.9	$	84.9	$	40.1	$	0.2	$	1,897.5
Timing of revenue recognition
Services transferred at a point in time	$	624.1	$	763.1	$	87.5	$	63.7	$	34.6	$	0.2	$	1,573.2
Services transferred over time		119.1		162.1		16.4		21.2		5.5		—		324.3
	$	743.2	$	925.2	$	103.9	$	84.9	$	40.1	$	0.2	$	1,897.5

Nine Months Ended September 30, 2018
Transaction fees	$	600.0	$	622.4	$	91.4	$	72.3	$	37.6	$	—	$	1,423.7
Access and capacity fees		73.1		56.3		11.3		11.0		4.7		—		156.4
Market data fees		32.0		107.1		4.9		9.9		0.4		—		154.3
Regulatory fees		45.9		214.8		0.1		—		—		—		260.8
Other revenue		15.8		5.0		—		4.7		—		0.4		25.9
	$	766.8	$	1,005.6	$	107.7	$	97.9	$	42.7	$	0.4	$	2,021.1
Timing of revenue recognition
Services transferred at a point in time	$	661.7	$	842.2	$	91.5	$	77.0	$	37.6	$	0.4	$	1,710.4
Services transferred over time		105.1		163.4		16.2		20.9		5.1		—		310.7
	$	766.8	$	1,005.6	$	107.7	$	97.9	$	42.7	$	0.4	$	2,021.1

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Contract liabilities as of September 30, 2019 primarily represent prepayments of transaction fees and certain access and capacity and market data fees to the Exchanges. The revenue recognized from contract liabilities and the remaining balance is shown below (in millions):


	Balance at January 1, 2019		Cash Additions		Revenue Recognition		Balance at September 30, 2019
Liquidity provider sliding scale (1)	$	—	$	9.6	$	(7.2)	$	2.4
Other, net		8.5		24.2		(26.9)		5.8
Total deferred revenue	$	8.5	$	33.8	$	(34.1)	$	8.2

(1)

Liquidity providers are eligible to participate in the sliding scale program, which involves prepayment of transaction fees, and to receive reduced fees based on the achievement of certain volume thresholds within a calendar month. These transaction fees are amortized and recorded ratably as the transactions occur over the period.

3. ACQUISITIONS

Bats Global Markets, Inc.

On February 28, 2017, pursuant to the Agreement and Plan of Merger, dated as of September 25, 2016 (the “Merger Agreement”), by and among Cboe, Bats, CBOE Corporation, a Delaware corporation and a wholly-owned subsidiary of Cboe (“Merger Sub”), and Cboe Bats, LLC (formerly CBOE V, LLC), a Delaware limited liability company and a wholly-owned subsidiary of Cboe (“Merger LLC”), Cboe completed the merger of Merger Sub with and into Bats and the subsequent merger of Bats with and into Merger LLC. As a result of the Merger, Bats became a wholly-owned subsidiary of Cboe.

Other Acquisitions

In January 2016, the Company, through its subsidiary Cboe Vest, LLC (“Cboe Vest”), acquired a majority of the outstanding equity of Cboe Vest Financial Group Inc. (“Vest”), an asset investment manager focused on Target Outcome Investment strategies. The purchase price consisted of $18.9 million in cash, reflecting payments of $14.9 million to former stockholders and $4.0 million to Vest for newly issued shares, and represented an ownership interest of 60% resulting in the consolidation of Vest operations. The remaining 40% noncontrolling interest was held by the remaining Vest stockholders. The remaining Vest stockholders had a put option that could have been exercised to Vest and Vest had a call option that could have been exercised to the remaining stockholders. The put and call options could have been exercised after five years though they could have been accelerated by certain employment-related actions. The combination of the noncontrolling interest and a redemption feature resulted in a redeemable noncontrolling interest, which was classified outside of permanent equity on the condensed consolidated balance sheet. The Company’s ownership interest decreased in August 2019 which resulted in the deconsolidation of Vest operations and the elimination of the redeemable noncontrolling interest. See Note 5 (“Investments”) for further information on the deconsolidation and Note 14 (“Redeemable Noncontrolling Interest”) for further information on the redeemable noncontrolling interest.

The Company expensed $16.7 million of acquisition-related costs during the three months ended September 30, 2019 that included $12.7 million of compensation-related costs, $2.0 million of general and administrative expenses, $1.7 million of professional fees, and $0.3 million of termination fees related to an assigned lease agreement. These expenses relate to Bats and other acquisitions, and are included in acquisition-related costs in the condensed consolidated statements of income.

The Company expensed $39.8 million of acquisition-related costs during the nine months ended September 30, 2019 that included $10.5 million of impairment of goodwill charges, $6.1 million of impairment of facilities charges, $16.1 million of compensation-related costs, $2.0 million of general and administrative expenses, $3.7 million of professional fees and $1.4 million of termination fees related to an assigned lease agreement. These expenses relate to

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Bats and other acquisitions, and are included in acquisition-related costs in the condensed consolidated statements of income.

The Company expensed $5.9 million of acquisition-related costs during the three months ended September 30, 2018 that included $4.8 million of compensation-related costs and $0.9 million of professional fees. These expenses relate to Bats and other acquisitions, and are included in acquisition-related costs in the condensed consolidated statements of income.

The Company expensed $23.3 million of acquisition-related costs during the nine months ended September 30, 2018 that included $17.6 million of compensation-related costs, $2.7 million of stock-based compensation, $2.2 million of professional fees, and $0.6 million of general and administrative expenses. These expenses relate to Bats and other acquisitions, and are included in acquisition-related costs in the condensed consolidated statements of income.

4. SEVERANCE

Subsequent to the Bats acquisition, the Company determined that certain employees’ positions were redundant. As such, the Company communicated employee termination benefits to these employees.

The following is a summary of the employee termination benefits recognized within acquisition costs in the condensed consolidated statements of income (in millions):


	Employee Termination Benefits
Balance at December 31, 2018	$	6.1
Termination benefits accrual adjustment		7.0
Termination payments made		(2.9)
Balance at September 30, 2019	$	10.2

5. INVESTMENTS

As of September 30, 2019 and December 31, 2018, the Company’s investments were comprised of the following (in millions):


	September 30,		December 31,
	2019		2018
Equity Method Investments:
Investment in Signal Trading Systems, LLC	$	13.3	$	12.4
Investment in EuroCCP		9.4		9.3
Total equity method investments		22.7		21.7

Cost Method Investments:
Investment in OCC		8.3		30.3
Investment in Eris Exchange Holdings, LLC		20.8		20.0
Investment in American Financial Exchange, LLC		8.6		5.9
Investment in Cboe Vest Financial Group, Inc.		2.9		—
Other cost method investments		6.4		8.3
Total cost method investments		47.0		64.5

Total investments	$	69.7	$	86.2

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Equity Method Investments

Equity method investments include investments in Signal Trading Systems, LLC, a 50% joint venture with FlexTrade System, Inc. to develop and market a multi-asset front-end order entry system, and EuroCCP, a Dutch domiciled clearing house. EuroCCP is one of 3 interoperable central counterparties, or CCPs, used to clear trades conducted on Cboe Europe Limited’s and Cboe Europe B.V.’s markets. Cboe Europe Limited owns 20% of EuroCCP and can exercise significant influence over the entity as an equal shareholder with 4 other investors.

Cost Method Investments

The carrying amount of cost method investments totaled $47.0 million as of September 30, 2019 and $64.5 million as of December 31, 2018, and is included in investments in the condensed consolidated balance sheets. The Company accounts for these investments using the measurement alternative primarily as a result of the Company’s inability to exercise significant influence as the Company is a smaller shareholder of these investments and the lack of readily determinable fair values. As of September 30, 2019, cost method investments primarily reflect a 20% investment in OCC and minority investments in American Financial Exchange, LLC, CurveGlobal, Vest, and Eris Exchange Holdings, LLC.

In December 2014, OCC announced a newly-formed capital plan. The OCC capital plan was designed to strengthen OCC’s capital base and facilitate its compliance with proposed SEC regulations for Systemically Important Financial Market Utilities ("SIFMUs") as well as international standards applicable to financial market infrastructures. On February 26, 2015, the SEC issued a notice of no objection to OCC’s advance notice filing regarding the capital plan, and OCC and OCC’s existing exchange stockholders, which include Cboe Options, subsequently executed agreements effecting the capital plan. Under the plan, each of OCC’s existing exchange stockholders agreed to contribute its pro-rata share, based on ownership percentage, of $150 million in equity capital, which would increase OCC’s shareholders’ equity, and to provide its pro rata share in replenishment capital, up to a maximum of $40 million per exchange stockholder, if certain capital thresholds were to be breached. OCC also adopted policies under the plan with respect to fees, customer refunds, and stockholder dividends, which envisioned an annual dividend payment to the exchange stockholders equal to the portion of OCC’s after-tax income that exceeded OCC’s capital requirements after payment of refunds to OCC’s clearing members (with such customer refunds generally to constitute 50% of the portion of OCC’s pre-tax income that exceeded OCC’s capital requirements). On March 3, 2015, in accordance with the plan, Cboe Options contributed $30.3 million to OCC. That contribution was recorded under investments in the consolidated balance sheets as of December 31, 2018.

On March 6, 2015, OCC informed Cboe Options that the SEC, acting through delegated authority, had approved OCC's proposed rule filing for the capital plan. Following petitions to review the approval based on delegated authority, the SEC conducted its own review and then approved the proposed rule change implementing OCC's capital plan. Certain petitioners subsequently appealed the SEC approval order for the OCC capital plan to the U.S. Court of Appeals for the D.C. Circuit and moved to stay the SEC approval order. On February 23, 2016, the Court denied the petitioners' motion to stay. On August 8, 2017, the Court held that the SEC’s approval order lacked reasoned decision-making sufficient to support the SEC’s conclusion that the OCC capital plan complied with applicable statutory requirements. The Court declined to vacate the SEC’s approval order or to require the unwinding of actions taken under the OCC capital plan, but instead remanded the matter to the SEC for further proceedings concerning whether that capital plan complied with those statutory requirements. Petitioners requested a stay of dividend payments to the exchange stockholders until the SEC made a final decision about the OCC capital plan, but the SEC denied that request on September 14, 2017. The SEC allowed for and received information from interested parties for the SEC’s consideration in connection with its review of the OCC capital plan on remand from the Court.

On February 13, 2019, the SEC issued an order disapproving the proposed rule change implementing OCC’s capital plan following the SEC’s review of the OCC capital plan on remand from the Court. The SEC concluded, upon further review, that the information before the SEC was insufficient to support a finding that the OCC capital plan was consistent with the Exchange Act and Exchange Act rules and regulations. Among other items, the SEC noted in its order that while OCC represented to the Court that it is possible to unwind the OCC capital plan, the petitioners argued and the Court recognized that unwinding and replacing the OCC capital plan may pose considerable logistical challenges

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for OCC. The SEC also stated in its order, among other items, that the SEC would consider any requests for exemptive relief that OCC might seek while OCC establishes a new capital plan and seeks to come into compliance with the SEC requirement that OCC maintain a capital plan to cover potential general business losses. In an effort to achieve compliance with its target capital requirements in the absence of an approved capital plan, OCC has (i) retained funds that otherwise would have been paid to stockholders as dividends and to clearing members as refunds with respect to 2018, and (ii) raised its clearing fees. In addition, OCC’s shareholders, including Cboe Options, agreed to permit OCC to retain a portion of their previously contributed capital (equal to $8.3 million for Cboe Options) until such time as OCC has accumulated sufficient capital to satisfy certain target capital thresholds. OCC returned the rest of the shareholders’ previously contributed capital (equal to $22.0 million for Cboe Options) to the respective shareholders on February 28, 2019. With that return of capital, the Company also incurred a tax expense. OCC agreed to reimburse the Company for part of that tax liability and paid the Company $1.1 million in the third quarter of 2019. OCC will not pay its shareholders any dividend or other return on the retained portion of their capital contributions. As such, the Company reversed the $8.8 million OCC dividend declared in 2018, which was to be paid in 2019, in other income in the condensed consolidated statement of income for the nine months ended September 30, 2019. The remaining contribution has been recorded under investments in the condensed consolidated balance sheet as of September 30, 2019.

In August 2019, the Company’s ownership in Vest was restructured, including a partial sale of its interest to a third-party. As a result of the restructuring, the Company’s ownership and voting interests decreased to less than 20% and less than 5%, respectively, and the Company deconsolidated Vest and changed the accounting methodology of the investment to the cost method. The deconsolidation resulted in a reduction of net assets of $14.5 million and noncontrolling interest of $5.8 million, as well as recognition of $2.9 million investment for the Company’s remaining ownership. The Company recorded an interest-bearing note receivable of $3.7 million for the consideration received from the third-party, which was recognized in other assets, net in the condensed consolidated balance sheet as of September 30, 2019. Additionally, a loss on the sale of $2.0 million was recognized in acquisition-related costs in the condensed consolidated statements of income for the three and nine months ended September 30, 2019.

In the third quarter of 2019, the Company fulfilled a contractual obligation to American Financial Exchange, LLC to launch AMERIBOR futures. As a result of the fulfillment, an additional 5% ownership of American Financial Exchange, LLC was earned by the Company for an additional investment of $2.7 million. The additional revenue was recorded in the Futures segment and increased the Company’s investment in American Financial Exchange, LLC.

6. FINANCIAL INVESTMENTS

The Company’s financial investments with original or acquired maturities longer than three months, but that mature in less than one year from the condensed consolidated balance sheet date and any money market funds that are considered cash and cash equivalents are classified as current assets. The Company’s marketable securities are also considered current assets. The Company’s financial investments are summarized as follows (in millions):


	September 30, 2019
	Cost basis		Unrealized gains		Unrealized losses		Fair value
Available-for-sale securities:
U.S. Treasury securities	$	0.5	$	—	$	—	$	0.5
Trading securities:
Marketable securities (1)		20.9		—		—		20.9
Total financial investments	$	21.4	$	—	$	—	$	21.4


	December 31, 2018
	Cost basis		Unrealized gains		Unrealized losses		Fair value
Available-for-sale securities:
U.S. Treasury securities	$	35.7	$	—	$	—	$	35.7
Total financial investments	$	35.7	$	—	$	—	$	35.7

(1)	The marketable securities are primarily mutual funds maintained for non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. See Note 16 (“Employee Benefits”) for more information.

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7. PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following as of September 30, 2019 and December 31, 2018 (in millions):


	September 30,		December 31,
	2019		2018
Construction in progress	$	—	$	0.1
Building		—		81.7
Furniture and equipment		172.6		161.6
Total property and equipment		172.6		243.4
Less accumulated depreciation		(123.6)		(171.7)
Property and equipment, net	$	49.0	$	71.7

Depreciation expense using the straight-line method was $5.9 million and $6.2 million for the three months ended September 30, 2019 and 2018, respectively, and $18.2 million and $19.2 million for the nine months ended September 30, 2019 and 2018, respectively.

As a result of the Merger, there is a reduction in employee workspace needed in Chicago, which led to the decision to market for sale the headquarters location. The Company classified the associated land, building, and certain furniture and equipment of the headquarters location as held for sale, performed an impairment assessment, and ceased depreciation effective May 1, 2019, as the Company anticipates selling the property held for sale in less than twelve months. As of September 30, 2019, the total value of the property classified as property held for sale on the condensed consolidated balance sheet was $21.0 million. The impact of ceasing depreciation of the property held for sale did not result in a material impact to the condensed consolidated financial statements. As a result of the impairment assessment, an impairment charge of $6.1 million was recorded in acquisition-related costs within the Options segment in the accompanying condensed consolidated statements of income.

8. OTHER ASSETS, NET

Other assets, net consisted of the following as of September 30, 2019 and December 31, 2018 (in millions):


	September 30,		December 31,
	2019		2018
Software development work in progress	$	1.2	$	8.7
Data processing software		235.8		219.0
Less accumulated depreciation and amortization		(203.8)		(193.2)
Data processing software, net		33.2		34.5
Other assets (1)		41.5		28.4
Data processing software and other assets, net	$	74.7	$	62.9

(1)

At September 30, 2019 and December 31, 2018, the majority of the balance included long-term prepaid assets and notes receivable. The notes receivable included within other assets, net on the condensed consolidated balance sheets relate to the consolidated audit trail NMS plan (“CAT”), which involves the creation of a comprehensive audit trail of orders that enhances the ability to efficiently and accurately track all activity in Regulation NMS securities in the U.S. markets. While the funding of the CAT is ultimately expected to be provided by both the execution venues (which includes the Exchanges) and industry members, until the SEC approves a final funding model, the funding to date has solely been provided by the execution venues. The funding by the execution venues has been done in exchange for promissory notes, which are expected to be repaid once such industry member fees are collected. Until the SEC approves a funding model that shares the cost of the CAT between the execution venues and industry members, the execution venues may continue to incur additional significant costs. Due to circumstances associated with the development of the CAT, the Company believes a loss associated with the uncollectibility of the notes is probable, but is unable to estimate the amount of the loss as of September 30, 2019.

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As of September 30, 2019 and December 31, 2018, the notes receivable balance was $28.7 million and $20.3 million, respectively.

Amortization expense related to data processing software was $3.6 million and $5.3 million for the three months ended September 30, 2019 and 2018, respectively, and $10.5 million and $15.1 million for the nine months ended September 30, 2019 and 2018, respectively.

9. GOODWILL AND INTANGIBLE ASSETS, NET

The following table presents the details of goodwill by segment (in millions):


			U.S.		European				Corporate
	Options		Equities		Equities		Global FX		and Other		Total
Balance as of December 31, 2018	$	239.4	$	1,740.4	$	425.6	$	267.2	$	18.8	$	2,691.4
Additions		—		—		—		—		—		—
Dispositions		—		—		—		—		(8.3)		(8.3)
Impairment		—		—		—		—		(10.5)		(10.5)
Changes in foreign currency exchange rates		—		—		(9.2)		—		—		(9.2)
Balance as of September 30, 2019	$	239.4	$	1,740.4	$	416.4	$	267.2	$	—	$	2,663.4

Goodwill has been allocated to specific reporting units for purposes of impairment testing - Options, U.S. Equities, European Equities and Global FX. NaN goodwill has been allocated to Futures. Goodwill impairment testing is performed annually in the fiscal fourth quarter or more frequently if conditions exist that indicate that the asset may be impaired. Based on the restructuring of the ownership of Vest, an impairment test was performed over the carrying value of the goodwill related to the entity as there was an indication that the carrying value after the restructuring would be less than the fair value. The impairment test indicated that the fair value of the Company’s ownership of the acquired entity was less than the carrying value, which resulted in an impairment charge of $10.5 million within the Corporate and Other segment related to Vest in the nine months ended September 30, 2019. As a result of the deconsolidation of Vest during the three months ended September 30, 2019, the remaining goodwill was disposed of, resulting in a 0 balance within the Corporate and Other segment at September 30, 2019.

The following table presents the details of the intangible assets (in millions):


			U.S.		European				Corporate
	Options		Equities		Equities		Global FX		and Other		Total
Balance as of December 31, 2018	$	181.9	$	990.3	$	376.9	$	166.9	$	4.2	$	1,720.2
Additions		—		—		—		—		—		—
Dispositions		—		—		—		—		(3.3)		(3.3)
Amortization		(11.6)		(52.2)		(18.7)		(21.7)		(0.9)		(105.1)
Changes in foreign currency exchange rates		—		—		(13.2)		—		—		(13.2)
Balance as of September 30, 2019	$	170.3	$	938.1	$	345.0	$	145.2	$	—	$	1,598.6

For the three months ended September 30, 2019 and 2018, amortization expense was $33.4 million and $38.8 million, respectively. For the nine months ended September 30, 2019 and 2018, amortization expense was $105.1 million and $120.6 million, respectively. The estimated future amortization expense is $33.2 million for the remainder of 2019, $119.9 million for 2020, $105.4 million for 2021, $93.0 million for 2022, $82.3 million for 2023 and $62.1 million for 2024.

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The following tables present the categories of intangible assets as of September 30, 2019 and December 31, 2018 (in millions):


												Weighted
	September 30, 2019											Average
			U.S.		European				Corporate			Amortization
	Options		Equities		Equities		Global FX		and Other			Period (in years)
Trading registrations and licenses	$	95.5	$	572.7	$	169.9	$	—	$	—		Indefinite
Customer relationships		38.8		222.9		158.2		140.0		—	��	17
Market data customer relationships		53.6		322.0		59.4		64.4		—		12
Technology		24.8		22.5		22.3		22.5		—		4
Trademarks and tradenames		1.7		6.0		1.8		1.2		—		6
Accumulated amortization		(44.1)		(208.0)		(66.6)		(82.9)		—
	$	170.3	$	938.1	$	345.0	$	145.2	$	—


											Weighted
	December 31, 2018										Average
			U.S.		European				Corporate		Amortization
	Options		Equities		Equities		Global FX		and Other		Period (in years)
Trading registrations and licenses	$	95.5	$	572.7	$	176.0	$	—	$	—	Indefinite
Customer relationships		38.8		222.9		163.9		140.0		3.0	18
Market data customer relationships		53.6		322.0		61.5		64.4		—	13
Technology		24.8		22.5		23.1		22.5		4.0	5
Trademarks and tradenames		1.7		6.0		1.8		1.2		1.0	2
Accumulated amortization		(32.5)		(155.8)		(49.4)		(61.2)		(3.8)
	$	181.9	$	990.3	$	376.9	$	166.9	$	4.2

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following as of September 30, 2019 and December 31, 2018 (in millions):


	September 30, 2019		December 31, 2018
Compensation and benefit-related liabilities	$	26.0	$	52.4
Termination benefits		10.2		6.1
Royalties		20.4		25.0
Accrued liabilities		82.8		91.8
Marketing fee payable		9.5		10.4
Accounts payable		10.3		12.8
Total accounts payable and accrued liabilities	$	159.2	$	198.5

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11. DEBT

The Company’s debt consisted of the following as of September 30, 2019 and December 31, 2018 (in millions):


	September 30, 2019		December 31, 2018
$300 million Term Loan Agreement due December 2021, floating rate	$	222.0	$	271.1
$650 million fixed rate Senior Notes due January 2027, stated rate of 3.650%		645.1		644.5
$300 million fixed rate Senior Notes due June 2019, stated rate of 1.950%		—		299.8
Revolving Credit Agreement		—		—
Total debt	$	867.1	$	1,215.4

Term Loan Agreement

On March 22, 2018, the Company, as borrower, entered into a new Term Loan Credit Agreement (the “Term Loan Agreement”) with Bank of America, N.A. (“Bank of America”), as administrative agent and initial lender, and the several banks and other financial institutions from time to time party thereto as lenders. Bank of America also acted as sole lead arranger and sole bookrunner with respect to the Term Loan Agreement. The Term Loan Agreement provides for a senior unsecured term loan facility in an aggregate principal amount of $300 million. The proceeds of the loan under the Term Loan Agreement were used to repay the $300 million of outstanding indebtedness under the Prior Term Loan Agreement.

Loans under the Term Loan Agreement bear interest, at our option, at either (i) the London Interbank Offered Rate (“LIBOR”) periodically fixed for an interest period (as selected by us) of one, two, three or six months plus a margin (based on our public debt ratings) ranging from 1.00 percent per annum to 1.50 percent per annum or (ii) a daily floating rate based on the agent’s prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on our public debt ratings) ranging from 0 percent per annum to 0.50 percent per annum. The Company was required to pay an up-front fee of 0.05 percent to the agent for the entry into the Term Loan Agreement.

The Term Loan Agreement, which matures on December 15, 2021, contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default and indemnification provisions in favor of the lenders thereunder. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by our subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require us to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. At September 30, 2019, the Company was in compliance with these covenants.

The Company repaid $50 million of the outstanding indebtedness of the Term Loan Agreement with cash on hand during the quarter ended September 30, 2019.

Senior Notes

On January 12, 2017, the Company entered into an indenture (the “Indenture”), by and between the Company and Wells Fargo Bank, National Association, as trustee, in connection with the issuance of $650 million aggregate principal amount of the Company’s 3.650% Senior Notes due 2027 ("3.650% Senior Notes" or the “Senior Notes”). The form and terms of the 3.650% Senior Notes were established pursuant to an Officer’s Certificate, dated as of January 12, 2017, supplementing the Indenture. The Company used a portion of the net proceeds from the 3.650% Senior Notes to fund, in part, the Merger, including the payment of related fees and expenses and the repayment of Bats’ existing indebtedness, and the remainder for general corporate purposes. The 3.650% Senior Notes mature on January 12, 2027 and bear interest at the rate of 3.650% per annum, payable semi-annually in arrears on January 12 and July 12 of each year, commencing July 12, 2017.

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On June 29, 2017, the Company issued $300 million aggregate principal amount of 1.950% Senior Notes due 2019 ("1.950% Senior Notes" and, together with the 3.650% Senior Notes, the "Senior Notes"), which bear interest at the rate of 1.950% per annum, payable semi-annually in arrears on June 28 and December 28 of each year, commencing December 28, 2017.

The Senior Notes are unsecured obligations of the Company and rank equally with all of the Company’s other existing and future unsecured, senior indebtedness, but are effectively junior to the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness, and will be structurally subordinated to the secured and unsecured indebtedness of the Company’s subsidiaries.

The Company has the option to redeem some or all of the Senior Notes, at any time in whole or from time to time in part, at the redemption prices set forth in the applicable Officer’s Certificate. The Company may also be required to offer to repurchase the Senior Notes upon the occurrence of a Change of Control Triggering Event (as such term is defined in the applicable Officer’s Certificate) at a repurchase price equal to 101% of the aggregate principal amount of Senior Notes to be repurchased.

The Company repaid the aggregate principal amount of the 1.950% Senior Notes in full with cash on hand upon their maturity on June 28, 2019.

Indenture

Under the Indenture, the Company may issue debt securities, which includes the Senior Notes, at any time and from time to time, in one or more series without limitation on the aggregate principal amount. The Indenture governing the Senior Notes contains customary restrictions, including a limitation that restricts our ability and the ability of certain of our subsidiaries to create or incur secured debt. Such Indenture also limits certain sale and leaseback transactions and contains customary events of default. At September 30, 2019, the Company was in compliance with these covenants.

Revolving Credit Agreement

On December 15, 2016, the Company, as borrower, entered into a Credit Agreement (the “Revolving Credit Agreement”) with Bank of America, N.A., as administrative agent and as swing line lender, certain lenders named therein (the “Revolving Lenders”).

The Revolving Credit Agreement provides for a senior unsecured $150 million five-year revolving credit facility (the “Revolving Credit Facility”) that includes a $25 million swing line sub-facility. The Company may also, subject to the agreement of the applicable lenders, increase the commitments under the Revolving Credit Facility by up to $100 million, for a total of $250 million. Subject to specified conditions, the Company may designate 1 or more of its subsidiaries as additional borrowers under the Revolving Credit Agreement provided that the Company guarantees all borrowings and other obligations of any such subsidiaries. As of September 30, 2019, 0 subsidiaries were designated as additional borrowers.

Funds borrowed under the Revolving Credit Agreement may be used to fund working capital and for other general corporate purposes. As of September 30, 2019, 0 borrowings were outstanding under the Revolving Credit Agreement. Accordingly, at September 30, 2019, $150 million of borrowing capacity was available for the purposes permitted by the Revolving Credit Agreement.

Loans under the Revolving Credit Agreement will bear interest, at our option, at either (i) LIBOR periodically fixed for an interest period (as selected by us) of one, two, three or six months plus a margin (based on our public debt ratings) ranging from 1.00 percent per annum to 1.75 percent per annum or (ii) a daily floating rate based on our prime rate (subject to certain minimums based upon the federal funds effective rate or LIBOR) plus a margin (based on our public debt ratings) ranging from 0 percent per annum to 0.75 percent per annum.

Subject to certain conditions stated in the Revolving Credit Agreement, the Company may borrow, prepay and reborrow amounts under the Revolving Credit Facility at any time during the term of the Revolving Credit Agreement.

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The Revolving Credit Agreement will terminate and all amounts owing thereunder will be due and payable on December 15, 2021, unless the commitments are terminated earlier, either at our request or, if an event of default occurs, by the Revolving Lenders (or automatically in the case of certain bankruptcy-related events). The Revolving Credit Agreement contains customary representations, warranties and affirmative and negative covenants for facilities of its type, including financial covenants, events of default and indemnification provisions in favor of the Revolving Lenders. The negative covenants include restrictions regarding the incurrence of liens, the incurrence of indebtedness by our subsidiaries and fundamental changes, subject to certain exceptions in each case. The financial covenants require us to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio of not less than 4.00 to 1.00 and a maximum consolidated leverage ratio of not greater than 3.50 to 1.00. At September 30, 2019, the Company was in compliance with these covenants.

Loan and Notes Payments and Contractual Interest

The future expected loan repayments related to the Term Loan Agreement and the Senior Notes as of September 30, 2019 are as follows (in millions):


2019	$	—
2020		—
2021		225.0
2022		—
2023		—
Thereafter		650.0
Principal amounts repayable		875.0
Debt issuance cost		(3.7)
Unamortized discounts on notes		(4.2)
Total debt outstanding	$	867.1

Interest expense recognized on the Term Loan Agreement and the Senior Notes is included in interest expense, net in the condensed consolidated statements of income, for the three and nine months ended September 30, 2019 and 2018 is as follows (in millions):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Components of interest expense:
Contractual interest	$	8.3	$	10.0	$	28.0	$	29.1
Amortization of debt discount		0.2		0.5		0.5		1.3
Amortization of debt issuance costs		0.3		0.2		1.2		0.5
Interest expense	$	8.8	$	10.7		29.7		30.9
Interest income		(0.6)		(1.1)		(1.6)		(2.4)
Interest expense, net	$	8.2	$	9.6	$	28.1	$	28.5

12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET

The following represents the changes in accumulated other comprehensive income (loss) by component (in millions):


	Foreign						Total Accumulated
	Currency		Unrealized				Other
	Translation		Investment		Post-Retirement		Comprehensive
	Adjustment		Gain (Loss)		Benefits		Income (Loss)
Balance at December 31, 2018	$	12.1	$	0.2	$	(0.8)	$	11.5
Other comprehensive loss		(20.6)		—		—		(20.6)
Balance at September 30, 2019	$	(8.5)	$	0.2	$	(0.8)	$	(9.1)

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13. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk.

The Company applied FASB ASC 820, Fair Value Measurement and Disclosure, which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:

●

Level 1—Unadjusted inputs based on quoted markets for identical assets or liabilities.

●

Level 2—Observable inputs, either direct or indirect, not including Level 1, corroborated by market data or based upon quoted prices in non-active markets.

●

Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in valuing the asset or liability.

The Company has included a tabular disclosure for financial assets and liabilities that are measured at fair value on a recurring basis in the condensed consolidated balance sheet as of September 30, 2019 and December 31, 2018.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 (in millions):


	September 30, 2019
	Total		Level 1		Level 2		Level 3
Assets:
U.S. Treasury securities	$	0.5	$	0.5	$	—	$	—
Marketable securities:
Mutual funds		14.9		14.9		—		—
Money market funds		6.0		6.0		—		—
Total assets	$	21.4	$	21.4	$	—	$	—
Liabilities:
Contingent consideration liability to related party	$	6.3	$	—	$	—	$	6.3
Total Liabilities	$	6.3	$	—	$	—	$	6.3

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	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets:
U.S. Treasury securities	$	35.7	$	35.7	$	—	$	—
Total assets	$	35.7	$	35.7	$	—	$	—
Liabilities:
Contingent consideration liability to related party	$	3.9	$	—	$	—	$	3.9
Total Liabilities	$	3.9	$	—	$	—	$	3.9

The following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring basis:

Financial Investments

Financial investments consist of highly liquid U.S. Treasury securities and marketable securities held in a rabbi trust for the Company’s non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. The deferred compensation plan assets have an equal and offsetting deferred compensation plan liability based on the value of the deferred compensation plan assets. These securities are valued by obtaining feeds from a number of live data sources, including active market makers and inter-dealer brokers and therefore categorized as Level 1. See Note 16 (“Employee Benefits”) for more information.

Contingent Consideration Liability

In connection with the acquisition of the assets of Silexx Financial Systems, LLC (“Silexx”), the Company acquired a contingent consideration arrangement with the former owners of Silexx. The total fair value of this liability at September 30, 2019 was $6.3 million. The fair values are based on estimates of discounted future cash payments, a significant unobservable input, and are considered a Level 3 measurement.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets, such as goodwill and intangible assets, are measured at fair value on a non-recurring basis. For goodwill, the process involves using a market approach and income approach (using discounted estimated cash flows) to determine the fair value of each segment on a stand-alone basis. That fair value is compared to the carrying amount of the segment, including its recorded goodwill. Impairment is considered to have occurred if the fair value of the segment is lower than the carrying amount of the segment. For the intangible assets, the process also involves using a discounted estimated cash flow method to determine the fair value of each intangible asset. Impairment is considered to have occurred if the fair value of the intangible asset is lower than its carrying amount. These measurements are considered Level 3 and these assets are recognized at fair value if they are deemed to be impaired. During the nine months ended September 30, 2019, a goodwill impairment charge of $10.5 million was incurred within the Corporate and Other segment. As a result of the impairment and subsequent deconsolidation of Vest, the fair value of the goodwill within the Corporate and Other segment was 0 as of September 30, 2019. As of December 31, 2018, none of these assets were recorded at fair value since no impairment indicators were present, see Note 9 (“Goodwill and Intangible Assets, Net”). In addition, property held for sale as of September 30, 2019 was also measured at fair value at September 30, 2019. See Note 7 (“Property and Equipment”) for more information on property held for sale.

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Fair Value of Assets and Liabilities

The following table presents the Company’s fair value hierarchy for certain assets and liabilities held by the Company as of September 30, 2019 and December 31, 2018 (in millions):


	September 30, 2019
	Total		Level 1		Level 2		Level 3
Assets:
U.S. Treasury securities	$	0.5	$	0.5	$	—	$	—
Deferred compensation plan assets		20.9		20.9		—		—
Total assets	$	21.4	$	21.4	$	—	$	—
Liabilities:
Contingent consideration liability to related party	$	6.3	$	—	$	—	$	6.3
Deferred compensation plan liabilities		20.9		20.9		—		—
Debt		867.1		—		867.1		—
Total liabilities	$	894.3	$	20.9	$	867.1	$	6.3


	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets:
U.S. Treasury securities	$	35.7	$	35.7	$	—	$	—
Total assets	$	35.7	$	35.7	$	—	$	—
Liabilities:
Contingent consideration liability to related party	$	3.9	$	—	$	—	$	3.9
Debt		1,215.4		—		1,215.4		—
Total liabilities	$	1,219.3	$	—	$	1,215.4	$	3.9

Certain financial assets and liabilities, including cash and cash equivalents, accounts receivable, income tax receivable, accounts payable and Section 31 fees payable, are not measured at fair value on a recurring basis, but the carrying values approximate fair value due to their liquid or short-term nature.

Debt

The carrying amount of debt approximates its fair value based on quoted LIBOR or using a fixed rate at September 30, 2019 and is considered a Level 2 measurement.

Information on Level 3 Financial Liabilities

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities during the nine months ended September 30, 2019.


	Level 3 Financial Liabilities for the Nine Months Ended September 30, 2019
	Balance at		Realized (gains)
	Beginning of		losses during						Balance at
	Period		period		Additions		Settlements		End of Period
Liabilities
Contingent consideration liability to related party	$	3.9	$	2.4	$	—	$	—	$	6.3
Total Liabilities	$	3.9	$	2.4	$	—	$	—	$	6.3

14. REDEEMABLE NONCONTROLLING INTEREST

Redeemable noncontrolling interest is reported on the condensed consolidated balance sheets in mezzanine equity in Redeemable Noncontrolling Interest. The Company recognizes changes to the redemption value of redeemable noncontrolling interest as they occur and adjusts the carrying value to equal the redemption value at the end of each

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reporting period. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges or credits against retained earnings, or in the absence of retained earnings, additional paid in capital. The redemption amounts have been estimated based on the fair value of the formerly majority-owned subsidiary Vest. See Note 5 (“Investments”) for more information on the deconsolidation of Vest.

For the nine months ended September 30, 2019, the following reflects changes in our redeemable noncontrolling interest (in millions):


	Redeemable Noncontrolling Interest
Balance as of December 31, 2018	$	9.4
Net loss attributable to redeemable noncontrolling interest		(4.1)
Redemption value adjustment of redeemable noncontrolling interest		0.5
Deconsolidation of former subsidiary with noncontrolling interest		(5.8)
Balance as of September 30, 2019	$	—

15. SEGMENT REPORTING

The Company reports 5 business segments: Options, U.S. Equities, Futures, European Equities, and Global FX, which is reflective of how the Company’s chief operating decision-maker reviews and operates the business, as discussed in Note 1 (“Organization and Basis of Presentation”). Segment performance is primarily based on operating income (loss). Our chief operating decision-maker does not review total assets or statements of income below operating income by segments as key performance metrics; therefore, such information is not presented below. The Company has aggregated all of its corporate costs, as well as other business ventures, within the Corporate Items and Eliminations unit based on the decision that those activities should not be used to evaluate the segment’s operating performance; however, operating expenses that relate to activities of a specific segment have been allocated to that segment.

The Options segment includes the options exchange business, which lists for trading options on market indexes (index options), mostly on an exclusive basis, as well as on non-exclusive "multiply-listed" options, such as options on the stocks of individual corporations (equity options) and options on other exchange-traded products (ETP options), such as exchange-traded funds (ETF options) and exchange-traded notes (ETN options) that occur on Cboe Options, C2, BZX and EDGX. It also includes the listed equity and ETP options routed transaction services that occur on Cboe Trading.

The U.S. Equities segment includes listed cash equities and ETP transaction services that occur on BZX, BYX, EDGX and EDGA. It also includes market data revenue generated from the U.S. tape plans as well as revenue generated from the sale of proprietary market data, ETP listing, listed cash equities and ETPs routed transaction services, connectivity fees, and advertising activity from ETF.com.

The Futures segment includes the business of our futures exchange, CFE, which includes offering for trading futures on the VIX Index and other futures products.

The European Equities segment includes the pan-European listed cash equities transaction services, ETPs, exchange-traded commodities, and international depository receipts that occur on the RIE, operated by Cboe Europe Limited. It also includes the listings business where ETPs can be listed on Cboe Europe Limited.

The Global FX segment includes institutional FX trading services that occur on the Cboe FX platform, as well as non-deliverable forward FX transactions executed on Cboe SEF.

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Summarized financial data of reportable segments was as follows (in millions):


											Corporate
							European				Items and
	Options		U.S. Equities		Futures		Equities		Global FX		Eliminations		Total
Three Months Ended September 30, 2019
Revenues	$	266.1	$	330.7	$	39.6	$	25.9	$	13.1	$	—	$	675.4
Operating income (loss)		85.4		36.4		26.2		4.8		(1.3)		(4.1)		147.4
Three Months Ended September 30, 2018
Revenues	$	228.6	$	271.9	$	31.2	$	30.6	$	13.6	$	—	$	575.9
Operating income (loss)		82.1		30.6		20.6		5.4		(1.9)		(10.7)		126.1


											Corporate
							European				Items and
	Options		U.S. Equities		Futures		Equities		Global FX		Eliminations		Total
Nine Months Ended September 30, 2019
Revenues	$	743.2	$	925.2	$	103.9	$	84.9	$	40.1	$	0.2	$	1,897.5
Operating income (loss)		252.5		110.4		63.9		16.3		(3.3)		(21.8)		418.0
Nine Months Ended September 30, 2018
Revenues	$	766.8	$	1,005.6	$	107.7	$	97.9	$	42.7	$	0.4	$	2,021.1
Operating income (loss)		273.8		101.9		63.1		18.1		(6.6)		(27.4)		422.9

16. EMPLOYEE BENEFITS

Employees are eligible to participate in the Cboe Options SMART Plan (“SMART Plan”). The SMART Plan is a defined contribution plan, which is qualified under Internal Revenue Code Section 401(k). In addition, eligible employees may participate in the Supplemental Employee Retirement Plan, Executive Retirement Plan and Deferred Compensation Plan. Effective January 1, 2017, the Executive Retirement Plan is closed to new executive officers and employees. Each plan is a defined contribution plan that is non-qualified under Internal Revenue Code. The Deferred Compensation Plan assets, held in a rabbi trust, are subject to the claims of general creditors of the Company and totaled $20.9 million at September 30, 2019. Although the value of the plans are recorded as an asset in financial instruments on the condensed consolidated balance sheets, there are equal and offsetting liabilities in other non-current liabilities. The investment results of these plans have no impact on net income as the investment results are recorded in equal amounts to both other income (expense) and compensation and benefits expense. The Company contributed $3.3 million and $2.7 million to the defined contribution plans for the three months ended September 30, 2019 and 2018, respectively, and $8.5 million and $6.7 million to the defined contribution plans for the nine months ended September 30, 2019 and 2018, respectively.

For employees of Cboe Europe Limited, the Company contributes to an employee-selected stakeholder contribution plan. The Company’s contribution amounted to $0.2 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and $0.5 and $0.6 million for the nine months ended September 30, 2019 and 2018. This expense is included in compensation and benefits in the condensed consolidated statements of income.

17. REGULATORY CAPITAL

As a broker-dealer registered with the SEC, Cboe Trading is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined therein. The SEC’s requirement also provides that equity capital may not be withdrawn or a cash dividend paid if certain minimum net capital requirements are not met. Cboe Trading computes the net capital requirements under the basic method provided for in Rule 15c3-1.

As of September 30, 2019, Cboe Trading is required to maintain net capital equal to the greater of 6.67% of aggregate indebtedness items, as defined, or $0.1 million. At September 30, 2019, Cboe Trading had net capital of $11.8 million, which was $11.4 million in excess of its required net capital of $0.4 million.

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As entities regulated by the FCA, Cboe Europe Limited is subject to the Financial Resource Requirement ("FRR") and Cboe Chi-X Europe is subject to the Capital Resources Requirement ("CRR"). As a RIE, Cboe Europe Limited computes its FRR in accordance with its Financial Risk Assessment, as agreed by the FCA. This FRR was $20.3 million at September 30, 2019. At September 30, 2019, Cboe Europe Limited had capital in excess of its required FRR of $34.2 million.

As a Banks, Investment firms, PRUdential (BIPRU) 50k firm, as defined by the Markets in Financial Instruments Directive of the FCA, Cboe Chi-X Europe computes its CRR as the greater of the base requirement of $0.1 million at September 30, 2019, or the summation of the credit risk, market risk and fixed overheads requirements, as defined. At September 30, 2019, Cboe Chi-X Europe had capital in excess of its required CRR of $0.5 million. Cboe Chi-X Europe Limited is currently dormant having ceased offering its routing service in November 2018.

On March 8, 2019, Cboe Europe B.V. received approval from the Dutch Ministry of Finance to operate a RM, a MTF, and an approved publication arrangement (APA) in the Netherlands. As a RM, Cboe Europe B.V. is subject to minimum capital requirements, as established by the Dutch Ministry of Finance in the license of March 8, 2019. As of September 30, 2019, the minimum capital requirement calculated in accordance with the license was $1.8 million. At September 30, 2019, Cboe Europe B.V. had capital in excess of its requirement of $2.9 million.

As a designated contract market regulated by the CFTC, CFE is required to meet two capital adequacy tests: (i) its financial resources must be equal to at least twelve months of its projected operating costs and (ii) its unencumbered, liquid financial assets, which may include a line of credit, must be equal to at least six months of its projected operating costs. As of September 30, 2019, CFE had annual projected operating expenses of $55.3 million and had financial resources that exceeded this amount. Additionally, as of September 30, 2019, CFE had projected operating expenses for the upcoming six months of $27.7 million and had unencumbered, liquid financial assets, including a line of credit from Cboe, that exceeded this amount.

As a swap execution facility regulated by the CFTC, Cboe SEF is required to meet two capital adequacy tests: (i) its financial resources must be equal to at least twelve months of its projected operating costs and (ii) its unencumbered, liquid financial assets must be equal to at least six months of its projected operating costs. As of September 30, 2019, Cboe SEF had annual projected operating expenses of $0.7 million and had financial resources that exceeded this amount. Additionally, as of September 30, 2019, Cboe SEF had projected operating expenses for the upcoming six months of $0.4 million and had unencumbered, liquid financial assets that exceeded this amount.

18. STOCK-BASED COMPENSATION

Stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of actual forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period. Vesting may be accelerated for certain officers and employees as a result of attaining certain age and service based requirements in our long-term incentive plan and award agreements.

The Company recognized stock-based compensation expense of $5.3 million and $8.5 million for the three months ended September 30, 2019 and 2018, respectively, and $17.0 million and $29.4 million for the nine months ended September 30, 2019 and 2018, respectively. Stock-based compensation expense is included in compensation and benefits and acquisition-related costs in the condensed consolidated statements of income.

The activity in the Company’s stock options, restricted stock and restricted stock units for the nine months ended September 30, 2019 was as follows:

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Stock Options

Summary stock option activity is presented below:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic Value
	Shares	Price		Term (years)	(in millions)
Outstanding and exercisable, December 31, 2018	369,483	$	26.40
Exercised	348,469		26.77
Outstanding and exercisable, September 30, 2019	21,014	$	20.24	0.5	$	2.0

The total intrinsic value of stock options exercised was $25.0 million and $4.8 million for the nine months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019, to satisfy employee’s tax obligations and cash exercise payment due upon the election to exercise 348,469 stock options, the Company purchased 6,323 shares at a cost of $0.6 million.

Restricted Stock and Restricted Stock Units

The following table summarizes restricted stock award (RSA) and restricted stock unit (RSU) activity during the nine months ended September 30, 2019:


		Weighted
	Number of	Average Grant
	Shares	Date Fair Value
Nonvested stock at December 31, 2018	631,764	$	85.85
Granted	213,527		94.92
Vested	(274,774)		83.56
Forfeited	(92,854)		84.95
Nonvested stock at September 30, 2019	477,663	$	86.06

RSAs granted to non-employee members of the board of directors have a one-year vesting period and vesting accelerates upon the occurrence of a change in control of the Company. Unvested portions of the RSAs will be forfeited if the director leaves the Company prior to the applicable vesting date.

RSUs entitle the holder to 1 share of common stock upon vesting, typically vest over a three year period, and vesting accelerates upon the occurrence of a change in control or a termination of employment following a change in control. Vesting will also accelerate upon a qualified retirement. Qualified retirement eligibility occurs once satisfying 65 years of age and 5 years of service for grants awarded before 2017 and once satisfying 55 years of age and 10 years of service for grants awarded in and after 2017. Unvested RSUs will be forfeited if the officer, or employee leaves the Company prior to the applicable vesting date, except in limited circumstances. The RSUs have no voting rights but entitle the holder to receive dividend equivalents.

Pursuant to the Merger Agreement, each award of restricted Bats common stock (“Bats restricted shares”) granted under any of the Bats Plans that was unvested immediately prior to the effective time of the Merger was assumed by the Company and converted into an award of restricted shares of our common stock, subject to the same terms and conditions (including vesting schedule) that applied to the applicable Bats restricted shares immediately prior to the effective time of the Merger (but taking into account any changes, including any acceleration of vesting of such Bats restricted shares, occurring by reason provided for in the Merger Agreement).

In the nine months ended September 30, 2019, to satisfy employees’ tax obligations upon the vesting of restricted stock, the Company purchased 95,597 shares of common stock totaling $9.1 million as the result of the vesting of 274,774 shares of restricted stock.

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Performance-Based Restricted Stock Units

The following table summarizes restricted stock unit contingent upon achievement of performance conditions, or performance-based restricted stock unit (PSU), activity during the nine months ended September 30, 2019:


		Weighted
	Number of	Average Grant
	Shares	Date Fair Value
Nonvested stock at December 31, 2018	151,842	$	100.81
Granted	86,134		88.22
Vested	(69,372)		74.56
Forfeited	(36,356)		97.78
Nonvested stock at September 30, 2019	132,248	$	107.21

PSUs include shares related to earnings per share during the performance period as well as shares related to total shareholder return during the performance period. The Company used the Monte Carlo valuation model method to estimate the fair value of the total shareholder return PSUs which incorporated the following assumptions: risk-free interest rate (2.54)%, three-year volatility (20.5)% and three year correlation with S&P 500 Index (0.29). Each of these performance shares has a performance condition under which the number of units ultimately awarded will vary from 0% to 200% of the original grant, with each unit representing the contingent right to receive 1 share of our common stock. The vesting period for the PSUs contingent on the achievement of performance conditions is three years. For each of the performance awards, the PSUs will be settled in shares of our common stock following vesting of the PSU assuming that the participant has been continuously employed during the vesting period, subject to acceleration in the event of a change in control of the Company, or a termination of employment following a change in control, or in the event of a participant’s earlier death or disability. Participants have no voting rights with respect to the PSUs until the issuance of the shares of common stock. Dividends are accrued by the Company and will be paid once the PSUs contingent on the achievement of performance conditions vest.

In the nine months ended September 30, 2019, to satisfy employees’ tax obligations upon the vesting of performance stock, the Company purchased 27,477 shares of common stock totaling $2.6 million as the result of the vesting of 69,372 shares of performance stock.

As of September 30, 2019, there were $25.1 million in total unrecognized compensation costs related to restricted stock, restricted stock units, and performance stock units. These costs are expected to be recognized over a weighted average period of 1.6 years.

Employee Stock Purchase Plan

In May 2018, our stockholders approved our Employee Stock Purchase Plan, (“ESPP”), under which a total of 750,000 shares of our common stock will be made available for purchase to employees. The ESPP is a broad-based plan that permits our employees to contribute up to 10% of wages and base salary to purchase shares of our common stock at a discount, subject to applicable annual Internal Revenue Service limitations. Under our ESPP, a participant may not purchase more than a maximum of 312 shares of our common stock during any single offering period. No participant may accrue options to purchase shares of our common stock at a rate that exceeds $25,000 in fair market value of our common stock (determined at the time such options are granted) for each calendar year in which such rights are outstanding at any time. The exercise price per share of common stock shall be 90% (for eligible U.S. employees) or 85% (for eligible international employees) of the lesser of the fair market value of the stock on the first day of the applicable offering period or the applicable exercise date.

We record compensation expense over the offering period related to the discount that is given to our employees, which totaled $0.2 million and $0.4 million for the three months and nine months ended September 30, 2019, respectively. As of September 30, 2019, 722,648 shares were reserved for future issuance under the ESPP.

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19. INCOME TAXES

The Company records income tax expense during interim periods based on the best estimate of the full year’s tax rate as adjusted for discrete items, if any, that are taken into account in the relevant interim period. Each quarter, the Company updates its estimate of the annual effective tax rate and any change in the estimated rate is recorded on a cumulative basis.

The effective tax rate from continuing operations was 24.8% and 26.3% for the three months ended September 30, 2019 and 2018, respectively, and 26.5% and 27.4% for the nine months ended September 30, 2019 and 2018, respectively. The lower effective tax rate for the three and nine months ended September 30, 2019 was primarily due to benefits related to the Tax Cuts and Jobs Act and recognized upon the completion of our 2018 U.S. federal income tax return.

The Company petitioned the U.S. Tax Court on January 13, 2017, May 7, 2018 and November 29, 2018 for a redetermination of IRS notices of deficiency for Cboe and certain of its subsidiaries for tax years 2011 through 2015 related to its Section 199 claims. The Company also filed a complaint on October 5, 2018 with the Court of Federal Claims for a refund of Section 199 claims related to tax years 2008 through 2010. The Company believes the aggregate amount of any additional liabilities that may result from these examinations, if any, will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. As of September 30, 2019, we have not resolved these matters, and proceedings continue in the U.S. Tax Court and the Court of Federal Claims.

20. NET INCOME PER COMMON SHARE

The computation of basic net income allocated to common stockholders is calculated by reducing net income for the period by dividends paid or declared and undistributed net income for the period that are allocated to participating securities to arrive at net income allocated to common stockholders. Net income allocated to common stockholders is divided by the weighted average number of common shares outstanding during the period to determine net income per share allocated to common stockholders.

The computation of diluted earnings per share is calculated by dividing net income allocated to common stockholders by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The dilutive effect is calculated using the more dilutive of the two-class or treasury stock method.

Additionally, the change in the redemption value for the noncontrolling interest reduces net income allocated to common stockholders.

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The following table reconciles net income allocated to common stockholders and the number of shares used to calculate the basic and diluted net income per common share for the three and nine months ended September 30, 2019 and 2018:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share amounts)	2019		2018		2019		2018
Basic EPS Numerator:
Net Income	$	105.9	$	85.7	$	284.5	$	286.8
Loss attributable to noncontrolling interest		0.1		0.3		4.1		0.9
Net Income excluding noncontrolling interest		106.0		86.0		288.6		287.7
Change in redemption value of noncontrolling interest		(0.1)		(0.3)		(0.5)		(0.9)
Earnings allocated to participating securities		(0.4)		(0.7)		(1.5)		(2.1)
Net Income allocated to common stockholders	$	105.5	$	85.0	$	286.6	$	284.7
Basic EPS Denominator:
Weighted average shares outstanding		111.6		111.4		111.6		112.0
Basic Net Income Per Common Share	$	0.95	$	0.76	$	2.57	$	2.54

Diluted EPS Numerator:
Net Income	$	105.9	$	85.7	$	284.5	$	286.8
Loss attributable to noncontrolling interest		0.1		0.3		4.1		0.9
Net Income excluding noncontrolling interest		106.0		86.0		288.6		287.7
Change in redemption value of noncontrolling interest		(0.1)		(0.3)		(0.5)		(0.9)
Earnings allocated to participating securities		(0.4)		(0.7)		(1.5)		(2.1)
Net Income allocated to common stockholders	$	105.5	$	85.0	$	286.6	$	284.7
Diluted EPS Denominator:
Weighted average shares outstanding		111.6		111.4		111.6		112.0
Dilutive common shares issued under stock program		0.3		0.4		0.4		0.4
Total dilutive weighted average shares		111.9		111.8		112.0		112.4
Diluted Net Income Per Common Share	$	0.94	$	0.76	$	2.56	$	2.53

For the periods presented, the Company did not have shares of stock-based compensation that would have an anti-dilutive effect on the computation of diluted net income per common share.

21. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

As of September 30, 2019, the Company was subject to the various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.

The Company reviews its legal proceedings and claims, regulatory reviews and inspections and other legal proceedings on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements to not be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. The Company’s assessment of whether a loss is reasonably possible or probable is based on its assessment of the ultimate outcome of the matter following all appeals.

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As of September 30, 2019, the Company does not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these legal proceedings and claims, regulatory reviews, inspections or other legal proceedings, if any, has been incurred. While the consequences of certain unresolved proceedings are not presently determinable, the outcome of any proceeding is inherently uncertain and an adverse outcome from certain matters could have a material effect on our earnings in any given reporting period.

Except as set forth herein, there have been no material changes during the period covered by this Form 10-Q from the legal proceedings disclosures in our Annual Report on Form 10-K for the year ended December 31, 2018.

SIFMA

Securities Industry Financial Markets Association (“SIFMA”) has filed a number of denial of access applications with the SEC to set aside proposed rule changes to establish or modify fees for Cboe Options, C2, BZX, BYX, EDGX and EDGA (the “Exchanges”) market data products and related services (the “Challenged Fees”). The Challenged Fees were held in abeyance pending a decision, which was issued by the SEC on October 16, 2018, on a separate SIFMA denial of access application regarding fees proposed by Nasdaq and the NYSE for their respective market data products. In a second order entered on October 16, 2018, the SEC issued an order (the “Order”) that remanded the stayed Challenged Fees and ordered the Exchanges to: (i) within six months of the Order, provide notice to the SEC of developed or identified fair procedures for assessing the Challenged Fees (the “Procedures”) and (ii) within one year of the Order, apply the Procedures to the Challenged Fees and submit to the SEC a record explaining the Exchanges’ conclusions. On October 26, 2018, the Exchanges filed a motion to reconsider the Order with the SEC. On November 21, 2018, the Exchanges filed with the SEC a joinder motion to NYSE’s prior motion for stay of the Order. On December 3, 2018, SIFMA filed a response to NYSE’s motion for stay. Nasdaq withdrew its motion to reconsider the Order with the SEC on December 4, 2018, and on December 5, 2018, filed a Petition for Review with the Court of Appeals for the D.C. Circuit (the “D.C. Circuit”). On December 14, 2018, the SEC denied the motion for stay but tolled the compliance date set forth in the remand order until ruling is made on the motion to reconsider. The Exchanges and NYSE filed on January 4, 2019 a motion to intervene in the Nasdaq Petition for Review to ensure the ability to participate in the case; the motion to intervene was granted on January 25, 2019. On the same day, SIFMA filed a motion with the D.C. Circuit moving to dismiss or hold in abeyance the Petition for Review. The Exchanges and NYSE submitted on February 6, 2019 a statement of issues for consideration in connection with the Petition for Review pending before the D.C. Circuit. On March 29, 2019, the D.C. Circuit issued an order indicating that SIFMA’s motion to dismiss will be considered with the underlying merits of the Petition for Review. On May 7, 2019, the SEC denied the Exchanges and NYSE’s motion for reconsideration of the Order. The SEC also further tolled the effectiveness of the remand order subject to the resolution of the substantive SIFMA case against Nasdaq and NYSE Arca that is already before the D.C. Circuit. On June 17, 2019, the Exchanges filed a petition for review of the May 7, 2019 SEC order denying reconsideration of the Order with the D.C. Circuit and of the Order. The Exchanges’ joint opening brief was filed on October 23, 2019. An adverse ruling in that matter or a subsequent appeal could adversely affect exchange market data fees. However, the Company believes that the claims are without merit and intends to litigate the matter vigorously. The Company is unable to estimate what, if any, liability may result from this litigation.

VIX Litigation

On March 20, 2018, a putative class action complaint captioned Tomasulo v. Cboe Exchange, Inc., et al., No. 18-cv-02025 was filed in federal district court for the Northern District of Illinois alleging that the Company intentionally designed its products, operated its platforms, and formulated the method for calculating VIX and the Special Opening Quotation, (i.e., the special VIX value designed by the Company and calculated on the settlement date of VIX derivatives prior to the opening of trading), in a manner that could be collusively manipulated by a group of entities named as John Doe defendants. A number of similar putative class actions, some of which do not name the Company as a party, were filed in federal court in Illinois and New York on behalf of investors in certain volatility-related products. On June 14, 2018, the Judicial Panel on Multidistrict Litigation centralized the putative class actions in the federal district court for the Northern District of Illinois. On September 28, 2018, plaintiffs filed a master, consolidated complaint that is a putative class action alleging various claims against the Company and John Doe defendants in the federal district court for the Northern District of Illinois. The claims asserted against the Company consist of a Securities Exchange Act fraud claim, 3 Commodity Exchange Act claims and a state law negligence

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claim. Plaintiffs request a judgment awarding class damages in an unspecified amount, as well as punitive or exemplary damages in an unspecified amount, prejudgment interest, costs including attorneys’ and experts’ fees and expenses and such other relief as the court may deem just and proper. On November 19, 2018, the Company filed a motion to dismiss the master consolidated complaint and the plaintiffs filed their response on January 7, 2019. The Company filed its reply on January 28, 2019. On May 29, 2019, the federal district court for the Northern District of Illinois granted the Company’s motion to dismiss plaintiffs’ entire complaint against the Company. The state law negligence claim was dismissed with prejudice and the other claims were dismissed without prejudice with leave to file an amended complaint, which plaintiffs filed on July 19, 2019. On August 28, 2019, the Company filed its second motion to dismiss the amended consolidated complaint and plaintiffs filed their response on October 8, 2019. Given the preliminary nature of the proceedings, the Company is still evaluating the facts underlying the complaints, however, the Company currently believes that the claims are without merit and intends to litigate the matter vigorously. The Company is unable to estimate what, if any, liability may result from this litigation.

Other

As self-regulatory organizations under the jurisdiction of the SEC, Cboe Options, C2, BZX, BYX, EDGX and EDGA are subject to routine reviews and inspections by the SEC. As a designated contract market under the jurisdiction of the CFTC, CFE is subject to routine reviews and inspections by the CFTC. Cboe SEF, LLC is a swap execution facility registered with the CFTC and subject to routine reviews and inspections by the CFTC. Cboe Trading is subject to reviews and inspections by FINRA. The Company has from time to time received inquiries and investigative requests from the SEC's Office of Compliance Inspections and Examinations as well as the Division of Enforcement seeking information about our compliance with our obligations as a self-regulatory organization, the federal securities laws as well as our members’ compliance with the federal securities laws. In addition, while Cboe Europe Limited and Cboe Chi-X Europe have not been the subject of any material litigation or regulatory investigation in the past, there is always the possibility of such action in the future. As both companies are domiciled in the U.K., it is likely that any action would be taken in the U.K. courts in relation to litigation or by the FCA in relation to any regulatory enforcement action.

The Company is also currently a party to various other legal proceedings in addition to those already mentioned. Management does not believe that the likely outcome of any of these other reviews, inspections, investigations or other legal proceedings is expected to have a material impact on our consolidated financial condition, results of operations, liquidity or capital resources.

See also Note 8 (“Other Assets, Net”) for information on promissory notes related to the CAT.

See also Note 19 (“Income Taxes”).

Contractual Obligations

See Note 22 (“Leases”) for information on lease obligations.

22. LEASES

The Company currently leases office space, data centers and remote network operations centers under non-cancelable operating leases with third parties as of September 30, 2019. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more, and some of which include the Company’s option to terminate the leases within one year. As most of the leases do not provide an implicit rate, the Company applies an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company applied an incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that

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date. During the quarter ended September 30, 2019, an additional $2.0 million of right of use assets and lease liabilities were added related to a new operating lease right of use asset and operating lease liability.

In September 2019, the Company signed a new lease to secure approximately 185,000 square feet of office space within the Old Post Office building in Chicago, Illinois, which will serve as the Company’s new global headquarters. The initial term of the lease will be 187 months from the accounting commencement date, which is expected to be in the first quarter of 2020. The Company has the option to renew the lease term for an additional 60 months. The total legally binding minimum lease payments for this lease are approximately $98.8 million. See Note 7 (“Property and Equipment”) for information on the current headquarters location.

Additionally, in September 2019, the Company signed a new lease to secure approximately 40,000 square feet of office space within the Chicago Board of Trade Building in Chicago, Illinois, where the Company plans to build a new trading floor and office space. The initial term of the lease will be 150 months from the accounting commencement date, which is expected to be in the second quarter of 2020. The Company has the option to renew the lease term for an additional 60 months. The total legally binding minimum lease payments for this lease are approximately $17.1 million.

The following table presents the supplemental balance sheet information related to leases for the quarter ended September 30, 2019 (in millions):


	September 30,
	2019
Operating lease right of use assets	$	53.4
Total leased assets	$	53.4

Accrued liabilities	$	8.8
Non-current operating lease liabilities		47.4
Total leased liabilities	$	56.2

The Company has elected to not separate lease components from nonlease components for all office space, data center space and remote network operations centers operating leases. The Company does not have any financing leases as of September 30, 2019. Operating lease expense is recognized on a straight-line basis over the lease term and is reported in the technology support services and facilities cost line items on the condensed consolidated statements of income. The following table presents operating lease costs and other information as of and for the three and nine months ended September 30, 2019 (in millions, except as stated):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2019		2019
Operating lease costs (1)	$	3.4	$	8.8

Lease term and discount rate information:
Weighted average remaining lease term (years)				9.4
Weighted average discount rate				3.5	%

Supplemental cash flow information and non-cash activity:
Cash paid for amounts included in the measurement of lease liabilities			$	7.5
Right-of-use assets obtained in exchange for lease liabilities				21.0

(1)	Includes short-term leases and variable lease costs, which are immaterial.

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The maturities of the lease liabilities are as follows as of September 30, 2019 (in millions):


	September 30,
	2019
Remainder of 2019	$	2.8
2020		10.0
2021		9.6
2022		8.9
2023		7.6
After 2023 (1)		27.8
Total lease payments	$	66.7
Less: Interest		(10.5)
Present value of lease liabilities	$	56.2

(1)	Total lease payments include $20.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $115.9 million of legally binding lease payments for leases signed but will commence after September 30, 2019.

23. SUBSEQUENT EVENTS

On October 30, 2019, the Company announced that its board of directors declared a quarterly cash dividend of $0.36 per share. The dividend is payable December 13, 2019 to stockholders of record at the close of business November 27, 2019.

On October 30, 2019, the Company announced that its board of directors authorized an additional $250 million to repurchase shares of its outstanding common stock. This is in addition to any unused amount remaining under prior authorizations.

There have been no additional subsequent events that would require disclosure in, or adjustment to, the condensed consolidated financial statements as of and for the nine months ended September 30, 2019.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, included in Item 1 in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and as contained in that report, the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This discussion contains forward-looking information. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Cboe’s trading venues include the largest options exchange in the U.S. by volume. In addition, the Company is one of the largest stock exchange operators in the U.S. by volume and a leading market globally for ETP trading.

The Company is headquartered in Chicago with offices in Kansas City, New York, London, San Francisco, Amsterdam, Singapore, Hong Kong, and Ecuador.

Business Segments

The Company reports five business segments: Options, U.S. Equities, Futures, European Equities, and Global FX. Segment performance is primarily based on operating income (loss). The Company has aggregated all of its corporate costs and eliminations, as well as other business ventures, within Corporate Items and Eliminations; however, operating expenses that relate to activities of a specific segment have been allocated to that segment. Our management allocates resources, assesses performance and manages our business according to these segments:

Options. Our Options segment includes the options exchange business, which lists for trading options on market indexes (index options), mostly on an exclusive basis, as well as on non-exclusive "multiply-listed" options, such as options on the stocks of individual corporations (equity options) and options on other exchange-traded products (ETP options), such as exchange-traded funds (ETF options) and exchange-traded notes (ETN options) that occur on Cboe Options, C2, BZX and EDGX. It also includes the listed equity and ETP options routed transaction services that occur on Cboe Trading.

U.S. Equities. Our U.S. Equities segment includes listed cash equities and ETP transaction services that occur on BZX, BYX, EDGX and EDGA. It also includes market data revenue generated from the U.S. tape plans as well as revenues generated from the sale of proprietary market data, ETP listing, listed cash equities and ETPs routed transaction services, connectivity fees, and advertising activity from ETF.com.

Futures. Our Futures segment includes the business of our futures exchange, CFE, which includes offering for trading futures on the VIX Index and other futures products.

European Equities. Our European Equities segment includes pan-European listed cash equities transaction services, ETPs, exchange-traded commodities, and international depository receipts that occur on the RIE operated by Cboe Europe Limited and the RM and MTF operated by Cboe Europe B.V.. It also includes the listings business where ETPs can be listed on Cboe Europe Limited.

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Global FX. Our Global FX segment includes institutional FX trading services that occur on the Cboe FX platform, as well as non-deliverable forward FX transactions executed on Cboe SEF.

General Factors Affecting Results of Operations

In broad terms, our business performance is impacted by a number of drivers, including macroeconomic events affecting the risk and return of financial assets, investor sentiment, the regulatory environment for capital markets, geopolitical events, central bank policies and changing technology, particularly in the financial services industry. Our future revenues and net income will continue to be influenced by a number of domestic and international economic trends, including:

●

trading volumes on our proprietary products such as VIX options and futures and SPX options;

●

trading volumes in listed cash equity securities and ETPs in both the U.S. and Europe, volumes in listed equity options, and volumes in institutional FX trading, all of which are driven primarily by overall macroeconomic conditions;

●

the demand for the U.S. tape plan market data distributed by the Securities Information Processors (SIPs), which determines the pool size of the industry market data revenue we receive based on our market share;

●

consolidation of our customers and competitors in the industry;

●

the demand for information about, or access to, our markets, which is dependent on the products we trade, our importance as a liquidity center and the quality and pricing of our data and access and capacity services;

●

continuing pressure in transaction fee pricing due to intense competition in the United States and Europe;

●

significant fluctuations in foreign currency translation rates or weakened value of currencies resulting from Brexit; and

●

regulatory changes relating to market structure and increased capital requirements, and those which affect certain types of instruments, transactions, pricing structures, capital market participants or reporting or compliance requirements, including any changes resulting from Brexit.

A number of significant structural, political and monetary issues continue to confront the global economy, and instability could return at any time, resulting in an increased level of market volatility, increased trading volumes and greater uncertainty. In contrast, many of the largest customers of our transactional businesses continue to adapt their business models as they address the implementation of regulatory changes initiated following the global financial crisis.

Components of Revenues

Transaction Fees

Transaction fees represent fees charged by the Company for the performance obligation of executing a trade on its markets. These fees can be variable based on trade volume tiered discounts, however, as all tiered discounts are calculated monthly, the actual discount is recorded on a monthly basis. Transaction fees, as well as any tiered volume discounts, are calculated and billed monthly in accordance with the Company’s published fee schedules. Transaction fees are recognized across all segments. The Company also pays liquidity payments to customers based on its published fee schedules. The Company uses these payments to improve the liquidity on its markets and therefore recognizes those payments as a cost of revenue.

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Access and Capacity Fees

Access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality across all segments, terminal and other equipment rights, maintenance services, trading floor space and telecommunications services. These fees are billed monthly in accordance with the Company’s published fee schedules and recognized on a monthly basis when the performance obligation is met. Facilities, systems services and other fees are generally monthly fee-based, although certain services are influenced by trading volume or other defined metrics, while others are based solely on demand. All fees associated with the trading floor are recognized in the Options segment. There is no remaining performance obligation after revenue is recognized.

Market Data Fees

Market data fees represent the fees from the U.S. tape plans and fees from customers for proprietary market data. Fees from the U.S. tape plans are collected monthly based on published fee schedules and distributed quarterly to the U.S. Exchanges based on a known formula using trading and/or quoting activity. A contract for proprietary market data is entered into and charged on a monthly basis in accordance with the Company’s published fee schedules as the service is provided. Both types of market data are satisfied over time, and revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the data. U.S. tape plan market data is recognized in the U.S. Equities and Options segments. Proprietary market data fees are recognized across all segments.

Regulatory Fees

Regulatory fees primarily represent fees collected by the Company to cover the Section 31 fees charged to the Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX, and EDGA) and are charged by the SEC. Consistent with industry practice, the fees charged to customers are based on the fee set by the SEC per notional value of the transaction executed on the Company’s markets. These fees are calculated and billed monthly and are recognized in the U.S. Equities and Options segments. As the Exchanges are responsible for the ultimate payment to the SEC, the Exchanges are considered the principals in these transactions. Regulatory fees also include the options regulatory fee (“ORF”) charged to customers which supports the Company’s regulatory oversight function in the Options segment and other miscellaneous regulatory fees and cannot be used for non-regulatory purposes.

Other Revenue

Other revenue primarily includes among other items, revenue from various licensing agreements, all fees related to the trade reporting facility operated in the European Equities segment, and revenue associated with advertisements through the Company’s website.

Components of Cost of Revenues

Liquidity Payments

Liquidity payments are directly correlated to the volume of securities traded on our markets. As stated above, we record the liquidity rebates paid to market participants providing liquidity, in the case of C2, BZX, EDGX and Cboe Europe Limited, as cost of revenue. BYX and EDGA offer a pricing model pursuant to which we rebate liquidity takers for executing against an order resting on our book, which is also recorded as a cost of revenue.

Routing and Clearing

Various rules require that U.S. options and cash equities trade executions occur at the National Best Bid/Offer (“NBBO”) displayed by any exchange. Linkage order routing consists of the cost incurred to provide a service whereby Cboe equity and options exchanges deliver orders to other execution venues when there is a potential for obtaining a better execution price or when instructed to directly route an order to another venue by the order provider. The service affords exchange order flow providers an opportunity to obtain the best available execution price and may also result in cost benefits to those clients. Such an offering improves our competitive position and provides an opportunity to attract

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orders which would otherwise bypass our exchanges. We utilize third-party brokers or our broker-dealer, Cboe Trading, to facilitate such delivery.

Section 31 Fees

Exchanges under the authority of the SEC (Cboe Options, C2, BZX, BYX, EDGX and EDGA) are assessed fees pursuant to the Exchange Act designed to recover the costs to the U.S. government of supervision and regulation of securities markets and securities professionals. We treat these fees as a pass-through charge to customers executing eligible listed cash equities and listed equity options trades. Accordingly, we recognize the amount that we are charged under Section 31 as a cost of revenues and the corresponding amount that we charge our customers as regulatory transaction fees revenue. Since the regulatory transaction fees recorded in revenues are equal to the Section 31 fees recorded in cost of revenues, there is no impact on our operating income. CFE, Cboe Europe Limited and Cboe FX are not U.S. national securities exchanges, and accordingly are not charged Section 31 fees.

Royalty Fees

Royalty fees primarily consist of license fees paid by us for the use of underlying indexes in our proprietary products usually based on contracts traded. The Company has licenses with the owners of the S&P 500 Index, S&P 100 Index and certain other S&P indexes, FTSE Russell indexes, the DJIA, MSCI, and certain other index products. This category also includes fees related to the dissemination of market data related to S&P indexes.

Components of Operating Expenses

Compensation and Benefits

Compensation and benefits represent our largest expense category and tend to be driven by our staffing requirements, financial performance, and the general dynamics of the employment market. Stock-based compensation is a non-cash expense related to equity awards. Stock-based compensation can vary depending on the quantity and fair value of the award on the date of grant and the related service period.

Depreciation and Amortization

Depreciation and amortization expense results from the depreciation of long-lived assets purchased and the amortization of purchased and internally developed software, and the amortization of intangible assets.

Technology Support Services

Technology support services consists primarily of costs related to the maintenance of computer equipment supporting our system architecture, circuits supporting our wide area network, support for production software, fees paid to information vendors for displaying data and off-site system hosting fees.

Professional Fees and Outside Services

Professional fees and outside services consist primarily of consulting services, which include: supplemental staff activities primarily related to systems development and maintenance, legal, regulatory and audit, and tax advisory services.

Travel and Promotional Expenses

Travel and promotional expenses primarily consist of advertising, costs for special events, sponsorship of industry conferences, options education seminars and travel-related expenses.

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Facilities Costs

Facilities costs primarily consist of expenses related to owned and leased properties including rent, maintenance, utilities, real estate taxes and telecommunications costs.

Acquisition-Related Costs

Acquisition-related costs relate to acquisitions and other strategic opportunities, including the Merger. The acquisition-related costs include fees for investment banking advisors, lawyers, accountants, tax advisors, public relations firms, severance and retention costs, impairment of goodwill, capitalized software and facilities, and other external costs directly related to mergers and acquisitions, as well as compensation-related expenses.

Other Expenses

Other expenses represent costs necessary to support our operations that are not already included in the above categories.

Non-Operating Income (Expense)

Income and expenses incurred through activities outside of our core operations are considered non-operating and are classified as other income (expense). These activities primarily include interest earned on the investing of excess cash, interest expense related to outstanding debt facilities, dividend income and equity earnings or losses from our investments in other business ventures.

Financial Summary

The following summarizes changes in financial performance for the three and nine months ended September 30, 2019 and 2018 and certain non-GAAP financial measures. These non-GAAP financials measures assist management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items management believes do not reflect our underlying operations. Please see the footnotes below for additional information and reconciliations from our condensed consolidated financial statements.


	Three Months Ended September 30,						Increase/			Percent		Nine Months Ended September 30,						Increase/			Percent
	2019			2018			(Decrease)			Change		2019			2018			(Decrease)			Change
	(in millions, except percentages, earnings per share, and as noted below)											(in millions, except percentages, earnings per share, and as noted below)
Total revenues	$	675.4		$	575.9		$	99.5		17.3	%	$	1,897.5		$	2,021.1		$	(123.6)		(6.1)	%
Total cost of revenues		381.4			305.4			76.0		24.9	%		1,040.9			1,138.6			(97.7)		(8.6)	%
Revenues less cost of revenues		294.0			270.5			23.5		8.7	%		856.6			882.5			(25.9)		(2.9)	%
Total operating expenses		146.6			144.4			2.2		1.5	%		438.6			459.6			(21.0)		(4.6)	%
Operating income		147.4			126.1			21.3		16.9	%		418.0			422.9			(4.9)		(1.2)	%
Income before income tax provision		140.9			116.3			24.6		21.2	%		387.2			395.5			(8.3)		(2.1)	%
Income tax provision		35.0			30.6			4.4		14.4	%		102.7			108.7			(6.0)		(5.5)	%
Net income		105.9			85.7			20.2		23.6	%		284.5			286.8			(2.3)		(0.8)	%
Basic earnings per share	$	0.95		$	0.76		$	0.19		25.0	%	$	2.57		$	2.54		$	0.03		1.2	%
Diluted earnings per share		0.94			0.76			0.18		23.7	%		2.56			2.53			0.03		1.2	%
EBITDA(1)		191.6			175.5			16.1		9.2	%		551.2			576.8			(25.6)		(4.4)	%
EBITDA margin(2)		65.2	%		64.9	%		0.3	%		*		64.3	%		65.4	%		(1.1)	%		*
Adjusted EBITDA(1)	$	208.3		$	181.4		$	26.9		14.8	%	$	587.4		$	600.1		$	(12.7)		(2.1)	%
Adjusted EBITDA margin(3)		70.9	%		67.1	%		3.8	%		*		68.6	%		68.0	%		0.6	%		*
Adjusted earnings(4)	$	144.6		$	118.3		$	26.3		22.2	%	$	393.7		$	391.7		$	2.0		0.5	%
Adjusted earnings margin(5)		49.2	%		43.7	%		5.5	%		*		46.0	%		44.4	%		1.6	%		*
Diluted weighted average shares outstanding		111.9			111.8			0.1		0.1	%		112.0			112.4			(0.4)		(0.4)	%
Diluted Adjusted earnings per share(5)	$	1.29		$	1.06		$	0.23		21.8	%	$	3.52		$	3.49		$	0.02		0.6	%

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	Three Months Ended September 30,						Increase/			Percent		Nine Months Ended September 30,						Increase/			Percent
	2019			2018			(Decrease)			Change		2019			2018			(Decrease)			Change
	(in millions, except percentages, trading days, and as noted below)											(in millions, except percentages, trading days, and as noted below)
Options:
Average daily volume (ADV) (in millions of contracts):
Total touched contracts		7.7			6.7			1.0		14.9	%		7.4			7.6			(0.2)		(2.6)	%
Market ADV		19.8			18.3			1.5		8.2	%		19.4			19.8			(0.4)		(2.0)	%
Index contract ADV		2.0			1.8			0.2		11.1	%		1.9			2.1			(0.2)		(9.5)	%
Number of trading days		64			63			1		1.6	%		188			188			—		—	%
Total Options revenue per contract (RPC)	$	0.236		$	0.244		$	(0.008)		(3.3)	%	$	0.238		$	0.250		$	(0.012)		(4.8)	%
Multiply Listed Options RPC		0.056			0.068			(0.012)		(17.6)	%		0.060			0.064			(0.004)		(6.3)	%
Index Options RPC		0.751			0.737			0.014		1.9	%		0.740			0.730			0.010		1.4	%
Market share		39.0	%		36.8	%		2.2	%		*		37.9	%		38.5	%		(0.6)	%		*
U.S. Equities:
ADV:
Total touched shares (in billions)		1.2			1.2			—		—	%		1.2			1.4			(0.2)		(14.3)	%
Market ADV (in billions)		6.9			6.3			0.7		10.7	%		7.1			6.9			0.2		3.2	%
Trading days		64			63			1		1.6	%		188			188			—		—	%
Market share		17.2	%		17.5	%		(0.3)	%		*		16.3	%		18.6	%		(2.3)	%		*
U.S. Equities (net capture per one hundred touched shares)(6)	$	0.020		$	0.026		$	(0.006)		(23.1)	%	$	0.026		$	0.024		$	0.002		8.3	%
U.S. ETPs: launches (number of launches)		8			14			(6)		(42.9)	%		38			50			(12)		(24.0)	%
U.S. ETPs: listings (number of listings)		324			271			53		19.6	%		324			271			53		19.6	%
Futures:
ADV (in thousands)		279.0			238.8			40.2		16.8	%		256.3			287.2			(30.9)		(10.8)	%
Trading days		64			63			1		1.6	%		188			188			—		—	%
Revenue per contract	$	1.746		$	1.709		$	0.037		2.2	%	$	1.745		$	1.692		$	0.053		3.1	%
European Equities:																			��
ADNV:
Matched and touched ADNV (in billions)	€	6.8		€	9.6		€	(2.8)		(29.2)	%	€	8.1		€	10.3		€	(2.2)		(21.4)	%
Market ADNV (in billions)		34.2			41.4			(7.2)		(17.4)	%		38.8			46.5			(7.7)		(16.6)	%
Trading days		66			65			1		1.5	%		192			192			—		—	%
Market share		19.8	%		23.1	%		(3.3)	%		*		20.8	%		22.1	%		(1.3)	%		*
European Equities (net capture per matched notional value in basis points)(7)		0.233			0.195			0.038		19.5	%		0.221			0.189			0.032		16.9	%
Average Euro/British pound exchange rate	£	0.902		£	0.891		£	0.011		1.2	%	£	0.883		£	0.883		£	(0.001)		(0.1)	%
Global FX:
ADNV (in billions)	$	30.3		$	34.6		$	(4.3)		(12.4)	%	$	33.1		$	38.2		$	(5.1)		(13.4)	%
Trading days		66			65			1		1.5	%		194			194			—		—	%
Global FX (net capture per one million dollars traded)(8)		2.80			2.63			0.17		6.5	%		2.68			2.54			0.14		5.5	%
Average British pound/U.S. dollar exchange rate	$	1.233		$	1.303		$	(0.070)		(5.4)	%	$	1.273		$	1.352		$	(0.078)		(5.8)	%

*	Not meaningful

(1)

EBITDA is defined as income before interest, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before acquisition-related costs and impairment charges attributed to noncontrolling interest. EBITDA and adjusted EBITDA do not represent, and should not be considered as, alternatives to net income or cash flows from operations, each as determined in accordance with GAAP. We have presented EBITDA and adjusted EBITDA because we consider them important supplemental measures of our performance and believe that they are frequently used by analysts, investors and other interested parties in the evaluation of companies. In addition, we use adjusted EBITDA as a measure of operating performance for preparation of our forecasts and evaluating our leverage ratio for the debt to earnings covenant included in our outstanding credit facility. Other companies may calculate EBITDA and adjusted EBITDA differently than we do. EBITDA and adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.

(2)	EBITDA margin represents EBITDA divided by revenues less cost of revenues.

(3)	Adjusted EBITDA margin represents adjusted EBITDA divided by revenues less cost of revenues.

(4)

Adjusted earnings is defined as net income adjusted for amortization of purchased intangibles, acquisition-related costs, change in redemption value of noncontrolling interest, net income allocated to participating securities, and impairment charges attributed to noncontrolling interest, net of the income tax effects of these adjustments. Adjusted earnings does not represent, and should not be considered as, an alternative to net income, as determined in accordance with GAAP. We have presented adjusted earnings because we consider it an important supplemental

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measure of our performance and we use it as the basis for monitoring our own core operating financial performance relative to other operators of exchanges. We also believe that it is frequently used by analysts, investors and other interested parties in the evaluation of companies. We believe that investors may find this non-GAAP measure useful in evaluating our performance compared to that of peer companies in our industry. Other companies may calculate adjusted earnings differently than we do. Adjusted earnings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

(5)	Diluted Adjusted earnings per share represents Adjusted earnings divided by diluted weighted average shares outstanding.

(6)	Net capture per one hundred touched shares refers to transaction fees less liquidity payments and routing and clearing costs divided by the product of one-hundredth ADV of touched shares on BZX, BYX, EDGX and EDGA and the number of trading days for the period.

(7)	Net capture per matched notional value refers to transaction fees less liquidity payments in British pounds divided by the product of ADNV in British pounds of shares matched on Cboe Europe Limited and the number of trading days for the period.

(8)	Net capture per one million dollars traded refers to net transaction fees, divided by the product of one-millionth of ADNV traded on the Cboe FX market, the number of trading days, and two, which represents the buyer and seller that are both charged on the transaction for the period.

The following tables are reconciliations of net income allocated to common stockholders to EBITDA and adjusted EBITDA (in millions):


	Three Months Ended September 30,
	2019
	Options		U.S. Equities		Futures		European Equities		Global FX		Corporate		Total
	(in millions)
Net income (loss) allocated to common stockholders	$	86.6	$	35.7	$	26.1	$	3.1	$	(1.3)	$	(44.7)	$	105.5
Interest expense, net		—		—		—		(0.1)		—		8.3		8.2
Income tax provision		—		0.6		—		2.0		—		32.4		35.0
Depreciation and amortization		10.7		19.9		1.0		6.9		7.6		(3.2)		42.9
EBITDA		97.3		56.2		27.1		11.9		6.3		(7.2)		191.6
Acquisition-related costs		10.5		—		—		0.6		—		5.6		16.7
Adjusted EBITDA	$	107.8	$	56.2	$	27.1	$	12.5	$	6.3	$	(1.6)	$	208.3

	Three Months Ended September 30,
	2018
	Options		U.S. Equities		Futures		European Equities		Global FX		Corporate		Total
	(in millions)
Net income (loss) allocated to common stockholders	$	81.3	$	30.0	$	20.5	$	3.2	$	(1.9)	$	(48.1)	$	85.0
Interest expense, net		—		—		—		(0.1)		—		9.7		9.6
Income tax provision		—		0.4		—		2.3		—		27.9		30.6
Depreciation and amortization		12.0		21.2		0.4		7.6		8.4		0.7		50.3
EBITDA		93.3		51.6		20.9		13.0		6.5		(9.8)		175.5
Acquisition-related costs		1.0		—		—		0.4		0.1		4.4		5.9
Adjusted EBITDA	$	94.3	$	51.6	$	20.9	$	13.4	$	6.6	$	(5.4)	$	181.4

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	Nine Months Ended September 30,
	2019
	Options		U.S. Equities		Futures		European Equities		Global FX		Corporate		Total
	(in millions)
Net income (loss) allocated to common stockholders	$	244.8	$	108.6	$	63.6	$	10.0	$	(3.3)	$	(137.1)	$	286.6
Interest		—		—		—		(0.3)		—		28.4		28.1
Income tax provision (benefit)		—		1.3		—		7.0		—		94.4		102.7
Depreciation and amortization		29.7		57.5		1.8		21.4		22.5		0.9		133.8
EBITDA		274.5		167.4		65.4		38.1		19.2		(13.4)		551.2
Acquisition-related costs		20.0		—		—		1.2		0.3		18.3		39.8
Impairment charges attributed to noncontrolling interests		—		—		—		—		—		(3.6)		(3.6)
Adjusted EBITDA	$	294.5	$	167.4	$	65.4	$	39.3	$	19.5	$	1.3	$	587.4

	Nine Months Ended September 30,
	2018
	Options		U.S. Equities		Futures		European Equities		Global FX		Corporate		Total
	(in millions)
Net income (loss) allocated to common stockholders	$	272.7	$	100.0	$	62.8	$	10.5	$	(6.7)	$	(154.6)	$	284.7
Interest		—		—		—		(0.1)		—		28.6		28.5
Income tax provision (benefit)		0.8		1.5		—		7.7		0.1		98.6		108.7
Depreciation and amortization		35.5		66.1		1.8		23.7		26.4		1.4		154.9
EBITDA		309.0		167.6		64.6		41.8		19.8		(26.0)		576.8
Acquisition-related costs		14.3		—		—		1.2		0.1		7.7		23.3
Adjusted EBITDA	$	323.3	$	167.6	$	64.6	$	43.0	$	19.9	$	(18.3)	$	600.1

The following is a reconciliation of net income allocated to common stockholders to adjusted earnings (in millions):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions)				(in millions)
Net income allocated to common stockholders	$	105.5	$	85.0	$	286.6	$	284.7
Amortization		33.4		39.4		105.1		121.2
Acquisition-related costs		16.7		5.9		39.8		23.3
Change in redemption value of noncontrolling interest		0.1		0.3		0.5		0.9
Tax effect of adjustments		(11.0)		(12.1)		(34.2)		(37.7)
Impairment charges attributed to noncontrolling interests		—		—		(3.6)		—
Net income allocated to participating securities		(0.1)		(0.2)		(0.5)		(0.7)
Adjusted earnings	$	144.6	$	118.3	$	393.7	$	391.7

Revenues

Total revenues for the three months ended September 30, 2019 increased $99.5 million, or 17.3%, compared to the prior period, primarily due to a $54.0 million, or 13.1% increase in transaction fees as a result of increased market volumes in Options, U.S. Equities and Futures, coupled with an increase in regulatory fees. Total revenues for the nine months ended September 30, 2019 decreased $123.6 million, or 6.1%, compared to the prior period, primarily due to a $101.7 million, or 7.1% decrease in transaction fees as the result of a decline in overall market volumes across all

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segments, coupled with a decline in regulatory fees. The following summarizes changes in revenues for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018:


	Three Months Ended								Nine Months Ended
	September 30,				Increase/		Percent		September 30,				Increase/		Percent
	2019		2018		(Decrease)		Change		2019		2018		(Decrease)		Change
	(in millions, except percentages)								(in millions, except percentages)
Transaction fees	$	465.8	$	411.8	$	54.0	13.1	%	$	1,322.0	$	1,423.7	$	(101.7)	(7.1)	%
Access and capacity fees		55.7		53.6		2.1	3.9	%		164.6		156.4		8.2	5.2	%
Market data fees		56.3		47.6		8.7	18.3	%		159.7		154.3		5.4	3.5	%
Regulatory fees		88.1		55.2		32.9	59.6	%		226.5		260.8		(34.3)	(13.2)	%
Other revenue		9.5		7.7		1.8	23.4	%		24.7		25.9		(1.2)	(4.6)	%
Total revenues	$	675.4	$	575.9	$	99.5	17.3	%	$	1,897.5	$	2,021.1	$	(123.6)	(6.1)	%

Transaction Fees

Transaction fees increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an 8.2% increase in overall options market ADV, including an 11.1% increase in index options ADV, a 9.5% increase in U.S. Equities market ADV, and a 16.8% increase in Futures ADV. For the nine months ended September 30, 2019, the decrease was primarily due to a 2.0% decline in overall options market ADV, including a 9.5% decline in index options ADV, a 2.9% point decline in U.S. Equities market share, and a 16.6% decrease in European Equities ADNV when compared to the same period in 2018.

Access Fees and Capacity Fees

Access and capacity fees increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. For the three months ended September 30, 2019, the increase was primarily due to an increase in subscribers on Cboe Options. For the nine months ended September 30, 2019, the increase was primarily due to an increase in subscribers on Cboe Options and new technology offerings on C2 and CFE.

Market Data Fees

Market data fees increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. For the three months ended September 30, 2019, the increase was primarily due to an increase in tape plan market data revenue within the U.S. Equities segment, primarily as a result of audit recoveries of $4.3 million, as well as an increase of $3.2 million within the Options segment due to an increase in subscribers. For the nine months ended September 30, 2019, the increase was primarily due to an increase of $9.6 million within the Options segment due to an increase in subscribers, offset by a decline in tape plan market data revenue within the U.S. Equities segment of $3.8 million as the result of a decline in market share.

Regulatory Fees

Regulatory fees increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in the Section 31 fee rate from $13.00 per million dollars of covered sales for the three months ended September 30, 2018 to $20.70 per million dollars of covered sales for the three months ended September 30, 2019. The decrease for the nine months ended September 30, 2019 was primarily due to a decline in volumes in the U.S. Equities and Options segments.

Other Revenue

Other revenue increased for the three months ended September 30, 2019 compared to the same period in 2018, primarily due to incremental equity received as the result of an agreement with American Financial Exchange, LLC for the launch of new products on CFE. The decrease for the nine months ended September 30, 2019 was primarily due to a decline in licensing revenue, partially offset by additional trade reporting services revenue and listings fees.

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Cost of Revenues

Cost of revenues increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to higher liquidity payments as a result of pricing changes that led to an increase in volumes traded on the U.S. Equities and Options exchanges, which increased $40.5 million, coupled with an increase in Section 31 fees within the U.S. Equities and Options segments, which increased $29.3 million and $3.3 million, respectively. Cost of revenues decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to lower liquidity payments driven by a decrease in volumes traded on the U.S. Equities and Options exchanges, as well as a decrease in Section 31 fees within the U.S. Equities and Options segments, which decreased $36.8 million and $2.0 million, respectively. The following summarizes changes in cost of revenues for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018:


	Three Months Ended								Nine Months Ended
	September 30,				Increase/		Percent		September 30,				Increase/		Percent
	2019		2018		(Decrease)		Change		2019		2018		(Decrease)		Change
	(in millions, except percentages)								(in millions, except percentages)
Liquidity payments	$	269.7	$	229.2	$	40.5	17.7	%	$	749.2	$	803.2	$	(54.0)	(6.7)	%
Routing and clearing		9.3		8.7		0.6	6.9	%		27.7		28.8		(1.1)	(3.8)	%
Section 31 fees		79.4		46.8		32.6	69.7	%		197.9		236.7		(38.8)	(16.4)	%
Royalty fees		22.9		20.7		2.2	10.6	%		65.8		69.9		(4.1)	(5.9)	%
Other		0.1		—		0.1	100.0	%		0.3		—		0.3	100.0	%
Total	$	381.4	$	305.4	$	76.0	24.9	%	$	1,040.9	$	1,138.6	$	(97.7)	(8.6)	%

Liquidity Payments

Liquidity payments increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to higher liquidity payments as a result of pricing changes that led to an increase in volumes traded on the U.S. Equities and Options exchanges. Liquidity payments decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to a decrease in volumes traded on the U.S. Equities and Options exchanges.

Routing and Clearing

The increase in routing and clearing fees for the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to an increase in routed trades in the U.S. Equities segment, partially offset by a decrease in fees per 100 routed shares. Routing and clearing fees decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to a decrease in routed trades in the U.S. Equities segment coupled with a decrease in fees per 100 routed shares.

Section 31 Fees

Section 31 fees increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in the Section 31 fee rate from $13.00 per million dollars of covered sales for the three months ended September 30, 2018 to $20.70 per million dollars of covered sales for the three months ended September 30, 2019. For the nine months ended September 30, 2019, the decrease was primarily due to a decline in volumes in the U.S. Equities and Options segments.

Royalty Fees

Royalty fees increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in trading volume in licensed products. For the nine months ended September 30, 2019, the decrease was primarily due to lower trading volumes in licensed products.

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Revenues Less Cost of Revenues

Revenues less cost of revenues increased $23.5 million, or 8.7%, for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to a $12.9 million, or 7.4%, increase in transaction fees less liquidity payments and routing and clearing costs and an $8.7 million, or 18.3%, increase in market data fees. Revenues less cost of revenues decreased $25.9 million, or 2.9%, for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to a $46.6 million, or 7.9%, decrease in transaction fees less liquidity payments and routing and clearing costs, partially offset by an increase in access and capacity fees and market data fees. The following tables summarize the components of revenues less cost of revenues for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018:


	Three Months Ended								Nine Months Ended
	September 30,				Increase/		Percent		September 30,				Increase/			Percent
	2019		2018		(Decrease)		Change		2019		2018		(Decrease)		��	Change
	(in millions, except percentages)								(in millions, except percentages)
Transaction fees less liquidity payments and routing and clearing costs	$	186.8	$	173.9	$	12.9	7.4	%	$	545.1	$	591.7	$	(46.6)		(7.9)	%
Access and capacity fees		55.7		53.6		2.1	3.9	%		164.6		156.4		8.2		5.2	%
Market data fees		56.3		47.6		8.7	18.3	%		159.7		154.3		5.4		3.5	%
Regulatory fees, less Section 31 fees		8.7		8.4		0.3	3.6	%		28.6		24.1		4.5		18.7	%
Royalty fees		(22.9)		(20.7)		(2.2)	10.6	%		(65.8)		(69.9)		4.1		(5.9)	%
Other		9.4		7.7		1.7	22.1	%		24.4		25.9		(1.5)		(5.8)	%
Revenues less cost of revenues	$	294.0	$	270.5	$	23.5	8.7	%	$	856.6	$	882.5	$	(25.9)		(2.9)	%

Transaction Fees Less Liquidity Payments and Routing and Clearing Costs

Transaction fees less liquidity payments and routing and clearing costs (“Net Transaction Fees”) increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an 11.1% increase in index options ADV, coupled with a 16.8% increase in Futures ADV compared to the same period in 2018. The decrease for the nine months ended September 30, 2019 was primarily due to a 2.0% decline in overall options market ADV, including a 9.5% decrease in index options ADV, a 10.8% decrease in Futures ADV, and a 16.6% decrease in European Equities ADNV when compared to the same period in 2018.

Access and Capacity Fees

Market Data Fees

Market data fees increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. For the three months ended September 30, 2019, the increase was primarily due to an increase in tape plan market data revenue within the U.S. Equities segment, primarily as a result of audit recoveries of $4.3 million, as well as an increase of $3.2 million within the Options segment due to an increase in subscribers. For the nine months ended September 30, 2019, the increase was primarily due to an increase of $9.6 million within the Options segment, offset by a decline in tape plan market data revenue within the U.S. Equities segment of $3.8 million as the result of a decline in market share.

Regulatory Fees, less Section 31 Fees

Regulatory fees, less Section 31 Fees, increased in the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily due to an increase in fines and assessment fees.

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Royalty Fees

Other

Operating Expenses

Total operating expenses increased $2.2 million, or 1.5%, for the three months ended September 30, 2019 primarily due to an increase in acquisition-related costs, partially offset by a decline in depreciation and amortization and compensation and benefits. Total operating expenses decreased $21.0 million, or 4.6% for the nine months ended September 30, 2019 compared to the prior year period, primarily due to a decline in depreciation and amortization and compensation and benefits, offset by an increase in acquisition-related costs. The following summarizes changes in operating expenses for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018:


	Three Months Ended								Nine Months Ended
	September 30,				Increase/		Percent		September 30,				Increase/		Percent
	2019		2018		(Decrease)		Change		2019		2018		(Decrease)		Change
	(in millions, except percentages)								(in millions, except percentages)
Operating Expenses:
Compensation and benefits	$	49.7	$	51.8	$	(2.1)	(4.1)	%	$	150.0	$	168.1	$	(18.1)	(10.8)	%
Depreciation and amortization		42.9		50.3		(7.4)	(14.7)	%		133.8		154.9		(21.1)	(13.6)	%
Technology support services		10.6		10.6		—	—	%		34.3		34.5		(0.2)	(0.6)	%
Professional fees and outside services		17.5		16.6		0.9	5.4	%		52.9		51.9		1.0	1.9	%
Travel and promotional expenses		2.7		2.6		0.1	3.8	%		8.3		9.8		(1.5)	(15.3)	%
Facilities costs		2.7		3.3		(0.6)	(18.2)	%		7.8		8.6		(0.8)	(9.3)	%
Acquisition-related costs		16.7		5.9		10.8	183.1	%		39.8		23.3		16.5	70.8	%
Other expenses		3.8		3.3		0.5	15.2	%		11.7		8.5		3.2	37.6	%
Total operating expenses	$	146.6	$	144.4	$	2.2	1.5	%	$	438.6	$	459.6	$	(21.0)	(4.6)	%

Compensation and Benefits

Compensation and benefits decreased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. For the three months ended September 30, 2019, the decline was primarily due to a $2.0 million decrease in equity compensation due to the acceleration of stock-based compensation in 2019, as well as a $1.9 million decline in accrued bonuses for the period, partially offset by a $2.8 million increase in benefits expense related to one-time true up adjustments made in 2018 that were nonrecurring. For the nine months ended September 30, 2019, the decrease was primarily due to an $12.9 million decline in accrued bonuses for the period, a $6.8 million decrease in equity compensation as a result of forfeitures of unvested equity awards in the first quarter of 2019, and a $1.1 million decrease in salaries and wages expense, offset by compensation expense for the deferred compensation plans of $3.7 million.

Depreciation and Amortization

Depreciation and amortization decreased for the three and nine months ended September 30, 2019 compared to the same period in 2018 primarily due to a decline in amortization due to the accelerated cash flow method for the intangibles acquired in the Bats acquisition as well as a change in the accounting classification for the Chicago headquarters building to held for sale, which resulted in depreciation ceasing on the building.

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Technology Support Services

Technology support services costs were relatively flat for the three and nine months ended September 30, 2019 compared to the same periods in 2018.

Professional Fees and Outside Services

Professional fees and outside services increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. For the three months ended September 30, 2019, the increase was primarily due to increased legal expenses of $3.1 million, offset by a $1.2 million decline in consulting fees and a $1.1 million decline in regulatory service fees. For the nine months ended September 30, 2019, the increase was primarily due to an increase in legal expenses of $5.2 million, offset by a $4.0 million decline in regulatory service fees.

Travel and Promotional Expenses

Travel and promotional expenses were relatively flat for the three months ended September 30, 2019 compared to the same period in 2018, and decreased for the nine months ended September 30, 2019 primarily due to a $0.8 million reduction in marketing expenses and a $0.6 million reduction in travel expenses.

Facilities Costs

Facilities costs decreased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. For the three months ended September 30, 2019, the decrease was primarily due to a $0.5 million decline in real estate taxes. For the nine months ended September 30, 2019, the decrease was primarily due to a $1.5 million decrease in deferred rent expenses and a $0.5 million decrease in repairs and maintenance expenses, partially offset by a $0.4 million increase in utilities expenses.

Acquisition-Related Costs

Acquisition-related costs increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to severance costs incurred in the third quarter of 2019. Acquisition-related costs increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in severance costs, impairment charges recorded, the write down of goodwill attributed to a 2016 acquisition and the write down of the Chicago headquarters location attributed to the reduction in employee workspace needed in Chicago as a result of the Bats acquisition. Acquisition-related costs include fees for investment banking advisors, lawyers, accountants, tax advisors, public relations firms, severance and retention costs, impairment of goodwill, capitalized software and facilities, and other external costs directly related to the mergers and acquisitions, as well as compensation-related expenses.

Other Expenses

Other expenses increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in other miscellaneous expenses of $0.6 million and an increase in insurance expense of $0.2 million, partially offset by a decrease in record storage costs of $0.4 million. Other expenses increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to bad debt expense of $0.7 million, additional value-added taxes of $0.6 million, an increase in training and conference expenses of $0.6 million, an increase in miscellaneous office expenses of $0.4 million, and increase in insurance expenses of $0.4 million.

Operating Income

As a result of the items above, operating income for the three and nine months ended September 30, 2019 was $147.4 million and $418.0 million compared to $126.1 million and $422.9 million, respectively, for same periods in 2018.

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Interest Expense, Net

Net interest expense decreased in the three and nine months ended September 30, 2019 compared to the same periods in 2018 due to the repayment of the 1.950% Senior Notes during the second quarter of 2019, offset by the increase in the variable interest rate on the term loan agreement from September 30, 2018 to September 30, 2019.

Other (Expense) Income

Other income increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to a reimbursement by the OCC of taxes paid as a result of the return of capital in the first quarter of 2019. Other income decreased for the nine months ended September 30, 2019 compared to the same periods in 2018 due to the reversal of the $8.8 million OCC dividend declared in 2018, which was to be paid in 2019, as a result of the SEC’s disapproval of the OCC capital plan during the first quarter of 2019, partially offset by deferred compensation plan asset income of $3.7 million.

Income Before Income Tax Provision

As a result of the above, income before income tax provision for the three months ended September 30, 2019 was $140.9 million compared to $116.3 million, for the same period in 2018, an increase of $24.6 million.

As a result of the above, income before income tax provision for the nine months ended September 30, 2019 was $387.2 million compared to $395.5 million for the same period in 2018, a decrease of $8.3 million.

Income Tax Provision

Net Income

As a result of the items above, net income for the three months ended September 30, 2019 was $105.9 million compared to $85.7 million for the three months ended September 30, 2018, an increase of $20.2 million.

As a result of the items above, net income for the nine months ended September 30, 2019 was $284.5 million compared to $286.8 million for the nine months ended September 30, 2018, a decrease of $2.3 million.

Segment Operating Results

We report results from our five segments: Options, U.S. Equities, Futures, European Equities, and Global FX. Segment performance is primarily based on operating income (loss). We have aggregated all corporate costs, as well as other business ventures, within the Corporate Items and Eliminations as those activities should not be used to evaluate a segment’s operating performance. All operating expenses that relate to activities of a specific segment have been allocated to that segment.

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The following summarizes our total revenues by segment:


							Percentage of										Percentage of
							Total										Total
							Revenues										Revenues
	Three Months Ended						Three Months Ended				Nine Months Ended						Nine Months Ended
	September 30,				Percent		September 30,				September 30,				Percent		September 30,
	2019		2018		Change		2019		2018		2019		2018		Change		2019		2018
	(in millions, except percentages)										(in millions, except percentages)
Options	$	266.1	$	228.6	16.4	%	39.4	%	39.7	%	$	743.2	$	766.8	(3.1)	%	39.2	%	37.9	%
U.S. Equities		330.7		271.9	21.6	%	49.1	%	47.2	%		925.2		1,005.6	(8.0)	%	48.9	%	49.8	%
Futures		39.6		31.2	26.9	%	5.9	%	5.4	%		103.9		107.7	(3.5)	%	5.5	%	5.4	%
European Equities		25.9		30.6	(15.4)	%	3.8	%	5.3	%		84.9		97.9	(13.3)	%	4.5	%	4.8	%
Global FX		13.1		13.6	(3.7)	%	1.9	%	2.4	%		40.1		42.7	(6.1)	%	2.1	%	2.1	%
Corporate		—		—	—	%	—	%	—	%		0.2		0.4	(50.0)	%	—	%	—	%
Total revenues	$	675.4	$	575.9	17.3	%	100.0	%	100.0	%	$	1,897.5	$	2,021.1	(6.1)	%	100.0	%	100.0	%

The following summarizes our revenues less cost of revenues by segment:


							Percentage of										Percentage of
							Total Revenues										Total Revenues
							Less Cost of Revenues										Less Cost of Revenues
	Three Months Ended						Three Months Ended				Nine Months Ended						Nine Months Ended
	September 30,				Percent		September 30,				September 30,				Percent		September 30,
	2019		2018		Change		2019		2018		2019		2018		Change		2019		2018
	(in millions, except percentages)										(in millions, except percentages)
Options	$	146.5	$	133.2	10.0	%	49.8	%	49.2	%	$	424.7	$	436.7	(2.7)	%	49.7	%	49.5	%
U.S. Equities		75.4		71.4	5.6	%	25.6	%	26.5	%		225.3		228.7	(1.5)	%	26.3	%	25.9	%
Futures		38.3		30.0	27.7	%	13.0	%	11.1	%		100.4		103.7	(3.2)	%	11.8	%	11.8	%
European Equities		20.7		22.3	(7.2)	%	7.0	%	8.2	%		65.9		70.3	(6.3)	%	7.7	%	8.0	%
Global FX		13.1		13.6	(3.7)	%	4.5	%	5.0	%		40.1		42.7	(6.1)	%	4.7	%	4.8	%
Corporate		—		—	—	%	—	%	—	%		0.2		0.4	(50.0)	%	—	%	—	%
Total revenues less cost of revenues	$	294.0	$	270.5	8.7	%	100.0	%	100.0	%	$	856.6	$	882.5	(2.9)	%	100.0	%	100.0	%

Options

The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Options segment:


									Percentage												Percentage
									of Total												of Total
									Revenues												Revenues
	Three Months Ended								Three Months Ended				Nine Months Ended								Nine Months Ended
	September 30,						Percent		September 30,				September 30,						Percent		September 30,
	2019			2018			Change		2019		2018		2019			2018			Change		2019		2018
	(in millions, except percentages)												(in millions, except percentages)
Revenues less cost of revenues	$	146.5		$	133.2		10.0	%	55.1	%	58.3	%	$	424.7		$	436.7		(2.7)	%	57.1	%	57.0	%
Operating expenses		61.1			51.1		19.6	%	23.0	%	22.4	%		172.2			162.9		5.7	%	23.2	%	21.2	%
Operating income	$	85.4		$	82.1		4.0	%	32.1	%	35.9	%	$	252.5		$	273.8		(7.8)	%	34.0	%	35.7	%
EBITDA(1)	$	97.3		$	93.3		4.3	%	36.6	%	40.8	%	$	274.5		$	309.0		(11.2)	%	36.9	%	40.3	%
EBITDA margin(2)		66.4	%		70.0	%	*		*		*			64.6	%		70.8	%	*		*		*

*	Not meaningful

(1)	See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures.

(2)	EBITDA margin represents EBITDA divided by revenues less cost of revenues.

Revenues less cost of revenues increased $13.3 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to an 8.2% increase in overall options market ADV, including an 11.1% increase in index options ADV. For the three months ended September 30, 2019, the Options segment’s operating income increased $3.3 million compared to the three months ended September 30, 2018, due to higher revenues less cost of revenues. Operating expenses increased $10.0 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to increases in acquisition-related costs and professional fees and outside services, offset by a decrease in depreciation and amortization.

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Revenues less cost of revenues decreased $12.0 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to a 2.0% decline in overall options market ADV, including a 9.5% decline in index options ADV. For the nine months ended September 30, 2019, the Options segment’s operating income decreased $21.3 million compared to the nine months ended September 30, 2018, due to lower revenues less cost of revenues. Operating expenses increased $9.3 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to increases in acquisition-related costs and higher compensation and benefits expense, as more cost was allocated to this segment due to the work of migrating Cboe Options to the Bats technology platform in 2019.

U.S. Equities

The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our U.S. Equities segment:


									Percentage												Percentage
									of Total												of Total
									Revenues												Revenues
	Three Months Ended								Three Months Ended				Nine Months Ended								Nine Months Ended
	September 30,						Percent		September 30,				September 30,						Percent		September 30,
	2019			2018			Change		2019		2018		2019			2018			Change		2019		2018
	(in millions, except percentages)												(in millions, except percentages)
Revenues less cost of revenues	$	75.4		$	71.4		5.6	%	22.8	%	26.3	%	$	225.3		$	228.7		(1.5)	%	24.4	%	22.7	%
Operating expenses		39.0			40.8		(4.4)	%	11.8	%	15.0	%		114.9			126.8		(9.4)	%	12.4	%	12.6	%
Operating income	$	36.4		$	30.6		19.0	%	11.0	%	11.3	%	$	110.4		$	101.9		8.3	%	11.9	%	10.1	%
EBITDA(1)	$	56.2		$	51.6		8.9	%	17.0	%	19.0	%	$	167.4		$	167.6		(0.1)	%	18.1	%	16.7	%
EBITDA margin(2)		74.5	%		72.3	%	*		*		*			74.3	%		73.3	%	*		*		*

*	Not meaningful

(1)	See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures.

(2)	EBITDA margin represents EBITDA divided by revenues less cost of revenues.

Revenues less cost of revenues increased $4.0 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to higher market data revenue from the industry tape plan, which included audit recoveries of $4.3 million. For the three months ended September 30, 2019, the U.S. Equities segment’s operating income increased $5.8 million compared to the three months ended September 30, 2018, due to higher revenues less cost of revenue. Operating expenses decreased $1.8 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to decreases in depreciation and amortization and technology support services costs, partially offset by higher compensation and benefits costs.

Revenues less cost of revenues decreased $3.4 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to a 2.3% decline in market share partially offset by industry market data audit recoveries. For the nine months ended September 30, 2019, the U.S. Equities segment’s operating income increased $8.5 million compared to the nine months ended September 30, 2018, due to lower operating expenses. Operating expenses decreased $11.9 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to decreases in depreciation and amortization professional fees and technology support services.

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Futures

The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Futures segment:


									Percentage												Percentage
									of Total												of Total
									Revenues												Revenues
	Three Months Ended								Three Months Ended				Nine Months Ended								Nine Months Ended
	September 30,						Percent		September 30,				September 30,						Percent		September 30,
	2019			2018			Change		2019		2018		2019			2018			Change		2019		2018
	(in millions, except percentages)												(in millions, except percentages)
Revenues less cost of revenues	$	38.3		$	30.0		27.7	%	96.7	%	96.2	%	$	100.4		$	103.7		(3.2)	%	96.6	%	96.3	%
Operating expenses		12.1			9.4		28.7	%	30.6	%	30.1	%		36.5			40.6		(10.1)	%	35.1	%	37.7	%
Operating income	$	26.2		$	20.6		27.2	%	66.2	%	66.0	%	$	63.9		$	63.1		1.3	%	61.5	%	58.6	%
EBITDA(1)	$	27.1		$	20.9		29.7	%	68.4	%	67.0	%	$	65.4		$	64.6		1.2	%	62.9	%	60.0	%
EBITDA margin(2)		70.8	%		69.7	%	*		*		*			65.1	%		62.3	%	*		*		*

*	Not meaningful

(1)	See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures.

(2)	EBITDA margin represents EBITDA divided by revenues less cost of revenues.

Revenues less cost of revenues increased $8.3 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to a 16.8% increase in Futures ADV. For the three months ended September 30, 2019, the Futures segment’s operating income increased $5.6 million compared to the three months ended September 30, 2018, due to higher revenues less cost of revenues. Operating expenses increased $2.7 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to an increase in compensation and benefits.

Revenues less cost of revenues decreased $3.3 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to a 10.8% decline in Futures ADV. For the nine months ended September 30, 2019, the Futures segment’s operating income increased $0.8 million compared to the nine months ended September 30, 2018, due to lower revenues less cost of revenues. Operating expenses decreased $4.1 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to decreases in compensation and benefits.

European Equities

The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our European Equities segment:


									Percentage												Percentage
									of Total												of Total
									Revenues												Revenues
	Three Months Ended								Three months ended				Nine Months Ended								Nine months ended
	September 30,						Percent		September 30,				September 30,						Percent		September 30,
	2019			2018			Change		2019		2018		2019			2018			Change		2019		2018
	(in millions, except percentages)												(in millions, except percentages)
Revenues less cost of revenues	$	20.7		$	22.3		(7.2)	%	79.9	%	72.9	%	$	65.9		$	70.3		(6.3)	%	77.6	%	71.8	%
Operating expenses		15.9			16.9		(5.9)	%	61.4	%	55.2	%		49.6			52.2		(5.0)	%	58.4	%	53.3	%
Operating income	$	4.8		$	5.4		(11.1)	%	18.5	%	17.6	%	$	16.3		$	18.1		(9.9)	%	19.2	%	18.5	%
EBITDA(1)	$	11.9		$	13.0		(8.5)	%	45.9	%	42.5	%	$	38.1		$	41.8		(8.9)	%	44.9	%	42.7	%
EBITDA margin(2)		57.5	%		58.3	%	*		*		*			57.8	%		59.5	%	*		*		*

*Not meaningful

(1)	See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA, and management’s reasons for using such non-GAAP measures.

(2)	EBITDA margin represents EBITDA divided by revenues less cost of revenues.

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Revenues less cost of revenues decreased $1.6 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to a 17.4% decline in European Equities ADNV as well as the exchange rate impact from British Pounds to U.S. Dollars. For the three months ended September 30, 2019, the European Equities segment’s operating income decreased $0.6 million compared to the three months ended September 30, 2018, due to lower revenues less cost of revenues. Operating expenses decreased $1.0 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to decreases in compensation and benefits and depreciation and amortization, as well as the exchange rate impact from British Pounds to U.S. Dollars.

Revenues less cost of revenues decreased $4.4 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to a 16.6% decline in European Equities ADNV as well as the exchange rate impact from British Pounds to U.S. Dollars. For the nine months ended September 30, 2019, the European Equities segment’s operating income decreased $1.8 million compared to the nine months ended September 30, 2018, due to lower revenues less cost of revenues. Operating expenses decreased $2.6 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to decreases in compensation and benefits and depreciation and amortization.

Global FX

The following summarizes revenues less cost of revenues, operating expenses, operating income, EBITDA, and EBITDA margin for our Global FX segment:


									Percentage												Percentage
									of Total												of Total
									Revenues												Revenues
	Three Months Ended								Three Months Ended				Nine Months Ended								Nine Months Ended
	September 30,						Percent		September 30,				September 30,						Percent		September 30,
	2019			2018			Change		2019		2018		2019			2018			Change		2019		2018
	(in millions, except percentages)												(in millions, except percentages)
Revenues less cost of revenues	$	13.1		$	13.6		(3.7)	%	100.0	%	100.0	%	$	40.1		$	42.7		(6.1)	%	100.0	%	100.0	%
Operating expenses		14.4			15.5		(7.1)	%	109.9	%	114.0	%		43.4			49.3		(12.0)	%	108.2	%	115.5	%
Operating loss	$	(1.3)		$	(1.9)		(31.6)	%	(9.9)	%	(14.0)	%	$	(3.3)		$	(6.6)		(50.0)	%	(8.2)	%	(15.5)	%
EBITDA(1)	$	6.3		$	6.5		(3.1)	%	48.1	%	47.8	%	$	19.2		$	19.8		(3.0)	%	47.9	%	46.4	%
EBITDA margin(2)		48.1	%		47.8	%	*		*		*			47.9	%		46.4	%	*		*		*

*	Not meaningful

(1)	See footnote (1) to the table under “Financial Summary” above for a reconciliation of net income to EBITDA and adjusted EBITDA, and management’s reasons for using such non-GAAP measures.

(2)	EBITDA margin represents EBITDA divided by revenues less cost of revenues.

Revenues less cost of revenues decreased $0.5 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to a 12.4% decline in Global FX ADNV. For the three months ended September 30, 2019, the Global FX segment’s operating loss decreased $0.6 million compared to the three months ended September 30, 2018, due to lower operating expenses. Operating expenses declined $1.1 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily due to decreases in compensation and benefits and depreciation and amortization.

Revenues less cost of revenues decreased $2.6 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to a 13.4% decline in Global FX ADNV. For the nine months ended September 30, 2019, the Global FX segment’s operating loss decreased $3.3 million compared to the nine months ended September 30, 2018, due to lower operating expenses. Operating expenses decreased $5.9 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to decreases in compensation and benefits and depreciation and amortization.

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Liquidity and Capital Resources

We expect our cash on hand at September 30, 2019 and other available resources, including cash generated from operations, to be sufficient to continue to meet our cash requirements for the foreseeable future. In the near term, we expect that our cash from operations and availability under our revolving credit facility will meet our cash needs to fund our operations, capital expenditures, interest payments on debt, any dividends, potential strategic acquisitions, and opportunities for common stock repurchases under the previously announced program. We also plan to utilize excess cash on hand to pay down amounts outstanding under the Term Loan Agreement. See Note 11 (“Debt”) of the condensed consolidated financial statements for further information. Our long-term cash needs will depend on many factors including an introduction of new products, enhancements of current products, the geographic mix of our business and any potential acquisitions. We believe our cash from operations and the availability under our revolving credit facility will meet any long-term needs unless a significant acquisition is identified, in which case we expect that we would be able to borrow the necessary funds or issue debt to complete such an acquisition.

Cash and cash equivalents include cash in banks and all non-restricted, highly liquid investments with original maturities of three months or less at the time of purchase. Cash and cash equivalents as of September 30, 2019 decreased $125.1 million from December 31, 2018, primarily due to the repayment of the aggregate principal balance of the 1.950% Senior Notes, offset by our results from operations. See “—Cash Flow” below for further discussion.

Our cash and cash equivalents held outside of the United States in various foreign subsidiaries totaled $54.8 million as of September 30, 2019. The remaining balance was held in the United States and totaled $95.2 million as of September 30, 2019. Our cash and cash equivalents held outside of the United States as of December 31, 2018 totaled $72.9 million, and are held in various foreign subsidiaries. The majority of cash held outside the United States is available for repatriation, but under current law, could subject us to additional United States income taxes, less applicable foreign tax credits.

Our financial investments include deferred compensation plan assets as well as investments with original or acquired maturities longer than three months but that mature in less than one year from the balance sheet date and are recorded at fair value. As of September 30, 2019 financial investments consisted of U.S. Treasury securities and deferred compensation plan assets. As of December 31, 2018, financial investments consisted of U.S. Treasury securities.

Cash Flow

The following table summarizes our cash flow data for the nine months ended September 30, 2019 and 2018, respectively:


		Nine Months Ended
		September 30,
	��	2019		2018
		(in millions)
Net cash provided by operating activities		$	395.1	$	308.1
Net cash provided by investing activities			31.3		17.9
Net cash used in financing activities			(549.0)		(332.3)
Effect of foreign currency exchange rate changes on cash and cash equivalents			(2.5)		(0.4)
Decrease in cash and cash equivalents		$	(125.1)	$	(6.7)

Net Cash Flows Provided by Operating Activities

During the nine months ended September 30, 2019, net cash provided by operating activities was $110.6 million greater than net income. The variance is primarily attributed to the adjustment for depreciation expense of $133.8 million, the change in accounts receivable of $51.5 million, partially offset by the change in Section 31 fee payable of $55.7 million and the change in accounts payable and accrued liabilities of $39.6 million for the nine months ended September 30, 2019.

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Net Cash Flows Provided by Investing Activities

Net cash flows provided by investing activities for the nine months ended September 30, 2019 and 2018 were $31.3 million and $17.9 million, respectively. The variance is primarily due to the proceeds from maturities of available-for-sale financial investments, partially offset by the purchases of available-for-sale financial investments for the nine months ended September 30, 2019.

Net Cash Flows Used in Financing Activities

Net cash flows used in financing activities for the nine months ended September 30, 2019 and 2018 were $549.0 million and 332.3 million, respectively. The variance is primarily attributed to the debt repayments in June 2019 and September 2019.

Financial Assets

The following summarizes our financial assets as of September 30, 2019 and December 31, 2018 (in millions):


	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	150.0	$	275.1
Financial investments		21.4		35.7
Less deferred compensation plan assets		(20.9)		—
Less cash collected for Section 31 Fees		—		(53.1)
Adjusted Cash (1)	$	150.5	$	257.7

(1)

Adjusted cash is a non-GAAP measure and represents cash and cash equivalents plus financial investments, minus deferred compensation plan assets and cash collected for Section 31 fees. We have presented adjusted cash because we consider it an important supplemental measure of our liquidity and believe that it is frequently used by analysts, investors and other interested parties in the evaluation of companies.

Debt

The following summarizes our debt obligations as of September 30, 2019 and December 31, 2018 (in millions):


	September 30, 2019		December 31, 2018
Term Loan Agreement	$	225.0	$	275.0
3.650% Senior Notes		650.0		650.0
1.950% Senior Notes		—		300.0
Revolving Credit Agreement		—		—
Less unamortized discount and debt issuance costs		(7.9)		(9.6)
Total debt	$	867.1	$	1,215.4

As of September 30, 2019 and December 31, 2018, we were in compliance with the covenants of our debt agreements.

In addition to the debt outstanding, as of September 30, 2019, we had an additional $150.0 million available through our revolving credit facility, with the ability to borrow another $100.0 million by increasing the commitments under the facility. Together with adjusted cash, we had $300.5 million available to fund our operations, capital expenditures, potential acquisitions, debt repayments and any dividends as of September 30, 2019.

Dividends

The Company’s expectation is to continue to pay dividends. The decision to pay a dividend, however, remains within the discretion of the Company's board of directors and may be affected by various factors, including our earnings,

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financial condition, capital requirements, level of indebtedness and other considerations our board of directors deems relevant. Future debt obligations and statutory provisions, among other things, may limit, or in some cases prohibit, our ability to pay dividends.

Share Repurchase Program

In 2011, the board of directors approved an initial authorization for the Company to repurchase shares of its outstanding common stock of $100 million and approved additional authorizations of $100 million in each of 2012, 2013, 2014, 2015 and 2016, $150 million in February 2018, and $100 million in August 2018, for a total authorization of $850 million. The program permits the Company to purchase shares through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate the Company to make any repurchases at any specific time or situation.

Under the program, for the three months ended September 30, 2019, the Company repurchased 453,319 shares of common stock at an average cost per share of $115.49, totaling $52.4 million.

Since inception of the program through September 30, 2019, the Company has repurchased 13,115,567 shares of common stock at an average cost per share of $55.76, totaling $731.3 million.

As of September 30, 2019, the Company had $118.7 million of availability remaining under its existing share repurchase authorizations.

Commercial Commitments and Contractual Obligations

As of September 30, 2019, our commercial commitments and contractual obligations included real property leases, operating leases, data and telecommunications agreements, equipment leases, our long-term debt outstanding, contingent consideration and other obligations. See Note 21 (“Commitments and Contingencies”) to the condensed consolidated financial statements for a discussion of commitments and contingencies, Note 11 (“Debt”) for a discussion of the outstanding long-term debt, and Note 22 (“Leases”) for discussion on real property leases, operating leases and equipment leases.

Off Balance Sheet Arrangements

As of September 30, 2019, we did not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a result of our operating activities, we are exposed to market risks such as foreign currency exchange rate risk, equity risk, credit risk, and interest rate risk. We have implemented policies and procedures to measure, manage and monitor and report risk exposures, which are reviewed regularly by management and our board of directors.

Foreign Currency Exchange Rate Risk

Our operations in Europe and Asia are subject to increased currency translation risk as revenues and expenses are denominated in foreign currencies, primarily the British pound, Singapore dollar, Hong Kong dollar, and the Euro. We also have de minimis exposure to other foreign currencies, including the Swiss Franc, Norwegian Kroner, Swedish Krona and Danish Kroner.

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For the three and nine months ended September 30, 2019, our exposure to foreign-denominated revenues and expenses is presented by primary foreign currency in the following table:


	Three Months Ended				Nine Months Ended
	September 30, 2019				September 30, 2019
			British				British
	Euro (1)		Pound (1)		Euro (1)		Pound (1)
	(in millions, except				(in millions, except
	percentages)				percentages)
Foreign denominated % of:
Revenues	0.2	%	4.1	%	0.4	%	3.9	%
Cost of revenues	0.1	%	1.3	%	0.2	%	1.5	%
Operating expenses	0.1	%	4.0	%	0.3	%	5.9	%
Impact of 10% adverse currency fluctuation on:
Revenues	0.1		2.7		0.2		1.9
Cost of revenues	—		0.5		0.1		0.2
Operating expenses	—		0.6		0.1		0.3

(1)	An average foreign exchange rate to the U.S. dollar for the period was used.

Equity Risk

Our investment in European operations is exposed to volatility in currency exchange rates through translation of our net assets or equity to U.S. dollars. The assets and liabilities of our European business are denominated in British pounds. Fluctuations in currency exchange rates may create volatility in our reported results as we are required to translate foreign currency reported statements of financial condition and income into U.S. dollars for consolidated reporting. The translation of these non-U.S. dollar statements of financial condition into U.S. dollars for consolidated reporting results in a cumulative translation adjustment, which is recorded in accumulated other comprehensive loss (income) within stockholders’ equity on our condensed consolidated balance sheet. Our primary exposure to this equity risk as of September 30, 2019 is presented by foreign currency in the following table:


	British
	Pound (1)
	(in millions)
Net equity investment in Cboe Europe Limited	$	710.8
Impact on consolidated equity of a 10% adverse currency fluctuation	$	71.1

(1)	Converted to U.S. dollars using the foreign exchange rate of British pounds per U.S. dollar as of September 30, 2019.

Credit Risk

We are exposed to credit risk from third parties, including customers, counterparties and clearing agents. These parties may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. We limit our exposure to credit risk by considering such risk when selecting the counterparties with which we make investments and execute agreements.

We do not have counterparty credit risk with respect to trades matched on our exchanges in the U.S. and Europe. With respect to listed cash equities, we deliver matched trades of our customers to the National Security Clearing Corporation (“NSCC”) without taking on counterparty risk for those trades. NSCC acts as a central counterparty on all equity transactions occurring on BZX, BYX, EDGX and EDGA and, as such, guarantees clearance and settlement of all of our matched equity trades. Similarly, with respect to U.S. listed equity options and futures, we deliver matched trades of our customers to the OCC, which acts as a central counterparty on all transactions occurring on Cboe Options, C2, BZX, EDGX and CFE and, as such, guarantees clearance and settlement of all of our matched options and futures trades.

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With respect to orders Cboe Trading routes to other markets for execution on behalf of our customers, Cboe Trading is exposed to some counterparty credit risk in the case of failure to perform on the part of our clearing firms, Morgan Stanley & Co. LLC (“Morgan Stanley”) or Wedbush Securities, Inc. (“Wedbush Securities”). Morgan Stanley and Wedbush Securities guarantee trades until one day after the trade date, after which time NSCC provides a guarantee. Thus, Cboe Trading is potentially exposed to credit risk to the counterparty to a trade routed to another market center between the trade date and one day after the trade date in the event that Morgan Stanley or Wedbush Securities fails. We believe that any potential requirement for us to make payments under these guarantees is remote and accordingly, have not recorded any liability in the consolidated financial statements for these guarantees.

Historically, we have not incurred any liability due to a customer’s failure to satisfy its contractual obligations as counterparty to a system trade. Credit difficulties or insolvency, or the perceived possibility of credit difficulties or insolvency, of one or more larger or more visible market participants could also result in market-wide credit difficulties or other market disruptions.

We do not have counterparty credit risk with respect to institutional spot FX trades occurring on our platform because Cboe FX is not a counterparty to any FX transactions. All transactions occurring on our platform occur bilaterally between two banks or prime brokers as counterparties to the trade. While Cboe FX does not have direct counterparty risk, Cboe FX may suffer a decrease in transaction volume if a bank or prime broker experiences an event that causes other prime brokers to decrease or revoke the credit available to the prime broker experiencing the event. Therefore, Cboe FX may have risk that is related to the credit of the banks and prime brokers that trade FX on the Cboe FX platform.

We also have credit risk related to transaction fees that are billed in arrears to customers on a monthly basis. Our potential exposure to credit losses on these transactions is represented by the receivable balances in our balance sheet. Our customers are financial institutions whose ability to satisfy their contractual obligations may be impacted by volatile securities markets.

On a regular basis, we review and evaluate changes in the status of our counterparties’ creditworthiness. Credit losses such as those described above could adversely affect our consolidated financial position and results of operations. Any such effects to date have been minimal.

Interest Rate Risk

We have exposure to market risk for changes in interest rates relating to our cash and cash equivalents, short-term investments, short-term and long-term restricted cash and investments, and indebtedness. As of September 30, 2019 and 2018, our cash and cash equivalents and U.S. Treasury securities, included in financial investments on the condensed consolidated balance sheets, were $150.5 million and $137.7 million, respectively, of which $54.8 million is held outside of the United States in various foreign subsidiaries in 2019. The remaining cash and cash equivalents and financial instruments are denominated in U.S. dollars. We do not use our investment portfolio for trading or other speculative purposes. Due to the nature of these investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates, assuming no change in the amount or composition of our cash and cash equivalents and financial instruments.

As of September 30, 2019, we had $875.0 million in outstanding debt, of which $650.0 million relates to our Senior Notes, which bear interest at fixed interest rates. Changes in interest rates will have no impact on the interest we pay on fixed-rate obligations. The remaining amount outstanding of $225.0 million relates to the Term Loan Agreement, which bears interest at fluctuating rates and, therefore, subjects us to interest rate risk. A hypothetical 100 basis point increase in long-term interest rates relating to the amounts outstanding under the Term Loan Agreement as of September 30, 2019 would decrease annual pre-tax earnings by $2.3 million, assuming no change in the composition of our outstanding indebtedness. We are also exposed to changes in interest rates as a result of borrowings under our Revolving Credit Agreement, as this facility bears interest at fluctuating rates. As of September 30, 2019, there were no outstanding borrowings under our Revolving Credit Agreement. See Note 11 (“Debt”) to the condensed consolidated financial statements for a discussion of debt agreements.

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Item 4. Controls and Procedures

a)Disclosure controls and procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

b)Internal controls over financial reporting. No changes occurred in the Company’s internal control over financial reporting during third quarter 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Cboe Global Markets, Inc. incorporates herein by reference the discussion set forth in Note 19 (“Income Taxes”) and Note 21 (“Commitments and Contingencies– Legal Proceedings”) of the condensed consolidated financial statements included herein.

Other than the legal proceedings below, there have been no material updates during the period covered by this Form 10-Q to the Legal Proceedings as set forth in Item 3. of our Annual Report on Form 10-K for the year ended December 31, 2018.

Transaction Fee Pilot

In December 2018, the SEC approved a transaction fee pilot in national market system (“NMS”) stocks (the “pilot”). The pilot will subject stock exchange transaction fee pricing, including maker-taker fee-and-rebate pricing models, to new temporary pricing restrictions across two test groups, and require the exchanges to prepare data to be submitted to the SEC. The pilot includes a test group that will prohibit rebates and linked pricing, as well as a test group that will impose a cap of $0.0010 for removing or providing displayed liquidity. Once commenced, the pilot will last for up to two years with an automatic sunset at one year unless extended by the SEC. On February 15, 2019, the Company filed a Petition for Review in the Court of Appeals for the D.C. Circuit (the “D.C. Circuit”) asserting the pilot is unlawful. The pilot was published in the Federal Register on February 20, 2019 and was scheduled to become effective on April 22, 2019. On March 28, 2019, the SEC granted a partial stay of the pilot, agreeing to delay implementing its fee-and-rebate and data-publication requirements until after the D.C. Circuit decides the pending challenges. The data-gathering requirement of the pilot’s pre-pilot period remains in effect. On May 21, 2019, the SEC issued its notice to announce the effective period for the pre-pilot, which was designated as July 1, 2019 through December 31, 2019. On June 3, 2019, the Company, along with other equities exchanges, filed an opening brief with the D.C. Circuit. The SEC filed its opening brief with the D.C. Circuit on July 25, 2019, the exchanges’ reply brief was filed on August 26, 2019 and final briefs were filed on September 10, 2019. Oral arguments were held on October 11, 2019. The pilot may cause the Company’s equities exchanges, BZX, BYX, EDGX and EDGA, to require additional resources to comply with or challenge the pilot and it may have a material impact on our business, financial condition and operating results if, for example, shifts in order flow away from exchanges were to occur. The Company intends to litigate the matter vigorously.

Item 1A. Risk Factors.

There have been no material updates during the period covered by this Form 10-Q to the Risk Factors as set forth in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2018. These risks and uncertainties, however, are not the only risks and uncertainties that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also significantly impact us. Any of these risks and uncertainties may materially and adversely affect our business, financial condition or results of operations, liquidity and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share repurchase program

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The table below shows the purchases of equity securities by the Company which settled during the three months ended September 30, 2019, reflecting the purchase of common stock under the Company's share repurchase program:


				Total Number of	Approximate Dollar
				Shares Purchased	Value of Shares that May
				as Part of Publicly	Yet Be Purchased Under
	Total Number of	Average Price		Announced Plans	the Plans or Programs
Period	Shares Purchased	Paid per Share		or Programs	(in millions)
July 1 to July 31, 2019	302	$	104.78	302	$	171.1
August 1 to August 31, 2019	73,017		119.38	73,017		162.3
September 1 to September 30, 2019	380,000		116.35	380,000		118.7
Total	453,319	$	115.49	453,319

Purchase of common stock from employees

The table below reflects the acquisition of common stock by the Company in the three months ended September 30, 2019 that were not part of the publicly announced share repurchase authorization. These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the price of certain stock options that were exercised.


Period	Total number of shares purchased	Average price paid per share
July 1 to July 31, 2019	2,045	$	110.51
August 1 to August 31, 2019	277		121.87
September 1 to September 30, 2019	1,247		111.00
Total	3,569		111.56

Use of Proceeds

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.



Exhibit No.		Description
10.1		Form of Restricted Stock Award Agreement (for Non-employee Directors), incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-34774) filed on August 2, 2019.*

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14 (Filed herewith).

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14 (Filed herewith).

32.1		Certificate of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (Filed herewith).

32.2		Certificate of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (Filed herewith).

101.INS		XBRL Instance Document (Filed herewith). — The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document (Filed herewith).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (Filed herewith).

101.DEF		XBRL Taxonomy Extension Definition Linkbase (Filed herewith).

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (Filed herewith).

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (Filed herewith).

*Indicates Management Compensatory Plan, Contract or Arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CBOE GLOBAL MARKETS, INC.
	Registrant

	By:	/s/ Edward T. Tilly
		Edward T. Tilly
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: November 1, 2019

	By:	/s/ Brian N. Schell
		Brian N. Schell
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)
Date: November 1, 2019

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