Edgar Filing: Cboe Global Markets, Inc.

cboe_Current_Folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

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

For the quarterly period ended March 31, 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)

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, or 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 ☒

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	Cboe BZX

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


Class		April 26, 2019
Common Stock, par value $0.01		111,633,040 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 March 31, 2019 and December 31, 2018	8
	Condensed Consolidated Statements of Income—Three Months Ended March 31, 2019 and 2018	9
	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2019 and 2018	10
	Condensed Consolidated Statement of Changes in Stockholders’ Equity—Three Months Ended March 31, 2019 and 2018	11
	Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2019 and 2018	12
	Notes to Condensed Consolidated Financial Statements	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	56

PART II. OTHER INFORMATION		57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults upon Senior Securities	58
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60

SIGNATURES		61

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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 United Kingdom.

"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 its 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.

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

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

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

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

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

"VIX" refers to the Cboe Volatility Index methodology.

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TRADEMARK AND OTHER INFORMATION

Cboe®, Bats®, BYX®, BZX®, Cboe Options Institute®, Cboe Vest®, Cboe Volatility Index®, CFE®, EDGA®, EDGX®, LiveVol®, Silexx® and VIX® are registered trademarks, and Cboe Global MarketsSM, Cboe Futures ExchangeSM, C2SM, SilexxSM and SPXSM and are service marks of Cboe Global Markets, Inc. and its subsidiaries. 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;

potential difficulties in our migration of trading platforms and our ability to retain employees as a result of the Merger;

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;

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impairment of our goodwill, investments or intangible assets; and

the accuracy of our estimates and expectations.

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)


	March 31,		December 31,
	2019		2018
Assets
Current Assets:
Cash and cash equivalents	$	346.2	$	275.1
Financial investments		30.2		35.7
Accounts receivables, net		251.0		287.3
Income taxes receivable		40.3		70.4
Other current assets		15.5		15.2
Total Current Assets		683.2		683.7
Investments		63.4		86.2
Land		4.9		4.9
Property and equipment, net		68.5		71.7
Operating lease right of use assets		56.5		—
Goodwill		2,697.5		2,691.4
Intangible assets, net		1,690.3		1,720.2
Other assets, net		66.1		62.9
Total Assets	$	5,330.4	$	5,321.0
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	135.8	$	198.5
Section 31 fees payable		48.7		81.1
Deferred revenue		18.2		8.5
Income taxes payable		4.1		4.1
Current portion of long-term debt		299.9		299.8
Contingent consideration liability		4.7		3.9
Total Current Liabilities		511.4		595.9

Long-term debt		916.1		915.6
Income tax liability		121.2		114.9
Deferred income taxes		433.4		436.8
Non-current operating lease liabilities		50.1		—
Other non-current liabilities		3.4		7.4
Commitments and Contingencies

Redeemable Noncontrolling Interest		9.4		9.4

Stockholders’ Equity:
Preferred stock, $0.01 par value: 20,000,000 shares authorized, no shares issued and outstanding at March 31, 2019 and December 31, 2018		—		—
Common stock, $0.01 par value: 325,000,000 shares authorized, 125,596,292 and 111,630,805 shares issued and outstanding, respectively at March 31, 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, 13,965,487 shares at March 31, 2019 and 13,478,520 shares at December 31, 2018		(764.3)		(720.1)
Additional paid-in capital		2,673.7		2,660.2
Retained earnings		1,348.6		1,288.2
Accumulated other comprehensive income, net		26.2		11.5
Total Stockholders’ Equity		3,285.4		3,241.0
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity	$	5,330.4	$	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 March 31,
	2019		2018
Revenues:
Transaction fees	$	430.4	$	547.1
Access and capacity fees		54.4		50.6
Market data fees		51.6		54.2
Regulatory fees		58.7		116.3
Other revenue		7.5		9.5
Total revenues		602.6		777.7
Cost of revenues:
Liquidity payments		243.7		302.9
Routing and clearing		9.2		10.3
Section 31 fees		48.2		108.8
Royalty fees		21.0		27.2
Total cost of revenues		322.1		449.2
Revenues less cost of revenues		280.5		328.5
Operating expenses:
Compensation and benefits		48.1		58.9
Depreciation and amortization		47.2		54.2
Technology support services		11.9		12.1
Professional fees and outside services		16.2		18.0
Travel and promotional expenses		2.6		3.7
Facilities costs		2.1		2.4
Acquisition-related costs		2.3		8.8
Other expenses		3.6		2.7
Total operating expenses		134.0		160.8
Operating income		146.5		167.7
Non-operating (expenses) income:
Interest expense, net		(9.9)		(9.6)
Other (expense) income		(8.8)		1.3
Income before income tax provision		127.8		159.4
Income tax provision		32.6		41.3
Net income		95.2		118.1
Net loss attributable to redeemable noncontrolling interest		0.2		0.3
Net income excluding redeemable noncontrolling interest		95.4		118.4
Change in redemption value of redeemable noncontrolling interest		(0.2)		(0.3)
Net income allocated to participating securities		(0.6)		(0.8)
Net income allocated to common stockholders	$	94.6	$	117.3
Basic earnings per share	$	0.85	$	1.04
Diluted earnings per share	$	0.85	$	1.04

Basic weighted average shares outstanding		111.5		112.4
Diluted weighted average shares outstanding		111.7		112.7

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 March 31,
	2019		2018
Net income	$	95.2	$	118.1
Other comprehensive income, net of tax:
Foreign currency translation adjustments		14.7		24.9
Unrealized holding gains on financial investments		—		(0.1)
Comprehensive income		109.9		142.9
Comprehensive loss attributable to redeemable noncontrolling interest		0.2		0.3
Comprehensive income excluding redeemable noncontrolling interest		110.1		143.2
Change in redemption value of redeemable noncontrolling interest		(0.2)		(0.3)
Comprehensive income allocated to participating securities		(0.6)		(0.8)
Comprehensive income allocated to common stockholders, net of tax	$	109.3	$	142.1

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 months ended March 31, 2019 and March 31, 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, 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

											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

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)


	Three Months Ended March 31,
	2019		2018
Cash Flows from Operating Activities:
Net income	$	95.2	$	118.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		47.2		54.2
Amortization of debt issuance cost and debt discount		0.6		0.6
Change in fair value of contingent consideration		0.8		1.3
Realized (gain) loss on available-for-sale securities		(0.2)		0.4
Provision for uncollectible convertible notes receivable		0.3		—
Provision for deferred income taxes		(5.4)		(29.8)
Stock-based compensation expense		5.4		11.0
Loss on disposition of property		0.4		—
Equity in investments		(0.5)		(0.5)
Changes in assets and liabilities:
Accounts receivable		37.5		(50.3)
Income taxes receivable		30.1		17.2
Other prepaid expenses		(4.3)		(6.3)
Accounts payable and accrued liabilities		(67.0)		(8.8)
Section 31 fees payable		(32.4)		4.3
Deferred revenue		9.7		4.1
Income taxes payable		(1.6)		49.2
Income tax liability		6.3		(0.9)
Other liabilities		(4.1)		(0.3)
Net Cash Flows provided by Operating Activities		118.0		163.5
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		—		0.2
Purchases of available-for-sale financial investments		(29.5)		(63.4)
Proceeds from maturities of available-for-sale financial investments		35.3		46.3
Return of capital from investments		22.0		—
Purchases of investments		—		(1.0)
Purchases of property and equipment		(5.8)		(7.3)
Net Cash Flows provided by (used in) Investing Activities		22.0		(25.2)
Cash Flows from Financing Activities:
Proceeds from long-term debt		—		300.0
Principal payments of long term debt		—		(325.0)
Debt issuance costs		—		(0.1)
Dividends paid		(34.8)		(30.6)
Purchase of unrestricted stock from employees		(10.0)		(15.7)
Proceeds from exercise of stock-based compensation		8.1		0.8
Purchase of common stock under announced program		(35.0)		(43.6)
Net Cash Flows used in Financing Activities		(71.7)		(114.2)
Effect of Foreign Currency Exchange Rate Changes on Cash and Cash equivalents		2.8		(1.3)
Increase in Cash and Cash Equivalents		71.1		22.8
Cash and Cash Equivalents:
Beginning of Period		275.1		143.5
End of Period	$	346.2	$	166.3
Supplemental disclosure of cash transactions:
Cash paid for income taxes	$	2.2	$	6.8
Interest paid		14.3		13.8

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 and the largest stock exchange by value traded in Europe. 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

The Company reports five business segments: Options, U.S. Equities, Futures, European Equities, and Global FX, which is reflective of how the Company’s chief operating decision-maker reviews and operates the business (Note 15).

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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 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 right of use assets, accrued liabilities, and non-current operating lease liabilities on the Condensed Consolidated Balance Sheet as of March 31, 2019. The Company currently does not have any finance leases.

Operating lease right-of-use (“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 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.

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In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For public entities, the update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. 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 continues to integrate the Bats technology into the operations of the exchanges. 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 two types of regulatory fees that the Company recognizes. The first type represents fees collected by the Company to cover the Section 31 fees charged to the Exchanges by the SEC. 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

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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.

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
								European				items and
		Options		U.S. Equities		Futures		Equities		Global FX		eliminations		Total
Three Months Ended March 31, 2019
Transaction fees		$	173.8	$	198.9	$	24.6	$	21.1	$	12.0	$	—	$	430.4
Access and capacity fees			26.0		19.0		3.7		4.0		1.7		—		54.4
Market data fees			13.7		32.9		1.7		3.2		0.1		—		51.6
Regulatory fees			14.5		43.7		0.5		—		—		—		58.7
Other revenue			4.1		1.3		—		2.0		0.1		—		7.5
		$	232.1	$	295.8	$	30.5	$	30.3	$	13.9	$	—	$	602.6
Timing of revenue recognition
Services transferred at a point in time	<