News Column

CME GROUP INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 4, 2014

The following discussion is provided as a supplement to, and should be read in conjunction with, the accompanying unaudited consolidated financial statements and notes in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2013. References in this discussion and analysis to "we," "us" and "our" are to CME Group Inc. (CME Group) and its consolidated subsidiaries, collectively. References to "exchange" are to Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX), CME Clearing Europe Limited (CMECE) and CME Europe Limited (CME Europe), collectively, unless otherwise noted. In addition, CME serves as a swap execution facility, which is a regulated platform for swap trading, and serves as a swap data repository, which provides public data on swap transactions and stores confidential swap data for regulatory purposes. RESULTS OF OPERATIONS Financial Highlights The following summarizes significant changes in our financial performance for the periods presented. Quarter Ended Six Months Ended June 30, June 30, (dollars in millions, except per share data) 2014 2013 Change 2014 2013 Change Total revenues $ 731.6$ 816.1 (10 )% $ 1,509.0$ 1,534.7 (2 )% Total expenses 319.6 308.3 4 642.5 621.4 3 Operating margin 56.3 % 62.2 % 57.4 % 59.5 % Non-operating income (expense) $ 10.1$ (0.3 ) n.m. $ 2.0$ (18.2 ) (111 ) Effective tax rate 37.5 % 38.7 % 38.9 % 38.7 % Net income attributable to CME Group $ 263.8$ 311.2 (15 ) $ 530.6$ 547.0 (3 ) Diluted earnings per common share attributable to CME Group 0.79 0.93 (15 ) 1.58 1.64 (4 ) Cash flows from operating activities 554.7 768.8 (28 )



n.m. not meaningful In the second quarter and first six months of 2014 when compared with the

same periods in 2013, the decreases in revenues were attributable to lower

exchange-traded contract volumes and decreases in other revenues due to proceeds recognized from business interruption insurance in 2013 and declines in rental income. The overall decreases in revenues were



partially offset by increases in market data fees related to higher fees

for basic real-time market data service and higher over-the-counter

contract volumes.

The increases in expenses in the second quarter and first six months of

2014 when compared with the same periods in 2013 were attributable to increases in compensation and benefits expenses relating to higher headcount and expenses associated with the development and continued enhancement of our product offerings and our electronic platforms,



partially offset by higher net gains on foreign currency fluctuations and

a recovery of expenses recognized in the second quarter of 2014 related to

the MF Global bankruptcy in 2011.

The increases in non-operating income (expense) in the second quarter and

first six months of 2014 when compared with the same periods in 2013 were due to decreases in interest expense due to the repayment of the 5.75% fixed rate notes due February 2014, the repayment of the 5.4% fixed rate notes due August 2013 and the issuance of the 5.3% fixed rate notes due



September 2043 that were effectively fixed at a rate of 4.73% through an

interest rate swap agreement.

The overall decrease in effective tax rate for the second quarter of 2014

when compared with the same period in 2013 was largely due to a benefit

accrued in the second quarter of 2014 related to the domestic production

activities deduction.

Cash flows from operating activities decreased in the first six months of

2014 when compared with the same period in 2013 largely due to cash

collateral on hand related to our forward-starting interest rate swap

contract in the first six months of 2013.The forward-starting interest

rate swap contract was outstanding during the first six months of 2013 in

advance of our debt offering in the third quarter of 2013. 18



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Table of Contents Revenues Quarter Ended Six Months Ended June 30, June 30, (dollars in millions) 2014 2013 Change 2014 2013 Change Clearing and transaction fees $ 609.3$ 692.5 (12 )% $ 1,261.5$ 1,285.7 (2 )% Market data and information services 89.6 79.4 13 179.0 160.3 12 Access and communication fees 20.4 20.6 (1 ) 40.8 42.1 (3 ) Other 12.3 23.6 (48 ) 27.7 46.6 (40 ) Total Revenues $ 731.6$ 816.1 (10 ) $ 1,509.0$ 1,534.7 (2 ) Clearing and Transaction Fees The following table summarizes our total contract volume, revenue and average rate per contract. Total contract volume includes contracts that are traded on our exchange and cleared through our clearing house as well as cleared-only contracts. Volume is measured in round turns, which is considered a completed transaction that involves a purchase and an offsetting sale of a contract. Average rate per contract is determined by dividing total clearing and transaction fees by total contract volume. Volume and average rate per contract disclosures exclude our CME interest rate swap, CME credit default swap, CMECE and CME Europe contracts. Quarter Ended Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change

Total contract volume (in millions) 796.0 916.7 (13 )% 1,629.2 1,667.2 (2 )% Clearing and transaction fees (in millions) $ 596.0$ 685.6 (13 ) $ 1,235.3$ 1,275.6 (3 ) Average rate per contract $ 0.749$ 0.748 - $ 0.758$ 0.765 (1 ) We estimate the following increases (decreases) in clearing and transaction fees based on change in total contract volume and change in average rate per contract during the second quarter and first six months of 2014 when compared with the same periods in 2013. Six Months (in millions) Quarter Ended Ended Decreases due to changes in total contract volume $ (90.4 )$ (28.8 ) Increase (decrease) due to changes in average rate per contract 0.8 (11.5 ) Decreases in clearing and transaction fees $



(89.6 ) $ (40.3 )

Average rate per contract is impacted by our rate structure, including volume-based incentives; product mix; trading venue, and the percentage of volume executed by customers who are members compared with non-member customers. Due to the relationship between average rate per contract and contract volume, the change in clearing and transaction fees attributable to the change in each is only an approximation. Clearing and transaction fees as presented in the consolidated statements of income include revenues for our cleared-only CME interest rate swap and CME credit default swap contracts. In the second quarter and first six months of 2014 when compared with the same periods in 2013, clearing and transaction fees generated from these contracts increased by $6.5 million and $16.2 million, respectively. The increases in revenues were largely attributable to increases in CME interest rate swap contract volumes resulting from the over-the-counter clearing mandate required to be implemented starting in mid-2013 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. 19



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Contract Volume The following table summarizes average daily contract volume. Contract volume can be influenced by many factors, including political and economic conditions, the regulatory environment and market competition. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change Average Daily Volume by Product Line: Interest rate 6,668 6,828 (2 )% 6,696 6,261 7 % Equity 2,465 3,079 (20 ) 2,674 2,851 (6 ) Foreign exchange 638 1,042 (39 ) 726 1,027 (29 ) Agricultural commodity 1,085 1,107 (2 ) 1,125 1,107 2 Energy 1,457 1,796 (19 ) 1,579 1,764 (11 ) Metal 323 471 (31 ) 339 435 (22 ) Aggregate average daily volume 12,636 14,323 (12 ) 13,139 13,445 (2 ) Average Daily Volume by Venue: Electronic 10,888 12,459 (13 ) 11,289 11,721 (4 ) Open outcry 1,101 1,134 (3 ) 1,139 1,014 12 Privately negotiated (1) 647 730 (11 ) 711 710 - Aggregate average daily volume 12,636 14,323 (12 ) 13,139 13,445 (2 ) (1) Privately negotiated venue average daily volume includes both traditional block trades as well as what was historically categorized as CME ClearPort. Interest Rate Products The following table summarizes average daily contract volume for our key interest rate products. Eurodollar Front 8 futures include contracts expiring in two years or less. Eurodollar Back 32 futures include contracts with expirations after two years through ten years. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change Eurodollar futures and options: Front 8 futures 1,451 1,315 10 % 1,441 1,210 19 % Back 32 futures 1,012 1,035 (2 ) 1,028 890 16 Options 779 608 28 800 507 58 U.S. Treasury futures and options: 10-Year 1,665 1,921 (13 ) 1,689 1,811 (7 ) 5-Year 875 921 (5 ) 874 868 1 Treasury bond 419 582 (28 ) 408 546 (25 ) 2-Year 280 270 4 268 268 - Overall interest rate volume remained relatively flat in the second quarter of 2014 while volume increased in the first six months of 2014 when compared with the same periods in 2013. Eurodollar futures and options contract volume increased in the second quarter and first six months of 2014, when compared with the same periods in 2013, resulting from volatility caused by improved domestic macroeconomic data. Volumes for U.S. Treasury contracts decreased in the second quarter and first six months of 2014 when compared with the same periods in 2013. Volatility within the U.S. Treasury market was higher in early 2013, despite some volatility caused by improved domestic macroeconomic data in early 2014. Volumes were higher in the first half of 2013 due to short periods of high volatility created by the Federal Reserve's intention to revisit their quantitative easing strategy and outline a quantitative easing exit strategy in early 2013. 20



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Equity Products The following table summarizes average daily contract volume for our key equity products. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change

E-mini S&P 500 futures and options 1,890 2,469 (23 )% 2,068 2,298 (10 )% E-mini NASDAQ 100 futures and options 310 256 21 313 244 28 Overall equity contract volumes decreased in the second quarter and first six months of 2014 when compared with the same periods in 2013 due to decreases in E-mini S&P 500 contract volumes resulting from lower volatility, as measured by the CBOE Volatility Index, in early 2014. The equity market volatility was very low in the first half of 2014 compared with the short periods of high volatility in the first half of 2013 related to the anticipation of changes in the Federal Reserve's intention to revisit their quantitative easing strategy. The decreases in overall equity volumes in the second quarter and first six months of 2014, when compared with the same periods in 2013, were partially offset by increases in E-mini Nasdaq 100 contract volume, due largely to periods of higher volatility, as measured by the CBOE Nasdaq-100 Volatility Index. We believe that higher volatility in the index was largely attributable to the technology sector. Foreign Exchange Products The following table summarizes average daily contract volume for our key foreign exchange products. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change Euro 190 296 (36 )% 212 314 (32 )% Japanese yen 124 243 (49 ) 145 229 (37 ) British pound 97 129 (24 ) 109 135 (19 ) Australian dollar 71 145 (51 ) 84 126 (33 ) Canadian dollar 53 85 (37 ) 63 84 (25 ) The overall decreases in foreign exchange contract volumes in the second quarter and first six months of 2014 when compared with the same periods in 2013 were attributable to decreases in exchange rate volatility across all major currencies. Subdued expectations regarding interest rate changes across European countries and Japan led to decreases in exchange rate volatility throughout these regions. Additionally, allegations regarding possible collusion by certain foreign exchange market participants in other marketplaces had a continued negative impact on overall global foreign exchange product trading during the second quarter and first six months of 2014. Agricultural Commodity Products The following table summarizes average daily contract volume for our key agricultural commodity products. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change Corn 359 371 (3 )% 374 365 3 % Soybean 228 237 (4 ) 241 240 - Wheat 164 157 4 165 158 4 Soybean oil 98 108 (9 ) 101 106 (5 ) The overall agricultural commodity contract volumes remained relatively flat in the second quarter of 2014 and the first six months of 2014 when compared with the same periods in 2013. Contract volume increased in the first quarter of 2014 due to volatility caused by an increase in grain supplies from 2013 to 2014 as well as higher price volatility in corn and wheat products due to political instability in the Black Sea region in the first quarter of 2014. Volumes were slightly lower in the second quarter of 2014 due to good crop development, which reduced price volatility as supplies continued to return to historical levels. 21



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Energy Products The following table summarizes average daily contract volume for our key energy products. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change Crude oil 724 847 (15 )% 725 799 (9 )% Natural gas 365 559 (35 ) 484 577 (16 ) Refined products 278 302 (8 ) 286 315 (9 ) Overall energy contract volumes decreased in the second quarter and first six months of 2014 when compared with the same periods of 2013. The declines in crude oil and natural gas contract volumes were attributable to decreases in price volatility in early 2014 when compared with early 2013. Refined products contract volumes decreased in the second quarter and first six months of 2014 when compared with the same periods in 2013 due to decreases in demand in the underlying physical market. Metal Products The following table summarizes average daily volume for our key metal products. Quarter Ended Six Months Ended June 30, June 30, (amounts in thousands) 2014 2013 Change 2014 2013 Change Gold 175 277 (37 )% 191 262 (27 )% Silver 67 83 (19 ) 66 72 (9 ) Copper 60 89 (32 ) 61 78 (22 ) Overall metal contract volumes decreased in the second quarter and first six months of 2014 when compared with the same periods of 2013 due to decreases in contract volumes resulting from lower metals price volatility. In early 2013, short periods of high volatility were caused by improved macroeconomic data. In addition, demand for gold continued to slow due to lower economic growth rates in India and China, which are both large consumers of gold. Average Rate per Contract The average rate per contract remained flat in the second quarter of 2014 and decreased slightly in the first six months of 2014 when compared with the same periods in 2013. The impacts due to higher fees associated with transaction fee pricing changes that were implemented at the beginning of 2014 were offset by a decrease due to shifts in relative mix of product volume. Interest rate product volume, when measured as a percentage of total volume, increased by 5% and 4% in the second quarter and first six months of 2014, respectively, while nearly all other product lines decreased. Interest rate contracts have a lower average rate per contract compared with other product lines. In addition, increases in incentives and discounts on our energy contracts as well as increases in tier discounts on Eurodollar products also resulted in decreases in the average rate per contracts in the second quarter and first six months of 2014 when compared with the same periods in 2013. Concentration of Revenue We bill a substantial portion of our clearing and transaction fees directly to our clearing firms. The majority of clearing and transaction fees received from clearing firms represent charges for trades executed and cleared on behalf of their customers. One firm represented 12% of our clearing and transaction fees revenue in the first six months of 2014. Should a clearing firm withdraw, we believe that the customer portion of the firm's trading activity would likely transfer to another clearing firm of the exchange. Therefore, we do not believe we are exposed to significant risk from the ongoing loss of revenue received from or through a particular clearing firm. Other Sources of Revenue The increases in market data and information services revenues in the second quarter and first six months of 2014 when compared with the same periods in 2013 were attributable to increases in fees for basic real-time market data service to $85 per month in 2014 from $70 per month in 2013. The increases were partially offset by declines in market data subscriber counts resulting from continued cost-cutting initiatives at customer firms as well as utilization of a legacy incentive program. The two largest resellers of our market data represented approximately 41% of our market data and information services revenue in the first six months of 2014. Despite this concentration, we consider exposure to significant risk of revenue loss to be minimal. In the event that one of these vendors no longer subscribes to our market data, we believe the majority of that vendor's customers would likely subscribe to our market data through another reseller. Additionally, several of our largest 22



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institutional customers that utilize services from our two largest resellers report usage and remit payment of their fees directly to us. In the second quarter of 2013, we recognized $5.1 million of proceeds from business interruption insurance claim related to Hurricane Sandy, which resulted in decreases in other revenues in the second quarter and first six months of 2014 when compared with the same periods in 2013. In the fourth quarter of 2013, we sold the NYMEX building, which resulted in decreases in rental income of $2.2 million and $4.5 million in the second quarter and first six months of 2014, respectively, when compared with the same periods in 2013. In the first six months of 2014 when compared with the same period in 2013, the decreases in other revenues were also attributable to $8.7 million in fees recognized upon delivery of services under our technology agreement with BM&FBOVESPA S.A. (BM&FBOVESPA) in the first quarter of 2013. Expenses Quarter Ended Six Months Ended June 30, June 30, (dollars in millions) 2014 2013 Change 2014 2013 Change Compensation and benefits $ 139.7$ 128.9 8 % $ 275.2$ 258.3 7 % Communications 8.3 8.6 (4 ) 16.5 17.5 (6 ) Technology support services 14.6 13.8 5 28.5 26.2 9 Professional fees and outside services 37.5 27.9 35 67.1 49.8 35 Amortization of purchased intangibles 25.2 25.9 (2 ) 50.4 51.8 (3 ) Depreciation and amortization 34.3 33.2 3 68.4 65.8 4 Occupancy and building operations 23.2 19.0 22 46.4 37.5 24 Licensing and other fee agreements 25.7 26.9 (5 ) 54.7 48.1 14 Other 11.1 24.1 (54 ) 35.3 66.4 (47 ) Total Expenses $ 319.6$ 308.3 4 $ 642.5$ 621.4 3 Operating expenses increased by $11.3 million and $21.1 million in the second quarter and first six months of 2014 when compared with the same periods in 2013. The following table shows the estimated impacts of key factors resulting in changes in operating expenses: Quarter Ended, Six Months Ended, June 30, 2014 June 30, 2014 Change as a Change as a Amount of Percentage of Amount of Percentage of (dollars in millions) Change Total Expenses Change Total Expenses Salaries, benefits and employer taxes $ 8.3 3 % $ 14.7 2 % Business enhancements and platform development 4.5 1 10.7 1 Contingent consideration 4.6 1 7.7 1 Acquisition-related expenses 4.7 2 7.1 1 License and other fee agreements (1.2 ) - 6.6 1 Voluntary exit incentive plan 5.8 2 5.8 1 Bonus expense (4.0 ) (1 ) (1.2 ) - Litigation accruals - - (8.0 ) (1 ) MF Global bankruptcy claim (14.5 ) (5 ) (14.5 ) (2 ) Net losses (gains) on foreign currency fluctuation (3.9 ) (1 ) (19.0 ) (3 ) Other expenses, net 7.0 2 11.2 2 Total increase $ 11.3 4 % $ 21.1 3 % Operating expenses increased in the second quarter and first six months of 2014 when compared with the same periods in 2013 due to increases in compensation and benefits expenses, which were attributable to increases in average headcount resulting from efforts to expand our product offerings and geographic reach as well as to meet additional regulatory requirements. Operating expenses also increased due to higher professional fees and depreciation and amortization expense associated with the development and continued enhancement of our product offerings and our electronic platforms. A change in fair value of a contingent consideration obligation arising from an acquisition in 2010 resulted in increases in expenses in the second quarter and first six months of 2014 when compared with the same periods in 2013. 23



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In the second quarter and first six months of 2014, we recognized professional fees and other expenses related to our acquisition of Trayport and FENICS from GFI Group Inc. An increase in licensing and other fee agreements expense in the first six months of 2014 when compared with the same periods in 2013 resulted from higher volumes for interest rate swap products and certain equity contracts as well as higher fee rates on certain products. Compensation and benefits expenses increased due to our voluntary exit incentive plan in the second quarter of 2014. Increases in overall operating expenses in the second quarter and first six months of 2014 when compared with the same periods in 2013 were partially offset by decreases in bonus expense due to performance relative to our 2014 cash earnings target when compared with 2013 performance relative to our 2013 cash earnings target. A reduction in a litigation accrual due to a favorable court ruling and a denial for a rehearing in the first quarter of 2014 also contributed to a decrease in expenses in the first six months of 2014 when compared with the same period in 2013. In the second quarter of 2014, we recognized our claim from the MF Global bankruptcy filing in the fourth quarter of 2011 as a reduction to other expenses. Additionally, the increases in overall operating expenses were partially offset by changes in net losses (gains) on foreign currency fluctuations. In the second quarter and first six months of 2014, we recognized higher net gains on foreign currency fluctuations due to favorable changes in exchange rates on foreign cash balances. In the first six months of 2013, we recognized a net loss on foreign currency fluctuations due to unfavorable changes in exchange rates on foreign cash balances. Gains and losses on foreign currency fluctuation result when subsidiaries with a U.S. dollar functional currency hold cash as well as certain other assets and liabilities denominated in foreign currencies. We expect the foreign currency gain/loss to continue to fluctuate as long as we continue to hold assets and liabilities in foreign currencies. Non-Operating Income (Expense) Quarter Ended Six Months Ended June 30, June 30, (dollars in millions) 2014 2013 Change 2014 2013 Change Investment income $ 15.1$ 18.7 (19 )% $ 18.3$ 22.3 (18 )% Interest and other borrowing costs (28.3 ) (39.2 ) (28 ) (62.0 ) (78.2 ) (21 ) Equity in net gains (losses) of unconsolidated subsidiaries 21.5 20.2 7 43.9 37.7 17 Other non-operating income (expense) 1.8 - n.m. 1.8 - n.m. Total Non-Operating $ 10.1$ (0.3 ) n.m. $ 2.0$ (18.2 ) (111 ) n.m. not meaningful The overall decreases in investment income in the second quarter and first six months of 2014 when compared with the same periods in 2013 were largely due to decreases in dividend income from our investment in BM&FBOVESPA. The decreases in overall investment income were partially offset by increases in investment income from cash performance bond and guaranty fund contributions that are reinvested. The increase in cash collateral was due to an increase in open interest as well as a shift in clearing firm collateral preference. The following table shows the key impacts in the overall decreases in interest expense and other borrowing costs in the second quarter and first six months of 2014 when compared with the same periods in 2013: Quarter Ended Six Months Ended June 30, June 30, 2014 2013 Change 2014 2013 Change Weighted average borrowings outstanding (in millions) $ 2,112.5$ 2,862.5$ (750.0 )$ 2,300.0$ 2,862.5$ (562.5 ) Weighted average effective yield 4.15 % 4.76 % (0.61 )% 4.27 % 4.78 % (0.51 )% Average cost of borrowings (1) 4.32 4.95 (0.63 )



4.44 4.96 (0.52 )

(1) Average cost of borrowings includes interest, the effective portion of interest rate hedges, discount accretion and debt issuance costs. Commitment fees on line of credit agreements are not included in the average cost of borrowing. In the first quarter of 2014, we repaid the 5.75% fixed rate notes due February 2014. In the third quarter of 2013, we repaid $750.0 million of 5.4% fixed rate notes due August 2013 and issued $750.0 million of 5.3% fixed rate notes due September 24



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2043. We entered into an interest rate swap agreement that resulted in an effective interest rate of 4.73% on the 5.3% fixed rate notes due September 2043. These factors contributed to decreases in weighted average borrowings outstanding, weighted average effective yield and average cost of borrowings in the second quarter and first six months of 2014 when compared with the same periods in 2013. Interest and other borrowing costs also include commitment fees on our line of credit agreements. Commitment fees increased in the second quarter and first six months of 2014 when compared with the same periods in 2013 due to higher fees associated with a $2.0 billion increase in our line of credit upon renewal in the fourth quarter of 2013. Higher income generated from our S&P/DJI business venture contributed to an increase in equity in net gains (losses) of unconsolidated subsidiaries in the first six months of 2014 when compared with the same period in 2013. Income Tax Provision The following table summarizes the effective tax rates for the periods presented: 2014 2013 Change Quarter Ended June 30 37.5 % 38.7 % (1.2 )% Six Months Ended June 30 38.9 38.7 0.2 The overall decrease in effective tax rate for the second quarter of 2014 when compared with the same period in 2013 was largely due to a benefit accrued for the domestic production activities deduction in the second quarter of 2014. The effective tax rate for the first six months of 2014 was higher than the effective tax rate for the second quarter of 2014 due to deferred tax expense recognized in the first quarter of 2014 resulting from changes in future state apportionment factors. This increase was partially offset by the benefit accrued for the domestic production activities deduction in the first six months of 2014 and the benefits recognized in the first quarter of 2014 from state audit activity. Liquidity and Capital Resources Sources and Uses of Cash. Net cash provided by operating activities decreased in the first six months of 2014 when compared with the same period of 2013. The decrease in net cash provided by operating activities was largely attributable to cash collateral on hand related to our forward-starting interest rate swap contract outstanding during the first six months of 2013 as well as higher payments of accrued expenses in the first six months of 2014 when compared with the same period in 2013. The forward-starting interest rate swap contract was outstanding during the first six months of 2013 in advance of our debt offering in the third quarter of 2013. Net cash used in investing activities increased in the first six month of 2014 when compared with the same period of 2013 due to an increase in purchases of property and equipment due to efforts to consolidate our data centers. Proceeds from the sale of building property in Kansas City in the first quarter of 2014 partially offset the increase in cash used by investing activities. Cash used in financing activities was higher in the first six months of 2014 when compared with the same period in 2013. The increase in cash used was attributable to an increase in cash dividends of $0.9 billion in the first six months of 2014 when compared with the same period in 2013. The annual variable dividend from 2013 operations was paid in the first quarter of 2014. The annual variable dividend from 2012 operations was paid in the fourth quarter of 2012 due to uncertainty surrounding dividend income tax treatment beginning in 2013. The increase in cash used was also due to the repayment of the fixed rate notes due February 2014. Debt Instruments. The following table summarizes our debt outstanding as of June 30, 2014: (in millions) Par Value



Fixed rate notes due March 2018, stated rate of 4.40% (1) $ 612.5 Fixed rate notes due September 2022, stated rate of 3.00% (2) 750.0 Fixed rate notes due September 2043, stated rate of 5.30% (3) 750.0

(1) In February 2010, we entered into a forward-starting interest rate swap

agreement that modified the interest obligation associated with these

notes so that the interest payable on the notes effectively became fixed

at a rate of 4.46%.

(2) In August 2012, we entered into a forward-starting interest rate swap

agreement that modified the interest obligation associated with these

notes so that the interest payable effectively became fixed at a rate of

3.32%. (3) In August 2012, we entered into a forward-starting interest rate swap agreement that modified the interest obligation associated with these



notes so that the interest payable effectively became fixed at a rate of

4.73%. 25



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We maintain a $1.8 billion multi-currency revolving senior credit facility with various financial institutions. The proceeds from the revolving senior credit facility can be used for general corporate purposes, which includes providing liquidity for our CME clearing house in certain circumstances at CME Group's discretion and, if necessary, for maturities of commercial paper. As long as we are not in default under the senior credit facility, we have the option to increase the facility up to $2.5 billion with the consent of the agent and lenders providing the additional funds. This senior credit facility matures in January 2016. The senior credit facility is voluntarily prepayable from time to time without premium or penalty. Under the credit facility, we are required to remain in compliance with a consolidated net worth test, which is defined as our consolidated shareholders' equity as of September 30, 2012, giving effect to share repurchases made and special dividends paid during the term of the agreements (and in no event greater than $2.0 billion in aggregate), multiplied by 0.65. We currently do not have any borrowings outstanding under the credit facility. We maintain a 364-day multi-currency line of credit with a consortium of domestic and international banks to be used in certain situations by our CME clearing house. The line of credit provides for borrowings of up to $7.0 billion. We may use the proceeds to provide temporary liquidity in the unlikely event of a clearing firm default, in the event of a liquidity constraint or default by a depositary (custodian for our collateral), or in the event of a temporary disruption with the domestic payments system that would delay payment of settlement variation between us and our clearing firms. CME clearing firm guaranty fund contributions received in the form of cash or U.S. Treasury securities as well as the performance bond assets of a defaulting firm can be used to collateralize the facility. At June 30, 2014, guaranty funds available to collateralize the facility totaled $6.4 billion. We have the option to request an increase in the line from $7.0 billion to $10.0 billion. In addition to the 364-day multi-currency line of credit, we also have the option to use the $1.8 billion multi-currency revolving senior credit facility to provide liquidity for our clearing houses in the unlikely event of default in certain circumstances. In addition, our 364-day multi-currency line of credit contains a requirement that CME remain in compliance with a consolidated tangible net worth test, defined as CME consolidated shareholder's equity less intangible assets (as defined in the agreement) of not less than $800.0 million. The indentures governing our fixed rate notes, our $1.8 billion multi-currency revolving senior credit facility and our 364-day multi-currency line of credit for $7.0 billion do not contain specific covenants that restrict the ability to pay dividends. These documents, however, do contain other customary financial and operating covenants that place restrictions on the operations of the company that could indirectly affect the ability to pay dividends. At June 30, 2014, we have excess borrowing capacity for general corporate purposes of approximately $1.8 billion under our multi-currency revolving senior credit facility. As of June 30, 2014, we were in compliance with the various covenant requirements of all our debt facilities. To satisfy our performance bond obligation with Singapore Exchange Limited, we may pledge CME-owned U.S. Treasury securities in lieu of, or in combination with, irrevocable letters of credit. At June 30, 2014, the letters of credit totaled $460.0 million. The following table summarizes our credit ratings as of June 30, 2014: Short-Term Long-Term Rating Agency Debt Rating Debt Rating Outlook Standard & Poor's A1+ AA- Stable Moody's Investors Service P1 Aa3 Stable Given our cash flow generation, our ability to pay down debt levels and our ability to refinance existing debt facilities if necessary, we expect to maintain an investment grade rating. If our ratings are downgraded below investment grade due to a change of control, we are required to make an offer to repurchase our fixed rate notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. Liquidity and Cash Management. Cash and cash equivalents totaled $1.0 billion at June 30, 2014 and $2.5 billion at December 31, 2013. The balance retained in cash and cash equivalents is a function of anticipated or possible short-term cash needs, prevailing interest rates, our investment policy and alternative investment choices. A majority of our cash and cash equivalents balance is invested in money market mutual funds that invest only in U.S. Treasury securities or U.S. government agency securities. Our exposure to credit and liquidity risk is minimal given the nature of the investments. Cash that is not available for general corporate purposes because of regulatory requirements or other restrictions is classified as restricted cash and is included in other current assets or other assets in the consolidated balance sheets. Net current deferred tax assets of $52.5 million and $52.3 million were included in other current assets at June 30, 2014 and December 31, 2013, respectively. Total net current deferred tax assets are attributable to unrealized losses, stock-based compensation and accrued expenses. 26



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Net long-term deferred tax liabilities were $7.3 billion and $7.2 billion at June 30, 2014 and December 31, 2013, respectively. Net deferred tax liabilities are principally the result of purchase accounting for intangible assets in our various mergers, including CBOT Holdings, Inc. and NYMEX Holdings, Inc. Valuation allowances of $31.1 million and $47.5 million have been provided at June 30, 2014 and December 31, 2013, respectively. At June 30, 2014 and December 31, 2013, valuation allowances were related to domestic net operating losses, foreign net operating losses as well as built in capital losses for which we do not believe that we currently meet the more-likely-than-not-threshold for recognition. Regulatory Requirements. CME is regulated by the U.S. Commodity Futures Trading Commission (CFTC) as a U.S. Derivatives Clearing Organization (DCO). DCOs are required to maintain capital as defined by the CFTC in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities, or a line of credit at least equal to six months of projected operating expenses. CME is in compliance with the DCO financial requirements. CME was designated by the Financial Stability Oversight Council as a systemically important financial market utility under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result, CME must comply with the requirements for Systemically Important Derivatives Clearing Organizations concerning financial resources and liquidity resources. CME, CBOT, NYMEX, and COMEX are regulated by the CFTC as Designated Contract Markets (DCM). DCMs are also required to maintain capital as defined by the CFTC in an amount at least equal to one year of projected operating expenses as well as cash, liquid securities, or a line of credit at least equal to six months of projected operating expenses. Our DCMs are in compliance with the DCM financial requirements. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued a new standard on revenue recognition that replaces numerous, industry-specific requirements and converges U.S. accounting with International Financial Reporting Standards. The new standard introduces a framework for recognizing revenue that focuses on the transfer of control rather than risks and rewards. The new standard also requires significant additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The new standard will become effective in the first annual period beginning after December 15, 2016. It may be adopted using one of two transition methods, which we are still evaluating along with the impact of the new standard on our consolidated financial statements.


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Source: Edgar Glimpses


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