CME-2014.9.30 10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
- OR -
¨
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 001-31553
CME GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware
 
36-4459170
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
20 South Wacker Drive, Chicago, Illinois
 
60606
(Address of principal executive offices)
 
(Zip Code)
(312) 930-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).                                                    Yes  ý    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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
  
Accelerated filer     o
 
 
 
 
Non-accelerated filer    o (Do not check if a smaller reporting company)
 
  
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ¨    No  ý
The number of shares outstanding of each of the registrant’s classes of common stock as of October 13, 2014 was as follows: 336,838,277 shares of Class A common stock, $0.01 par value; 625 shares of Class B-1 common stock, $0.01 par value; 813 shares of Class B-2 common stock, $0.01 par value; 1,287 shares of Class B-3 common stock, $0.01 par value; and 413 shares of Class B-4 common stock, $0.01 par value.

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 CME GROUP INC.
FORM 10-Q
INDEX
 
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
Item 6.
 
 

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PART I. FINANCIAL INFORMATION
Certain Terms
All references to “options” or “options contracts” in the text of this document refer to options on futures contracts.
Unless otherwise indicated, references to CME Group Inc. (CME Group) products include references to products listed on one of its regulated exchanges: Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), and Commodity Exchange, Inc. (COMEX). Products listed on these exchanges are subject to the rules and regulations of the particular exchange and the applicable rulebook should be consulted. Unless otherwise indicated, references to NYMEX include its subsidiary, COMEX.
Further information about CME Group and its products can be found at www.cmegroup.com. Information made available on our website does not constitute a part of this Quarterly Report on Form 10-Q.
Information about Contract Volume and Average Rate per Contract
All amounts regarding contract volume and average rate per contract exclude our interest rate swaps, credit default swaps, CME Clearing Europe Limited and CME Europe Limited contracts.
Trademark Information
CME Group is a trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange, Globex and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas City, Missouri, Inc. Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.
Forward-Looking Statements
From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and verbal statements, we discuss our expectations regarding future performance. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “intend,” “may,” “plan,” “expect” and similar expressions, including references to assumptions. These forward-looking statements are based on currently available competitive, financial and economic data, current expectations, estimates, forecasts and projections about the industries in which we operate and management's beliefs and assumptions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that might affect our performance are:
•
increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities;
•
our ability to keep pace with rapid technological developments, including our ability to complete the development, implementation and maintenance of the enhanced functionality required by our customers while maintaining reliability and ensuring that such technology is not vulnerable to security risks;
•
our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services, including our ability to provide effective services to the swaps market;
•
our ability to adjust our fixed costs and expenses if our revenues decline;
•
our ability to maintain existing customers, develop strategic relationships and attract new customers;
•
our ability to expand and offer our products outside the United States;
•
changes in domestic and non-U.S. regulations, including the impact of any changes in domestic and foreign laws or government policy with respect to our industry, such as any changes to regulations and policies that require increased financial and operational resources from us or our customers;
•
the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others;
•
decreases in revenue from our market data as a result of decreased demand;

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•
changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure;
•
the ability of our financial safeguards package to adequately protect us from the credit risks of clearing members;
•
the ability of our compliance and risk management methods to effectively monitor and manage our risks, including our ability to prevent errors and misconduct and protect our infrastructure against security breaches and misappropriation of our intellectual property assets;
•
changes in price levels and volatility in the derivatives markets and in underlying equity, foreign exchange, interest rate and commodities markets;
•
economic, political and market conditions, including the volatility of the capital and credit markets and the impact of economic conditions on the trading activity of our current and potential customers;
•
our ability to accommodate increases in contract volume and order transaction traffic and to implement enhancements without failure or degradation of the performance of our trading and clearing systems;
•
our ability to execute our growth strategy and maintain our growth effectively;
•
our ability to manage the risks and control the costs associated with our strategy for acquisitions, investments and alliances;
•
our ability to continue to generate funds and/or manage our indebtedness to allow us to continue to invest in our business;
•
industry and customer consolidation;
•
decreases in trading and clearing activity;
•
the imposition of a transaction tax or user fee on futures and options on futures transactions and/or repeal of the 60/40 tax treatment of such transactions;
•
the unfavorable resolution of material legal proceedings; and
•
the seasonality of the futures business.
For a detailed discussion of these and other factors that might affect our performance, see Item 1A. of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 28, 2014 and Item 1A. of this Quarterly Report on Form 10-Q.

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ITEM 1.
FINANCIAL STATEMENTS

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except par value data; shares in thousands)
(unaudited)
 
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,087.9

 
$
2,469.7

Marketable securities
 
72.8

 
68.4

Accounts receivable, net of allowance of $1.0 and $1.2
 
344.8

 
302.7

Other current assets (includes $37.0 and $40.0 in restricted cash)
 
275.6

 
209.7

Performance bonds and guaranty fund contributions
 
32,385.3

 
21,355.1

Total current assets
 
34,166.4

 
24,405.6

Property, net of accumulated depreciation and amortization of $745.1 and $678.4
 
498.7

 
513.4

Intangible assets—trading products
 
17,175.3

 
17,175.3

Intangible assets—other, net
 
2,662.3

 
2,741.2

Goodwill
 
7,569.0

 
7,569.0

Other assets (includes $74.7 and $74.0 in restricted cash)
 
1,898.6

 
1,873.3

Total Assets
 
$
63,970.3

 
$
54,277.8

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
35.0

 
$
36.2

Short-term debt
 
—

 
749.9

Other current liabilities
 
207.6

 
1,169.8

Performance bonds and guaranty fund contributions
 
32,385.3

 
21,355.1

Total current liabilities
 
32,627.9

 
23,311.0

Long-term debt
 
2,107.7

 
2,107.2

Deferred income tax liabilities, net
 
7,308.4

 
7,249.7

Other liabilities
 
389.2

 
449.4

Total Liabilities
 
42,433.2

 
33,117.3

 
 
 
 
 
CME Group Shareholders’ Equity:
 
 
 
 
Preferred stock, $0.01 par value, 10,000 shares authorized at September 30, 2014 and December 31, 2013; none issued
 
—

 
—

Class A common stock, $0.01 par value, 1,000,000 shares authorized at September 30, 2014 and December 31, 2013; 334,985 and 333,852 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
 
3.3

 
3.3

Class B common stock, $0.01 par value, 3 shares authorized, issued and outstanding as of September 30, 2014 and December 31, 2013
 
—

 
—

Additional paid-in capital
 
17,561.3

 
17,504.9

Retained earnings
 
3,842.0

 
3,494.6

Accumulated other comprehensive income (loss)
 
130.5

 
152.0

Total CME Group shareholders’ equity
 
21,537.1

 
21,154.8

Non-controlling interest
 
—

 
5.7

Total Equity
 
21,537.1

 
21,160.5

Total Liabilities and Equity
 
$
63,970.3

 
$
54,277.8


See accompanying notes to unaudited consolidated financial statements.

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CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
 
 
Quarter Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
 
Clearing and transaction fees
 
$
641.8

 
$
597.9

 
$
1,903.3

 
$
1,883.6

Market data and information services
 
87.7

 
78.6

 
266.7

 
238.9

Access and communication fees
 
20.8

 
20.3

 
61.6

 
62.4

Other
 
12.1

 
17.8

 
39.8

 
64.4

Total Revenues
 
762.4

 
714.6

 
2,271.4

 
2,249.3

Expenses
 
 
 
 
 
 
 
 
Compensation and benefits
 
132.1

 
134.0

 
407.3

 
392.3

Communications
 
7.8

 
9.2

 
24.3

 
26.7

Technology support services
 
13.8

 
13.4

 
42.3

 
39.6

Professional fees and outside services
 
32.2

 
35.6

 
99.3

 
85.4

Amortization of purchased intangibles
 
25.3

 
25.6

 
75.7

 
77.4

Depreciation and amortization
 
32.7

 
35.0

 
101.1

 
100.8

Occupancy and building operations
 
24.7

 
19.2

 
71.1

 
56.7

Licensing and other fee agreements
 
25.5

 
25.7

 
80.2

 
73.8

Other
 
37.9

 
16.4

 
73.2

 
82.8

Total Expenses
 
332.0

 
314.1

 
974.5

 
935.5

Operating Income
 
430.4

 
400.5

 
1,296.9

 
1,313.8

 
 
 
 
 
 
 
 
 
Non-Operating Income (Expense)
 
 
 
 
 
 
 
 
Investment income
 
7.4

 
12.6

 
25.7

 
34.9

Interest and other borrowing costs
 
(28.7
)
 
(34.6
)
 
(90.7
)
 
(112.8
)
Equity in net gains (losses) of unconsolidated subsidiaries
 
20.0

 
20.4

 
63.9

 
58.1

Other non-operating income (expense)
 
—

 
—

 
1.8

 
—

Total Non-Operating
 
(1.3
)
 
(1.6
)
 
0.7

 
(19.8
)
Income before Income Taxes
 
429.1

 
398.9

 
1,297.6

 
1,294.0

Income tax provision
 
139.1

 
162.6

 
477.2

 
509.0

Net Income
 
290.0

 
236.3

 
820.4

 
785.0

Less: net income (loss) attributable to non-controlling interest
 
—

 
(0.4
)
 
(0.2
)
 
1.3

Net Income Attributable to CME Group
 
$
290.0

 
$
236.7

 
$
820.6

 
$
783.7

 
 
 
 
 
 
 
 
 
Earnings per Common Share Attributable to CME Group:
 
 
 
 
 
 
 
 
Basic
 
$
0.87

 
$
0.71

 
$
2.46

 
$
2.36

Diluted
 
0.86

 
0.71

 
2.44

 
2.35

Weighted Average Number of Common Shares:
 
 
 
 
 
 
 
 
Basic
 
334,424

 
332,763

 
334,144

 
332,355

Diluted
 
336,172

 
334,674

 
335,820

 
334,055

See accompanying notes to unaudited consolidated financial statements.

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CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
 
Quarter Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
Net income
 
$
290.0

 
$
236.3

 
$
820.4

 
$
785.0

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) arising during the period
 
(66.6
)
 
(18.0
)
 
(10.7
)
 
(138.9
)
Reclassification of gain on sale included in investment income
 
—

 
(0.7
)
 
—

 
(0.7
)
Income tax benefit (expense)
 
(5.0
)
 
17.1

 
(6.5
)
 
23.0

Investment securities, net
 
(71.6
)
 
(1.6
)
 
(17.2
)
 
(116.6
)
Defined benefit plans:
 
 
 
 
 
 
 
 
Net change in defined benefit plans arising during the period
 
—

 
(0.2
)
 
(3.2
)
 
0.9

Amortization of net actuarial (gains) losses included in compensation and benefits expense
 
—

 
0.8

 
0.2

 
2.3

Income tax benefit (expense)
 
—

 
(0.6
)
 
1.1

 
(1.5
)
Defined benefit plans, net
 
—

 
—

 
(1.9
)
 
1.7

Derivative investments:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) arising during the period
 
—

 
43.5

 
—

 
128.8

Amortization of effective portion of net (gain) loss on cash flow hedges included in interest expense
 
(0.4
)
 
0.5

 
(1.1
)
 
1.9

Income tax benefit (expense)
 
0.1

 
(17.4
)
 
0.4

 
(49.0
)
Derivative investments, net
 
(0.3
)
 
26.6

 
(0.7
)
 
81.7

Foreign currency translation:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(6.9
)
 
(1.5
)
 
(2.7
)
 
1.7

Income tax benefit (expense)
 
2.6

 
0.5

 
1.0

 
(0.6
)
Foreign currency translation, net
 
(4.3
)
 
(1.0
)
 
(1.7
)
 
1.1

Other comprehensive income, net of tax
 
(76.2
)
 
24.0

 
(21.5
)
 
(32.1
)
Comprehensive income
 
213.8

 
260.3

 
798.9

 
752.9

Less: comprehensive income attributable to non-controlling interests
 
—

 
(0.4
)
 
(0.2
)
 
1.3

Comprehensive Income Attributable to CME Group
 
$
213.8

 
$
260.7

 
$
799.1

 
$
751.6

See accompanying notes to unaudited consolidated financial statements.

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CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
 
 
Class A
Common
Stock
(Shares)
 
Class B
Common
Stock
(Shares)
 
Common
Stock and
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total CME Group
Shareholders’
Equity
 
Non-Controlling Interest
 
Total Equity
Balance at December 31, 2013
 
333,852

 
3

 
$
17,508.2

 
$
3,494.6

 
$
152.0

 
$
21,154.8

 
$
5.7

 
$
21,160.5

Net income attributable to CME Group and non-controlling interest
 
 
 
 
 
 
 
820.6

 
 
 
820.6

 
(0.2
)
 
820.4

Other comprehensive income attributable to CME Group
 
 
 
 
 
 
 
 
 
(21.5
)
 
(21.5
)
 
 
 
(21.5
)
Dividends on common stock of $1.41 per share
 
 
 
 
 
 
 
(473.2
)
 
 
 
(473.2
)
 
 
 
(473.2
)
Tax effect and gain related to purchase of non-controlling interests
 
 
 
 
 
(1.5
)
 
 
 
 
 
(1.5
)
 
(5.5
)
 
(7.0
)
Exercise of stock options
 
590

 
 
 
26.6

 
 
 
 
 
26.6

 
 
 
26.6

Excess tax benefits from option exercises and restricted stock vesting
 
 
 
 
 
3.3

 
 
 
 
 
3.3

 
 
 
3.3

Vesting of issued restricted Class A common stock
 
496

 
 
 
(16.2
)
 
 
 
 
 
(16.2
)
 
 
 
(16.2
)
Shares issued to Board of Directors
 
34

 
 
 
2.4

 
 
 
 
 
2.4

 
 
 
2.4

Shares issued under Employee Stock Purchase Plan
 
13

 
 
 
0.9

 
 
 
 
 
0.9

 
 
 
0.9

Stock-based compensation
 
 
 
 
 
40.9

 
 
 
 
 
40.9

 
 
 
40.9

Balance at September 30, 2014
 
334,985

 
3

 
$
17,564.6

 
$
3,842.0

 
$
130.5

 
$
21,537.1

 
$
—

 
$
21,537.1

See accompanying notes to unaudited consolidated financial statements.

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CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
 
 
Class A
Common
Stock
(Shares)
 
Class B
Common
Stock
(Shares)
 
Common
Stock and
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total CME Group
Shareholders’
Equity
 
Non-Controlling Interest
 
Total Equity
Balance at December 31, 2012
 
331,832

 
3

 
$
17,216.4

 
$
3,993.4

 
$
209.3

 
$
21,419.1

 
$
5.8

 
$
21,424.9

Net income attributable to CME Group and non-controlling interest
 
 
 
 
 
 
 
783.7

 
 
 
783.7

 
(0.2
)
 
783.5

Other comprehensive income attributable to CME Group
 
 
 
 
 
 
 
 
 
(32.1
)
 
(32.1
)
 
 
 
(32.1
)
Dividends on common stock of $1.35 per share
 
 
 
 
 
 
 
(450.6
)
 
 
 
(450.6
)
 
 
 
(450.6
)
Tax effect and gain related to purchase of non-controlling interest
 
 
 
 
 
167.9

 
 
 
 
 
167.9

 
 
 
167.9

Exercise of stock options
 
1,155

 
 
 
53.6

 
 
 
 
 
53.6

 
 
 
53.6

Excess tax benefits from option exercises and restricted stock vesting
 
 
 
 
 
5.4

 
 
 
 
 
5.4

 
 
 
5.4

Vesting of issued restricted Class A common stock
 
415

 
 
 
(17.9
)
 
 
 
 
 
(17.9
)
 
 
 
(17.9
)
Shares issued to Board of Directors
 
27

 
 
 
2.1

 
 
 
 
 
2.1

 
 
 
2.1

Shares issued under Employee Stock Purchase Plan
 
9

 
 
 
0.7

 
 
 
 
 
0.7

 
 
 
0.7

Stock-based compensation
 
 
 
 
 
40.4

 
 
 
 
 
40.4

 
 
 
40.4

Balance at September 30, 2013
 
333,438

 
3

 
$
17,468.6

 
$
4,326.5

 
$
177.2

 
$
21,972.3

 
$
5.6

 
$
21,977.9

See accompanying notes to unaudited consolidated financial statements.


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CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited) 
 
 
Nine Months Ended
September 30,
 
 
2014
 
2013
Cash Flows from Operating Activities
 
 
 
 
Net income
 
$
820.4

 
$
785.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Stock-based compensation
 
40.9

 
40.4

Amortization of purchased intangibles
 
75.7

 
77.4

Depreciation and amortization
 
101.1

 
100.8

Undistributed net (gains) losses of unconsolidated subsidiaries
 
(39.2
)
 
(8.3
)
Deferred income taxes
 
63.1

 
45.1

Change in:
 
 
 
 
Accounts receivable
 
(41.9
)
 
(45.0
)
Other current assets
 
(9.4
)
 
6.9

Other assets
 
(10.9
)
 
(19.9
)
Accounts payable
 
(1.2
)
 
(0.7
)
Income taxes payable
 
(141.4
)
 
(85.9
)
Other current liabilities
 
(62.6
)
 
(8.7
)
Other liabilities
 
(11.2
)
 
4.3

Other
 
5.5

 
7.2

Net Cash Provided by Operating Activities
 
788.9

 
898.6

 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
Proceeds from maturities of available-for-sale marketable securities
 
28.5

 
27.5

Purchases of available-for-sale marketable securities
 
(29.3
)
 
(27.6
)
Purchases of property
 
(104.2
)
 
(94.7
)
Proceeds from sale of building property
 
7.9

 
—

Investments in business ventures
 
(10.5
)
 
—

Settlement of derivative related to debt issuance
 
—

 
127.8

Net Cash Provided by (Used in) Investing Activities
 
(107.6
)
 
33.0

 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
Proceeds from debt, net of issuance costs
 
—

 
748.7

Repayment of debt
 
(750.0
)
 
(750.0
)
Cash dividends
 
(1,339.2
)
 
(449.6
)
Purchase of noncontrolling interest
 
(4.7
)
 
(80.0
)
Proceeds from exercise of stock options
 
26.6

 
53.6

Excess tax benefits related to employee option exercises and restricted stock vesting
 
3.3

 
5.4

Other
 
0.9

 
0.6

Net Cash Used in Financing Activities
 
(2,063.1
)
 
(471.3
)
 
 
 
 
 
Net change in cash and cash equivalents
 
(1,381.8
)
 
460.3

Cash and cash equivalents, beginning of period
 
2,469.7

 
1,604.7

Cash and Cash Equivalents, End of Period
 
$
1,087.9

 
$
2,065.0

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
Income taxes paid
 
$
523.9

 
$
534.6

Interest paid
 
111.4

 
133.4

See accompanying notes to unaudited consolidated financial statements.

10
Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements consist of CME Group Inc. (CME Group) and its subsidiaries (collectively, the company), including 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), and their respective subsidiaries (collectively, the exchange).
The accompanying interim consolidated financial statements have been prepared by CME Group without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position of the company at September 30, 2014 and December 31, 2013 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period. Certain reclassifications have been made to the prior years' financial statements to conform to the presentation in the current year.
The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in CME Group’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (SEC) on February 28, 2014.
2. Performance Bonds and Guaranty Fund Contributions
Performance Bonds and Guaranty Fund Contributions. At September 30, 2014, performance bonds and guaranty fund contributions assets on the consolidated balance sheets include cash and U.S. Treasury securities with maturity dates of 60 days or less. U.S. Treasury securities are purchased by CME, at its discretion, using cash collateral. The benefits, including interest earned, and risks of ownership accrue to CME. Interest earned is included in investment income on the consolidated statements of income. At September 30, 2014, the amortized cost and fair value of the U.S. Treasury securities were both $5.5 billion. The U.S. Treasury securities matured in October 2014.
Clearing House Contract Settlement. CME and CMECE (CME Clearing Europe Limited) mark-to-market open positions for all products at least once a day (twice a day for futures and options contracts). Based on values derived from the mark-to-market process, CME and CMECE require payment from clearing firms whose positions have lost value and make payments to clearing firms whose positions have gained value. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure related to positions other than over-the-counter credit default and interest rate swap contracts would be one half day of changes in fair value of all open positions, before considering the clearing houses' ability to access defaulting clearing firms' collateral deposits. For CME's cleared over-the-counter credit default swap and interest rate swap contracts, the maximum exposure related to CME's guarantee would be one full day of changes in fair value of all open positions, before considering CME's ability to access defaulting clearing firms' collateral. During the first nine months of 2014, CME and CMECE transferred an average of approximately $2.7 billion a day through their clearing systems for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained value. CME and CMECE reduce the guarantee exposure through initial and maintenance performance bond requirements and mandatory guaranty fund contributions. The company believes that the guarantee liability is immaterial and therefore has not recorded any liability at September 30, 2014.

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3. Intangible Assets
Intangible assets consisted of the following at September 30, 2014 and December 31, 2013:
 
 
 
September 30, 2014
 
December 31, 2013
(in millions)
 
Assigned Value
 
Accumulated
Amortization
 
Net Book
Value
 
Assigned Value
 
Accumulated
Amortization
 
Net Book
Value
Amortizable Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Clearing firm, market data and other customer relationships
 
$
2,838.8

 
$
(634.9
)
 
$
2,203.9

 
$
2,838.8

 
$
(563.2
)
 
$
2,275.6

Technology-related intellectual property
 
29.4

 
(22.5
)
 
6.9

 
33.8

 
(19.8
)
 
14.0

Other
 
2.4

 
(0.9
)
 
1.5

 
2.4

 
(0.8
)
 
1.6

Total amortizable intangible assets
 
$
2,870.6

 
$
(658.3
)
 
2,212.3

 
$
2,875.0

 
$
(583.8
)
 
2,291.2

 
 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-Lived Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
 
 
 
450.0

 
 
 
 
 
450.0

Total intangible assets – other, net
 
 
 
 
 
$
2,662.3

 
 
 
 
 
$
2,741.2

Trading products(1)
 
 
 
 
 
$
17,175.3

 
 
 
 
 
$
17,175.3

(1)
Trading products represent futures and options products acquired in our business combinations with CBOT Holdings, Inc., NYMEX Holdings, Inc. and The Board of Trade of Kansas City, Missouri, Inc. Clearing and transaction fees are generated through the trading of these products. These trading products, most of which have traded for decades, require authorization from the CFTC. Product authorizations from the CFTC have no term limits.
Total amortization expense for intangible assets was $25.3 million and $25.6 million for the quarters ended September 30, 2014 and 2013, respectively. Total amortization expense for intangible assets was $75.7 million and $77.4 million for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows:
(in millions)
 Amortization Expense
Remainder of 2014
$
24.9

2015
99.5

2016
96.1

2017
95.5

2018
94.7

2019
94.7

Thereafter
1,706.9


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4. Debt
Short-term debt consisted of the following at September 30, 2014 and December 31, 2013:
(in millions)
 
September 30, 2014
 
December 31, 2013
$750.0 million fixed rate notes due February 2014, stated rate of 5.75%
 
$
—

 
$
749.9

Total short-term debt
 
$
—

 
$
749.9

Long-term debt consisted of the following at September 30, 2014 and December 31, 2013: 
(in millions)
 
September 30, 2014
 
December 31, 2013
$612.5 million fixed rate notes due March 2018, stated rate of 4.40%(1)
 
$
610.9

 
$
610.5

$750.0 million fixed rate notes due September 2022, stated rate of 3.00% (2)
 
748.1

 
748.0

$750.0 million fixed rates notes due September 2043, stated rate of 5.30% (3)
 
748.7

 
748.7

Total long-term debt
 
$
2,107.7

 
$
2,107.2

(1)
In February 2010, CME Group 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, CME Group 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 3.32%.
(3)
In August 2012, CME Group 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 4.73%.
Long-term debt maturities, at par value, were as follows as of September 30, 2014:  
(in millions)
Par Value
2015
$
—

2016
—

2017
—

2018
612.5

2019
—

Thereafter
1,500.0

The fair value of the fixed rate notes due 2018, which are classified as level 3 under the fair value hierarchy, was derived using a standard valuation model with market-based observable inputs including U.S. Treasury yields and interest rate spreads. The fair values of the fixed rate notes due 2022 and 2043, which are classified as level 2 under the fair value hierarchy, were estimated using quoted market prices. For more information about the fair value hierarchy, see note 8. At September 30, 2014, the fair values of the fixed rate notes were as follows:
(in millions)
Fair Value
$612.5 million fixed rate notes due March 2018, stated rate of 4.40%
$
655.7

$750.0 million fixed rate notes due September 2022, stated rate of 3.00% 
748.4

$750.0 million fixed rates notes due September 2043, stated rate of 5.30%
869.2

5. Contingencies
Legal and Regulatory Matters. In 2008, Fifth Market, Inc. (Fifth Market) filed a complaint against CME Group and CME in the Delaware District Court seeking a permanent injunction against CME's Globex system and unquantified enhanced damages for what the plaintiff alleges is willful infringement of two patents, in addition to costs, expenses and attorneys' fees. The case was stayed pending the outcome of CME's request for reexamination by the U.S. Patent and Trademark Office (USPTO). The reexaminations resulted in some claims being rejected and others being confirmed. In June 2013, the court lifted the stay. The validity of the patents, however, remains subject to further review by the USPTO. Based on its investigation to date and advice from legal counsel, the company believes this suit is without merit and intends to defend itself vigorously against these charges.

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Table of Contents

In 2009, CME and CBOT filed a complaint against Howard Garber in the Northern District of Illinois seeking a declaratory judgment that neither CME nor CBOT infringed the Garber patent, which relates to electronic market makers, and that the patent is invalid and unenforceable. The Technology Research Group (TRG) was substituted for Mr. Garber in 2009 and TRG filed counterclaims alleging patent infringement and other related claims. In 2011, the case was dismissed with the right to reinstate pending the outcome of a reexamination by the USPTO. In August and October 2013, the USPTO issued actions resulting in the rejection of all TRG’s claims completing the reexamination process. In January 2014, TRG appealed the decision of the USPTO. Based on its investigation to date and advice from legal counsel, the company believes this suit is without merit and intends to defend itself vigorously against these charges.
The foregoing legal matters involve alleged infringements of intellectual property which, due to their nature, involve potential liability that is uncertain, difficult to quantify and involves a wide range of potential outcomes. The company believes that the matters are without merit, and the company intends to defend itself vigorously against the claims. We expect the re-examinations by the USPTO in the Fifth Market and Garber matters, including any appeals thereof, to result in a determination of the validity of the patents at issue which we expect will have an impact on the merits of the matters. Given the uncertainty of factors which may potentially impact the resolution of these matters, at this time the company is unable to estimate the reasonably possible loss or range of reasonably possible loss in the unlikely event it were found to be liable at trial in these matters.
In February 2013, the CFTC filed suit against NYMEX and two former employees alleging disclosure of confidential customer information in violation of the Commodity Exchange Act. NYMEX’s motion to dismiss was denied on September 30, 2014. Based on its investigation to date and advice from legal counsel, the company believes that it has strong factual and legal defenses to the claim.
In the normal course of business, the company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry and oversight. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not have a material impact on its consolidated financial position or results of operations. However, the company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters.
In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty, the company believes that the resolution of any of these matters on an individual basis will not have a material impact on its consolidated financial position or results of operations.
At September 30, 2014 and December 31, 2013, the company had accrued $4.3 million and $11.3 million, respectively, for legal and regulatory matters that were probable and estimable.
Intellectual Property Indemnifications. Certain agreements with customers and other third parties related to accessing the CME platforms; utilizing market data services; and licensing CME SPAN software may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable products and/or services. The potential future claims relating to these indemnifications cannot be estimated and therefore no liability has been recorded.
6. Guarantees
Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) have a mutual offset agreement with a current term through October 2015. This agreement enables market participants to open a futures position on one exchange and liquidate it on the other. The term of the agreement will automatically renew for a one-year period unless either party provides advance notice of their intent to terminate. CME can maintain collateral in the form of U.S. Treasury securities or irrevocable, standby letters of credit. At September 30, 2014, CME was contingently liable to SGX on letters of credit totaling $410.0 million. Regardless of the collateral, CME guarantees all cleared transactions submitted through SGX and would initiate procedures designed to satisfy these financial obligations in the event of a default, such as the use of performance bonds and guaranty fund contributions of the defaulting clearing firm. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at September 30, 2014.
Family Farmer and Rancher Protection Fund. In 2012, the company established the Family Farmer and Rancher Protection Fund (the Fund). The Fund is designed to provide payments, up to certain maximum levels, to family farmers, ranchers and other agricultural industry participants who use the company's agricultural products and who suffer losses to their segregated account balances due to their CME clearing member becoming insolvent. Under the terms of the Fund, farmers and ranchers are eligible for up to $25,000 per participant. Farming and ranching cooperatives are eligible for up to $100,000 per cooperative. The Fund was established with a maximum payment amount of $100.0 million. Since its establishment, the Fund has made payments of approximately $2.0 million, which leaves $98.0 million available for future claims. If payments to participants were to exceed the amount remaining in the fund at the time of insolvency, payments would be pro-rated. Clearing members and customers must register in advance with the company and provide certain documentation in order to substantiate

14
Table of Contents

their eligibility. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at September 30, 2014.
7. Accumulated Other Comprehensive Income
The following tables present changes in the accumulated balances for each component of other comprehensive income attributable to CME Group, including current period other comprehensive income and reclassifications out of accumulated other comprehensive income:
(in millions)
Investment Securities
 
Defined Benefit Plans
 
Derivative Investments
 
Foreign Currency Translation
 
Total
Balance at December 31, 2013
$
98.9

 
$
(12.8
)
 
$
65.0

 
$
0.9

 
$
152.0

Other comprehensive income before reclassifications and income tax benefit (expense)
(10.7
)
 
(3.2
)
 
(1.1
)
 
(2.7
)
 
(17.7
)
Amounts reclassified from accumulated other comprehensive income
—

 
0.2

 
—

 
—

 
0.2

Income tax benefit (expense)
(6.5
)
 
1.1

 
0.4

 
1.0

 
(4.0
)
Net current period other comprehensive income attributable to CME Group
(17.2
)
 
(1.9
)
 
(0.7
)
 
(1.7
)
 
(21.5
)
Balance at September 30, 2014
$
81.7

 
$
(14.7
)
 
$
64.3

 
$
(0.8
)
 
$
130.5

(in millions)
Investment Securities
 
Defined Benefit Plans
 
Derivative Investments
 
Foreign Currency Translation
 
Total
Balance at December 31, 2012
$
256.7

 
$
(32.4
)
 
$
(16.4
)
 
$
1.4

 
$
209.3

Other comprehensive income before reclassifications and income tax benefit (expense)
(138.9
)
 
0.9

 
128.8

 
1.7

 
(7.5
)
Amounts reclassified from accumulated other comprehensive income
(0.7
)
 
2.3

 
1.9

 
—

 
3.5

Income tax benefit (expense)
23.0

 
(1.5
)
 
(49.0
)
 
(0.6
)
 
(28.1
)
Net current period other comprehensive income attributable to CME Group
(116.6
)
 
1.7

 
81.7

 
1.1

 
(32.1
)
Balance at September 30, 2013
$
140.1

 
$
(30.7
)
 
$
65.3

 
$
2.5

 
$
177.2

8. Fair Value Measurements
The company uses a three-level classification hierarchy of fair value measurements for disclosure purposes.
•
Level 1 inputs, which are considered the most reliable evidence of fair value, consist of quoted prices (unadjusted) for identical assets or liabilities in active markets.
•
Level 2 inputs consist of observable market data, such as quoted prices for similar assets and liabilities in active markets, or inputs other than quoted prices that are directly observable.
•
Level 3 inputs consist of unobservable inputs which are derived and cannot be corroborated by market data or other entity-specific inputs.
Level 1 assets generally include U.S. Treasury securities and investments in publicly traded stocks and mutual funds with quoted market prices. In general, the company uses quoted prices in active markets for identical assets to determine the fair value of marketable securities and equity investments. If quoted prices are not available to determine fair value, the company uses other inputs that are directly observable.
Assets included in level 2 generally consist of asset-backed securities. Asset-backed securities are measured at fair value based on a price matrix using prices of similar securities with similar inputs such as maturity dates, interest rates and credit ratings.
The company determined the fair value of its contingent consideration liabilities, considered level 3 liabilities, using a discounted cash flow model to calculate the present value of future payouts. The liabilities are included in level 3 because management uses significant unobservable inputs, including a discount rate of 20% and payout probabilities ranging from 0% to 90%. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value.

15
Table of Contents

Financial assets and liabilities recorded in the consolidated balance sheet as of September 30, 2014 were classified in their entirety based on the lowest level of input that was significant to each asset or liability's fair value measurement. The following presents financial instruments measured at fair value on a recurring basis:
 
 
September 30, 2014
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets at Fair Value:
 
 
 
 
 
 
 
 
Marketable securities:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
19.2

 
$
—

 
$
—

 
$
19.2

Mutual funds
 
53.2

 
—

 
—

 
53.2

Asset-backed securities
 
—

 
0.4

 
—

 
0.4

Total Marketable Securities
 
72.4

 
0.4

 
—

 
72.8

Performance bonds and guaranty fund contributions:
 
 
 
 
 
 
 
 
U.S. Treasury securities (1)
 
5,500.0

 
—

 
—

 
5,500.0

Equity investments
 
489.1

 
—

 
—

 
489.1

Total Assets at Fair Value
 
$
6,061.5

 
$
0.4

 
$
—

 
$
6,061.9

 
 
 
 
 
 
 
 
 
Liabilities at Fair Value:
 
 
 
 
 
 
 
 
Contingent consideration
 
$
—

 
$
—

 
$
21.1

 
$
21.1

Total Liabilities at Fair Value
 
$
—

 
$
—

 
$
21.1

 
$
21.1

(1) Performance bonds and guaranty fund contributions on the consolidated balance sheet at September 30, 2014 include cash collateral that has been invested in U.S. Treasury securities.
There were no transfers of assets or liabilities between level 1, level 2 or level 3 during the first nine months of 2014. The following is a reconciliation of level 3 liabilities valued at fair value on a recurring basis. There were no level 3 assets valued at fair value on a recurring basis during the first nine months of 2014.
(in millions)
Contingent Consideration
Fair value of liability at December 31, 2013
$
15.7

Realized and unrealized (gains) losses:
 
Included in other expenses
5.4

Fair value of liability at September 30, 2014
$
21.1

There were no level 3 assets or level 3 liabilities valued at fair value on a nonrecurring basis during the first nine months of 2014.
9. Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to the company by the weighted average number of shares of all classes of CME Group common stock outstanding for each reporting period. Diluted earnings per share reflects the increase in shares using the treasury stock method to reflect the impact of an equivalent number of shares of common stock if stock options were exercised and restricted stock awards were converted into common stock. Anti-dilutive stock options and restricted stock awards were as follows for the periods presented:
 
Quarter Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Stock options
1,461

 
1,540

 
1,463

 
1,593

Stock awards
700

 
—

 
700

 
824

Total
2,161

 
1,540

 
2,163

 
2,417

The following table presents the earnings per share calculation for the periods presented:

16


 
 
Quarter Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2013
 
2014
 
2013
Net Income Attributable to CME Group (in millions)
 
$
290.0

 
$
236.7

 
$
820.6

 
$
783.7

Weighted Average Number of Common Shares (in thousands):
 
 
 
 
 
 
 
 
Basic
 
334,424

 
332,763

 
334,144

 
332,355

Effect of stock options and restricted stock awards
 
1,748

 
1,911

 
1,676

 
1,700

Diluted
 
336,172


334,674

 
335,820

 
334,055

Earnings per Common Share Attributable to CME Group:
 
 
 
 
 
 
 
 
Basic
 
$
0.87

 
$
0.71

 
$
2.46

 
$
2.36

Diluted
 
0.86

 
0.71

 
2.44

 
2.35

10. Subsequent Events
The company has evaluated subsequent events through the date the financial statements were issued and has determined that there are no subsequent events that require disclosure.




17
Table of Contents

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(dollars in millions, except per share data)
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Total revenues
 
$
762.4

 
$
714.6

 
7
%
 
$
2,271.4

 
$
2,249.3

 
1
 %
Total expenses
 
332.0

 
314.1

 
6

 
974.5

 
935.5

 
4

Operating margin
 
56.5
%
 
56.0
%
 
 
 
57.1
%
 
58.4
%
 
 
Non-operating income (expense)
 
$
(1.3
)
 
$
(1.6
)
 
16

 
$
0.7

 
$
(19.8
)
 
104

Effective tax rate
 
32.4
%
 
40.8
%
 
 
 
36.8
%
 
39.3
%
 
 
Net income attributable to CME Group
 
$
290.0

 
$
236.7

 
23

 
$
820.6

 
$
783.7

 
5

Diluted earnings per common share attributable to CME Group
 
0.86

 
0.71

 
21

 
2.44

 
2.35

 
4

Cash flows from operating activities
 
 
 
 
 
 
 
788.9

 
898.6

 
(12
)

Revenues
 
 
Quarter Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(dollars in millions)
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Clearing and transaction fees
 
$
641.8

 
$
597.9

 
7
 %
 
$
1,903.3

 
$
1,883.6

 
1
 %
Market data and information services
 
87.7

 
78.6

 
12

 
266.7

 
238.9

 
12

Access and communication fees
 
20.8

 
20.3

 
3

 
61.6

 
62.4

 
(1
)
Other
 
12.1

 
17.8

 
(32
)
 
39.8

 
64.4

 
(38
)
Total Revenues
 
$
762.4

 
$
714.6

 
7

 
$
2,271.4

 
$
2,249.3

 
1

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 houses 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.

18
Table of Contents

 
 
Quarter Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Total contract volume (in millions)
 
863.4

 
769.1

 
12
 %
 
2,492.6

 
2,436.3

 
2
 %
Clearing and transaction fees (in millions)
 
$
626.3

 
$
586.2

 
7

 
$
1,861.6

 
$
1,861.8

 
—

Average rate per contract
 
$
0.725

 
$
0.762

 
(5
)
 
$
0.747

 
$
0.764

 
(2
)
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 third quarter and first nine months of 2014 when compared with the same periods in 2013. 
(in millions)
 
Quarter Ended
 
Nine Months Ended
Increases due to changes in total contract volume
 
$
68.4

 
$
42.0

Decreases due to changes in average rate per contract
 
(28.3
)
 
(42.2
)
Increase (decrease) in clearing and transaction fees
 
$
40.1

 
$
(0.2
)
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 on the consolidated statements of income include revenues for our cleared-only CME interest rate swap and CME credit default swap contracts. In the third quarter and first nine months of 2014 when compared with the same periods in 2013, clearing and transaction fees generated from these contracts increased by $3.9 million and $20.1 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.
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
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(amounts in thousands)
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Average Daily Volume by Product Line:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
7,181

 
5,839

 
23
 %
 
6,861

 
6,117

 
12
 %
Equity
 
2,586

 
2,409

 
7

 
2,644

 
2,700

 
(2
)
Foreign exchange
 
797

 
792

 
1

 
750

 
947

 
(21
)
Agricultural commodity
 
1,058

 
1,009

 
5

 
1,103

 
1,074

 
3

Energy
 
1,562

 
1,609

 
(3
)
 
1,573

 
1,711

 
(8
)
Metal
 
309

 
360

 
(14
)
 
328

 
410

 
(20
)
Aggregate average daily volume
 
13,493

 
12,018

 
12

 
13,259

 
12,959

 
2

Average Daily Volume by Venue:
 
 
 
 
 
 
 
 
 
 
 
 
Electronic
 
11,627

 
10,199

 
14

 
11,404

 
11,203

 
2

Open outcry
 
1,208

 
1,173

 
3

 
1,162

 
1,068

 
9

Privately negotiated (1)
 
658

 
646

 
2

 
693

 
688

 
1

Aggregate average daily volume
 
13,493

 
12,018

 
12

 
13,259

 
12,959

 
2

(1) Privately negotiated venue average daily volume includes both traditional block trades as well as what was historically categorized as CME ClearPort.

19
Table of Contents

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
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(amounts in thousands)
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Eurodollar futures and options:
 
 
 
 
 
 
 
 
 
 
 
 
Front 8 futures
 
1,619

 
1,188

 
36
%
 
1,502

 
1,202

 
25
 %
Back 32 futures
 
1,082

 
860

 
26

 
1,046

 
880

 
19

Options
 
919

 
761

 
21

 
841

 
594

 
42

U.S. Treasury futures and options:
 
 
 
 
 
 
 
 
 
 
 
 
10-Year
 
1,671

 
1,498

 
12

 
1,683

 
1,704

 
(1
)
5-Year
 
914

 
767

 
19

 
888

 
833

 
7

Treasury bond
 
437

 
388

 
13

 
418

 
492

 
(15
)
2-Year
 
308

 
219

 
41

 
281

 
252

 
12

Overall interest rate volumes increased in the third quarter and first nine months of 2014 when compared with the same periods in 2013. We believe volumes for U.S. Treasury contracts and Eurodollar futures and options contracts increased in the third quarter of 2014 as a result of increased volatility driven by changing expectations regarding near-term Federal Reserve actions.
U.S. Treasury contract volumes remained flat in the first nine months of 2014 when compared with the same period in 2013 despite the increase in volumes during the third quarter of 2014. We believe volumes were higher in the first half of 2013 due to short periods of high volatility created by the Federal Reserve's activities with respect to their quantitative easing program.
Equity Products
The following table summarizes average daily contract volume for our key equity products.
  
 
Quarter Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(amounts in thousands)
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
E-mini S&P 500 futures and options
 
2,035

 
1,931

 
5
%
 
2,057

 
2,173

 
(5
)%
E-mini NASDAQ 100 futures and options
 
278

 
222

 
25

 
301

 
236

 
27

Overall equity volumes increased in the third quarter of 2014 when compared with the same period in 2013. We believe this resulted primarily due to geopolitical events that led to a short period of relatively high volatility in late July 2014 as well as a more gradual increase in broad market volatility in September 2014.
Equity volumes decreased slightly in the first nine months of 2014 when compared with the same period in 2013 despite the increase in the third quarter of 2014. The decrease was primarily due to a decrease in E-mini S&P 500 contract volumes resulting from lower volatility in early 2014. 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. We believe the infrequency of significant events, as well as the cautionary stance of the Federal Reserve with respect to interest rates, contributed to gradual, upward movement in the equity market over the first nine months of 2014.
Foreign Exchange Products
The following table summarizes average daily contract volume for our key foreign exchange products. 
 
 
Quarter Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
 
(amounts in thousands)
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Euro
 
231

 
235

 
(2
)%
 
219

 
287

 
(24
)%
Japanese yen
 
144