CME GROUP INC.

CME
Delayed Quote. Delayed  - 09/22 04:00:00 pm
166.59USD -0.66%

CME : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/05/2020 | 11:47am


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 our Annual Report on Form
10-K for the year ended December 31, 2019.
References in this discussion and analysis to "we" and "our" are to CME Group
Inc.
(CME Group) and its consolidated subsidiaries, collectively. References to
"exchange" are to Chicago Mercantile Exchange Inc. (CME), the Board of Trade of
the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX),
and Commodity Exchange, Inc. (COMEX), collectively, unless otherwise noted.
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) 2020 2019 Change 2020 2019 Change
Total revenues $ 1,182.3 $ 1,272.7 (7) % $ 2,704.4 $ 2,452.3 10 %
Total expenses 544.8 574.1 (5) 1,107.0 1,122.7 (1)
Operating margin 53.9 % 54.9 % 59.1 % 54.2 %
Non-operating income (expense) $ 23.8 $ 3.5 n.m. $ 53.2 $ 12.7


n.m.



Effective tax rate 23.9 % 26.7 % 23.0 % 24.7 %


Net income attributable to CME Group $ 503.3 $ 513.8


(2) $ 1,269.5 $ 1,010.7


26



Diluted earnings per common share
attributable to CME Group 1.40 1.43 (2) 3.54 2.82


26



Cash flows from operating activities 1,743.9 1,142.9 53


n.m. not meaningful
Revenues
Quarter Ended Six Months Ended
June 30, June 30,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Clearing and transaction fees $ 940.2 $ 1,051.8 (11) % $ 2,219.0 $ 2,004.4 11 %
Market data and information services 134.7 128.3 5 266.2 258.4 3
Other 107.4 92.6 16 219.2 189.5 16
Total Revenues $ 1,182.3 $ 1,272.7 (7) $ 2,704.4 $ 2,452.3 10


Clearing and Transaction Fees
Futures and Options Contracts
The following table summarizes our total contract volume, revenue and average
rate per contract for futures and options. Total contract volume includes
contracts that are traded on our exchange and cleared through our clearing house
and certain 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. Contract volume and
average rate per contract disclosures exclude trading volume for the cash
markets business and interest rate swaps volume.
Quarter Ended Six Months Ended
June 30, June 30,
2020 2019 Change 2020 2019 Change
Total contract volume (in millions) 1,108.7 1,317.8 (16) 2,783.6 2,454.4 13 %
Clearing and transaction fees (in
millions) $ 810.9 $ 913.7 (11) $ 1,943.9 $ 1,724.6 13
Average rate per contract $ 0.731 $ 0.693 5 $ 0.698 $ 0.703 (1)


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We estimate the following net changes in clearing and transaction fees based on
changes in total contract volume and changes in average rate per contract for
futures and options during the second quarter and first six months of 2020 when
compared with the same periods in 2019.
Six Months
(in millions) Quarter Ended Ended
Increases (decreases) due to changes in total contract volume $ (152.9) $ 229.9
Increases (decreases) due to changes in average rate per contract 50.1 (10.6)
Net increases (decreases) in clearing and transaction fees $


(102.8) $ 219.3





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 changes in each is
only an approximation.
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) 2020 2019 Change 2020 2019 Change
Average Daily Volume by Product Line:
Interest rates 6,890 11,593 (41) 10,324 10,964 (6) %
Equity indexes 5,568 3,480 60 6,029 3,323 81
Foreign exchange 725 874 (17) 901 879 2
Agricultural commodities 1,311 1,839 (29) 1,408 1,614 (13)
Energy 2,586 2,499 4 2,905 2,416 20
Metals 519 633 (18) 702 598 17
Aggregate average daily volume 17,599 20,918 (16) 22,269 19,794



13



Average Daily Volume by Venue:
CME Globex 16,992 18,505 (8) 20,757 17,556 18
Open outcry - 1,501 n.m. 636 1,394 (54)
Privately negotiated 607 912 (33) 876 844 4
Aggregate average daily volume 17,599 20,918 (16) 22,269 19,794 13 %
Electronic Volume as a Percentage of Total
Volume 97 % 88 % 93 % 89 %


Overall market volatility declined throughout the second quarter of 2020
following periods of very high volatility in the first quarter. In early 2020,
there was significant economic uncertainty caused by the governmental and
business response to the COVID-19 pandemic, including social distancing and stay
at home orders. During the first quarter, the Federal Reserve also made the
unexpected decision to lower the federal funds rate due to the economic concerns
from the pandemic, which resulted in significant volatility within the financial
and equity markets. During the second quarter of 2020, market volatility began
to subside following indication by the Federal Reserve that it does not intend
to raise interest rates in the foreseeable future. Volatility also fell as some
stay-at-home orders began to be lifted. In addition, heightened producer price
competition within the oil markets combined with lower energy demands during the
COVID-19 pandemic resulted in significant market volatility within the energy
market during the first quarter of 2020. However, volatility subsided in the
second quarter following cuts in production, which stabilized supply and demand
within the crude oil market. We believe these factors led to the changes in
volume during the second quarter and first six months of 2020, when compared
with the same periods in 2019.
Following the Illinois stay at home orders in March 2020, we closed the trading
floor in Chicago. We currently plan a limited reopening of the trading floor in
the third quarter of 2020.


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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) 2020 2019 Change 2020 2019 Change



Eurodollar futures and options:



Front 8 futures 1,130 2,401 (53) % 1,857 2,253 (18) %
Back 32 futures 525 750 (30) 707 735 (4)
Options 987 2,230 (56) 1,680 1,979 (15)
U.S. Treasury futures and options:
10-Year 1,653 2,369 (30) 2,416 2,320 4
5-Year 976 1,430 (32) 1,335 1,402 (5)
2-Year 465 780 (40) 703 738 (5)
Treasury bond 357 434 (18) 496 446 11
Federal Funds futures and options 186 433 (57) 342 355


(4)





In the second quarter and the first six months of 2020 when compared with the
same periods in 2019, interest rate contract volumes decreased due to a decline
in interest rate volatility in the second quarter of 2020 following higher
volatility in the first quarter of 2020. We believe that interest rate
volatility decreased following the Federal Reserve's decision to cut interest
rates and its indication that it would not raise interest rates in the
foreseeable future in response to the economic impact of the COVID-19 pandemic.
Equity Index Products
The following table summarizes average daily contract volume for our key equity
index products. Volumes below for the second quarter of 2020 include Micro
E-mini contract volumes for each index beginning on May 6, 2019.
Quarter Ended Six Months Ended
June 30, June 30,
(amounts in thousands) 2020 2019 Change 2020 2019 Change
E-mini S&P 500 futures and options 3,635 2,208 65 % 3,941 2,188 80 %
E-mini NASDAQ 100 futures and
options 1,103 493 124 1,197 492 143
E-mini Russell 2000 futures and
options 337 147 129 324 148 118


In the second quarter and the first six months of 2020, equity index contract
volumes increased significantly when compared with the same periods in 2019,
which we believe was attributable to significant equity market volatility
resulting from uncertainty surrounding the economic impact of governmental and
business actions to combat the COVID-19 pandemic. Average daily contract volume
in the second quarter and first six months of 2020 also included Micro-E-mini
equity index contract volume of approximately 1.9 million and 1.7 million per
day, respectively, compared to approximately 0.3 million and 0.1 million per
day, in the second quarter and first six months of 2019, respectively.
Micro-E-mini equity index contracts have a notional size of one-tenth of the
traditional E-mini contracts.
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) 2020 2019 Change 2020 2019 Change
Euro 199 239 (17) % 242 239 1 %
Japanese yen 92 147 (37) 144 140 3
Australian dollar
96 112 (14) 114 111 2
British Pound
93 112 (17) 113 126 (11)


Overall foreign exchange contract volume decreased in the second quarter of 2020
and remained relatively flat in the first six months of 2020 when compared with
the same periods in 2019. In the second quarter of 2020, market volatility
subsided following very high foreign exchange volatility in the first quarter
due to significant uncertainty surrounding the economic
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impacts of the governmental and business actions to combat the COVID-19
pandemic. In the second quarter, foreign exchange trading also declined due to
operational strains from stay at home orders and risk aversion by market
participants during the COVID-19 pandemic. We believe these factors led to the
changes in foreign exchange contract volumes.
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) 2020 2019 Change 2020 2019 Change
Corn 437 774 (43) % 437 631 (31) %
Soybean 258 317 (19) 273 275 (1)
Wheat 212 259 (18) 231 247 (6)


Overall commodity contract volumes decreased in the second quarter and the first
six months of 2020 when compared with the same periods in 2019. Corn contract
volumes decreased due to lower price volatility, which we believe was caused by
large stock piles and lower demand. We believe the decreases in soybean contract
volumes were due to weaker sentiment surrounding the initial trade agreement
between the United States and China.
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) 2020 2019 Change 2020 2019 Change
WTI crude oil 1,456 1,470 (1) % 1,623 1,409 15 %
Natural gas 649 455 43 695 470 48
Refined products 337 406 (17) 416 394 6


Overall energy contract volumes increased in the second quarter and the first
six months of 2020 when compared with the same periods in 2019, largely due to
increases in price volatility. The increases in natural gas contract volumes
were due to volatility caused by a sharp decline in global demand. The crude oil
market experienced higher volatility in the first quarter of 2020 due to
uncertainty surrounding the economic impact of governmental and business actions
to combat the COVID-19 pandemic and a reduction in crude oil demand due to the
pandemic. The crude oil markets stabilized in the second quarter following
supply cuts by OPEC and the U.S. markets, which allowed for a balance of supply
and demand during the COVID-19 pandemic. We believe these factors resulted in
crude oil volume remaining relatively flat in the second quarter of 2020 and an
increase in volume in the first six months of 2020.
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) 2020 2019 Change 2020 2019 Change
Gold 338 393 (14) % 472 367 29 %
Silver 80 104 (23) 102 95 8
Copper 84 108 (21) 102 106 (4)


In the second quarter of 2020, metals volume decreased but increased in the
first six months of 2020 when compared with the same periods in 2019. Average
daily volume for metals products remained high throughout the first quarter of
2020 as compared with the same period in 2019 due to investors using gold and
other precious metals as safe-haven alternative investments due to high
volatility within other markets because of economic uncertainty caused by the
COVID-19 pandemic. We believe average daily volume declined in the second
quarter due to gold supply chain disruptions and a decline in pricing for
copper.
Average Rate per Contract
The average rate per contract increased in the second quarter of 2020 when
compared with the same period in 2019. The increase was largely due to higher
non-member volume as a percentage to total volume as well as price and volume
incentive adjustments made in the first quarter of 2020. The increase in average
rate per contract was partially offset by the introduction of the micro-E-mini
equity index contracts, which have a lower average rate per contract compared
with a standard E-mini contract. Micro-E-mini equity index contracts have a
notional size of one-tenth of the traditional E-mini contracts.
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In the first six months of 2020 when compared with the same period in 2019, the
average rate per contract decreased slightly due to the introduction of the
micro-E-mini equity index contracts, partially offset by annual price increases.
Cash Markets Business
Total clearing and transaction fees revenues in the second quarter and the first
six months of 2020 include $112.4 million and$236.8 million of transaction fees
attributable to the cash markets business acquired from NEX compared with $120.7
million
and $243.6 million in the second quarter and first six months of 2019.
This revenue primarily includes BrokerTec Americas LLC's fixed income volume and
EBS's foreign exchange volume.
Quarter Ended Six Months Ended
June 30, June 30,
(amounts in millions) 2020 2019 2020 2019



BrokerTec U.S.'s fixed income transaction fees $ 43.2 $ 48.5 $ 93.5 $ 96.1
EBS's foreign exchange transaction fees


42.1 49.2 94.6 98.1


The related average daily notional value for the second quarter of 2020 were as
follows:
Quarter Ended Six Months Ended
June 30, June 30,
(amounts in billions) 2020 2019 2020 2019
U.S. Treasury $ 121.4 $ 173.1 $ 156.8 $ 172.8
European Repo (in euros) 274.1 282.3 268.2 276.8
Spot FX 62.4 77.8 80.0 79.6


Overall average daily notional value for the cash markets business decreased in
the second quarter and first six months of 2020 when compared with the same
periods in 2019. The decreases in U.S. Treasury and Spot FX trading are largely
due to the expectation of potentially low interest rates for an extended period
of time due to the economic uncertainty surrounding the COVID-19 pandemic.
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 individual firm represented approximately 10% of our
clearing and transaction fees in the first six months of 2020. 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
During the second quarter and first six months of 2020 when compared with the
same periods in 2019, overall market data and information services revenues
increased. The increases in market data and information services revenues were
mainly attributable to additional market data distribution channels. These
increases were partially offset by a modest decline in screen counts due to
cost-cutting initiatives at customer firms.
The two largest resellers of our market data represented approximately 35% of
our market data and information services revenue in the first six months of
2020. 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 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 and first six months of 2020 when compared with the same
periods in 2019, the increases in other revenues were largely due to increases
in custody fees.





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Expenses
Quarter Ended Six Months Ended
June 30, June 30,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Compensation and benefits $ 217.0 $ 227.3 (4) % $ 424.5 $ 457.6 (7) %
Technology 49.1 48.6 1 96.8 95.7 1
Professional fees and outside
services 51.2 41.7 23 92.9 81.1 15
Amortization of purchased intangibles 76.6 76.1 1 153.9 156.8


(2)



Depreciation and amortization 36.7 46.3 (21) 72.0 79.2



(9)



Licensing and other fee agreements 55.4 44.8 24 129.3 85.3 52
Other 58.8 89.3 (34) 137.6 167.0 (18)
Total Expenses $ 544.8 $ 574.1 (5) $ 1,107.0 $ 1,122.7 (1)



Operating expenses decreased by $29.3 million and $15.7 million in the second
quarter and first six months of 2020 when compared with the same periods in
2019. The following table shows the estimated impacts of key factors resulting
in the change in operating expenses:
Quarter Ended, Six Months Ended,
June 30, 2020 June 30, 2020

Change as a Change as a
Amount of Percentage of Amount of Percentage of
(dollars in millions) Change Total Expenses Change Total Expenses
Bonus expense $ (12.2) (2) % $ (14.6) (1) %
Marketing (8.1) (1) (13.1) (1)
Travel and entertainment (8.0) (1) (11.0) (1)
Salaries, benefits and employer taxes (4.5) (1) (7.7)


(1)



Intangible and fixed asset impairments (30.1) (5) (7.6)


(1)



Non-qualified deferred compensation plans 8.0 1 (6.7)


(1)



Professional fees and outside services 9.5 2 11.8


1



Licensing and other fee agreements 10.6 2 44.0 4
Other expenses, net 5.5 - (10.8) -
Total increase $ (29.3) (5) % $ (15.7) (1) %


Decreases in operating expenses in the second quarter and first six months of
2020 when compared with the same periods in 2019 were as follows:
•Bonus expense decreased compared with the same periods in 2019 largely due to a
reduction in headcount.
•In the second quarter and first six months of 2019, we recognized higher
impairment charges on certain intangibles and fixed assets.
•Marketing expense decreased compared to the same periods in 2019 due to the
timing of planned advertising and media campaigns.
•Travel and entertainment expenses decreased as a result of the company's
response to the COVID-19 pandemic, with the vast majority of staff working
remotely.
•Compensation and benefits expense decreased as a result of lower headcount
throughout the second quarter and first six months of 2020 compared to the same
periods in 2019 due mainly to the planned headcount reductions as part of our
acquisition of NEX.
•A decrease in our non-qualified deferred compensation liability during the
first six months of 2020, the impact of which does not affect net income because
of an equal and offsetting change in investment income, contributed to a
decrease in compensation and benefits expense.


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Increases in operating expenses in the second quarter and first six months of
2020 when compared with the same periods in 2019 were as follows:
•Professional fees and outside services expenses increased due to higher costs
in the second quarter and first six months of 2020 for technology and platform
integration initiatives.
•Licensing and other fee agreements increased primarily due to stronger volume
across equity products.
•An increase in our non-qualified deferred compensation liability during the
second quarter of 2020, the impact of which does not affect net income because
of an equal and offsetting change in investment income, contributed to an
increase in compensation and benefits expense.
Non-Operating Income (Expense)
Quarter Ended Six Months Ended
June 30, June 30,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Investment income $ 32.1 $ 139.3 (77) % $ 128.0 $ 318.0 (60) %
Interest and other borrowing costs (41.9) (45.1) (7) (82.8) (93.2)


(11)



Equity in net earnings (losses) of
unconsolidated subsidiaries 48.8 43.8 12 100.0 84.3


19



Other non-operating income (expense) (15.2) (134.5) (89) (92.0) (296.4) (69)
Total Non-Operating $ 23.8 $ 3.5 n.m. $ 53.2 $ 12.7 n.m.


n.m. not meaningful
Investment income. Investment income decreased in the second quarter and first
six months of 2020 when compared with the same periods in 2019, largely due to
decreases in earnings from cash performance bond and guaranty fund contributions
that are reinvested. These decreases in earnings resulted primarily from lower
rates of interest earned in the cash account at the Federal Reserve Bank of
Chicago
following significant interest rate cuts in early 2020 despite increases
in our average reinvestment amount. The decreases in investment income were
partially offset by lower realized and unrealized net losses on investments.
Interest and other borrowing costs. Interest and other borrowing costs were
lower in the second quarter and first six months of 2020 when compared with the
same periods in 2019, primarily due to interest expense recognized on the €350.0
million fixed rate notes and the ¥19.1 billion term loan assumed as part of the
NEX acquisition in 2018 and subsequently paid down during the first quarter of
2019. Interest and borrowing costs on commercial paper issuances were lower in
the second quarter and first six months of 2020, as there were higher average
balances of commercial paper outstanding during the first six months of 2019
when compared with the same period in 2020.
Equity in net earnings (losses) of unconsolidated subsidiaries. Higher income
generated from our S&P/Dow Jones Indices LLC business venture contributed to
increases in equity in net earnings (losses) of unconsolidated subsidiaries in
the second quarter and first six months of 2020 when compared with the same
periods in 2019.
Other income (expense). Other expenses decreased in the second quarter and first
six months of 2020 when compared with the same periods in 2019. We recognized
lower expenses during the second quarter and first six months of 2020 related to
a reduction in the distribution of interest earned on performance bond
collateral reinvestments to the clearing firms due to lower interest income
earned on our reinvestment. In addition, a gain of $1.5 million was recognized
on derivative contracts in the first six months of 2020 compared with a net loss
of $16.7 million for the same period in 2019.
Income Tax Provision
The following table summarizes the effective tax rates for the periods
presented:
2020 2019

Quarter ended June 30 23.9 % 26.7 %
Six months ended June 30 23.0 % 24.7 %


The overall effective tax rates decreased in the second quarter and first six
months of 2020 when compared with the same periods in 2019 largely due to the
benefits recognized in 2020 for the Foreign Derived Intangible Income Deduction
(FDII Deduction) from serving foreign customers.
Liquidity and Capital Resources
Sources and Uses of Cash. Net cash provided by operating activities increased in
the first six months of 2020 when compared with the same period in 2019 largely
due to the increase in contract volume. We also delayed our first quarter
estimated federal tax payment until the third quarter of 2020 because the
deadline for estimated federal income tax payments was deferred to July
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15, 2020. Net cash used in investing activities decreased in the first six
months of 2020 when compared with the same period of 2019 largely due to a
decrease in purchases of property. Cash used in financing activities was higher
in the first six months of 2020 when compared with the same period in 2019 due
to an increase in cash dividends.
Debt Instruments. The following table summarizes our debt outstanding at
June 30, 2020:
(in millions) Par


Value



Fixed rate notes due September 2022, stated rate of 3.00% (1) $ 750.0
Fixed rate notes due May 2023, stated rate of 4.30%



15.0



Fixed rate notes due March 2025, stated rate of 3.00% (2) $ 750.0
Fixed rate notes due June 2028, stated rate of 3.75%


$ 500.0


Fixed rate notes due September 2043, stated rate of 5.30% (3) $ 750.0
Fixed rate notes due June 2048, stated rate of 4.15%


$ 700.0



_______________



(1)We maintained 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%.
(2)We maintained 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 3.11%.
(3)We maintained 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%.
We maintain a $2.4 billion multi-currency revolving senior credit facility with
various financial institutions, which matures in November 2022. The proceeds
from this facility can be used for general corporate purposes, which includes
providing liquidity for our 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 this facility, we have the option to
increase it up to $3.0 billion with the consent of the agent and lenders
providing the additional funds. This facility is voluntarily pre-payable from
time to time without premium or penalty. Under this facility, we are required to
remain in compliance with a consolidated net worth test, which is defined as our
consolidated shareholders' equity at September 30, 2017, 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 this facility, but any
commercial paper balance if or when outstanding can be backstopped against this
facility.
We maintain a 364-day multi-currency revolving secured credit facility with a
consortium of domestic and international banks to be used in certain situations
by the clearing house. The facility 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. Clearing firm
guaranty fund contributions received in the form of cash or U.S. Treasury
securities as well as the performance bond assets deposited by defaulting
clearing members can be used to collateralize the facility. At June 30, 2020,
guaranty funds available to collateralize the facility totaled $7.5 billion. We
have the option to request an increase in the line from $7.0 billion to $10.0
billion
. Our 364-day facility 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. We currently do not have any
borrowings outstanding under this facility.
The indentures governing our fixed rate notes, our $2.4 billion multi-currency
revolving senior credit facility and our 364-day multi-currency revolving
secured credit facility 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, 2020, we have excess borrowing capacity for general corporate
purposes of approximately $2.4 billion under our multi-currency revolving senior
credit facility.
At June 30, 2020, we were in compliance with the various financial covenant
requirements of all our debt facilities.
CME Group, as a holding company, has no operations of its own. Instead, it
relies on dividends declared and paid to it by its subsidiaries in order to
provide the funds which it uses to pay dividends to its shareholders.
To satisfy our performance bond obligation with Singapore Exchange Limited, we
may pledge irrevocable standby letters of credit. At June 30, 2020, the letters
of credit totaled $310.0 million. We also maintain a $350.0 million line of
credit to meet our obligations under this agreement.
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The following table summarizes our credit ratings at June 30, 2020:
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 $1.4 billion
and $1.6 billion at June 30, 2020 and December 31, 2019, respectively. 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, U.S. government agency securities and U.S. Treasury
security reverse repurchase agreements. 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.
At June 30, 2020, the cash performance bonds and guaranty fund contributions on
the consolidated balance sheet was $79.4 billion compared with $37.1 billion at
December 31, 2019. The increase in the balance was due to an increase in margin
requirements.
Regulatory Requirements. CME is regulated by the 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 was designated by the
Financial Stability Oversight Council as a systemically important financial
market utility under Title VIII of Dodd-Frank. As a result, CME must comply with
CFTC regulations applicable to a systemically important DCO for financial
resources and liquidity resources. CME is in compliance with all DCO financial
requirements.
CME, CBOT, NYMEX and COMEX are regulated by the CFTC as Designated Contract
Markets (DCM). DCMs 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. Our DCMs are in compliance with all DCM financial
requirements.
BrokerTec Americas LLC is required to maintain sufficient net capital under
Securities Exchange Act Rule 15c3-1 (the Net Capital Rule). The Net Capital Rule
focuses on liquidity and is designed to protect securities customers,
counterparties, and creditors by requiring that broker-dealers have sufficient
liquid resources on hand at all times to satisfy claims promptly. Rule 15c3-3,
or the customer protection rule, which complements rule 15c3-1, is designed to
ensure that customer property (securities and funds) in the custody of
broker-dealers is adequately safeguarded. By law, both of these rules apply to
the activities of registered broker-dealers, but not to unregistered affiliates.
The firm began operating as a (k)(2)(i) broker dealer in November 2017 following
notification to the Financial Industry Regulatory Authority and the SEC. A
company operating under the (k)(2)(i) exemption is not required to lock up
customer funds as would otherwise be required under Rule 15c3-3 of the
Securities Exchange Act.
Recent Accounting Pronouncements
Refer to Note 2. Accounting Policies in our notes to the consolidated financial
statements for information on newly issued and recently adopted accounting
pronouncements that are applicable to us.

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