CME Group Inc. — 2021 Form 10-K
Business context and period. CME Group operates futures and options exchanges, a central clearing house, BrokerTec fixed-income markets, EBS foreign-exchange markets and market-data services. This annual report covers the year ended December 31, 2021, compared primarily with 2020. Results reflect lower volatility in several markets than in 2020, partly offset by stronger interest-rate activity.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $4.690 billion | $4.884 billion | -4% |
| Operating income | $2.645 billion | $2.637 billion | +0.3% |
| Operating margin | 56% | 54% | +2 percentage points |
| Net income attributable to CME Group | $2.636 billion | $2.105 billion | +25% |
| Diluted EPS | $7.29 | $5.87 | +24% |
| Cash from operating activities | $2.402 billion | $2.716 billion | -12% |
- Revenue mix: Clearing and transaction fees were $3.765 billion (-3%); market data and information services were $576.9 million (+6%); other revenue was $347.7 million (-21%).
- Trading activity: Futures and options average daily volume increased 3% to 19.614 million contracts. Interest-rate volume rose 15%, while energy fell 9%, metals 22%, foreign exchange 7%, and equity indexes 2%. Average rate per contract declined 5%, to $0.669.
- Expenses and profitability: Total expenses decreased 9% to $2.045 billion, including lower amortization, professional fees and other expenses. Operating income was nearly flat despite lower revenue.
- Cash and liquidity: Cash and cash equivalents were $2.835 billion at year-end, versus $1.633 billion in 2020. Cash from investing activities was $58.4 million. Reported financing cash inflow of $69.9 billion was dominated by changes in customer clearing performance-bond and guaranty-fund balances; these are restricted funds and cannot be used for CME Group operations. The filing revised prior-year cash-flow presentation to include these balances.
- Debt: Total debt was approximately $3.4 billion, including $749 million of notes due in September 2022. CME reported $2.3 billion of unused general-purpose revolving capacity and a separate $7.0 billion secured facility for clearing-house liquidity. It reported investment-grade ratings and compliance with debt covenants.
Material changes and unusual items
- Net income increased substantially despite lower revenue, primarily because non-operating income rose to $728.4 million from $84.7 million. This included a $400.7 million gain on contributing the optimization-services business to OSTTRA, a 50/50 joint venture with IHS Markit; higher investment income; and a $30.4 million gain on the sale of a Chicago building. The OSTTRA gain was not taxable.
- Non-operating results also included $245.8 million of equity earnings from unconsolidated subsidiaries and $306.9 million of investment income. These items contributed to earnings growth and may not represent recurring operating performance.
- CME issued 4.6 million non-voting, convertible Series G preferred shares to Google for approximately $965 million in connection with its 10-year Google Cloud partnership.
- The company permanently closed most open-outcry pits in 2021; open outcry was limited to Eurodollar and SOFR options. BrokerTec migrated to CME Globex, and migration of EBS was planned for the first half of 2022.
- Market-data revenue grew, while cash-markets clearing and transaction revenue declined to $396.2 million from $447.4 million.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management expected 2022 capital expenditures of approximately $140–$150 million and indicated a target for regular dividends of 50%–60% of prior-year cash earnings, subject to board discretion. The board declared a $1.00 quarterly dividend and a $3.25 annual variable dividend for payment in early 2022.
- Management highlighted the transition away from LIBOR as a risk to Eurodollar products and revenue; success of SOFR and other replacement products is not assured. Other material risks include market-volume and volatility shifts, competition, regulation or transaction taxes, cyberattacks and system outages, third-party and clearing-counterparty exposures, and execution of technology integrations and strategic ventures.
- A putative Class B shareholder class action received class certification for damages in December 2021. No trial date was set, and CME said it could not estimate a reasonably possible loss range; it stated that it believes it has strong defenses. No accrual was recorded for legal or regulatory contingencies because none were considered both probable and estimable.
- Management and the auditor reported effective internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of 2021’s earnings increase is attributable to the nonrecurring OSTTRA gain and investment-related non-operating income, versus sustainable operations.
- Whether contract volume and average rate per contract hold up as volatility and product mix change, particularly in interest rates and lower-volume asset classes.
- Progress and customer retention in the EBS migration to CME Globex, the Google Cloud partnership and the OSTTRA joint venture.
- Repayment or refinancing of the $750 million notes due in 2022, and the company’s debt, liquidity and dividend capacity after that maturity.
- Developments in the LIBOR transition and the Class B shareholder litigation, for which the filing provides no clear potential loss estimate.