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FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2024

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

13. FAIR VALUE MEASUREMENT

Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the Company’s own credit risk.

The Company applied FASB Accounting Standards Codification (“ASC”) 820 — Fair Value Measurement, which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair value hierarchy requires the use of observable market data when available and consists of the following levels:

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Level 1—Unadjusted inputs based on quoted markets for identical assets or liabilities.

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Level 2—Observable inputs, either direct or indirect, not including Level 1 measurements, corroborated by market data or based upon quoted prices in non-active markets.

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Level 3—Unobservable inputs that reflect management’s best assumptions of what market participants would use in valuing the asset or liability.

The Company has included a tabular disclosure for financial assets and liabilities that are measured at fair value on a recurring basis in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 (in millions):


		June 30, 2024
		Total			Level 1			Level 2			Level 3
Assets:
U.S. Treasury securities (1)		$	47.1		$	47.1		$	—		$	—
Marketable securities (1):
Mutual funds			18.8			18.8			—			—
Money market funds			17.8			17.8			—			—
Digital assets - safeguarded assets			6.9			—			6.9			—
Note receivable - building sale (2)			6.4			—			—			6.4
Total assets		$	97.0		$	83.7		$	6.9		$	6.4
Liabilities:
Contingent consideration liabilities		$	1.8		$	—		$	—		$	1.8
Digital assets - safeguarded liabilities			6.9			—			6.9			—
Total liabilities		$	8.7		$	—		$	6.9		$	1.8


		December 31, 2023
		Total			Level 1			Level 2			Level 3
Assets:
U.S. Treasury securities (1)		$	20.8		$	20.8		$	—		$	—
Marketable securities (1):
Mutual funds			17.1			17.1			—			—
Money market funds			19.6			19.6			—			—
Digital assets - safeguarded assets			51.3			—			51.3			—
Total assets		$	108.8		$	57.5		$	51.3		$	—
Liabilities:
Contingent consideration liabilities		$	11.8		$	—		$	—		$	11.8
Digital assets - safeguarded liabilities			51.3			—			51.3			—
Cboe Digital restricted common units liability (3)			18.7			—			—			18.7
Cboe Digital warrant liability (3)			5.9			—			—			5.9
Total liabilities		$	87.7		$	—		$	51.3		$	36.4

(1)	These amounts are reflected within financial investments in the condensed consolidated balance sheets.

(2)	This amount is reflected within other assets, net in the condensed consolidated balance sheets.

(3)	These amounts are reflected within other non-current liabilities in the condensed consolidated balance sheets.

The following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring basis:

Financial Investments

Financial investments consist of highly liquid U.S. Treasury securities, and marketable securities held in a trust for the Company’s non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. The deferred compensation plan assets have an equal and offsetting deferred compensation plan liability based on the value of the deferred compensation plan assets. These securities are valued by obtaining feeds from a number of live data sources, including active market makers and inter-dealer brokers and therefore categorized as Level 1. No material adjustments were made to the carrying value of financial investments for the period ended June 30, 2024. See Note 15 (“Employee Benefit Plans”) for more information.

Digital Assets – Safeguarded Assets and Liabilities

Digital assets – safeguarded assets and liabilities represents the Company’s holdings of Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and USD Coin on behalf of the Company’s customers. The Company valued digital assets – safeguarded assets and digital assets – safeguarded liabilities by using the closing prices at 4:00pm Central Time on the CoinDesk Indices Price Index as of June 30, 2024 for the underlying digital assets held on behalf of the Company’s customers. See Note 12 (“Clearing Operations”) for additional details regarding digital assets held on behalf of customers.

Contingent Consideration Liabilities

In connection with the acquisitions of Cboe Asia Pacific and Cboe Canada, the Company entered into contingent consideration arrangements with the sellers. The total fair value of the liabilities at June 30, 2024 was $1.8 million, which relate to the acquisition of Cboe Canada. In connection with the contingent consideration arrangements, the Company paid a total of $10.0 million in contingent consideration to the sellers of Cboe Asia Pacific during the three months ended June 30, 2024. In May 2024, Cboe Japan achieved milestones resulting in the payment of $5.7 million of contingent consideration, resulting in a reversal of a previously recorded gain. Additionally, Cboe Asia Pacific’s contingent consideration expired in June 2024 and the remaining balance was not achieved, resulting in an equivalent gain of $2.7 million. The aforementioned updates resulted in a total $3.0 million loss on Cboe Asia Pacific contingent consideration liabilities during the period. Because the fair value measurements relating to the contingent consideration liabilities are subject to management judgment, measurement uncertainty is inherent in the valuation of the contingent consideration liabilities as of the reporting date. Based on the recorded balance of the liabilities, any measurement uncertainty related to this Level 3 measurement is immaterial as of June 30, 2024.

Note Receivable – Building Sale

The Company provided seller financing in the form of a secured promissory note for a portion of the purchase price of the Property sale completed on June 28, 2024. See Note 5 (“Property and Equipment, Net”) for more information. The Company has elected the fair value option available under ASC 825 for this note and subsequent changes in fair value are reported in other (expense) income, net on the condensed consolidated statements of income. The fair value was calculated using the initial projected amortization schedule, credit risk assumptions, and implied interest rates for similar instruments. These inputs are considered Level 3 in the fair value hierarchy. The note is within other assets, net on the condensed consolidated balance sheet as of June 30, 2024. The fair value option was not elected for other notes receivable described in Note 7 (“Other Assets, Net”) due to uncertain payment terms and credit and legal risks as described in Note 6 (“Credit Losses”). The note receivable related to the building sale was not 90 days or more past due or in non-accrual status as of June 30, 2024.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets, such as goodwill and intangible assets, are measured at fair value on a non-recurring basis. For goodwill, the process involves using a market approach and income approach (using discounted estimated cash flows) to determine the fair value of each reporting unit on a stand-alone basis. That fair value is compared to the carrying value of the reporting unit, including its recorded goodwill. In connection with the annual impairment evaluation of goodwill and indefinite lived intangibles, impairment is considered to have occurred if the fair value of the reporting unit is lower than the carrying value of the reporting unit. For equity method investments and intangible assets, other than digital assets held, the process also involves using a discounted cash flow method to determine the fair value of each asset. Impairment is considered to have occurred if the fair value of the asset is lower than its carrying value. These measurements are considered Level 3 and these assets are recognized at fair value if they are deemed to be impaired.

Equity investments without readily determinable fair values that are valued using the measurement alternative are measured at fair value on a non-recurring basis. Other than the impairment charge recorded on the Company’s minority investment in Globacap Technology Limited, no observable transactions or impairments impacted the measurements of the investments accounted for as other equity investments. See Note 4 (“Investments”) for more information. These measurements are considered Level 3 and these assets are recognized at fair value if they are deemed to be impaired.

Fair Value of Assets and Liabilities

The following tables present the Company’s fair value hierarchy for certain assets and liabilities held by the Company as of June 30, 2024 and December 31, 2023 (in millions):


		June 30, 2024
		Total			Level 1			Level 2			Level 3
Assets:
U.S. Treasury securities (1)		$	47.1		$	47.1		$	—		$	—
Deferred compensation plan assets (1)			36.6			36.6			—			—
Digital assets - safeguarded assets			6.9			—			6.9			—
Note receivable - building sale (2)			6.4			—			—			6.4
Total assets		$	97.0		$	83.7		$	6.9		$	6.4
Liabilities:
Contingent consideration liabilities		$	1.8		$	—		$	—		$	1.8
Deferred compensation plan liabilities (4)			36.6			36.6			—			—
Digital assets - safeguarded liabilities			6.9			—			6.9			—
Debt (5)			1,294.1			—			1,294.1			—
Total liabilities		$	1,339.4		$	36.6		$	1,301.0		$	1.8


		December 31, 2023
		Total			Level 1			Level 2			Level 3
Assets:
U.S. Treasury securities (1)		$	20.8		$	20.8		$	—		$	—
Deferred compensation plan assets (1)			36.7			36.7			—			—
Digital assets - safeguarded assets			51.3			—			51.3			—
Digital assets held (3,5)			0.1			0.1			—			—
Total assets		$	108.9		$	57.6		$	51.3		$	—
Liabilities:
Contingent consideration liabilities		$	11.8		$	—		$	—		$	11.8
Deferred compensation plan liabilities (4)			36.7			36.7			—			—
Digital assets - safeguarded liabilities			51.3			—			51.3			—
Cboe Digital restricted common units liability (4)			18.7			—			—			18.7
Cboe Digital warrant liability (4)			5.9			—			—			5.9
Debt (5)			1,305.7			—			1,305.7			—
Total liabilities		$	1,430.1		$	36.7		$	1,357.0		$	36.4

(1)	These amounts are reflected within financial investments in the condensed consolidated balance sheets.

(2)	This amount is reflected within other assets, net in the condensed consolidated balance sheets.

(3)	These amounts are reflected within intangible assets, net in the condensed consolidated balance sheets.

(4)	These amounts are reflected within other non-current liabilities in the condensed consolidated balance sheets.

(5)	These balances are presented at fair value in this table, but are carried at their historical value within the condensed consolidated balance sheets.

Certain financial assets and liabilities, including cash and cash equivalents, accounts receivable, income tax receivable, accounts payable and Section 31 fees payable, and notes receivable are not measured at fair value on a recurring basis, but the carrying values approximate fair value due to their liquid or short-term nature.

Debt

The debt balance consists of fixed rate Senior Notes. The fair values of the Senior Notes are classified as Level 2 under the fair value hierarchy and are estimated using prevailing market quotes.

At June 30, 2024 and December 31, 2023, the fair values of the Company’s debt obligations were as follows (in millions):


	Fair Value
	June 30, 2024			December 31, 2023
3.650% Senior Notes	$	627.9		$	628.5
1.625% Senior Notes		408.8			412.7
3.000% Senior Notes		257.4			264.5

Information on Level 3 Financial Assets and Liabilities

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial assets and liabilities during the three and six months ended June 30, 2024 (in millions):


		Level 3 Financial Assets and Liabilities for the Three Months Ended June 30, 2024
		Balance at			Realized (Losses)												Foreign			Balance at
		Beginning of			Gains during												Currency			End of
		Period			Period			Adjustments			Additions			Settlements			Translation			Period
Assets:
Note receivable - building sale		$	—		$	(0.6)		$	—		$	7.0		$	—		$	—		$	6.4
Total assets		$	—		$	(0.6)		$	—		$	7.0		$	—		$	—		$	6.4

		Balance at			Realized Losses												Foreign			Balance at
		Beginning of			(Gains) during												Currency			End of
		Period			Period			Adjustments			Additions			Settlements			Translation			Period
Liabilities:
Contingent consideration liabilities		$	8.8		$	3.0		$	—		$	—		$	(10.0)		$	—		$	1.8
Cboe Digital restricted common units liability			18.4			(0.7)			(12.1)			—			(5.6)			—			—
Cboe Digital warrant liability			5.8			(1.3)			(4.1)			—			(0.4)			—			—
Total liabilities		$	33.0		$	1.0		$	(16.2)		$	—		$	(16.0)		$	—		$	1.8


		Level 3 Financial Assets and Liabilities for the Six Months Ended June 30, 2024
		Balance at			Realized (Losses)												Foreign			Balance at
		Beginning of			Gains during												Currency			End of
		Period			Period			Adjustments			Additions			Settlements			Translation			Period
Assets:
Note receivable - building sale		$	—		$	(0.6)		$	—		$	7.0		$	—		$	—		$	6.4
Total assets		$	—		$	(0.6)		$	—		$	7.0		$	—		$	—		$	6.4

		Balance at			Realized Losses												Foreign			Balance at
		Beginning of			(Gains) during												Currency			End of
		Period			Period			Adjustments			Additions			Settlements			Translation			Period
Liabilities:
Contingent consideration liabilities		$	11.8		$	3.0		$	—		$	—		$	(13.0)		$	—		$	1.8
Cboe Digital restricted common units liability			18.7			(1.0)			(12.1)			—			(5.6)			—			—
Cboe Digital warrant liability			5.9			(1.4)			(4.1)			—			(0.4)			—			—
Total liabilities		$	36.4		$	0.6		$	(16.2)		$	—		$	(19.0)		$	—		$	1.8

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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