Edgar Filing: Intercontinental Exchange, Inc.

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q




(Mark One)
þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2018
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 001-36198

INTERCONTINENTAL EXCHANGE, INC.

(Exact name of registrant as specified in its charter)



Delaware	46-2286804
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)
5660 New Northside Drive, Atlanta, Georgia	30328 (Zip Code)
(Address of principal executive offices)

(770) 857-4700

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 þ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨

(Do not check if a smaller company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of April 30, 2018, the number of shares of the registrant’s Common Stock outstanding was 579,228,041 shares.

INTERCONTINENTAL EXCHANGE, INC.

Form 10-Q

Quarterly Period Ended March 31, 2018

TABLE OF CONTENTS





PART I.	Financial Statements
Item 1	Consolidated Financial Statements (Unaudited):
	Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	2
	Consolidated Statements of Income for the three months ended March 31, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017	5
	Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Loss and Redeemable Non-Controlling Interest for the three months ended March 31, 2018 and for the year ended December 31, 2017	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	7
	Notes to Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4	Controls and Procedures	50

PART II.	Other Information
Item 1	Legal Proceedings	51
Item 1A	Risk Factors	51
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3	Defaults Upon Senior Securities	51
Item 4	Mine Safety Disclosures	51
Item 5	Other Information	52
Item 6	Exhibits	52
SIGNATURES		53

PART I. Financial Statements

Item 1. Consolidated Financial Statements (Unaudited)

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)



	As of			As of
	March 31, 2018			December 31, 2017
Assets:
Current assets:
Cash and cash equivalents	$	523		$	535
Short-term restricted cash and cash equivalents	804			769
Customer accounts receivable, net of allowance for doubtful accounts of $6 at March 31, 2018 and December 31, 2017	1,167			903
Margin deposits, guaranty funds and delivery contracts receivable	53,979			51,222
Prepaid expenses and other current assets	161			133
Total current assets	56,634			53,562
Property and equipment, net	1,235			1,246
Other non-current assets:
Goodwill	12,514			12,216
Other intangible assets, net	10,326			10,269
Long-term restricted cash and cash equivalents	331			264
Other non-current assets	1,022			707
Total other non-current assets	24,193			23,456
Total assets	$	82,062		$	78,264

Liabilities and Equity:
Current liabilities:
Accounts payable and accrued liabilities	$	476		$	462
Section 31 fees payable	120			128
Accrued salaries and benefits	104			227
Deferred revenue	468			125
Short-term debt	2,623			1,833
Margin deposits, guaranty funds and delivery contracts payable	53,979			51,222
Other current liabilities	176			178
Total current liabilities	57,946			54,175
Non-current liabilities:
Non-current deferred tax liability, net	2,292			2,298
Long-term debt	4,269			4,267
Accrued employee benefits	240			243
Other non-current liabilities	309			296
Total non-current liabilities	7,110			7,104
Total liabilities	65,056			61,279
Commitments and contingencies
Equity:
Intercontinental Exchange, Inc. stockholders’ equity:
Preferred stock, $0.01 par value; 100 shares authorized; no shares issued or outstanding at March 31, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value; 1,500 shares authorized; 603 and 600 shares issued at March 31, 2018 and December 31, 2017, respectively, and 581 and 583 shares outstanding at March 31, 2018 and December 31, 2017, respectively	6			6
Treasury stock, at cost; 22 and 17 shares at March 31, 2018 and December 31, 2017, respectively	(1,448		)	(1,076		)



Additional paid-in capital	11,428			11,392
Retained earnings	7,182			6,858
Accumulated other comprehensive loss	(190		)	(223		)
Total Intercontinental Exchange, Inc. stockholders’ equity	16,978			16,957
Non-controlling interest in consolidated subsidiaries	28			28
Total equity	17,006			16,985
Total liabilities and equity	$	82,062		$	78,264

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)



	Three Months Ended March 31,
	2018			2017
Revenues:
Transaction and clearing, net	$	898		$	798
Data services	520			520
Listings	109			108
Other revenues	53			45
Total revenues	1,580			1,471
Transaction-based expenses:
Section 31 fees	121			91
Cash liquidity payments, routing and clearing	234			214
Total revenues, less transaction-based expenses	1,225			1,166
Operating expenses:
Compensation and benefits	240			247
Professional services	30			32
Acquisition-related transaction and integration costs	12			14
Technology and communication	105			98
Rent and occupancy	17			18
Selling, general and administrative	33			41
Depreciation and amortization	138			134
Total operating expenses	575			584
Operating income	650			582
Other income (expense):
Interest expense	(52		)	(45		)
Other income, net	19			188
Other income (expense), net	(33		)	143
Income before income tax expense	617			725
Income tax expense	143			214
Net income	$	474		$	511
Net income attributable to non-controlling interest	(10		)	(8		)
Net income attributable to Intercontinental Exchange, Inc.	$	464		$	503
Earnings per share attributable to Intercontinental Exchange, Inc. common stockholders:
Basic	$	0.80		$	0.85
Diluted	$	0.79		$	0.84
Weighted average common shares outstanding:
Basic	582			594
Diluted	586			599
Dividend per share	$	0.24		$	0.20

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2018			2017
Net income	$	474		$	511
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax expense of $1 for the three months ended March 31, 2018	33			25
Change in fair value of available-for-sale securities	—			68
Reclassification of realized gain on available-for-sale investment to other income	—			(176		)
Other comprehensive income (loss)	33			(83		)
Comprehensive income	$	507		$	428
Comprehensive income attributable to non-controlling interest	(10		)	(8		)
Comprehensive income attributable to Intercontinental Exchange, Inc.	$	497		$	420

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Loss

and Redeemable Non-Controlling Interest

(In millions)

(Unaudited)



	Intercontinental Exchange, Inc. Stockholders’ Equity																	Non- Controlling Interest in Consolidated Subsidiaries			Total Equity			Redeemable Non-Controlling Interest
	Common Stock			Treasury Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss
	Shares	Value		Shares		Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss
Balance, as of December 31, 2016	596	$	6	(1	)	$	(40	)	$	11,306		$	4,810		$	(344	)	$	37		$	15,775		$	36
Other comprehensive income	—	—		—		—			—			—			121			—			121			—
Exercise of common stock options	—	—		—		—			17			—			—			—			17			—
Repurchases of common stock	—	—		(15	)	(949		)	—			—			—			—			(949		)	—
Payments relating to treasury shares	—	—		(1	)	(88		)	—			—			—			—			(88		)	—
Stock-based compensation	—	—		—		—			152			—			—			—			152			—
Issuance of restricted stock	4	—		—		1			(1		)	—			—			—			—			—
Acquisition of non-controlling interest	—	—		—		—			(82		)	—			—			(10		)	(92		)	—
Distributions of profits	—	—		—		—			—			—			—			(26		)	(26		)	—
Dividends paid to stockholders	—	—		—		—			—			(476		)	—			—			(476		)	—
Acquisition of redeemable non-controlling interest	—	—		—		—			—			(2		)	—			—			(2		)	(37		)
Net income attributable to non-controlling interest	—	—		—		—			—			(28		)	—			27			(1		)	1
Net income	—	—		—		—			—			2,554			—			—			2,554			—
Balance, as of December 31, 2017	600	6		(17	)	(1,076		)	11,392			6,858			(223		)	28			16,985			—
Other comprehensive income	—	—		—		—			—			—			33			—			33			—
Exercise of common stock options	—	—		—		—			4			—			—			—			4			—
Repurchases of common stock	—	—		(4	)	(300		)	—			—			—			—			(300		)	—
Payments relating to treasury shares	—	—		(1	)	(72		)	—			—			—			—			(72		)	—
Stock-based compensation	—	—		—		—			32			—			—			—			32			—
Issuance of restricted stock	3	—		—		—			—			—			—			—			—			—
Distributions of profits	—	—		—		—			—			—			—			(10		)	(10		)	—
Dividends paid to stockholders	—	—		—		—			—			(140		)	—			—			(140		)	—
Net income attributable to non-controlling interest	—	—		—		—			—			(10		)	—			10			—			—
Net income	—	—		—		—			—			474			—			—			474			—
Balance, as of March 31, 2018	603	$	6	(22	)	$	(1,448	)	$	11,428		$	7,182		$	(190	)	$	28		$	17,006		$	—



	As of			As of
	March 31, 2018			December 31, 2017
Accumulated other comprehensive loss was as follows:
Foreign currency translation adjustments	$	(103	)	$	(136	)
Comprehensive income from equity method investment	2			2
Employee benefit plans adjustments	(89		)	(89		)
Accumulated other comprehensive loss	$	(190	)	$	(223	)

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2018			2017
Operating activities:
Net income	$	474		$	511
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	138			134
Stock-based compensation	29			34
Deferred taxes	(6		)	28
Cetip realized investment gain, net	—			(176		)
Other	1			(1		)
Changes in assets and liabilities:
Customer accounts receivable	(259		)	(240		)
Other current and non-current assets	(32		)	(3		)
Section 31 fees payable	(8		)	(40		)
Deferred revenue	343			327
Other current and non-current liabilities	(107		)	37
Total adjustments	99			100
Net cash provided by operating activities	573			611

Investing activities:
Capital expenditures	(14		)	(32		)
Capitalized software development costs	(37		)	(34		)
Cash paid for acquisitions, net of cash received for divestiture	(400		)	22
Purchases of investments	(304		)	—
Net cash used in investing activities	(755		)	(44		)

Financing activities:
Proceeds from (repayments of) commercial paper, net	789			(117		)
Repurchases of common stock	(300		)	(229		)
Dividends to stockholders	(140		)	(120		)
Payments relating to treasury shares received for restricted stock tax payments and stock option exercises	(72		)	(77		)
Other	(7		)	(8		)
Net cash provided by (used in) financing activities	270			(551		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	2			1
Net increase in cash, cash equivalents, and restricted cash and cash equivalents	90			17
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period	1,568			1,350
Cash, cash equivalents, and restricted cash and cash equivalents, end of period	$	1,658		$	1,367

Supplemental cash flow disclosure:
Cash paid for income taxes	$	144		$	65
Cash paid for interest	$	27		$	7

See accompanying notes.

Intercontinental Exchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)


1.	Description of Business

We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing a broad array of derivatives and securities contracts across major asset classes, including energy and agricultural commodities, interest rates, equities, equity derivatives, exchange traded funds, or ETFs, credit derivatives, bonds and currencies. We also offer end-to-end data services and solutions to support the trading, investment, risk management and connectivity needs of customers around the world across all major asset classes.

Our exchanges include derivative exchanges in the United States, or U.S., United Kingdom, or U.K., European Union, or EU, Canada and Singapore, and cash equities, equity options and bond exchanges in the U.S. We also operate over-the-counter, or OTC, markets for physical energy, fixed income and credit default swaps, or CDS, trade execution. To serve global derivatives markets, we operate central counterparty clearing houses in the U.S., U.K., EU, Canada and Singapore (Note 10). We offer a range of data services for global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through our markets, clearing houses, listings and market data services, we provide end-to-end solutions for our customers through liquid markets, benchmark products, access to capital markets, and related services to support their ability to manage risk and raise capital. Our business is currently conducted as two reportable business segments, our Trading and Clearing segment and our Data and Listings segment, and the majority of our identifiable assets are located in the U.S., U.K. and Canada (Note 13).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by us in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2017. The accompanying unaudited consolidated financial statements reflect all adjustments that are, in our opinion, necessary for a fair presentation of results for the interim periods presented. These adjustments are of a normal recurring nature.

Preparing financial statements requires us to make certain estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Actual results may be different from these estimates. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

The accompanying unaudited consolidated financial statements include the accounts of us and our wholly-owned and controlled subsidiaries. All intercompany balances and transactions between us and our wholly-owned and controlled subsidiaries have been eliminated in the consolidation. For those consolidated subsidiaries in which our ownership is less than 100% and for which we have control over the assets and liabilities and the management of the entity, the outside stockholders’ interests are shown as non-controlling interests.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s financial statement presentation. See "New and Recently Adopted Accounting Pronouncements" below for a discussion of our adoption of new accounting standards, including those related to revenue recognition, pension costs and the presentation of restricted cash in the statement of cash flows.

New and Recently Adopted Accounting Pronouncements

On January 1, 2018, we adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs- Contracts with Customers, collectively referred to as ASC 606. ASC 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most revenue recognition guidance. This guidance requires us to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We adopted ASC 606

retrospectively and restated each prior period presented to reflect our adoption. The impacts of our adoption of ASC 606 on our results for the years ended December 31, 2017, 2016 and 2015 were disclosed in our 2017 Form 10-K.

The adoption accelerated the timing of recognition of a portion of original listing fees related to our New York Stock Exchange, or NYSE, businesses, which prior to adoption had been deferred over an estimated customer life of up to nine years. In addition and to a lesser extent, the adoption decelerated the timing of recognition of a portion of clearing fee revenues. Revenue recognition related to all other trading, clearing and data businesses remains unchanged.

Our adoption of ASC 606 had the following impact on our reported results for the prior periods presented, driven primarily by the accelerated recognition of listings fee revenue in our NYSE business (in millions, except earnings per share):



	As Reported		New Revenue Standard Adjustment		As Adjusted
Three months ended March 31, 2017
Total revenues	$	1,469	$	2	$	1,471
Total revenues, less transaction-based expenses	1,164		2		1,166
Income tax expense	213		1		214
Net income attributable to Intercontinental Exchange, Inc.	502		1		503
Basic earnings per share	$	0.84	$	0.01	$	0.85
Diluted earnings per share	$	0.84	$	—	$	0.84



	As Reported		New Revenue Standard Adjustment			As Adjusted
As of December 31, 2017
Deferred revenue, current	$	121	$	4		$	125
Deferred revenue, non-current	143		(52		)	91
Net deferred tax liabilities	2,280		15			2,295
Retained earnings	6,825		33			6,858

Additional disclosures related to our adoption of ASC 606 are provided in Note 4.

The Financial Accounting Standards Board, or FASB, has issued Accounting Standards Update, or ASU, No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07. The amendments in this update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component in the same line item as other related compensation costs, and the other components of net benefit cost in the income statement outside of operating income. The guidance only allows the service cost component of net benefit cost to be eligible for capitalization. We adopted ASU 2017-07 on January 1, 2018 retrospectively to each prior period presented. We have a pension plan, a U.S. nonqualified supplemental executive retirement plan, and post-retirement defined benefit plans that are all impacted by the guidance. Each of the plans are frozen and do not have a service cost component, which means the expense or benefit recognized under each plan represents other components of net benefit cost as defined in the guidance. The combined net periodic (expense) benefit of these plans was ($2 million) and $2 million for the three months ended March 31, 2018 and 2017, respectively, and were previously reported as an adjustment to compensation and benefits expenses in the accompanying consolidated statements of income. Following our adoption, these amounts were reclassified to be included in other income, net in the accompanying consolidated statements of income, with no impact on net income from this adjustment.

The FASB has issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. ASU 2016-01 provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. We adopted ASU 2016-01 on January 1, 2018. Our equity investments, including our investments in Euroclear plc, or Euroclear (Note 3) and Coinbase Global, Inc., or Coinbase, among others, are now subject to valuation under ASU 2016-01. These investments do not currently have readily determinable fair market values as they are not publicly listed companies. ASU 2016-01 permits a policy election to only adjust the fair value of such investments if and when there is an observable price change in an orderly transaction of a similar or identical investment with any change in fair value recognized in net income. We have made this policy election for all of our equity investments without readily determinable fair values, and our adoption of ASU 2016-01 did not result in any fair value adjustments as of March 31, 2018.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, which provided guidance for companies that have not completed their accounting for income tax effects of the Tax Cuts and Jobs Act, or TCJA, in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. We are applying the guidance in SAB 118 when accounting for the enactment-date effects of the TCJA. As of March 31, 2018, our estimates recorded as of December 31, 2017 for the tax effects of the TCJA, are not final. Our estimates recorded at December 31, 2017 and as of March 31, 2018 may be affected due to changes in interpretations of the legislation, changes in accounting standards or related interpretations in response to the TCJA. We have also made reasonable estimates of the TCJA’s impact on state income tax. Our estimates are based on the best available information as of March 31, 2018 and our interpretation of the TCJA and related state tax implications as currently enacted. Our estimates do not include any potential federal or state administrative and/or legislative adjustments to certain provisions of the TCJA and related state provisions. We will continue to analyze the TCJA in order to finalize related federal and state impacts within the measurement period.

In January 2018, the FASB staff issued Question & Answer Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, stating that a company may either elect to treat taxes due on future inclusions on its non-U.S. income in its U.S. taxable income under the newly enacted Global Intangible Low-Taxed Income provisions as a current period expense when incurred, or factor them into the company’s measurement of its deferred taxes. As of March 31, 2018, we have not completed our analysis of the two different accounting policies and have not made an election. We will continue our analysis and will make an election within the measurement period as provided for under SAB 118.

The FASB has issued ASU No. 2016-02, Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is required to be adopted at the beginning of our first quarter of fiscal year 2019, with early adoption permitted. We will not adopt ASU 2016-02 early, but we are currently evaluating this guidance to determine the potential impact on our consolidated financial statements.

The FASB has issued ASU No. 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 applies to all financial instruments carried at amortized cost including held-to-maturity debt securities as well as trade receivables. ASU 2016-13 requires financial assets carried at amortized cost to be presented at the net amount expected to be collected and available-for-sale debt securities to record credit losses through an allowance for credit losses. ASU 2016-13 is required to be adopted at the beginning of our first quarter of fiscal year 2019, with early adoption permitted. We are currently evaluating this guidance to determine the potential impact on our consolidated financial statements.

In the fourth quarter of 2017, we adopted ASU 2016-18, Statement of Cash Flows: Restricted Cash, which requires us to show the changes in the total of cash, cash equivalents, restricted cash and cash equivalents in the statement of cash flows. As a result, we no longer present transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. We have reclassified changes in restricted cash from cash flows provided by (used in) investing activities, to the total change in beginning and end-of-year total changes. Our statements of cash flows for the three months ended March 31, 2018 and 2017 reflect this change.


3.	Acquisitions and Investments

On January 2, 2018, we acquired 100% of BondPoint from Virtu Financial, Inc. for $400 million in cash. BondPoint is a leading provider of electronic fixed income trading solutions for the buy-side and sell-side offering access to centralized liquidity and automated trade execution services through its alternative trading system, or ATS, and provides trading services to more than 500 financial services firms. BondPoint is primarily included in our Trading and Clearing segment.

The BondPoint purchase price was allocated to the preliminary net tangible and identifiable intangible assets and liabilities based on their estimated fair values as of January 2, 2018. The preliminary identifiable intangible assets acquired were $130 million and included (i) customer relationships of $123 million, which have been assigned a useful life of 15 years, and (ii) developed technology of $7 million, which has been assigned a life of three years. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was $267 million and was recorded as goodwill.

During the three months ended December 31, 2017, we purchased a 4.7% stake in Euroclear valued at €276 million ($327 million), which included our representation on the Euroclear Board of Directors. At the same time, we negotiated an additional purchase which closed on February 21, 2018 following regulatory approval, and which did not include additional representation on the Euroclear Board of Directors. This provided us with an additional 5.1% stake in Euroclear for a purchase price of €246 million in cash ($304 million based on a euro/U.S. dollar exchange rate of 1.2368 as of February 21, 2018), which represents a fair value equivalent to our initial investment. As of March 31, 2018, we owned a 9.8% stake in Euroclear for a total investment of $631 million. Euroclear

is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.

We classify our investment in Euroclear as an equity investment in other non-current assets in the accompanying consolidated balance sheets. As discussed in Note 2, we adopted ASU 2016-01 on January 1, 2018. Under ASU 2016-01, for investments without a readily determinable fair value, we may elect to measure them at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions in similar or identical investments. We have elected to use this approach to estimate the value of the Euroclear investment, as well as our other investments without readily determinable fair values, and it is our policy to apply this treatment to all investments of this nature. An adjustment to estimated fair value is only required for those orderly transactions occurring in similar or identical investments after January 1, 2018, which is the date of adoption, with any adjustment recognized in net income. During the three months ended March 31, 2018, there were no downward or upward adjustments made to the carrying amount of our equity investments for which we have applied the measurement alternative.

Pending Acquisition

On April 5, 2018, we entered into an agreement to acquire CHX Holdings, or CHX, the parent company of the Chicago Stock Exchange, a full-service stock exchange, including trading, data and corporate listings services. The transaction is expected to close in the second quarter of 2018, subject to regulatory approvals. Subject to SEC approval, CHX will continue to operate as a registered national securities exchange.


4.	Revenue Recognition

We adopted ASC 606 on January 1, 2018 on a full retrospective basis and have restated the prior reporting periods presented as if ASC 606 had always been applied (Note 2). Our adoption of ASC 606 did not have a material impact on the measurement or recognition of revenue in any prior or current reporting periods. Our adoption of ASC 606 was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.

Substantially all of our revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in our balance sheets as customer accounts receivable. We do not have obligations for warranties, returns or refunds to customers, other than the rebates discussed below, which are settled each period and therefore do not result in variable consideration. We do not have significant revenue recognized from performance obligations that were satisfied in prior periods and we do not have any transaction price allocated to unsatisfied performance obligations other than in our deferred revenue. Deferred revenue represents our contract liabilities related to our annual, original and other listings revenues as well as certain data services, clearing services and other revenues. Deferred revenue is the only significant contract asset or liability impacted by our adoption of ASC 606. See Note 6 for our discussion of deferred revenue balances, activity, and expected timing of recognition. As permitted by ASC 606, we have elected not to provide disclosures about transaction price allocated to unsatisfied performance obligations if contract durations are less than one year, or if we are not required to estimate the transaction price. For all of our contracts with customers, except for listings and certain data and clearing services, our performance obligations are short-term in nature and there is no significant variable consideration. See below in Note 4 for further descriptions of our revenue contracts. In addition, we have elected the practical expedient of excluding sales taxes from transaction prices. We have assessed the costs incurred to obtain or fulfill a contract with a customer and determined them to be immaterial.

Certain judgments and estimates were used in the identification and timing of satisfaction of performance obligations and the related allocation of transaction price. We believe that these represent a faithful depiction of the transfer of services to our customers.

Our primary revenue contract classifications are described below. Although we discuss additional revenue details in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the categories below best represent those that depict similar economic characteristics of the nature, amount, timing and uncertainty of our revenues and cash flows.

•

Transaction and clearing, net - Transaction and clearing revenues represent fees charged for the performance obligations of derivatives trading and clearing, and from our cash trading and equity options exchanges. The derivatives trading and clearing fees contain two performance obligations: (1) trade execution/clearing novation and (2) risk management of open interest. We allocate the transaction price between these two performance obligations; however, both of these generally occur almost simultaneously. Trade execution and clearing novation are instantaneous, and the time period over which risk management of open interest occurs is predominantly one month or less. Therefore, no significant deferral results as we have no further obligation to the customer at that time. The impact of our adoption of ASC 606 on our performance obligations in our clearing business was minimal. Cash trading and equity options fees contain one performance obligation related to trade execution. Trade execution occurs instantaneously. Therefore, there is no need to allocate the transaction price and no deferral results as we have no further obligation to the customer at that time. Our transaction and clearing revenues are reported net of rebates, except for the NYSE transaction-based expenses. Transaction and clearing fees can be variable based on trade volume discounts used in the determination of rebates; however, virtually all volume discounts are calculated and recorded on a monthly basis. Transaction and clearing fees, as well as any volume discounts rebated to our customers, are calculated and

billed monthly in accordance with our published fee schedules. We make liquidity payments to certain customers in our NYSE business and recognize those payments as a cost of revenue. In addition, we pay NYSE regulatory oversight fees to the SEC and collect equal amounts from our customers. These are also considered a cost of revenue, and both of these NYSE-related fees are included in transaction-based expenses. Transaction and clearing revenues and the related transaction-based expenses are all recognized in our Trading and Clearing segment.


•	Data services - Data service revenues represent the following:


◦	Pricing and analytics services consist of an extensive set of independent continuous and end-of-day evaluated pricing services focused primarily on fixed income and international equity securities, valuation services, reference data, indices, fixed income equity portfolio analytics and risk management analytics.


◦	Desktop and connectivity services comprise hosting, colocation and infrastructure through our Secure Financial Transaction Infrastructure, or SFTI network, as well as technology-based information platforms, feeds and connectivity solutions, including our ICE Global Network.


◦	Exchange data services represent subscription fees for the provision of our market data that is created from activity in our Trading and Clearing segment.

The nature and timing of each contract type for the data services above are similar in nature. Data services revenues are primarily subscription-based, billed monthly, quarterly or annually in advance and recognized ratably over time as our performance obligations of data delivery are met consistently throughout the period. Because these contracts primarily consist of single performance obligations with fixed prices, there is no variable consideration and no need to allocate the transaction price. In certain of our data contracts, where third parties are involved, we arrange for the third party to transfer the services to our customers. In these arrangements we are acting as an agent and revenue is recorded net. All data services fees are included in our Data and Listings segment.

•

Listings - Listings revenues include original and annual listing fees, and other corporate action fees. Under ASC 606, each distinct listing fee is allocated to multiple performance obligations including original and incremental listing and investor relations services, as well as a customer’s material right to renew the option to list on our exchanges. In performing this allocation, the standalone selling price of the listing services is based on the original and annual listing fees and the standalone selling price of the investor relation services is based on its market value. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Upon our adoption of the ASC 606 framework, the amount of revenue related to the investor relations performance obligation is recognized ratably over a two-year period, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges, which is generally estimated to be over a period of up to nine years for NYSE and five years for NYSE Arca and NYSE American (NYSE American was formerly known as NYSE MKT). Listings fees related to other corporate actions are considered contract modifications of our listing contracts and are recognized ratably over time as customers continue to list on our exchanges, which is generally estimated to be a period of six years for NYSE and three years for NYSE Arca and NYSE American. All listings fees are recognized in our Data and Listings segment.

•

Other revenues - Other revenues primarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, exchange membership fees and agricultural grading and certification fees. Other revenues are recognized in our Trading and Clearing segment. Generally, fees for other revenues contain one performance obligation. Because these contracts primarily consist of single performance obligations with fixed prices, there is no variable consideration and no need to allocate the transaction price. Services for other revenues are primarily satisfied at a point in time. Therefore, there is no need to allocate the fee and no deferral results as we have no further obligation to the customer at that time.

The following table depicts the disaggregation of our revenue according to business line and segment (in millions). Segment totals are consistent with the segment totals in Note 13:



	Trading and Clearing Segment		Data and Listings Segment		Total Consolidated
Three months ended March 31, 2018
Transaction and clearing, net	$	898	$	—	$	898
Data services	—		520		520
Listings	—		109		109
Other revenues	53		—		53
Total revenues	951		629		1,580
Transaction-based expenses	355		—		355
Total revenues, less transaction-based expenses	$	596	$	629	$	1,225

Timing of Revenue Recognition
Services transferred at a point in time	$	509	$	—	$	509
Services transferred over time	87		629		716
Total revenues, less transaction-based expenses	$	596	$	629	$	1,225



	Trading and Clearing Segment		Data and Listings Segment		Total Consolidated
Three months ended March 31, 2017
Transaction and clearing, net	$	798	$	—	$	798
Data services	—		520		520
Listings	—		108		108
Other revenues	45		—		45
Total revenues	843		628		1,471
Transaction-based expenses	305		—		305
Total revenues, less transaction-based expenses	$	538	$	628	$	1,166

Timing of Revenue Recognition
Services transferred at a point in time	$	458	$	—	$	458
Services transferred over time	80		628		708
Total revenues, less transaction-based expenses	$	538	$	628	$	1,166

The Trading and Clearing segment revenues above include $63 million and $57 million for the three months ended March 31, 2018 and 2017, respectively, for services transferred over time related to risk management of open interest performance obligations. A majority of the these performance obligations are performed over a short period of time of one month or less.


5.	Goodwill and Other Intangible Assets

The following is a summary of the activity in the goodwill balance for the three months ended March 31, 2018 (in millions):



Goodwill balance at December 31, 2017	$	12,216
Acquisitions	267
Foreign currency translation	12
Other activity, net	19
Goodwill balance at March 31, 2018	$	12,514

The following is a summary of the activity in the other intangible assets balance for the three months ended March 31, 2018 (in millions):



Other intangible assets balance at December 31, 2017	$	10,269
Acquisitions	130
Foreign currency translation	15
Amortization of other intangible assets	(69		)
Other activity, net	(19		)
Other intangible assets balance at March 31, 2018	$	10,326

We completed our acquisition of BondPoint during the three months ended March 31, 2018 (Note 3). The foreign currency translation adjustments in the tables above result from a portion of our goodwill and other intangible assets being held at our U.K., Continental European and Canadian subsidiaries, whose functional currencies are not the U.S. dollar. The changes in other activity, net in the tables above primarily relate to adjustments to the fair value of the net tangible assets and intangible assets relating to the acquisitions, with a corresponding adjustment to goodwill. We did not recognize any impairment losses on goodwill or other intangible assets during the three months ended March 31, 2018 and 2017.


6.	Deferred Revenue

Our contract liabilities, or deferred revenue, represent consideration received that is yet to be recognized as revenue. Total deferred revenue was $560 million as of March 31, 2018, including $468 million in current deferred revenue and $92 million in non-current deferred revenue. The changes in our deferred revenue during the three months ended March 31, 2018 are as follows (in millions), adjusted to reflect the adoption of ASC 606 as discussed in Note 2:



	Annual Listings Revenue			Original Listings Revenues			Other Listings Revenues			Data Services and Other Revenues			Total
Deferred revenue balance at December 31, 2017	$	—		$	25		$	98		$	93		$	216
Additions	380			7			15			147			549
Amortization	(95		)	(6		)	(8		)	(96		)	(205		)
Deferred revenue balance at March 31, 2018	$	285		$	26		$	105		$	144		$	560

The changes in our deferred revenue during the three months ended March 31, 2017 are as follows (in millions), adjusted to reflect the adoption of ASC 606 as discussed in Note 2:



	Annual Listings Revenue			Original Listings Revenues			Other Listings Revenues			Data Services and Other Revenues			Total
Deferred revenue balance at December 31, 2016	$	—		$	23		$	83		$	88		$	194
Additions	361			2			24			148			535
Amortization	(91		)	(5		)	(12		)	(100		)	(208		)
Deferred revenue balance at March 31, 2017	$	270		$	20		$	95		$	136		$	521

Included in the amortization recognized for the three months ended March 31, 2018, $49 million relates to the deferred revenue balance as of January 1, 2018. Included in the amortization recognized for the three months ended March 31, 2017, $45 million relates to the deferred revenue balance as of January 1, 2017. As of March 31, 2018, we estimate that our deferred revenue will be recognized in the following years (in millions):



	Annual Listings Revenue		Original Listing Revenues		Other Listing Revenues		Data Services and Other Revenues		Total
Remainder of 2018	$	285	$	18	$	18	$	132	$	453
2019	—		8		31		9		48
2020	—		—		25		2		27
2021	—		—		17		1		18
2022	—		—		12		—		12
Thereafter	—		—		2		—		2
Total	$	285	$	26	$	105	$	144	$	560


7.	Debt

Our total debt, including short-term and long-term debt, consisted of the following as of March 31, 2018 and December 31, 2017 (in millions):



	As of March 31, 2018		As of December 31, 2017
Debt:
Short-term debt:
Commercial Paper	$	2,023	$	1,233
2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018)	600		600
Total short-term debt	2,623		1,833
Long-term debt:
2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020)	1,245		1,244
2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022)	495		495
2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023)	792		791
2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025)	1,242		1,242
2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027)	495		495
Total long-term debt	4,269		4,267
Total debt	$	6,892	$	6,100

Credit Facility

We have a $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, with a maturity date of August 18, 2022, pursuant to a credit agreement with Wells Fargo Bank, N.A., as primary administrative agent, issuing lender and swing-line lender, Bank of America, N.A., as syndication agent, backup administrative agent and swing-line lender, and the lenders party thereto. The Credit Facility includes an option for us to propose an increase in the aggregate amount available for borrowing by up to $975 million, subject to the consent of the lenders funding the increase and certain other conditions. No amounts were outstanding under the Credit Facility as of March 31, 2018. Of the $3.4 billion that is currently available for borrowing under the Credit Facility, $2.0 billion is required to back-stop the amount outstanding under our Commercial Paper Program as of March 31, 2018 and $105 million is required to support certain broker-dealer subsidiary commitments. As of March 31, 2018, our previous requirement to support $100 million of ICE NGX clearing house commitments has ceased (Note 10).

The amount required to back-stop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $1.3 billion available under the Credit Facility as of March 31, 2018 is available to us to use for working capital and general corporate purposes including, but not limited to, acting as a back-stop to future increases in the amounts outstanding under the Commercial Paper Program.

Commercial Paper Program

We have entered into a U.S. dollar commercial paper program, or the Commercial Paper Program. Our Commercial Paper Program is currently backed by the borrowing capacity available under the Credit Facility, equal to the amount of the commercial

paper that is issued and outstanding at any given point in time. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates (such as USD LIBOR). The fluctuation of these rates due to market conditions may impact our interest expense. During the three months ended March 31, 2018, we used net proceeds of $789 million from notes issued under our Commercial Paper Program primarily to finance the acquisition of BondPoint, to purchase an additional 5.1% stake in Euroclear, and for general corporate purposes.

Commercial paper notes of $2.0 billion with original maturities ranging from two to 73 days were outstanding as of March 31, 2018 under our Commercial Paper Program. As of March 31, 2018, the weighted average interest rate on the $2.0 billion outstanding under our Commercial Paper Program was 1.86% per annum, with a weighted average maturity of 19 days.


8.	Equity

We currently sponsor employee and director stock option and restricted stock plans. Stock options and restricted stock are granted at the discretion of the Compensation Committee of the Board of Directors. All stock options and restricted stock awards are granted at an exercise price equal to the fair value of the common stock on the date of grant. The grant date fair value is based on the closing stock price on the date of grant. The fair value of the stock options and restricted stock on the date of grant is recognized as expense over the vesting period, net of estimated forfeitures. The non-cash compensation expenses recognized in our consolidated statements of income for stock options and restricted stock were $29 million and $34 million for the three months ended March 31, 2018 and 2017, respectively.

Stock Option Plans

The following is a summary of stock options for the three months ended March 31, 2018:



	Number of Options		Weighted Average Exercise Price per Option
Outstanding at December 31, 2017	4,013,388		$	41.13
Granted	522,881		67.00
Exercised	(170,536	)	23.03
Outstanding at March 31, 2018	4,365,733		44.93

Details of stock options outstanding as of March 31, 2018 are as follows:



	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (In millions)
Vested or expected to vest	4,365,733	$	44.93	6.9	$	120
Exercisable	3,146,697	$	39.00	6.0	$	105

The total intrinsic value of stock options exercised was $9 million and $3 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, there were $13 million in total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.1 years as the stock options vest.

We use the Black-Scholes option pricing model for purposes of valuing stock option awards. During the three months ended March 31, 2018 and 2017, we used the weighted-average assumptions in the table below to compute the value of all options for shares of common stock granted to employees:



	Three Months Ended March 31,
Assumptions:	2018			2017
Risk-free interest rate	2.66		%	1.84		%
Expected life in years	6.0			5.0
Expected volatility	20		%	21		%
Expected dividend yield	1.43		%	1.40		%
Estimated weighted-average fair value of options granted per share	$	13.98		$	10.49

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the time of grant. The expected life computation is derived from historical exercise patterns and anticipated future patterns. Expected volatilities are based on historical volatility of our stock.

Restricted Stock Plans

In February 2018, we reserved a maximum of 1,303,151 restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares that will ultimately be granted under this award will be based on our actual financial performance as compared to financial performance targets set by our Board of Directors and Compensation Committee of the Board of Directors for the year ending December 31, 2018, as well as our 2018 total stockholder return as compared to that of the S&P 500 Index. The maximum compensation expense to be recognized under these performance-based restricted shares is $84 million if the maximum financial performance target is met and all 1,303,151 shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $42 million if the target financial performance is met, which would result in 651,576 shares vesting. We will recognize expense on an accelerated basis over the three-year vesting period based on our quarterly assessment of the probable 2018 actual financial performance as compared to the 2018 financial performance targets. As of March 31, 2018, we determined that it is probable that the financial performance level will be at target for 2018. Based on this assessment, we recorded non-cash compensation expense of $4 million for the three months ended March 31, 2018 related to these shares and the remaining $38 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $19 million of which will be recorded over the remainder of 2018.

The following is a summary of the non-vested restricted shares for the three months ended March 31, 2018:



	Number of Restricted Stock Shares	Weighted Average Grant-Date Fair Value per Share
Non-vested at December 31, 2017	5,748,408	$	52.78
Granted	1,730,214	67.24
Vested	(2,490,257)	49.46
Forfeited	(150,134)	57.22
Non-vested at March 31, 2018	4,838,231	59.52

Restricted stock shares granted in the table above include both time-based and performance-based grants. Performance-based shares have been presented to reflect the actual shares to be issued based on the achievement of past performance targets. Non-vested performance-based restricted shares granted are presented in the table above at the target number of restricted shares that would vest if the performance targets are met. As of March 31, 2018, there were $210 million in total unrecognized compensation costs related to the time-based restricted stock and the performance-based restricted stock. These costs are expected to be recognized over a weighted-average period of 1.8 years as the restricted stock vests. These unrecognized compensation costs assume that a target performance level will be met on the performance-based restricted shares granted in February 2018. During the three months ended March 31, 2018 and 2017, the total fair value of restricted stock vested under all restricted stock plans was $182 million and $175 million, respectively.

Stock Repurchase Program

In September 2017, our Board of Directors approved an aggregate of $1.2 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2018. During the three months ended March 31, 2018, we repurchased 4,105,013 shares of our outstanding common stock at a cost of $300 million. The shares repurchased are held in treasury stock. These repurchases were completed on the open market and under our Rule 10b5-1 trading plan. The timing and extent of future repurchases that are not made pursuant to a Rule 10b5-1 trading plan will be at our discretion and will depend upon many conditions. Our management periodically reviews whether to be active in repurchasing our stock. In making a determination regarding any stock repurchases, we consider multiple factors. The factors may include: overall stock market conditions, our common stock price movements, the remaining amount authorized for repurchases by our Board of Directors, the potential impact of a stock repurchase program on our corporate debt ratings, our expected free cash flow and working capital needs, our current and future planned strategic growth initiatives, and other potential uses of our cash and capital resources.

As of March 31, 2018, up to $900 million remains from the board authorization for repurchases of our common stock. We expect funding for any share repurchases to come from our operating cash flow or borrowings under our debt facilities or our Commercial Paper Program. Repurchases may be made from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with all applicable securities laws, rules and regulations. We have entered into a Rule 10b5-1 trading plan, as authorized by our Board of Directors, to govern some or all of the repurchases of our shares of common stock. We may discontinue the stock repurchases at any time and may amend or terminate the Rule 10b5-1 trading plan at any time. The approval of our Board of Directors for the share repurchases does not obligate us to acquire any particular amount of our common stock. In addition, our Board of Directors may increase or decrease the amount available for repurchases from time to time.

Dividends

During the three months ended March 31, 2018 and 2017, we paid cash dividends per share of $0.24 and $0.20, respectively, for an aggregate payout of $140 million and $120 million, respectively. The declaration of dividends is subject to the discretion of our Board of Directors, and may be affected by various factors, including our future earnings, financial condition, capital requirements, levels of indebtedness, credit ratings and other considerations our Board of Directors deem relevant. Our Board of Directors has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the Board of Directors or the Audit Committee of the Board of Directors taking into account such factors as our evolving business model, prevailing business conditions and our financial results and capital requirements, without a predetermined annual net income payout ratio.


9.	Income Taxes

Our effective tax rate was 23% and 30% for the three months ended March 31, 2018 and 2017, respectively. The effective tax rate was lower for the three months ended March 31, 2018 as compared to the same period in 2017 primarily due to the enactment of the TCJA on December 22, 2017, which reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018 (Note 2). That benefit is partially offset by additional U.S. federal and state income taxes on a portion of our non-U.S. income due to certain international tax provisions enacted as part of the TCJA. We recorded our income tax provision based on the TCJA and related state provisions as enacted as of March 31, 2018.

SAB 118 provides guidance for companies that have not completed their accounting for income tax effects of the TCJA, in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of March 31, 2018, we have not completed our accounting for the tax effects of the enactment of the TJCA; however, we have made reasonable estimates of many complex provisions enacted under the TCJA (Note 2). We have also made reasonable estimates of the TCJA’s impact on state income tax. Our estimates are based on the best available information as of March 31, 2018 and our interpretation of the TCJA and related state tax implications, as currently enacted. Our estimates do not include any potential federal or state administrative and/or legislative adjustments to certain provisions of the TCJA and related state provisions. We will continue to analyze the TCJA in order to finalize related federal and state impacts within the measurement period.

As of March 31, 2018, we have not adopted an accounting policy regarding the treatment of taxes due on future inclusion of non-U.S. income in U.S. taxable income under the Global Intangible Low-Taxed Income provisions. Therefore, no deferred tax related to these provisions has been recorded as of March 31, 2018. We will continue our analysis and will make an election within the measurement period as provided for under SAB 118.


10.	Clearing Organizations

We operate regulated central counterparty clearing houses for the settlement and clearance of derivative contracts. The clearing houses include ICE Clear Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada, ICE Clear Netherlands, ICE Clear Singapore and ICE NGX, formerly known as Natural Gas Exchange, Inc., or NGX (referred to herein collectively as the “ICE Clearing Houses”).


•	ICE Clear Europe performs the clearing and settlement for all futures and options contracts traded through ICE Futures Europe and ICE Endex, for energy futures and options contracts trading through ICE Futures U.S., and for CDS contracts submitted for clearing in Europe.


•	ICE Clear Credit performs the clearing and settlement for CDS contracts submitted for clearing in North America.


•	ICE Clear U.S. performs the clearing and settlement of agricultural, metals, currencies and financial futures and options contracts traded through ICE Futures U.S.


•	ICE Clear Canada performs the clearing and settlement for all futures and options contracts traded through ICE Futures Canada.


•	ICE Clear Netherlands offers clearing for Dutch equity options.


•	ICE Clear Singapore performs the clearing and settlement for all futures and options contracts traded through ICE Futures Singapore.


•	ICE NGX performs clearing and settlement for physical North American natural gas, electricity and oil markets.

Each of the ICE Clearing Houses requires all clearing members or participants to maintain cash on deposit or pledge certain assets, which may include government obligations, non-government obligations, letters of credit or gold to guarantee performance of the clearing members’ or participants’ open positions. Such amounts in total are known as “original margin.” The ICE Clearing Houses may make intraday original margin calls in circumstances where market conditions require additional protection. The daily profits and losses from and to the ICE Clearing Houses due to the marking-to-market of open contracts are known as “variation margin.” With the exception of ICE NGX’s physical natural gas and physical power products, the ICE Clearing Houses mark all outstanding contracts to

market, and therefore pay and collect variation margin, at least once daily, and in some cases multiple times throughout the day. For ICE NGX’s physical natural gas and power products, ICE NGX marks all outstanding contracts to market daily, but only collects variation margin when a participant’s open position falls outside a specified percentage of its pledged collateral. Marking-to-market allows the ICE Clearing Houses to identify any clearing members or participants that may be unable to satisfy the financial obligations resulting from changes in the prices of their open contracts before those financial obligations become exceptionally large and jeopardize the ability of the ICE Clearing Houses to ensure financial performance of clearing members’ or participants’ open positions.

With the exception of ICE NGX, each of the ICE Clearing Houses requires that each clearing member make deposits into a fund known as a “guaranty fund,” which is maintained by the relevant ICE Clearing House. These amounts serve to secure the obligations of a clearing member to the ICE Clearing House to which it has made the guaranty fund deposit and may be used to cover losses sustained by the respective ICE Clearing House in the event of a default of a clearing member. Because it is not our policy to guaranty credit facilities of our clearing houses which maintain contingent liquidity facilities secured by high quality liquid assets, during the three months ended March 31, 2018, we eliminated a $100 million guaranty that we had previously provided ICE NGX. As of March 31, 2018, ICE NGX maintains a guaranty fund utilizing a $100 million letter of credit that has been entered into with a major Canadian chartered bank and backed by a default insurance policy underwritten by Export Development Corporation, or EDC, a Canadian government agency. In the event of a participant default, where a participant’s collateral becomes depleted, any remaining shortfall would be covered by a draw down on the letter of credit following which ICE NGX would pay the first $15 million in losses per its deductible and recover additional losses under the insurance policy up to $100 million.

We have contributed cash of $150 million, $50 million and $50 million to the guaranty funds of ICE Clear Europe, ICE Clear Credit and ICE Clear U.S., respectively, as of March 31, 2018, and such amounts are at risk and could be used in the event of a clearing member default where the amount of the defaulting clearing member’s original margin and guaranty fund deposits are insufficient. We have also contributed $4 million in cash in total to the guaranty funds of ICE Clear Canada, ICE Clear Netherlands and ICE Clear Singapore. The $254 million combined contributions to the guaranty funds as of March 31, 2018 and December 31, 2017 are included in long-term restricted cash and cash equivalents in the accompanying consolidated balance sheets.

In addition, beginning in March 2018, certain of our exchanges are now required to make similar contributions to those made by the clearing houses to be utilized pro rata along with the clearing contributions in the event of clearing member default. The contribution is calculated per exchange based on average guaranty fund contributions, subject to a minimum contribution of $10 million for each exchange. As of March 31, 2018, ICE Futures Europe, ICE Futures U.S. and our ICE Endex exchanges have contributed a combined $67 million in cash to the guaranty funds of ICE Clear Europe and ICE Clear U.S. These contributions are also included in long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet.

The ICE Clearing Houses seek to reduce their exposure through a risk management program that includes initial and ongoing financial standards for clearing member and participant admission and continued membership, original and variation margin and collateral requirements, and mandatory deposits to the guaranty fund. The amounts that the clearing members and participants are required to maintain in the original margin, guaranty fund and collateral accounts are determined by standardized parameters established by the risk management departments and reviewed by the risk committees and the boards of directors of each of the ICE Clearing Houses and may fluctuate over time. As of March 31, 2018 and December 31, 2017, the ICE Clearing Houses have received or have been pledged $102.5 billion and $92.6 billion, respectively, in cash and non-cash collateral in original margin and guaranty fund deposits to cover price movements of underlying contracts for both periods. With the exception of ICE NGX, the ICE Clearing Houses also have the ability to collect additional funds from their clearing members to cover a defaulting member’s remaining obligations up to the limits established under the respective rules of each ICE Clearing House.

Should a particular clearing member or participant fail to deposit original margin, provide collateral, or fail to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge the clearing member’s or participant’s open positions and use their original margin and guaranty fund deposits to make up any amount owed. In the event that those deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses may utilize the respective guaranty fund deposits of their respective clearing members on a pro-rata basis for that purpose.

ICE NGX administers the physical delivery of energy trading contracts. It has an equal and offsetting claim to and from the respective participants on opposite sides of the physically settled contract. The balance related to delivered but unpaid contracts is reflected as a delivery contract net receivable with an offsetting delivery contract net payable in the accompanying consolidated balance sheets. ICE NGX also records unsettled variation margin equal to the fair value of open energy trading contracts as of the balance sheet date. Fair value is determined based on the difference between the trade price when the contract was entered into and the settlement price and is considered a Level 2 fair value measurement. There is no impact to the consolidated statements of income for either delivery contracts receivable/payable and unsettled variation margin, as an equivalent amount is recognized in both the assets and liabilities.

As of March 31, 2018, our cash and cash equivalents margin deposits, unsettled variation margin, guaranty fund and delivery contracts receivable/payable, net, are as follows for the ICE Clearing Houses (in millions):



	ICE Clear Europe		ICE Clear Credit		ICE Clear U.S.		Other ICE Clearing Houses		Total
Original margin	$	20,699	$	21,706	$	4,248	$	128	$	46,781
Unsettled variation margin, net	—		—		—		227		227
Guaranty fund	3,648		2,277		482		21		6,428
Delivery contracts receivable/payable, net	—		—		—		543		543
Total	$	24,347	$	23,983	$	4,730	$	919	$	53,979

As of December 31, 2017, our cash margin deposits, unsettled variation margin, guaranty fund and delivery contracts receivable/payable, net, were as follows for the ICE Clearing Houses (in millions):



	ICE Clear Europe		ICE Clear Credit		ICE Clear U.S.		Other ICE Clearing Houses		Total
Original margin	$	19,792	$	20,703	$	3,898	$	126	$	44,519
Unsettled variation margin, net	—		—		—		228		228
Guaranty fund	3,037		2,607		299		23		5,966
Delivery contracts receivable/payable, net	—		—		—		509		509
Total	$	22,829	$	23,310	$	4,197	$	886	$	51,222

We have recorded these cash deposits and amounts due in the accompanying consolidated balance sheets as current assets with corresponding current liabilities to the clearing members of the relevant ICE Clearing House. All cash, securities and amounts due are available only to meet the financial obligations of that clearing member to the relevant ICE Clearing House. ICE Clear Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada, ICE Clear Netherlands, ICE NGX and ICE Clear Singapore are separate legal entities and are not subject to the liabilities of the other ICE Clearing Houses or the obligations of the members of the other ICE Clearing Houses. The amount of these cash deposits may fluctuate due to the types of margin collateral choices available to clearing members and the change in the amount of deposits required. As a result, these assets and corresponding liabilities may vary significantly over time.

Of the cash held by the ICE Clearing Houses, as of March 31, 2018, $25.6 billion is secured in reverse repurchase agreements with primarily overnight maturities or direct investment in government securities. ICE Clear Credit, as a systemically important financial market utility, or SIFMU, as designated by the Financial Stability Oversight Council, or FSOC, held $19.4 billion of its U.S. dollar cash in the guaranty fund and in original margin in cash accounts at the Federal Reserve Bank of Chicago as of March 31, 2018. ICE Clear Europe also maintains a Euro-denominated account at the De Nederlandsche Bank, or DNB, the central bank of the Netherlands, as well as a pounds sterling-denominated account at the Bank of England, or BOE, the central bank of the United Kingdom. These accounts provide the flexibility for ICE Clear Europe to place Euro- and pounds sterling-denominated cash margin securely at national banks, in particular during periods when liquidity in the Euro and pounds sterling repo markets may temporarily become contracted, such as over a quarter or year end. As of March 31, 2018, ICE Clear Europe held €2.5 billion ($3.1 billion based on the euro/U.S. dollar exchange rate of 1.2324 as of March 31, 2018) at DNB, and £1.8 billion ($2.5 billion based on the pound sterling/U.S. dollar exchange rate of 1.4022 as of March 31, 2018) at the BOE. The remaining cash deposits at the ICE Clearing Houses are held in demand deposit accounts at large, highly rated financial institutions and direct investments primarily in U.S. Treasury securities with original maturities of less than three months, plus certain U.S. Treasury Securities that extend beyond twelve months which we consider to be Level 1 securities (Note 12). The carrying value of these securities approximates their fair value due to the short-term nature of the instruments and repurchase agreements.

In addition to the cash deposits for original margin and the guaranty fund, the ICE Clearing Houses have also received other assets from clearing members, which include government obligations, and may include other non-cash collateral such as certain agency and corporate debt, letters of credit or gold to mitigate credit risk. These assets are not reflected in the accompanying consolidated balance sheets as the risks and rewards of these assets remain with the clearing members unless the ICE Clearing Houses have sold or re-pledged the assets or in the event of a clearing member default, where the clearing member is no longer entitled to redeem the assets. Any income, gain or loss accrues to the clearing member. For certain non-cash deposits, the ICE Clearing Houses may impose discount or “haircut” rates to ensure adequate collateral levels to account for fluctuations in the market value of these deposits.

ICE NGX requires participants to maintain cash or letters of credit to serve as collateral in the event of a participant default. The cash is maintained in a segregated bank account which is subject to a collateral agreement between the bank and ICE NGX. Per the agreement, ICE NGX serves in the capacity of a trustee. The cash is held by ICE NGX in trust for and on behalf of the participant; however, the cash remains the property of the participant and may only be accessed by ICE NGX if there is evidence of default. The rules governing when the cash can be accessed by ICE NGX are listed in the Contracting Party Agreement, a standardized agreement

signed by each participant that also allows for netting of positive and negative exposure. Since the cash is held in trust and remains the property of the participant, it is not included in the accompanying consolidated balance sheets.

As of March 31, 2018 and December 31, 2017, the assets pledged by the clearing members as original margin, which includes cash deposits held in trust at ICE NGX, and guaranty fund deposits for each of the ICE Clearing Houses not included in the accompanying consolidated balance sheets are detailed below (in millions):



	As of March 31, 2018								As of December 31, 2017
	ICE Clear Europe		ICE Clear Credit		ICE Clear U.S.		Other ICE Clearing Houses		ICE Clear Europe		ICE Clear Credit		ICE Clear U.S.		Other ICE Clearing Houses
Original margin:
Government securities at face value	$	25,144	$	9,397	$	11,123	$	18	$	23,496	$	5,699	$	9,581	$	18
Letters of credit	—		—		—		1,770		—		—		—		1,663
ICE NGX cash deposits	—		—		—		281		—		—		—		233
Total	$	25,144	$	9,397	$	11,123	$	2,069	$	23,496	$	5,699	$	9,581	$	1,914
Guaranty fund:
Government securities at face value	$	419	$	166	$	219	$	1	$	323	$	176	$	169	$	2

11. Legal Proceedings

We are subject to legal proceedings, claims and investigations that arise in the ordinary course of our business. These include the matters described in Part I, Item 3 “Legal Proceedings” and Note 14 to the consolidated financial statements in Part II, Item 8 of our 2017 Form 10-K. We establish accruals for those matters in circumstances when a loss contingency is considered probable and the related amount is reasonably estimable. Any such accruals may be adjusted as circumstances change. Assessments of losses are inherently subjective and involve unpredictable factors. We do not believe that the resolution of these legal matters, including the matters described below, will have a material adverse effect on our consolidated financial condition, results of operations, or liquidity. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially and adversely affected by any developments relating to the legal proceedings, claims and investigations.

During the year ended December 31, 2017, we recorded an aggregate of $14 million in expense accruals relating to SEC investigations and inquiries. On March 6, 2018, NYSE and affiliated exchanges reached a settlement with the SEC of the various matters under investigation and agreed to pay a $14 million civil monetary penalty, together with certain non-monetary relief. For further details about the settlement and underlying matters that were under investigation, please refer to Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Sections 19(h)(1) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, Administrative Proceeding File No. 3-18388 (In the Matter of New York Stock Exchange LLC, NYSE American LLC, and NYSE Arca, Inc.) entered on March 6, 2018.

Our 2017 Form 10-K included a description of the purported class action lawsuit against two of our subsidiary NYSE exchanges, and other U.S. exchanges, by the City of Providence, Rhode Island and other plaintiffs. As reported in our 2017 Form 10-K, the defendant exchanges filed a petition for rehearing and/or rehearing en banc of the Second Circuit’s December 2017 decision vacating the dismissal of this case, and on March 13, 2018, the Second Circuit denied our petition.

12. Fair Value Measurements

Our financial instruments consist primarily of cash and cash equivalents, short-term and long-term restricted cash and cash equivalents, short-term investments, customer accounts receivable, margin deposits and guaranty funds, equity investments, short-term and long-term debt and certain other short-term assets and liabilities. The fair value of our financial instruments are measured based on a three-level hierarchy:


•	Level 1 inputs — quoted prices for identical assets or liabilities in active markets.


•	Level 2 inputs — observable inputs other than Level 1 inputs 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 — unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We use Level 1 inputs to determine fair value. The Level 1 assets consist of U.S. Treasury and other foreign government securities, equity and other securities listed in active markets, and investments in publicly traded mutual funds held for the purpose of providing future payments of the supplemental executive retirement and the supplemental executive savings plans.

Financial assets and liabilities recorded in the accompanying consolidated balance sheets as of March 31, 2018 and December 31, 2017 are classified in their entirety based on the lowest level of input that is significant to the asset or liability’s fair value measurement. Financial instruments measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 are as follows (in millions):



	As of March 31, 2018						As of December 31, 2017
	Level 1		Level 2 and 3		Total		Level 1		Level 2 and 3		Total
Assets at fair value:
U.S. Treasury and other foreign government securities	$	885	$	—	$	885	$	734	$	—	$	734
Mutual Funds	15		—		15		16		—		16
Total assets at fair value	$	900	$	—	$	900	$	750	$	—	$	750

As of March 31, 2018, we held $885 million in U.S. Treasury and other foreign government securities which are considered cash equivalents. Of these securities, $629 million were recorded as short-term restricted cash and cash equivalents and $256 million were recorded as long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet as of March 31, 2018. We account for the U.S. Treasury securities at fair value.

Mutual funds are equity and fixed income mutual funds held for the purpose of providing future payments for the supplemental executive savings plan and the supplemental executive retirement plan and are classified as equity investments.

We did not use Level 3 inputs to determine the fair value of assets or liabilities measured at fair value on a recurring basis as of March 31, 2018 or December 31, 2017. We measure certain assets, such as intangible assets, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. As of March 31, 2018, none of our intangible assets were required to be recorded at fair value since no impairments were recorded. Our investments in equity securities without a readily determinable fair value, including our investments in Euroclear and Coinbase, are measured using the measurement alternative in accordance with ASU 2016-01 and are discussed in Notes 2 and 3.

As of March 31, 2018, the fair value of our $495 million 2027 Senior Notes was $480 million, the fair value of our $1.24 billion 2025 Senior Notes was $1.28 billion, the fair value of our $792 million 2023 Senior Notes was $823 million, the fair value of our $495 million 2022 Senior Notes was $483 million, the fair value of our $1.24 billion 2020 Senior Notes was $1.24 billion, and the fair value of our $600 million 2018 Senior Notes was $599 million. The fair values of these fixed rate notes were estimated using quoted market prices for these instruments. The fair value of our commercial paper approximates the carrying value since the rates of interest on this short-term debt approximate market rates as of March 31, 2018. Excluding our investments in equity securities without a readily determinable fair value, all other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.


13.	Segment Reporting

We operate two business segments: our Trading and Clearing segment and our Data and Listings segment. This presentation is reflective of how our chief operating decision maker reviews and operates our business. Our Trading and Clearing segment comprises our transaction-based execution and clearing businesses. Our Data and Listings segment comprises our subscription-based data services and securities listings businesses. Our chief operating decision maker does not review total assets or statements of income below operating income by segments; therefore, such information is not presented below. Our two segments do not engage in intersegment transactions.

Certain segment expenses for the quarter ended March 31, 2017 have been reclassified to conform to our current period’s segment financial statement presentation. This reclassification increased the operating expenses for the Data and Listings segment by $16 million, while decreasing the operating expenses for the Trading and Clearing segment by the same amount. Financial data for our business segments is as follows for the three months ended March 31, 2018 and 2017 (in millions):



	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	Trading and Clearing Segment		Data and Listings Segment		Consolidated		Trading and Clearing Segment		Data and Listings Segment		Consolidated
Revenues:
Energy futures and options contracts	$	235	$	—	$	235	$	228	$	—	$	228
Agricultural and metals futures and options contracts	65		—		65		56		—		56
Interest rates and other financial futures and options contracts	91		—		91		83		—		83
Cash equities and equity options	438		—		438		381		—		381
OTC and other transactions	69		—		69		50		—		50
Pricing and analytics	—		254		254		—		238		238
Exchange data	—		143		143		—		138		138
Desktops and connectivity	—		123		123		—		144		144
Listings	—		109		109		—		108		108
Other revenues	53		—		53		45		—		45
Revenues	951		629		1,580		843		628		1,471
Transaction-based expenses	355		—		355		305		—		305
Revenues, less transaction-based expenses	596		629		1,225		538		628		1,166
Operating expenses	207		368		575		200		384		584
Operating income	$	389	$	261	$	650	$	338	$	244	$	582

Revenue from one clearing member of the Trading and Clearing segment comprised $104 million or 18% of our Trading and Clearing revenues for the three months ended March 31, 2018 and revenue from one clearing member of the Trading and Clearing segment comprised $67 million or 12% of our Trading and Clearing revenues for the three months ended March 31, 2017. Clearing members are primarily intermediaries and represent a broad range of principal trading firms. If a clearing member ceased its operations, we believe that the trading firms would continue to conduct transactions and would clear those transactions through another clearing member firm. No additional customers or clearing members accounted for more than 10% of our segment revenues or consolidated revenues for the three months ended March 31, 2018 and 2017.


14.	Earnings Per Common Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the three months ended March 31, 2018 and 2017 (in millions, except per share amounts):



	Three Months Ended March 31,
	2018		2017
Basic:
Net income attributable to Intercontinental Exchange, Inc.	$	464	$	503
Weighted average common shares outstanding	582		594
Basic earnings per common share	$	0.80	$	0.85
Diluted:
Weighted average common shares outstanding	582		594
Effect of dilutive securities - stock options and restricted shares	4		5
Diluted weighted average common shares outstanding	586		599
Diluted earnings per common share	$	0.79	$	0.84

Basic earnings per common share is calculated using the weighted average common shares outstanding during the period. Common equivalent shares from stock options and restricted stock awards, using the treasury stock method, are included in the diluted per share calculations unless the effect of their inclusion would be antidilutive. During the three months ended March 31, 2018 and 2017, 302,109 and 586,866 outstanding stock options, respectively, were not included in the computation of diluted earnings per common share since the inclusion would have had an antidilutive effect because the outstanding stock option exercise prices were greater than the average market price of the common shares during the relevant periods. Certain figures in the table above may not recalculate due to rounding.


15.	Subsequent Events

We have evaluated subsequent events and determined that no events or transactions, except our agreement to acquire CHX disclosed in Note 3, met the definition of a subsequent event for purposes of recognition or disclosure in the accompanying consolidated financial statements.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q, including the sections entitled “Notes to Consolidated Financial Statements,” “Legal Proceedings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. Any forward looking statements are based on our present beliefs and assumptions as well as the information currently available to us. Forward-looking statements may be introduced by or contain terminology such as “may,” “will,” “should,” “could,” “would,” “targets,” “goal,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the antonyms of these terms or other comparable terminology. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance, cash flows, financial position or achievements to differ materially from those expressed or implied by these forward-looking statements. These risks and other factors include those set forth in Item 1(A) under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, or our 2017 Form 10-K, as filed with the SEC on February 7, 2018.

Forward-looking statements and other risks and factors that may affect our performance include, but are not limited to: conditions in global financial markets and domestic and international economic, political and social conditions; the impact of the introduction of or any changes in laws, regulations, rules or government policy with respect to financial markets, increased regulatory scrutiny or enforcement actions and our ability to comply with these requirements; volatility in commodity prices, equity prices, and price volatility of financial benchmarks and instruments such as interest rates, credit spreads, equity indices and foreign exchange rates; the business environment in which we operate and trends in our industry, including trading volumes, clearing, data services, fees, changing regulations, competition and consolidation; the success of our clearing houses and our ability to minimize the risks associated with operating clearing houses in multiple jurisdictions; the success of our equity and derivative exchanges and the exchanges’ compliance with their respective regulatory and oversight responsibilities; the resilience of our electronic platforms and soundness of our business continuity and disaster recovery plans; continued high renewal rates of subscription-based data revenues; our ability to identify and effectively pursue, implement and integrate acquisitions and strategic alliances; our ability to complete and realize the synergies and benefits of our acquisitions within the expected time frame, and to integrate acquired operations with our business; our ability to effectively maintain our growth; the performance and reliability of our other technologies and those of third party service providers, including our ability to keep pace with technological developments and ensure that the technology we utilize is not vulnerable to security risks or other disruptive events; our ability to identify trends and adjust our business to benefit from such trends; the accuracy of our cost and other financial estimates and our belief that cash flows from operations will be sufficient to service our debt and fund our operational and capital expenditure needs; our ability to maintain existing market participants and data customers, and attract new ones, and to offer additional products and services, leverage our risk management capabilities and enhance our technology in a timely and cost-effective fashion; our ability to attract and retain key talent; our ability to protect our intellectual property rights and to operate our business without violating the intellectual property rights of others; and potential adverse results of threatened or pending litigation and regulatory actions and proceedings.

We caution you not to place undue reliance on any forward-looking statements as they speak only as of the date on which such statements were made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

In this Quarterly Report on Form 10-Q, unless otherwise indicated, the terms “Intercontinental Exchange,” “ICE,” “we,” “us,” “our,” “our company” and “our business” refer to Intercontinental Exchange, Inc., together with its consolidated subsidiaries. Due to rounding, figures may not sum exactly.

Overview

We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing a broad array of derivatives and securities contracts across major asset classes, including energy and agricultural commodities, interest rates, equities, equity derivatives, ETFs, credit derivatives, bonds and currencies. We also offer end-to-end data services and solutions to support the trading, investment, risk management and connectivity needs of customers around the world across all major asset classes.

Our exchanges include derivative exchanges in the U.S., U.K., EU, Canada and Singapore, and cash equities, equity options and bond exchanges in the U.S. We also operate OTC markets for physical energy, fixed income and CDS trade execution. To

serve global derivatives markets, we operate central counterparty clearing houses in the U.S., U.K., EU, Canada and Singapore. We offer a range of data services for global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through our markets, clearing houses, listings and market data services, we provide end-to-end solutions for our customers through liquid markets, benchmark products, access to capital markets, and related services to support their ability to manage risk and raise capital. Our business is currently conducted as two reportable business segments, our Trading and Clearing segment and our Data and Listings segment, and the majority of our identifiable assets are located in the U.S., U.K. and Canada.

Recent Developments

U.S. Tax Cuts and Jobs Act

On December 22, 2017, the TCJA was signed into law. The TCJA reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. In our financial statements for the year ended December 31, 2017, we revalued our U.S. deferred tax assets and liabilities at the new federal corporate income tax rate as of the date of enactment of the TCJA and recognized a $764 million deferred tax benefit based on a reasonable estimate as of December 22, 2017. The TCJA imposed a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits. As we are in an aggregate net foreign deficit position for U.S. tax purposes, we are not liable for the transition tax.

Many of the tax provisions under the TCJA became effective January 1, 2018, including the new federal 21% corporate income tax rate and complex international tax provisions. Our effective tax rate for the period ended March 31, 2018 is lower than that of the same prior year period because of the new reduced U.S. federal corporate income tax rate, partially offset by additional federal and state taxes under these international tax provisions. Given the complexity of these international provisions and certain potential unintended consequences that are under debate at both the federal and state level, further federal and state guidance is anticipated, but the likelihood and timing of such guidance remains uncertain.

Acquisition of BondPoint

On January 2, 2018, we acquired 100% of BondPoint from Virtu Financial, Inc. for $400 million in cash. BondPoint is a leading provider of electronic fixed income trading solutions for the buy-side and sell-side offering access to centralized liquidity and automated trade execution services through its ATS and provides trading services to more than 500 financial services firms.

Investment in Euroclear

We account for our investment in Euroclear as an equity investment and we classify it as an other non-current asset in our consolidated balance sheets as of March 31, 2018 and December 31, 2017. Subsequent to our January 1, 2018 adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, for equity investments without a readily determinable fair value, including Euroclear, an adjustment to estimated fair value is only required if there is an observable price change in an orderly transaction in a similar or identical investment, with any adjustment recognized in net income. There were no such adjustments made during the three months ended March 31, 2018.

Pending Acquisition of Chicago Stock Exchange

On April 5, 2018, we entered into an agreement to acquire CHX, the parent company of the Chicago Stock Exchange, a full-service stock exchange, including trading, data and corporate listings services. The transaction is expected to close in the second quarter of 2018, subject to regulatory approvals. Subject to SEC approval, CHX will continue to operate as a registered national securities exchange.

Regulation

Our markets are primarily subject to the jurisdiction of regulatory agencies in the U.S., U.K., EU, Canada and Singapore. Global policy makers have undertaken reviews of their existing legal framework governing financial markets in connection with regulatory reform, and have either passed new laws and regulations, or are in the process of debating and/or enacting new laws and regulations that apply to our business and to our customers’ businesses. Legislative and regulatory actions may impact the way in which we or our customers conduct business and may create uncertainty, which could affect trading volumes or demand for market data. See Part 1, Item 1 “Business - Regulation” included in our 2017 Form 10-K for a discussion of the primary regulations applicable to our business. As discussed in Part 1, Item 1 of our 2017 Form 10-K, the implementation of Markets in Financial Instruments Directives II, or MiFID II, and its counterpart the European Market Infrastructure Regulation, or EMIR, may result in operational, regulatory and/or business risk.

Most of the specific regulations which support the MiFID II framework have now been approved or deferred by the European Parliament and European Council. The European Securities and Markets Authority, or ESMA, and the national regulatory authorities are continuing to work on detailed aspects of the framework that are relevant to the markets operated by ICE Futures Europe and ICE Endex, including position limits and the determination of pre-trade and post-trade price transparency parameters for financial instruments. Our key areas of focus on these evolving efforts are:

•

The proposed revisions of the regulatory structure could have an impact on our non-EU clearing houses to the extent they are deemed to be doing business in Europe, which might involve changes to clearing house regulations and/or supervision. In 2017, the European Commission published a proposal to revise the current regulatory structure for non-EU clearing houses. The nature and extent of the regulation would depend on the “impact” of a non-EU clearing house’s business in the EU. Details on the classification of non-EU clearing will be established by the European Commission in cooperation with ESMA and the European System of Central Banks. The proposal will undergo legislative review by the European Parliament and the EU Member States, and is subject to change.

•

The non-discriminatory access provisions of MiFID II, as currently drafted, would require our European exchanges and central counterparty clearing houses, or CCPs, to offer access to third parties on commercially reasonable terms. In addition, MiFID II could require our European exchanges to allow participants to trade and/or clear at other venues, which may encourage competing venues to offer our products. In June 2016, the EU approved a twelve-month postponement of MiFID II implementation and compliance to January 1, 2018. On January 3, 2018, ICE Futures Europe and ICE Clear Europe received a deferral from the Financial Conduct Authority, or FCA, and the Bank of England, respectively, which delays the non-discriminatory access provision of MiFID II until July 3, 2020.

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The adoption and implementation of position limit rules in the U.S. and Europe could have an impact on our commodities business if comparable trading venues in foreign jurisdictions are not subject to equivalent rules. Position limits became effective in Europe beginning January 2018 under MiFID II. The FCA has published certain position limits for commodity contracts. In certain cases, the position limits are lower than on U.S. trading venues and in certain cases position limits are higher than U.S. equivalent contracts. The FCA is actively reviewing the recently issued position limits. Conversely, in December 2016, the Commodity Futures Trading Commission, or CFTC, re-proposed the position limit rules as opposed to finalizing the rule. There is potential for further divergence between MiFID II and U.S. position limit rules if the U.S. makes changes to the financial regulations while the EU continues with MiFID implementation.

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The implementation of capital charges in Basel III, particularly the Supplemental Leverage Ratio with respect to certain clearing members of central counterparties, may impose burdensome capital requirements on our clearing members and customers that may disincentivize clearing. The Federal Reserve Board and Office of the Comptroller of the Currency have proposed rule changes to the leverage ratio requirements but these regulations still may have an impact on our clearing members.

In addition, our U.S. securities exchanges are regulated by the SEC, and as discussed in Part II, Item 1, "Legal Proceedings," on March 6, 2018, NYSE and affiliated exchanges reached a settlement with the SEC for the various matters under investigation and agreed to pay a $14 million civil monetary penalty, together with certain non-monetary relief.

Consolidated Financial Highlights

The following summarizes our results and significant changes in our consolidated financial performance for the periods presented (dollars in millions, except per share amounts):



	Three Months Ended March 31,
	2018		2017		Change
Revenues, less transaction-based expenses	$	1,225	$	1,166	5	%
Operating expenses	$	575	$	584	(2)	%
Adjusted operating expenses⁽¹⁾	$	494	$	497	(1)	%
Operating income	$	650	$	582	12	%
Adjusted operating income⁽¹⁾	$	731	$	669	9	%