FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2023

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

15.  FAIR VALUE MEASUREMENT

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

The Company applied ASC 820 – Fair Value Measurement, which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing the framework for measuring fair value. ASC 820 applies to financial and nonfinancial instruments that are measured and reported on a fair value basis. The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.

The fair value hierarchy requires the use of observable market data when available and consists of the following levels:

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

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

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

The Company has included a tabular disclosure for financial assets and liabilities that are measured at fair value on a recurring basis in the consolidated balance sheets as of December 31, 2023 and 2022, respectively.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 (in millions):

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

	December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets:
U.S. Treasury securities (1)	$	64.2	$	64.2	$	—	$	—
Marketable securities (1):
Mutual funds		15.3		15.3		—		—
Money market funds		12.2		12.2		—		—
Digital assets - safeguarded assets		22.9		22.9		—		—
Total assets	$	114.6	$	114.6	$	—	$	—
Liabilities:
Contingent consideration liabilities	$	39.1	$	—	$	—	$	39.1
Digital assets - safeguarded liabilities		22.9		22.9		—		—
Cboe Digital restricted common units liability (2)		15.5		—		—		15.5
Cboe Digital warrant liability (2)		5.9		—		—		5.9
Total liabilities	$	83.4	$	22.9	$	—	$	60.5

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

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

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

Financial Investments

Financial investments consist of highly liquid U.S. Treasury securities, and marketable securities held in a trust for the Company’s non-qualified retirement and benefit plans, also referred to as deferred compensation plan assets. The deferred compensation plan assets have an equal and offsetting deferred compensation plan liability based on the value of the deferred compensation plan assets. These securities are valued by obtaining feeds from a number of live data sources, including active market makers and inter dealer brokers and therefore categorized as Level 1. No material adjustments were made to the carrying value of financial investments for the period ended December 31, 2023. See Note 17 (“Employee Benefit Plans”) for more information.

Digital Assets – Safeguarded Assets and Liabilities

Digital assets – safeguarded assets and liabilities represents the Company’s holdings of Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and USD Coin on behalf of the Company’s customers. The Company has determined the principal marketplace for digital assets to be the spot market of Cboe Digital Exchange, LLC (“Cboe Digital Exchange”). The

Company valued digital assets – safeguarded assets, and digital assets – safeguarded liabilities by using the closing prices at 4:00pm Central Time on Cboe Digital Exchange’s spot market (“Cboe Digital spot market”) as of December 31, 2023 for the underlying digital assets held on behalf of the Company’s customers. During the year ended December 31, 2023, these assets and liabilities were transferred from Level 1 to Level 2 in the fair value hierarchy as they are not traded in active markets and are valued using prices that are quoted from an active exchange that has been identified as the principal market for the underlying digital assets held on behalf of the Company’s customers. See Note 14 (“Clearing Operations”) for additional details regarding digital assets held.

Contingent Consideration Liabilities

In connection with the acquisitions of Hanweck Associates, LLC (“Hanweck”), Cboe Asia Pacific, and Cboe Canada, the Company entered into contingent consideration arrangements with the sellers. The total fair value of the liabilities at December 31, 2023 was $11.8 million That value is based on the Company’s estimate of the likelihood that certain performance targets in the respective acquisition agreements are expected to be accomplished. In connection with the contingent consideration arrangements, the Company paid a total of $13.1 million in contingent consideration to the sellers of Hanweck, Cboe Asia Pacific and Cboe Canada during the year ended December 31, 2023. Additionally, in December 2023, as a result of updated projections which exhibited a decrease in the likelihood of Cboe Japan and Cboe Canada achieving their contingency payment milestones as part of their purchase agreements, unmet milestones were written off and resulted in a reduction of the contingent consideration liability of $14.4 million for the Company, which is reflected within other expenses in the consolidated statements of income. In December 2022, MATCHNow contingent consideration expired and the remaining balance was not achieved, and thus written off and resulted in an operating gain of $5.2 million for the Company, which is reflected within other expenses in the consolidated statements of income. Because the fair value measurements relating to the contingent consideration liabilities are subject to management judgment, measurement uncertainty is inherent in the valuation of the contingent consideration liabilities as of the reporting date. Based on the recorded balance of the liabilities, any measurement uncertainty related to this Level 3 measurement is immaterial as of December 31, 2023.

Cboe Digital Syndication Liabilities

On November 18, 2022, Cboe Digital Holdings Inc. (“Cboe Digital Holdings”) entered into minority interest purchase agreements with certain digital asset industry participants, pursuant to which Cboe Digital Holdings agreed to issue Restricted Common Units in Cboe Digital. Cboe Digital Holdings also entered into a Warrant Agreement to issue Common Units of Cboe Digital in the future. Certain Cboe Digital investor members paid for the Restricted Common Units through the issuance of promissory notes, which are nonrecourse in nature and are accounted for as in-substance stock options. The cost associated with the Restricted Common Units is recognized as contra-revenue ratably over a five-year period. The Company uses a Black Scholes option pricing model to estimate the fair value of the in-substance stock option created by the Restricted Common Units and promissory notes as well as the fair value of the Warrant Units. Contra-revenue will be recognized while the performance conditions of the Warrant Units remain probable in conformance with the requirements in ASC 606 – Revenue from Contracts with Customers. Further adjustments will be recognized in each reporting period until performance is complete relating to changes in the fair value of the option and Warrant liabilities in accordance with ASC 718 – Compensation – Stock Compensation. Based on the recorded balance of the liabilities, any measurement uncertainty related to this Level 3 measurement is immaterial as of December 31, 2023. See Note 19 (“Stock-Based Compensation”) for more information.

Certain Cboe Digital investor members can earn additional Restricted Common Units if they meet certain performance-based metrics outlined in an equity incentive program. The Incentive Program Units are subject to the same terms and conditions as the other Restricted Common Units and are similarly liability-classified awards. Cboe Digital authorized a maximum of 20 Common Units to be distributed over the two-year life of the incentive program. The cost associated with the Incentive Program Units will be recognized as contra-revenue ratably over the remaining service period associated with the Incentive Program Units. Further adjustments will be recognized in each reporting period until performance is complete relating to changes in the fair value of the incentive program liabilities in accordance with ASC 718 – Compensation – Stock Compensation. Based on the recorded balance of the liabilities, any measurement uncertainty related to this Level 3 measurement is immaterial as of December 31, 2023. See Note 19 (“Stock-Based Compensation”) for more information.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets, such as goodwill and intangible assets, are measured at fair value on a non-recurring basis. For goodwill, the process involves using a market approach and income approach (using discounted estimated cash flows) to

determine the fair value of each reporting unit on a stand-alone basis. That fair value is compared to the carrying value of the reporting unit, including its recorded goodwill. In connection with the annual impairment evaluation of goodwill and indefinite lived intangibles, impairment is considered to have occurred if the fair value of the reporting unit is lower than the carrying value of the reporting unit. See “Digital Assets Held” below and Note 2 (“Summary of Significant Accounting Policies”) for discussion of valuation considerations specific to digital assets held. For the other intangible assets, the process also involves using a discounted cash flow method to determine the fair value of each intangible asset. Impairment is considered to have occurred if the fair value of the intangible asset is lower than its carrying value. These measurements are considered Level 3 and these assets are recognized at fair value if they are deemed to be impaired. In addition, property held for sale as of December 31, 2023 was also measured at fair value at September 30, 2023. See Note 7 (“Property and Equipment, Net”) for more information on property held for sale.

The Company performed impairment testing during the quarter ended June 30, 2022, as there were market events that indicated it was more likely than not that Cboe Digital’s assets were impaired, resulting in the recognition of an impairment charge to goodwill related to Cboe Digital. Subsequently, the Company concluded that the indicators of impairment observed during the quarter ended June 30, 2022, continued to be relevant and recorded additional goodwill impairment in the consolidated statements of income for the three months ended September 30, 2022. The Company determined there were no further impairment indicators for the period ended December 31, 2022. See Note 10 (“Goodwill, Intangible Assets, Net, and Digital Assets Held”) for more information on the impairment.

Equity investments without readily determinable fair values that are valued using the measurement alternative are measured at fair value on a non-recurring basis. No observable transactions or impairments impacted the measurements of the investments accounted for as other equity investments. See Note 6 (“Investments”) for more information.

Fair Value of Assets and Liabilities

The following tables present the Company’s fair value hierarchy for certain assets and liabilities held by the Company as of December 31, 2023 and 2022 (in millions):

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

	December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets:
U.S. Treasury securities (1)	$	64.2	$	64.2	$	—	$	—
Deferred compensation plan assets (1)		27.5		27.5		—		—
Digital assets - safeguarded assets		22.9		22.9		—		—
Digital assets held (2)		0.9		0.9		—		—
Total assets	$	115.5	$	115.5	$	—	$	—
Liabilities:
Contingent consideration liabilities	$	39.1	$	—	$	—	$	39.1
Deferred compensation plan liabilities (3)		27.5		27.5		—		—
Digital assets - safeguarded liabilities		22.9		22.9		—		—
Cboe Digital restricted common units liability (3)		15.5		—		—		15.5
Cboe Digital warrant liability (3)		5.9		—		—		5.9
Debt		1,573.9		—		1,573.9		—
Total liabilities	$	1,684.8	$	50.4	$	1,573.9	$	60.5

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

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

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

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

Debt

The debt balance consists of fixed rate Senior Notes and a floating rate Term Loan Agreement. The fair values of the Senior Notes are classified as Level 2 under the fair value hierarchy and are estimated using prevailing market quotes. The fair value of the Term Loan Agreement was determined by utilizing a discounted cash flow analysis and is considered a Level 2 measurement.

At December 31, 2023 and 2022, the fair values of the Company’s debt obligations were as follows (in millions):

	Fair Value
	December 31, 2023		December 31, 2022
Term Loan Agreement	$	—	$	306.3
3.650% Senior Notes		628.5		623.6
1.625% Senior Notes		412.7		390.7
3.000% Senior Notes		264.5		253.3

Digital Assets Held

Digital assets held, which are included within intangible assets, net in the consolidated balance sheets, are valued following a review of exchange prices for each specific digital asset throughout the holding period ended December 31, 2023. The Company will impair to the lowest observable value during the period for each digital asset type in accordance with Cboe Digital’s policy, which states that the Company values digital assets held by using the closing prices at 4:00pm Central Time on Cboe Digital Exchange’s spot market, which the Company determined is the principal market for digital assets. As part of Cboe Digital’s pricing policy, the closing price on Cboe Digital’s spot market is compared to three other exchanges (Coinbase, Bitstamp, and Kraken) and the CoinDesk Price Index to assess for reasonableness. These inputs are categorized in the fair value hierarchy as Level 1 as the marketplace is considered active.

Information on Level 3 Financial Liabilities

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities during the year ended December 31, 2023 and 2022 (in millions):

	Level 3 Financial Liabilities for the Year Ended December 31, 2023
	Balance at		Realized (Gains)								Foreign
	Beginning of		Losses during								Currency		Balance at
	Period		Period		Adjustments		Additions		Settlements		Translation		End of Period
Liabilities:
Contingent consideration liabilities	$	39.1	$	(14.4)	$	—	$	—	$	(13.1)	$	0.2	$	11.8
Cboe Digital restricted common units liability		15.5				0.1		3.1		—		—		18.7
Cboe Digital warrant liability		5.9		—		—		—		—		—		5.9
Total liabilities	$	60.5	$	(14.4)	$	0.1	$	3.1	$	(13.1)	$	0.2	$	36.4

	Level 3 Financial Liabilities for the Year Ended December 31, 2022
	Balance at		Realized (Gains)								Foreign
	Beginning of		Losses during								Currency		Balances at
	Period		Period		Adjustments		Additions		Settlements		Translation		End of Period
Liabilities:
Contingent consideration liabilities	$	70.5	$	(5.2)	$	(44.3)	$	57.7	$	(38.7)	$	(0.9)	$	39.1
Cboe Digital restricted common units liability		—		—		—		15.5		—		—		15.5
Cboe Digital warrant liability		—		—		—		5.9		—		—		5.9
Total liabilities	$	70.5	$	(5.2)	$	(44.3)	$	79.1	$	(38.7)	$	(0.9)	$	60.5