Investments

12 Months Ended

Dec. 31, 2020

Equity Method Investments and Joint Ventures [Abstract]

Investments

Investments

Equity Investments Subject to ASU 2016-01

Our equity investments, including our investments in Euroclear plc, or Euroclear, and Coinbase Global, Inc., among others, are subject to valuation under ASU 2016-01. See Note 17 for a discussion of our determination of fair value of our financial instruments.

Investment in Euroclear

We own a 9.8% stake in Euroclear as of December 31, 2020, and we participate on the Euroclear Board of Directors. Euroclear is a 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 included in other non-current assets in our accompanying consolidated balance sheets. In November 2020, we became aware of an observable price change in an orderly transaction of a similar Euroclear investment by a third party. The transaction resulted in fair value adjustment of our Euroclear investment, and we recorded a gain of $35 million in other income, which includes the impact of foreign currency translation. As of December 31, 2020, the adjusted fair value of our Euroclear investment is $666 million. Additionally, we recognized dividend income of $19 million and $15 million in 2019 and 2018,

respectively, from Euroclear, which is included in other income. As a result of 2020 European regulation limiting dividend payments, we did not receive a Euroclear dividend in 2020.

Investment in BIDS

We historically held a 9% ownership interest in BIDS Trading LP, or BIDS, a registered broker-dealer and the operator of the BIDS Alternative Trading System. In December 2020, we sold our investment in BIDS to Cboe Global Markets, Inc., or Cboe, and recorded a gain on the sale of $20 million, included in other income.

Equity Method Investments

We recognized $71 million, $62 million and $46 million as other income during 2020, 2019 and 2018, respectively, related to our equity method investments in OCC and MERS, discussed below. We had previously accounted for our investment in MERS as an equity method investment before completing our acquisition of 100% of MERS on October 3, 2018 (Note 3).

Investment in OCC

We own a 40% interest in the Options Clearing Corporation, or OCC, through a direct investment by the New York Stock Exchange, or NYSE, that we treat as an equity method investment. As of December 31, 2020, OCC is our only equity method investment and is included in other non-current assets in the accompanying consolidated balance sheets. OCC serves as a clearing house for securities options, security futures, commodity futures and options on futures traded on various independent exchanges. OCC clears securities options traded on NYSE Arca and NYSE Amex Options, along with other non-affiliated exchanges, and is regulated by the SEC as a registered clearing agency and by the Commodity Futures Trading Commission, or CFTC, as a derivatives clearing organization. Under the equity method of accounting, each reporting period we adjust the carrying value of our OCC investment on our balance sheet by recognizing our pro-rata 40% share of the earnings or losses of OCC, with a corresponding adjustment in our statement of income to other income, after eliminating any intra-entity income or expenses. In addition, if and when OCC issues cash dividends to us, we deduct the amount of these dividends from the carrying amount of our investment.

We recognized $71 million, $62 million and $31 million during 2020, 2019 and 2018, respectively, of equity earnings as our share of the OCC's estimated profits, which is included in other income. Included within the amount recognized during 2019 is a $19 million earnings adjustment to reflect higher reported 2018 OCC net income than originally estimated due to the disapproved OCC capital plan discussed further below.

OCC adopted a new capital plan during the first quarter of 2015, which raised $150 million in equity capital from OCC's shareholders, including $60 million contributed by us. Pursuant to the terms of the capital plan, in exchange for the contributions of equity capital from its shareholders, OCC was required, subject to determination by its board of directors and compliance with legal requirements, to pay an annual dividend to its shareholders on a pro rata basis. The dividend was intended to be equal to the amount (i) of after-tax income of OCC, in excess of the amount required to maintain its target capital requirement and satisfy other capital requirements, and (ii) remaining after refunds to its clearing members equal to 50% of distributable earnings before tax. Related to that capital plan, from 2015-2017 we received a total of $31 million in dividends from OCC.

Subsequent to our $60 million investment, certain industry participants appealed the SEC's approval of the OCC capital plan in the U.S. Court of Appeals, and in August 2017, the Court of Appeals remanded the capital plan to the SEC. On February 13, 2019, the SEC disapproved the OCC capital plan established in 2015. Consistent with the SEC's disapproval of the OCC capital plan, the OCC returned our original $60 million contribution during 2019 as a result of the disapproval.

Following the SEC disapproval, the OCC also announced that it would not be providing a refund to clearing members or declaring a dividend to shareholders for the year ended December 31, 2018, which resulted in higher reported OCC 2018 net income than we had estimated. Therefore, during 2019, we adjusted equity earnings in OCC by recording an additional positive adjustment of $19 million earnings in other income to reflect our share of OCC's 2018 net income.

Investments Related to MERS Prior to Acquisition

As a result of our acquisition of a majority equity position in MERS in June 2016, MERS was required to have cash or investments reserved in order to satisfy terms of the governing agreements of the acquisition. The reserve was satisfied with fixed income securities, including treasuries, corporates and municipals. The balance of the reserve was primarily used to cover settlement amounts from all litigation and claims arising from the operations of MERS prior to the acquisition of the majority equity position. As of December 31, 2019 and 2018, the reserve amounted to $42 million and $81 million, respectively, including interest, and was included in prepaid expenses and other current assets and non-current assets. This was offset by an equal amount due to former MERS equity holders, reflected in other current liabilities and other non-

current liabilities. We sold $42 million and $41 million of these investments in 2020 and 2019, respectively, and distributed the proceeds to the original MERS shareholders (Note 17), and as of December 31, 2020, no reserve balance remains.