Financial Select Sector

S&P 500

The Balanced Allocator

Comparable Companies - CME

The insider trading data shows 10 discretionary purchases and 29 discretionary sales over the past 12 months. The latest short interest is 1.5% of float with a days‑to‑cover ratio of 2.1. The primary institutional holders are Vanguard Group, BlackRock, and State Street.

DIRECTOR

CHAIRMAN AND CEO

SR MD GL HD COMMODITIES MKTS

SR MD GENERAL COUNSEL

SR MD GLOBAL HEAD EQUITY & FX

CHIEF INFORMATION OFFICER

The filing reports ownership of 36,248,559 shares of CME Group Inc., representing approximately 10.1% of the common stock class.

Contract extended through December 31, 2026, as per Board agreement in late 2024.

Chairman and Chief Executive Officer

Promoted to President while retaining CFO responsibilities to oversee global strategy and financial operations.

President and Chief Financial Officer

Continues to lead global sales, product marketing, and data services.

Chief Commercial Officer

Overseeing the multi-year migration of CME's core markets to Google Cloud.

Chief Information Officer

Maintains dual oversight of clearing house risk and enterprise operations.

Senior MD, Global Head of Clearing & Chief Operating Officer

Retired from executive role in 2020; continues as a non-independent director.

Director (Former President)

Terrence A. Duffy

Lynne C. Fitzpatrick

Suzanne Sprague

Bryan T. Durkin

Martin J. Gepsman

Dennis A. Suskind

Terrence Duffy represents the institutional bedrock of CME Group, having transitioned the firm from a member-owned exchange to a global financial powerhouse. His 'provenance' is defined by a deep understanding of market microstructure and a disciplined capital allocation strategy that prioritizes high-yield dividends over speculative M&A. His recent contract extension through 2026 signals board confidence in his ability to navigate the complex migration to cloud-based trading while maintaining 90%+ payout ratios.

Lynne Fitzpatrick's ascent to President while retaining the CFO role marks her as the primary internal successor to the CEO. Her provenance combines Goldman Sachs-trained financial rigor with two decades of internal operational knowledge. She is the architect of the current 'Balanced Allocator' strategy, successfully balancing the massive capital requirements of the Google Cloud migration with the industry's most aggressive dividend return policy.

Debt Management and Capital Structure Optimization

Elizabeth A. Cook

Kathryn Benesh

Patrick W. Maloney

Timothy S. Bitsberger

Deborah J. Lucas

Larry G. Gerdes

Daniel G. Kaye

Terry L. Savage

Patrick J. Mulchrone

Charles P. Carey

Harold Ford Jr.

William R. Shepard

Liam G. Smith

Operates regulated marketplaces for derivatives and equities trading and clearing, with segments in Exchanges, Fixed Income and Data Services, and Mortgage Technology.

Operates exchanges for derivatives and equities.

Provides fixed income pricing, analytics, and data services.

Offers technology solutions for mortgage origination, closing, and servicing.

Operates global exchanges and data services for energy, commodities, and financial markets.

Operates stock exchanges, data services, and financial technology solutions.

Provides listing, data, and index services.

Offers financial crime management, regulatory technology, and capital markets technology.

Operates equities and options trading platforms.

Corporate headquarters at 20 South Wacker Drive, Chicago (500,000 sq ft lease, expires 2032); European headquarters at 1 Duval Square, London (120,000 sq ft lease, expires 2038); largest data center leased from CyrusOne in Aurora, Illinois (lease expires 2031); additional offices and data centers in multiple global locations, all primarily leased.

CME Group, a Mature_Compounder with 64.9% operating margins, 106.4% cash conversion, and revenue growth to $6.52B in FY2025 from volume and fee hikes, is led by a management team that excels in returning cash via 20.2% net yield (mostly dividends) and disciplined low-reinvestment (Incremental ROIC 1.1%), but faces challenges from 567.7% Debt/Equity, low ROIC (2.7%), and net insider selling; strong CEO track record and board committees offset incentive opacity, positioning the team as reliable stewards for compounding though leverage constrains aggressive growth.

No material environmental regulation or compliance disclosures were identified in the annual filing.

As of December 31, 2025, the company had approximately 3,875 global employees, with 58% in the U.S. and 42% internationally. Internal promotion rate was 14.5% and 35.9% of open roles were filled internally.

The company emphasizes cybersecurity and data protection through its Global Informational Security Program, including incident response plans and risk management. It also addresses responsible use of data and AI systems.

The company engages in community investment through corporate giving, matching gifts, and partnerships with organizations like St. Jude Children's Research Hospital and the Chicago Star Scholars Program. Supply chain responsibility disclosures were not explicitly made.

The financial backdrop shows revenue rising 6.4% YoY to $6.52 bn, adjusted operating margin improving to 64.9%, cash conversion above 106%, but a balance sheet weighted heavily toward debt (Debt/Equity ≈ 568%) and a negative tangible book.

Management frames capex as strategic technology investment—primarily the Google Cloud migration, the upcoming BrokerTec Chicago launch, and modest upgrades to trading infrastructure. The Innovation Dossier confirms that capex funds capacity expansion, cloud integration and office/telecom improvements, with no large physical asset build‑outs.

The annual report and material events disclose no impairment charges; the negative tangible book stems from the massive debt load rather than asset write‑downs. The auditor did not list asset impairment as a Critical Audit Matter, but did flag uncertain tax positions.

Capital deployed into cloud migration, BrokerTec Chicago and crypto product development has not yet translated into high incremental returns; the Innovation Dossier lists these projects as strategic but the low Incremental ROIC suggests they are still in the build‑out phase and have not yet become value‑creating.

364-day revolving secured credit facility

P/FCF

Derek L. Sammann

Global Head of Commodities Markets

Julie M. Winkler

Sunil K. Cutinho

The Vanguard Group

BlackRock, Inc.

Daniel R. Glickman

Durkin Bryan T

GEPSMAN MARTIN J

Suskind Dennis

SHEPARD WILLIAM R

Dennis Suskind

Derek Sammann

Senior MD & Global Head of Commodities Markets

Not Disclosed

Jack Tobin

MD & Chief Accounting Officer

Jonathan L. Marcus

Senior MD & General Counsel

Michael G. Dennis

Senior Managing Director & Global Head of Fixed Income

Sunil Cutinho

Chairman & Chief Executive Officer

Julie Winkler

Senior MD & Chief Commercial Officer

Senior MD, Group Chief Operating Officer & Global Head of Clearing

John C. Peschier

Managing Director of Investor Relations

Lynne Fitzpatrick

President & Chief Financial Officer

CME Group enables clients worldwide to trade futures, options, cash and over-the-counter (OTC) products, provides primary price-discovery and referential pricing information, and operates one of the world's leading central counterparty clearing houses. The company's core operations include exchange-traded derivatives (futures and options) on interest rates, equity indexes, foreign exchange, energy, metals and agricultural commodities, as well as cash-market and fixed-income trading through its BrokerTec and EBS platforms.

Provides exchange-traded futures and options, cash and OTC markets, clearing services, market-data and related information services globally.

Held base revenue growth, base terminal multiple at 32x EV/EBITDA, and WACC at 10.0% constant; solved backward from current price of 317.1.

Balance Sheet - Supplemental

Balance Sheet

Cash Flow Statement - Supplemental

Cash Flow Statement

Income Statement - Supplemental

Income Statement

Ratios

Valuation

Historical Ratios & Multiples - CME

CME is outperforming the broader financial sector, delivering 22.4% sector alpha over the past year. The industry is in a Golden Age capital cycle where revenue growth of 6.4% is being achieved with CapEx intensity of only 1.3%, far below the peer median of 4.7%.

CME is highly relevant at this moment due to record-breaking average daily volumes of 37.6 million contracts in February 2026 and the impending launch of its 24/7 crypto trading suite, which marks a major technological pivot.

Launch of 24/7 Crypto Trading Suite in Q2 2026. This initiative addresses the growing demand for digital asset risk management and leverages the Google Cloud partnership to provide tokenized cash initiatives, potentially driving significant new volume.

Implementation of April 2026 Fee Adjustments. These adjustments are expected to increase revenue by 1%-1.5% on similar activity levels, validating CME's pricing power and offsetting potential volume pressure from competitors.

Moat erosion from FMX Futures Exchange competition. FMX, backed by major investment banks, could break CME's monopoly on interest rate futures by offering lower fees and cross-margining efficiencies through LCH.

High financial leverage and balance sheet vulnerability. The Debt/Equity ratio of 567.7% and negative tangible book value create risk if market volatility shocks reduce collateral interest income or impair cash flow.

Management are proven stewards of a Mature Compounder, excelling in returning cash to shareholders while maintaining high interest coverage. While the combined Chairman/CEO role and high leverage are notable, the consistent execution and 31.4x interest coverage mitigate structural concerns. The governance outcome tree is currently stable, with the status quo plan executing effectively and no active activist pressure.

Liquidation value analysis is not relevant for the company's archetype ('Mature_Compounder') and was not performed.

CME Group reports fourth-quarter and full-year 2022 financial results

CME Group Inc. files supplement to proxy statement regarding board member Ana Dutra's resignation from Eletrobras Participacoes board

CME GROUP TO LAUNCH CANADIAN WHEAT (PLATTS) FUTURES ON JUNE 13

CME GROUP'S VOLUNTARY CARBON EMISSIONS OFFSET CONTRACTS SURPASS 100 MILLION OFFSETS TRADED

CME Group completes $750 million public offering of 2.650% Notes due 2032

CME Group price target raised to $310 from $280 at UBS

CME Group price target raised to $312 from $304 at Barclays

CME Group price target lowered to $319 from $320 at Morgan Stanley

CME Group upgraded to Buy from Hold at Deutsche Bank

CME Group price target lowered to $307 from $309 at Raymond James

CME Group price target raised to $320 from $314 at Morgan Stanley

CME Group price target raised to $304 from $280 at Barclays

CME Group price target lowered to $280 from $298 at Barclays

CME Group price target raised to $312 from $303 at Morgan Stanley

CME Group price target lowered to $285 from $305 at UBS

Situation: Current price is $317.1 versus fair value $319.5 (0.8% expected return), and valuation confidence is stable. Debate: Bull case depends on Launch of 24/7 Crypto Trading Suite in Q2 2026. Bear case centers on Moat erosion from FMX Futures Exchange competition. Conclusion: Recommendation is Unclear; maintain no position until reliability and catalyst evidence improve.

Executive Summary

CME Group leverages a dominant two-sided network effect that provides clients with $80B in daily margin savings, creating a formidable barrier to entry. This structural advantage allows for consistent compounding of intrinsic value through disciplined fee-rate adjustments and technological innovation like the Google Cloud migration. Downside is protected by a fortress-like cash flow profile that supports a 93% dividend payout ratio despite high balance sheet leverage.<ul><li>Driver: Widening liquidity moat and pricing power in a rational derivatives oligopoly.</li><li>Catalyst: Launch of 24/7 crypto trading in Q2 2026 and revenue uplift from April 2026 fee adjustments.</li><li>Protection: Exceptional cash flow generation with 106% conversion and 31.4x interest coverage.</li></ul>Our variant perception is based on time arbitrage. The market is pricing the stock for a fade to average over the next 3-5 years due to fears of FMX competition, whereas our analysis of the liquidity lock-in and margin efficiencies suggests the company can sustain above-average returns on capital for significantly longer, justifying a premium valuation today.This is a long-term, buy-and-hold investment predicated on the continued execution of a proven business model and the compounding of per-share intrinsic value.

Core Investment Rationale

CME Group operates a vertically integrated derivatives marketplace, providing a full suite of trading and clearing services across six major asset classes: interest rates, equities, foreign exchange, agricultural commodities, energy, and metals. Revenue is primarily driven by transaction and clearing fees, which accounted for the bulk of the $6.52B in FY2025 revenue. The strategy focuses on maintaining a dominant liquidity pool, which attracts more participants and lowers costs through margin efficiencies. Management is currently executing a 10-year strategic partnership with Google Cloud to migrate its entire infrastructure, aiming to enhance system capacity and introduce real-time, value-based pricing models.CME's core assets are its intangible intellectual property and network effects, specifically its proprietary Globex trading platform and clearing house functionality. Key offerings include futures and options on SOFR, U.S. Treasuries, and E-mini S&P 500 indices. The company also provides critical market data services, which generated over $800M in revenue in 2025, up 13% YoY. Strategic assets include the $80B in daily margin savings provided to clients and the exclusive licenses for major indices like the Nasdaq 100 through 2039.The industry is a rational oligopoly dominated by CME, Intercontinental Exchange (ICE), Nasdaq (NDAQ), and Cboe Global Markets (CBOE). CME commands a market cap of $114B, significantly larger than its nearest rivals. While competition is intense in pricing and new product development, CME's 100% gross margins and 64.9% operating margins indicate a lack of destructive price wars. The primary emerging threat is BGC Group's FMX Futures Exchange, which seeks to challenge CME's monopoly in Treasury futures by offering bank-backed liquidity and cross-margining through LCH.CME has demonstrated a history of stable, high-return performance, with operating margins expanding from 56.4% in 2021 to 64.9% in 2025. Strategy has remained consistent under CEO Terrence Duffy, focusing on the transition from a member-owned exchange to a global electronic powerhouse. Key moves include the transformative mergers with CBOT, NYMEX, and NEX, and the 2021 Google Cloud partnership which included a $1B equity investment from Google. Currently, the company is navigating a period of record volume, with average daily volume reaching 30.2M contracts in 2025, driven by crypto expansion and international participation. There are no active proxy battles or leadership crises; however, a cooling system failure at the Aurora data center in November 2025 highlighted critical infrastructure risks that management is addressing through cloud migration.

Business & Situation

<ul><li>Bull Case: Dominant liquidity moat provides $80B in daily margin savings, creating high switching costs; 24/7 crypto trading and event contracts offer significant new growth runways; 106% cash conversion supports aggressive dividend payouts.</li><li>Bear Case: FMX Futures Exchange poses a credible threat to the Treasury-futures monopoly; high Debt/Equity of 568% creates balance sheet vulnerability; negative tangible book value of -$1.57B limits the accounting equity floor.</li></ul>The consensus view is that CME is a high-quality, cash-generative utility that is fairly valued at current levels. Investors appreciate the 90%+ payout ratio but are cautious about the potential for FMX to erode market share in the core interest rate segment, which has historically been CME's most profitable moat. Macro headwinds including potential regulatory shifts in prediction markets and infrastructure risks at the Aurora data center are balanced against tailwinds from the SEC Treasury-clearing mandate.CME is outperforming the broader financial sector, delivering 22.4% sector alpha over the past year. The industry is in a Golden Age capital cycle where revenue growth of 6.4% is being achieved with CapEx intensity of only 1.3%, far below the peer median of 4.7%.The market is overly focused on the short-term threat from FMX competition, but our analysis suggests the durability of CME's liquidity lock-in and its 100% gross margins are underappreciated. The $80B in daily margin savings creates a network effect that is nearly impossible for a new entrant to replicate without massive, sustained subsidies. Furthermore, the move to real-time, value-based pricing will likely offset any modest volume loss to competitors. While the governance is stable, the board's commitment to high dividends prevents value drift and ensures that the stock remains a premier compounding vehicle.While the business quality is elite and the moat is widening, the current valuation of $317.10 aligns closely with historical P/FCF averages of 27.0x and leaves only a 0.76% expected return relative to our fair value estimate of $319.50. We conclude that CME is a best-in-class asset trading at a full price, warranting a neutral stance until a more attractive entry point emerges.Our analytical edge comes from a deeper appreciation of the company's intangible assets and switching costs, specifically the $80B in daily margin savings provided to clients, which leads us to believe the market is underestimating the durability of its high returns on capital in the face of perceived threats from FMX.

Core Thesis

Terrence Duffy represents the institutional bedrock of CME Group, having transitioned the firm to a global powerhouse during his 14-year tenure as CEO. He delivered record FY2025 revenue of $6.52B and has consistently outperformed financial exchange peers in total shareholder return. His recent contract extension through 2026 signals strong board confidence.Strong. Management has deployed $15.6B in dividends (93% of cash uses) over the past five years, yielding a 20.2% net return to shareholders. M&A effectiveness is rated at 4.2x, and reinvestment remains disciplined with an incremental ROIC of 1.1%.High. Management has a consistent track record of hitting EPS targets (19/19 quarters) and providing transparent guidance on expense management, frequently lowering expense targets through operational efficiencies.<ul><li>Board Independence: Not Disclosed (Board size 5)</li><li>Chairman/CEO Roles: Combined (Terrence A. Duffy)</li><li>Chairman Tenure: 14 Years (as CEO)</li><li>Insider Ownership: 0.28% (1,022,264 Class A shares)</li><li>Shareholder Rights: Proxy Access, Clawback Policy, Stock Ownership Guidelines ($10M for CEO)</li></ul>Management are proven stewards of a Mature Compounder, excelling in returning cash to shareholders while maintaining high interest coverage. While the combined Chairman/CEO role and high leverage are notable, the consistent execution and 31.4x interest coverage mitigate structural concerns. The governance outcome tree is currently stable, with the status quo plan executing effectively and no active activist pressure.

Leadership & Governance

The valuation floor is anchored to the Bear Case DCF value of $274.04, which models a permanent erosion of the company's moat and margin compression.Base case reflects balanced execution risk in a widening moat environment with stable volumes and disciplined allocation, yielding a value of $389.22.Moat expansion via accelerated crypto/24/7 trading and international gains, driving +2pp revenue growth and margins to 67% by Year 5. Blue-Sky Potential: $458.21.The bear case floor is anchored to the Bear Case DCF value of $274.04, which models a scenario where FMX competition successfully erodes the moat, slowing revenue growth to 3% and compressing operating margins to 60% by Year 5.

Valuation Context

<ul><li>Launch of 24/7 Crypto Trading Suite in Q2 2026. This initiative addresses the growing demand for digital asset risk management and leverages the Google Cloud partnership to provide tokenized cash initiatives, potentially driving significant new volume.</li><li>Implementation of April 2026 Fee Adjustments. These adjustments are expected to increase revenue by 1%-1.5% on similar activity levels, validating CME's pricing power and offsetting potential volume pressure from competitors.</li><li>CME is highly relevant at this moment due to record-breaking average daily volumes of 37.6 million contracts in February 2026 and the impending launch of its 24/7 crypto trading suite, which marks a major technological pivot.</li></ul>CME is highly relevant at this moment due to record-breaking average daily volumes of 37.6 million contracts in February 2026 and the impending launch of its 24/7 crypto trading suite, which marks a major technological pivot.

Catalyst Path & Context

<ul><li>Moat erosion from FMX Futures Exchange competition. FMX, backed by major investment banks, could break CME's monopoly on interest rate futures by offering lower fees and cross-margining efficiencies through LCH. FMX launched in September 2024 and is backed by JPMorgan, Goldman Sachs, and Morgan Stanley.</li><li>High financial leverage and balance sheet vulnerability. The Debt/Equity ratio of 567.7% and negative tangible book value create risk if market volatility shocks reduce collateral interest income or impair cash flow. Total debt stands at $163.1B with Debt/Assets at 82.2%.</li><li>Management are proven stewards of a Mature Compounder, excelling in returning cash to shareholders while maintaining high interest coverage. While the combined Chairman/CEO role and high leverage are notable, the consistent execution and 31.4x interest coverage mitigate structural concerns. The governance outcome tree is currently stable, with the status quo plan executing effectively and no active activist pressure. Risk monitor: Current price $317.1 vs fair value $319.5, expected return 0.8%.</li></ul>

Primary Risks

<ul><li>Entry Target: Calculated threshold price required to restore a 30% expected return based on internal valuation.</li><li>Stop Loss: Stop-loss is set as a thesis-risk tripwire for position risk management.</li><li>Position Size: Final size 'Half' reflects High conviction adjusted for the Mature_Compounder structural cap and valuation reliability.</li><li>Time Horizon: Time horizon aligns with catalyst realization timeline and archetype cycle length.</li></ul><ul><li>Management confirmed in the FY2025 Q4 transcript that 24/7 crypto trading is on track for 2026, supported by tokenized cash initiatives with Google.</li><li>Announced aggregate fee adjustments effective April 1, 2026, during the February 2026 earnings call.</li><li>FMX launched in September 2024 and is backed by JPMorgan, Goldman Sachs, and Morgan Stanley.</li></ul>The materialization of a permanent loss of market share in Treasury futures to FMX, leading to a structural decline in liquidity and pricing power. Also require valuation reliability to improve before re-entering.

Actionable Parameters & Monitoring

CME offers moderate upside (fair value $319.5 vs current $317.1, expected return 0.8%) and a floor near $274.04. Recommendation: Hold for better entry or stronger conviction.

Final Conclusion

Widening liquidity moat and pricing power in a rational derivatives oligopoly.

Driver

Launch of 24/7 crypto trading in Q2 2026 and revenue uplift from April 2026 fee adjustments.

Catalyst

Exceptional cash flow generation with 106% conversion and 31.4x interest coverage.

Protection

Dominant liquidity moat provides $80B in daily margin savings, creating high switching costs; 24/7 crypto trading and event contracts offer significant new growth runways; 106% cash conversion supports aggressive dividend payouts.

Bull Case

FMX Futures Exchange poses a credible threat to the Treasury-futures monopoly; high Debt/Equity of 568% creates balance sheet vulnerability; negative tangible book value of -$1.57B limits the accounting equity floor.

Bear Case

Situation: Current price is $317.1 versus fair value $319.5 (0.8% expected return), and valuation confidence is stable. Debate: Bull case depends on Launch of 24/7 Crypto Trading Suite in Q2 2026. Bear case centers on Moat erosion from FMX Futures Exchange competition. Conclusion: Recommendation is Unclear; maintain no position until reliability and catalyst evidence improve.

The strategy evolved from a focus on broad-based volume growth and international expansion in FY2024 to a pronounced pivot toward product innovation (event contracts, 24/7 crypto) and pricing model transformation in FY2025, with an underlying emphasis on capital efficiency and shareholder returns.

Method	Implied Value	Weight	Weighted Value
DCF	$389.19	50%	$194.60
Comps	$222.87	30%	$66.86
Historicals	$294.38	20%	$58.88
Total Weighted			$320.33

CME

Company Overview

Price History