CME Group Annual Report 2005

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FY2005 Annual Report · CME Group

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Headquarters

Chicago Mercantile Exchange

20 South Wacker Drive

Chicago, Illinois 60606-7499

312.930.1000 tel

312.466.4410 fax

www.cme.com

info@cme.com

Washington, D.C.

Chicago Mercantile Exchange

701 Pennsylvania Avenue, N.W.

Plaza Suite #01

Washington, D.C. 20004

202.638.3838 tel

202.638.5799 fax

London

Chicago Mercantile Exchange

Pinnacle House

23-26 St. Dunstan’s Hill

London EC3R 8HN

United Kingdom

44.20.7623.2550 tel

44.20.7623.2565 fax

cmeeurope@cme.com

Tokyo

Chicago Mercantile Exchange

Level 16 Shiroyama

JT Trust Tower

4-3-1 Toranomon Minato-ku

Tokyo 105-6016 Japan

813.5403.4828 tel

813.5403.4646 fax

cmeasia@cme.com

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Reach

C ME 20 0 5 A NN UA L RE P O R T

CME improves the way ﬁ nancial markets work
for customers around the world.

CME is the world’s largest and most diverse ﬁ nancial exchange, offering highly liquid futures and

options markets and the broadest line of products available globally. The CME 2005 Annual Report

shows how the company’s continued innovation and expansion worldwide have spurred record volume

growth and ﬁ nancial performance. It illustrates the global reach of CME by featuring customers who

use its exchange-traded derivatives products to manage risk in an ever-changing world.

TABLE OF CONTENTS

1 Financial Highlights

2 Chairman’s Message

Interview with CFO

87 Management

26 Record-Setting Performance

89 Share Information

5 Letter from CEO and President

27 Financial Information

90 Company Information

8 Global Reach

84 Board of Directors

Ideas that
change
the world.

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F IN A N CIAL HIG HLIG HTS

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03 04 05

N e T r e V e N U e S

(in millions of dollars)

N e T I N C o m e

(in millions of dollars)

ToTA L T r A d I N G Vo LU m e

T o TA L C m e G L o b e x

(in millions of round turn trades)

T r A d I N G V o L U m e

(in millions of round turn trades)

(in millions, except per share data and notional value)

Income Statement Data

Net revenues

Income before income taxes

Net income

earnings per share:

basic

diluted

Balance Sheet Data

Current assets1

Total assets1

Current liabilities1

Total liabilities1

Shareholders’ equity

Other Data

Total trading volume (round turn trades)

Cme Globex volume (round turn trades)

open interest at year end (contracts)

Notional value of trading volume (in trillions)

Key Ratios

return on average equity

return on average assets1

operating margin

y e A r e N d ed o r AT d eC e m b er 31

2005

2004

Change

25%

36%

(10)

(6)

33%

$ 921

508

307

$ 8.94

8.81

$ 1,030

1,216

1,118

1,048

730

$ 638

$ 734

368

220

$ 6.55

6.38

$ 758

917

104

813

787

452

$ 463

32%

1 Amounts exclude cash performance bonds and security deposits, securities lending transactions and interest earning facilities.

All references to volume, notional value and rate per contract information in the text of this document exclude our non-traditional TrAKrS and auction-
traded products, for which Cme receives significantly lower clearing fees than on other Cme products.

All references to options in the text of this document refer to options on futures contracts.

CME delivered record-breaking performance in 2005
as we continued to expand the reach of our technology,
products and markets for customers around the world.

De aR ShaRehOlDeRS :
CME once again outperformed the competition, achieving
record volume and revenues in 2005, and dramatically
expanded the company’s value to its constituents. With
a growth rate that outpaced the entire industry, CME
reached new highs in nearly every category. As chairman,
I have never been prouder of the accomplishments of our
board of directors, management team and employees as
they worked together to deliver outstanding results in a
challenging business environment.
Overall annual CME trading volume grew 33 percent to
exceed one billion contracts for the first time ever. Trading
in each product line increased by 20 percent or more. Open
interest – an indication of future volume potential – hit a
year-end record of 30 million contracts. CME’s net revenues
of $921 million were up 25 percent from 2004, and net
income increased 40 percent to $307 million – demonstrating
the scalability of our business model. Furthermore, the
company’s market capitalization reached nearly $13 billion
at year end, up more than 60 percent from 2004.
Our impressive volume growth during the year was
driven by a 62 percent increase in electronic trading. As more
and more traders worldwide are able to access our markets
via the CME Globex platform, the vast majority of our vol-
ume is executed electronically. In 2005, electronic trading
of 2.9 million contracts per day represented 70 percent of
our total volume, up from 57 percent in 2004.
Given the importance of technology to our business,
we continue to make substantial investments to improve
the speed, functionality and reliability of the CME Globex
platform. In 2005, this included the addition of significant
new trading functionality to facilitate the continued growth
of electronic options.
To extend our global reach, we have established eight
telecommunications hubs in Europe and Asia. They provide
fast, efficient access to the CME Globex platform for our
non-U.S. customers, while significantly reducing their

connectivity costs. Customers in more than 70 countries
access CME through these hubs as well as nearly 1,000 direct
network connections and other connectivity options.
CME also provides clearing services for all trades com-
pleted at the Chicago Board of Trade. As a result, we now
clear approximately 90 percent of all futures and options
contracts traded in the United States, providing $1.6 billion
in capital efficiency savings to market users. In 2005, CME
moved an average of $1.4 billion per day in settlement pay-
ments and managed $45.8 billion in collateral deposits at year
end, including $3.2 billion in deposits for non-CME products.
As more market participants turn to the safety and
soundness of exchange-traded products provided by CME,
a key priority is to further expand access to our markets and
accommodate the growth of our global customers. Today,
futures and options are considered essential tools for finan-
cial managers around the world.

CME remains at the center of the global derivatives

industry. CME was the first U.S. exchange to become
publicly traded, creating a successful business model that
continues to transform the exchange space. As we move
forward together, our CME team will continue to build
on our legacy of innovation and leadership to benefit our
customers and shareholders.

Sincerely,

T e r r e N C e A . d U F F y
Chairman of the Board

February 10, 2006

C m e 20 0 5 A N N UA L r e p o r T

T e r r e N C e A . d U F F y
Chairman of the Board
in Chicago

C r A I G S . d o N o H U e
Chief Executive Officer
in London

Annual volume of more than one billion contracts in 2005,
which represented a total notional value of $638 trillion,
demonstrates how vital CME is in today’s global economy.

TO OuR ShaRehOlDeRS :
In 2005, CME again delivered record-breaking performance.
Total volume increased 33 percent, surpassing one billion
contracts for the first time ever in a single year. Net revenues
grew 25 percent to $921 million, net income rose 40 percent
to $307 million and diluted earnings per share increased
38 percent to $8.81. Furthermore, electronic trading expanded
by 62 percent as a growing number of new customers world-
wide turned to CME futures and options.
This success reflects CME’s deep commitment to helping
customers achieve their business and investment objectives
through liquid and efficient markets; fast and reliable trade
execution on our CME Globex platform; and the safety,
soundness and capital efficiencies provided by CME Clearing.
Equally, our growth reflects our successful execution of a
focused strategy of: 1) growing our core business; 2) broad-
ening our diversified product mix; 3) providing third-party
transaction processing, clearing and related services; and
4) exploring new business opportunities.

GROwInG OuR cORe BuSIne S S
Generating organic Growth We realized increases of
20 percent or more in each of our core product lines:
•

In our interest rate products, average daily volume grew
more than 40 percent from record levels in 2004, to
2.4 million contracts. This includes record volume in
our benchmark CME Eurodollar futures, the world’s
most actively traded financial contract, and record CME
Eurodollar options average daily volume of 746,000
contracts, up 45 percent from 2004.
In our equity products, average daily volume grew 20 percent
to 1.4 million contracts, despite continued declines in
equity market volatility. The CME E-mini S&P 500 is
the world’s most liquid equity index futures contract.
In our foreign exchange products, average daily volume
grew 65 percent to 334,000 contracts, making CME the
largest FX marketplace outside the interbank market.

•

In our commodity products, average daily volume of CME
agricultural commodities grew 23 percent to 50,000 con-
tracts, marking their strongest year ever.
Increasing Global reach We made a number of enhance-

ments to the CME Globex platform in 2005, including
significant reductions in our average response time, while also
achieving 111 percent growth in our average daily electronic
order volume from 7 million to 15 million contracts. We also
added our first Asian telecommunications hub, in Singapore,
to better serve the needs of customers in the Pacific Rim.
expanding Liquidity We expanded the liquidity of our
electronic options markets, a trend we expect will continue
in 2006. We fully integrated our enhanced options system
into the CME Globex platform, making CME Eurodollar
options contracts available virtually 24 hours a day worldwide.
Average daily electronic volume of these products tripled
to 28,000 contracts by year end, and CME E-mini options
grew from 2,000 contracts per day to 18,000 in 2005. We
also introduced mass quoting capability and market maker
protections for CME E-mini and FX options contracts.

BROaDenInG OuR DIveRSIfIeD pRODuc T mIx
Attracting New market Segments We continue to create
innovative new products with global appeal. In 2005, we
launched CME Eurozone HICP futures, European-style
options on CME Euro FX futures and CME Japanese Yen
futures, options on our CME E-mini Russell 2000 futures,
and futures on three of the largest and most actively traded
exchange-traded funds in the United States. We added
electronic versions of yen- and dollar-denominated Nikkei
products. And, we continued to build our burgeoning
weather futures complex so that it now includes 29 cities
in the United States, Europe and Asia and a new contract
on frost in Amsterdam.

C m e 20 0 5 A N N UA L r e p o r T

During 2005, we once again proved that our financial
safeguards system offers customers superior protection
from that offered by cash and over-the-counter markets.

In addition, we announced plans to add two significant

pROvIDInG ThIRD - paRT y TR anSac TIOn

international equity indexes, CME E-mini S&P Asia 50
futures and CME E-mini MSCI EAFE futures, as well as real
estate housing futures, in 2006. Through continued product
diversification, we expect to attract even more participants
to CME markets.

extending Key relationships We strengthened our
leading position in exchange-traded equity index futures and
options by extending our 25-year relationship with Standard
& Poor’s. The extension of our exclusive licensing agreement
enables us to continue offering S&P futures and options
contracts through 2016, with another non-exclusive year in
2017. We also extended our exclusive agreement with The
Nasdaq Stock Market through 2012 to offer NASDAQ-100
futures and jointly develop new derivatives products.

Serving New Customers We broadened the range of
incentive programs to provide cost-effective trading to our
global market users. We extended our very successful Euro-
pean incentive program, leading to a considerable increase
in trading activity from proprietary trading groups there.
We introduced the CME emerging markets partner program
to support the geographic expansion of European- and U.S.-
based trading firms in developing trading centers in Eastern
Europe, Asia and Africa. Additionally, we created a new
membership category for hedge funds and a new incentive
program for commodity trading advisors.
We continue to gain new customers through international
educational programs, providing opportunities for learning
about the benefits of trading at CME and the safety and
soundness of CME Clearing. We held a series of product
seminars in Europe, both alone and in collaboration with
futures commission merchants and independent software
vendors. And with the Shanghai Futures Exchange and
Shanghai Stock Exchange, we held a financial derivatives
forum in China.

pROce S SInG, cle aRInG anD Rel aTeD SeRvIce S
developing Clearing partnerships In 2005, CME partnered
with Goldman Sachs to provide a clearing solution for its
auctions on economic derivatives, based on key U.S. and
European economic indicators. In 2006, we plan to make
these auctions available to CME’s worldwide network via the
CME Globex platform. Our transaction processing agreement
with the Chicago Board of Trade continues to provide positive
returns for CME, the CBOT and the user community.
Further, to reduce barriers to entry for new clearing
member firms and increase capital efficiencies for our clear-
ing members, in early 2006 we lowered the number of CME
Class A shares required for clearing membership.
During 2005, we once again proved the strength, safety
and soundness of CME Clearing. Tested by the bankruptcy
of Refco Inc., parent company of our clearing firm, Refco
LLC, we demonstrated that our financial safeguards system
– which includes segregation of customer funds, twice daily
mark-to-market with no accumulation of losses, and collater-
alization of exposures – offers customers superior protection
from that offered by cash and over-the-counter markets.

e xplORInG ne w BuSIne S S OppORTunITIe S
Looking ahead, we will continue to focus on three major
growth initiatives: 1) expanding trading in our foreign
exchange markets; 2) enhancing liquidity and electronic
volumes in our financial options; and 3) further expanding
our reach and distribution around the globe.
Going forward our ultimate business objective remains
the same – to improve the way markets work for the benefit
of all our constituents.

C r A I G S . d o N o H U e
Chief Executive Officer

February 10, 2006

p H U p I N d e r S . G I L L
President
and Chief Operating Officer

C m e 20 0 5 A N N UA L r e p o r T

p H U p I N d e r S . G I L L

President

and Chief Operating Officer

xxp H U p I N d e r S . G I L L
President and Chief Operating Officer
in Singapore

Global Reach

CME is the world’s largest and most diverse financial exchange. As an international marketplace for

risk management, our exchange brings together buyers and sellers of derivatives products – futures

and options – which trade on the CME Globex electronic trading platform, on our trading floors

through open outcry, and via privately negotiated transactions.

CME products improve the way markets work
for the benefit of people everywhere

• CME interest rate products
help reduce the cost of
borrowing and financing
by enabling financial
institutions worldwide to
hedge interest rate risks.

• CME equity products enable
investors to manage stock
market exposure, increasing
investor confidence in these
important markets.

• CME foreign exchange

products provide the ability
to hedge foreign currency
risk and facilitate cross-
border trade and commerce.

• CME commodity products
help establish benchmark
prices and play an important
role in risk management for
the agricultural economy.

In 2005, all of CME’s core product lines
grew by 20 percent or more

C m e I N T e r e S T r AT e

C m e eQ U I T y

C m e F o r e I G N e x C H A N G e

C m e C o m m o d I T y

(average daily volume in thousands)

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C m e G L o b e x

o p e N o U T C r y

C m e G L o b e x

o p e N o U T C r y

C m e G L o b e x

o p e N o U T C r y

C m e G L o b e x

o p e N o U T C r y

p r I VAT e Ly N e G o T I AT e d

C m e 20 0 5 A N N UA L r e p o r T

2,500

2,000

1,500

1,000

500

Trading through CME is available
around the world, around the clock

CME pioneered the concept of electronic trading of derivatives contracts in 1987 and launched

the CME Globex electronic trading platform in 1992. Today, trading on the CME Globex

platform is available nearly 24 hours every trading day to customers all over the world. Nearly

all CME products can be traded on this platform, and average daily volume approached 3 million

contracts in 2005 – 70 percent of total volume – making the CME Globex platform one of

the largest electronic derivatives markets in existence.

The platform’s open architecture enables customers to access it through their own proprietary

trading applications or the systems provided by futures brokers and independent software vendors,

as well as a CME-provided trading application. In conjunction with the security of the CME

clearing guarantee, the CME Globex platform offers speed of execution, transparency, anonymity

and market integrity.

CME offers all customers the safety
and soundness of exchange-traded derivatives

Our integrated trading, clearing and market surveillance help differentiate CME from its competitors.

On average, we moved approximately $1.4 billion per day in settlement payments in 2005. We acted

as custodian for $45.8 billion in collateral deposits at year end, including $3.2 billion in deposits for

non-CME products. CME guarantees, clears and settles every contract traded through CME and the

Chicago Board of Trade, assuring safety and soundness for market participants.

C m e 20 0 5 A N N UA L r e p o r T

I N T e r e S T r AT e S e N S I T I V I T y

CME interest rate products help
reduce the cost of borrowing
and financing

robin ross (center), managing director,

Cme interest rate products, shown with

david Heatley (left), head of fixed income,

Citadel, and Timothy Stack, head of futures,

North America, barclays, in Chicago

C m e 20 0 5 A N N UA L r e p o r T

CME interest rate products provide financial institutions with a cost-effective way to hedge their exposure to fluctuating short-
term interest rates. That’s why our flagship CME Eurodollar futures and options are the world’s most actively traded financial
futures and options contracts and a benchmark for investors worldwide. Innovative enhancements that facilitate trading of
complex interest rate strategies on the CME Globex platform contributed to a record 598 million CME Eurodollar futures and
options contracts traded in 2005, a 40 percent increase over the previous year. For clients such as Citadel and Barclays Capital,
CME interest rate products offer what they need – deeply liquid, transparent and efficient markets, virtually 24 hours a day.

C m e 20 0 5 A N N UA L r e p o r T

eQ U I T y e x p e r T I S e

CME equity products enable
investors to manage stock
market risks

david Lerman (left), associate director,

Cme equity products, and brett Vietmeier

(right), director, Cme equity products,

shown with Sabrina Callin, executive vice

president, pImCo, in California

1 2

C m e 20 0 5 A N N UA L r e p o r T

CME has long been the major marketplace for U.S. equity index futures and options. Now, we are expanding this product
line with two new global offerings: the CME E-mini S&P Asia 50, the first pan-Asian derivatives contract, and the CME
E-mini MSCI EAFE, based on stocks traded in 21 developed countries outside the United States. Our comprehensive suite
of equity derivatives enables firms like PIMCO to gain exposure to a broad range of investments. We offer electronic options
on our three major CME E-mini products, and in 2005 added futures on three major exchange-traded funds. Volume in
CME E-mini equity products continues to grow, averaging 1.3 million contracts per day in 2005.

C m e 20 0 5 A N N UA L r e p o r T

C U r r e N Cy C o N F I d e N C e

CME foreign exchange
products facilitate cross-border
trade and commerce

bryan Hunter (left), director, Cme currency

products, shown with William Knottenbelt,

managing director, global head of futures,

rbS Greenwich Futures, in London

C m e 20 0 5 A N N UA L r e p o r T

CME foreign exchange markets offer a liquid alternative to the FX cash market, allowing high-volume traders to realize
benefits not found in the OTC markets – price transparency, anonymity, speed, around-the-clock electronic trading, central
clearing and guaranteed counterparty performance. The result? In 2005, CME FX total volume increased 65 percent over
2004, with more than 80 percent traded electronically and an average notional value of $41 billion per day. To better serve
customers such as RBS Greenwich Futures, we introduced European style options on our euro and Japanese yen contracts.
And for the second year in a row, we earned the FX Week award for the best electronic FX futures platform.

C m e 20 0 5 A N N UA L r e p o r T

C o m m o d I T y p o W e r

CME commodity products
help establish benchmark prices

John Harangody (center), director,

Cme commodity products, shown with

edward prosser (right), vice president,

risk strategies, ConAgra Foods, and John

Lacey, president, Lacey Livestock, at

Tejon ranch in California

C m e 20 0 5 A N N UA L r e p o r T

CME livestock, dairy and lumber futures and options assimilate the most recent information about the underlying commodity
markets and provide real-time price discovery. We continue to expand our electronically traded commodity product offerings
to attract a broader range of market participants. CME commodity products serve as hedging tools for companies such as
ConAgra Foods, as well as for livestock producers like John Lacey, and enable them to offer products to their customers at the
most competitive prices possible. In 2005, overall volume for CME commodity products experienced its third consecutive year
of double-digit growth, up 23 percent compared with 2004.

C m e 20 0 5 A N N UA L r e p o r T

e x p Lo r I N G A LT e r N AT I V e S

CME alternative investment
products offer diversification through
non-traditional opportunities

Felix Carabello (right), director, Cme

alternative investments, shown with mark

Gildersleeve (center), president, WSI

Corporation, and paul murray, portfolio

manager, munich American Capital

markets, in Andover, massachusetts

C m e 20 0 5 A N N UA L r e p o r T

Virtually all commercial markets can benefit from risk management, but not all fit neatly into traditional futures categories.
To expand the benefits of futures to other markets, CME has created new alternative investment products. These cutting-
edge offerings include futures and options on weather in 18 U.S. cities, nine cities in Europe and two in Japan. CME weather
products are growing fast, with total volume in 2005 of 862,000 contracts, eight times higher than 2004. They have become
a part of the broader weather industry, which includes companies such as WSI, a leading weather forecasting organization,
and they expand hedging and trading opportunities for companies such as Munich American Capital Markets.

C m e 20 0 5 A N N UA L r e p o r T

e A Sy A C C e S S

CME technology enables trading
around the world, around the clock

Nicholas bolton (third from right), Cme

director Asia-pacific, shown with (left to

right) Teyu Che Chern, executive director,

phillip Futures; Gerard de Condappa;

Julien Le Noble, managing director, Fimat

Singapore; Thibaud Langlet, managing

director, GL Trade Singapore; yoshio Kuno,

Cme director Tokyo, in Singapore

C m e 20 0 5 A N N UA L r e p o r T

From basic futures trades to complex options spreads, the CME Globex electronic trading platform offers customers around
the world instant access to the most diverse range of products of any derivatives exchange. In operation virtually around the
clock Sundays through Fridays, the platform serves customers in all time zones, such as those in the Asia-Pacific offices of
Phillip Futures, Fimat and GL Trade, who were among the first customers to connect to CME through our new telecom-
munications hub in Singapore. In 2005, 730 million contracts were traded on the CME Globex platform, an increase of
62 percent year over year, with average daily volume of 2.9 million contracts.

C m e 20 0 5 A N N UA L r e p o r T

C L e A r A d VA N TAG e

CME’s fully integrated clearing
capability delivers security and reliability,
and helps create a new marketplace

Timothy doar (right), managing director,

Cme risk management, shown with Laurie

Ferber, managing director, Goldman Sachs

& Co., framed by New york City skyline

C m e 20 0 5 A N N UA L r e p o r T

CME Clearing is the largest futures clearing house in the United States, processing approximately 90 percent of all U.S. futures
and options traded, including all products traded at CME and the Chicago Board of Trade. Recently, we entered into a partner-
ship with Goldman Sachs to offer short-dated, over-the-counter economic derivatives. This innovative new marketplace is
designed to allow investors to tailor more precise hedges or exposures on key economic indicators such as non-farm payrolls.
Clearing firms such as Goldman Sachs know they can depend upon CME to handle their risk management needs. Last year
we cleared an average of nearly 7 million contracts daily and 1.7 billion contracts overall.

C m e 20 0 5 A N N UA L r e p o r T

J A m e S e . pA r I S I
Chief Financial Officer
in Chicago

The operating leverage inherent in our business model
enabled us to expand CME’s operating margin to
55 percent in 2005 from 50 percent the previous year.

INTer VIeW WITH CFo JAmIe pArISI

whIch fInancIal meTRIc IS mOST

whaT IS The maIn DRIveR Of yOuR

ImpORTanT fOR cme?
We are very focused on generating free cash flow, so the
primary metric we use to measure cash flow is cash earnings.
In 2005, we generated $292 million in cash earnings, which
represents a 39 percent increase from 2004. Cash earnings
is calculated as net income ($307 million) plus depreciation
($65 million) plus after-tax stock-based compensation
($8 million) minus capital expenditures ($88 million).
We use this measure to align the interests of our employ-
ees with those of our shareholders. For example, under our
current dividend policy, we pay a dividend of approximately
30 percent of prior year’s cash earnings. That equates to
approximately $88 million for 2006 versus $63 million in
2005, a 40 percent increase. Furthermore, our employee
incentive bonuses are based on achieving progressively higher
annual cash earnings targets, which means our team is
focused on growth and expense discipline.

hOw wOulD yOu DeScRIBe yOuR fInancIal mODel?
We have successfully delivered top-line growth by expanding
distribution of our global products. At the same time, we have
exhibited expense discipline. We have consistently increased
the volume executed on our exchange – averaging 35 percent
annual growth over the last five years – while our expenses
have grown approximately 11 percent per year over the same
timeframe. This is indicative of the operating leverage inherent
in our business model, and as a result, our operating margin
expanded from 50 percent in 2004 to 55 percent in 2005.
The $187 million increase in net revenues generated in 2005
resulted in a $141 million increase in income before income
taxes, representing an incremental margin of 75 percent.

expenSe GROwTh?
Expense growth in recent years has been driven by technology-
related costs to support additional capacity and functionality.
Of our workforce of approximately 1,300 people, nearly
40 percent are technologists. Additionally, we anticipate that
more than 90 percent of our capital spending in 2006 will be
technology-related and will include further enhancements of
our options trading functionality, additional system capac-
ity and completion of a build-out to our third data center.
Although our capital expenditures have increased during the
last few years, capital spending as a percent of net revenues
has fallen from 12 percent in 2002 to 9.5 percent in 2005.

cOulD yOu cOmmenT On yOuR OveRall

pRIcInG STRaTeGy?
In our business, the key to success is the liquidity of our
products. Our pricing strategy provides the lowest prices
in the industry for our largest liquidity providers. We also
offer tiered discounts as an incentive for customers to trade
at higher volume levels. Pricing is a key area of focus that
we review periodically.

hOw IS cme GOInG TO uTIlIze ITS caSh?
We reported $904 million in cash and marketable securities on
our balance sheet as of December 31, 2005, up $244 million
from a year ago. We are generating considerable excess free
cash flow, while investing in our technology to improve speed,
functionality and reliability. At the same time, we are in the
midst of a very dynamic period in the exchange industry.
Maintaining a relatively large cash balance will afford us
maximum flexibility to be a leading participant in industry
consolidation. We continually evaluate our cash requirements
and consider appropriate alternatives, including the possibility
of returning cash to our shareholders.

C m e 20 0 5 A N N UA L r e p o r T

Record-Setting Performance in 2005

R EC O R D volume of
1 billion contracts,
up 33 percent.

R EC O R D trading on
CME Globex platform of
730 million contracts, up
62 percent – to 70 percent
of total exchange volume.

R EC O R D open interest
of 39 million positions
in futures and options
contracts in December.

R EC O R D notional value
traded of $638 trillion,
up 38 percent.

R EC O R D net revenues
of $921 million, up
25 percent.

R EC O R D net income
of $307 million,
up 40 percent.

R EC O R D interest rate
product average daily
volume of 2.4 million
contracts, up 40 percent.

R EC O R D electronically traded
CME Eurodollar futures
contracts average daily volume
of 1.3 million, representing
81 percent of CME Euro dollar
futures volume.

R EC O R D CME E-mini equity
product average daily volume
of 1.3 million contracts, up
21 percent.

R EC O R D foreign exchange
product average daily
volume of 334,000
contracts, up 65 percent.

R EC O R D electronically
traded foreign exchange
product average daily
volume of 270,000
contracts, up 101 percent.

R EC O R D commodity
product average daily
volume of 50,000
contracts, up 23 percent.

O P E R AT I N G M A R G I N

(in percentages)

N E T I N C O M E

(in millions of dollars)

W O R K I N G C A P I TA L

(in millions of dollars)

CA PITAL E X PENDITURES AS A

PERCEN TAG E OF NE T RE VENUES

(in millions of dollars)

%
5
5

%
0
5

%
8
3

%
4
3

%
2
3

7
0
3

0
2
2

3
5
9

3
7
6

2
2
1

4
9

5
7

5
3
4

6
2
3

4
4
1

1
2
9

4
3
7

6
3
3 5
5
7 4
8
3

1,000

750

500

250

30 %

25%

20 %

15%

10 %

03 04 05

N E T R E V E N U E S

C A P I TA L E X P E N D I T U R E S

A S A P E R C E N TA G E O F

N E T R E V E N U E S

C M E 20 0 5 A N N UA L R E P O R T

Financial Information

Selected Financial Data and Key Statistical Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Management’s Report on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

CME 2005 ANNUAL REPORT

2 7

Selected Financial Data and Key Statistical Information

The following selected income statement and balance sheet data was derived from the consolidated financial statements of
Chicago Mercantile Exchange Holdings Inc. and subsidiaries and should be read in conjunction with the audited financial
statements, related notes and other financial information included elsewhere herein.

(in millions, except per share data)

2005

2004

2003

2002

2001

YEAR ENDED OR AT DECEMBER 31

Income Statement Data:

Net revenues1

Expenses

Net income

Earnings per share:2

Basic

Diluted

Cash dividends per share

Balance Sheet Data:

Total assets

Shareholders’ equity

920.5

412.1

306.9

8.94

8.81

1.84

$ 3,969.4
1,118.7

733.8

536.0

$ 453.2

387.2

366.1

219.6

6.55

6.38

1.04

329.9

122.1

298.9

94.1

$ 3.74

$ 3.24

3.60

0.63

3.13

0.60

261.4

75.1

2.61

2.57

—

$ 2,857.5

$ 4,872.6

$ 3,355.0

$ 2,066.9

812.6

563.0

446.1

248.4

The following table presents key statistical information on volume of contracts traded, expressed in round turn trades and

excluding our TRAKRS and auction–traded products, as well as information on notional value of contracts traded:

(in thousands except notional value)

2005

2004

2003

2002

2001

YEAR ENDED OR AT DECEMBER 31

Average Daily Volume:

Product Lines:

Interest rate

Equity

Foreign exchange

Commodity

Total Average Daily Volume

Method of Trade:

Open outcry

CME Globex

Privately negotiated

Total Average Daily Volume

Other Data:

Total Notional Value (in trillions)

Total Trading Volume

2,380

1,394

334

4,158

1,214

2,895

4,158

$ 638
1,047,909

Open Interest at Year End (contracts)

30,083

1,705

1,164

202

3,111

1,281

1,786

3,111

1,234

1,057

135

2,461

1,382

1,041

2,461

1,226

825

1,092

425

2,177

1,640

1,398

747

2,177

1,282

326

1,640

$ 463

787,186

22,478

$ 334

620,289

16,301

$ 329

548,667

12,483

$ 294

411,712

15,039

1 Revenues are net of securities lending interest expense. Securities lending transactions began in June 2001.

2 Earnings per share are presented as if common stock issued on December 3, 2001 as part of our reorganization into a holding company

structure had been outstanding for all periods presented.

2 8

CME 2005 ANNUAL REPORT

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

INTRODUCTION

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:

Overview: Includes a discussion of our business structure; current economic and industry-wide trends relevant to our
business; the strategy we utilize to address opportunities, challenges and risks; and the primary sources of revenue as
well as expenditures required to generate that revenue.

Critical Accounting Policies: Provides an explanation of accounting estimates and assumptions material to our financial results.

Recent Accounting Pronouncements: Includes an evaluation of recent accounting pronouncements and their potential impact
on our financial results.

Results of Operations for 2005 Compared with 2004.

Results of Operations for 2004 Compared with 2003.

Liquidity and Capital Resources: Includes a discussion of our future cash requirements, capital resources and expenditures
and financing arrangements.

References in this discussion and analysis to “we” and “our” are to Chicago Mercantile Exchange Holdings Inc. and its

consolidated subsidiaries, collectively. References to our “exchange” are to Chicago Mercantile Exchange Inc. and its

subsidiaries, collectively.

OVERVIEW

Business Structure

Our exchange was organized in 1898 as a not-for-profit membership organization. On November 13, 2000, we became a

for-profit corporation by converting membership interests into shares of common stock. On December 3, 2001, we completed

our reorganization into a holding company structure. As a result of this reorganization, Chicago Mercantile Exchange Inc. (CME)

became a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (CME Holdings). In our reorganization, CME

shareholders exchanged their shares for shares of CME Holdings. After the reorganization, these shareholders owned the same

percentage of CME Holdings common stock that they previously owned of CME common stock. CME shareholders retained their

trading privileges in CME. In December 2002, CME Holdings completed the initial public offering of its Class A common stock.

CME Holdings’ Class A common stock is listed on the New York Stock Exchange and The Nasdaq National Market under the

ticker symbol “CME.”

CME 2005 ANNUAL REPORT

2 9

We are the largest futures exchange in the United States for the trading of futures and options on futures contracts, as measured

by 2005 annual trading volume. For the first time, our annual trading volume for the year surpassed one billion contracts.

Futures contracts and options on futures contracts provide investors with vehicles for protecting against, and potentially profiting

from, price changes in financial instruments and physical commodities. Futures contracts are legally binding standardized

agreements to buy or sell a financial instrument or commodity, specifying quantity and quality at a set price on a future date.

Certain futures contracts, such as commodities and foreign exchange products, may result in physical delivery of the product

traded. Other futures contracts, including those for equity index and interest rate products, are cash settled and do not involve

physical delivery. To provide additional flexibility to the investment community, we also offer trading in options on futures

contracts. These contracts offer the customer the right, but not the obligation, to buy or sell an underlying futures contract at

a particular price.

We are a global exchange with customer access available in more than 70 countries. Our customers consist of professional

traders, financial institutions, individual and institutional investors, major corporations, manufacturers, producers, supranational

entities and governments. Customers include both members of the exchange as well as non-members.

We offer our customers the opportunity to trade futures contracts and options on futures contracts on a range of products

including those based on interest rates, equities, foreign exchange, commodities and alternative investments. Our products

provide a means for hedging, speculating and allocating assets. We identify new products by monitoring economic trends and

their impact on the risk management and speculative needs of our existing and prospective customers.

Our four major product lines are traded through our CME Globex electronic trading platform and our open outcry trading floors.

Both of these execution facilities offer our customers immediate trade execution and price transparency. In addition, trades can

be executed through privately negotiated transactions that are cleared and settled through our clearing house.

Our clearing house clears, settles and guarantees every futures and options on futures contract traded through our exchange

as well as those traded by the Chicago Board of Trade (CBOT). Ownership and control of our own clearing house enables us to

capture the revenue associated with both the trading and clearing of our products. Ownership also enables us to more quickly

and efficiently bring new products to market through coordination of our clearing functions with our product development,

technology, market regulation and risk management activities.

Our clearing house performance guarantee is an important function of our exchange. Because of this guarantee, our customers

do not need to evaluate the credit of each potential counterparty or limit themselves to a selected set of counterparties. This

flexibility increases the potential liquidity available for each trade. Additionally, the substitution of our clearing house as the

counterparty to every transaction allows our customers to establish a position with one party and then to offset the position

with another party. This contract offsetting process provides our customers with flexibility in establishing and adjusting positions

and provides for performance bond efficiencies.

To ensure performance of counterparties, we establish and monitor financial requirements for our clearing firms and mark-to-

market their positions at least twice a day. We also set minimum performance bond requirements for our traded products. In

the unlikely event of a payment default by a clearing firm, we would first apply assets of the clearing firm to cover its payment

obligation. These assets include security deposits, performance bonds and any other available assets, such as the proceeds

from the sale of pledged Class A and Class B common stock and associated trading rights of the clearing firm at our exchange

that are owned by or assigned to the clearing firm. In addition, we would make a demand for payment pursuant to any

applicable guarantee provided to the exchange by the parent of a clearing firm. Thereafter, if the payment default remains

unsatisfied, we would use CME’s surplus funds, security deposits of other clearing firms and funds collected through an

assessment against all other solvent clearing firms to satisfy the deficit.

3 0

CME 2005 ANNUAL REPORT

Industry Trends

Futures and options markets have become a global growth industry, with a compound annual growth rate of 43% from 2002

through June 2005 based on notional value. At the end of 2005, there were 57 futures exchanges located in 30 countries,

including nine futures exchanges in the United States. By comparison, the over-the-counter (OTC) derivatives markets have

grown at a compound annual growth rate of 32% during that same period. There are a number of secular trends that we believe

will continue to drive growth and innovation in our industry. They include:

• A greater need for risk management and hedging tools in an increasingly uncertain global, political and economic climate;

• Growing investor sophistication regarding derivatives and risk transfer markets;

• A shift in asset management strategy away from passive buy-and-hold equity investment strategies towards more active strategies

including those involving alternative investments and asset classes; and

• Growth in hedge funds and managed funds as alternative investment vehicles designed to generate more trading-based returns

than investing on the basis of other market strategies. These types of alternative investment vehicles often utilize exchange-

traded derivatives contracts.

Changing market dynamics have also led to increasing competition in all aspects of our business from both domestic and

international sources. We face competition from other futures, securities and securities option exchanges; OTC markets and

clearing organizations; consortia formed by our members and large market participants; alternative trade execution facilities;

and technology firms, including market data distributors and electronic trading system developers.

We expect competition to continue to intensify, particularly as a result of technological advances and reductions in the regulatory

requirements for the development of products and markets that are competitive with our own. Additional factors that may intensify

competition in the future include:

• An increase in the number of for-profit exchanges;

• The consolidation of our customer or intermediary base;

• An increased demand for electronic trading and electronic order routing services; and

• The increased ability of other exchanges to leverage their technology investment and electronic distribution to enter new markets

and list products that compete with our own.

Strategy

Our current strategy specifically focuses on leveraging our benchmark products, scalable infrastructure and clearing and trade

matching technologies to benefit customers. It includes coordinated efforts to:

• Grow our existing business by expanding customer access to our markets and services, enhancing and offering additional trade

execution choices, and improving our market data products;

• Broaden our product range through innovative new products and optimization of existing products, based on research and

development in collaboration with customers;

• Provide third-party transaction processing, clearing and related services; and

• Explore new business opportunities such as joint ventures, alliances and selective acquisitions of businesses and technologies.

This strategy will enable us to continue to evolve into a more broadly diversified financial exchange that offers trading and

clearing solutions across additional products and asset classes.

In conjunction with our demutualization and corporate reorganization in late 2000, we adopted a for-profit business strategy that

has been integrated into our operations. As part of this integration process, we have examined and will continue to examine,

and potentially modify, the fees we charge for our products in order to increase revenues and profitability, as well as provide

incentives for members and non-members to use our markets to further enhance the liquidity of these markets. In addition, we

have maintained a focus on expense discipline and specifically concentrated our expenditures on projects designed to enhance

our profitability for the benefit of our shareholders.

CME 2005 ANNUAL REPORT

3 1

Primary Sources of Revenue

Clearing and transaction fees. A significant portion of our revenue is derived from clearing and transaction fees, which include

clearing fees, CME Globex electronic trading fees and other volume-related charges for contracts executed through our trading

venues. Because clearing and transaction fees are assessed on a per-contract side basis, revenues and profitability fluctuate

with volume changes. In addition to the secular trends discussed previously, our revenues and trading volume tend to increase

during global or domestic periods of economic and geopolitical uncertainty. This is because our customers seek to manage their

exposure to, or speculate on, the market volatility resulting from uncertainty. In addition, our volume is seasonal and we typically

experience higher sequential volume during the first and second quarters followed by decreases in the third and fourth quarters

of the calendar year.

While volume has a significant impact on our clearing and transaction fees revenue, there are four other factors that also

influence this source of revenue:

• Rate structure;

• Mix of products traded;

• Trading venue; and

• The percentage of trades executed by customers who are members compared with non-member customers.

Rate structure. Certain customers benefit from volume discounts and limits on fees as part of our effort to increase liquidity

in our markets. Changes in fees, volume discounts, limits on fees and member discounts, including some that may be

significant, may occur periodically based on our review of operations and the business environment.

As a result of their rate structure, Total Return Asset Contracts (TRAKRS) and auction-traded products are excluded from

disclosures of trading volume and average rate per contract in this discussion and analysis. Clearing and transaction fees

on these products are minimal relative to other CME products. TRAKRS are exchange-traded non-traditional futures contracts

that trade electronically on the CME Globex electronic platform. Auction products, which include CME economic derivatives,

were introduced in September 2005 and are traded in CME Auction Markets.

Product mix. We offer trading of futures and options on futures contracts on a wide-ranging set of products based on interest

rates, equities, foreign exchange, commodities and alternative investments. Rates are determined by product in order to

optimize revenue on existing products and support introduction of new products by encouraging trading volume.

Trading venue. Our exchange is an international marketplace that brings together buyers and sellers through our CME Globex

electronic trading platform as well as through open outcry trading on our trading floors and privately negotiated transactions.

Any customer guaranteed by a clearing firm is able to obtain direct access to our CME Globex platform. Open outcry trading

is conducted exclusively by our members.

Typically, trades executed through CME Globex are charged fees for using the electronic trading platform in addition to the

clearing fees assessed on all transactions executed on our exchange. Trades executed as privately negotiated transactions

also incur additional charges beyond the clearing fees assessed on all transactions.

Member/non-member mix. Generally, member customers are charged lower fees than our non-member customers. Holding all

other factors constant, revenue decreases if the percentage of trades executed by members increases, and increases if the

percentage of non-member trades increases.

We attempt to mitigate the risk of unpredictable volume decreases by targeting specific changes to clearing and transaction

fees, creating volume incentives, opening access to new markets and introducing new products.

3 2

CME 2005 ANNUAL REPORT

Processing services. To further diversify the range of services we offer, we have entered into clearing and transaction processing

agreements with other exchanges. This revenue will fluctuate as the trading volumes of these exchanges fluctuate.

The most significant portion of this revenue is derived from our agreement with the CBOT. In April 2003, we entered into an

agreement to provide clearing and related services for CBOT futures and options on futures contracts. We began to provide

these services for some products in November 2003, and as of January 2004, we began to clear all CBOT products. The

current agreement expires in January 2009.

The remaining portion of this revenue includes fees for listing new crude oil and natural gas futures products on the CME

Globex platform for the New York Mercantile Exchange (NYMEX) and fees for processing single stock futures trades for certain

CME clearing firms that execute trades at OneChicago, LLC (OneChicago). OneChicago is our joint venture in single stock futures

and futures on narrow-based stock indexes that initiated trading in November 2002. Our agreement with NYMEX has expired

and we no longer listed NYMEX products as of November 18, 2005.

Quotation data fees. We receive quotation data fees from the sale of our market data. Our market data services are provided to

professional and non-professional customers.

Subscribers can obtain access to real-time, delayed and end-of-day quotation, trade and market summary data for our products.

Users of our basic service pay a flat monthly fee for each screen, or device, displaying our market data. Alternatively, customers

can subscribe to market data provided on a limited group of products, such as our CME E-mini products. The fees for this

service is a relatively nominal flat rate per month.

Pricing for our market data services is based on the value of the service provided, our cost structure for the service and the

price of comparable services offered by our competitors. Increases or decreases in our quotation data fees revenue is

influenced by changes in our price structure for existing market data offerings, introduction of new market data services and

changes in the number of subscribers. General economic factors that affect the financial services industry, which constitutes

our primary customer base, also influence revenue from our market data fees.

Other sources. Other sources of revenue include access fees, communication fees, investment income and securities lending

interest income.

• Access fees are the connectivity charges to customers of our CME Globex platform, to our market data vendors and to direct

market data customers. The fee each customer is charged varies depending on the type of connection provided.

• Communication fees consist of charges to members and clearing firms that utilize our various telecommunications networks

and communications services. Revenue from communication fees is largely dependent on open outcry trading, as a significant
portion relates to telecommunications on the trading floor.

• Investment income represents income generated by the short-term investment of our excess cash balances and clearing firms’

cash performance bonds and security deposits; interest income and net realized gains and losses from our marketable

securities; and gains and losses on trading securities in our non-qualified deferred compensation plans. The investment results

of our non-qualified deferred compensation plans do not affect our net income as there is an equal impact in our compensation

and benefits expense. Investment income is influenced by our operating results, market interest rates and changes in the levels

of cash performance bonds deposited by clearing firms. Beginning in July 2003, investment income also included earnings on our

first Interest Earning Facility (IEF) programs. These IEFs were discontinued in December 2005.

• Securities lending transactions utilize a portion of the securities that clearing firms deposit to satisfy their proprietary

performance bond requirements. Securities lending interest income is presented separately in the consolidated statements of
income. Substantial interest expense is incurred as part of this securities lending activity and is presented as a deduction from
total revenues to arrive at net revenues.

• Other revenue is composed of fees for administering our IEF program, trade order routing, and various services to members.

We offer clearing firms the opportunity to invest cash performance bonds in our various IEF offerings. These clearing firms receive

interest income, and we receive a fee based on total funds on deposit. In addition, other revenue includes trading gains and
losses generated by GFX Corporation (GFX), our wholly owned subsidiary that trades primarily in foreign exchange futures
contracts to enhance liquidity in our electronic markets for these products.

CME 2005 ANNUAL REPORT

3 3

Primary Expenses

The majority of our expenses fall into four categories:

• Compensation and benefits;

• Professional fees, outside services and licenses;

• Communications and computer and software maintenance; and

• Depreciation and amortization.

Compensation and benefits. Compensation and benefits expense is our most significant expense and includes employee

wages, bonuses, stock-based compensation, benefits and employer taxes. Changes in this expense are driven by increases in

wages as a result of inflation or labor market conditions, fluctuations in the number of employees, rates for employer taxes and

price increases affecting benefit plans. In addition, this expense is affected by the composition of our work force, which includes

a growing percentage of technology-related employees. The expense associated with our bonus and stock-based compensation

plans can also have a significant impact on this expense category and may vary from year to year.

In 2003, our shareholders approved our annual incentive plan, and since that date, the bonus component of our compensation

and benefits expense has been based on our financial performance. Under the performance criteria established since the

annual incentive plan was approved, if we achieve the cash earnings target established by the Compensation Committee of our

Board of Directors, the bonus pool funded under the plan would be the “target incentive pool.” Cash earnings are defined as

net income excluding depreciation and amortization expense and tax-effected stock-based compensation expense less capital

expenditures. Under the plan, if our actual cash earnings equal 80% of the established target for a given year, the bonus pool

will be reduced by approximately 50%. There will be no bonus if our cash earnings are less than 80% of the target, other than

for non-exempt employees who may receive a bonus under our discretionary bonus program. If our actual cash earnings equal

120% of the target or higher, the bonus pool would be increased by approximately 50% from the target incentive pool, which is

the maximum amount that is allowed under the plan. If our performance is between the threshold performance level of 80%

of the cash earnings target and the maximum performance level of 120% of the cash earnings target, the bonus will be calculated based

on the level of performance achieved. The Compensation Committee may adjust the target level of performance for material, unplanned

revenue, expense or capital expenditures to meet intermediate to long-term growth opportunities.

Stock-based compensation is a non-cash expense related to stock options and restricted stock grants. At year-end 2002, we

adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for

Stock-Based Compensation,” as amended by SFAS No. 148, and elected the retroactive restatement method of adoption. Stock-

based compensation varies depending on the quantity and fair value of options granted. Fair value is derived using the Black-Scholes

model and assumptions about our dividend yield, the expected volatility of our stock price based on implied and historical

volatility, the risk-free interest rate and the expected life of the options granted.

Professional fees, outside services and licenses. Professional fees, outside services and licenses expense consists primarily of

consulting services provided for major technology initiatives, license fees paid as a result of trading volume in equity index

products and legal and accounting fees. This expense fluctuates primarily as a result of changes in the number of consultants

needed to complete technology initiatives, equity index product trading volume and fee structure changes that affect license

fees as well as other undertakings that require the use of professional services. In addition, in 2004 we began to incur expense

under our revenue sharing agreement with Singapore Exchange Derivatives Trading Ltd. (SGX). Revenue sharing expense

fluctuates based on our percentage of electronically traded CME Eurodollar contracts. Under the terms of our agreement with

SGX, this expense cannot exceed $0.3 million per month.

3 4

CME 2005 ANNUAL REPORT

Communications and computer and software maintenance. Communications and computer and software maintenance expense

consists primarily of costs for network connections to the CME Globex platform and some market data customers; maintenance

of the hardware and software required to support our technology; telecommunications costs of our exchange; and fees paid for

access to external market data. This expense is affected primarily by the growth of electronic trading and our capacity

requirements. Our computer and software maintenance costs are driven by the number of transactions processed as well as the

number of bid and offer quotes received and reflected in the order book for electronic trading, rather than the number of

contracts traded.

Depreciation and amortization. Depreciation and amortization expense results from the depreciation of property purchased or

acquired under capitalized leases, as well as the amortization of purchased and internally developed software. This expense has

increased consistently from year to year due to significant technology investments in equipment and software that began in late

1998. In addition, effective January 1, 2004, we decreased the depreciable lives for new technology equipment purchases to

three years and for new personal computer purchases to two years. Previously, the depreciable lives of these assets were four

years and three years, respectively.

Other expenses. We incur additional expenses for occupancy, marketing, advertising and public relations and other expenses.

With the exception of license fees paid for the trading of our equity index contracts and a component of our trading facility rent

that is related to open outcry trading volume, most of our expenses do not vary directly with changes in our trading volume.

CRITICAL ACCOUNTING POLICIES

The notes to our consolidated financial statements include disclosure of our significant accounting policies. In establishing

these policies within the framework of accounting principles generally accepted in the United States, management must make

certain assessments, estimates and choices that will result in the application of these principles in a manner that appropriately

reflects our financial condition and results of operations. Critical accounting policies are those policies that we believe present

the most complex or subjective measurements and have the most potential to affect our financial position and operating

results. While all decisions regarding accounting policies are important, there are three accounting policies that we consider to

be critical. These critical policies, which are presented in detail in the notes to our consolidated financial statements, relate to

income taxes, internal use software costs and stock-based compensation.

Calculation of the income tax provision includes an estimate of the income taxes that will be paid for the current year as well

as an estimate of income tax liabilities or benefits deferred into future years, as determined in accordance with SFAS No. 109,

“Accounting for Income Taxes.” As required by the provisions of SFAS No. 109, our deferred tax assets are reviewed to

determine if all assets will be realized in future periods. To the extent that it is determined some deferred tax assets will not

be fully realized, the assets must be reduced by a valuation allowance. We expect to realize the benefit of all deferred tax

assets based on expectations of future taxable income and, therefore, no valuation allowance has been established. The

calculation of our tax provision involves dealing with uncertainties in the application of complex tax regulations. We recognize

potential liabilities for anticipated tax audit issues in the United States and other applicable tax jurisdictions based on our

estimate of whether, and the extent to which, additional taxes may be due. If payment of these amounts varies from our

estimate, our income tax provision would be reduced or increased at the time that determination is made. This determination

may not be known for several years. Past tax audits have not resulted in tax adjustments that would result in a material change

to the income tax provision in the year the audit was completed. The effective tax rate, defined as the income tax provision as

a percentage of income before income taxes, will vary from year to year based on changes to tax rates and regulations. In

addition, the effective tax rate will vary with changes to income that are not subject to income tax, such as municipal interest

income, and changes in expenses that are not deductible, such as costs associated with our secondary offerings in 2003 and

certain lobbying expenses.

CME 2005 ANNUAL REPORT

3 5

Certain costs for employees and consultants that are incurred in connection with work on development or implementation of

software for our internal use are capitalized in accordance with the American Institute of Certified Public Accountants Statement

of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Costs

capitalized are for application development or implementation, as required by SOP 98-1, for software projects that will result in

significant new functionality and that are generally expected to cost in excess of $0.5 million. The amount capitalized is

determined based on the time spent by the individuals completing the eligible software-related activity and the compensation

and benefits or consulting fees incurred for these activities. Projects are monitored during the development cycle to assure that

they continue to meet the capitalization criteria of SOP 98-1 and that the project will be completed and placed in service as

intended. Any previously capitalized costs are expensed at the time a decision is made to abandon a software project.

Completed internal use software projects, as well as work-in-progress projects, are included as part of property in the

consolidated balance sheets. Once completed, the accumulated costs for a particular software project are amortized over the

anticipated life of the software, generally three years. Costs capitalized for internal use software will vary from year to year

based on our technology-related business requirements.

At year-end 2002, we adopted the fair value method for expensing stock options under the provisions of SFAS No. 123,

“Accounting for Stock-Based Compensation,” and elected the retroactive restatement method of adoption. All periods presented

reflect stock-based compensation expense that would have been recognized had the provisions of SFAS No. 123 been applied

to all stock options granted to employees. We have elected the accelerated method for recognizing the expense related to stock

grants. Due to this election and the vesting provisions of our stock grants, a greater percentage of the total expense is

recognized in the first and second years of the vesting period than would be recorded if we used the straight-line method.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment,” which

requires use of the fair value method of accounting for share-based payment transactions with employees. Under SFAS No. 123(R),

we will be required to estimate expected forfeitures of stock grants instead of our current practice of accounting for forfeitures as

they occur. In addition, we will also begin to classify the excess tax benefits, if any, related to employee option exercises as

financing activities rather than operating activities in our consolidated statement of cash flows. This requirement will reduce net

operating cash flows and increase net financing cash flows in the periods after adoption. We cannot estimate what those amounts

will be in the future because they are dependent on, among other things, when employees exercise stock options. We plan to

continue to use the Black-Scholes model, which we have used since adopting the fair value method, to determine the fair value of

stock option grants. In April 2005, the U.S. Securities and Exchange Commission adopted a rule that amended the effective date

of SFAS No. 123(R). Under this rule, SFAS No. 123(R) is now effective for public companies at the beginning of the first fiscal year

that begins after June 15, 2005. We will adopt SFAS No. 123(R) effective January 1, 2006. The impact of adopting SFAS 123(R) is

not expected to be material to our annual results.

RESULTS OF OPERATIONS FOR 2005 COMPARED WITH 2004

2005 Financial Highlights

• Net revenues increased by 25% to $920.5 million driven primarily by increases in clearing and transaction fees, investment

income, processing services and quotation data fees.

• Total expenses increased by 13% to $412.1 million due primarily to technology spending related to additional functionality and capacity.

• Growth in revenues exceeded increases in expenses resulting in an increase in our operating margin to 55% from 50% in 2004.

Operating margin is defined as income before income taxes expressed as a percentage of net revenues.

• Total property additions increased to $87.6 million primarily due to continued investments in capacity related to transaction

growth and additional functionality.

• Working capital, defined as current assets less current liabilities, grew by $280.9 million.

3 6

CME 2005 ANNUAL REPORT

Revenues

(dollars in millions)

Clearing and transaction fees

Processing services

Quotation data fees

Access fees

Communication fees

Investment income

Securities lending interest income

Other

Total Revenues

Securities lending interest expense

Net Revenues

n.m. not meaningful

2005

$ 696.2

2004

$ 553.0

Amount

$ 143.2

68.7

71.7

18.9

9.0

31.5

58.7

22.6

977.3

(56.8)

$ 920.5

55.9

60.9

16.4

10.0

14.5

20.3

21.8

752.8

(19.0)

12.8

10.8

2.5

(1.0)

17.0

38.4

0.8

224.5

(37.8)

$ 733.8

$ 186.7

Change

Percentage

26%

(11)

117

n.m.

Revenue Highlights. Net revenues increased by 25% primarily as a result of the following factors:

• Clearing and transaction fees increased by $143.2 million due primarily to a 34% increase in average daily trading volume.

• Trading volume executed through CME Globex increased for all product lines.

• Processing services reached $68.7 million due primarily to volume increases at the CBOT and NYMEX.

• Quotation data fees increased by $10.8 million primarily as a result of a fee increase.

• Interest rate increases in the marketplace favorably affected investment income. Increased funds available for investment, resulting

primarily from our profitability, contributed to an increase in investment income.

Clearing and Transaction Fees. A significant portion of the increase in clearing and transaction fees in 2005 was attributable to

the 34% increase in average daily trading volume. In 2005, we set annual volume records in our four major product lines and, for

the first time ever, the total annual volume of our products surpassed one billion contracts during 2005 compared with our

previous record of 787 million contracts in 2004. In addition, there was an increase in the percentage of trading volume executed

through the CME Globex platform. In 2005, CME Globex volume was 70% of average daily trading volume, compared with 57%

during 2004. All of our product lines experienced growth in CME Globex volume during 2005 when compared with 2004. On

September 2, 2005, CME Globex volume set a new single-day record of 6.9 million contracts traded.

The following table summarizes average daily trading volume (in thousands) and revenue. All amounts exclude TRAKRS and

auction-traded products.

CME Product Line Volume:

Interest rate

Equity

Foreign exchange

Commodity

Total Average Daily Volume

CME Globex Volume

CME Globex Volume as a Percentage of Total Volume

Clearing and Transaction Fees (in millions)

Average Rate per Contract

CME 2005 ANNUAL REPORT

2005

2,380

1,394

334

4,158

2,895

70%

2004

1,705

1,164

202

3,111

1,786

57%

$ 695.7

$ 0.664

$ 552.6

$ 0.702

Percentage
Change

40%

3 7

We experienced an increase in our interest rate volume in 2005 compared with 2004 due to the following factors:

• Expansion in the use of our electronic trading platform as a result of technological enhancements;

• Rising short-term interest rates and periods of heightened volatility, although overall implied volatility was lower than in 2004;

• Increased volume by European market participants due to higher relative volatility in the U.S. compared to the Eurozone;

• Increased utilization of competitive fee programs designed to encourage the participation of market makers and global proprietary

trading firms; and

• The appeal of tiered pricing provided to high volume traders.

The average daily volume of interest rate products traded electronically increased from 594,000 contracts in 2004 to 1.3 million

contracts in 2005 with 57% of interest rate volume executed on the CME Globex platform compared with 35% in 2004.

Trading volume for our equity products increased primarily as a result of the continued growth in our CME E-mini products due to

increased distribution to new users. This was achieved despite volatility in the U.S. equity markets that was 17% lower in 2005

when compared with 2004 as measured by the CBOE Volatility Index. During 2005, average daily volume of CME E-mini products

increased by 21% to 1.3 million contracts when compared with 2004. The strongest growth in average daily volume occurred in

CME E-mini S&P 500 futures, which increased by 0.2 million contracts, CME E-mini Russell 2000 futures and CME E-mini S&P

MidCap 400 futures. We also experienced growth in our E-mini equity option products.

Our foreign exchange volume has benefited from increased demand from automated trading systems, driven primarily by

technology enhancements that allow faster execution. We also experienced volume growth from commodity trading advisors and

large hedge funds as a result of initiatives implemented in 2005. Fee incentive programs initiated during the second quarter of

2004 also resulted in increased trading on the CME Globex platform. In 2005, 81% of our foreign exchange volume was executed

through CME Globex compared with 66% in 2004. In 2005, we set a new single-day foreign exchange volume record of 872,000

contracts and a single-day volume record of 631,000 contracts traded electronically.

Partially offsetting the impact of the increase in trading volume on revenue was a decrease in the average rate, or revenue, per

contract. The average rate per contract decreased to $0.664 for 2005 from $0.702 in 2004 primarily due to the following factors:

• An increase in the percentage of trades by member customers reduced the rate per contract. As a result of a decrease in the

capital investment required to become a clearing firm, which became effective October 1, 2004, there was an increase in the
number of inactive clearing firms that are charged member rates. During 2005, we also implemented a program to allow multiple
hedge funds within the same fund group to receive member rates.

• Growth in interest rate, equity and foreign exchange trading volume, as a result of the appeal of our competitive fee programs, as
well as increased participation of market makers, resulted in higher incentives and discounts, which further reduced the average

rate per contract by $0.037 in 2005.

• Our mutual offset agreement with SGX, whereby there is a net settlement for trades executed by the originating exchange but

transferred to the other exchange, had an unfavorable impact on the average rate per contract of $0.005 in 2005.

• These decreases were partially offset by the higher percentage of trades on the CME Globex platform for all product lines, for which

additional fees are assessed.

• Finally, rate increases effective August 1, 2005, contributed additional revenue of $7.1 million and resulted in a slight offset to the

overall decline in our average rate per contract of $0.007 in 2005.

In addition to the change in the rate structure in 2005, we also extended the European and Asian incentive programs and the

electronic corporate membership program through December 31, 2006. In 2005, we implemented two one-year incentive

programs designed to attract large hedge funds and commodity trading advisors to our foreign exchange markets. We also

launched a new emerging markets partner program to support the geographic expansion of European and U.S.-based proprietary

trading firms and trading arcades into developing trading centers. This two-year program provides fee waivers for new users of

our electronic markets in qualified regions around the world.

3 8

CME 2005 ANNUAL REPORT

A substantial portion of our clearing and transaction fees, as well as telecommunications fees and various service charges

included in other revenue, are billed to our clearing firms. The majority of clearing and transaction fees received from clearing

firms represent charges for trades executed on behalf of the customers of the various clearing firms. As of December 31, 2005,

there were approximately 80 clearing firms. In 2005, no one firm represented more than 10% of our clearing and transaction fees

revenue. Should a clearing firm withdraw from the exchange, we believe the customer portion of that firm’s trading activity would

likely transfer to another clearing firm of the exchange. Therefore, we do not believe we are exposed to significant risk from the

loss of revenue earned from any particular clearing firm.

Processing Services. The increase was primarily the result of increased volume at the CBOT as well as the expiration of lower initial

pricing that was in effect during much of 2004. We cleared 675 million CBOT contracts during 2005 compared with 600 million

contracts during 2004. In addition, we earned $3.8 million in incremental revenue from our agreement with NYMEX due to

increased trading volume and related increased fees for these trades. Trading volume related to NYMEX increased to 5.2 million

contracts in 2005 from 0.9 million contracts in 2004. Our agreement with NYMEX has expired and we stopped listing NYMEX

products on the CME Globex platform as of November 18, 2005.

Quotation Data Fees. The increase in quotation data fees resulted primarily from the change to our rates that was implemented

on January 1, 2005. Users of our basic service pay $35 per month for each market data screen, or device, an increase from the

$30 per month charge that was in effect during 2004. During 2005, we charged for approximately 148,000 devices utilizing our

basic service. At December 31, 2005, our market data was accessible by both basic users and users of lower-priced offerings on

approximately 179,000 devices. This is unchanged from the number of devices that displayed our data at December 31, 2004.

In addition, there was an increase of $0.9 million related to assessments resulting from our periodic audits of the usage data

provided by our customers.

In 2005, the two largest resellers of our market data represented approximately 53% of our quotation data fees revenue.

Should one of these vendors no longer subscribe to our market data, we believe the majority of that firm’s customers would

likely subscribe to our market data through another reseller. Therefore, we do not believe we are exposed to significant risk

from a loss of revenue received from any particular market data reseller.

Effective January 1, 2006, we increased the monthly fee for the basic data package by $5 per month to $40 per month.

Access Fees. The increase in access fees was attributed primarily to CME Globex users converting to higher bandwidth connections,

at a higher fee beginning in the third quarter of 2004. During 2006, we intend to upgrade that connection to 40 megabytes.

Communication Fees. Communication fees decreased primarily as a result of reduced demand for communication devices and

services on the trading floor accompanied by a decrease in demand by our building tenants.

Investment Income. The increase is primarily a result of interest rate increases in the marketplace. The annualized average

interest rate earned on investments, excluding our non-qualified deferred compensation plan and the first IEFs, increased to

3.0% in 2005 compared with 1.6% in 2004, representing an increase in investment income of $12.9 million. Also, $4.4 million

of the increase resulted from increased funds available for investment. The funds available for investment continued to increase

in large part due to growth in net income. Offsetting these increases was a $0.4 million decrease in IEF interest income and

other investment income. The first IEFs were included in our consolidated financial statements until they were discontinued in

December 2005. However, this consolidation has no effect on our net income since a corresponding increase is reflected in

other expenses for the fees paid for managing these IEFs and the distribution of the IEF earnings to the participants.

Securities Lending Interest Income and Expense. In October 2005, we increased the amount of eligible securities available

for lending to 70% from 50%. In addition, throughout 2005 the balance of firm securities held that were eligible for securities

lending increased. Both of these items, as well as the continued increase in interest rates by the Federal Open Market

Committee of the Federal Reserve, had a significant impact on securities lending interest year over year. The average daily balance

of proceeds from securities lending activity was $1.8 billion in 2005 and $1.4 billion in 2004. Net revenues from securities lending

represented an annualized return of 0.11% on the average daily balances for 2005 compared with 0.09% for 2004.

CME 2005 ANNUAL REPORT

3 9

Other Revenues. The increase in other revenues resulted primarily from a $0.6 million increase in fees associated with managing

our IEF programs in 2005 when compared with 2004 and a $0.5 million decrease in our share of the net loss of OneChicago.

Expenses

(dollars in millions)

Compensation and benefits

Occupancy

Professional fees, outside services and licenses

Communications and computer and software maintenance

Depreciation and amortization

Marketing, advertising and public relations

Other

Total Expenses

2005

$ 179.6

2004

$ 164.8

Amount

$ 14.8

28.5

44.8

57.9

64.9

13.3

23.1

27.2

37.2

48.3

53.4

11.0

24.2

1.3

7.6

9.6

11.5

2.3

(1.1)

$ 412.1

$ 366.1

$ 46.0

Change

Percentage

(5)

Expense Highlights. While there was a 25% increase in net revenues in 2005, total expenses increased by 13% driven primarily by the

following factors:

• Compensation and benefits increased as a result of annual salary and related benefit increases, a 3% increase in average

headcount and increases in stock-based compensation.

• We extended the exclusivity of our licensing agreements with NASDAQ and S&P. As a result, professional fees, outside service and

licenses increased primarily due to the increased fees payable under these agreements as well as increased spending on

technology initiatives.

• A 39% increase in transactions processed electronically resulted in increased communications and computer and software

maintenance.

• We continued to add to and improve our data centers resulting in an increase in depreciation and amortization of $11.5 million over 2004.

• Initiatives to expand product-specific marketing and to rebrand existing marketing and advertising materials contributed to an

increase in marketing, advertising and public relations.

Compensation and Benefits. Although there are a number of factors that affected compensation and benefits, the primary drivers

of the increase were:

• Annual salary increases and related increases in employer taxes and benefits resulted in approximately $7.2 million of additional

expense during 2005 when compared with 2004.

• The average number of employees increased approximately 3%, or by 42 employees, to 1,296 in 2005 from 1,254 in 2004.

We had 1,321 employees at December 31, 2005. This increased headcount resulted in additional compensation and benefits,

excluding bonuses, of approximately $4.6 million.

• Stock-based compensation increased $4.8 million to $12.6 million in 2005 from $7.8 million in 2004. This increase resulted

primarily from an increase in the fair value per share of options granted in 2005. The higher fair value was driven primarily by the

increase in our stock price.

• We experienced a $1.5 million increase in capitalized compensation and benefits that relates to development of internal use

software, thereby reducing the amount of compensation and benefits that was expensed in 2005.

4 0

CME 2005 ANNUAL REPORT

Occupancy. Occupancy expense increased primarily as a result of $1.0 million of additional rent and utilities expense for a

remote data center that began operation in April 2004. There was also an increase in real estate tax rates and operating expenses

at our main location that resulted in additional expense of $0.5 million for 2005. Increases were partially offset by a decrease

in our volume-based trading floor rent, due to lower open outcry trading, and a decrease in building maintenance expense.

Professional Fees, Outside Services and Licenses. The increase resulted primarily from $3.5 million in additional license fees in

2005 when compared with 2004 as a result of increased licensing rates for certain of our equity products and increased trading

volume. The NASDAQ and S&P licensing agreements were renegotiated in April 2005 and September 2005, respectively. Rates

increased for these licensing agreements as a result of the renegotiations in return for an extension of exclusivity. We also

incurred $2.5 million in additional professional fees, net of amounts capitalized for internally developed software, that related

primarily to our technology initiatives, including integration of enhanced options trading functionality onto the CME Globex

platform and implementation of new mass quoting functionality for certain foreign exchange and equity option products. Finally,

we incurred $2.3 million of incremental expense related to our revenue sharing agreements with SGX and market makers

designated for certain products. The SGX increase resulted from the growth in electronic trading of CME Eurodollar contracts

after our regular floor trading hours. Partially offsetting these increases was a decrease of $0.7 million in other professional

fees and outside services, primarily due to reduced legal fees and recruiting expenses.

Communications and Computer and Software Maintenance. During 2005, the number of transactions we processed electronically

increased approximately 39%. As a result, additional capital purchases were required to accommodate this growth and our

expenses for software, software maintenance and hardware maintenance increased $5.1 million when compared with 2004.

Also, during 2005 we experienced greater communications expense of $4.4 million. This increase is related to a number of items

including, but not limited to, expansion of our international communications hubs in Europe and Asia. We now have seven hubs

in Europe and one in Asia. In addition, our bandwidth upgrades for customers, increased connections for new CME Globex

users and additional bandwidth now provided between our main location and our remote data centers also contributed to the

increase in communications expense.

Depreciation and Amortization. This increase was the result of depreciation and amortization of 2005 asset acquisitions

exceeding the depreciation and amortization of assets that have become fully depreciated or retired since December 31, 2004.

The main components of the 2005 asset additions were technology equipment and leasehold improvements to our remote data

centers. Also, a greater portion of our fixed assets are now depreciating over shorter lives. This change became effective

January 1, 2004 when the estimated useful lives of new technology equipment purchases were reduced from four to three years

and new personal computer purchases were reduced from three to two years. Property additions totaled $87.6 million in 2005

and $67.5 million in 2004. Technology-related assets, defined as purchases of computers, related equipment and software, the

cost of developing internal use software and costs associated with the build-out and expansion of our data centers, represented

approximately 91% and 86%, respectively, of these additions.

Marketing, Advertising and Public Relations. The increase in marketing, advertising and public relations expense is attributable

to increased product-specific marketing especially for our foreign exchange products, the launch of CME Magazine and

rebranding of brochures and direct marketing materials. During 2005, we also incurred $0.4 million of expense related to a

donation for hurricane relief. There was no similar expense in 2004.

Other Expenses. The change was attributable primarily to a $1.9 million decrease in currency delivery fees resulting from

migration to a more cost-effective currency delivery system. Also contributing to the change was a $0.5 million decrease in bad

debt expense due to billing adjustments and the collection of items in 2005 that were reserved for in 2004. These decreases

were partially offset by a $1.0 million increase in general and administrative expenses when compared with 2004.

CME 2005 ANNUAL REPORT

4 1

Income Tax Provision. The effective tax rate was 39.6% for 2005 compared with 40.3% for 2004. The effective tax rate declined

as a result of an increase in tax-exempt investment income and the favorable resolution of certain tax audit issues.

RESULTS OF OPERATIONS FOR 2004 COMPARED WITH 2003

2004 Financial Highlights

• Net income increased to $219.6 million from $122.1 million in 2003 primarily as a result of a 37% increase in net revenues

offset by an 11% increase in expenses.

• Net revenues increased primarily as a result of increases in clearing and transaction fees and processing services.

• The majority of our increase in total expenses occurred in compensation and benefits and professional fees, outside services

and licenses.

Revenues

(dollars in millions)

Clearing and transaction fees

Processing services

Quotation data fees

Access fees

Communication fees

Investment income

Securities lending interest income

Other

Total Revenues

Securities lending interest expense

Net Revenues

n.m. not meaningful

2004

$ 553.0

2003

$ 428.8

Amount

$ 124.2

54.2

7.7

0.9

0.3

5.3

10.8

4.6

208.0

(10.2)

1.7

53.2

15.5

9.7

9.2

9.5

17.2

544.8

(8.8)

$ 536.0

$ 197.8

Change

Percentage

29%

n.m.

55.9

60.9

16.4

10.0

14.5

20.3

21.8

752.8

(19.0)

$ 733.8

Revenue Highlights. During 2004, net revenues increased by 37% influenced by the following major factors:

• Clearing and transaction fees increased primarily as a result of a 26% increase in average daily trading volume driven by increased

electronic trading.

• We began providing clearing services to the CBOT in November 2003. This resulted in a significant increase in revenue from a full

year of processing services.

• A change in our fee structure for market data resulted in an increase in quotation data fees.

Clearing and Transaction Fees. A significant portion of the increase was attributable to the 26% increase in average daily trading

volume. In addition, there was an increase in the percentage of trading volume executed through the CME Globex platform. In 2004,

CME Globex volume was 57% of average daily trading volume compared with 42% during 2003. Each of our four major product

lines, with the exception of commodity products, experienced growth in CME Globex volume during 2004 when compared with 2003.

4 2

CME 2005 ANNUAL REPORT

The following table summarizes average daily trading volume (in thousands) and revenue. All amounts exclude TRAKRS unless

otherwise noted.

CME Product Line Volume:
Interest rate

Equity

Foreign exchange

Commodity

Total Average Daily Volume

CME Globex Volume

CME Globex Volume as a Percent of Total Volume

Clearing and Transaction Fees (in millions)

Average Rate per Contract

2004

1,705

1,164

202

3,111

1,786

57%

Percentage
Change

38%

2003

1,234

1,057

135

2,461

1,041

42%

$ 552.6

$ 0.702

$ 428.7

$ 0.691

We experienced an increase in our interest rate volume in 2004 when compared with 2003. During 2004, 35% of our volume in

interest rate products was executed on the CME Globex platform compared with 4% during 2003. This increase represented

incremental average daily trading volume in our interest rate products on CME Globex of nearly 600,000 contracts. More competitive

customer fees, the participation of market makers, increased usage of handheld electronic trading units on our trading floor and the

enhancements allowing complex trading strategies to be completed on the CME Globex platform contributed to increased electronic

trading volume of CME Eurodollars. In addition, there was increased interest rate volatility contributing to higher volume levels that

was not as evident in 2003.

The volatility of U.S. equity markets in 2003 was not as evident during 2004. Despite this lower volatility, our equity product

volume grew 10% during 2004 when compared with 2003. Our equity product volume was influenced by increased distribution to

customers through the CME Globex platform combined with incentive programs introduced during the second quarter of 2004 that

enabled additional market participants to obtain reduced fees on some of our products.

Our foreign exchange volume benefited from increased volatility and fee incentive programs initiated during the second quarter of

2004, which resulted in increased trading on the CME Globex platform. During 2004, 66% of our foreign exchange volume was

conducted through CME Globex compared with 44% during 2003.

Price levels and volatility patterns contributed to the increase in volume in commodity products during 2004 when compared with 2003.

The average rate, or revenue, per contract increased to $0.702 for 2004 from $0.691 for 2003 due to the following factors:

• A higher percentage of trades were executed on the CME Globex platform.

• We experienced an increase due to a shift in CME E-mini products traded on the CME Globex platform from member to non-

member customers and special programs that earn a higher rate per contract than member trades.

• Partially offsetting these increases was a reduction of $0.008 due to the impact of reduced volume from our mutual offset

agreement with SGX.

• The average rate per contract was also reduced by $0.006 in 2004 when compared with 2003 as a result of $3.6 million related

to two large clearing fee audit assessments that increased revenues during 2003. There were no similar large assessments during 2004.

• Our tiered pricing structure for CME Eurodollars reduced the average rate per contract by an additional $0.005 during 2004 when
compared with 2003 as increased trading volume in our CME Eurodollar contracts resulted in additional fee reductions related to

volume incentives.

• The foreign exchange tiered pricing structure resulted in an additional reduction in average rate per contract of $0.003 during 2004

when compared with 2003, as a result of the volume growth in foreign exchange products and the related impact on these incentives.

CME 2005 ANNUAL REPORT

4 3

Processing Services. Processing services revenue increased as a result of providing clearing and transaction processing services

to the CBOT. We began providing these services for some CBOT products in November 2003 and, as of January 1, 2004, we

began clearing all CBOT products. We cleared 600 million contracts for CBOT during 2004. In addition to fees for services

provided to the CBOT, we earned $0.7 million related to NYMEX and OneChicago transaction processing, which was relatively

constant with amounts earned in 2003.

Quotation Data Fees. The increase resulted primarily from the change to our fee structure that was implemented on January 1, 2004.

At that time, we modified our market data pricing to a flat fee structure. Users of the professional service were charged $30 per month

for each market data screen or device during 2004. Previously, users of the professional service were charged a higher fee for the

first screen at each location and a lower fee for each additional screen at the same location. At December 31, 2004, there

were approximately 63,000 subscribers to our market data and the data was accessible from approximately 179,000 screens and

included approximately 30,000 subscribers to our lower-priced, non-professional service. This represented an increase from

December 31, 2003 of approximately 5,000 screens displaying our data and 3,000 subscribers, including 2,000 subscribers to

our lower-priced, non-professional market data service.

Access Fees. This increase was attributed to expanded distribution that was partially offset by our customers consolidating

connections into higher capacity bandwidths.

Communication Fees. The increase was due largely to greater usage of handheld electronic trading devices.

Investment Income. The average interest rate earned on all investments was 1.6% for 2004 compared with 1.2% during 2003,

representing an increase in investment income of $3.0 million. The increase in rates earned was due to a change in our

investment policy that we began to implement in the third quarter of 2003 as well as increases in market interest rates. Also,

$2.5 million of the increase in interest income resulted from increased cash performance bonds and security deposits in the

first three quarters of 2004 and increased funds available for investment. In addition, as a result of the issuance of FASB

Interpretation No. 46, “Consolidation of Variable Interest Entities,” in January 2003, the first IEFs that we initiated in 1997 have

been included in our consolidated financial statements beginning with the third quarter of 2003. Investment income for 2004

includes $2.1 million of interest income from the first IEFs compared with $1.4 million during 2003. Partially offsetting these

increases was a $0.7 million decrease in the investment results of our non-qualified deferred compensation plan that is included in

investment income but does not affect our net income, as there is an equal decrease in our compensation and benefits expense.

Securities Lending Interest Income and Expense. The average daily balance of proceeds from securities lending activity was $1.4 billion

for 2004 and $0.7 billion for 2003. The net revenues from securities lending represented an annualized return of 0.09% on the

average daily balances for 2004 compared with 0.10% for 2003.

Other Revenues. This increase resulted from a variety of factors. There was a $1.8 million increase in fees associated with

managing our IEF programs during 2004 when compared with 2003, a $1.3 million decrease in our share of the net loss of

OneChicago, a $0.9 million increase in the trading revenue generated by GFX and a $0.7 million increase in sales of our CME

SPAN software.

Expenses

(dollars in millions)

Compensation and benefits

Occupancy

Professional fees, outside services and licenses

Communications and computer and software maintenance

Depreciation and amortization

Marketing, advertising and public relations

Other

Total Expenses

2004

$ 164.8

2003

$ 141.0

Amount

$ 23.8

27.2

37.2

48.3

53.4

11.0

24.2

24.9

31.7

45.7

53.0

11.9

21.7

2.3

5.5

2.6

0.4

(0.9)

2.5

$ 366.1

$ 329.9

$ 36.2

Change

Percentage

17%

(8)

4 4

CME 2005 ANNUAL REPORT

Expense Highlights. During 2004, total expenses increased by 11% primarily due to increases in compensation and benefits as well

as professional fees, outside services and licenses.

Compensation and Benefits. There were four significant components to this increase:

• Annual salary increases and related increases in employer taxes and benefits resulted in additional expense of $7.1 million.

• Stock-based compensation expense increased $6.3 million during 2004. This increase resulted primarily from a full year of expense

in 2004 for the options granted in June 2003 as well as the seven months of expense related to the employee options grant in June

2004. Also, stock-based compensation was reduced by $2.6 million in the fourth quarter of 2003 as a result of the forfeiture of a

portion of our former CEO’s stock option. There were no similar significant forfeitures in 2004.

• The average number of employees increased approximately 6%, or by 68 employees, from 2003 to 2004. We had 1,283 employees at

December 31, 2004. This increased headcount resulted in additional compensation and benefits, excluding bonuses, of $7.1 million.

• The bonus expense for 2004, as accrued under the provisions of our annual incentive plan, increased $4.4 million when compared

with 2003.

These increases were partly offset by:

• Investment results of our non-qualified deferred compensation plan decreased by $0.7 million in 2004.

• We experienced a $0.5 million increase in the capitalization of compensation and benefits relating to internally developed software,

thereby reducing the amount of compensation and benefits that was expensed in 2004.

Occupancy. Occupancy expense increased primarily as a result of rent that began in April 2004 for an additional remote data

center, additional space we now lease at our main location and increased operating expenses.

Professional Fees, Outside Services and Licenses. The increase resulted primarily from our revenue sharing agreement with SGX

and license fees relating to our equity products. We incurred $2.5 million of expense related to our revenue sharing agreement

with SGX. This revenue sharing resulted from the growth in electronic trading of CME Eurodollars. There was no similar expense in

2003 due to the relatively low percentage of CME Eurodollars trading electronically at that time. In addition, license fees increased

by $1.9 million in 2004 as a result of increased trading volume and increased licensing rates for certain of our equity products. We

also experienced an increase of $1.0 million for consulting and auditing services related to Sarbanes-Oxley reporting requirements.

Communications and Computer and Software Maintenance. This expense is affected primarily by growth in electronic trading.

During 2004, we experienced greater communications expense that included a $0.4 million increase for connections to the CME

Globex platform. Also, during 2003, we received $2.5 million in refunds from our primary telecommunications provider for billing

errors in prior periods. We received a similar refund of $0.4 million during 2004, resulting in a net increase in expenses of

$2.1 million during 2004. This increase in communications expense was partially offset by a $1.4 million decrease in other

communications expense as a result of network consolidation and cost reduction efforts. During 2004, the number of transactions

we processed increased approximately 31%. In addition, we processed approximately 87% of total transactions electronically in

2004 compared with nearly 80% in 2003, which represented 57% and 42%, respectively, of total contracts traded. As a result, our

expenses for software, software maintenance and hardware maintenance increased $2.4 million during 2004 when compared with

2003. This increase was partially offset by $0.7 million that was awarded during the fourth quarter of 2004 as settlement of the

arbitration of a dispute relating to the maintenance charges previously paid that for certain software used to access the CME

Globex platform.

Depreciation and Amortization. Depreciation and amortization of 2004 asset acquisitions exceeded the depreciation and

amortization of assets that have become fully depreciated or retired since December 31, 2003, contributing to an overall increase

in expense. In addition, the decrease in depreciable lives, effective January 1, 2004, resulted in increased expense in 2004.

Property additions totaled $67.5 million and $63.0 million for 2004 and 2003, respectively. Technology-related asset purchases

in 2004 and 2003 represented approximately 86% and 80%, respectively, of these additions.

CME 2005 ANNUAL REPORT

4 5

Marketing, Advertising and Public Relations. During 2003, we incurred $6.2 million of expense associated with our brand

advertising campaign. There was no similar expense in 2004. Substantially offsetting this decreased brand advertising expense

was an increase in product advertising and other marketing-related efforts during 2004 when compared with 2003.

Other Expense. A primary factor in this increase was $0.6 million of expense related to the consolidation of the first IEF program

that was effective in the third quarter of 2003. This expense represents the distribution of the net earnings of these IEFs to the

participants in the program. However, there is no impact on net income as a result of including the related IEF earnings as part

of investment income. In addition, we experienced a $0.6 million increase in bank fees, including securities lending fees, a

$0.5 million increase in bad debt expense, a $0.4 million increase in currency delivery fees resulting from increased currency

delivery volume and increases in other general administrative expenses.

Income Tax Provision. The effective tax rate was 40.3% for 2004 compared with 40.7% for 2003. The decrease in the effective

tax rate resulted primarily from expenses incurred in connection with the June and November 2003 secondary offerings that

were not deductible for tax purposes. There were no similar expenses in 2004.

LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

Cash will be required for commitments reflected as liabilities on our consolidated balance sheet at December 31, 2005,

operating leases and non-cancelable purchase obligations. These commitments are as follows (in thousands):

Year

2006

2007-2008

2009-2010

Thereafter

Total

Operating
Leases

$ 12,996

24,855

5,649

7,465

Purchase
Obligations
$ 21,670

16,593

5,422

12,489

Other
Long-Term
Liabilities
$ 2,082

2,039

—

Total

36,748

43,487

11,071

19,954

$ 50,965

$ 56,174

$ 4,121

$ 111,260

In 2004, we acquired the intellectual property and operating assets of Liquidity Direct Technology, LLC, a private trading

technology firm that developed technology to facilitate the trading of complex combinations and spreads typically used with

options. The purchase agreement required an initial payment of $5.3 million, with additional payments based on revenue

generated when this electronic platform was implemented. The platform was implemented in the third quarter of 2004 and

these additional payments will extend over three years, but will not exceed $16.8 million. Additional payments and obligations

to the sellers as part of this purchase in 2005 and 2004 totaled $1.1 million and $0.1 million, respectively.

Included in commitments is the remaining liability relating to the $15.0 million settlement in August 2002 of the Wagner patent

litigation. The settlement required an initial payment of $5.0 million in September 2002 and five subsequent annual payments

of $2.0 million, with the first payment made in August 2003. The entire expense related to this settlement was recognized in

2002 at its present value of $13.7 million.

Future capital expenditures for technology are anticipated as we continue to invest in increased system capacity and

performance and pursue technological initiatives on our electronic trading platform such as implementation of additional

functionality for CME Eurodollar and foreign exchange options; increased functionality for user defined spreads; and facilitation

of covered options and futures trading. Each year capital expenditures are incurred for improvements throughout our central

location and our remote data centers. Capital expenditures also are incurred for improvements to our trading floor facilities,

offices, telecommunications capabilities and other operating equipment. We expect 2006 capital expenditures to be in the

range of $90.0 million to $100.0 million.

4 6

CME 2005 ANNUAL REPORT

We intend to pay regular quarterly dividends to our shareholders. In 2005, our annual dividend target remained at approximately 30%

of the prior year’s cash earnings. The decision to pay a dividend, however, remains within the discretion of our Board of Directors and

may be affected by various factors, including our earnings, financial condition, capital requirements, level of indebtedness and other

considerations our Board of Directors deems relevant. On February 1, 2006, the Board of Directors declared a regular quarterly

dividend of $0.63 per share to be paid on March 27, 2006 to shareholders of record on March 10, 2006. Assuming no changes in

the number of shares outstanding, the dividend payment will total approximately $21.8 million.

Debt Instruments

We maintain a line of credit with a consortium of banks to be used in certain situations, such as a disruption in the domestic

payments system that would delay settlement between our exchange and our clearing firms or in the event of a clearing firm

default. The line of credit has never been utilized other than a one day draw in 2004 for $10.0 million to ensure that the facility

would operate as intended. On October 14, 2005, the line of credit was renewed at the existing amount of $750.0 million and

on terms substantially the same as the expiring line of credit. We now have the option to request an increase to the facility from

$750.0 million to $1.0 billion at the time of a draw. The agreement does not require the participating banks to comply with our

request. The credit agreement continues to be collateralized by clearing firm security deposits held by us in the form of U.S.

Treasury or agency securities, as well as security deposit funds in IEF2 and any performance bond deposits of the defaulting

firm. The line of credit can only be drawn on to the extent it is collateralized. Collateral available and on deposit was $1.2 billion

at December 31, 2005.

In addition, as of December 31, 2005, we were contingently liable on irrevocable letters of credit totaling $109.0 million in

connection with our mutual offset system with SGX. In October 2005, we approved the use of up to $100.0 million in CME

owned U.S. Treasury securities as performance bond collateral in connection with our mutual offset agreement with SGX. At

December 31, 2005, the amount pledged was $70.2 million.

CME also guarantees a $5.0 million standby letter of credit for GFX. The beneficiary of the letter of credit is the clearing firm that

is used by GFX to execute and maintain its futures positions. Per exchange requirements, GFX is required to place performance

bond deposits with its clearing firm. The letter of credit will be utilized in the event that GFX defaults in meeting requirements to

its clearing firm. In the unlikely event of a payment default by GFX, GFX’s performance bond deposits would first be used to cover

any deficit. If this amount is not sufficient, the letter of credit would be used, and finally CME would guarantee the remaining

deficit, if any.

Off-Balance Sheet Arrangements

As of December 31, 2005, we did not have any significant off-balance sheet arrangements as defined in the regulations of the

U.S. Securities and Exchange Commission.

CME 2005 ANNUAL REPORT

4 7

Sources and Uses of Cash

Net cash provided by operating activities was $391.6 million for 2005 and $328.8 million for 2004. The net cash provided by

operations increased primarily as a result of our improved operating results. The increase was partially offset by an increase

in other current assets of $17.5 million primarily due to increases in refundable income taxes and prepaid software and

maintenance agreements. The net cash provided by operating activities exceeded our net income in 2005 and 2004 primarily

as a result of non-cash expenses, such as depreciation and amortization, which do not adversely affect our cash flow. In addition,

we received tax benefits related to employee option exercises in excess of our book expense associated with these options and

this tax benefit reduced our income tax obligations for 2005.

Cash used in investing activities was $82.3 million for 2005 compared with $125.8 million for 2004. The decrease in cash used

of $43.5 million was primarily due to a reduction in the purchases of marketable securities in excess of the cash provided by the

maturities of marketable securities from 2004 to 2005. Maturities of marketable securities were greater than purchases in 2005

by $5.2 million while in 2004 purchases of marketable securities, net of maturities, totaled $51.9 million. Cash used to acquire

and develop capital assets increased $18.1 million to $85.6 million for 2005 from $67.5 million for 2004.

Property additions include capital expenditures for purchased and internally developed software; equipment including that

acquired utilizing capital leases; and leasehold improvements, including those acquired with lease allowances. Property additions

in 2005 included leasehold improvements of $22.8 million related to the expansion of our remote data centers and $5.8 million

related to the remodeling of the office space at our main location. Property additions in 2004 included leasehold improvements

of $12.8 million related to the expansion of our first remote data center and $7.7 million related to the remodeling of the office

space and lobby at our main location.

Technology-related assets include purchases of computers and related equipment software, the cost of developing internal use

software and costs associated with the build-out and expansion of our data centers. Technology-related additions increased

$21.4 million to $79.5 million in 2005 from $58.1 million in 2004. These additions related primarily to expanding capacity to

accommodate the growth in electronic trading on the CME Globex platform, clearing trades for the CBOT, improving speed and

reliability in our systems and implementing other system enhancements.

The following table summarizes property and technology-related additions for 2003 through 2005:

(dollars in millions)

Total Property Additions

Technology (including data center leasehold improvements)

Percentage for Technology

2005

$ 87.6

79.5

91%

2004

$ 67.5

58.1

86%

2003

$ 63.0

50.4

80%

Cash used in financing activities was $55.9 million in 2005 compared with $30.5 million in 2004. The increase was primarily

due to the $28.2 million increase in dividends paid. Dividends totaled $63.3 million in 2005 compared with $35.1 million in

2004. The increase resulted primarily from our improved prior year’s cash earnings that is the basis used to determine the

amount of the current year’s dividend. Partially offsetting this increase was a $1.5 million decrease in payments on long-term

debt related to capital leases. All long-term debt was retired during 2004. In addition, the proceeds from stock option exercises

increased $1.0 million to $7.0 million for 2005 from $6.0 million for 2004.

4 8

CME 2005 ANNUAL REPORT

Liquidity and Cash Management

Cash and cash equivalents totaled $610.9 million at December 31, 2005 compared with $357.6 million at December 31, 2004.

The $253.3 million increase resulted primarily from cash generated by operations, partially offset by $85.6 million in purchases

of property, net of trade-in allowances, and $63.3 million in quarterly dividend payments. The balance retained in cash and cash

equivalents was a function of anticipated or possible short-term cash needs, prevailing interest rates, our investment policy,

alternative investment choices and any dividends that we pay.

Included in other assets and other current assets are net deferred tax assets that total $14.9 million and $10.8 million at

December 31, 2005 and 2004, respectively. These net deferred tax assets result primarily from depreciation, stock-based

compensation and deferred compensation. There is no valuation reserve for these assets as we expect to realize their full value

in the future based on our expectation of future taxable income.

Historically, we have met our funding requirements from operations. If operations do not provide sufficient funds to complete

capital expenditures, short-term investments or marketable securities can be reduced to provide the needed funds or assets

can be acquired through capital leases.

Each clearing firm is required to deposit and maintain a specified performance bond balance, which is determined by

parameters established by the risk management department of the clearing house and may fluctuate over time. Performance

bond requirements can be satisfied with a variety of approved investments and cash. Cash performance bonds and security

deposits are included in our consolidated balance sheets. With the exception of the portion of securities deposited that are

utilized in our securities lending program, clearing firm deposits other than those retained in the form of cash are not included

in our consolidated balance sheets. Securities lending transactions utilize a portion of the securities that clearing firms have

deposited to satisfy their proprietary performance bond requirements. Securities lending activity fluctuates based on the amount

of securities that clearing firms have deposited and the demand for securities lending activity in the particular securities

available to us. As a result of these factors, the balances in cash performance bonds and security deposits, as well as the

balances in our securities lending program, may fluctuate significantly over time.

Cash performance bonds and security deposits, collateral from securities lending and balances in the first IEFs consisted of the

following at December 31:

(in millions)

Cash performance bonds

Cash security deposits

Cross-margin arrangements

Total Cash Performance Bonds and Security Deposits

Collateral from securities lending activities and payable under

securities lending agreements

Short-term investments and payable to participants in first IEFs

Total

2005

579.0

12.5

0.6
592.1

2,160.9

–

$ 2,753.0

2004

$ 255.3

11.9

2.7

269.9

1,583.0

87.5

$ 1,940.4

We discontinued operation of the first IEFs and all deposits were returned to clearing firms in December 2005.

CME 2005 ANNUAL REPORT

4 9

We are required under the Commodity Exchange Act to segregate cash and securities deposited by clearing firms on behalf of

customers. In addition, our exchange rules require a segregation of all funds and securities deposited by clearing firms from

exchange operating funds and marketable securities. As with cash performance bonds and security deposits, these balances

will fluctuate due to the investment choices available to clearing firms and the change in total deposits required. Securities, at

fair value, and IEF funds were deposited for the following purposes at December 31:

(in millions)

Performance bonds

Security deposits

Cross-margin arrangements

Total

2005

2004

$ 45,809.8

$ 43,442.7

1,236.2

531.7

1,008.9

633.9

$ 47,577.7

$ 45,085.5

5 0

CME 2005 ANNUAL REPORT

Quantitative and Qualitative Disclosures
About Market Risk

Market risk represents interest rate risk relating to the marketable securities that are available for sale, as well as derivatives

trading risk associated with GFX. With respect to interest rate risk, a change in market interest rates would affect interest income

from short-term investments of cash, cash performance bonds and security deposits, variable rate marketable securities and new

purchases of marketable securities. Changes in market interest rates also would have an effect on the fair value of any

marketable securities owned.

Investment choices, as provided in our investment policy, primarily include U.S. Treasury and government agency securities,

investment grade corporate obligations, repurchase agreements and municipal securities. Maturities may extend to a maximum

of 60 months. In December 2005, we amended our investment policy to increase the percentage of our portfolio allocable to

municipal securities. We also expanded the range of municipal securities that meet the requirements of our investment policy.

Interest Rate Risk

Interest income from marketable securities, short-term cash investments, and cash performance bonds and security deposits was

$28.5 million in 2005, $11.2 million in 2004 and $5.8 million in 2003. We experienced an increase in interest income during

2005 due to rising interest rates and an increase in the average balance of invested funds. Our marketable securities experienced

net unrealized losses of $2.1 million in 2005 and $2.8 million in 2004, and net unrealized gains of $0.1 million in 2003. There

were no realized gains or losses in 2005, 2004 and 2003. Expected maturities and interest coupon rates for fixed rate

marketable securities at December 31, 2005 were as follows (dollars in thousands):

Year

2006

2007

2008

Total

Fair Value

Weighted
Average
Interest Rate

3.82%

3.80

2.34

3.41

Principal
Amount

$ 73,571

143,517

80,410

$ 297,498

$ 292,862

The 2008 expected maturity includes certain zero coupon marketable securities. Excluding zero coupon securities, the 2008

weighted average interest rate would be 3.51%.

Under our investment policy, we monitor interest rate risk by completing regular reviews of our marketable securities portfolio and

its sensitivity to changes in the general level of interest rates, commonly referred to as a portfolio’s duration. We control the

duration of the portfolio primarily through the purchase of individual marketable securities having a duration consistent with our

overall investment policy. In addition, we will generally hold marketable securities to maturity, which will act as a further mitigating

factor to interest rate risk.

CME 2005 ANNUAL REPORT

5 1

Derivatives Trading Risk

GFX engages primarily in the purchase and sale of our foreign exchange futures contracts on CME Globex to provide additional

liquidity in these products and subsequently enters into offsetting transactions using futures contracts or spot foreign exchange

transactions with approved counterparties in the interbank market to limit market risk. Any potential impact on the earnings of

GFX from a change in foreign exchange rates would not be significant. GFX also engaged in purchases and sales of CME

Eurodollar futures contracts on the CME Globex platform during the first six months of 2004. At the end of the second quarter

of 2004, it was determined that GFX’s participation in electronic trading of CME Eurodollars was no longer necessary for liquidity

purposes. Net position limits are established for each trader. Limits totaled $12.0 million in net exposure, as measured by

notional value, as of December 31, 2005.

At December 31, 2005, GFX held futures positions with a notional value of $106.6 million, offset by a similar amount of spot

foreign exchange positions. The notional value of futures positions at December 31, 2004 totaled $99.1 million. All positions

are marked to market through a charge or credit to other revenue on a daily basis. Net trading gains were $7.6 million for the

year ended December 31, 2005, $7.7 million for the year ended December 31, 2004 and $6.8 million for the year ended

December 31, 2003.

5 2

CME 2005 ANNUAL REPORT

Management’s Report on Internal Control
Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The company’s

internal control system has been designed to provide reasonable assurance to management and the Board of Directors

regarding the preparation and fair presentation of published financial statements.

Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2005.

Management based this assessment on criteria for effective internal control over financial reporting described in Internal

Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management’s assessment included evaluating the design of the company’s internal control over financial reporting and

testing the operational effectiveness of the company’s internal control over financial reporting. The results of its assessment

were reviewed with the Audit Committee of the Board of Directors.

Based on this assessment, management believes that, as of December 31, 2005, the company’s internal control over financial

reporting is effective. The company’s independent auditors have audited this assessment of the company’s internal control over

financial reporting, as stated in their report that is included herein.

CME 2005 ANNUAL REPORT

5 3

Reports of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders of Chicago Mercantile Exchange Holdings Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over

Financial Reporting, that Chicago Mercantile Exchange Holdings Inc. maintained effective internal control over financial reporting

as of December 31, 2005, based on criteria established in Internal Control–Integrated Framework issued by the Committee

of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Chicago Mercantile Exchange Holdings Inc.’s

management is responsible for maintaining effective internal control over financial reporting and for its assessment of the

effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s

assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal

control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of

internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating

effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We

believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Chicago Mercantile Exchange Holdings Inc. maintained effective internal control

over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in

our opinion, Chicago Mercantile Exchange Holdings Inc. maintained, in all material respects, effective internal control over

financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),

the consolidated balance sheets as of December 31, 2005 and 2004, and the related consolidated statements of income,

shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 of Chicago Mercantile

Exchange Holdings Inc. and our report dated February 10, 2006 expressed an unqualified opinion thereon.

Chicago, Illinois

February 10, 2006

5 4

CME 2005 ANNUAL REPORT

To The Board of Directors and Shareholders of Chicago Mercantile Exchange Holdings Inc.

We have audited the accompanying consolidated balance sheets of Chicago Mercantile Exchange Holdings Inc. (a Delaware

corporation) and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of

income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These

financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these

financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits

provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial

position of Chicago Mercantile Exchange Holdings Inc. at December 31, 2005 and 2004, and the consolidated results of their

operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the

effectiveness of Chicago Mercantile Exchange Holdings Inc.’s internal control over financial reporting as of December 31, 2005,

based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of

the Treadway Commission and our report dated February 10, 2006 expressed an unqualified opinion thereon.

Chicago, Illinois

February 10, 2006

CME 2005 ANNUAL REPORT

5 5

Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets

(in thousands, except share data)

Assets

Current Assets:

Cash and cash equivalents

Collateral from securities lending

Short-term investments of interest earning facilities

Marketable securities, including pledged securities of $70,165 at December 31, 2005

Accounts receivable, net of allowance of $828 and $1,089

Other current assets

Cash performance bonds and security deposits

Total current assets

Property, net of accumulated depreciation and amortization

Other assets

Total Assets

Liabilities and Shareholders’ Equity

Current Liabilities:

Accounts payable

Payable under securities lending agreements

Payable to participants in interest earning facilities

Other current liabilities

Cash performance bonds and security deposits

Total current liabilities

Other liabilities

Total Liabilities

Shareholders’ Equity:

Preferred stock, $0.01 par value, 9,860,000 shares

authorized, none issued and outstanding

Series A junior participating preferred stock, $0.01 par value,

140,000 shares authorized, none issued and outstanding

Class A common stock, $0.01 par value, 138,000,000 shares

authorized, 34,544,719 and 34,098,623 shares issued and

outstanding as of December 31, 2005 and 2004, respectively

Class B common stock, $0.01 par value, 3,138 shares

authorized, issued and outstanding

Additional paid-in capital

Retained earnings

Accumulated net unrealized securities losses

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

See accompanying notes to consolidated financial statements.

AT DECEMBER 31

2005

2004

610,891

357,562

2,160,893

÷ 1,582,985

—

87,521

292,862

÷302,429

86,980

39,669

÷ 78,825

÷ 18,959

592,127

÷ 269,919

3,783,422

÷ 2,698,200

153,329

32,643

131,361

27,905

$ 3,969,394

$ 2,857,466

$ ÷23,553

$ ÷23,045

2,160,893

1,582,985

—

53,354

592,127

2,829,927

20,783

87,521

62,153

269,919

2,025,623

19,246

2,850,710

2,044,869

—

345

—

341

—

324,848

796,398

(2,907)

261,050

552,801
(1,595)

1,118,684

$ 3,969,394

812,597
$ 2,857,466

5 6

CME 2005 ANNUAL REPORT

Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Income

(in thousands, except per share data)

Revenues

Clearing and transaction fees

Processing services

Quotation data fees

Access fees

Communication fees

Investment income

Securities lending interest income

Other

Total Revenues

Securities lending interest expense

Net Revenues

Expenses

Compensation and benefits

Occupancy

Professional fees, outside services and licenses

Communications and computer and software maintenance

Depreciation and amortization

Marketing, advertising and public relations

Other

Total Expenses

Income Before Income Taxes

Income tax provision

Net Income

Earnings per Common Share:

Basic

Diluted

Weighted Average Number of Common Shares:

Basic

Diluted

See accompanying notes to consolidated financial statements.

YEAR ENDED DECEMBER 31

2005

2004

2003

$ 696,201

$ 552,953

$ 428,802

68,730

71,741

18,866

8,964

31,441

58,725

22,628

977,296

(56,778)

920,518

55,882

60,940

16,393

10,035

14,520

20,320

21,759

752,802
(19,013)

733,789

1,752

53,168

15,501

9,669

9,245

9,473

17,174

544,784
(8,743)

536,041

179,594

164,843

140,997

28,529

44,832

57,935

64,917

13,278

23,054

412,139

508,379

(201,522)

27,193

37,200

48,264

53,408

10,973

24,252

366,133

367,656
(148,101)

24,900

31,683

45,765

53,016

11,872

21,683

329,916

206,125
(83,993)

$ 306,857

$ 219,555

$ 122,132

8.94

8.81

6.55

6.38

$ 3.74

3.60

34,315

34,839

33,545

34,411

32,691

33,935

CME 2005 ANNUAL REPORT

5 7

Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity

Class A
Common
Stock
Shares
32,530,372

Class B
Common
Stock
Shares
3,138

Common
Stock and
Additional
Paid-In Capital
Amount
$ 179,329

Accumulated
Net Unrealized
Securities

Total
Gains Shareholders’
Equity
(Losses)
$ — $ 446,139

(in thousands, except
share and per share data)
Balance December 31, 2002
Comprehensive income:
Net income
Change in net unrealized gain on

securities, net of tax of $49

Total comprehensive income
Cash dividends on common stock

of $0.63 per share
Exercise of stock options
Excess tax benefits from option

369,489

7,878

5,915

exercises and restricted stock vesting

Vesting of issued restricted Class A

common stock

22,200

Stock-based compensation
Balance December 31, 2003
Comprehensive income:
Net income
Change in net unrealized gain on

securities, net of tax of $1,135

Total comprehensive income
Cash dividends on common stock

of $1.04 per share
Exercise of stock options
Excess tax benefits from option

exercises and restricted stock vesting

Vesting of issued restricted Class A

32,922,061

3,138

1,488
$ 194,610

1,152,255

6,049

52,982

common stock

24,307

Retained
Earnings
$ 266,810

122,132

(20,630)

$ 368,312

219,555

(35,066)

122,132

73
122,205

(20,630)

7,878

5,915

1,488
$ 73 $ 562,995

(1,668)

Stock-based compensation
Balance December 31, 2004
Comprehensive income:
Net income
Change in net unrealized loss on
securities, net of tax of $833

Total comprehensive income
Cash dividends on common stock

of $1.84 per share
Exercise of stock options
Excess tax benefits from option

exercises and restricted stock vesting

Vesting of issued restricted Class A

common stock

Shares issued to Board of Directors
Shares issued under the employee

stock purchase plan
Stock-based compensation
Balance December 31, 2005

34,098,623

3,138

7,750
$ 261,391

$ 552,801

$ (1,595) $

306,857

(63,260)

(1,312)

417,471

25,268
2,233

1,124

34,544,719

3,138

6,956

43,361

476

373
12,636
$ 325,193

373
12,636
$ (2,907) $ 1,118,684

$ 796,398

See accompanying notes to consolidated financial statements.

5 8

CME 2005 ANNUAL REPORT

219,555

(1,668)

217,887

(35,066)

6,049

52,982

7,750
812,597

306,857

(1,312)

305,545

(63,260)

6,956

43,361

476

Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Cash Flows

(in thousands)

Cash Flows from Operating Activities:

Net income

Adjustments to reconcile net income

to net cash provided by operating activities:

Depreciation and amortization

Stock-based compensation

Excess tax benefits related to employee option

exercises and restricted stock vesting

Amortization of shares issued to Board of Directors

Change in deferred income taxes

Loss on investment in joint venture

Amortization of net premiums on marketable securities

Amortization of purchased intangibles

Loss on disposal of fixed assets

Change in allowance for doubtful accounts

Change in accounts receivable

Change in other current assets

Change in other assets

Change in accounts payable

Change in other current liabilities

Change in other liabilities

Net Cash Provided by Operating Activities

Cash Flows from Investing Activities:

Purchases of property, net

Purchases of marketable securities

Proceeds from maturities of marketable securities

Purchases of intangible assets

Capital contributions to joint venture

Net Cash Used in Investing Activities

Cash Flows from Financing Activities:

Cash dividends

Proceeds from exercise of stock options

Proceeds from employee stock purchase plan

Payments on long-term debt

Net Cash Used in Financing Activities

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and Cash Equivalents, End of Year

Supplemental Disclosure of Cash Flow Information:

Interest paid (excluding interest for securities lending)

Income taxes paid

Non-cash investing activities:

YEAR ENDED DECEMBER 31

2005

2004

2003

$ 306,857

$ 219,555

$ 122,132

64,917

12,636

43,361

318

(3,245)

2,636

2,254

732

676

(261)

(7,894)

(17,467)

(5,239)

508

(9,368)

172

391,593

(85,627)

(70,063)

75,231

(1,030)

(844)

53,408

7,750

52,982
—

4,263

3,593

3,159

361

930

223
(26,076)

5,965
(781)

(1,645)

7,539
(2,420)

53,016

1,488

5,915
—

3,310

4,958
—

—

1,323
(366)

(1,741)

(10,074)

(4,844)

(2,917)

14,337

4,612

328,806

191,149

(67,496)

(63,016)

(120,182)

(256,416)

68,329
(4,867)

(1,620)

—

(7,619)

(82,333)

(125,836)

(327,051)

(63,260)

6,956

373

—

(55,931)

253,329

357,562

(35,066)

(20,630)

6,049
—

(1,515)

(30,532)

172,438

185,124

7,878
—

(5,482)

(18,234)

(154,136)

339,260

$ 610,891

$ 357,562

$ 185,124

717

169,375

2,096

379

84,877

79,726

Change in net unrealized securities gains (losses)

(2,145)

(2,803)

122

See accompanying notes to consolidated financial statements.

CME 2005 ANNUAL REPORT

5 9

Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS

Chicago Mercantile Exchange Holdings Inc. (CME Holdings) is a Delaware stock corporation organized in August 2001 to be the

holding company for Chicago Mercantile Exchange Inc. and its subsidiaries (CME or the exchange). Through the completion of

a demutualization process, Chicago Mercantile Exchange, an Illinois not-for-profit membership organization, became a Delaware

for-profit stock corporation. The transaction resulted in the conversion of membership interests in the Illinois corporation into

stock ownership in the Delaware corporation and was completed on November 13, 2000.

CME is a designated contract market for the trading of futures and options on futures contracts. Trades are executed through

CME Globex, its electronic trading platform, open outcry and privately negotiated transactions. Through its in-house Clearing

House Division, CME clears, settles, nets and guarantees performance of all matched transactions in its products and products

for which it provides third-party transaction processing services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include Chicago Mercantile Exchange Inc. and its subsidiaries,

which include GFX Corporation (GFX), the first Interest Earning Facilities (IEFs) and CME Alternative Marketplace Inc., as well as the

holding company, CME Holdings (collectively, the company). All intercompany transactions have been eliminated in consolidation.

The assets of CME Holdings consist of marketable securities, cash from dividends received from CME in excess of dividends

paid to the shareholders of CME Holdings and its investment in CME. CME Holdings has no liabilities other than to CME for

income taxes arising from investment income and other expenses.

Effective July 1, 2003, the consolidated financial statements include the first IEF program to reflect the provisions of Financial

Accounting Standards Board Interpretation (FIN) No. 46(R), “Consolidation of Variable Interest Entities–An Interpretation of

Accounting Research Bulletin No. 51.” In December 2005, management discontinued operation of the first IEFs, at which time

the investments were liquidated and balances were returned to participants.

Effective September 8, 2005, CME Alternative Marketplace Inc., a wholly owned subsidiary of Chicago Mercantile Exchange Inc.

and an exempt board of trade registered with the Commodity Futures Trading Commission, was established for the trading of

CME economic derivatives. CME economic derivatives are options and forwards geared to seven key U.S. and European

economic indicators that trade in an auction format via CME Auction Markets and are cleared and guaranteed by CME.

6 0

CME 2005 ANNUAL REPORT

Cash and Cash Equivalents. Cash equivalents consist of money market mutual funds and highly liquid investments with

maturities of three months or less when purchased.

Marketable Securities. Marketable securities have been classified as available for sale and are carried at fair value based on

quoted market prices, with net unrealized gains and losses reported net of tax as a component of shareholders’ equity. Interest

on marketable securities is recognized as income when earned and includes accreted discount less amortized premium.

Realized gains and losses are calculated using specific identification. Additional securities held in connection with non-qualified

deferred compensation plans have been classified as trading securities. These securities are included in other assets in the

accompanying consolidated balance sheets at fair value, and net realized and unrealized gains and losses as well as dividend

income are reflected in investment income.

Fair Value of Financial Instruments. Statement of Financial Accounting Standards (SFAS) No. 107, “Disclosures about Fair

Value of Financial Instruments,” requires disclosure of the fair value of financial instruments. The carrying values of financial

instruments included in assets and liabilities in the accompanying consolidated balance sheets are reasonable estimates of

their fair values.

Accounts Receivable. In the ordinary course of business, a significant portion of accounts receivable and revenues are from

clearing firms that are also required to be shareholders of the company. Exposure to losses on receivables for clearing and

transaction fees and other amounts owed by clearing firms is dependent on each clearing firm’s financial condition as well as

the Class A and Class B shares that collateralize fees owed to the exchange. The exchange retains the right to liquidate shares

to satisfy a clearing firm’s receivable.

At December 31, 2005, there were approximately 80 clearing firms. No one firm represented more than 10% of our clearing and

transaction fees revenue in 2005. In 2004, one firm with a significant portion of customer revenue represented approximately

11% of clearing and transaction fees revenue. Should a clearing firm withdraw from the exchange, management believes the

customer portion of that firm’s trading activity would likely transfer to another clearing firm. Therefore, management does not

believe the company is exposed to significant risk from the loss of revenue received from a particular clearing firm.

The two largest resellers of CME market data represented approximately 53% of quotation data fees revenue in 2005 and 56%

in 2004. Should one of these vendors no longer subscribe to CME market data, management believes the majority of that

firm’s customers would likely subscribe to the market data through another reseller. Therefore, management does not believe

the company is exposed to significant risk from a loss of revenue received from any particular market data reseller.

Performance Bonds and Security Deposits. Performance bonds and security deposits held by the exchange for clearing firms

may be in the form of cash, securities or deposits in one of the IEFs. Cash performance bonds and security deposits are

reflected in the consolidated balance sheets. Cash received may be invested by the exchange. These investments are primarily

overnight transactions in U.S. Government securities acquired through and held by a broker-dealer subsidiary of a bank. Any

interest earned on these investments accrues to the exchange and is included in investment income in the consolidated

statements of income.

Securities deposited by clearing firms consist primarily of short-term U.S. Treasury securities and are not reflected in the

accompanying consolidated balance sheets. These securities are held in safekeeping, although a portion of the clearing firms’

proprietary performance bond deposits may be utilized in securities lending transactions. Interest and gain or loss on securities

deposited to satisfy performance bond and security deposit requirements accrues to the clearing firm.

Property. Property is stated at cost less accumulated depreciation and amortization. Depreciation on furniture, fixtures and

equipment is recorded on the straight-line method over the estimated useful lives of the assets, generally two to seven years.

Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining term of the applicable

leases. Leasehold improvements funded by landlord incentives or allowances are capitalized in the consolidated balance

sheets. Maintenance and repair items as well as certain minor purchases are charged to expense as incurred. Renewals and

betterments are capitalized.

CME 2005 ANNUAL REPORT

6 1

Software. The company capitalizes certain costs of developing internal use software in accordance with the American Institute

of Certified Public Accountants Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or

Obtained for Internal Use.” Capitalized costs generally are amortized over three years, commencing as the software is placed

in service. Purchased software is amortized over four years.

Impairment of Assets. The company reviews its long-lived assets and intangible assets for impairment whenever events or

changes in circumstances indicate that the carrying amounts may not be recoverable. If such assets are considered to be

impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds

the fair value of the assets.

Revenue Recognition. The company’s revenue recognition policies comply with Staff Accounting Bulletin No. 101 on revenue

recognition. On occasion, customers will pay for services in a lump sum payment. When these circumstances occur, revenue

is recognized as services are provided.

Clearing and Transaction Fees. Clearing and transaction fees include per contract charges for trade execution, clearing and CME

Globex fees. Fees are charged at various rates based on the product traded, the method of trade and the exchange trading

privileges of the customer making the trade. Clearing and transaction fees are recognized as revenue when a buy and sell order

are matched and the trade is cleared. Therefore, cancelled buy and sell orders have no impact on revenue. On occasion, the

customer’s exchange trading privileges may not be properly entered by the clearing firm and incorrect fees are charged for the

transactions in the affected accounts. When this information is corrected within the time period allowed by the exchange, a fee

adjustment is provided to the clearing firm. An accrual is established for estimated fee adjustments to reflect corrections to

customer exchange trading privileges. The accrual is based on the historical pattern of adjustments processed as well as

specific adjustment requests. CME believes the allowances are adequate to cover potential adjustments.

Processing Services. Processing services includes revenues accrued in the time period earned based on contract terms for

providing clearing and settlement services primarily to the Chicago Board of Trade (CBOT) beginning in November 2003.

Quotation Data Fees. Quotation data fees represent revenue earned for the dissemination of market information. Revenues are

accrued each month based on the number of devices reported by vendors. CME conducts periodic audits of the information

provided and assesses additional fees as necessary. An allowance is established to cover uncollectible receivables from market

data vendors.

Access Fees. Access fees are the connectivity charges to customers of CME’s electronic trading platform that are also used

by market data vendors and customers. They include line charges, license fees for CME Globex software and hardware rental

charges. The fees vary depending on the type of connection provided. An additional installation fee may be charged depending on

the type of service requested and a disconnection fee may also be charged if certain conditions are met. Revenue is recognized

monthly as the service is provided. An allowance is established to cover uncollectible receivables relating to access fees.

Communication Fees. Communication fees consist of equipment rental and usage charges to customers and firms that utilize the

various telecommunications networks and services in the Chicago facility. Revenue is billed and recognized on a monthly basis.

Stock-Based Payments. The company accounts for stock-based payments under the fair value recognition provisions of SFAS No. 123,

“Accounting for Stock-Based Compensation.” All periods presented reflect stock-based compensation expense recognized in

accordance with the provisions of SFAS No. 123 applied to all options granted to employees during the periods presented.

The company recognizes expense relating to stock-based compensation on an accelerated basis. As a result, the expense

associated with each vesting date within a stock grant is recognized over the period of time that each portion of that grant

vests. Forfeitures of unvested stock grants are recognized as a reduction of expense when they occur.

Marketing Costs. Marketing costs are incurred for the production and communication of advertising as well as other marketing

activities. These costs are expensed when incurred, except for costs related to the production of broadcast advertising, which

are expensed when the first broadcast occurs.

6 2

CME 2005 ANNUAL REPORT

Income Taxes. Deferred income taxes are determined in accordance with SFAS No. 109, “Accounting for Income Taxes,” and

arise from temporary differences between amounts reported for income tax and financial statement purposes. A valuation

allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized.

Segment Reporting. The company operates in three segments, CME, GFX and CME Alternative Marketplace Inc. Based on

materiality, GFX and CME Alternative Marketplace Inc. are not reportable segments and, as a result, there is no disclosure of

segment information.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the

United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of

the date of the financial statements, as well as the amounts of revenues and expenses reported during the period, and to disclose

contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates.

Reclassifications. Certain reclassifications have been made to the consolidated financial statements to provide consistent

presentation for all periods presented.

Recent Accounting Pronouncements. In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R),

“Share-Based Payment,” which requires use of the fair value method of accounting for share-based payments. At year-end 2002,

the company adopted the fair value method for expensing stock options under the provisions of SFAS No. 123, “Accounting for

Stock-Based Compensation.” Under SFAS No. 123(R), the company will be required to estimate expected forfeitures of stock

grants instead of the current practice of accounting for forfeitures as they occur. In addition, the company will begin to classify

the excess tax benefits, if any, related to employee option exercises as financing activities rather than operating activities in the

consolidated statements of cash flows. This requirement will reduce net operating cash flows and increase net financing cash

flows in the periods after adoption. It is not possible to estimate what those amounts will be in the future because they are

dependent on, among other things, when employees exercise stock options. The company plans to continue to use the Black-

Scholes model, which has been used since adopting the fair value method, to determine the fair value of stock option grants. In

April 2005, the U.S. Securities and Exchange Commission adopted a rule that amended the effective dates of SFAS No. 123(R).

Under this rule, SFAS No. 123(R) is now effective for public companies at the beginning of the first fiscal year that begins after

June 15, 2005. The company will adopt SFAS No. 123(R) effective January 1, 2006. The impact of adoption is not expected to

be material to the company’s annual results.

3. SECURITIES LENDING

Securities lending transactions utilize a portion of the securities that clearing firms have deposited to satisfy their proprietary

performance bond requirements. Under its securities lending program, CME lends a security to a third party and receives

collateral in the form of cash. The majority of the cash is then invested on an overnight basis to generate interest income. The

related interest expense represents payment to the borrower of the security for the cash collateral retained during the duration of

the lending transaction. Securities on loan are marked-to-market daily and compared to collateral received. At December 31, 2005

and 2004, the fair value of securities on loan was $2.2 billion and $1.6 billion, respectively. CME’s policy allows lending of up to

70% of total securities available, which is an increase from 2004 when the policy allowed lending of up to 50% of total securities

available. At December 31, 2005, the securities lending activity utilized some of the securities deposited by 17 clearing firms. At

December 31, 2005 and 2004, securities available totaled $7.4 billion and $5.7 billion, respectively, and collateral from securities

lending was held in the form of cash or invested in a bank money market mutual fund or overnight repurchase agreement. The

average daily balance of securities on loan for the years ended December 31, 2005, 2004 and 2003 was $1.8 billion, $1.4 billion

and $0.7 billion, respectively.

CME 2005 ANNUAL REPORT

6 3

4. MARKETABLE SECURITIES

Marketable securities have been classified as available for sale. The amortized cost and fair value of marketable securities at

December 31 were as follows:

(in thousands)

U.S. Treasury

U.S. Government agency

State and municipal

Total

Amortized
Cost

2005
Fair
Value

Amortized
Cost

2004

Fair

Value

$ 221,608

$ 218,238

$ 193,929

$ 192,198

37,883

38,196

37,107

37,517

68,423

42,757

67,788

42,443

$ 297,687

$ 292,862

$ 305,109

$ 302,429

Net unrealized gains (losses) on marketable securities classified as available for sale are reported as a component of

comprehensive income and included in the accompanying consolidated statements of shareholders’ equity. The fair value and

the duration of gross unrealized losses on marketable securities, with unrealized losses that are not deemed to be other-than-

temporarily impaired, at December 31, 2005 and 2004 were as follows:

(in thousands)

U.S. Treasury

U.S. Government agency

State and municipal

Total

(in thousands)

U.S. Treasury

U.S. Government agency

State and municipal

Total

Less Than 12 Months
Unrealized
Losses

Fair
Value

12 Months or Greater
Unrealized
Losses

Fair
Value

2005
Total
Fair Unrealized
Losses

Value

$ 87,819

—

2,444

302
—

$ 130,419

$ 3,068

$ 218,238

$ 3,370

37,107

35,073

776

633

37,107

37,517

776

679

$ 90,263

348

$ 202,599

$ 4,477

$ 292,862

$ 4,825

Less Than 12 Months
Unrealized
Losses

Fair
Value

$ 174,704

$ 1,900

67,788

38,461

634

322

$ 280,953

$ 2,856

Fair
Value

12 Months or Greater
Unrealized
Losses
$ — $ —
—

—

1,410

2004
Total
Fair Unrealized
Losses

Value

$ 174,704

$ 1,900

67,788

39,871

634

324

$ 282,363

$ 2,858

These unrealized losses were caused by increases in interest rates that occurred after the marketable securities were purchased.

The company has the ability and intent to hold these marketable securities until a recovery of fair value, which may be maturity,

and therefore does not consider these investments to be other-than-temporarily impaired at December 31, 2005 or 2004.

The amortized cost and fair value of marketable securities at December 31, 2005, by contractual maturity, were as follows:

(in thousands)

Maturity of one year or less

Maturity between one and five years

Maturity between five and ten years

Maturity of greater than ten years

Total

Amortized Cost

Fair Value

$ 65,168

$ 64,461

215,541

211,644

8,883

8,095

8,811

7,946

$ 297,687

$ 292,862

6 4

CME 2005 ANNUAL REPORT

In October 2005, CME approved the use of up to $100.0 million in U.S. Treasury securities as collateral in connection with its

mutual offset agreement with Singapore Exchange Derivatives Trading Ltd. (SGX) (note 18). The company retains the earnings

on the securities and may substitute these U.S. Treasury securities for letters of credit at its discretion. The fair value of these

pledged securities, which mature in 2007, was $70.2 million at December 31, 2005. These pledged securities are included

within marketable securities in the consolidated balance sheets.

5. OTHER CURRENT ASSETS

Other current assets consisted of the following at December 31:

(in thousands)

Prepaid maintenance agreements

Net deferred taxes

Refundable income taxes

Prepaid pension

Accrued interest receivable

Prepaid insurance

Due from broker for maturity of marketable security

Prepaid software agreements

Prepaid expenses

Other

Total

6. PERFORMANCE BONDS AND SECURITY DEPOSITS

2005

7,577

2004

4,779

6,419

5,810

5,500

4,695

3,547

2,009

1,607

1,551

954

3,334

—

3,611

2,800

3,090

—

911

434

$ 39,669

$ 18,959

The exchange is a designated contract market for futures and options on futures contracts, and clears and guarantees the

settlement of all contracts traded in its markets. In its guarantor role, the exchange has precisely equal and offsetting claims to

and from clearing firms on opposite sides of each contract, standing as an intermediary on every open futures and options on

futures contract cleared. Additionally, CME began clearing CBOT products on November 13, 2003. CME acts as guarantor for

products traded at the CBOT, but cleared by CME. For CBOT products cleared by CME, CME combines those positions with that

clearing firm’s CME positions to create a single portfolio for which performance bond and security deposit requirements are

calculated. To the extent that funds are not otherwise available to the exchange to satisfy an obligation under the applicable

contract, CME bears counterparty credit risk in the event that future market movements create conditions that could lead to

clearing firms failing to meet their obligations to the exchange. CME reduces its exposure through a risk management program

that includes initial and ongoing financial standards for designation as a clearing firm, initial and maintenance performance

bond requirements and mandatory security deposits. Each clearing firm is required to deposit and maintain balances in the

form of cash, U.S. Government securities, bank letters of credit or other approved investments to satisfy security deposit and

performance bond requirements. All obligations and non-cash deposits are marked-to-market on a daily basis. Valuation

calculations employ a factor, or haircut, that is applied to the current market prices of these obligations and non-cash deposits.

These haircuts are applied for risk management purposes. Cash performance bonds and security deposits are included in the

consolidated balance sheets, and these balances may fluctuate significantly over time due to the investment choices available

to clearing firms and the change in the amount of deposits required.

Clearing firms, at their option, may instruct CME to invest cash on deposit in a portfolio of securities that is part of the IEF

program. The first IEFs were organized in 1997 as two limited liability companies. Interest earned, net of expenses, is passed

on to participating clearing firms. The principal of the first IEFs totaled $87.5 million at December 31, 2004 and was

guaranteed by the exchange (note 9). Operation of the first IEFs was discontinued in the fourth quarter of 2005, at which time

investments were liquidated, balances returned to participants and CME’s guarantee terminated. In 2001, IEF2 was organized.

IEF2 offers clearing firms the opportunity to invest cash performance bonds and security deposits in shares of CME-approved

CME 2005 ANNUAL REPORT

6 5

money market mutual funds. Dividends earned on these shares, net of fees, are solely for the account of the clearing firm on

whose behalf the shares were purchased. The principal of IEF2 is not guaranteed by the exchange. In the third quarter of 2003,

IEF3 was organized. IEF3 offers clearing firms the opportunity to manage performance bond collateral by allowing firms to

pledge securities, such as corporate notes and municipal bonds, to CME on an overnight basis in exchange for cash previously

deposited. In the fourth quarter of 2003, CME organized the IEF4 program. Similar in nature to IEF3, IEF4 affords participating

clearing firms the ability to pledge securities such as corporate notes and municipal bonds to CME, but under IEF4 the

securities are under CME’s control until such time as CME releases them to the control of the pledging firm or until the

securities mature. CME organized the IEF5 program in 2004. The IEF5 program allows participating clearing firms the ability to

invest cash in an interest-bearing bank account, maintained at selected banks, in order to earn a cash benefit. As with IEF2,

the principal of IEF3, IEF4, as well as the principal and accrued benefit of IEF5, is not guaranteed by CME. The total principal in

all IEF programs was $19.6 billion at December 31, 2005 and $19.2 billion at December 31, 2004. The consolidated financial

statements reflect earned management fees under the IEF programs of $8.6 million, $8.0 million and $6.2 million during 2005,

2004 and 2003, respectively. These fees are included in other revenues.

CME and the Options Clearing Corporation (OCC) have a cross-margin arrangement, whereby a common clearing firm may maintain

a cross-margin account in which the clearing firm’s positions in certain CME futures and options on futures are combined with

certain positions cleared by OCC for purposes of calculating performance bond requirements. The performance bond deposits are

held jointly by CME and OCC (note 18). Cross-margin cash, securities and letters of credit jointly held with OCC under the cross-

margin agreement are reflected at 50% of the total, or CME’s proportionate share per that agreement. In addition, CME has cross-

margin agreements with the LCH.Clearnet Group (LCH), the Fixed Income Clearing Corporation (FICC) and the New York Mercantile

Exchange (NYMEX) whereby the clearing firms’ offsetting positions with CME and LCH, CME and FICC, or CME and NYMEX, as

applicable, are subject to reduced performance bond requirements. Clearing firms maintain separate performance bond deposits

with each clearing house, but depending on the net offsetting positions between CME and LCH, CME and FICC, or CME and

NYMEX, as applicable, each clearing house may reduce that firm’s performance bond requirements.

Each clearing firm also is required to deposit and maintain specified security deposits in the form of cash or approved securities.

In the event that performance bonds and security deposits of a defaulting clearing firm are inadequate to fulfill that clearing firm’s

outstanding financial obligation, the entire security deposit fund is available to cover potential losses after first utilizing operating

funds of the exchange in excess of amounts needed for normal operations (surplus funds). Surplus funds totaled $139.9 million

at December 31, 2005.

The exchange maintains a secured line of credit with a consortium of banks to provide liquidity and capacity to pay settlement

variation to all clearing firms, even if a clearing firm may have failed to meet its financial obligations to CME, or in the event of a

temporary disruption with the domestic payments system that would delay payment of settlement variation between the exchange

and its clearing firms (note 17). The line of credit totaled $750.0 million at December 31, 2005 and 2004. Clearing firm security

deposits received in the form of U.S. Treasury or Government agency securities, or in money market mutual funds purchased

through IEF2, as well as the performance bond assets of any firm that may default on its obligations to CME, can be used to

collateralize the secured line of credit.

The exchange is required under the Commodity Exchange Act to segregate cash and securities deposited by clearing firms

on behalf of their customers. In addition, exchange rules require a segregation of all funds deposited by clearing firms from

exchange operating funds.

Cash and securities held as performance bonds and security deposits at fair value at December 31 were as follows:

(in thousands)

Performance bonds

Security deposits

Cross-margin arrangements

Total

6 6

2005
Securities and
IEF Funds

Cash

2004
Securities and
IEF Funds

Cash

$ 578,983

$ 45,809,757

$ 255,273

$ 43,442,645

12,557

587

$ 592,127

1,236,229

531,725

11,920

2,726

1,008,897

633,918

$ 47,577,711

$ 269,919

$ 45,085,460

CME 2005 ANNUAL REPORT

Cash performance bonds may include intraday settlement, if any, that is owed to clearing firms and paid the following business

day. The balance of intraday settlements was $78.0 million at December 31, 2005 and $41.4 million at December 31, 2004.

These amounts are invested on an overnight basis and are offset by an equal liability owed to other clearing firms.

On October 17, 2005, Refco Inc., the parent company of one of CME’s clearing firms, Refco LLC, filed for bankruptcy. This

bankruptcy filing did not affect Refco LLC, the regulated futures entity within Refco Inc., and Refco LLC remained a clearing firm

in good standing with CME. On November 25, 2005, substantially all of the assets and a portion of the liabilities of Refco LLC

were sold to Man Financial Inc., another clearing firm of CME, pursuant to an order entered in the United States Bankruptcy

Court for the Southern District of New York. Immediately following this transaction, Refco LLC filed for bankruptcy. At the date

of the sale to Man Financial Inc., CME retained assets totaling $75.6 million to satisfy claims of the exchange, its clearing firms

and members against Refco LLC. At December 31, 2005, security deposits included $71.7 million of these retained assets that

were invested in U.S. Treasury securities and IEF2. In January 2006, $67.5 million of these assets were returned to the

bankruptcy trustee on behalf of the Refco LLC estate. As of January 27, 2006, CME continued to hold $3.7 million while a

determination is made on the outcome of the claims filed with the exchange that totaled this amount. Substantially all amounts

owed by Refco LLC to CME were collected from these retained assets prior to year-end 2005. Any remaining balances owed

were paid to CME before the return of the assets to the bankruptcy trustee.

In addition to cash and securities, irrevocable letters of credit may be used as performance bond deposits and security

deposits. At December 31, these letters of credit, which are not included in the accompanying consolidated balance sheets,

were as follows:

(in thousands)

Performance bonds

Security deposits

Cross-margin arrangements

Total Letters of Credit

2005

$ 605,945

45,000

18,500

$ 669,445

2004

$ 496,625

10,000

164,250

$ 670,875

All cash, securities and letters of credit are only available to meet the financial obligations of that clearing firm to the exchange.

7. PROPERTY

A summary of the property accounts at December 31 is presented below:

(in thousands)

Furniture, fixtures and equipment

Leasehold improvements

Software and software development costs

Total property

Accumulated depreciation and amortization

Property, net

2005

$ 197,121

135,727

114,024

446,872

(293,543)

$ 153,329

2004

$ 176,326

129,713

91,962

398,001

(266,640)

$ 131,361

Included in property is equipment that was acquired through capital leases with a cost of $11.0 million and $11.7 million (and

accumulated depreciation and amortization of $11.0 million and $11.1 million) at December 31, 2005 and 2004, respectively.

Depreciation for these assets is included in depreciation and amortization expense. During 2004, the company repaid the remainder

of its capitalized lease obligations. Therefore, there were no outstanding capital lease obligations as of December 31, 2005

and 2004.

CME 2005 ANNUAL REPORT

6 7

8. OTHER ASSETS

Other assets consisted of the following at December 31:

(in thousands)

Non-qualified deferred compensation plans

Net deferred taxes

Intangible assets

Prepaid software agreements

Prepaid pension

Investment in OneChicago, LLC

Other

Total

2005

$ 14,176

2004

$ 11,654

8,498

4,803

2,135

789

126

2,116

7,506

4,505

—

1,918

2,322

$ 32,643

$ 27,905

Non-qualified plan assets consist primarily of trading securities held in connection with non-qualified deferred compensation

plans (note 14). Investment income includes net realized and unrealized gains and losses as well as dividend income relating

to the plans’ trading securities of $1.1 million, $1.0 million and $1.7 million for the years ended December 31, 2005, 2004

and 2003, respectively.

Intangible assets represent the intellectual property and operating assets of Liquidity Direct Technology, LLC, a private trading

technology firm that developed technology to facilitate the trading of complex combinations and spreads typically used with options.

CME acquired the assets of Liquidity Direct Technology, LLC in 2004. The cost of these intangible assets was $5.9 million and

$4.9 million, respectively, at December 31, 2005 and 2004 (note 12). The accumulated amortization for these assets was

$1.1 million and $0.4 million, respectively, at December 31, 2005 and 2004. The weighted average amortization period of

these intangible assets is eight years.

As of December 31, 2005, CME owns approximately a 40% interest in the OneChicago, LLC joint venture and the investment

is reflected in the consolidated financial statements using the equity method of accounting. The investment balance at

December 31, 2005 represents CME’s total capital contribution of $14.5 million reduced by CME’s proportionate share of the

joint venture’s net loss. The net loss is included in other revenues and totaled $2.6 million, $3.6 million and $5.0 million for

the years ended December 31, 2005, 2004 and 2003, respectively. CME provides certain communications and regulatory

services to OneChicago, LLC, fees from which are included in other revenues, and earned $2.2 million, $2.7 million and

$2.7 million in revenue for these services in 2005, 2004 and 2003, respectively.

9. VARIABLE INTEREST ENTITIES

FIN No. 46(R), “Consolidation of Variable Interest Entities,” which superseded FIN No. 46, addresses the requirements for

business enterprises to consolidate related entities in which they are determined to be the primary beneficiary as a result of

their variable economic interests. CME evaluated its obligation with respect to the first IEFs and determined that they were

variable interest entities and CME was the primary beneficiary. As a result, CME was required to consolidate the first IEFs for

periods ending after December 15, 2003. CME elected to adopt the provisions of FIN No. 46 as of July 1, 2003, prior to the

required effective date. FIN No. 46 was implemented on a prospective basis and did not result in any cumulative effect on the

income statement. The effect of this consolidation, as a result of the adoption of FIN No. 46 and FIN No. 46(R), was an

increase to both assets and liabilities of $87.5 million at December 31, 2004. There was no significant impact on revenues or

expenses. Operation of the first IEFs was discontinued in the fourth quarter of 2005, at which time investments were liquidated,

balances returned to participants and CME’s guarantee terminated.

OneChicago, LLC is also a variable interest entity. However, CME has concluded that it does not meet the consolidation

requirements set forth in FIN No. 46(R).

6 8

CME 2005 ANNUAL REPORT

10. INCOME TAXES

The provision for income taxes is composed of the following:

(in thousands)
Current:

Federal

State

Total

Deferred:

Federal

State

Total

2005

$ 166,575

38,192

204,767

(1,974)

(1,271)

(3,245)

YEAR ENDED DECEMBER 31
2003

2004

$ 117,701

$ 65,064

26,137

143,838

3,754

509

4,263

15,619

80,683

3,777

(467)

3,310

Total Provision for Income Taxes

$ 201,522

$ 148,101

$ 83,993

Reconciliation of the statutory U.S. federal income tax rate to the effective tax rate is as follows:

Statutory U.S. federal tax rate

State taxes, net of federal benefit

Federal tax-exempt interest income

Non-deductible expenses

Other, net

Effective Tax Rate

2005

35.0%%

4.7

(0.3)

0.1

39.6%

YEAR ENDED DECEMBER 31
2003

2004

35.0%

4.7

(0.1)

0.4

0.3

40.3%

35.0%

4.8

—

0.4

0.5

40.7%

CME 2005 ANNUAL REPORT

6 9

Net deferred tax assets are included in both other current assets and other assets. At December 31, the components of these

deferred taxes were as follows:

(in thousands)

Current Deferred Tax Assets:

Stock-based compensation

Net unrealized losses on securities

Accrued expenses

Other

Subtotal

Valuation allowance

Current Deferred Tax Assets

Current Deferred Tax Liabilities:

Other

Current Deferred Tax Liabilities

Net Current Deferred Tax Assets

Non-Current Deferred Tax Assets:

Depreciation and amortization

Stock-based compensation

Deferred compensation

Long-term liabilities

Other

Subtotal

Valuation allowance

Non-Current Deferred Tax Assets

Non-Current Deferred Tax Liabilities:

Software development costs

Other

Non-Current Deferred Tax Liabilities

Net Non-Current Deferred Tax Assets

2005

2004

$ 2,521
1,918

1,796

184

6,419

—

6,419

—

636

1,085

1,301

465

3,487

—

3,487

(153)

$ 6,419

$ 3,334

$ 6,868
4,799

4,592

246

1,035

17,540

—

17,540

(9,026)

(16)

(9,042)

$ 5,977

3,497

3,440

—

1,470

14,384

—

14,384

(6,878)

—

(6,878)

$ 8,498

$ 7,506

The company expects to realize the benefit of all deferred tax assets based on the expectation of future taxable income and,

therefore, no valuation allowances have been established at December 31, 2005 or 2004.

11. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following at December 31:

(in thousands)

Accrued employee bonus

Accrued operating expenses

Accrued salaries and benefits

Accrued income taxes

Accrued fee adjustments

Unearned revenue

Other

Total

7 0

2005

$ 29,413

12,077

5,966

2,593

1,228

598

1,479

2004

$ 29,324

14,729

7,602

4,579

3,113

1,601

1,205

$ 53,354

$ 62,153

CME 2005 ANNUAL REPORT

12. COMMITMENTS

Leases. CME has commitments under operating leases for certain facilities that are accounted for in accordance with SFAS No. 13,

“Accounting for Leases.” Lease commitments for office space at the main location in Chicago expire in the year 2008, with annual

minimum rentals ranging from $8.9 million to $9.5 million. CME leases trading facilities from the Chicago Mercantile Exchange Trust (CME

Trust) through October 2009, with annual minimum rentals between approximately $0.7 million and $0.8 million, with options to extend the

term of the lease through October 2012 and two successive seven-year extensions through October 2019 and October 2026.

Minimum annual rent for these extensions begins at $0.7 million for the period from November 2009 through October 2012 and declines

to $0.2 million for the last extension from November 2019 through October 2026. Additional rental expense is incurred in connection with

these trading facilities based on annual open outcry trading volume. This expense totaled $0.6 million, $0.9 million and $1.0 million for the

years ended December 31, 2005, 2004 and 2003, respectively. Currently, annual rent paid to CME Trust cannot exceed $2.0 million.

The CME Trust is an entity that was established to provide financial assistance, on a discretionary basis, to customers of an

exchange member who are threatened with financial loss related to futures transactions on the exchange as a result of the

member’s insolvency or adverse financial condition. No outside parties, including CME, have any residual interest in the assets of

CME Trust.

Leases for other locations where CME maintains offices expire at various times from 2009 to 2014 with annual minimum rentals

that will not exceed $2.5 million in any year.

Total rental expense, including equipment rental, was $23.3 million in 2005, $22.5 million in 2004 and $21.0 million in 2003.

Commitments. Commitments include long-term liabilities (note 13) as well as contractual obligations that are non-cancelable.

These contractual obligations totaled $56.2 million at December 31, 2005 and relate primarily to software licenses and

maintenance as well as telecommunication services that are expensed as the related services are used.

Future minimum obligations under non-cancelable purchase obligations and operating leases in effect at December 31, 2005

are payable as follows:

(in thousands)

2006

2007

2008

2009

2010

Thereafter

Total Minimum Payments

Purchase
Obligations

$ 21,670

11,661

4,932

2,963

2,459

12,489

$ 56,174

Operating
Leases

$ 12,996

12,693

12,162

3,242

2,407

7,465

$ 50,965

Licensing Agreements. CME has licensing agreements relating to certain equity index products. The license agreement with

Standard & Poor’s provides that the S&P 500 Index futures and options on futures will be exclusive through December 31, 2008,

after which we will retain our exclusive rights through December 31, 2016 so long as certain requirements are met. The license

agreement with The Nasdaq Stock Market, Inc. is exclusive with respect to futures and options on futures contracts based on

certain NASDAQ indexes through October 9, 2007 with an automatic renewal until October 9, 2012.

Asset Purchase Agreement. In 2004, CME acquired the intellectual property and operating assets of Liquidity Direct Technology, LLC,

a private trading technology firm that had developed technology to facilitate the trading of complex combinations and spreads

typically used with options. The purchase agreement required an initial payment of $5.3 million with additional payments for

a three-year period, not to exceed $16.8 million, based on revenue generated when this electronic platform was implemented.

The platform was implemented in the third quarter of 2004 and additional payments and obligations totaled $1.1 million in 2005

and $0.1 million in 2004. These amounts are capitalized and amortized over the remaining life of the acquired assets.

CME 2005 ANNUAL REPORT

7 1

Wagner Patent Litigation. On August 26, 2002, a lawsuit with eSpeed, Inc. relating to the Wagner patent was settled for $15.0 million.

The settlement required CME to make an initial $5.0 million payment in September 2002 and five subsequent annual payments

of $2.0 million each beginning in August 2003. The present value of the settlement, or $13.7 million, was recognized as an expense

in the third quarter of 2002. On December 23, 2002, CME signed an agreement to resolve an indemnification dispute with

Euronext-Paris related to CME’s settlement of the Wagner patent litigation. Under the agreement, Euronext-Paris agreed to

pay CME $7.5 million, one-half of CME’s settlement with eSpeed. CME recognized the present value of the entire $7.5 million

settlement in the fourth quarter of 2002 as a reduction of the expense recognized in the third quarter of 2002. All payments from

Euronext-Paris were received in 2003.

13. OTHER LIABILITIES

Other liabilities consisted of the following at December 31:

(in thousands)

Non-qualified deferred compensation plans

Deferred rent

Litigation settlement payable

Unearned revenue

Other

Total

14. EMPLOYEE BENEFIT PLANS

2005

$ 14,176

3,366

1,801

1,165

275

2004

$ 11,654

1,953

3,551

1,180

908

$ 20,783

$ 19,246

Pension Plan. The exchange maintains a non-contributory defined benefit cash balance pension plan for eligible employees.

Employees who have completed a continuous 12-month period of employment and have reached the age of 21 are eligible to

participate. The plan provides for an age-based contribution to the cash balance account and includes salary and cash bonuses

in the definition of earnings. Participant cash balance accounts receive an interest credit equal to the greater of the one-year

constant maturity yield for U.S. Treasury notes or 4%. Participants become vested in their accounts after five years. The

measurement date used for the plan is December 31.

A reconciliation of beginning and ending balances of the projected benefit obligation, fair value of plan assets, the prepaid benefit

and the components of pension expense are indicated below:

(in thousands)

Change in Projected Benefit Obligation:

Benefit obligation at beginning of year

Service cost

Interest cost

Actuarial loss (gain)

Benefits paid

YEAR ENDED DECEMBER 31

2005

2004

$ 35,450

$ 32,115

4,960

2,344

2,960

(1,612)

4,149

2,064

(966)

(1,912)

Projected Benefit Obligation at End of Year

$ 44,102

$ 35,450

7 2

CME 2005 ANNUAL REPORT

The accumulated benefit obligation at December 31, 2005 and 2004 was $34.0 million and $27.4 million, respectively.

(in thousands)

Change in Plan Assets:

2005

2004

2003

Fair value of plan assets at beginning of year

$ 36,712

$ 32,582

$ 22,148

Actual return on plan assets

Employer contribution

Benefits paid

Fair Value of Plan Assets at End of Year

Funded Status at December 31:

Unrecognized transition asset

Unrecognized prior service cost

Unrecognized net actuarial gain

Total Prepaid Benefit

Components of Net Pension Expense:

Service cost

Interest cost

Expected return on plan assets

Amortization of prior service cost

Amortization of transition asset

Recognized net actuarial gain

Net Pension Expense

2,043

7,500

(1,612)

$ 44,643

541

—

5,691

$ 6,289

$ 4,960

2,344

(2,586)

—

3,542

2,500

(1,912)

4,958

6,743

(1,267)

$ 36,712

$ 32,582

$ 1,262

—

2,286

467

(38)

4,490

$ 3,611

$ 4,963

$ 4,149

$ 3,645

2,064

(2,304)

(19)

(38)

—

1,953

(1,543)

(44)

(74)

362

$ 4,821

$ 3,852

$ 4,299

The assumptions used to determine end of year projected benefit obligation and net pension expense are indicated below:

Assumptions Used to Determine End of Year Benefit Obligation:

Discount rate

Rate of compensation increase

Cash balance interest crediting rate

Assumptions Used to Determine Net Pension Expense:

Discount rate

Rate of compensation increase

Expected return on plan assets

Interest crediting rate

2005

5.50%

5.00

4.00

2005

5.75%

5.00

7.50

4.00

2004

5.75%

5.00

4.00

2004

2003

6.25%

5.00

7.50

4.25

6.75%

5.00

7.50

6.00

The exchange utilized the assistance of the plan’s actuaries in determining the discount rate assumption used at December 31, 2005.

The actuaries have developed an interest rate yield curve to enable companies to make judgments pursuant to Emerging Issues Task

Force Topic No. D-36, “Selection of Discount Rates Used for Measuring Defined Benefit Pension Obligations and Obligations of Post

Retirement Benefit Plans Other Than Pensions.” The yield curve is comprised of bonds with a rating of Aaa and Aa and maturities between

zero and thirty years. The actuaries discounted the expected annual benefit cash flows for the exchange’s pension plan to develop a single-

point discount rate by matching the plan’s expected payout structure to such yield curve.

The basis for determining the expected rate of return on plan assets is determined by three components: historical returns,

industry peers and forecasted returns. The plan’s total return is expected to equal the composite performance of the security

markets over the long term. The security markets are represented by the returns on various domestic and international stock and

bond indexes. These returns are weighted according to the allocation of plan assets to each market and measured individually.

CME 2005 ANNUAL REPORT

7 3

The component of the investment policy for the plan that has the most significant impact on returns is the asset mix. The asset

mix has a minimum and maximum range depending on asset class. The plan assets are diversified to minimize the risk of large

losses by any one or more individual assets. Such diversification is accomplished, in part, through the selection of asset mix

and investment management. The asset allocation for the plan, by asset category, at December 31, 2005 and 2004 was as

follows: equity securities, 57%; debt securities, 38%; and other investments, 5%. The target allocation for the plan will remain

unchanged in 2006.

The funding goal for CME is to have its pension plan 100% funded at each year-end on a projected benefit obligation basis, while

also satisfying any minimum required and maximum deductible contribution requirements. Year-end 2005 assumptions have been

used to project the liabilities and assets from December 31, 2005 to December 31, 2006. The result of this projection is that

estimated liabilities would exceed the fair value of plan assets at December 31, 2006 by approximately $7.0 million. Accordingly,

it is estimated that a $7.0 million contribution in 2006 will allow CME to meet its funding goal for the pension plan.

At December 31, 2005, anticipated benefit payments from the plan in future years are as follows (in thousands):

Year

2006

2007

2008

2009

2010

2011 - 2015

$ 2,611

3,023

3,466

4,094

4,665

29,332

Savings Plan. The exchange maintains a savings plan pursuant to Section 401(k) of the Internal Revenue Code, whereby all

employees are participants and have the option to contribute to this plan. The exchange matches employee contributions up to

3% of the employee’s base salary and makes an additional discretionary contribution of up to 2% of base salary. Total expense

for the savings plan amounted to $4.5 million, $4.4 million and $3.8 million in 2005, 2004 and 2003, respectively.

Non-qualified Plans. The following non-qualified plans, under which participants may make assumed investment choices with

respect to amounts contributed on their behalf, are maintained by the exchange. Although not required to do so, the exchange

invests such contributions in assets that mirror the assumed investment choices. The balances in these plans are subject to

the claims of general creditors of the exchange and totaled $14.2 million and $11.7 million at December 31, 2005 and 2004,

respectively. The investment results of these plans have no impact on net income as the investment results are recorded in

equal amounts to both revenue and expense accounts.

Supplemental Plan—The exchange maintains a supplemental plan to provide benefits for certain officers who have been

impacted by statutory limits under the provisions of the qualified pension and savings plans. Total expense for the

supplemental plan was $0.7 million, $0.6 million and $0.7 million in 2005, 2004 and 2003, respectively.

Deferred Compensation Plan—A deferred compensation plan is maintained by the exchange, under which eligible officers and

members of the Board of Directors may contribute a percentage of their compensation and defer income taxes thereon until

the time of distribution. Although the value of the plan is recorded as an asset in the consolidated balance sheets, there is

an equal and offsetting liability.

Supplemental Executive Retirement Plan—The exchange maintains a defined contribution plan for senior officers. Under this

plan, the exchange makes an annual contribution of a percentage of salary and bonus for eligible employees. Beginning in

2003, the contribution rate was 3%. Also, effective in 2003, contributions vest after five years of service from the officer’s

date of hire. Contributions made from 1996 to 2002 are subject to a vesting schedule, under which each annual

contribution begins to vest after three years and is fully vested after five years. Unvested contributions are returned to

the exchange if a participant leaves the employment of the exchange. Total expense (credit) for the plan, reduced by any

forfeitures, was $0.2 million, ($0.1) million and ($0.1) million in 2005, 2004 and 2003, respectively.

7 4

CME 2005 ANNUAL REPORT

15. CAPITAL STOCK

Shares Outstanding. As of December 31, 2005, 34,544,719 shares of Class A common stock, 625 shares of Class B-1 common

stock, 813 shares of Class B-2 common stock, 1,287 shares of Class B-3 common stock and 413 shares of Class B-4 common

stock were issued and outstanding. CME Holdings has no shares of preferred stock issued and outstanding.

Associated Trading Rights. Each class of CME Holdings Class B common stock is associated with a membership in a specific

division of the exchange. CME’s rules provide exchange members with trading rights and the ability to use or lease these

trading rights. Trading rights are maintained at CME and are not part of or evidenced by the Class B common stock of CME

Holdings. The Class B common stock of CME Holdings is intended only to ensure that the former Class B shareholders of CME

retain rights with respect to representation on the Board of Directors and approval rights with respect to the core rights

described below.

Transfer Restrictions. Each class of CME Holdings Class B common stock is subject to transfer restrictions contained in the

Certificate of Incorporation of CME Holdings. These transfer restrictions prohibit the sale or transfer of any shares of Class B

common stock separate from the sale of the associated trading rights.

Voting Rights. With the exception of the matters reserved to holders of CME Holdings Class B common stock, holders of common

stock vote together on all matters for which a vote of common shareholders is required. In these votes, each holder of shares of

Class A or Class B common stock of CME Holdings has one vote per share.

Election of Directors. The CME Holdings Board of Directors is composed of 20 members. Holders of Class A and Class B common

stock have the right to vote together in the election of 14 directors. Holders of Class B-1, Class B-2 and Class B-3 common stock

have the right to elect the remaining six directors, of which three are elected by Class B-1 shareholders, two are elected by Class B-2

shareholders and one is elected by Class B-3 shareholders.

Core Rights. Holders of Class B common shares have the right to approve changes in specified rights relating to the trading

privileges associated with those shares. These core rights include allocation of products that a holder of trading rights is

permitted to trade through the exchange; the trading floor access rights and privileges that a member has; the number of

memberships in each membership class and the number of authorized and issued shares of Class B common stock associated

with that class; and eligibility requirements to exercise trading rights associated with Class B shares. Votes on changes to

these core rights are weighted by class. Each class of Class B common stock has the following number of votes on matters

relating to core rights: Class B-1, six votes per share; Class B-2, two votes per share; Class B-3, one vote per share; and Class

B-4, 1/6th of one vote per share. The approval of a majority of the votes cast by the holders of shares of Class B common

stock is required in order to approve any changes to core rights. Holders of shares of Class A common stock do not have the right to

vote on changes to core rights.

Dividends. Holders of Class A and Class B common stock of CME Holdings are entitled to receive proportionately such

dividends, if any, as may be declared by the CME Holdings Board of Directors.

Ownership Requirements. Prior to October 1, 2004, each clearing firm was required to own 72,093 shares of Class A common

stock in addition to Class B common stock of CME Holdings. Effective October 1, 2004, that Class A requirement was reduced to

30,000 shares for new clearing firms. Each of CME’s existing clearing firms was given the right to reduce its holdings ratably over

a 12-month period. At December 31, 2005, the total Class A common stock held pursuant to this requirement was 2.4 million

shares. Effective February 1, 2006, the Class A common stock requirement was further reduced to 15,000 shares for new

clearing firms. Existing clearing firms have the right to reduce their holdings to this level ratably over a five-month period.

CME 2005 ANNUAL REPORT

7 5

Shareholder Rights Provisions. The Board of Directors of CME Holdings has adopted a plan creating rights that entitle CME

Holdings’ shareholders to purchase shares of CME Holdings stock in the event that a third party initiates a transaction

designed to take over the company. This rights plan is intended to encourage persons seeking to acquire control of CME

Holdings to engage in arms-length negotiations with the Board of Directors and management. The rights are attached to all

outstanding shares of CME Holdings common stock, and each right entitles the shareholder to purchase one one-thousandth

of a share of Series A junior participating preferred stock. On October 24, 2005, the purchase price for each right was amended

to $1,000 per unit from $105 per unit to help assure that the plan continues to serve the purpose for which it was initially

adopted. The rights should not interfere with any merger or other business combination approved by the Board of Directors since

the rights may be amended to permit such acquisition or redeemed by the Company under the terms of the plan. In the event the

rights become exercisable, each holder of a right shall receive, upon exercise, Class A common stock having a value equal to two

times the exercise price of the right.

Omnibus Stock Plan. CME Holdings has adopted an Omnibus Stock Plan under which stock-based awards may be made to

employees. A total of 4.0 million Class A shares have been reserved for awards under the plan. Awards totaling 3.0 million

shares have been granted and are outstanding or have been exercised under this plan at December 31, 2005 (note 16).

2005 Director Stock Plan. In April 2005, the shareholders of CME Holdings approved the 2005 Director Stock Plan under which

non-executive directors are compensated with an annual stipend consisting of cash and stock. A total of 25,000 Class A shares

have been reserved under this plan, and 2,233 shares were awarded in 2005 (note 16).

Employee Stock Purchase Plan. The shareholders of CME Holdings approved an Employee Stock Purchase Plan (ESPP) in April 2005.

A total of 40,000 Class A shares have been reserved for under this plan, of which 1,124 shares were purchased by employees in

2005 (note 16).

16. STOCK–BASED PAYMENTS

In 2000, the company established an Omnibus Stock Plan. The exchange has elected to account for stock-based payments under

SFAS No. 123, “Accounting for Stock-Based Compensation.” As allowed by SFAS No. 148, “Accounting for Stock-Based

Compensation–Transition and Disclosure,” at year-end 2002 the exchange adopted the fair value method for determining stock-

based compensation expense and elected the retroactive restatement method.

Options granted in 2003 through 2005 vest over a five-year period, with 20% vesting one year after the grant date and on that

same date in each of the following four years. The options have a 10-year term with an exercise price equal to the market price

at the grant date.

The weighted average grant date fair value of options granted in 2005, 2004 and 2003 was $99.78, $44.78 and $17.92,

respectively. The compensation expense for these options is recognized on an accelerated basis over the vesting period.

Compensation expense was $11.5 million, $6.9 million and $0.9 million in 2005, 2004 and 2003, respectively. As provided in

SFAS No. 123, the fair value of each option grant was estimated on the date of grant using the Black-Scholes method of

valuation. The following assumptions were used for these grants:

Dividend yield

Expected volatility

Risk-free interest rate

Expected life

2005

2004

0.50 – 0.93%

0.46 – 1.10%

Year of Grant
2003

1.20 – 1.30%

33.64 – 42.84%

29.40 – 36.40%

29.20 – 32.00%

3.90 – 4.44%

3.35 – 4.30%

6 – 6.5 years

6 years

2.52%

6 years

7 6

CME 2005 ANNUAL REPORT

The following table summarizes stock option activity for the three-year period ended December 31, 2005:

Balance at December 31, 2002

Granted

Exercised

Cancelled

Balance at December 31, 2003

Granted

Exercised

Cancelled

Balance at December 31, 2004

Granted

Exercised

Cancelled

Weighted Average
Exercise Price
$ 22.32
63.26

22.01

42.71

36.56

125.20

28.12

46.42

59.29

251.36

34.34

88.10

Employee
Options
Number of
Shares

Former CEO
Option
Number of Shares
Class B

Class A

1,084,400

1,438,578

479,800

(190,584)

(24,992)

—

(121,272)

(287,716)

1,348,624

1,029,590

338,400

(217,380)

(122,852)

1,346,792

221,600

(417,471)

(73,830)

—

(823,139)

(206,451)

—

156

—

(13)

(31)

112

—

(44)

(68)

—

Balance at December 31, 2005

$ 106.50

1,077,091

On February 7, 2000, an option was granted to the former President and Chief Executive Officer, James J. McNulty, to purchase

5% of the common stock of the company, as represented by an equivalent percentage of all Class A and Class B common stock

issued at the date of demutualization. One-half of the option, or 2.5% of all common stock, had an aggregate exercise price of

$21.8 million, which was estimated to be 2.5% of the fair value of the exchange at the grant date. Since demutualization had

not been completed at the grant date, the fair value of CME was calculated based on the average value of all exchange

memberships. The option for the remaining 2.5% of all common stock had an aggregate exercise price of $32.8 million, or 3.75%

of the fair value of the exchange at the grant date. As a result of the reorganization into a holding company structure, the Class A

share equivalents previously embedded in the Class B shares of CME were converted into Class A shares of CME Holdings. Since

the stock option for the former CEO was for 5% of all classes of stock outstanding and additional Class A shares were issued in

the reorganization, the total number of Class A shares in the former CEO’s option increased by 145,543 shares.

The fair value of the option granted to the former CEO was $14.4 million, or $10.04 per share, measured at the demutualization

date under the minimum value method. This method was used since, at the date of demutualization, there was not an

independent established trading market for Class A shares. Significant assumptions used to calculate fair value included:

risk-free interest rate of 5.11%; expected life equal to the maximum term of the option; and no expected dividends.

CME 2005 ANNUAL REPORT

7 7

The term of the option was 10 years. Under the option agreement, the exercise of the option could be settled with any

combination of shares of Class A common stock or cash, at the discretion of the company. Although the option was for all

classes of common stock outstanding, the former CEO could not elect to exercise the option for only certain classes of stock

included in the option.

The former CEO’s option vested over a four-year period, with 40% vesting one year after the grant date and 20% scheduled to

vest on that same date in each of the following three years. The former CEO stepped down on December 31, 2003, when his

contract expired. Due to the vesting provisions of the option, the remaining 20% of the shares subject to the option that were

unvested at that date were forfeited. As a result, the former CEO’s option was reduced by 287,716 Class A and 31 Class B

shares, representing a total exercise price of $10.9 million. Accordingly, the stock-based compensation expense related to the

former CEO’s option was credited $2.6 million for the expense that had been recognized in prior periods that related to the 20%

of the option that was forfeited, resulting in a net credit to stock-based compensation expense for this option of $2.0 million in 2003.

When the former CEO exercised his option, CME elected to provide Class A shares for the value of the Class B portion of the

option. As of December 2004, the former CEO had exercised all of his stock option. The option was satisfied through the

issuance of 944,411 shares from the Omnibus Stock Plan to satisfy the Class A portion of the option and the issuance of

169,369 shares to satisfy the Class B portion of the option pursuant to a registration statement on Form S-8. In addition, the

former CEO elected to satisfy the exercise price of his exercises in April and June 2004 through the surrender of a portion of

the option, resulting in the cancellation of 206,451 Class A shares and 68 Class B shares.

Total stock options for Class A common stock that are outstanding and the portion of each option that can be exercised at

December 31, 2005 were as follows:

Exercise Price

$22.00

$35.00

$63.01 to $74.68

$84.37 to $223.99

$251.95 to $369.35

Total

Options Outstanding
Weighted
Average
Remaining
Exercise Price Contractual Life

Weighted
Average

Number of
Shares

263,613

22.00

9,750

318,352

275,076

210,300

35.00

63.55

128.07

252.54

1,077,091

$ 106.50

5.4

6.9

7.5

8.5

9.5

7.6

Options Exercisable
Weighted
Average
Exercise
Price

Number of
Shares

263,613

$ 22.00

6,350

81,772

36,516

—

35.00

63.41

127.60

—

388,251

$ 40.87

Restricted stock has also been granted to employees. These grants generally have the same vesting provisions as stock

options and the related compensation expense is recognized on an accelerated basis over the vesting period. The shares of

restricted stock granted and the related compensation expense were as follows:

Shares granted

Total compensation expense (in millions)

Weighted average grant date fair value

2005

5,900

1.5

$ 249.98

2004

16,400

1.9

$ 117.94

Year of Grant
2003

13,600

0.9

$ 63.70

In the second quarter of 2005, CME Holdings decreased the annual cash stipend of its non-executive members of the Board of

Directors and added an equity component. The cash portion of the annual stipend is $17,500. Additionally, each non-executive

director will receive an award of Class A common stock of 100 shares. Non-executive directors may also elect to receive some

or all of the cash portion of their annual stipend in shares of stock based on the closing price at the date of distribution, up to

a maximum of $17,500. As a result, CME Holdings issued 2,233 shares of Class A common stock to its non-executive directors

under the 2005 Director Stock Plan. These shares are not subject to any vesting restrictions. Expense of $0.5 million related to

this stock-based payment is amortized over the one-year service period.

7 8

CME 2005 ANNUAL REPORT

In addition, in the fourth quarter of 2005, the first ESPP purchase took place. Eligible employees may purchase shares of CME

Holdings Class A common stock using after-tax payroll deductions made during consecutive offering periods of approximately a

six month duration. Shares are purchased at the end of an offering period at a price of 90% of the closing price of the Class A

common stock as reported on the New York Stock Exchange. Compensation expense is recognized on the date of purchase for

the discount from the closing price. In 2005, a total of 1,124 shares of Class A common stock were issued to participating

employees at a 10% discount. These shares are subject to a six month holding period. Expense of $41,509 for the purchase

discount was recognized by CME on the date of the employees’ purchase.

17. CREDIT FACILITY

On October 14, 2005, CME renewed its $750.0 million secured committed line of credit with a consortium of banks. The

secured credit agreement, which expires on October 13, 2006, is collateralized by clearing firm security deposits held by the

exchange in the form of U.S. Treasury or agency securities, security deposit funds in IEF2 and performance bond deposits of the

defaulting firm, if any. The amount held as available security deposit collateral at December 31, 2005 was $1.2 billion. The line

of credit can only be drawn on to the extent that it is collateralized. The facility, which has never been used other than a one day

draw in 2004 for $10.0 million to ensure that the facility would operate as intended, may be utilized in certain situations, such

as a temporary disruption of the domestic payments system that would delay settlement between the exchange and its clearing

firms, or in the event of a clearing firm default. Under the terms of the credit agreement, there are a number of covenants with

which the exchange must comply. Among these covenants, the exchange is required to submit quarterly reports to the

participating banks and maintain at all times a consolidated tangible net worth of not less than $90.0 million. Interest on

amounts borrowed before maturity is calculated at the U.S. federal funds rate plus 0.45% per annum and after maturity at the

U.S. federal funds rate plus 2.40% per annum. Commitment fees for the line of credit were $0.5 million for each of the years

ended December 31, 2005, 2004 and 2003. Effective with the 2005 renewal of the line of credit, CME has the option to

request an increase in the facility from $750.0 million to $1.0 billion at the time of a draw. However, the agreement does not

require the participating banks to comply with the request for an increase.

18. CONTINGENCIES AND GUARANTEES

Legal Matters. On October 14, 2003, the U.S. Futures Exchange, L.L.C. and U.S. Exchange Holdings, Inc. (collectively, Eurex U.S.),

filed suit against the CBOT and CME in the United States District Court for the District of Columbia. The suit alleges that the

CBOT and CME violated the antitrust laws and tortiously interfered with the business relationship and contract between Eurex

U.S. and The Clearing Corporation. Eurex U.S. is seeking a preliminary injunction and treble damages. On December 12, 2003,

the CBOT and CME filed separate motions to dismiss or, in the event the motion to dismiss is denied, to move the venue to the

United States District Court for Northern Illinois. On September 2, 2004, the judge granted the CBOT’s and CME’s motion to

transfer venue to the Northern District of Illinois. In light of that decision, the judge did not rule on the motions to dismiss. On

March 25, 2005, Eurex U.S. filed a second amended complaint in the United States District Court for the Northern District of

Illinois. On June 6, 2005, CME and the CBOT filed a motion to dismiss the complaint. On August 25, 2005, the judge denied the

joint CME/CBOT motion to dismiss. The parties are currently engaged in discovery. Based on its investigation to date and advice

from outside legal counsel, CME believes this suit lacks factual or legal foundation and intends to vigorously defend itself against

these charges.

In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular

business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty,

the company believes that the resolution of any of these matters will not have a material adverse effect on its consolidated

financial position or results of operations.

CME 2005 ANNUAL REPORT

7 9

Employment-Related Agreements. The exchange has employment agreements with Craig S. Donohue, Chief Executive Officer;

Phupinder S. Gill, President and Chief Operating Officer; and John P. Davidson III, Managing Director and Chief Corporate

Development Officer.

Mr. Donohue’s agreement is through December 31, 2006, subject to renewal by mutual written agreement of the parties.

Effective January 1, 2004, Mr. Donohue’s annual base salary will not be less than $0.7 million. In the event of a termination

without cause by CME, as defined in the agreement, Mr. Donohue is entitled to a one time lump sum severance payment equal

to two times his base salary as of the date of termination for the remaining term of the agreement, if any, not to exceed

24 months of base salary.

Mr. Gill’s agreement, as extended, is through December 31, 2010, subject to renewal by mutual written agreement of the

parties. Effective January 1, 2004, Mr. Gill’s annual base salary will not be less than $0.6 million. In the event of a termination

without cause by CME, as defined in the agreement, Mr. Gill is entitled to a one time lump sum severance payment equal to two

times his base salary as of the date of termination for the remaining term of the agreement, if any, not to exceed 24 months of

base salary.

Mr. Davidson’s agreement is through February 6, 2009, subject to renewal by mutual agreement of the parties. Effective

February 6, 2006, Mr. Davidson’s annual base salary will not be less than $0.6 million and his bonus for fiscal year 2006 will

not be less than $0.4 million. CME has also agreed to pay Mr. Davidson a retention payment of $0.9 million payable in two

installments on February 6, 2007 and February 6, 2008 provided Mr. Davidson has not voluntarily ended his employment with

CME or been terminated for cause by CME, as defined in the agreement. In the event of a termination without cause by CME,

as defined in the agreement, Mr. Davidson is entitled to a one time lump sum severance payment equal to two times his base

salary as of the date of termination for the remaining term of the agreement, if any, not to exceed 24 months of base salary.

The employment agreements also provide that these executive officers are eligible to participate in CME’s benefit plans and

programs.

Mutual Offset Agreement. This mutual offset agreement allows a clearing firm of either exchange to execute after-hours trades

at the other exchange. When a clearing firm of CME executes an after-hours trade at SGX, the resulting trade is transferred from

SGX to CME, and CME assumes the financial obligation to SGX for the transferred trade. A similar obligation occurs when a

clearing firm of SGX executes a trade at CME. The net position of each exchange to the other is marked-to-market daily based

on the settlement prices of the applicable exchange, and settlement is made between the exchanges in cash. Since settlement

prices at each exchange may differ at the end of any given day and Singapore is 13 to 14 hours ahead of Chicago, there may be

a difference between the two settlement amounts and there will be a difference in the timing of the settlement. To allow for

adequate and timely funding of the settlement and in the unlikely event of a payment default by a clearing firm, CME and SGX

each maintain collateral payable to the other exchange. At December 31, 2005, CME was contingently liable to SGX on

irrevocable letters of credit totaling $109.0 million. In October 2005, CME approved the use of up to $100.0 million of CME-

owned U.S. Treasury securities as performance bond collateral in connection with this mutual offset agreement. Prior to this

time, CME maintained collateral only in the form of irrevocable letters of credit. Under the terms of this mutual offset agreement,

CME can maintain collateral in the form of U.S. Treasury securities or irrevocable letters of credit. Regardless of the collateral,

CME guarantees all cleared transactions submitted through SGX and would initiate procedures designed to satisfy these financial

obligations in the event of a default, such as the use of security deposits and performance bonds of the defaulting clearing firm.

8 0

CME 2005 ANNUAL REPORT

Cross-Margin Agreements. CME and OCC have a cross-margin arrangement, whereby a common clearing firm may maintain

a cross-margin account in which the clearing firm’s positions in certain CME futures and options on futures contracts are

combined with certain positions cleared by OCC for purposes of calculating performance bond requirements. The performance

bond deposits are held jointly by CME and OCC. If a participating firm defaults, the gain or loss on the liquidation of the firm’s

open position and the proceeds from the liquidation of the cross-margin account are split 50% each to CME and OCC.

A cross-margin agreement with LCH became effective in March 2000, whereby clearing firms’ offsetting positions with CME and

LCH are subject to reduced margin requirements. Similar cross-margin agreements with FICC and NYMEX became effective in

April 2002 and June 2002, respectively, whereby clearing firms’ offsetting positions with CME and FICC or CME and NYMEX are

subject to reduced margin requirements. Clearing firms maintain separate performance bond deposits with each clearing house,

but depending on the net offsetting positions between CME and LCH, CME and FICC, or CME and NYMEX, as applicable, each

clearing house may reduce the firm’s performance bond requirement. In the event of a firm default, the total liquidation net gain

or loss on the firm’s offsetting open positions and the proceeds from the liquidation of the performance bond collateral held by

each clearing house’s supporting offsetting positions are split evenly between CME and LCH, CME and FICC, or CME and

NYMEX, as applicable.

Additionally, for the LCH, the FICC, and the NYMEX cross-margin agreements, if, after liquidation of all the positions and collateral

of the defaulting firm at each respective clearing organization, and taking into account any cross-margining loss sharing payments,

any of the participating clearing organizations has a remaining liquidating surplus, and any other participating clearing organization

has a remaining liquidating deficit, any additional surplus from the liquidation will be shared with the other clearing houses to the

extent that they have a remaining liquidating deficit. Any remaining surplus funds will be passed to the bankruptcy trustee.

GFX Letter of Credit. CME guarantees a $5.0 million standby letter of credit for GFX. The beneficiary of the letter of credit is the

clearing firm that is used by GFX to execute and maintain its futures positions. The letter of credit will be drawn on in the event

that GFX defaults in meeting requirements to its clearing firm. Per exchange requirements, GFX is required to place performance

bond deposits with its clearing firm. In the unlikely event of a payment default by GFX, GFX’s performance bond would first be

used to cover the deficit. If this amount is not sufficient, the letter of credit would be used and finally, CME would guarantee the

remaining deficit, if any.

Intellectual Property Indemnifications. Some agreements with customers accessing CME Globex and utilizing market data

services and CME SPAN software contain indemnifications from intellectual property claims that may be made against them as

a result of their use of these products. The potential future claims relating to these indemnifications cannot be estimated and,

therefore, in accordance with FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including

Guarantees of Indebtedness of Others,” no liability has been recorded.

19. GFX DERIVATIVES TRANSACTIONS

GFX Corporation engages primarily in the purchase and sale of CME foreign exchange futures contracts. GFX posts bids and

offers in these products on the CME Globex electronic trading platform to maintain a market and promote additional liquidity in

these products. GFX limits risk from these transactions through offsetting transactions using futures contracts or spot foreign

exchange transactions with approved counterparties in the interbank market. Formal trading limits have been established.

Futures transactions are cleared by an independent clearing firm. Any residual open positions are marked-to-market on a daily

basis and all net realized and unrealized gains and losses are included in other revenues in the accompanying consolidated

statements of income. Net trading gains totaled $7.6 million in 2005, $7.7 million in 2004 and $6.8 million in 2003. At

December 31, 2005, futures positions held by GFX had a notional value of $106.6 million, offset by a similar amount of spot

foreign exchange positions, resulting in a zero net position.

CME 2005 ANNUAL REPORT

8 1

20. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of all classes of common stock

outstanding each year. Diluted earnings per share reflects the increase in shares using the treasury stock method to reflect the

impact of an equivalent number of shares of common stock if stock options and restricted stock awards were exercised or

converted into common stock. The option granted to the former CEO was fully exercised as of June 2004. Prior to that date, the

dilutive effect of this option was calculated as if the entire option, including the Class A share and Class B share portions of the

option, was satisfied through the issuance of Class A shares. The diluted weighted average number of common shares outstanding

at December 31, 2005 excludes the incremental effect related to 748 outstanding stock options that would be anti-dilutive.

(in thousands, except per share data)

Net Income

Weighted Average Common Shares Outstanding:

Basic

Effect of stock options

Effect of restricted stock grants

Diluted

Earnings per Share:

Basic

Diluted

2005

$ 306,857

YEAR ENDED DECEMBER 31

2004
$ 219,555

2003
$ 122,132

34,315

33,545

509

840

34,839

34,411

32,691

1,211

33,935

8.94

8.81

6.55

6.38

3.74

3.60

8 2

CME 2005 ANNUAL REPORT

21. QUARTERLY INFORMATION (UNAUDITED)

(in thousands, except per share data)

Year Ended December 31, 2005:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Total

Net revenues

$ 214,190

$ 239,121

$ 234,311

$ 232,896

$ 920,518

Income before income taxes

Net income

Earnings per share:

Basic

Diluted

Year Ended December 31, 2004:

118,142

70,885

136,204

82,226

128,291

77,466

125,742

76,280

508,379

306,857

2.07

2.04

2.40

2.36

$ 2.25

$ 2.21

2.22

2.18

8.94

8.81

Net revenues

$ 166,372

$ 187,001

$ 192,389

$ 188,027

$ 733,789

Income before income taxes

Net income

Earnings per share:

Basic

Diluted

77,412

46,060

96,274

57,283

99,879

59,428

94,091

56,784

367,656

219,555

1.40

1.35

1.72

1.66

$ 1.75

1.72

1.67

1.64

6.55

6.38

CME 2005 ANNUAL REPORT

8 3

Board of Directors

TERRENCE A. DUFFY
Chairman of the Board

CRAIG S. DONOHUE
Chief Executive Officer

LEO MELAMED
Chairman Emeritus
Chairman and Chief Executive Officer,

JOHN F. SANDNER
Former Chairman of the Board
Chairman, E*Trade Futures, LLC, Chicago, Ill.

Melamed and Associates, Inc., Chicago, Ill.

JAMES E. OLIFF
Vice Chairman
President, FILO Corp., Chicago, Ill.

MARTIN J. GEPSMAN
Secretary
Independent Broker and Trader, Chicago, Ill.

PATRICK B. LYNCH
Treasurer
Independent Trader, Chicago, Ill.

WILLIAM R. SHEPARD (not pictured)
Second Vice Chairman
President and Founder,

Shepard International, Inc., Chicago, Ill.

8 4

CME 2005 ANNUAL REPORT

Board of Directors

DENNIS H. CHOOKASZIAN
Former Chairman and Chief Executive Officer,
CNA Insurance Companies, Chicago, Ill.

DANIEL R. GLICKMAN
President, Chairman and
Chief Executive Officer,

Motion Picture Association
of America, Inc., Washington, D.C.

U.S. Secretary of Agriculture (1995–2001)
Member of Congress, Kansas (1977–1995)

ELIZABETH HARRINGTON
President and Chief Executive Officer,
E. Harrington Global, Chicago, Ill.

Retired Partner, Global Strategy and China
Practices, PricewaterhouseCoopers, LLP,
Chicago, Ill.

BRUCE F. JOHNSON
Independent Trader, Chicago, Ill.

GARY M. KATLER
Vice President, O’Connor & Company, L.L.C.,
Chicago, Ill.

WILLIAM P. MILLER II
Senior Investment Officer,

Fund Management for the Ohio Public
Employees Retirement System

CME 2005 ANNUAL REPORT

8 5

Board of Directors

ALEX J. POLLOCK
Resident Fellow, American Enterprise

WILLIAM G. SALATICH, JR.
Independent Broker and Trader, Chicago, Ill.

Institute, Washington, D.C.

TERRY L. SAVAGE
Financial Journalist and Author
President, Terry Savage Productions, Ltd.,

Chicago, Ill.

MYRON S. SCHOLES
Chairman, Oak Hill Platinum Partners,

HOWARD J. SIEGEL
Independent Trader, Chicago, Ill.

Rye Brook, N.Y.

Frank E. Buck Professor of Finance,

Emeritus, Stanford Graduate School
of Business, Stanford, Calif.
Nobel Laureate – Economics (1977)

DAVID J. WESCOTT
President, The Wescott Group Ltd.,

Chicago, Ill.

8 6

CME 2005 ANNUAL REPORT

Management

Craig S. Donohue

Chief Executive Officer

Phupinder S. Gill

Kimberly S. Taylor

Managing Director

David P. Prosperi

Managing Director,

and President, CME Clearing

Public Relations

President and Chief Operating Officer

John F. Curran

Robin S. Ross

Managing Director,

Products and Services

Interest Rate Products

Mazen A. Chadid

Managing Director,

Operations

Kathleen M. Cronin

Managing Director,

General Counsel

John P. Davidson III

Managing Director

and Chief Corporate

Development Officer

Eileen (Beth) Keeve

Managing Director,

Organizational Development

James R. Krause

Managing Director

Managing Director,

Timothy J. Doar

Managing Director,

Risk Management

Arman Falsafi

Nancy W. Goble

Managing Director

Richard E. Sears

Managing Director,

Foreign Exchange

Donald D. Serpico

Managing Director,

CME Globex Control Center

and Technology Integration

and Chief Accounting Officer

Ann K. Shuman

Richard J. Kokoszka

Managing Director,

Internal Audit

Kevin Kometer

Managing Director,

Corporate Development

Kendal L. Vroman

Managing Director,

Corporate Development

Quality Management

Eric S. Wolff

and Corporate Secretary

Managing Director, Europe

and Chief Information Officer

and System Architecture

Managing Director,

James E. Parisi

Managing Director

John W. Labuszewski

Managing Director,

Regulatory Affairs

C. F. Wong

and Chief Financial Officer

Product and Research Development

Managing Director,

Richard H. Redding

Managing Director,

Tina F. Lemieux

Managing Director,

Products and Services

John R. Roberts III

Managing Director

John W. Pietrowicz

Managing Director,

and Chief Marketing Officer

Corporate Finance and Treasury

Asia

CME 2005 ANNUAL REPORT

8 7

Forward-Looking Statements

From time to time, in written reports and oral statements, we discuss our expectations regarding future performance. Forward-

looking statements in this report are based on currently available competitive, financial, and economic data; current expectations,

estimates, forecasts, and projections about the industries in which we operate; and management’s beliefs and assumptions.

These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult

to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking

statements. We want to caution you to not place undue reliance on any forward-looking statements.

Among the factors that might affect our performance are: increasing competition from foreign and domestic competitors, including

new entrants into our markets; our ability to keep pace with rapid technological developments, including our ability to complete

the development and implementation of the enhanced functionality required by our customers; our ability to continue introducing

competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and

our ability to maintain the competitiveness of our existing products and services; our ability to efficiently and simultaneously

operate both open outcry trading and electronic trade execution facilities; our ability to adjust our fixed costs and expenses if

our revenues decline; our ability to continue to realize the benefits of our transaction processing agreement with the Chicago

Board of Trade; our ability to maintain existing customers and attract new ones; our ability to expand and offer our products in

foreign jurisdictions; changes in domestic and foreign regulations; changes in government policy, including policies relating to

common or directed clearing; the costs associated with protecting our intellectual property rights and our ability to operate our

business without violating the intellectual property rights of others; our ability to generate market data fees that may be reduced

or eliminated by the growth of electronic trading; changes in our rate per contract due to shifts in the mix of the products traded,

the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one

of our various incentive programs) and the impact of our tiered pricing structure; the ability of our financial safeguards package

to adequately protect us from the credit risk of our clearing firms; changes in price levels and volatility in the derivatives markets

and in underlying fixed income, equity, foreign exchange and commodities markets; economic, political and market conditions;

our ability to accommodate increases in trading volume without failure or degradation of performance of our systems; our ability to

execute our growth strategy and maintain our growth effectively; our ability to manage the risks and control the costs associated

with our acquisition, investment and alliance strategy; industry and customer consolidation; decreases in trading and clearing

activity; and seasonality of the futures business. More detailed information about factors that may affect our performance may

be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K,

which is available in the Investor Relations section of our Web site. We undertake no obligation to publicly update any forward-

looking statements, whether as a result of new information, future events, or otherwise.

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CME 2005 ANNUAL REPORT

Share Information

Class A Common Stock

Our Class A common stock is listed on the New York Stock Exchange and The Nasdaq National Market under the ticker symbol

“CME.” As of February 10, 2006, there were 498 holders of record of our Class A Common Stock.

The following table sets forth the high and low sales prices per share of our Class A common stock on a quarterly basis, as

reported on the New York Stock Exchange.

2005

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

High

Low

2004

High

Low

$ 229.50

$ 183.50

First Quarter

$ 99.74

$ 72.50

307.75

340.00

396.90

163.80

Second Quarter

264.13

Third Quarter

287.05

Fourth Quarter

144.85

162.55

229.67

96.51

116.61

161.00

Class B Common Stock

Our Class B common stock is not listed on a national securities exchange or traded in an organized over-the-counter market.

Each class of our Class B common stock is associated with a membership in a specific division of the exchange. CME’s rules

provide exchange members with trading rights and the ability to use or lease these trading rights. Each share of our Class B

common stock can be transferred only in connection with the transfer of the associated trading rights. The memberships by

class are CME (Chicago Mercantile Exchange), IMM (International Monetary Market), IOM (Index and Option Market) and GEM

(Growth and Emerging Markets).

Class B shares and the associated trading rights are bought and sold through our Shareholder Relations and Membership

Services Department. In addition, trading rights may be leased through the department. Trading rights sales are reported on our

Web site at www.cme.com. Although our Class B shareholders have special voting rights, because our Class B shares have the

same equitable interest in our earnings and the same dividend payments as our Class A shares, we expect that the market

price of our Class B common stock, if reported separately from the associated trading rights, would be determined by the value

of our Class A common stock. As of February 10, 2006, there were 1,967 holders of record of our Class B common stock.

Dividends

The following table sets forth the dividends we paid on our Class A and Class B common stock in the last two years:

Record Date

March 10, 2005

June 10, 2005

September 9, 2005

December 9, 2005

Dividend per Share

Record Date

Dividend per Share

$ 0.46

March 10, 2004

0.46

June 10, 2004

September 10, 2004

December 10, 2004

$ 0.26

0.26

We intend to pay regular quarterly dividends to our shareholders. The decision to pay a dividend, however, remains within the

discretion of our board of directors and may be affected by various factors, including our earnings, financial condition, capital

requirements, level of indebtedness and other considerations our board of directors deems relevant. Our existing credit facility

as well as future credit facilities, other future debt obligations and statutory provisions may limit our ability to pay dividends. On

February 1, 2006, the board of directors declared a regular quarterly dividend of $0.63 per share, representing a 37 percent

increase over the prior quarter, to be paid on March 27, 2006, to shareholders of record on March 10, 2006.

CME 2005 ANNUAL REPORT

8 9