The purpose of the Audit Committee (the "Committee") of the Board of Directors (the "Board") of CBOE Holdings, Inc. (the "Company") is to assist the Board in discharging its responsibilities relating to:
- the qualifications, engagement and oversight of the Company's independent registered public accounting firm;
- the Company's accounting and financial reporting processes and disclosure matters;
- the Company's internal audit function and internal controls; and
- overseeing the Company's risk management.
The Committee shall consist of at least three (3) Directors, all of whom must be “independent” within the meaning given to that term in the Company’s Bylaws and Corporate Governance Guidelines, meet the requirements for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and not have participated in the preparation of the financial statements of the Company in the past three years. It is the intention of the Company that members of the Committee shall not simultaneously serve on the audit committee of more than two other public companies.
Each Director serving on the Committee shall be financially literate, as such qualification is interpreted by the Board in its business judgment. In addition, at least one Director serving on the Committee shall be an “audit committee financial expert” as defined by the Securities and Exchange Commission (the “SEC”). The Directors serving on the Committee (including the chairperson thereof) shall be appointed by the Board on the recommendation of the Nominating and Governance Committee of the Board. Directors serving on the Committee may be removed by the Board in accordance with the Company’s Bylaws. If a Director serving on the Committee ceases to be a Director, the individual shall thereupon cease to serve on the Committee.
The Committee shall meet when it deems necessary to fulfill its purpose and responsibilities, but shall meet at least four (4) times each year. The Committee shall establish its own schedule and agenda, coordinated by its chairperson. The chairperson of the Committee or any Director serving on the Committee may call special meetings of the Committee. The chairperson of the Committee, or his or her designee, shall provide each Director serving on the Committee with prior notice of any such meeting in accordance with the procedures for giving notice of special meetings of the Board as set forth in the Company's Bylaws.
The Committee shall meet periodically in separate executive sessions with senior management, the Chief Audit Executive and the Company's independent auditor.
The Committee shall maintain written minutes of its meetings. The Committee may meet by means of conference telephone or other communications equipment in accordance with the Company's Bylaws and may take action by unanimous written consent. A majority of the Directors serving on the Committee shall constitute a quorum. A majority of the Directors serving on the Committee present at any Committee meeting at which a quorum is present may act on behalf of the Committee. The failure to comply with the requirements of this Charter or any applicable exchange rule or other regulation shall not by itself invalidate any corporate action taken by the Committee.
In furtherance of the Committee's purpose, and in addition to any other responsibilities that may be properly assigned by the Board to the Committee, the Committee shall have the following authorities and responsibilities. The Committee shall comply with all applicable provisions of the Sarbanes-Oxley Act of 2002, the Exchange Act and the rules and regulations of the SEC and the NASDAQ Stock Market LLC.
Independent Registered Accounting Firm
Engagement and Oversight. The Committee shall be directly responsible for the appointment, compensation, retention, termination and oversight of the work of the Company's independent auditor and any registered public accounting firm performing other audit, review or attest services for the Company. Such firms shall report directly to the Committee with respect to such services. The Committee shall evaluate the independent auditor's qualifications, performance and independence.
The Committee shall have the authority to recommend to the Board the independent auditor for stockholder ratification.
The Committee shall review with the independent auditor its scope, plan, staffing and procedures to be used in conducting the annual audit. The Committee is responsible for reviewing a formal written statement from the outside auditor delineating all relationships between the auditor and the Company. The Committee shall maintain active dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor.
At the conclusion of the audit, the Committee shall review and discuss the audit results, including any comments or recommendations of the independent auditor and the response of management to such recommendations.
Policy for Hiring Employees of Independent Auditor. The Committee shall review and approve a policy for the hiring of current or former employees of the independent auditor.
Financial Statements, Disclosure and other Compliance Matters
- Annual Reporting. Prior to the filing of the report of the independent auditor with the SEC, the Committee shall also consider any communications or materials from the independent auditor, including:
- critical accounting policies and practices, and any changes from the last audit report;
- alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor;
- other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences;
- any material differences or disputes with management encountered during the course of the audit, along with the resolution of such differences or disputes;
- matters required to be discussed with the Committee by the independent auditor pursuant to Auditing Standard No. 16 or any successor standard;
- the design and implementation of internal controls, and the independent auditor's report on the Company's internal controls;
- whether any illegal acts have been detected by or otherwise come to the attention of the independent auditor in the course of the audit;
- the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company's risk assessment and risk management policies; and
- such other matters as the Committee deems appropriate.
The Committee shall also review with the Chief Executive Officer and Chief Financial Officer the processes implemented for them to meet the certification requirements of Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and shall make recommendations as the Committee deems necessary. The Committee shall recommend to the Board whether or not the audited financial statements should be included in the Company's Annual Report on Form 10-K. The Committee will produce an audit committee report for inclusion in the Company's annual proxy statement or Annual Report on Form 10-K.
Periodic Financial Statements. The Committee shall review the Company’s annual and quarterly financial statements, and the audited annual financial statements of any significant subsidiary of the Company, with management and the independent auditor prior to the filing thereof with the SEC, and as the Committee otherwise deems appropriate or necessary. Such review shall include significant changes in accounting principles or the application thereof, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, earnings press releases and financial information and other public earnings guidance.
The Committee's review shall encompass:
- any major issues regarding:
- accounting principles and financial statement presentations, including any significant changes, and
- the adequacy of internal controls and any special audit steps adopted in light of material control deficiencies;
- any analyses setting forth significant financial reporting issues and judgments, including the effects of alternative GAAP methods and off-balance sheet structures;
- any effect of regulatory and accounting initiatives on the financial statements; and
- the type and presentation of information to be included in earnings press releases, including any use of “pro forma” or “adjusted” non-GAAP information.
Internal Audit Function and Internal Controls
Internal Audit. The Chief Audit Executive shall report functionally to the Committee and administratively to the senior management consistent with the standards promulgated by the Institute of Internal Auditors. The Committee shall oversee and periodically evaluate the performance, responsibilities, organizational reporting lines, budget and staffing of the internal audit function of the Company, as well as the internal audit plan. The Committee shall have the authority to take those actions that it deems advisable in connection with such evaluation. The Committee shall review and must concur in the appointment, replacement or dismissal of the Chief Audit Executive. The Committee shall review the results of significant internal audits.
Internal Controls. In addition to its review in connection with periodic reporting, the Committee shall periodically review the adequacy and effectiveness of internal controls and procedures, and may take appropriate action with respect to any significant deficiencies or material weaknesses in them, and any irregularities involving management or other employees with a role in the controls and procedures. The Committee shall review the adequacy of internal controls with management, the independent auditor and the internal audit staff. In particular, the Committee shall review any issues related to the Company's disclosure controls and procedures and internal control over financial reporting, including any alleged fraud.
Corporate Oversight and Risk Management
Receipt of Complaints. The Committee shall review and discuss with management any complaints received by the Company regarding accounting, internal accounting controls or auditing matters, as well as the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
Risk Assessment and Management. The Committee is responsible for overseeing the Company's risk assessment and risk management, including risks related to the Company's compliance with laws, regulations and its policies. To that end, the Committee shall review and discuss with management and may make recommendations to the Board regarding:
- The Company's enterprise risk management, including compliance, processes, policies and guidelines for identifying, assessing and managing key risks; and
- The Company's significant risk and compliance exposures and the steps and mitigating activities used by the Company to monitor and control such risks.
Compliance Operations. The Committee shall review and may make recommendations to the Board regarding the staffing and budget for compliance operations.
Internal Investigations. The Committee shall have the authority to conduct or authorize investigations into any matters within the scope of the Committee.
Related Party Transactions. Pursuant to the Audit Committee Policy with respect to Related Persons Transactions, the Committee shall conduct a review of transactions with related persons for potential conflict of interest situations on an ongoing basis and shall be responsible for approving or ratifying any such transaction, including any transaction requiring disclosure under Item 404 of Regulation S-K under the Exchange Act, subject to such exceptions as may be approved by the Committee.
Audit Committee Pre-Approval Policy. Attached as Exhibit A to this Charter is the Audit Committee Pre-Approval Policy (the “Pre-Approval Policy”) with respect to the process by which the Committee will engage a registered public accounting firm to prepare or issue an audit report or related work, or to perform other audit, review or attest services for the Company and its subsidiaries.
Retention of Advisors. In carrying out its duties, the Committee is authorized to take all actions that it deems necessary or appropriate and may draw upon and direct the internal resources of the Company and may engage legal counsel (which may be, but need not be, the regular corporate counsel to the Company) and other advisors as it shall deem desirable from time to time, at the cost and expense of the Company. The Committee shall have sole authority to determine and approve related fees and retention terms for any independent counsel or other advisors engaged by the Committee.
Performance Evaluation. The Committee shall conduct such annual and other self-evaluations as it deems appropriate, including to satisfy any applicable requirements of any applicable exchange and any other legal or regulatory requirements.
Reporting to the Board. The Committee shall report to the Board as it deems appropriate, and as the Board may request.
Other Activities. The Committee shall perform other activities consistent with this Charter, the Company's Charter and Bylaws, governing law, the rules and regulations of any applicable exchange and such other requirements applicable to the Company as the Committee deems necessary or appropriate.
Committee Charter. The Committee shall annually review and evaluate the adequacy of this Charter, including the Pre-Approval Policy, and shall recommend any changes to the Board as the Committee deems necessary or desirable, including to satisfy any applicable requirements of any exchange and any other legal or regulatory requirements. A copy of this Charter shall be made available on the Company's website at www.cboe.com.
The Company shall provide for appropriate funding, as determined by the Committee, for:
- the payment of compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;
- compensation to any advisers employed by the Committee in accordance with this Charter; and
- ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
CBOE HOLDINGS, INC. AND SUBSIDIARIES
AUDIT COMMITTEE PRE-APPROVAL POLICY
Adopted [____________], 2016
The purpose of this Audit Committee Pre-Approval Policy (the “Policy”) is to govern the process by which the Audit Committee (the “Committee”) of the Board of Directors of CBOE Holdings, Inc. (“CBOE Holdings”) will engage a registered public accounting firm to prepare or issue an audit report or related work, or to perform other audit, review or attest services for CBOE Holdings and its subsidiaries (collectively, the “Company”). The Committee is required to pre-approve the audit and non-audit services performed by CBOE Holdings’ independent auditor in order to assure that the provision of such services does not impair the auditor’s independence. Proposed services may be pre-approved through the application of detailed policies and procedures (“general pre-approval”) or by specific review of each service (“specific pre-approval”). Unless a type of service to be provided by CBOE Holdings’ independent auditor has received general pre-approval, it will require specific pre-approval by the Committee or its delegate in accordance with this Policy. Any proposed services exceeding pre-approved cost levels will also require specific approval by the Committee or its delegate in accordance with this Policy.
The Committee may delegate pre-approval authority to one or more of its independent members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Committee at its next scheduled meeting. The Committee will not delegate to management the Committee’s responsibilities for pre-approving audit and non-audit services.
The Committee must specifically pre-approve the terms (including fees) and scope of the annual audit and associated quarterly reviews by CBOE Holdings’ independent auditor of CBOE Holdings’ consolidated financial statements and the annual audit of Chicago Board Options Exchange, Incorporated’s (“CBOE”) and C2 Options Exchange, Incorporated’s (“C2”) financial statements. Committee pre-approval is required for any necessary changes in these terms resulting from changes in audit scope, Company structure or other matters.
In addition to the annual audit and associated quarterly reviews by CBOE Holdings’ independent auditor of CBOE Holdings’ consolidated financial statements, and the annual audit of CBOE’s and C2’s financial statements, specifically approved by the Committee, the Committee must pre-approve other audit services performed by CBOE Holdings’ independent auditor or any other public accounting firm in accordance with this Policy.
Audit-related services are assurance and related services performed by CBOE Holdings’ independent auditor that are reasonably related to the performance of the audit or review of CBOE Holdings’ consolidated financial statements. The Committee must pre-approve audit-related services in accordance with this Policy. However, the Committee may not pre-approve audit-related services if the services would be reasonably likely to impair the independence of CBOE Holdings’ independent auditor.
The Committee believes that CBOE Holdings' independent auditor can provide certain tax services to the Company such as tax compliance, tax planning and tax advice without impairing the independence of CBOE Holdings' independent auditor, except for those tax services described in Appendix A, which are prohibited. In addition, the Committee will not permit the retention of CBOE Holdings' independent auditor in connection with a transaction initially recommended by CBOE Holdings' independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations or similar regulations of other applicable jurisdictions. All tax services must be specifically pre-approved by the Committee in accordance with this Policy.
All Other Services
The Committee must pre-approve those permissible non-audit services classified as "All Other Services" in accordance with this Policy. However, the Committee may not pre-approve permissible non-audit services if the services would be reasonably likely to impair the independence of CBOE Holdings' independent auditor.
A list of the non-audit services prohibited by the Securities and Exchange Commission to be performed by CBOE Holdings' independent auditor is attached to this Policy as Appendix A. Such appendix may be amended from time to time to add any other service prohibited by applicable law, regulation, rule or accounting or auditing standard.
Pre-Approval Fee Levels
Pre-approved fee levels for all services to be provided in accordance with this Policy will be established periodically by the Committee. Any proposed services exceeding these levels will require specific pre-approval by the Committee. Each year, the Company will provide the Committee with a report of the known or anticipated audit, audit-related, tax and other non-audit services together with an estimate of the fees for such services. The Committee will review the fees and scope of such services so as to avoid any question as to the compatibility of such services with the independence of CBOE Holdings’ independent auditor. Any changes to the estimate of services to be provided and fees attributable to such services will be discussed with the Committee, and if necessary, revised.
With respect to each proposed pre-approved service, CBOE Holdings' independent auditor will provide the Committee with detailed back-up documentation regarding the specific services to be provided.
Requests or applications to provide services that require specific approval of the Committee will be submitted to the Committee by CBOE Holdings’ Chief Accounting Officer or other designated representative of CBOE Holdings. The Committee (or the member of the Committee to whom pre-approval authority has been delegated pursuant to this Policy) will approve or disapprove the request or may request additional information from CBOE Holdings’ independent auditor and management prior to rendering its decision.
Failure to request and obtain pre-approval from the Committee will not limit the Committee's ability to expressly ratify services that have been previously performed; however, the Committee is not bound to do so. Providers of services outlined in this Policy should not assume that they will be compensated for such services if Committee pre-approval has not been obtained.
The following is a list of the non-audit services prohibited by the Securities and Exchange Commission to be performed by CBOE Holdings’ independent auditor. This appendix may be amended from time to time to add any other service prohibited by applicable law, regulation, rule or accounting or auditing standard.
- Bookkeeping or other services related to the accounting records or financial statements of the audit client;
- financial information systems design and implementation;
- appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
- actuarial services;
- internal audit outsourcing services;
- management functions or human resources;
- broker or dealer, investment adviser, or investment banking services;
- legal services;
- expert services unrelated to the audit;
- tax services to any person in a financial reporting oversight role, or an immediate family member of any such person, unless the person is in that role solely because he or she is a director of CBOE Holdings; and
- services related to marketing, planning or opinions in favor of the tax treatment of transactions that are confidential transactions under the IRS’s regulations or transactions that would be considered aggressive tax position transactions.