# J. P. Morgan Securities LLC X-17A-5 (2022-03-01) — Broker-dealer annual report
- Company: J. P. Morgan Securities LLC
- Form: X-17A-5
- Filed: 2022-03-01
- Period: 2021-12-31
- Accession: 0000782124-22-000014
- CIK: 782124
- File #: 8-35008
- Type: Broker-dealer
- Material weakness: No
- Auditor: PricewaterhouseCoopers LLP
- Auditor location: New York, NY
- Contact: Charles DiVuolo
- Phone: 212-552-9891
- Signed by: James M. Collins (Managing Director)
Original filing: https://www.sec.gov/Archives/edgar/data/782124/000078212422000014/jpmsllc2021sofc.pdf
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(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Consolidated Statement of Financial Condition and Supplemental Schedules December 31, 2021
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(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Table of Contents December 31, 2021
| | Page |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|
| Report of Independent Registered Public Accounting Firm | |
| Consolidated Statement of Financial Condition | |
| Notes to Consolidated Statement of Financial Condition | |
| Note 1. Organization | |
| Note 2. Significant accounting policies. | |
| Note 3. Fair value measurements | |
| Note 4. Fair value option | 17 |
| Note 5. Customer activities | 18 |
| Note 6. Derivative instruments | 19 |
| Note 7. Employee benefits and compensation | 24 |
| Note 8. Securities financing activities | 25 |
| Note 9. Variable interest entities. | 27 |
| Note 10. Short-term borrowings | 29 |
| Note 11. Long-term debt | 30 |
| Note 12. Subordinated borrowings | 30 |
| Note 13. Related parties | 30 |
| Note 14. Accumulated other comprehensive income/(loss) | 31 |
| Note 15. Regulatory requirements | 31 |
| Note 16. Commitments, guarantees, pledged assets, collateral and contingencies. | 32 |
| Note 17. Subsequent events | 35 |
| Supplemental Schedules | |
| Computation of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity
Exchanges pursuant to Section 4d(a)(2) of the Commodity Exchange Act | 36 |
| Computation of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign
Options Customers pursuant to Commission Regulation 30.7. | 37 |
| Computation of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer
Accounts under 4d(f) of the Commodity Exchange Act | 38 |
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# J.P. Morgan Securities LLC and Subsidiaries (an indirect wholly-owned subsidiary of JPMorgan Chase & Co.) Consolidated Statement of Financial Condition December 31, 2021
(in millions)
| Assets | |
|----------------------------------------------------------------------------------------------------------------|------------|
| Cash | S
7.434 |
| Securities purchased under resale agreements, at fair value | 170,917 |
| Securities borrowed (included \$49,351 at fair value) | 148,863 |
| Securities received as collateral, at fair value (included assets pledged of \$3,812) | 5,028 |
| Receivables from customers | 51,632 |
| Receivables from brokers, dealers, clearing organizations and others | 53,841 |
| Financial instruments owned, at fair value (included assets pledged of \$64,759) | 146,132 |
| Goodwill | 1,356 |
| Other assets (included \$2 at fair value) | 3,200 |
| Total assets (a) | \$ 588,403 |
| Liabilities | |
| Short-term borrowings (included \$10,682 at fair value) | \$ 64,231 |
| Securities sold under repurchase agreements (included \$143,994 at fair value) | 235,327 |
| Securities loaned (included \$269 at fair value) | 4,807 |
| Obligation to return securities received as collateral, at fair value | 5,377 |
| Payables to customers | 134,394 |
| Payables to brokers, dealers, clearing organizations and others | 20,066 |
| Financial instruments sold, not yet purchased, at fair value | 60,287 |
| Other liabilities and accrued expenses | 4,364 |
| Beneficial interests issued by consolidated variable interest entities ("VIEs"), (included \$12 at fair value) | 30 |
| Long-term debt, at fair value | 18.038 |
| Total liabilities(a) | 546,921 |
Commitments and contingencies (refer to Note 16)
| Subordinated borrowings | 29,000 |
|---------------------------------------|------------|
| Member's equity | |
| Member's interest | 6.169 |
| Retained earnings | 6.370 |
| Accumulated other comprehensive loss | (57) |
| Total member's equity | 12,482 |
| Total liabilities and member's equity | \$ 588,403 |
(a) The following table presents information on assets and liabilities related to VEs that are consolidated by the Company at December 31, 2021. The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation. Refer to Note 9 for further information.
(in millions)
| Assets | | |
|---------------------------------------------------------------------------------|--|----|
| Financial instruments owned, at fair value | | 43 |
| Total assets | | 43 |
| Liabilities | | |
| Beneficial interests issued by consolidated VIEs, (included \$12 at fair value) | | 30 |
| Total liabilities | | 30 |
The accompanying Notes are an integral part of the Consolidated Statement of Financial Condition.
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# J.P. Morgan Securities LLC and Subsidiaries (an indirect wholly-owned subsidiary of JPMorgan Chase & Co.) Notes to Consolidated Statement of Financial Condition December 31, 2021
#### 1. Organization
The Consolidated Statement of Financial Condition includes the accounts of J.P. Morgan Securities") and its subsidiaries (collectively the "Company is a wholly-owned subsidiary of J.P. Morgan Broker-Dealer Holdings Inc. ("Broker-Dealer Holdings"). The member's interest of the Company is indirectly held by JPMorgan Chase Holdings LLC (the "IHC"), which is an internediate holding company wholly-owned by JPMorgan Chase"), a leading financial services firm based in the United States of America ("U.S."), with operations worldwide. For purposes of this report, an "affiliate" is defined as JPMorgan Chase or indirect subsidiary of JPMorgan Chase. J.P. Morgan Securities is registered as a broker-dealer, investment adviser and security-based swap dealer with the U.S. Securities and Exchange Commission ("SEC"), as a futures commission merchant ("FCM") and continues to be registered as a swap dealer with the Commodities Futures Trading Commission ("CFTC"). J.P. Morgan Securities is also a member firm of the Financial Industry Regulatory Authority ("FINRA"), the National ("NFA"), the Securities Investor Protection Corporation ("SIPC") and various exchanges. J.P. Morgan Securities' wholly-owned subsidiary J.P. Morgan Prime Inc. ("J.P. Morgan Prime") is also registered as a broker-dealer with the SEC and is a member firm of FINRA and SIPC.
The Company's Board of Managers is responsible for the oversight of the Company. The Company accomplishes this function acting directly and through the principal standing committees of JPMorgan Chase's Board of Directors and the Company's own committees and forums.
JPMorgan Chase's Board of Directors' Risk Committee that overses risk matters. The Audit Committee oversees the control environment, and the Compensation & Management Committee oversees compensation and other management-related matters. Each committee of the Board oversees reputation risk and conduct risk issues within its scope of responsibility.
The Company relies on each of JPMorgan Chase's lines of business and Corporate areas giving rise to risk to operate within the parameters identified by JPMorgan Chase's Independent function (consisting of the Risk Management and Compliance organizations), and within its own management-identified risk and control standards.
#### Nature of business
J.P. Morgan Securities acts as a primary dealer in U.S. government securities; makes market instruments and U.S. government agency securities and trades various types of debt and equity securities (including securities issued by JPMorgan Chase or its affiliates); advises strategies, capital structures and financial strategies; structures derivative transactions to meet client needs; engages in the execution and clearance of exchange-traded futures and options; clears over-the-counter ("OTC") derivative contracts in connection with JPMorgan Chase's and its affiliates' clientdriven market-making and risk management activities; and investment advisory products and services to a range of retail investors. J.P. Morgan Securities clearing and customer financing, and engages in secured financing transactions to finance its securities, including through J.P. Morgan Prime for certain prime brokerage customer transactions. Additionally, J.P. Morgan Securities acts as a clearing (i) customer cash and margin accounts for correspondents and certain activities on either a fully disclosed or omnibus basis, and (ii) proprietary trading accounts of hedge funds, brokers and other professional trading firms (collectively "clearing clients").
### Credit ratings
The credit ratings of J.P. Morgan Securities as of December 31, 2021, were as follows.
| | Moody's Investors
Service ("Moody's") | Standard & Poor's
("S&P") | Fitch |
|--------------------------|------------------------------------------|------------------------------|--------|
| Outlook | Stable | Positive | Stable |
| Long-term issuer rating | Аа3 | A+ | AA |
| Short-term issuer rating | P-1 | A-1 | F1+ |
### Regulatory capital actions
During the year ended December 31, 2021, J.P. Morgan Securities distributed \$12.0 billion of capital to Broker-Dealer Holdings. Refer to Note 15 for further information on J.P. Morgan Securities' regulatory requirements.
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(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
# 2. Significant accounting policies
The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the U.S. ("U.S. GAAP"). Additionally, where applicies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
## (a) Accounting and reporting developments
# Financial Accounting Standards Board ("FASB") Standards adopted since January 1, 2021
## Reference rate reform
Effective March 12, 2020, the FASB issued an accounting standards update providing verious elective options, referred to as "practical expedients," that are intended to simplify the operations impact of applying generally accepted accounting principles to contracts affected by reference rate reform. Effective January 7, 2021, the FASB issued an update, which provides an election to account for derivatives modified to change the rate used for discounting, or contract price alignment (collectively "discounting transition") as modifications. The Company elected to the practical expedients related to contract modifications beginning in the second half of 2020. These a material impact on the Consolidated Statement of Financial Condition.
# (b) Basis of presentation
## Consolidation
The Consolidated Statement of Financial Condition includes the accounts of the Company and other entities in which the Company has a controlling financial interest as of December 31, 2021. All material intercompany balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by J.P. Morgan Securities are not assets of J.P. Morgan Securities and are not included on the Consolidated Statement of Financial Condition.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity ("VIE").
### Voting interest entities
Voting interest entities are entities that have sufficient equity investors voting rights that enable them to make significant decisions relating to the entity's operations. For these types of entities, the Company's determination of whether it has a controlling interest is primarily based on the amount of voting equity interests held. Entitles in which the Company has a controlling financial interest, through of the entities' voting equity interests, or through other contractual rights that give the Company control, are consolidated by the Companies in which the Company has significant influence over operating and financing decisions (but does not own a majority of the voting equity interests) are accounted for (i) in accordance with the equires the Company to recognize its proportionate share of the entity's net earnings), or (ii) at fair value option was elected.
# Variable interest entities
VEs are entities that, by design, either (1) lack sufficient equity to tinance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have significant decisions relating to the entity's operations through voting rights, or do not have the expected losses, or do not have the right to receive the residual returns of the entity.
The most common type of VIE is a special purpose entity ("SPE"). SPEs are commonly used in securitizations in order to isolate certain assets and distribute the cash flows from those assets to investors. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors. The legal documents that govern the transaction specify how the assets must be allocated to the SPE's investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE's assets by creditors of other entities, including the creditors of the assets.
The primary beneficiary of a VIE (i.e., the party that has a controlling financial interest) is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the VIE that most significantly impact the VIE's economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
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(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, the Company considers all facts and circumstances, including the VIE and its ongoing rights and responsibilities. This assessment includes that most significantly impact the VIE's economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VE (such as asset managers, servicers, owners of call options or liquidation rights over the VIE's assets) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
To assess whether the Company has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VE, the Company considers all of its economic interests, including debt and equity investments, derivatives or other arrangements deemed to be variable interests in the VIE. This assessment requires that the Company apply judgment in determining whether these interests, in the agregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VE, including its capitalization of interests; payment priority; relative share of interests held within the VE's capital structure; and the interests are held by the Company.
The Company performs ongoing reassessments of (1) whether any entitles previously volinginterest framework have become VIEs, based on certain events, and are therefore subject to the VIE consolidation framework; and (2) whether changes in the facts and circumstances regarding the Company's involvement with a VIE cause the Company's consolidation conclusion to change. Reter to Note 9 for further information related to VIEs.
## Use of estimates in the preparation of the Consolidated Statement of Financial Condition
The preparation of the Consolidated Statement of Financial Condition requires management to make estimates and assumptions that affect the reported anounts of assets and disclosures of contingent assets and liabilities. Actual results could be different from these estimates.
### Foreign currency translation
The Company revalues assets and liabilities denominated in non-U.S. dollars using applicable exchange rates.
### Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables with the same counterparty and the related cash collateral receivables on a net basis on the Consolidated Statement of Financial Condition when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities to be presented on a net basis when specified conditions are met, including the existence of a legally entorceable master netting agreement. The Company has elected to net such balances where it has determined that the specified conditions are met.
The Company uses master netting agreements to mitigate counterparty credit risk in certain transactions, including derivatives transactions, resale and repurchase agreements, and securities borrowed and loaned agreement is a single agreement with a counterparty that permits multiple transactions governed by that agreement to be terminated or accelerated and settled through a single currency in the event of a detault (e.g., bankruptcy, failure to make a required payment or securities transfer or deliver collateral or margin when due). Upon the exercise of termination rights by the non-defaulting party (i) all transactions are terminated, (ii) all transactions are valued and the positive value or "in the money" transactions are netted against the negative value or "out of the money" transactions and (ii) the only remaining payment obligation is of one of the netted termination amount. Upon exercise of repurchase agreement and securities loaned detailt rights in general (i) all transactions are terminated and accelerated, (ii) all values of securities or cash held or to be delivered are calculated, and all such sums are netted against each other and (ii) the only remaining payment obligation is of one of the parties to pay the netted termination amount.
Typical master netting agreements for these types of transactions also often contain agreement that provides for a security interest in, or title transfer of, securities or cash collateral/margin to demand margin (the "demanding party"). The collateral/margin agreement typically requires a party to transfer collateral/ margin to the demanding party with a value equal to the margin deficit on a net basis across all transactions governed by the master netting agreement, less any threshold. The collateral/margin agreement grants to the demanding party, upon default by the counterparty, the right to set-off any amounts payable by the counterparty against any posted collateral or the cash equivalent of any posted collateral/margin. It also grants to the right to liquidate
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{8}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
about the fair value of assets acquired and liabilities assumed. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or circumstances, such as adverse changes in the business climate, indicate that there may be an impairment.
### Goodwill impairment testing
The Company's goodwill was not impaired at December 31, 2021
The goodwill impairment test is performed by comparing the company with its carrying value. If the fair value is in excess of the carrying value, then the Company's goodwill is considered not to be inpaired. If the fair value is less than the carrying value, then an impairment charge is recognized for the Company's carrying value exceeds its fair value, up to the amount of the Company's goodwill.
Unanticipated declines in business performance, increases in capital requirements, as well as deterioration in economic or market conditions, adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated tair value of the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
## (i) Other assets, and other liabilities and accrued expenses
Other assets can consist of syndicate receivables, dividend receivables resulting from derivative transactions, prepaid expenses and other liabilities and accrued expenses can consist of syndicate payables, dividend payables, cash collateral payables resulting from derivative transaction and benefits, reserves and other.
## (j) Accumulated other comprehensive income/(loss)
Accumulated other comprehensive income/(loss) "AOCI" includes the after-tax change in unrealized gains and losses on intercompany fair value option-elected liabilities arising from changes in the Company's own credit risk (Debit Valuation Adjustment "DVA"). Refer to Note 14 for further information.
## (k) Income taxes
The results of operations of the Company are included federal, New York State, New York City and other state income tax returns filed by JPMorgan Chase.
J.P. Morgan Securities, as a disregarded entity, is included as part of the tax return filing of its direct parent, Broker-Dealer Holdings. J.P. Morgan Securities adopted ASU 2019-12, Income Tax Simplification, as of January 1, 2021, which amends ASC 740 to specify that there is no requirement to allocate income to a legal entity that is both not subject to tax and disregarded by the taxing authority, although an entity may elect to do so. As such, JPMorgan Chase has elected to not allocate federal and state income tax provisions to J.P. Morgan Securities incurs any taxes as a standalone regarded entity under foreign tax law, such taxes would be recorded on J.P. Morgan Securities. As a result of the adoption, current tax liabilities totaling \$242 million and deferred tax assets of \$417 million recorded on J.P. Morgan Securities as of December 31, 2020 were transferred to its parent, Broker-Dealer Holdings on January 1, 2021.
J.P. Morgan Prime is taxable as a corporation. As such, pursuant to a tax sharing agreement, JPMorgan Chase allocates to J.P. Morgan Prime its share of the consolidated income tax expense or benefit based upon statutory rates applied to its earnings as if it were filing a separate income tax return. Furthermore, JPMorgan Chase will reimburse J.P. Morgan Prime currently for losses irrespective of whether J.P. Morgan Prime would utilize losses on a separate return basis. The tax sharing agreement between JPMorgan Chase and J.P. Morgan Prime allows for intercompany payments to or from JPMorgan Chase for outstanding current tax assets or liabilities.
J.P. Morgan Prime uses the separate return adjusted for benefits-for-loss allocation methodology to provide for income taxes on all transactions recorded on its Statement of Financial Condition. Valuation allowances are established when necessary to reduce deferred tax assets to an amount that in the opinion of management, is more likely than not to be realized. State and local income taxes are provided on J.P. Morgan Prime's taxable income tax rate applicable to the consolidated JPMorgan Chase entity.
The guidance on accounting for uncertainty in income taxes describes how uncertain tax positions should be recognized, measured, presented and disclosed on the Consolidated Statement of Financial Condition. This guidance requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's Consolidated Statement of Financial Condition to determine whether the tax positions are more likely than not to be realized as a tax benefit or expense
{9}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
in the current year. After-tax interest and penalties, as well as the related unrecognized tax benefits, are recognized as income tax expense. J.P. Morgan Prime has concluded that there are no significant uncertain income tax positions and related interest and penalties. Any historical audit adjustments for J.P. Morgan Securities will be reflected on its direct parent, Broker-Dealer Holdings.
The Company is a member of JPMorgan Chase's consolidated group which is continually under examination by the Internal Revenue Service and by many state and local jurisdictions throughout the U.S. The following table summarizes the status of significant income tax examinations of JPMorgan Chase and its consolidated subsidiaries as of December 31, 2021.
| Tax examinations | Periods under examination | Status |
|-------------------------------------------------|---------------------------|--------------------------------------|
| JPMorgan Chase - U.S. | 2011 - 2013 | Field examination of amended returns |
| JPMorgan Chase - U.S. | 2014 - 2018 | Field examination |
| JPMorgan Chase - New York State 2012 - 2014 | | Field examination |
| JPMorgan Chase - New York City 2015 - 2017 | | Field examination |
| JPMorgan Chase - California | 2011 - 2012 | Field examination |
# 3. Fair value measurement of financial instruments
The Company carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Company's Consolidated Statement of Financial Condition). Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation techniques that consider relevant transaction characteristics (such as maturity) and use, as inputs, observable market parameters, including yield curves, interest rates, volatilities, prices (such as commonity, equity or debt prices), correlations, foreign exchange ("FX") rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.
The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Company's businesses and portfolios.
The Company uses various methodologies and assumptions of fair value. The use of different methodologies or assumptions by other market participants compared with those used by the company could result in the Company deriving a different estimate of fair value at the reporting date.
# Valuation process
Risk-taking functions are responsible fair value estimates for assets and liabilities carried on the Consolidated Statement of Financial Condition at fair value. JPMorgan Chase's Valuation Control Group ("VCG"), which is part of JPMorgan Chase's Finance function and independent of the risk-taking functions, is responsible for verifying these estimates and determining any fair value adjustments that may be required to ensure that the Company's positions are recorded at fair value. In addition, JPMorgan Chase's Firmwide Valuation Governance Forum ("VGF"), which is composed of senior finance and risk executives, is responsible for overseeing the management of risks arising rom valuation activities conducted across JPMorgan Chase. JPMorgan Chase's VGF is chaired by the JPMorgan Chase Firmwide head of the VCG (under the direction of JPMorgan Chase's Controller), and includes sub-forums covering the Company.
# Price verification process
The VCG verifies fair value estimates provided by the risk-taking functions by level prices, valuation inputs and other market data, where independent prices or inputs are not available, the VCG performs additional review to ensure the reasonableness of the additional review may include evaluating the limited market activity including client unwinds, benchmarking valuation inputs to those used for similar instruments, decomposing the valuation of structured into individual components, comparing expected to actual cash flows,
{10}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
reviewing profit and loss trends, and reviewing trends in collation. There are also additional levels of management review for more significant or complex positions.
The VCG determines any valuation adjustments that may be required by the risk-taking functions. No adjustments to quoted prices are applied for instruments classified within level 1 of the tair the discussion below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the net open risk position. The determination of such adjustments follows a consistent framework across JPMorgan Chase.
- Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are made based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.
- The Company manages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case valuation adjustments may be necessary to reflect the cost of exting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider of the net open risk position, including the size of the adverse market move that is likely to occur during the period to reduce the net open risk position to a normal market-size.
- Uncertainty adjustments related to unobservable parameters may be made when positions are valued using prices or input parameters to valuation models that are unobservable due to a lack of market activity or because they cannot be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Adjustments are made to reflect the uncertainty inherent in the resulting valuation estimate.
- Where appropriate, the Company also applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality, JPMorgan Chase's own creditworthiness and the impact of tunding, using a consistent framework across the Company.
# Valuation model review and approval
If prices or quotes are not available for an instrument, fair value is generally determined using valuation models that consider relevant transaction terms such as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs in those models.
Under JPMorgan Chase's Estimations and Model Risk Management Policy, the Model Risk Governance and Review ("MRGR") reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances exceptions may be granted to JPMorgan Chase's policy to allow a model to be used prior to review or approval. JPMorgan Chase's MRGR may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.
### Fair value hierarchy
A three-level fair value hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The fair value hierarchy is based on the observability of in asset or liability as of the measurement date. The three levels are defined as follows.
- Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
- Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly, for substantially the full term of the financial instrument.
- Level 3 one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument's categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
{11}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
The following is a description of the valuation methodologies generally used by the Company to measure its more significant products/instruments at fair value, including the general classification of such instruments pursuant to the fair value hierarchy.
| Product/
instrument | Valuation methodology | Classifications in the
fair value hierarchy | | | |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|--|--|--|
| | Securities financing Valuations are based on discounted cash flows, which consider: | Level 2 | | | |
| agreements | · Derivative features: refer to the discussion of derivatives below for further information | | | | |
| | · Market rates for the respective maturity | | | | |
| | · Collateral characteristics | | | | |
| Debt and equity | Quoted market prices. | Level 1 | | | |
| instruments | In the absence of quoted market prices, financial instruments are valued based on: | Level 2 or 3 | | | |
| | · Observable market prices for similar securities | | | | |
| | • Relevant broker quotes | | | | |
| | • Discounted cash flows | | | | |
| | In addition, the following inputs to discounted cash flows are used for the following products: | | | | |
| | Mortgage- and asset-backed securities specific inputs: | | | | |
| | · Collateral characteristics | | | | |
| | • Deal-specific payment and loss allocations | | | | |
| | · Current market assumptions related to yield, prepayment speed, conditional
default rates and loss severity | | | | |
| | Collateralized loan obligations ("CLOs") specific inputs: | | | | |
| | · Collateral characteristics | | | | |
| | • Deal-specific payment and loss allocations | | | | |
| | · Expected prepayment speed, conditional default rates, loss severity | | | | |
| | • Credit spreads | | | | |
| | • Credit rating data | | | | |
| | Other (predominantly includes structured notes issued by affiliates of the Company): | | | | |
| | • Valuations are based on discounted cash flow analyses that consider the embedded
derivative and the terms and payment structure of the financial instrument. | | | | |
| | · The embedded derivative features are considered using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models that may use observable
or unobservable valuation inputs, depending on the embedded derivative. The specific inputs
used vary according to the nature of the embedded derivative features, as described in the | | | | |
discussion below regarding derivatives valuation.
{12}------------------------------------------------
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{13}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
The following table presents the assets and liabilities reported at fair value as of December 31, 2021, by major product category and fair value hierarchy.
#### Assets and liabilities measured at fair value on a recurring basis
| | | Fair value hierarchy | | | | Derivative netting | Total fair | |
|--------------------------------------------------------------------|-------|----------------------|----|------------|------|--------------------|----------------|----------------|
| (in millions) | | Level 1 | | Level 2 | | Level 3 | adjustments | value |
| Securities purchased under resale agreements(a) | ರ್ಕಿ | | ਰੇ | 170,917 | ಕ್ಕಿ | | S | 170,917
S |
| Securities borrowed | | | | 49,351 | | | | 49,351 |
| Securities received as collateral(b) | | 4,561 | | 467 | | | | 5,028 |
| Financial instruments owned: | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | |
| U.S. Government-sponsored enterprises ("GSEs") and government | | | | | | | | |
| agencies (c) | | | | 38,938 | | 11 | | 38,949 |
| Residential - nonagency | | | | 1,304 | | 18 | | 1,322 |
| Commercial - nonagency | | | | 1,133 | | 10 | | 1,143 |
| Total mortgage-backed securities | | | | 41,375 | | 39 | | 41,414 |
| U.S. Treasury, GSEs and government agencies (a)(c) | | 53,494 | | 9,058 | | | | 62,552 |
| Obligations of U.S. states and municipalities | | | | 1,418 | | 2 | | 1,420 |
| Certificates of deposit, bankers' acceptances and commercial paper | | | | 712 | | 10 | | 722 |
| Non-U.S. government debt securities | | 1 | | 8 | | | | 9 |
| Corporate debt securities | | | | 6,970 | | 5 | | 6,975 |
| Equity securities(a) | | 24,048 | | 159 | | 59 | | 24,266 |
| Asset-backed securities | | | | 2,204 | | 16 | | 2,220 |
| Loans | | | | 23 | | | | 23 |
| Other | | | | 4,924 | | 688 | | 5,612 |
| Total debt and equity instruments(e) | | 77,543 | | 66,851 | | 819 | | 145,213 |
| Derivative receivables: | | | | | | | | |
| Interest rate | | 547 | | 3,891 | | 73 | (4,356) | 155 |
| Credit | | | | 1,097 | | | (828) | 239 |
| Foreign exchange | | | | 226 | | 35 | (184) | 77 |
| Equity(f) | | | | 42,164 | | 3,144 | (44,911) | 397 |
| Commodity | | | | 203 | | | (203) | |
| Total derivative receivables (8) | | 547 | | 47,581 | | 3,252 | (50,512) | 868 |
| Total financial instruments owned | | 78,090 | | 114,432 | | 4,071 | (50,512) | 146,081 |
| Other assets | | | | | | 2 | | 2 |
| Total assets measured at fair value on a recurring basis | ಕ್ಕಿ | 82,651 | રે | 335,167 | ಕ್ಕಿ | 4,073 | રે
(50,512) | 371,379
ද |
| Short-term borrowings | ರ್ಮಿಕ | | S | 10,392 | ਨੇ | 290 | ਰੇ | ಕ್ಕಿ
10,682 |
| Securities sold under repurchase agreements | | | | 143,994 | | | | 143,994 |
| Securities loaned | | | | 269 | | | | 269 |
| Obligation to return securities received as collateral(6) | | 4,910 | | 467 | | | | 5,377 |
| Financial instruments sold, not yet purchased: | | | | | | | | |
| Debt and equity instruments(e) | | 44,601 | | 6,423 | | 1 | | 51,025 |
| Derivative payables: | | | | | | | | |
| Interest rate | | 561 | | 4,514 | | 8 | (3,944) | 1,139 |
| Credit | | | | 1,195 | | 1 | (1,041) | 155 |
| Foreign exchange | | | | 407 | | | (273) | 134 |
| Equity(f) | | | | 49,051 | | 6,000 | (47,222) | 7,829 |
| Commodity | | | | 291 | | | (286) | 5 |
| Total derivative payables(g) | | 561 | | 55,458 | | 6,009 | (52,766) | 9,262 |
| Total financial instruments sold, not yet purchased | | 45,162 | | 61,881 | | 6,010 | (52,766) | 60,287 |
| Beneficial interests issued by consolidated VIEs | | | | 12 | | | | 12 |
| Long-term debt | | | | 9,313 | | 8,725 | | 18,038 |
| Total liabilities measured at fair value on a recurring basis | A | 50,072 \$ | | 226,328 \$ | | 15,025 \$ | (52,766) \$ | 238,659 |
{14}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
- (a) Includes securities that were segregated to satisfy the protection of assess of customers. Refer to Note 15 for further information.
- (b) Represents securities-for-securities lending transactions when the Company is acting as the lender.
- (c) Includes total U.S. GSE obligations of \$27,5 billion, which were related, U.S. GSEs are quasi-ever mental, privately held entities established by Congress to improve the flow of credit to specific sectors of the economy and provide certain services to the public. U.S. GSES include Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Fredde Mac"), but do not include Government National Mortgage Association ("Ginnie Mae"), which is directly owned by the U.S. Department U.S. GSE obligations are not explicitly guaranteed as to the timely payment of principal and interest by the U.S. government.
- (d) Certain investments that are measured at fair value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2021 the fair value of these investmently includes certain hedge funds was \$51 million.
- (e) Balances reflect the reduction of financial (long positions) by the amount of identical instruments sold, not yet purchased (short positions).
- (f) Equity derivative receivables and payables in level 3 primarily relate to positions with affiliates.
- (g) As permitted under U.S. GAAP, the Company nas electivative receivables and the related cash collateral received and paid when a legally enforceable master netting arrent exists. For purposes of the Company does not reduce derivative receivables and derivative payables balances for this netting or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral. Refer to Note 6 for further information.
### Level 3 valuations
The Company has established well-structured processes for determining fair instruments where fair value is estimated using significant unobservable inputs (level 3).
Estimating fair value requires the application of judgment. The type and level of judgment on the amount of observable market information available to the Company. For instruments valued using internally developed valuation models and other valuation techniques that unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation model or other valuation technique to use. Second, due to the lack of observability of significant inputs, management must assess relevant empirical data in deriving valuation inputs including transaction details, yield curves, interest rates, prepayment speed, default rates, volatilities, correlations, prices (such as commodity, equity or debt prices), valuations of comparable instruments, foreign exchange rates and credit curves.
The following table presents, as of December 31, 2021, the Company's primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the range of values for those inputs and the weighted or arithmetic averages of such inputs. While the determination to classify an instrument within level 3 is based on the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 2 inputs are not included in the table. In addition, the Company manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the input is being used to value.
In the Company's view, the input range, weighted and arithmetic average values do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Company's estimates and assumptions. Rather, the characteristics of the various instruments held by the Company and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period-to-period and parameter based on the characteristics of the instruments held by the Company at each Consolidated Statement of Financial Condition date.
{15}------------------------------------------------
# J.P. Morgan Securities LLC and Subsidiaries (an indirect wholly-owned subsidiary of JPMorgan Chase & Co.) Notes to Consolidated Statement of Financial Condition December 31, 2021
Level 3 inputs(a)
| Product/instrument | Fair value
(in millions) | Principal valuation
technique | Unobservable inputs(6) | Range of input values | Average(h) | |
|----------------------------------------------|-----------------------------|----------------------------------|---------------------------|-----------------------|------------|-------|
| Residential mortgage-backed securities(b) | ಕಿರ
29 | Discounted cash flows | Yield | 1% | 12% | 4% |
| | | | Loss severity | 60% | 100% | 75% |
| Commercial mortgage-backed securities(c) | 10 | Market comparables | Price | रे 1 | \$103 | 861 |
| Corporate debt securities | 5 | Market comparables | Price | \$0 | \$102 | \$36 |
| Net interest rate derivatives | 65 | Option pricing | Interest rate correlation | (65)% | 87% | 25% |
| | | | IR-FX correlation | (35)% | 50% | (2)% |
| Net credit derivatives | | (1) Market comparables | Price | 489 | \$101 | \$96 |
| Net foreign exchange derivatives | 35 | Option pricing | IR-FX correlation | (40)% | 65% | 17% |
| Net equity derivatives | | (2,856) Option pricing | Forward equity price(g) | 85% | 122% | 100% |
| | | | Equity volatility | 4% | 132% | 33% |
| | | | Equity correlation | 23% | 100% | 64% |
| | | | Equity-FX correlation | (76)% | 55% | (27)% |
| | | | Equity-IR correlation | 15% | 35% | 25% |
| Other debt and equity instruments(0) | 688 | Option pricing | Interest rate correlation | (65)% | 87% | 25% |
| | | | IR-FX correlation | (35)% | 50% | (2)% |
| | | | Equity correlation | 23% | 100% | 64% |
| | | | Equity-FX correlation | (76)% | 55% | (27)% |
| | | | Equity-IR correlation | 15% | 35% | 25% |
| Short-term borrowings and long-term debt(0) | 9.015 | Option pricing | Interest rate correlation | (65)% | 87% | 25% |
| | | | IR-FX correlation | (35)% | 50% | (2)% |
| | | | Equity correlation | 23% | 100% | 64% |
| | | | Equity-FX correlation | (76)% | 55% | (27)% |
| | | | Equity-IR correlation | 15% | 35% | 25% |
| Other level 3 accets and liabilities, net(e) | ర్ ర | | | | | |
(a) The categories presented in the table have upon the product type, which may differ from their classification on the Consolitated Statement of Financial Condition. Furthermore, the each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ.
(b) Comprises U.S. GSEs and government agency securities of \$11 million and nonagency securities of \$18 million.
(c) Comprises U.S. GSEs and government agency securities of \$1 million and nonagency securities of \$9 million.
(d) Other debt and equity instruments predominates issued by affiliates of the Company. Short-term borrowings and long-term debt include structured notes issued to affiliates of the company. These structured instruments that contain embedded derivatives. The estimate of the structured notes includes the derivative features embedded within the instruments. The significant unobservable inputs are broadly consistent with those presented for derivatives.
(e) Includes level 3 assets and liabilities, which securities that are insignificant both individually and in aggregate.
(f) Price is a significant unobservable input for certain in proted market prices are not readly available, reliance is generally placed on pricebased internal valuation techniques. The price input is expressed assuming a par value of \$100.
(g) Forward equity price is expressed as a percentage of the current equity price.
(h) Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.
#### Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.
The following discussion also provides a description of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Company's positions.
Yield - The yield of an asset is the interest rate used to discounted cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.
{16}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
The yield of a particular mortgage-backed security primarily reflects the ristrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of the range of risk inherent in various instruments owned by the Company. The risk inherent in mortgage-backed securities is driven by the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower Fair Isaac Corporation ("FFCO") scores, loan-to-value ("LTV") ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages.
Prepayment speed - The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies in prepayment speeds, in isolation, would result in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool, and are driven by the type and location of the underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relational default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the collateral underlying a securitization and the structure of the securitization itself. Based on the the Company's market-making portfolios, conditional default rates are most typically at the range presented.
Loss severity - The loss severity (the inverse concept is the expected amount of tuture realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed security investment depends on the underlying mortgages, including the LTV ratio, the nature of the property and other instrument-specific factors.
Correlation - Correlation is a measure of the relationship between the movements of two variables. Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity, foreign exchange and commodity) due to the underlying risks. When parameters are positively correlated, an increase will result in an increase in the other parameter. When parameters are negatively correlated, an increase in one parameter will result in the other parameter. An increase in correlation can result in an increase in a fair value measurement. Given a short correlation position, an increase in correlation, would generally result in a decrease in a fair value measurement.
The level of correlation used in the valuation of derivatives with multiple underlying risks depends on a number of factors including the nature of those risks. For example, the credit risk exposures would be different than that between two interest rate risk exposures. Similarly, the tenor of the transaction inpact the correlation input, as the relationship between the underlying risks may be different time periods. Furthermore, correlation levels are very much dependent on market conditions and could have a relatively within or across asset classes over time, particularly in volatile market conditions.
Volatility - Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate options. Generally, the underlying, the riskier the instrument. Given a long position in an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.
{17}------------------------------------------------
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{18}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
December 31, 2021
| | Carrying | | | Estimated fair value hierarchy | Total
estimated | | | | | |
|-------------------------------------------------------------------------|----------|---------|----|--------------------------------|--------------------|---------|----|---------|---------------|--|
| (in millions) | value | | | Level 1 | | Level 2 | | Level 3 | fair value | |
| Financial assets | | | | | | | | | | |
| Cash(a) | ಕಿರ | 7.434 | ਕੇ | 7.434 | ਰੋ | | ಕಿ | | ಕ್ಕಿ
7.434 | |
| Securities borrowed | | 99,512 | | | | 99,512 | | | 99,512 | |
| Receivables from customers | | 51,632 | | | | 51,632 | | | 51,632 | |
| Receivables from brokers, dealers, clearing organizations and others'87 | | 53,841 | | | | 53.841 | | | 53,841 | |
| Other assets | | 3,064 | | 11 | | 3.047 | | 22 | 3,080 | |
| Financial liabilities | | | | | | | | | | |
| Short-term borrowings | ರಿ | 53.549 | રે | - | S | 53,549 | ਰੋ | | ਰੇ
53.549 | |
| Securities sold under repurchase agreements | | 91,333 | | | | 91,333 | | | 91,333 | |
| Securities loaned | | 4,538 | | | | 4,538 | | | 4,538 | |
| Payables to customers | | 134,394 | | | | 134,392 | | 2 | 134,394 | |
| Payables to brokers, dealers, clearing organizations and others | | 20,066 | | | | 20,063 | | 3 | 20,066 | |
| Other liabilities and accrued expenses | | 2,883 | | | | 2,883 | | | 2,883 | |
| Beneficial interests issued by consolidated VIEs | | 18 | | | | 18 | | | 18 | |
| Subordinated borrowings | | 29.000 | | | | 29,338 | | | 29,338 | |
(a) Includes cash that was segregated to satisfy CFTC rules regarding the protection of assets of customers. Refer to Note 15 for further information.
## 4. Fair value option
The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities and unrecognized firm commitments.
The Company has elected to measure certain instruments at fair value for several reasons, including to mitigate income statement volatility caused by the differences in the measurements (e.g., certain instruments that otherwise would be accounted for on an accrual basis) while the associated risk managements are accounted for on a fair value basis, as well as to better reflect those instruments that are managed on a fair value basis.
The Company's election of fair value includes the following instruments:
- · Loans managed on a fair value basis.
- · Certain securities financing agreements.
- Certain debt and equity investments to better reflect those which are managed on a fair value basis.
- · Structured notes and other hybrid instruments, which are predominantly financial instruments that contain embedded derivatives.
- · Certain long-term beneficial interests issued by consolidated securitization trusts where the underlying assets are carried at fair value.
### Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate remaining contractual principal balance outstanding as of December 31, 2021, for loans reported as financial instruments owned and long-term debt for which the fair value option has been elected.
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{20}------------------------------------------------
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{21}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
December 31, 2021
## Derivative counterparties and settlement types
The Company enters into OTC derivatives, which are negotiated and settled bilaterally with the derivative counterparty. The Company also enters into, as principal, certain exchange-traded derivatives ("ETD") such as futures and cleared over-the-counter ("OTC-cleared") derivative contracts with central counterparties ("CCPs"). ETD contracts are generally standardized contracts traded on an exchange and cleared by the CCP, which is the counterparty from the inception of the transactions. OTC-cleared derivatives are traded on a bilateral basis and then novated to the CCP for clearing.
### Derivative clearing services
The Company provides clearing services for clients in which the Company acts as a clearing member at certain exchanges and clearing houses. The Company does not reflect the clients' derivative contracts on its Consolidated Statement of Financial Condition. Refer to Note 16 for further information on the Company's clearing services.
#### Accounting for derivatives
All free-standing derivatives that the Company executes for its own account are required to be recorded on the Consolidated Statement of Financial Condition at fair value. As permitted under U.S. GAAP, the Company nets derivative assets and liabilities, and the related cash collables, when a legally entorceable master netting agreement exists between the Company and the derivative counting for changes in value of a derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings. The Company does not have any derivatives that are designated as hedges.
### Notional amount of derivative contracts
The following table summarizes the notional amount of free-standing derivative contracts outstanding as of December 31, 2021.
| (in millions) | Notional amounts(b) | | |
|-----------------------------------|---------------------|-----------|--|
| Interest rate contracts | | | |
| Swaps | ಕ್ಕಿ | 544,739 | |
| Futures and forwards | | 537,946 | |
| Written options | | 1,225 | |
| Purchased options | | 1.923 | |
| Total interest rate contracts | | 1,085,833 | |
| Credit derivatives(a) | | 29,113 | |
| Foreign exchange contracts | | | |
| Cross-currency swaps | | 1,271 | |
| Spot, futures and forwards | | 36,482 | |
| Written options | | 147 | |
| Purchased options | | 9 | |
| Total foreign exchange contracts | | 37,909 | |
| Equity contracts | | | |
| Swaps | | 266,025 | |
| Futures and forwards | | 56,676 | |
| Written options | | 389.974 | |
| Purchased options | | 342,401 | |
| Total equity contracts | | 1,055,076 | |
| Commodity contracts | | | |
| Spot, futures and forwards | | 3 | |
| Written options | | 5,366 | |
| Purchased options | | 7,506 | |
| Total commodity contracts | | 12,875 | |
| Total derivative notional amounts | ಕ್ಕಿ | 2,220,806 | |
(a) Refer to the Credit derivatives discussion in this Note for more information on volumes and types of credit derivative contracts.
(b) Represents the sum of gross long and gross short notional derwative contracts with third-parties and affiliates.
{22}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
While the notional amounts disclosed above give an indication of the Company's derivative activity, the notional amounts significantly exceed, in the Company's view, the possible losses that could arise from such transactions. For most derivative contracts, the notional amount is not exchanged; it is simply a reference amount used to calculate payments.
## Impact of derivatives on the Consolidated Statement of Financial Condition
The following table summarizes information on derivative receivables and after netting adjustments) that are reflected on the Company's Consolidated Statement of Financial Condition as of December 31, 2021, by contract type. This includes derivative receivables and payables with affiliates. Refer to Note 13 for further information on derivative balances with affiliates.
### Derivative receivables and payables(a)
| (in millions) | | Gross derivative
receivables | | Net derivative
receivables™ | | Gross derivative
payables | | Net derivative
payables\'') |
|------------------------------------------------------------------------------------------------------|------|---------------------------------|----|--------------------------------|---|------------------------------|----|--------------------------------|
| Financial instruments owned and financial instruments sold,
not yet purchased | | | | | | | | |
| Interest rate | ರ್ಕಿ | 4,511 | ਰੇ | 155 | ಕ | 5.083 | S | 1.139 |
| Credit | | 1.097 | | 239 | | 1.196 | | 155 |
| Foreign exchange | | 261 | | 77 | | 407 | | 134 |
| Equity | | 45.308 | | 397 | | 55.051 | | 7.829 |
| Commodity | | 203 | | | | 291 | | 5 |
| Total fair value of financial instruments owned and financial
instruments sold, not yet purchased | ಳ | 51,380 | ਤ | 868 | ತ | 62,028 | રે | 9,262 |
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 4 for further information.
(b) As permitted under U.S. GAP, the Company has elected to net derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists.
## Derivatives netting
The following table presents, as of December 31, 2021, gross and net derivative receivables by contract and settlement type under U.S. GAAP. Derivative receivables, as well as the related cash collateral from the same counterparty have been netted on the Consolidated Statement of Financial Condition where the Company has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are not eligible under U.S. GAAP for netting on the Consolidated Statement of Financial Condition, and those derivative receivables and payables are shown separately in the following table.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative and payables, the Company receives and transfers additional collateral (financial instruments mitigate counterparty credit risk associated with the Company's derivative instruments, but are not eligible for net presentation:
- collateral that consists of certain liquid securities and other cash collateral held at third-party custodians, which are shown separately as "Collateral not nettable on the Consolidated Statement of Financial Condition" in the table below, up to the fair value exposure amount;
- the amount of collateral held or transferred exceeds the fair value exposure at the individual counterparty level, as of the date presented, which is excluded from the table below; and
- collateral held or transferred that relates to derivative receivables where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement, which is excluded from the table below.
{23}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
December 31, 2021
| | Derivative receivables | | | | | Derivative payables | | | | |
|---------------------------------------------------------------------------------------------|------------------------|----------------------|------------------------------------------------------------------------------------|------|--------------------|---------------------|----------------------|------------------------------------------------------------------------------------|------|--------------------|
| (in millions) | | Gross
derivatives | Amounts
netted on the
Consolidated
Statement of
Financial
Condition | | Net
derivatives | | Gross
derivatives | Amounts
netted on the
Consolidated
Statement of
Financial
Condition | | Net
derivatives |
| U.S. GAAP nettable derivatives | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | |
| OTC | ಕಿರ | 4,123 | S
(4,109) \$ | | 14 | ಿರ | 4,573 | ರ್ಕಿ
(3,698) | ਰੋ | 875 |
| OTC-cleared | | 267 | (246) | | 21 | | 252 | (246) | | 6 |
| Exchange-traded(a) | | 3 | (1) | | 2 | | 1 | (1) | | |
| Total interest rate contracts | | 4,393 | (4,356) | | 37 | | 4,826 | (3,945) | | 881 |
| Credit contracts: | | | | | | | | | | |
| OTC | | 1.074 | (858) | | 216 | | 1.194 | (1.040) | | 154 |
| Total credit contracts | | 1,074 | (858) | | 216 | | 1,194 | (1,040) | | 154 |
| Foreign exchange contracts: | | | | | | | | | | |
| OTC | | 218 | (184) | | 34 | | 360 | (273) | | 87 |
| Total foreign exchange contracts | | 218 | (184) | | 34 | | 360 | (273) | | 87 |
| Equity contracts: | | | | | | | | | | |
| OTC | | 20.903 | (20,518) | | 385 | | 25,528 | (22,829) | | 2.699 |
| Exchange-traded(a) | | 24,405 | (24,393) | | 12 | | 29,523 | (24,393) | | 5,130 |
| Total equity contracts | | 45,308 | (44,911) | | 397 | | 55,051 | (47,222) | | 7,829 |
| Commodity contracts: | | | | | | | | | | |
| OTC | | 203 | (203) | | | | 291 | (286) | | 5 |
| Total commodity contracts | | 203 | (203) | | | | 291 | (286) | | 5 |
| Derivatives with appropriate legal opinion | | 51,196 | (50,512) | | 684 | (d) | 61,722 | (52,766) | | (d)
8,956 |
| Derivatives where an appropriate legal
opinion has not been either sought or
obtained | | 184 | | | 184 | | 306 | | | 306 |
| Total derivatives recognized on the
Consolidated Statement of Financial
Condition | ಕ್ಕಿ | 51,380 | | ಕ್ಕೆ | 868 | S | 62,028 | | ಕ್ಕಿ | 9,262 |
| Collateral not nettable on the Consolidated
Statement of Financial Condition(0)(c) | | | | | (204) | | | | | |
| Net amounts | | | | ಕ್ಕಿ | 664 | | | | ಕ್ಕಿ | 9,262 |
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Includes liquid securities and other cash collans related to derivative instruments where an appropriate legal opinion has been obtained. For some counterparies, the collateral amounts of financial instruments may exceed the derivative payable balances. Where this is the case the total and the net derivative receivable and net derivative payable balances with that counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivative receivables included of \$540 million and net derivative payables included cash collateral netted of \$2.8 billion. Derivative cash collateral relates to OTC and OTC-cleared derivative instruments.
### Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivatives expose the Company to credit risk - the risk that derivative counterparties may fail to meet their payment obligations under the contracts and the collateral, if any, held by the Company proves to be of insufficient value to cover the payment obligation. It is the policy of the Company to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
{24}------------------------------------------------
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{25}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition December 31, 2021
### Total credit derivatives
| | | Maximum payout/Notional amount | | | | | | |
|-----------------------------|---|--------------------------------|------------------------------------------------------|----------------------------|--|--|--|--|
| (in millions) | | Protection sold | Purchased protection with
identical underlyings\" | Net protection purchased(" | | | | |
| Credit derivatives | | | | | | | | |
| Credit default swaps | ക | (10,226) \$ | 12,714 \$ | 2.488 | | | | |
| Other credit derivatives(a) | | (397) | 5.776 | 5,379 | | | | |
| Total | | (10,623) \$ | 18,490 \$ | 7.867 | | | | |
(a) Represents total return swaps with affiliates.
(b) Represents the notional amount of protection purchased where is identical to the reference instrument on protection sold; the notional amount of protection purchased for each instrument may be greater or lower than the notional amount of protection sold.
(c) Does not take into account the fair value of the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
The following table summarizes the notional amounts by the ratings, maturity profile and total fair valves as of December 31, 2021 where the Company is the seller of profile is based on the remaining contractual maturity of the credit derivative contracts. The rating of the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives where the Company is the purchaser of protection are comparable to the profile reflected below.
## Protection sold - credit derivatives ratings(0/maturity profile
| (in millions) | | Under 1
year | 1 - 5 years | After 5 | Total
notional
amount | Fair value
receivables(b) | Fair value
payables\0) | Net fair
value |
|---------------------------------|---|-----------------|-------------|--------------------------------|-----------------------------|------------------------------|---------------------------|-------------------|
| Risk rating of reference entity | | | | | | | | |
| Investment-grade | S | (86) \$ | | (511) \$ (4.973) \$ (5.570) \$ | | | 41 \$ \$ = \$ = \$ | (154) \$ (113) |
| Noninvestment-grade | | (296) | (545) | (4,212) | (5.053) | 48 | (841) | (793) |
| Total | A | | (382) \$ | | | 89 | (995) \$ | (906) |
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting assh collateral netting.
### 7. Employee benefits and compensation
The Company's employees participate, to the extent they meet eligibility requirements, in various benefit plans sponsored by JPMorgan Chase and its affiliates. The following is a discussion of JPMorgan Chase's significant benefit plans.
### Pension and other postretirement employee benefits
JPMorgan Chase and its affiliates have various defined benefit pension plans and other postretirement employee benefit ("OPEB") plans that provide benefits to the Company's employees that include a qualified noncontributory U.S. defined benefit pension plan sponsored by JPMorgan Chase Bank, National Association (the "Plan"), and a U.S. defined contribution plan. JPMorgan Chase has frozen the Plan which was overfunded as of December 31, 2021. Interest credits on the U.S. defined benefit pension plan continue to accrue for participants in the Plan. JPMorgan Chase makes certain contributions to the U.S. defined contribution plan on behalf of eligible employees.
In addition, postretirement medical and life insurance benefits are offered to certain retirement medical benefits are offered to qualifying U.S. employees, through JPMorgan Chase's U.S. OPEB plans, which have been prefunded by JPMorgan Chase. There are no separate plans solely for employees of the efore, pension expense, defined contribution expense and OPEB expense for the Company is determined based upon employee participation in these plans and are recorded through an intercompany charge, which is settled in cash monthly.
### Employee share-based awards
Certain employees of the Company participate in JPMorgan Chase's long-term share-based incentive plans, which provide for grants of common share-based awards, including restricted stock units ("RSUs") and stock appreciation rights ("SAR"). Employees receive annual incentive compensation based on their performance of their business and JPMorgan Chase's consolidated operating results.
{26}------------------------------------------------
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{28}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
December 31, 2021
| (in millions) | Gross
amounts | | Amounts netted on
the Consolidated
Statement of
Financial Condition | Amounts presented
on the Consolidated
Statement of
Financial Condition | | Amounts not nettable
on the Consolidated
Statement of Financia
Condition(c) | | Net
amounts(d) |
|------------------------------------------------------------|------------------|----|------------------------------------------------------------------------------|---------------------------------------------------------------------------------|----|--------------------------------------------------------------------------------------|---|-------------------|
| Assets | | | | | | | | |
| Securities purchased under resale
agreements (a) | \$ 402,819 | ਰੋ | (231,902) \$ | 170,917 | ਦੇ | (170,216) | ક | 701 |
| Securities borrowed | 191,618 | | (42,755) | 148,863 | | (105,804) | | 43.059 |
| Liabilities | | | | | | | | |
| Securities sold under repurchase
agreements | \$ 467,229 | ਦੇ | (231,902) \$ | 235.327 | ਵ | (212,181) \$ | | 23.146 |
| Securities | 47,562 | | (42,755) | 4,807 | | (4.630) | | 177 |
| Obligation to return securities received
as collateral" | 5,377 | | | 5,377 | | (5.377) | | |
(a) Includes securities that were segregated to satisfy SEC rules regarding the protection of assets of customation.
(b) Represents securities lending transactions when the Company is acting as the lender with the corresponding assecurities received as collateral, at fair value on the Consolidated Statement of Financial Condition.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts reported in this column are limited to the related asset or liability with that counterparty.
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal one master netting agreement has not been either sought or obtained 31, 2021, included \$195 million of securities purchased under resale agreements; \$39.8 billion of securities borrowed; \$20.8 billion of securities sold under repurchase agreements; and \$172 million of securities loaned.
The following tables present, as of December 31, 2021, the types of financial assets pledged in securities financing agreements and the remaining contractual maturity of the securities financing agreements.
| | Gross liability balance | | | | | | | | |
|-----------------------------------------------|------------------------------------------------|---------|----|-------------------|-----------------------------------------------------------------|-------|--|--|--|
| (in millions) | Securities sold under
repurchase agreements | | | Securities loaned | Obligation to return
securities received as
collateral at | | | | |
| Mortgage-backed securities | | | | | | | | | |
| U.S. GSEs and government agencies | ಕಿರ | 54,705 | S | - | ಕ್ಕಿ | | | | |
| Residential - nonagency | | 1,509 | | | | | | | |
| Commercial - nonagency | | 1,464 | | | | | | | |
| U.S. Treasury, GSEs and government agencies | | 342,900 | | 343 | | | | | |
| Obligations of U.S. states and municipalities | | 1,194 | | | | | | | |
| Non-U.S. government debt securities | | 256 | | 14 | | | | | |
| Corporate debt securities | | 28.979 | | 1,142 | | 465 | | | |
| Equity securities | | 35,026 | | 46,063 | | 4.912 | | | |
| Asset-backed securities | | 1,196 | | | | | | | |
| Total | ಕ್ಕಿ | 467,229 | તે | 47,562 \$ | | 5,377 | | | |
| | Remaining contractual maturity of the agreements | | | | | | | | | |
|----------------------------------------------------------|--------------------------------------------------|--------|---------------------------------|--------------------------|--|-----------|--|-------------------------|---------|--|
| (in millions) | Overnight and
continuous | | Up to 30 days 30-90 days | | | | | Greater than 90
days | Total | |
| Securities sold under repurchase agreements | မခ | | | 235,729 \$ 104,168 \$ \$ | | 77.396 \$ | | 49.936 \$ | 467,229 | |
| Securities loaned | | 46,828 | | 234 | | | | 500 | 47.562 | |
| Obligation to return securities received as collateral®/ | | 5.377 | | | | | | | 5.377 | |
(a) Represents securities lending transactions when the Company is acting as the lender with the corresponding assecurities received as collateral, at fair value on the Consolidated Statement of Financial Condition.
### 9. Variable interest entities
For a further description of the Company's accounting policies regarding consolidation of VIEs, refer to Note 2.
{29}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
This Note summarizes the most significant types of JPMorgan Chase-sponsored VIEs. JPMorgan Chase-sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the VIE is used by JPMorgan Chase to securitize its assets; (3) the VE issues financial instruments with the JPMorgan Chase name; or (4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
### Mortgage and other securitization trusts
The Company engages in underwriting and trading activities issued by JPMorgan Chase-sponsored securitization trusts. As a result, the Company at times retains senior and/or subordinated interests (including residual interests) in residential and commercial mortgage securitization, and/or reacquires positions in the secondary market in the normal course of business. In certain instances as a result of the positions reacquired, when considered together with the power to direct the VIEs, the Company is deemed to be the primary beneficiary of certain securitization trusts.
The Company does not consolidate residential or commercial mortgage securitizations (JPMorgan Chase-sponsored or thirdparty-sponsored) when it or an affiliate is not the servicer (and therefore does not have the most significant activities of the trust) or does not hold a beneficial interest in the trust that could potentially be significant to the trust.
The following table presents at December 31, 2021, the total unpaid principal amount of assess held in JPMorgan Chasesponsored private-label securitization entities in which the Company has continuing involvement. The Company's continuing involvement includes holding senior interests and derivative transactions. The Company's maximum loss exposure from retained and purchased interests is the carrying value of these interests.
| Total | ನಿ | 76.341 | | 946 | | |
|-----------------------------------------------------------|--------------------------------------------------------------------------------------|------------------------------|--------------------------------------------------------------------------------------|-----------------------------|--|--|
| Commercial and other(b) | | 53,135 | | 371 | | |
| Subprime | | 110 | | | | |
| Prime/Alt-A and option adjustable rate mortgages ("ARMs") | ಕೊ | 23.096 | S | 574 | | |
| Residential mortgage: | | | | | | |
| Securitization-related(a) | | | | | | |
| (in millions) | Assets held in nonconsolidated
securitization VIEs with
continuing involvement | | | Financial instruments owned | | |
| | | Principal amount outstanding | JPMorgan Chase interest in
securitized assets in
nonconsolidated VIEs(c)(a)(e) | | | |
(a) Excludes U.S. GSEs and government agency securitizations, which are not JPMorgan Chase-sponsored.
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables purchased from third-parties.
(c) Excludes the following: securities retained from the stores; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchanion entities; senior and subordinated securities of \$145 million, respectively, which the Company purchased in connection with secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2021, 80% of the Company's retained securitization interests, which are carried at fair or better, on an S&P-equivalent basis. The retained interests in prime residential of \$553 million of investment-grade retained interests, and \$21 million of noninvestment-grade retained interests in commercial and other securitization trusts consisted of \$243 million of investment-grade retained interests, and \$128 million of noninvestment-grade retained interests.
### Re-securitizations
The Company engages in certain re-securitization in which debt securities are transferred to a VIE in exchange for new beneficial interests. These transfers occur in connection with both U.S. GSEs and government agency sponsored VIES, which are backed by residential mortgages. The Company's consolidation analysis is largely dependent on the Company's role and interests in the re-securitization trusts.
The following table presents, for the year ended December 31, 2021, the principal amount of securities transferred to resecuritization VIEs.
{30}------------------------------------------------
# J.P. Morgan Securities LLC and Subsidiaries (an indirect wholly-owned subsidiary of JPMorgan Chase & Co.) Notes to Consolidated Statement of Financial Condition December 31, 2021
|
(in millions) | |
|---------------------------------|--|
| Transfers of securities to VIEs | |
U.S. GSEs and government agencies
\$ 53,923
Most re-securitizations with which the Company is involved are client-driven transactions in which a specific client or group of clients is seeking a specific return or risk profile. For these transactions, the Company has concluded that the decision-making power of the entity is shared between the Company and its clients, considering the joint effort and decisions in establishing the re-securitization trust and its assets, as well as the significant economic interest the client of trust, therefore the Company does not consolidate the re-securitization VIE.
The Company did not transfer any private label securitization VIEs during the year ended December 31, 2021, and retained interests in any such JPMorgan Chase-sponsored VIEs as of December 31, 2021 were immaterial.
Additionally, the Company may invest in beneficial interests of third-party-sponsored re-securitizations and generally purchases these interests in the secondary market. In these circumstances, the Company does not have the unilateral ability to direct the most significant activities of the re-securitization trust, either because it was not involved in the trust, or the Company was involved with an independent third-party-sponsor and demonstrated shared power the creation of the trust; therefore the Company does not consolidate the re-securitization VIE.
The following table presents information on the Company's interests in nonconsolidated re-securitization VIEs at December 31, 2021.
#### (in millions)
| U.S. GSE and government agencies | |
|----------------------------------|------|
| Interest in VIEs | .947 |
| | |
As of December 31, 2021, the Company did not consolidate any U.S. GSE and government agency re-securitization VIEs or any JPMorgan Chase-sponsored private-label re-securitizations VIEs.
### Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VEs consolidated by the Company as of December 31, 2021.
| | Assets | Liabilities |
|-------------------------------------|------------------------------|----------------------------------------------------|
| (in millions) | Financial instruments owned™ | Beneficial interests issued by consolidated VIEs(0 |
| Mortgage securitization entities(a) | \$23 | \$12 |
| Municipal bond vehicles | 20 | 18 |
| Total | \$43 | \$30 |
(a) Represents residential mortgage securitizations.
(b) The assets of the consolidated VEs included in the program types above are used to settles. The assets and liabilities include third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation.
(c) The holders of these beneficial interests generally do not have recourse to the general credit of the Company.
#### 10. Short-term borrowings
The following is a summary of the Company's variable rate short-term borrowings, which have maturities of less than one year, at December 31, 2021.
| | | Amount (in millions)
Interest rates | | Secured/unsecured | |
|------------------------------------------|----|----------------------------------------|-----------------|-------------------|--|
| Commercial paper(a) | A | 15.108 | 0.12 - 0.41%(b) | Unsecured | |
| Short-term borrowings with third-parties | | 24.519 | 0.18 - 0.72%(b) | Secured(e) | |
| Short-term borrowings with the IHC | | 21,725 | 0.05 - 0.22%(c) | Unsecured | |
| Structured notes payable to affiliates | | 2.766 | Various(d) | Unsecured | |
| Other | | 113 | NA | Unsecured | |
| Total | ಿರ | 64.231 | | | |
(a) Maturities ranged from January 2022 to November 2022.
{31}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
- (b) Predominantly includes U.S. dollar denominated notes issued at a spread to either the one-month Lordon Interest of the end Rate ("LIBOR") or the Secured Overnight Financing Rate ("SOFR"), depending on the tenor of issuance.
- (c) As of December 31, 2021, \$12.2 billion bears interest at SOFR pursuant to a committed \$18.0 billion bears interest at spreads over SOFR pursuant to a term borrowing agreement.
- (d) The interest rates are based primarily on the performance of a single equity securities, or an equity index. The Company has elected to measure these instruments at fair value under the fair value option.
- (e) These borrowings are secured by certain financial instruments owned and securities received in as collateral.
#### 11. Long-term debt
The following table is a summary of long-term debt carrying the Company's unsecured long-term structured notes payable to affiliates (including unamortized premiums and discounts, issuance costs, valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31, 2021. The interest rates are based primarily on the performance of a single equity or basket of equity securities, or an equity index. The Company has elected to measure these instruments at fair value under the fair value option.
| (in millions) | | Under 1 vear | 1 - 5 years | After 5 years | Total |
|----------------|---------------------|--------------|-------------|---------------|--------|
| Long-term debt | Variable rate notes | 5.917 \$ | 11,332 . | 789 9 | 18.038 |
#### 12. Subordinated borrowings
At December 31, 2021, J.P. Morgan Securities had the following subordinated borrowings payable to the IHC under subordinated borrowing agreements, and they mature as follows.
| | Amount (in millions) | Interest rates'ª | Term (b) |
|-------------------------------|----------------------|------------------|------------|
| Debt subordination | 16.000 | 0.82% | 2/1/2023 |
| Equity subordination | 5.000 | 1.88% | 5/1/2023 |
| Equity subordination | 8.000 | 1.60% | 11/30/2023 |
| Total subordinated borrowings | 29.000 | | |
(a) Includes spreads over SOFR depending on the tenor of issuance.
(b) The dates represent the current maturity dates will be automatically extent it is a matically extended unless notification to not extend is given by the relevant party to the borrowings under the provisions of each agreement.
All subordinated borrowings of J.P. Morgan Securities have received regulatory approval and therefore qualify as capital in computing net capital under the SEC's Uniform Net Capital Rule"). The subordinated borrowing obligations may only be repaid if J.P. Morgan Securities is in compliance with the applicable terms of the Net Capital Rule.
### 13. Related parties
The Company regularly enters into transactions with JPMorgan Chase affiliates. These affiliates engage the Company to arrange for the purchase or securities, clearing activities, collateralized transactions, manage portfolios of securities, market derivative instruments, structure complex transactions and receive operational support and services. Balances with related parties as of December 31, 2021, are listed in the following table.
{32}------------------------------------------------
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{35}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
# Notes to Consolidated Statement of Financial Condition
# December 31, 2021
Refer to Note 6 for information on the derivatives that the Company executes for its own account and records on its Consolidated Statement of Financial Condition.
#### Exchange and clearing house memberships
The Company is a member of several securities and derivative exchanges and clearing houses, both in the U.S. and other countries, and it provides clearing services to its clients. Membership in some of these organy to pay a pro rata share of the losses incurred by the organization as a result of another member. Such obligations vary with different organizations. These obligations may be limited to the amount (or a multiple of the amount) of the Company's contribution to the guarantee fund maintained by a clearing house or exchange as available to cover any losses in the event of a member default. Alternatively, these obligations may also include a pro rata share of the residual losses after applying the guarantee fund. Additionally, certain clearing houses require the Company as a member to pay a pro rata share of losses that may result from the clearing house's investment of guarantee fund contributions and initial margin, unrelated to and independent of another member. Generally a payment would only be required should such losses exceed the resources of the clearing house or exchange that are contractually required to absorb the first instance. In certain cases, it is difficult to estimate the Company's maximum possible exposure under these membership agreements, since this would require an assessment of future claims that may be made against the Company that have not yet occurred. However, based on historical experience, management expects the risk of loss to the Company to be remote. Where the Company's maximum possible exposure can be estimated, the amount is disclosed in exchange and clearing house guarantees and commitments.
#### Sponsored member repo program
The Company acts as a sponsoring member to clear eligible overnight and repurchase agreements through the Government Securities Division of the Fixed Income Clearing Corporation ("FICC") on behalf of clients that become sponsored members under the FICC's rules. The Company also guarantees to the FICC the prompt and performance of its sponsored member clients' respective obligations under the FICC's rules. The Company minimizes its liability under these guarantees by obtaining a security interest in the cash or high-quality securities collateral that the clearing house, and therefore, the Company expects the risk of loss to be remote. The Company's maximum possible exposure, without taking into consideration the associated collateral, is included in exchange and clearing house guarantees and commitments. For additional information on credit risk mitigation practices on resale agreements and the types of collateral pledged under repurchase agreements, refer to Note 8.
### Guarantees of subsidiaries
In the normal course of business, J.P. Morgan Securities may guarantee certain of the obligations of its consolidated subsidiaries. The obligations of the consolidated subsidiaries are included on the Company's Consolidated Statement of Financial Condition; therefore, the Company has not recognized a separantees. The Company believes that the occurrence of any event that would trigger payments under these guarantees is remote.
#### Pledged assets
The Company pledges or otherwise uses financial assets to collateralize repurchase and other securities financing agreements, to cover short sales, to collateralize contracts and to satisfy margin deposits at clearing and depository organizations. Certain of these pledged assets may be sold or otherwise used by the secured parties and are parenthetically identified on the Consolidated Statement of Financial Condition.
The following table presents the Company's pledged assets at December 31, 2021.
#### (in millions)
| Assets that may be sold or repledged or otherwise used by secured parties | 68.571 |
|-------------------------------------------------------------------------------|---------|
| Assets that may not be sold or repledged or otherwise used by secured parties | 57,284 |
| Total pledged assets | 125.855 |
Total pledged assets do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. Refer to Note 9 for additional information on assets and liabilities of consolidated VIES.
#### Collateral
The Company accepts financial assets as collateral that it is permitted to sell or repledge, deliver or otherwise use. This collateral is generally obtained under securities financing agreements, customer margin loans and derivative
{36}------------------------------------------------
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{37}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.) Computation of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges pursuant to Section 4d(a)(2) of the Commodity Exchange Act December 31, 2021
| (in millions) | | |
|-------------------------------------------------------------------------------------------|------|---------|
| Segregation requirements | | |
| Net ledger balance | | |
| Cash | ಕಿರ | 29,373 |
| Securities (at market) | | 25,543 |
| Net unrealized profit/(loss) on open futures contracts traded on a contract market | | (3,900) |
| Exchange traded options | | |
| Market value of open option contracts purchased on a contract market | | 2,135 |
| Market value of open option contracts granted/(sold) on a contract market | | (2,382) |
| Net equity | | 50,769 |
| Accounts liquidating to a deficit and accounts with debit balances - gross amount | | 769 |
| Less: amount offset by customer owned securities | | (750) |
| Amount required to be segregated | | 50,788 |
| Funds on deposit in segregation | | |
| Deposited in segregated funds bank accounts | | |
| Cash | ಕಿರ | 894 |
| Securities held for particular customers or options customers in lieu of cash (at market) | | 1,672 |
| Margins on deposit with derivatives clearing organizations of contract markets | | |
| Cash | | 24,501 |
| Securities representing investments of customers' funds (at market) | | 1,029 |
| Securities held for particular customers or option customers in lieu of cash (at market) | | 10,310 |
| Net settlement from (to) derivatives clearing organizations of contract markets | | 758 |
| Exchange traded options | | |
| Value of open long option contracts | | 2,135 |
| Value of open short option contracts | | (2,382) |
| Segregated funds on hand | | 13,561 |
| Total amount in segregation | | 52,478 |
| Excess (deficiency) funds in segregation | ಕ್ಕಿ | 1,690 |
| Management Target Amount for Excess funds in segregation | ಕ್ಕಿ | 1,168 |
| Excess (deficiency) funds in segregation over (under) Management Target Amount Excess | 8 | 522 |
There are no material differences between the and those reported by J.P. Morga Securities in its unaudited December 31, 2021 FOCUS Report filed on January 26, 2022.
{38}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
Computation of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers pursuant to Commission Regulation 30.7
## December 31, 2021
| (in millions) | | |
|-------------------------------------------------------------------------------------------|------|---------|
| Foreign futures and foreign options secured amounts | | |
| Net ledger balance | | |
| Cash | ಕ್ಕಿ | 7,327 |
| Securities (at market) | | 1,508 |
| Net unrealized profit/(loss) on open futures contracts traded on a foreign board of trade | | (1,029) |
| Exchange traded options | | |
| Market value of open option contracts purchased on a foreign board of trade | | 59 |
| Market value of open option contracts granted/(sold) on a foreign board of trade | | (24) |
| Net equity | | 7,841 |
| Accounts liquidating to a deficit and accounts with debit balances - gross amount | | 14 |
| Less: amount offset by customer owned securities | | (13) |
| Amount required to be segregated | | 7,842 |
| Funds deposited in separate regulation 30.7 accounts | | |
| Cash in banks located in the United States | ಕಿರ | 4,008 |
| Cash in other banks qualified under Regulation 30.7 | | 126 |
| Securities in safekeeping with banks located in the United States | | 529 |
| Securities in safekeeping with other banks qualified under Regulation 30.7 | | |
| Amounts held by members of foreign boards of trade | | |
| Cash | | 1,505 |
| Securities | | 3,141 |
| Unrealized gain/(loss) on open futures contracts | | (1,029) |
| Value of long option contracts | | 59 |
| Value of short option contracts | | (24) |
| Total funds in separate section 30.7 accounts | | 8,315 |
| Excess (deficiency) set Aside Funds for Secured Amount | ಕ್ಕಿ | 473 |
| Management Target Amount for Excess funds in separate section 30.7 accounts | ಕ್ಕಿ | 196 |
| Excess (deficiency) funds in separate 30.7 accounts over (under) Management Target | 8 | 277 |
There are no material differences between and those reported by J.P. Morgan Securities in its unaudited December 31, 2021 FOCUS Report filed on January 26, 2022.
{39}------------------------------------------------
(an indirect wholly-owned subsidiary of JPMorgan Chase & Co.)
Computation of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under 4d(f) of the Commodity Exchange Act
### December 31, 2021
(in millions)
| Cleared swaps customer requirements | | |
|---------------------------------------------------------------------------------------------------------------|------|---------|
| Net ledger balances | | |
| Cash | ಕಿರ | 15,776 |
| Securities (at market) | | 4,962 |
| Net unrealized profit/(loss) in open cleared swaps | | (2,301) |
| Cleared swaps options | | |
| Market value of open cleared swaps option contracts purchased | | 68 |
| Market value of open cleared swaps option contracts granted/(sold) | | (65) |
| Net equity | | 18,440 |
| Accounts liquidating to a deficit and accounts with debit balances - gross amount | | 33 |
| Less: amount offset by customer owned securities | | (33) |
| Amount required to be segregated for cleared swaps customers | | 18,440 |
| Funds in cleared swaps customer segregated accounts | | |
| Deposited in cleared swaps customer segregated accounts at banks | | |
| Cash | ಕ್ಕಿ | 888 |
| Securities held for particular cleared swaps customers in lieu of cash (at market) | | 1,014 |
| Margins on deposit with derivatives clearing organizations in cleared swaps customer segregated accounts | | |
| Cash | | 10,611 |
| Securities representing investments of cleared swaps customers' funds (at market) | | 2,760 |
| Securities held for particular cleared swaps customers in lieu of cash (at market) | | 3,948 |
| Net settlement from (to) derivatives clearing organizations | | (41) |
| Cleared swaps options | | |
| Value of open cleared swaps long option contracts | | 68 |
| Value of open cleared swaps short option contracts | | (65) |
| Total amount in cleared swaps customer segregation | | 19,183 |
| Excess (deficiency) funds in cleared swaps customer segregation | ക | 743 |
| Management Target Amount for Excess funds in cleared swaps segregated accounts | ಕಿರ | 498 |
| Excess (deficiency) funds in cleared swaps customer segregated accounts over (under) Management Target Excess | ಳಿ | 245 |
There are no material differences between the and those reported by J.P. Morgan Securities in its unaudited December 31, 2021 FOCUS Report filed on January 26, 2022.
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.