Safety of Customer Assets
J.P. Morgan Securities and JPMorgan Chase
J.P. Morgan Securities is a division of J.P. Morgan Securities LLC (JPMS), a wholly-owned subsidiary of JPMorgan Chase & Co. (NYSE: JPM). JPMorgan Chase & Co. is a leading global financial services firm with operations in more than 60 countries; through its subsidiaries, it is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and governmental clients under its JPMorgan and Chase brands.
Information about the combined firm is available at www.jpmorganchase.com.
Protection of Assets Held at J.P. Morgan Clearing Corp.1
J.P. Morgan Clearing Corp. (JPMCC) handles the "clearing functions" for securities accounts you establish through J.P. Morgan Securities. This means that JPMCC is responsible for holding securities and cash, settling transactions, collecting dividends, issuing buy and sell confirmations and monthly statements and looking after the various details incidental to the clearing and carrying of accounts.
The protection of your JPMCC account derives primarily from the following:
- JPMCC's innovative structure
- Securities and Exchange Commission (SEC) Rules
- Securities Investor Protection Corporation (SIPC) protection
1Capitalized terms have the meanings assigned to them under SIPA and SEC rules and regulations.
JPMCC is a separately capitalized, guaranteed broker-dealer established for the express purpose of holding and financing customer accounts and clearing and settling transactions. JPMCC does not make proprietary investments or engage in market making activities.
JPMCC is a broker dealer registered with, and regulated by, the SEC. In compliance with the SEC rules and regulations for the protection of customers, JPMCC maintains all customers' Fully Paid and Excess Margin securities as required under Rule 15c3-3(b) of the Securities Exchange Act of 1934. JPMCC maintains such securities in its possession or in a location that has the controls required by the SEC to protect such securities from claims of third parties, in conformity with the SEC rules. Based upon a formula prescribed in the SEC's rules, net Customer Free Credit Balances (if any), or the equivalent thereof in Qualified Securities, not required to be used for the settlement of Customer transactions or the financing of Customer margin debt are held by JPMCC in an account segregated for, in the words of the SEC rules, "the exclusive benefit of Customers". As a result, such funds and Qualified Securities are not available for JPMCC's proprietary use. Compliance with SEC and similar rules is regularly reviewed by the regulatory agencies that are charged with their enforcement.
Membership in SIPC
JPMCC is a member of SIPC, which was created by Congress to protect Customers of securities brokers and dealers and to promote public confidence in the securities markets in the United States. Customers of a member of SIPC that fails financially are afforded special benefits under SIPA. These special benefits provided under SIPA are relevant only if the broker-dealer that carries a Customer's account fails and is liquidated under SIPA.
Although there can be no assurance of what would occur in any specific situation if a member of SIPC were to fail, in a liquidation under SIPA, Customer accounts of a failed firm are intended to be transferred to another SIPC member firm. If that were to occur, the transfer would usually occur within a week of the failure. If their accounts are transferred, Customers may deal with their accounts after their transfer in the same manner as if their original broker-dealer had not failed.
If a Customer's accounts are not transferred to another SIPC member firm, such Customer is entitled to receive the cash and securities in its accounts, minus any obligations the Customer owes to the failed broker-dealer. If there were not enough cash and securities to make distributions in full to all Customers, each Customer would receive a distribution, on a pro rata basis, of Customer Property held by the failed broker-dealer to the extent of the Net Equity that was in such Customer's accounts, determined as of the date of the filing of the petition with respect to the SIPC member. Customers are not considered general creditors of a failed broker-dealer, and receive distributions from Customer Property ahead of general creditors. General creditors of the failed broker-dealer do not receive any Customer Property unless all Customers are first satisfied in full.
If the distributions from Customer Property are not sufficient to satisfy Customers' claims for the Net Equity in their accounts, SIPC protection would be available to satisfy Customer claims for any remaining shortfall in their Net Equity, up to $500,000 per Customer (of which up to $250,000 may be for cash claims).
Limitations of SIPC
The coverage described above covers losses of cash or Securities from Customer accounts at JPMCC if it were to fail and be unable to meet its obligations to its Customers. The coverage does not cover any losses from changes in the market value of investments after a liquidation commences, from delays in the liquidation process, losses of assets not eligible for SIPC protection (such as futures, options on futures, foreign exchange transactions, commodity contracts, precious metals contracts, or any investment contracts that are not Securities) or losses incurred by persons that are not "Customers" under SIPA. Although created by Congress, SIPC is not a government agency. It is a non-profit membership corporation which receives its revenue from those brokers and dealers that are required by law to be SIPC members and from its own investments.
A bank or brokerage firm that is a Customer and that is acting for its own trading account is entitled to participate in the preferential distribution of Customer Property in a SIPA liquidation, but it is not eligible for SIPC advances if there is a shortfall in such a liquidation.
These matters are complex and it is not possible to address all issues in a very general summary such as this one. Should you have any questions regarding SIPC coverage, please consult your own legal counsel, or visit the SIPC web-site at www.sipc.org.
Investment Advisory and Brokerage Services Disclosure, December 2010
J.P. Morgan Securities LLC (JPMS) provides clients with investment advisory and brokerage services. In providing such services, employees may act as investment advisory and registered representatives of JPMS under its registration as an Investment Adviser and Broker-Dealer. Certain other services described in this site may be provided by affiliates of JPMS. When J.P. Morgan Securities provides brokerage services, a client's relationship with us and our duties to the client will be different in some important ways from when we are providing investment advisory services.
Brokerage services primarily involve assisting clients with the purchase and sale of securities, whereas investment advisory services primarily involve offering clients advice about what to buy and sell, or helping a client retain another adviser to provide this service. In providing investment advisory services, we have a fiduciary duty to a client and are thereby required to put the client's interests ahead of our own, to treat all of our advisory clients fairly and equitably, and to disclose all material conflicts between our interests and the advisory client's interests. Brokerage activities are regulated under different laws and rules then advisory activities and generally do not give rise to the fiduciary duties that an investment adviser has to its advisory clients. We do have obligations to clients when we act as their broker-dealer under rules concerning the suitability of our recommendations, our obligations to know our customer and our obligation to seek best execution of customer orders, as well as under rules imposed by self-regulatory organizations relating to our conduct and sales practices, generally. We also have a duty to deal fairly with brokerage clients. However, our interests may not always be the same as yours, we may be paid both by you and by people who compensate us based upon what you purchase, and our profits and salespersons' compensation may vary by product and over time.
JPMorgan Chase and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
This site provides information about the brokerage and investment advisory services provided by JPMS. The agreements entered into by and disclosures provided to clients with respect to the different products and services provided by JPMS contain important information about whether the product or service is a brokerage or investment advisory product or service. We encourage clients to speak to their JPMS representative regarding the nature of the products and services and to ask any questions they may have about the difference between brokerage and investment advisory services, including the obligation to disclose conflicts of interest and to act in the best interests of our clients.
Nothing herein is an offer or solicitation to enter into a transaction. Information used herein is obtained from publicly available sources JPMS believes to be reliable, but is not guaranteed to be accurate or complete. Past performance may not represent future performance and investors may lose some or all of their investments. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
The purpose of this notice is to disclose certain practices of JPMorgan Chase & Co. and its affiliates (together, "JPMorgan Chase" or the "Firm") when it acted as a dealer, on a principal basis, in the spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or misunderstandings regarding those practices.
To begin, conduct by certain individuals has fallen short of the Firm’s expectations. The conduct underlying the criminal antitrust charge by the Department of Justice is unacceptable. Moreover, as described in our November 2014 settlement with the U.K. Financial Conduct Authority relating to our spot FX business, in certain instances during the period 2008 to 2013, certain employees intentionally disclosed information relating to the identity of clients or the nature of clients’ activities to third parties in order to generate revenue for the Firm. This also was contrary to the Firm’s policies, unacceptable, and wrong. The Firm does not tolerate such conduct and already has committed significant resources in strengthening its controls surrounding our FX business.
The Firm has engaged in other practices on occasion, including:
- We added markup to price quotes using hand signals and/or other internal arrangements or communications. Specifically, when obtaining price quotes for bids or offers from the Firm, certain clients requested to be placed on open telephone lines, meaning the client could hear pricing not only from a salesperson, but also from the trader who would be executing the client’s order. In certain instances, certain of our salespeople used hand signals to indicate to the trader to add markup to the price being quoted to the client on the open telephone line, so as to avoid informing the client listening on the phone of the markup and/or the amount of the markup. For example, prior to agreement between the client and the Firm to transact for the purchase of €100, a salesperson would, in certain instances, indicate with hand signals that the trader should add two pips of markup in providing a specific price to the client (e.g., a EURUSD rate of 1.1202, rather than 1.1200) in order to earn the Firm markup in connection with the prospective transaction.
- We have, without informing clients, worked limit orders at levels (i.e., prices) better than the limit order price so that we would earn a spread or markup in connection with our execution of such orders. This practice could have impacted clients in the following ways: (1) clients’ limit orders would be filled at a time later than when the Firm could have obtained currency in the market at the limit orders’ prices, and (2) clients’ limit orders would not be filled at all, even though the Firm had or could have obtained currency in the market at the limit orders’ prices. For example, if we accepted an order to purchase €100 at a limit of 1.1200 EURUSD, we might choose to try to purchase the currency at a EURUSD rate of 1.1199 or better so that, when we sought in turn to fill the client’s order at the order price (i.e., 1.1200), we would make a spread or markup of 1 pip or better on the transaction. If the Firm were unable to obtain the currency at the 1.1199 price, the clients’ order may not be filled as a result of our choice to make this spread or markup.
- We made decisions not to fill clients’ limit orders at all, or to fill them only in part, in order to profit from a spread or markup in connection with our execution of such orders. For example, if we accepted a limit order to purchase €100 at a EURUSD rate of 1.1200, we would in certain instances only partially fill the order (e.g., €70) even when we had obtained (or might have been able to obtain) the full €100 at a EURUSD rate of 1.1200 or better in the marketplace. We did so because of other anticipated client demand, liquidity, a decision by the Firm to keep inventory at a more advantageous price to the Firm, or for other reasons. In doing so, we did not inform our clients as to our reasons for not filling the entirety of their orders.
Spot FX sales and trading practices
The purpose of this letter is to clarify the nature of the trading relationship between you and the Corporate & Investment Bank at JPMorgan Chase & Co. and its affiliates (together, “JPMorgan” or the “Firm”) and to disclose relevant practices of JPMorgan when acting as a dealer, on a principal basis, in the wholesale spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or misunderstandings regarding those practices.
We ask that you read this letter because it sets forth our standard terms of spot FX dealing generally with our clients (together with other market participants, “counterparties”) in principal-to-principal transactions in the wholesale spot FX markets (as well as when you act as agent for another principal). It sets forth how we will communicate and transact in relation to requests for quotes, requests for indicative prices, discussion or placement of orders and all other expressions of interests that may lead to the execution of transactions and our management of potential or actual conflicts of interest in our principal-dealing and market-making activities.
JPMorgan is a global financial services firm that has operated and continues to operate as a dealer and market maker in the wholesale spot FX market. As such, JPMorgan engages in price quoting, order taking, trade execution and other related activities. Unless otherwise agreed, JPMorgan engages in these transactions as principal for the benefit of the Firm. In that capacity, JPMorgan does not act as agent, fiduciary or financial advisor or in any similar capacity on behalf of its counterparties. JPMorgan is dedicated to upholding a high level of integrity and adhering to best practices and requirements published by relevant international groups and regulatory bodies in our dealings with counterparties. Nonetheless, JPMorgan and its counterparties may have divergent or conflicting interests.
To the extent that you continue to discuss and/or enter into spot FX transactions with us and except as otherwise expressly agreed between JPMorgan and you (or otherwise provided in other applicable JPMorgan terms of dealing) or otherwise required by law or regulation, it will be on the basis of the terms disclosed in this letter.
- When JPMorgan acts in a principal capacity, we act as an arm’s-length party to transactions with our counterparties. The Firm does not act as agent, fiduciary, financial advisor or in any similar capacity on behalf of a counterparty and thus does not undertake any of the duties that an entity acting in that capacity ordinarily would perform, unless otherwise explicitly agreed between JPMorgan and the counterparty, and then only where we act with discretion in execution. JPMorgan’s sales and trading personnel and FX electronic solutions do not serve as brokers or agents to a counterparty. JPMorgan will be truthful in its statements about any facts, but its statements should not be construed as recommendations or advice. A counterparty is expected to evaluate the appropriateness of any transaction based on the counterparty’s own facts and circumstances and its assessment of the transaction’s merits.
- When JPMorgan is willing to work a counterparty’s “order” (as such term is used herein) at a price (such as a limit order), JPMorgan is indicating a willingness to attempt to enter into the trade at the price requested by the counterparty. Unless otherwise specifically agreed, JPMorgan will exercise its discretion appropriately in deciding whether to work an order, which orders it would be willing to execute, when it would be willing to execute them, and how it would execute them, including whether to execute all or part of the order unless we have otherwise expressly agreed to different terms of execution. As such, JPMorgan’s receipt of an order or any indication of working an order received from a counterparty does not create a contract between the counterparty and JPMorgan that commits the Firm to execute any or all of the order in any particular way.
- As it relates to timing, JPMorgan may look for market opportunities that satisfy both a price where we can execute a counterparty’s order at the counterparty’s price and earn a reasonable return for that activity, including while managing and prioritizing other interests, positions and executions for JPMorgan and other counterparties. When JPMorgan is willing to execute an order with a counterparty, the price at which JPMorgan would do so may include a markup over the price at which JPMorgan transacted, or may have been able to transact, with other counterparties.
- As a market maker that manages a portfolio of positions for multiple counterparties’ competing interests, as well as JPMorgan’s own interests, JPMorgan acts as principal and may trade prior to or alongside a counterparty’s transaction to execute transactions for JPMorgan or to facilitate executions with other counterparties, to manage risk, to source liquidity or for other reasons. These activities can have an impact on the prices we offer a counterparty on a transaction and the availability of liquidity at levels necessary to execute counterparty orders. They also can trigger stop loss orders, barriers, knock-outs, knock-ins and similar conditions. In conducting these activities, JPMorgan endeavors to employ reasonably designed means to avoid undue market impact.
- In addition, as a market maker, JPMorgan may receive requests for quotations and multiple orders for the same or related currency pairs. JPMorgan acts as principal and may seek to satisfy the requests of all of its counterparties and its independent risk management objectives, but it retains discretion with respect to how to satisfy its counterparties, including with respect to order execution, aggregation, priority and pricing. JPMorgan is not required to disclose to a counterparty when the counterparty attempts to leave an order that JPMorgan is handling other counterparties’ orders or JPMorgan orders ahead of, or at the same time as, or on an aggregated basis with, the counterparty’s order. JPMorgan is under no obligation to disclose to a counterparty why JPMorgan is unable to execute the counterparty’s order in whole or in part, provided that JPMorgan will be truthful if we agree to disclose such information.
- Unless otherwise agreed, any firm or indicative price quoted by JPMorgan to a counterparty is an “all-in” price, inclusive of any markup above the price at which JPMorgan may be able to transact, or has transacted, with other counterparties, regardless of the circumstances under which a counterparty receives or overhears a price. JPMorgan’s sales and trading personnel are not obligated to disclose the amount of revenue JPMorgan expects to earn from a transaction, nor are they required to disclose the components of JPMorgan’s all-in price. While we do not have any duties to disclose to a counterparty any mark-up included in the order price, we will be truthful with the counterparty if we make a disclosure about whether and how much markup is included in the price.
- If and when a counterparty’s order can be executed at the order price, it does not mean that JPMorgan held, acquired, or would acquire, inventory to complete the transaction at the order price level or that there exists a tradable market at that level. As principal, JPMorgan always attempts to execute an order to make an appropriate return on the transaction if possible, taking into account JPMorgan’s position, including its inventory strategy and overall risk management strategies, its costs, its risks and other business factors and objectives, in JPMorgan’s discretion.
- When solicited for, and prior to the execution of, a transaction, JPMorgan may risk-mitigate or hedge any exposure that would be created by such transaction.
- JPMorgan has discretion to offer different prices to different counterparties for the same or substantially similar transactions.
- It should be expected that JPMorgan’s sales, trading and other personnel will consult, including with respect to a counterparty’s interests, trading behavior and expectations, markup, spread, and any other relevant factors, on a need-to-know basis in order to manage JPMorgan’s market-making positions, and for the benefit of JPMorgan’s trading positions and the handling of other counterparty transactions.
- Protecting the confidentiality and security of counterparty information is an important part of how we do business. JPMorgan has policies and controls that are designed to protect a counterparty’s confidential information. However, a counterparty should understand that JPMorgan makes use of information provided to it as principal in order to effectuate and risk manage transactions. Specifically, unless otherwise agreed, JPMorgan may use the economic terms of a transaction (but not the counterparty identity) in order to source liquidity and/or execute risk-mitigating transactions. In addition, as part of its obligations as a regulated entity, JPMorgan also shares counterparty information as required by its global regulators.
- With regard to executed transactions, JPMorgan analyzes this information on an individual and aggregate basis for a variety of purposes, including counterparty risk management, sales coverage, and counterparty relationship management.
- We also may analyze, comment on, and disclose anonymized and aggregated information regarding executed transactions, together with other relevant market information, internally and to third parties, as market color.
If you have questions after reading this letter or concerning JPMorgan’s dealings with you, we encourage you to contact your senior JPMorgan representative. This letter is also available at www.jpmorgan.com and may be updated from time to time in order to address changing regulatory, industry and other developments.