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, “J.P. Morgan” or the “Firm”) and to disclose relevant practices and certain terms of dealing of J.P. Morgan when acting as a dealer or counterparty, on a principal basis, of wholesale fixed income, currency, commodities and equities products including but not limited to securities, derivatives and other related financial instruments (“Financial Products”). Financial Products do not include (i) cash equities, exchange traded funds or similar securities or (ii) listed derivatives traded on an agency basis.
J.P. Morgan is dedicated to upholding a high level of integrity and adhering to rules, regulations and requirements published by relevant international groups and regulatory bodies in our dealings with counterparties. In doing so, we also want to ensure that there are no ambiguities or misunderstandings regarding J.P. Morgan’s practices and certain terms of dealing.
We ask that you read this letter because it sets forth our standard business practices and terms of dealing generally with our clients (together with other market participants, “counterparties”) in principal-to-principal transactions involving Financial Products (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, bid lists, discussion or placement of orders and all other expressions or indications 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
J.P. Morgan is a global financial services firm that has operated and continues to operate as a dealer, counterparty and market maker in wholesale fixed income, currency, commodity and equity markets. As such, J.P. Morgan engages in activities such as price discovery, price quoting, order taking, trade execution and other related activities. Unless otherwise expressly agreed, J.P. Morgan engages in these transactions as principal for the benefit of the Firm. In that capacity, J.P. Morgan does not act as agent, fiduciary or financial advisor or in any similar capacity on behalf of its counterparties. It should be noted that J.P. Morgan and its counterparties may have divergent or conflicting interests.
This letter is supplemental to any other applicable terms of dealing in place between us and any law or regulation applicable to our trading activity. To the extent that you continue to discuss and/or enter into transactions involving Financial Products with the Firm and except as otherwise expressly agreed between J.P. Morgan and you, provided in other applicable J.P. Morgan terms of dealing or required by law or regulation, it will be on the basis of the terms disclosed in this letter. This letter may be updated from time to time in order to address changing regulatory, industry and other developments.
U.S. Government Securities Activities
J.P. Morgan is active in the U.S. government securities markets in a number of different respects. Except as otherwise expressly addressed below, all of the material set forth above is applicable to such activities.
J.P. Morgan Securities LLC (“JPMSLLC”) has been designated as a primary dealer that trades in U.S. government securities with the Federal Reserve Bank of New York (“FRBNY”). The role of a primary dealer includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee and (ii) provide the FRBNY's trading desk with market information and analysis helpful in the formulation and implementation of monetary policy. Primary dealers are also required to participate on a proportional basis in all U.S. government securities auctions and to make reasonable markets for the FRBNY when the FRBNY transacts on behalf of its foreign official account-holders. Auctions are open to primary dealers, their clients and direct bidders.
J.P. Morgan acts as a market-maker in when-issued U.S. government securities. Following the announcement of an auction of such securities by the U.S. Treasury but prior to the auction settlement, dealers and other market participants will trade the new security on a when-issued basis. Transactions in when-issued securities will settle on the date of the issuance of the new security. J.P. Morgan is also active in market-making and trading activities in the secondary market for U.S. government securities. J.P. Morgan provides pricing for multiple counterparties' competing interests, while also handling J.P. Morgan's own interests. In addition to the J.P. Morgan trading desks that are dedicated to performing primary dealer functions and market-making and secondary trading in U.S. government securities, a number of other trading desks within J.P. Morgan transact in such securities and products linked to such securities (e.g., futures and swaps) for a variety of reasons, including for the purpose of pricing such products and hedging interest rate and other risks.
As noted above, J.P. Morgan is dedicated to adhering to rules, regulations and requirements in our dealings with counterparties, including, in the context of transacting in U.S. government securities, 31 C.F.R. 356 and the Treasury Market Practices Group “Best Practices for Treasury, Agency Debt, and Agency Mortgage-Backed Securities Markets.”
J.P. Morgan acts as a principal when participating in U.S. government securities auctions, acting as a market maker in the when-issued and secondary markets, and transacting in related products such as swaps. There are designated trading desks that are responsible for submitting JPMSLLC's bid as a primary dealer for its proportional share of any U.S. government securities auction. These desks, as well as other trading desks within J.P. Morgan (e.g., interest rate swap desks), may submit multiple bids in any auction for different amounts and at different yields.
J.P. Morgan's bids in auctions, as well as its bid/offer spreads in the when-issued and secondary markets and in related products, are determined by its traders based on a variety of factors. These factors include, but are not limited to, the traders' then current risk positions and their perception of the market, hedging strategies, liquidity, volatility, anticipated flow and expected demand, and global political and economic forces that could affect U.S. interest rates, such as foreign rates, commodities prices, and corporate bond spreads. When making markets, J.P. Morgan's pricing may also reflect its willingness to transact with a particular counterparty.
J.P. Morgan's market-making activity in the when-issued market involving transactions between J.P. Morgan and its various counterparties prior to an auction, its activities in the secondary market, and its conversations with clients that are permitted under its policies and procedures, as well as trading activities in related financial products (e.g., swaps), may provide information to J.P. Morgan regarding the depth, the direction and/or price levels that might be relevant to how participants in an auction may bid and the ultimate outcome of the auction. While this information may form an incomplete representation of other market-wide activities (including by other dealers and/or market-participants away from J.P. Morgan), such information may be used to shape J.P. Morgan's views with respect to how J.P. Morgan may bid in an auction, determine bid/offer spreads in the when-issued and secondary markets, and transact in related financial products, including with respect to J.P. Morgan's objectives to cover any short positions and/or to accumulate the relevant or related U.S. government securities for J.P. Morgan's trading position.
J.P. Morgan will, at the request of a client, submit the client’s bid for U.S. government securities in an auction. J.P. Morgan's policies and practices restrict personnel involved in handling client bids from sharing client bid information (including client names, bid amounts and bid rates) with J.P. Morgan's trading personnel prior to the auction close. Notwithstanding the foregoing, prior to an auction close, a client may request to communicate with a trader about an upcoming auction and may, as part of that discussion and in the client's discretion, indicate the amounts and yields the client plans to bid in the auction.
Although J.P. Morgan's traders may provide or receive market color to or from J.P. Morgan's salespeople, other J.P. Morgan trading desks and clients in respect of topics such as general market conditions or expectations about the result of the auction, J.P. Morgan's employees involved in the process of formulating or submitting JPMSLLC bids will not communicate information to any client or other dealer regarding specific yields at which J.P. Morgan or any client plans to bid in any upcoming auction, the specific amounts of securities for which J.P. Morgan or any client plans to bid in any upcoming auction, the size of any U.S. government security position that J.P. Morgan or any other client currently holds, has held or plans to acquire, or the specific investment strategy that J.P. Morgan or any other client plans to follow with respect to any auctioned U.S. government security.
This letter is also available at http://www.jpmorgan.com/disclosures. If you have questions after reading this letter or concerning J.P. Morgan's dealings with you, we encourage you to contact your senior J.P. Morgan representative.