Disclosure to Wholesale Fixed Income, Currency, Commodities and Equities Products Clients

July 2016

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.

Principal Trading

  • When J.P. Morgan 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, or financial, legal, regulatory, tax, business, investments or accounting 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 expressly agreed between J.P. Morgan and the counterparty, and then only where we act with discretion in execution or where there is a specific regulatory obligation. In this capacity, J.P. Morgan’s sales and trading personnel and electronic solutions do not serve as brokers or agents to a counterparty. J.P. Morgan will be truthful in its statements about any facts, but its statements should not be construed as recommendations or investment, tax, accounting, legal or other 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 and execute the transaction based upon its own independent determination of the transaction.
  • When J.P. Morgan is willing to work a counterparty’s “order” (as such term is used herein) at a price (such as a limit order), J.P. Morgan is indicating a willingness to attempt to enter into the trade at the price requested by the counterparty. J.P. Morgan 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, J.P. Morgan’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 J.P. Morgan that commits the Firm to execute any or all of the order in any particular way, nor is it a contract that binds the counterparty to execute the trade with J.P. Morgan at the order price.
  • As it relates to timing, J.P. Morgan may look for market opportunities that satisfy both a price where we can execute a counterparty’s order at the counterparty’s desired price and earn a reasonable return for that activity, including while managing and prioritizing other interests, positions and executions for J.P. Morgan and other counterparties. When J.P. Morgan is willing to execute an order with a counterparty, the price at which J.P. Morgan would do so may include a spread or markup over the price at which J.P. Morgan transacted, or may have been able to transact, with other counterparties.

Market Making

  • As a market maker or liquidity provider in Financial Products that handles a portfolio of positions for multiple counterparties’ competing interests, as well as J.P. Morgan’s own interests, J.P. Morgan acts as principal and may trade prior to or alongside a counterparty’s transaction to execute transactions for J.P. Morgan 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, J.P. Morgan endeavors to employ reasonably designed means to avoid undue market impact.
  • In addition, as a market maker or liquidity provider in Financial Products, J.P. Morgan may receive requests for quotations and multiple orders for the same or related Financial Products. J.P. Morgan 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. J.P. Morgan is not required to disclose to a counterparty when the counterparty attempts to leave an order that J.P. Morgan is handling other counterparties’ orders or J.P. Morgan orders ahead of, or at the same time as, or on an aggregated basis with, the counterparty’s order. J.P. Morgan is under no obligation to disclose to a counterparty why J.P. Morgan is unable to execute the counterparty’s order in whole or in part, provided that J.P. Morgan will be truthful if we agree to disclose such information.
  • Unless otherwise expressly agreed, any firm or indicative bid, offer or price quoted by J.P. Morgan to a counterparty is an “all-in” price, inclusive of any spread or markup above the price at which J.P. Morgan may be able to transact, or has transacted, with other counterparties, regardless of the circumstances under which a counterparty receives or otherwise learns of a price.
  • J.P. Morgan and a counterparty may from time to time discuss a bid, offer or order designated as “pay on top,” “on top” or otherwise involving a payment arrangement linked to, or in addition to, a proposed or actual transaction execution price. J.P. Morgan’s acceptance of and/or effort to fulfill such bids, offers or orders does not constitute an agreement that J.P. Morgan is acting as the counterparty’s agent. Consequently, J.P. Morgan, as principal, may transact with another counterparty at a price different than the bid, offer or order and may also earn compensation (such as markup or an on-top amount from such other counterparty) in connection with fulfilling any such bid, offer or order in addition to any designated on top amount and need not disclose that compensation to the counterparty.
  • J.P. Morgan’s sales and trading personnel are not obligated to disclose the amount of revenue J.P. Morgan expects to earn from a transaction, nor are they required to disclose the components of J.P. Morgan’s all-in price. While we do not have any duties to disclose to a counterparty any markup included in the transaction price, we will be truthful with the counterparty if we choose to 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 J.P. Morgan 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. J.P. Morgan reserves the right to execute a transaction with a counterparty using J.P. Morgan’s inventory or through acquisition or other hedging activities without disclosing to the counterparty the source and J.P. Morgan’s cost of the liquidity. As principal, J.P. Morgan always attempts to execute an order to make an appropriate and reasonable return on the transaction if possible, taking into account J.P. Morgan’s position, including its inventory strategy and overall risk management strategies, its costs, its risks and other business factors and objectives, in J.P. Morgan’s discretion.
  • When solicited for, and prior to the execution of, a transaction, J.P. Morgan may risk-mitigate or hedge any exposure that would be created by such transaction.
  • J.P. Morgan has discretion to offer different prices or services to different counterparties for the same or substantially similar transactions.
  • It should be expected that J.P. Morgan’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 handle J.P. Morgan’s market-making positions, and for the benefit of J.P. Morgan’s trading positions and the handling of other counterparty transactions.

Information Handling

  • Protecting the confidentiality and security of counterparty information is an important part of how we do business. J.P. Morgan has policies, procedures and controls that are designed to protect a counterparty’s confidential information. However, a counterparty should understand that J.P. Morgan makes use of information provided to it as principal in order to effectuate and risk manage portfolios and transactions. Specifically, unless otherwise expressly agreed, J.P. Morgan may use the economic terms of a transaction (but not the counterparty identity) as part of the process of sourcing liquidity and/or executing risk-mitigating transactions. In addition, as part of its obligations as a regulated entity, J.P. Morgan also shares counterparty information as required by its global regulators.
  • With respect to wholesale or block futures trades on futures exchanges, J.P. Morgan may disclose a counterparty’s identity and transaction terms to employees at J.P. Morgan, including trading personnel involved in the transaction, to facilitate the execution of the wholesale or block trade, unless we expressly agree otherwise.
  • With regard to executed transactions, J.P. Morgan analyzes this information on an individual and aggregate basis and may use the information for a variety of purposes, including counterparty risk management, business strategy, sales coverage, and counterparty relationship management.
  • We also may analyze, comment on, and disclose information regarding executed transactions, as appropriate and on an anonymized basis (except where information regarding executed transactions has previously been publicly disclosed), together with other relevant market information, internally and to third parties, as market color.

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.