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

JPMCC's Structure

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.

SEC Rules

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.

1Capitalized terms have the meanings assigned to them under SIPA and SEC rules and regulations.

December 2010


Investment Advisory and Brokerage Services Disclosure

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.

In order for J.P. Morgan Securities to comply with Internal Revenue Service Circular 230 (if applicable), you are notified that any discussion of U.S. federal tax issues contained or referred to herein is not intended or written to be used, for the purpose of: (A) avoiding penalties that may be imposed under the internal Revenue code; nor (B) promoting, marketing or recommending to another party any transaction or matter addressed.

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.

Bank products and services are offered through JPMorgan Chase Bank, N.A. and its affiliates. Securities are offered by J.P. Morgan Securities LLC, member FINRA, NYSE and SIPC. J.P. Morgan Securities LLC is an affiliate of JPMorgan Chase Bank, N.A.

Investment products: Not FDIC insured • No bank guarantee • May lose value

Investment products: Not FDIC insured · No bank guarantee · May lose value
 
 

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