Securities financing activities

JPMorgan Chase enters into resale agreements, repurchase agreements, securities borrowed transactions and securities loaned transactions (collectively, “securities financing agreements”) primarily to finance the Firm’s inventory positions, acquire securities to cover short positions, accommodate customers’ financing needs, and settle other securities obligations.

Securities financing agreements are treated as collateralized financings on the Firm’s Consolidated balance sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. Securities borrowed and securities loaned transactions are generally carried at the amount of cash collateral advanced or received. Where appropriate under applicable accounting guidance, resale and repurchase agreements with the same counterparty are reported on a net basis. For further discussion of the offsetting of assets and liabilities, see Note 1. Fees received and paid in connection with securities financing agreements are recorded in interest income and interest expense on the Consolidated statements of income.

The Firm has elected the fair value option for certain securities financing agreements. For further information regarding the fair value option, see Note 4. The securities financing agreements for which the fair value option has been elected are reported within securities purchased under resale agreements, securities loaned or sold under repurchase agreements, and securities borrowed on the Consolidated balance sheets. Generally, for agreements carried at fair value, current-period interest accruals are recorded within interest income and interest expense, with changes in fair value reported in principal transactions revenue. However, for financial instruments containing embedded derivatives that would be separately accounted for in accordance with accounting guidance for hybrid instruments, all changes in fair value, including any interest elements, are reported in principal transactions revenue.

Securities financing transactions expose the Firm to credit and liquidity risk. To manage these risks, the Firm monitors the value of the underlying securities (predominantly high-quality securities collateral, including government-issued debt and agency MBS) that it has received from or provided to its counterparties compared to the value of cash proceeds and exchanged collateral, and either requests additional collateral or returns securities or collateral when appropriate. Margin levels are initially established based upon the counterparty, the type of underlying securities, and the permissible collateral, and are monitored on an ongoing basis.

In resale agreements and securities borrowed transactions, the Firm is exposed to credit risk to the extent that the value of the securities received is less than initial cash principal advanced and any collateral amounts exchanged. In repurchase agreements and securities loaned transactions, credit risk exposure arises to the extent that the value of underlying securities exceeds the value of the initial cash principal advanced, and any collateral amounts exchanged.

Additionally, the Firm typically enters into master netting agreements and other similar arrangements with its counterparties, which provide for the right to liquidate the underlying securities and any collateral amounts exchanged in the event of a counterparty default. It is also the Firm’s policy to take possession, where possible, of the securities underlying resale agreements and securities borrowed transactions. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 30.

As a result of the Firm’s credit risk mitigation practices with respect to resale and securities borrowed agreements as described above, the Firm did not hold any reserves for credit impairment with respect to these agreements as of December 31, 2016 and 2015.

The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31, 2016, and 2015. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with a counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm exchanges securities and/or cash collateral with its counterparties; this collateral also reduces, in the Firm’s view, the economic exposure with the counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts” presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.



	2016
December 31, (in millions)	Gross amounts		Amounts netted on the Consolidated balance sheets			Amounts presented on the Consolidated balance sheets^(b)		Amounts not nettable on the Consolidated balance sheets^(c)			Net amounts^(d)
Assets
Securities purchased under resale agreements	$	480,735	$	(250,832	)	$	229,903	$	(222,413	)	$	7,490
Securities borrowed	96,409		—			96,409		(66,822		)	29,587
Liabilities
Securities sold under repurchase agreements	$	402,465	$	(250,832	)	$	151,633	$	(133,300	)	$	18,333
Securities loaned and other^(a)	22,451		—			22,451		(22,177		)	274



	2015
December 31, (in millions)	Gross amounts		Amounts netted on the Consolidated balance sheets			Amounts presented on the Consolidated balance sheets^(b)		Amounts not nettable on the Consolidated balance sheets^(c)			Net amounts^(d)
Assets
Securities purchased under resale agreements	$	368,148	$	(156,258	)	$	211,890	$	(207,958	)	$	3,932	^(e)
Securities borrowed	98,721		—			98,721		(65,081		)	33,640
Liabilities
Securities sold under repurchase agreements	$	290,044	$	(156,258	)	$	133,786	$	(119,332	)	$	14,454	^(e)
Securities loaned and other^(a)	22,556		—			22,556		(22,245		)	311


(a)	Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets.

(b)

Includes securities financing agreements accounted for at fair value. At December 31, 2016 and 2015, included securities purchased under resale agreements of $21.5 billion and $23.1 billion, respectively, and securities sold under agreements to repurchase of $687 million and $3.5 billion, respectively. There were no securities borrowed at December 31, 2016 and $395 million at December 31, 2015. There were no securities loaned accounted for at fair value in either period.


(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 opinion with respect to the master netting agreement has not been either sought or obtained. At December 31, 2016 and 2015, included $4.8 billion and $2.3 billion, respectively, of securities purchased under resale agreements; $27.1 billion and $31.3 billion, respectively, of securities borrowed; $15.9 billion and $12.6 billion, respectively, of securities sold under agreements to repurchase; and $90 million and $45 million, respectively, of securities loaned and other.


(e)	Prior period amounts have been revised to conform with the current presentation.

The tables below present as of December 31, 2016 and 2015 the types of financial assets pledged in securities financing agreements and the remaining contractual maturity of the securities financing agreements.



	Gross liability balance
	2016				2015
December 31, (in millions)	Securities sold under repurchase agreements		Securities loaned and other^(a)		Securities sold under repurchase agreements		Securities loaned and other^(a)
Mortgage-backed securities	$	10,546	$	—	$	12,790	$	—
U.S. Treasury and government agencies	199,030		—		154,377		5
Obligations of U.S. states and municipalities	2,491		—		1,316		—
Non-U.S. government debt	149,008		1,279		80,162		4,426
Corporate debt securities	18,140		108		21,286		78
Asset-backed securities	7,721		—		4,394		—
Equity securities	15,529		21,064		15,719		18,047
Total	$	402,465	$	22,451	$	290,044	$	22,556



	Remaining contractual maturity of the agreements
	Overnight and continuous						Greater than 90 days
2016 (in millions)	Overnight and continuous		Up to 30 days		30 – 90 days		Greater than 90 days		Total
Total securities sold under repurchase agreements	$	140,318	$	157,860	$	55,621	$	48,666	$	402,465
Total securities loaned and other^(a)	13,586		1,371		2,877		4,617		22,451



	Remaining contractual maturity of the agreements
	Overnight and continuous						Greater than 90 days
2015 (in millions)	Overnight and continuous		Up to 30 days		30 – 90 days		Greater than 90 days		Total
Total securities sold under repurchase agreements	$	114,595	$	100,082	$	29,955	$	45,412	$	290,044
Total securities loaned and other^(a)	8,320		708		793		12,735		22,556


(a)	Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities on the Consolidated balance sheets.

Transfers not qualifying for sale accounting

At December 31, 2016 and 2015, the Firm held $5.9 billion and $7.5 billion, respectively, of financial assets for which the rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP. These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading assets and loans, and the corresponding liabilities are recorded predominantly in other borrowed funds on the Consolidated balance sheets.