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Derivative Instruments
 6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative instruments
JPMorgan Chase makes markets in derivatives for clients and also uses derivatives to hedge or manage its own risk exposures. For a further discussion of the Firm’s use of and accounting policies regarding derivative instruments, refer to Note 5 of JPMorgan Chase’s 2017 Annual Report.
The Firm’s disclosures are based on the accounting treatment and purpose of these derivatives. A limited number of the Firm’s derivatives are designated in hedge accounting relationships and are disclosed according to the type of hedge (fair value hedge, cash flow hedge, or net investment hedge). Derivatives not designated in hedge accounting relationships include certain derivatives that are used to manage certain risks associated with specified assets or liabilities (“specified risk management” positions) as well as derivatives used in the Firm’s market-making businesses or for other purposes.
Derivatives designated as hedges
The adoption of the new hedge accounting guidance in the first quarter of 2018 better aligns hedge accounting with the economics of the Firm’s risk management activities. For additional information, refer to Note 17.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and retrospectively. To assess effectiveness, the Firm uses statistical methods such as regression analysis, nonstatistical methods such as dollar-value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item, and qualitative comparisons of critical terms and the evaluation of any changes in those terms. The extent to which a derivative has been, and is expected to continue to be, highly effective at offsetting changes in the fair value or cash flows of the hedged item must be assessed and documented at least quarterly. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.
For qualifying fair value hedges, changes in the fair value of the derivative, and in the value of the hedged item for the risk being hedged, are recognized in earnings. Certain amounts excluded from the assessment of effectiveness are recorded in OCI and recognized in earnings through an amortization approach over the life of the derivative. If the hedge relationship is terminated, then the adjustment to the hedged item continues to be reported as part of the basis of the hedged item, and for benchmark interest rate hedges, is amortized to earnings as a yield adjustment. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item - primarily net interest income and principal transactions revenue.
For qualifying cash flow hedges, changes in the fair value of the derivative are recorded in OCI and recognized in earnings as the hedged item affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item - primarily interest income, interest expense, noninterest revenue and compensation expense. If the hedge relationship is terminated, then the change in value of the derivative recorded in AOCI is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast, any related derivative values recorded in AOCI are immediately recognized in earnings.
For qualifying net investment hedges, changes in the fair value of the derivatives due to changes in spot foreign exchange rates are recorded in OCI as translation adjustments. Amounts excluded from the assessment of effectiveness are recorded directly in earnings.

The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category.
Type of Derivative
Use of Derivative
Designation and disclosure
Affected
segment or unit
10-Q page reference
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
 
 
 
 • Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
115-116
 • Interest rate
Hedge floating-rate assets and liabilities
Cash flow hedge
Corporate
117
 • Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Fair value hedge
Corporate
115-116
 • Foreign exchange
Hedge foreign currency-denominated forecasted revenue and expense
Cash flow hedge
Corporate
117
 • Foreign exchange
Hedge the value of the Firm’s investments in non-U.S. dollar functional currency entities
Net investment hedge
Corporate
118
 • Commodity
Hedge commodity inventory
Fair value hedge
CIB
115-116
Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships:
 
 
 
 • Interest rate
Manage the risk of the mortgage pipeline, warehouse loans and MSRs
Specified risk management
CCB
118
 • Credit
Manage the credit risk of wholesale lending exposures
Specified risk management
CIB
118
 • Interest rate and
foreign exchange
Manage the risk of certain other specified assets and liabilities
Specified risk management
Corporate
118
Market-making derivatives and other activities:
 
 
 
 • Various
Market-making and related risk management
Market-making and other
CIB
118
 • Various
Other derivatives
Market-making and other
CIB, Corporate
118

Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of June 30, 2018, and December 31, 2017.
 
Notional amounts(b)
(in billions)
June 30, 2018

December 31, 2017

Interest rate contracts
 
 
Swaps
$
25,329

$
21,043

Futures and forwards
6,335

4,904

Written options
4,402

3,576

Purchased options
4,691

3,987

Total interest rate contracts
40,757

33,510

Credit derivatives(a)
1,528

1,522

Foreign exchange contracts
 
 
Cross-currency swaps
3,920

3,953

Spot, futures and forwards
7,143

5,923

Written options
910

786

Purchased options
898

776

Total foreign exchange contracts
12,871

11,438

Equity contracts
 
 
Swaps
377

367

Futures and forwards
87

90

Written options
579

531

Purchased options
529

453

Total equity contracts
1,572

1,441

Commodity contracts
 
 
Swaps
144

116

Spot, futures and forwards
177

168

Written options
142

98

Purchased options
128

93

Total commodity contracts
591

475

Total derivative notional amounts
$
57,319

$
48,386

(a)
For more information on volumes and types of credit derivative contracts, refer to the Credit derivatives discussion on page 119.
(b)
Represents the sum of gross long and gross short third-party notional derivative contracts.
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated balance sheets as of June 30, 2018, and December 31, 2017, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
 
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
June 30, 2018
(in millions)
Not designated as hedges
 
Designated as hedges
 
Total derivative receivables
 
Net derivative receivables(b)
 
Not designated as hedges
 
Designated
as hedges
 
Total derivative payables
 
Net derivative payables(b)
Trading assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
$
280,176

 
$
835

 
$
281,011

 
$
22,971

 
$
253,982

 
$
1

 
$
253,983

 
$
8,615

Credit
20,934

 
—

 
20,934

 
624

 
20,778

 
—

 
20,778

 
1,502

Foreign exchange
195,436

 
1,036

 
196,472

 
16,763

 
186,487

 
1,080

 
187,567

 
12,521

Equity
44,965

 
—

 
44,965

 
10,176

 
48,384

 
—

 
48,384

 
11,482

Commodity
21,637

 
231

 
21,868

 
7,976

 
23,049

 
101

 
23,150

 
8,391

Total fair value of trading assets and liabilities
$
563,148

 
$
2,102

 
$
565,250

 
$
58,510

 
$
532,680

 
$
1,182

 
$
533,862

 
$
42,511

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
December 31, 2017
(in millions)
Not designated as hedges
 
Designated as hedges
 
Total derivative receivables
 
Net derivative receivables(b)
 
Not designated as hedges
 
Designated
as hedges
 
Total derivative payables
 
Net derivative payables(b)
Trading assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
$
314,962

(c) 
$
1,030

(c) 
$
315,992

 
$
24,673

 
$
284,433

(c) 
$
3

(c) 
$
284,436

 
$
7,129

Credit
23,205

 
—

 
23,205

 
869

 
23,252

 
—

 
23,252

 
1,299

Foreign exchange
159,740

 
491

 
160,231

 
16,151

 
154,601

 
1,221

 
155,822

 
12,473

Equity
40,040

 
—

 
40,040

 
7,882

 
45,395

 
—

 
45,395

 
9,192

Commodity
20,066

 
19

 
20,085

 
6,948

 
21,498

 
403

 
21,901

 
7,684

Total fair value of trading assets and liabilities
$
558,013

(c) 
$
1,540

(c) 
$
559,553

 
$
56,523

 
$
529,179

(c) 
$
1,627

(c) 
$
530,806

 
$
37,777


(a)
Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b)
As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists.
(c)
The prior period amounts have been revised to conform with the current period presentation.
Derivatives netting
The following tables present, as of June 30, 2018, and December 31, 2017, gross and net derivative receivables and payables by contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same counterparty have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation:
•
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7 government securities) and cash collateral held at third party custodians, which are shown separately as “Collateral not nettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
•
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of the date presented, which is excluded from the tables below; and
•
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
 
June 30, 2018
 
December 31, 2017
(in millions)
Gross derivative receivables
Amounts netted on the Consolidated balance sheets
Net derivative receivables
 
Gross derivative receivables
 
Amounts netted
on the Consolidated balance sheets
Net derivative receivables
U.S. GAAP nettable derivative receivables
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
Over-the-counter (“OTC”)
$
269,291

$
(249,903
)
 
$
19,388

 
$
305,569

 
$
(284,917
)
 
$
20,652

OTC–cleared
7,958

(7,936
)
 
22

 
6,531

 
(6,318
)
 
213

Exchange-traded(a)
310

(201
)
 
109

 
185

 
(84
)
 
101

Total interest rate contracts
277,559

(258,040
)
 
19,519

 
312,285

 
(291,319
)
 
20,966

Credit contracts:
 
 
 
 
 
 
 
 
 
 
OTC
12,588

(12,244
)
 
344

 
15,390

 
(15,165
)
 
225

OTC–cleared
8,137

(8,066
)
 
71

 
7,225

 
(7,170
)
 
55

Total credit contracts
20,725

(20,310
)
 
415

 
22,615

 
(22,335
)
 
280

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
OTC
192,088

(179,280
)
 
12,808

 
155,289

 
(142,420
)
 
12,869

OTC–cleared
417

(408
)
 
9

 
1,696

 
(1,654
)
 
42

Exchange-traded(a)
39

(21
)
 
18

 
141

 
(7
)
 
134

Total foreign exchange contracts
192,544

(179,709
)
 
12,835

 
157,126

 
(144,081
)
 
13,045

Equity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
24,300

(21,376
)
 
2,924

 
22,024

 
(19,917
)
 
2,107

Exchange-traded(a)
15,836

(13,413
)
 
2,423

 
14,188

 
(12,241
)
 
1,947

Total equity contracts
40,136

(34,789
)
 
5,347

 
36,212

 
(32,158
)
 
4,054

Commodity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
11,443

(4,553
)
 
6,890

 
10,903

 
(4,436
)
 
6,467

Exchange-traded(a)
9,806

(9,339
)
 
467

 
8,854

 
(8,701
)
 
153

Total commodity contracts
21,249

(13,892
)
 
7,357

 
19,757

 
(13,137
)
 
6,620

Derivative receivables with appropriate legal opinion
552,213

(506,740
)
(b) 
45,473

 
547,995

 
(503,030
)
(b) 
44,965

Derivative receivables where an appropriate legal opinion has not been either sought or obtained
13,037

 
 
13,037

 
11,558

 
 
 
11,558

Total derivative receivables recognized on the Consolidated balance sheets
$
565,250

 
 
$
58,510

 
$
559,553

 
 
 
$
56,523

Collateral not nettable on the Consolidated balance sheets(c)(d)
 
 
 
(13,572
)
 
 
 
 
 
(13,363
)
Net amounts
 
 
 
$
44,938

 
 
 
 
 
$
43,160


 
June 30, 2018
 
December 31, 2017
(in millions)
Gross derivative payables
Amounts netted on the Consolidated balance sheets
Net derivative payables
 
Gross derivative payables
 
Amounts netted
on the Consolidated balance sheets
Net derivative payables
U.S. GAAP nettable derivative payables
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
OTC
$
244,282

$
(237,947
)
 
$
6,335

 
$
276,960

 
$
(271,294
)
 
$
5,666

OTC–cleared
7,301

(7,220
)
 
81

 
6,004

 
(5,928
)
 
76

Exchange-traded(a)
210

(201
)
 
9

 
127

 
(84
)
 
43

Total interest rate contracts
251,793

(245,368
)
 
6,425

 
283,091

 
(277,306
)
 
5,785

Credit contracts:
 
 
 
 
 
 
 
 
 
 
OTC
13,255

(11,898
)
 
1,357

 
16,194

 
(15,170
)
 
1,024

OTC–cleared
7,420

(7,378
)
 
42

 
6,801

 
(6,784
)
 
17

Total credit contracts
20,675

(19,276
)
 
1,399

 
22,995

 
(21,954
)
 
1,041

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
OTC
183,951

(174,600
)
 
9,351

 
150,966

 
(141,789
)
 
9,177

OTC–cleared
450

(439
)
 
11

 
1,555

 
(1,553
)
 
2

Exchange-traded(a)
23

(7
)
 
16

 
98

 
(7
)
 
91

Total foreign exchange contracts
184,424

(175,046
)
 
9,378

 
152,619

 
(143,349
)
 
9,270

Equity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
28,247

(23,402
)
 
4,845

 
28,193

 
(23,969
)
 
4,224

Exchange-traded(a)
14,243

(13,500
)
 
743

 
12,720

 
(12,234
)
 
486

Total equity contracts
42,490

(36,902
)
 
5,588

 
40,913

 
(36,203
)
 
4,710

Commodity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
13,215

(5,492
)
 
7,723

 
12,645

 
(5,508
)
 
7,137

Exchange-traded(a)
9,402

(9,267
)
 
135

 
8,870

 
(8,709
)
 
161

Total commodity contracts
22,617

(14,759
)
 
7,858

 
21,515

 
(14,217
)
 
7,298

Derivative payables with appropriate legal opinion
521,999

(491,351
)
(b) 
30,648

 
521,133

 
(493,029
)
(b) 
28,104

Derivative payables where an appropriate legal opinion has not been either sought or obtained
11,863

 
 
11,863

 
9,673

 
 
 
9,673

Total derivative payables recognized on the Consolidated balance sheets
$
533,862

 
 
$
42,511

 
$
530,806

 
 
 
$
37,777

Collateral not nettable on the Consolidated balance sheets(c)(d)
 
 
 
(4,363
)
 
 
 
 
 
(4,180
)
Net amounts
 
 
 
$
38,148

 
 
 
 
 
$
33,597

(a)
Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b)
Net derivatives receivable included cash collateral netted of $57.3 billion and $55.5 billion at June 30, 2018, and December 31, 2017, respectively. Net derivatives payable included cash collateral netted of $41.9 billion and $45.5 billion related to OTC and OTC-cleared derivatives at June 30, 2018, and December 31, 2017, respectively.
(c)
Represents liquid security collateral as well as cash collateral held at third party custodians related to derivative instruments where an appropriate legal opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty.
(d)
Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
Liquidity risk and credit-related contingent features
For a more detailed discussion of liquidity risk and credit-related contingent features related to the Firm’s derivative contracts, refer to Note 5 of JPMorgan Chase’s 2017 Annual Report.
The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at June 30, 2018, and
December 31, 2017.
OTC and OTC-cleared derivative payables containing downgrade triggers
(in millions)
June 30, 2018

December 31, 2017

Aggregate fair value of net derivative payables
$
10,796

$
11,916

Collateral posted
9,066

9,973





The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”),
at June 30, 2018, and December 31, 2017, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral, (except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
 
 
 
 
 
June 30, 2018
 
December 31, 2017
(in millions)
Single-notch downgrade
Two-notch downgrade
 
Single-notch downgrade
Two-notch downgrade
Amount of additional collateral to be posted upon downgrade(a)
$
118

$
2,027

 
$
79

$
1,989

Amount required to settle contracts with termination triggers upon downgrade(b)
242

860

 
320

650

(a)
Includes the additional collateral to be posted for initial margin.
(b)
Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The Firm generally accounts for such transfers as collateralized financing transactions as described in Note 10, but in limited circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers accounted for as a sale where the associated derivative was outstanding at June 30, 2018 was not material, and there were no such transfers at December 31, 2017.
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the three and six months ended June 30, 2018 and 2017, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the Consolidated statements of income as the related hedged item.
 
Gains/(losses) recorded in income
 
Income statement impact of
excluded components(f)
 
OCI impact
Three months ended June 30, 2018
(in millions)
Derivatives
Hedged items
Income statement impact
 
Amortization approach
Changes in fair value
 
Derivatives - Gains/(losses) recorded in OCI(g)
Contract type
 
 
 
 
 
 
 
 
Interest rate(a)(b)
$
(400
)
$
553

$
153

 
$
—

$
152

 
$
—

Foreign exchange(c)
376

(254
)
122

 
(145
)
122

 
(89
)
Commodity(d)
11

(18
)
(7
)
 
—

16

 
—

Total
$
(13
)
$
281

$
268

 
$
(145
)
$
290

 
$
(89
)
 
Gains/(losses) recorded in income
 
Income statement impact due to:
 
 
Three months ended June 30, 2017
(in millions)
Derivatives
Hedged items
Income statement impact
 
Hedge ineffectiveness(e)
Excluded components(f)
 
 
Contract type
 
 
 
 
 
 
 
 
Interest rate(a)(b)
$
128

$
46

$
174

 
$
(13
)
$
187

 
 
Foreign exchange(c)
(1,497
)
1,493

(4
)
 
—

(4
)
 
 
Commodity(d)
97

(64
)
33

 
3

30

 
 
Total
$
(1,272
)
$
1,475

$
203

 
$
(10
)
$
213

 
 
 
Gains/(losses) recorded in income
 
Income statement impact of
excluded components(f)
 
OCI impact
Six months ended June 30, 2018
(in millions)
Derivatives
Hedged items
Income statement impact
 
Amortization approach
Changes in fair value
 
Derivatives - Gains/(losses) recorded in OCI(g)
Contract type
 
 
 
 
 
 
 
 
Interest rate(a)(b)
$
(1,877
)
$
2,182

$
305

 
$
—

$
299

 
$
—

Foreign exchange(c)
520

(287
)
233

 
(267
)
233

 
(141
)
Commodity(d)
195

(165
)
30

 
—

34

 
—

Total
$
(1,162
)
$
1,730

$
568

 
$
(267
)
$
566

 
$
(141
)
 
Gains/(losses) recorded in income
 
Income statement impact due to:
 
 
Six months ended June 30, 2017
(in millions)
Derivatives
Hedged items
Income statement impact
 
Hedge ineffectiveness(e)
Excluded components(f)
 
 
Contract type
 
 
 
 
 
 
 
 
Interest rate(a)(b)
$
(153
)
$
577

$
424

 
$
(14
)
$
438

 
 
Foreign exchange(c)
(2,272
)
2,233

(39
)
 
—

(39
)
 
 
Commodity(d)
(366
)
400

34

 
19

15

 
 
Total
$
(2,791
)
$
3,210

$
419

 
$
5

$
414

 
 

(a)
Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
(b)
Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate swaps and the related hedged items.
(c)
Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were recorded primarily in principal transactions revenue and net interest income.
(d)
Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(e)
Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk.
(f)
The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts, time values and cross-currency basis spreads. Under the new hedge accounting guidance, the initial amount of the excluded components may be amortized into income over the life of the derivative, or changes in fair value may be recognized in current period earnings.
(g)
Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
As of June 30, 2018, the following amounts were recorded on the Consolidated balance sheets related to certain cumulative fair value hedge basis adjustments that are expected to impact the income statement in future periods (e.g., as adjustments to yield or to securities gains/losses).
 
 
Carrying amount of the hedged items(a)(b)
 
Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items:

June 30, 2018
(in millions)
 
 
Active hedging relationships
Discontinued hedging relationships(d)
Total
Assets
 
 
 
 
 
 
Investment securities - AFS

 
$
47,402

(c) 
$
(1,861
)
$
488

$
(1,373
)
Liabilities
 
 
 
 
 
 
Long-term debt
 
$
131,705

 
$
(1,413
)
$
(11
)
$
(1,424
)
Beneficial interests issued by consolidated VIEs
 
7,665

 
—

(51
)
(51
)
(a)
Excludes physical commodities with a carrying value of $6.2 billion to which the Firm applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing unrealized gains and losses in current periods. Given the Firm exits these positions at fair value, there is no incremental impact to net income in future periods.
(b)
Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges generally will not impact the income statement in future periods. The carrying amount excluded for available-for-sale securities is $15.4 billion and for long-term debt is $7.2 billion.
(c)
Carrying amount represents the amortized cost.
(d)
Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pre-tax gains/(losses) recorded on such derivatives, for the three and six months ended June 30, 2018 and 2017, respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements of income as the change in cash flows on the related hedged item.
 
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Three months ended June 30, 2018
(in millions)
Amounts reclassified from AOCI to income
Amounts recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
Interest rate(a)
$
13

$
(33
)
$
(46
)
Foreign exchange(b)
6

(166
)
(172
)
Total
$
19

$
(199
)
$
(218
)
 
 
 
 
 
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Three months ended June 30, 2017
(in millions)
Amounts reclassified from AOCI to income
Amounts recorded in OCI(c)
Total change
in OCI
for period
Contract type
 
 
 
Interest rate(a)
$
(6
)
$
1

$
7

Foreign exchange(b)
(59
)
22

81

Total
$
(65
)
$
23

$
88

 
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Six months ended June 30, 2018
(in millions)
Amounts reclassified from AOCI to income
Amounts recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
Interest rate(a)
$
26

$
(111
)
$
(137
)
Foreign exchange(b)
45

(132
)
(177
)
Total
$
71

$
(243
)
$
(314
)
 
 
 
 
 
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Six months ended June 30, 2017
(in millions)
Amounts reclassified from AOCI to income
Amounts recorded in OCI(c)
Total change
in OCI
for period
Contract type
 
 
 
Interest rate(a)
$
(17
)
$
12

$
29

Foreign exchange(b)
(133
)
70

203

Total
$
(150
)
$
82

$
232

(a)
Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income.
(b)
Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c)
Represents the effective portion of changes in value of the related hedging derivative. Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. The Firm did not recognize any ineffectiveness on cash flow hedges during the three and six months ended June 30, 2017.
The Firm did not experience any forecasted transactions that failed to occur for the three and six months ended June 30, 2018 and 2017.
Over the next 12 months, the Firm expects that approximately $(54) million (after-tax) of net losses recorded in AOCI at June 30, 2018, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum length of time over which forecasted transactions are remaining is approximately five years.
For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm’s longer-dated forecasted transactions relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pre-tax gains/(losses) recorded on such instruments for the three and six months ended June 30, 2018 and 2017.
 
2018
 
2017
Three months ended June 30, (in millions)
Amounts recorded in
income(a)(c)
Amounts recorded in OCI
 
Amounts recorded in
income(a)(c)
Amounts recorded in OCI(b)
Foreign exchange derivatives
 
$
4

 
$
1,204

 
 
$
(50
)
 
$
(319
)
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
Six months ended June 30, (in millions)
Amounts recorded in
income(a)(c)
Amounts recorded in OCI
 
Amounts recorded in
income(a)(c)
Amounts recorded in OCI(b)
Foreign exchange derivatives
 
$
(7
)
 
$
815

 
 
$
(112
)
 
$
(828
)
(a)
Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
(b)
Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment hedges directly in income during the three and six months ended June 30, 2017.
(c)
Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. For additional information, refer to Note 17.
Gains and losses on derivatives used for specified risk management purposes
The following table presents pre-tax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, and foreign currency-denominated assets and liabilities.
 
Derivatives gains/(losses)
recorded in income
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2018
2017
 
2018
2017
Contract type
 
 
 
 
 
Interest rate(a)
$
(25
)
$
238

 
$
(235
)
$
221

Credit(b)
(3
)
(7
)
 
(10
)
(52
)
Foreign exchange(c)
130

(14
)
 
100

(34
)
Total
$
102

$
217

 
$
(145
)
$
135


(a)
Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in the mortgage pipeline, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income.
(b)
Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue.
(c)
Primarily relates to derivatives used to mitigate foreign exchange risk of specified foreign currency-denominated assets and liabilities. Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making activities and other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from its market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. Refer to Note 5 for information on principal transactions revenue.
Credit derivatives
For a more detailed discussion of credit derivatives, refer to Note 5 of JPMorgan Chase’s 2017 Annual Report. The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
 
Maximum payout/Notional amount
June 30, 2018 (in millions)
Protection sold
Protection
purchased with
identical underlyings(b)
Net protection (sold)/purchased(c)
 
Other protection purchased(d)
Credit derivatives
 
 
 
 
 
 
Credit default swaps
$
(699,082
)
 
$
709,891

$
10,809

 
$
5,492

Other credit derivatives(a)
(50,995
)
 
52,285

1,290

 
10,956

Total credit derivatives
(750,077
)
 
762,176

12,099

 
16,448

Credit-related notes
(18
)
 
—

(18
)
 
7,516

Total
$
(750,095
)
 
$
762,176

$
12,081

 
$
23,964

 
 
 
 
 
 
 
 
Maximum payout/Notional amount
December 31, 2017 (in millions)
Protection sold
Protection
purchased with
identical underlyings(b)
Net protection (sold)/purchased(c)
 
Other protection purchased(d)
Credit derivatives
 
 
 
 
 
 
Credit default swaps
$
(690,224
)
 
$
702,098

$
11,874

 
$
5,045

Other credit derivatives(a)
(54,157
)
 
59,158

5,001

 
11,747

Total credit derivatives
(744,381
)
 
761,256

16,875

 
16,792

Credit-related notes
(18
)
 
—

(18
)
 
7,915

Total
$
(744,399
)
 
$
761,256

$
16,857

 
$
24,707

(a)
Other credit derivatives largely consists of credit swap options.
(b)
Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c)
Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
(d)
Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument.
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives and credit-related notes as of June 30, 2018, and December 31, 2017, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold — credit derivatives and credit-related notes ratings(a)/maturity profile
 
 
 
June 30, 2018
(in millions)
<1 year
 
1–5 years
 
>5 years
 
Total
notional amount
 
Fair value of receivables(b)
 
Fair value of payables(b)
 
Net fair value
Risk rating of reference entity
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
(124,866
)
 
$
(359,780
)
 
$
(43,198
)
 
$
(527,844
)
 
$
6,831

 
$
(1,926
)
 
$
4,905

Noninvestment-grade
(59,660
)
 
(145,949
)
 
(16,642
)
 
(222,251
)
 
6,925

 
(4,435
)
 
2,490

Total
$
(184,526
)
 
$
(505,729
)
 
$
(59,840
)
 
$
(750,095
)
 
$
13,756

 
$
(6,361
)
 
$
7,395

December 31, 2017
(in millions)
<1 year
 
1–5 years
 
>5 years
 
Total
notional amount
 
Fair value of receivables(b)
 
Fair value of payables(b)
 
Net fair value
Risk rating of reference entity
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
(159,286
)
 
$
(319,726
)
 
$
(39,429
)
 
$
(518,441
)
 
$
8,516

 
$
(1,134
)
 
$
7,382

Noninvestment-grade
(73,394
)
 
(134,125
)
 
(18,439
)
 
(225,958
)
 
7,407

 
(5,313
)
 
2,094

Total
$
(232,680
)
 
$
(453,851
)
 
$
(57,868
)
 
$
(744,399
)
 
$
15,923

 
$
(6,447
)
 
$
9,476


(a)
The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s.
(b)
Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.