The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion dated December 13, 2018
| December , 2018 | Registration Statement Nos. 333-222672 and 333-222672-01; Rule 424(b)(2) |
JPMorgan Chase Financial Company LLC
Structured Investments
Dual Directional Knock-Out Notes Linked to the S&P 500® Index due June 30, 2020
Fully and Unconditionally Guaranteed by JPMorgan Chase & Co.
| · | The notes are designed for investors who seek a capped, unleveraged return equal to the absolute value of any appreciation or depreciation (up to the Knock-Out Percentage of at least 20.00%) of the S&P 500® Index, which we refer to as the Index, at maturity if a Knock-Out Event has not occurred. A Knock-Out Event occurs if, on any day during the Monitoring Period, the closing level of the Index is greater or less than the Initial Value by more than the Knock-Out Percentage. |
| · | The notes are also designed for investors who are willing to accept a fixed return of 2.00% at maturity if a Knock-Out Event has occurred. |
| · | Investors should be willing to forgo interest and dividend payments, while seeking full repayment of principal at maturity. |
| · | The notes are unsecured and unsubordinated obligations of JPMorgan Chase Financial Company LLC, which we refer to as JPMorgan Financial, the payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. Any payment on the notes is subject to the credit risk of JPMorgan Financial, as issuer of the notes, and the credit risk of JPMorgan Chase & Co., as guarantor of the notes. |
| · | Minimum denominations of $1,000 and integral multiples thereof |
| · | The notes are expected to price on or about December 21, 2018 and are expected to settle on or about December 27, 2018. |
| · | CUSIP: 48130WLF6 |
Investing in the notes involves a number of risks. See “Risk Factors” beginning on page PS-8 of the accompanying product supplement, “Risk Factors” beginning on page US-1 of the accompanying underlying supplement and “Selected Risk Considerations” beginning on page PS-4 of this pricing supplement.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this pricing supplement or the accompanying product supplement, underlying supplement, prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
| Price to Public (1) | Fees and Commissions (2) | Proceeds to Issuer | |
| Per note | $1,000 | — | $1,000 |
| Total | $ | — | $ |
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(1) See “Supplemental Use of Proceeds” in this pricing supplement for information about the components of the price to public of the notes. (2) All sales of the notes will be made to certain fee-based advisory accounts for which an affiliated or unaffiliated broker-dealer is an investment adviser. These broker-dealers will forgo any commissions related to these sales. See “Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement. | |||
If the notes priced today, the estimated value of the notes would be approximately $985.70 per $1,000 principal amount note. The estimated value of the notes, when the terms of the notes are set, will be provided in the pricing supplement and will not be less than $975.00 per $1,000 principal amount note. See “The Estimated Value of the Notes” in this pricing supplement for additional information.
The notes are not bank deposits, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and are not obligations of, or guaranteed by, a bank.
Pricing supplement
to product supplement no. 3-I dated April 5, 2018, underlying supplement no. 1-I dated April 5, 2018
and the prospectus and prospectus supplement, each dated April 5, 2018
Key Terms
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Issuer: JPMorgan Chase Financial Company LLC, an indirect, wholly owned finance subsidiary of JPMorgan Chase & Co. Guarantor: JPMorgan Chase & Co. Index: The S&P 500® Index (Bloomberg ticker: SPX) Participation Rate: 100.00% Knock-Out Percentage: At least 20.00% (to be provided in the pricing supplement) Fixed Amount: $20.00 per $1,000 principal amount note Pricing Date: On or about December 21, 2018 Original Issue Date (Settlement Date): On or about December 27, 2018 Observation Date*: June 25, 2020 Maturity Date*: June 30, 2020
* Subject to postponement in the event of a market disruption event and as described under “General Terms of Notes — Postponement of a Determination Date — Notes Linked to a Single Underlying — Notes Linked to a Single Underlying (Other Than a Commodity Index)” and “General Terms of Notes — Postponement of a Payment Date” in the accompanying product supplement |
Payment at Maturity: At maturity, you will receive a cash payment, for each $1,000 note, of $1,000 plus the Additional Amount, which may be zero. You are entitled to repayment of principal in full at maturity, subject to the credit risks of JPMorgan Financial and JPMorgan Chase & Co. Additional Amount: The Additional Amount payable at maturity per $1,000 principal amount note will equal: (i) if a Knock-Out Event has not occurred: $1,000 × the Absolute Index Return × the Participation Rate; or (ii) if a Knock-Out Event has occurred: the Fixed Amount. Absolute Index Return: The absolute value of the Index Return. For example, if the Index Return is -5.00%, the Absolute Index Return will equal 5.00%. Similarly, if the Index Return is 10.00%, the Absolute Index Return will equal 10.00%. Knock-Out Event:
A Knock-Out Event occurs if, on any day during the Monitoring Period, the closing level of the Index is greater or less
than the Initial Value by more than the Knock-Out Percentage. Index Return: (Final Value – Initial Value) Initial Value: The closing level of the Index on the Pricing Date Final Value: The closing level of the Index on the Observation Date
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PS-1 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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Hypothetical Payout Profile
The following table and graph illustrate the hypothetical payment at maturity on the notes linked to a hypothetical Index. The hypothetical payments set forth below assume the following:
| · | an Initial Value of 100.00; |
| · | a Participation Rate of 100.00%; |
| · | a Knock-Out Percentage of 20.00%; and |
| · | a Fixed Amount of $20.00 per $1,000 principal amount note. |
The hypothetical Initial Value of 100.00 has been chosen for illustrative purposes only and may not represent a likely actual Initial Value. The actual Initial Value will be the closing level of the Index on the Pricing Date and will be provided in the pricing supplement. For historical data regarding the actual closing levels of the Index, please see the historical information set forth under “The Index” in this pricing supplement.
Each hypothetical total return or hypothetical payment at maturity set forth below is for illustrative purposes only and may not be the actual total return or payment at maturity applicable to a purchaser of the notes. The numbers appearing in the following table and graph have been rounded for ease of analysis.
| Final Value | Index Return | Absolute Index Return |
A Knock-Out Event Has Not Occurred (1) | A Knock-Out Event Has Occurred (1) | ||
| Total Return on the notes | Payment at Maturity | Total Return on the notes | Payment at Maturity | |||
| 165.00 | 65.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 150.00 | 50.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 140.00 | 40.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 130.00 | 30.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 120.00 | 20.00% | 20.00% | 20.00% | $1,200.00 | 2.00% | $1,020.00 |
| 110.00 | 10.00% | 10.00% | 10.00% | $1,100.00 | 2.00% | $1,020.00 |
| 105.00 | 5.00% | 5.00% | 5.00% | $1,050.00 | 2.00% | $1,020.00 |
| 102.00 | 2.00% | 2.00% | 2.00% | $1,020.00 | 2.00% | $1,020.00 |
| 101.00 | 1.00% | 1.00% | 1.00% | $1,010.00 | 2.00% | $1,020.00 |
| 100.00 | 0.00% | 0.00% | 0.00% | $1,000.00 | 2.00% | $1,020.00 |
| 99.00 | -1.00% | 1.00% | 1.00% | $1,010.00 | 2.00% | $1,020.00 |
| 98.00 | -2.00% | 2.00% | 2.00% | $1,020.00 | 2.00% | $1,020.00 |
| 95.00 | -5.00% | 5.00% | 5.00% | $1,050.00 | 2.00% | $1,020.00 |
| 90.00 | -10.00% | 10.00% | 10.00% | $1,100.00 | 2.00% | $1,020.00 |
| 80.00 | -20.00% | 20.00% | 20.00% | $1,200.00 | 2.00% | $1,020.00 |
| 70.00 | -30.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 60.00 | -40.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 50.00 | -50.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 40.00 | -60.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 30.00 | -70.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 20.00 | -80.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 10.00 | -90.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
| 0.00 | -100.00% | N/A | N/A | N/A | 2.00% | $1,020.00 |
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PS-2 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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(1) A Knock-Out Event occurs if, on any day during the Monitoring Period, the closing level of the Index is greater or less than the Initial Value by more than the Knock-Out Percentage.
The following graphs demonstrate the hypothetical payments at maturity on the notes at maturity for a sub-set of Index Returns detailed in the table above (-50 to 50%), depending on whether a Knock-Event has occurred. We cannot give you assurance that the performance of the Index will result in a payment at maturity in excess of $1,000.00 per $1,000 principal amount note.
A Knock-Out Event Has Not Occurred
A Knock-Out Event Has Occurred
How the Notes Work
At maturity, investors will receive a cash payment, for each $1,000 principal amount note, of $1,000 plus the Additional Amount, which may be zero.
No Knock-Out Event Scenario:
If a Knock-Out Event has not occurred, the Additional Amount per $1,000 principal amount note will be equal to $1,000 times the Absolute Index Return times the Participation Rate of 100.00%.
| · | For example, if (i) a Knock-Out Event has not occurred and (ii) the closing level of the Index increases 10.00%, investors will receive at maturity a 10.00% return, or $1,100.00 per $1,000 principal amount note. |
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PS-3 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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| · | For example, if (i) a Knock-Out Event has not occurred and (ii) the closing level of the Index declines 5.00%, investors will receive at maturity a 5.00% return, or $1,050.00 per $1,000 principal amount note. |
| · | For example, if (i) a Knock-Out Event has not occurred and (ii) the closing level of the Index increases 1.00%, investors will receive at maturity a 1.00% return, or $1,010.00 per $1,000 principal amount note. |
Knock-Out Event Scenario:
If a Knock-Out Event has occurred, the Additional Amount per $1,000 principal amount note will be equal to the Fixed Amount of $20.00, regardless of the Index Return.
| · | For example, if (i) a Knock-Out Event has occurred and (ii) the closing level of the Index increases 10.00%, investors will receive at maturity a 2.00% return, or $1,020.00 per $1,000 principal amount note. |
| · | For example, if (i) a Knock-Out Event has occurred and (ii) the closing level of the Index declines 5.00%, investors will receive at maturity a 2.00% return, or $1,020.00 per $1,000 principal amount note. |
| · | For example, if (i) a Knock-Out Event has occurred and (ii) the closing level of the Index increases 1.00%, investors will receive at maturity a 2.00% return, or $1,020.00 per $1,000 principal amount note. |
The hypothetical returns and hypothetical payments on the notes shown above apply only if you hold the notes for their entire term. These hypotheticals do not reflect the fees or expenses that would be associated with any sale in the secondary market. If these fees and expenses were included, the hypothetical returns and hypothetical payments shown above would likely be lower.
Selected Risk Considerations
An investment in the notes involves significant risks. These risks are explained in more detail in the “Risk Factors” sections of the accompanying product supplement and underlying supplement.
| · | THE NOTES MAY NOT PAY MORE THAN THE PRINCIPAL AMOUNT AT MATURITY — |
If a Knock-Out Event has not occurred and the Final Value is equal to the Initial Value, you will receive only the principal amount of your notes at maturity, and you will not be compensated for any loss in value due to inflation and other factors relating to the value of money over time.
| · | YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED BY THE KNOCK-OUT PERCENTAGE IF A KNOCK-OUT EVENT HAS NOT OCCURRED — |
Because the payment at maturity will not reflect the Absolute Index Return if a Knock-Out Event has occurred, the Knock-Out Percentage is effectively a cap on your return at maturity. The maximum payment at maturity if a Knock-Out Event has not occurred is at least $1,200.00 per $1,000 principal amount note.
| · | YOUR MAXIMUM GAIN ON THE NOTES IS LIMITED TO THE FIXED AMOUNT IF A KNOCK-OUT EVENT HAS OCCURRED, |
regardless of any appreciation of the Index, which may be significant.
| · | CREDIT RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. — |
Investors are dependent on our and JPMorgan Chase & Co.’s ability to pay all amounts due on the notes. Any actual or potential change in our or JPMorgan Chase & Co.’s creditworthiness or credit spreads, as determined by the market for taking that credit risk, is likely to adversely affect the value of the notes. If we and JPMorgan Chase & Co. were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire investment.
| · | AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS LIMITED ASSETS — |
As a finance subsidiary of JPMorgan Chase & Co., we have no independent operations beyond the issuance and administration of our securities. Aside from the initial capital contribution from JPMorgan Chase & Co., substantially all of our assets relate to obligations of our affiliates to make payments under loans made by us or other intercompany agreements. As a result, we are dependent upon payments from our affiliates to meet our obligations under the notes. If these affiliates do not make payments to us and we fail to make payments on the notes, you may have to seek payment under the related guarantee by JPMorgan Chase & Co., and that guarantee will rank pari passu with all other unsecured and unsubordinated obligations of JPMorgan Chase & Co.
| · | POTENTIAL CONFLICTS — |
We and our affiliates play a variety of roles in connection with the notes. In performing these duties, our and JPMorgan Chase & Co.’s economic interests are potentially adverse to your interests as an investor in the notes. It is possible that hedging or trading activities of ours or our affiliates in connection with the notes could result in substantial returns for us or our affiliates while the
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PS-4 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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value of the notes declines. Please refer to “Risk Factors — Risks Relating to Conflicts of Interest” in the accompanying product supplement.
| · | JPMORGAN CHASE & CO. IS CURRENTLY ONE OF THE COMPANIES THAT MAKE UP THE INDEX, |
but JPMorgan Chase & Co. will not have any obligation to consider your interests in taking any corporate action that might affect the level of the Index.
| · | THE BENEFIT PROVIDED BY THE KNOCK-OUT PERCENTAGE MAY TERMINATE ON ANY DAY DURING THE MONITORING PERIOD — |
If, on any day during the Monitoring Period, the closing level of the Index is greater or less than the Initial Value by more than the Knock-Out Percentage (i.e., a Knock-Out Event occurs), you will receive at maturity only the Fixed Payment, in addition to the principal amount, and you will not participate in the Absolute Index Return, regardless of any appreciation or depreciation of the Index, which may be significant.
| · | YOU MAY RECEIVE A LOWER RETURN ON THE NOTES IF A KNOCK-OUT EVENT HAS NOT OCCURRED THAN IF A KNOCK-OUT EVENT HAS OCCURRED — |
If a Knock-Out Event has not occurred and the Absolute Index Return is less than 2.00%, the Additional Amount will be less than the Fixed Amount of $20.00 per $1,000 principal amount note you would have received at maturity if a Knock-Out Event had occurred.
| · | THE NOTES DO NOT PAY INTEREST. |
| · | YOU WILL NOT RECEIVE DIVIDENDS ON THE SECURITIES INCLUDED IN THE INDEX OR HAVE ANY RIGHTS WITH RESPECT TO THOSE SECURITIES. |
| · | LACK OF LIQUIDITY — |
The notes will not be listed on any securities exchange. Accordingly, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which J.P. Morgan Securities LLC, which we refer to as JPMS, is willing to buy the notes. You may not be able to sell your notes. The notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your notes to maturity.
| · | THE FINAL TERMS AND VALUATION OF THE NOTES WILL BE PROVIDED IN THE PRICING SUPPLEMENT — |
You should consider your potential investment in the notes based on the minimums for the estimated value of the notes and the Knock-Out Percentage.
| · | THE ESTIMATED VALUE OF THE NOTES WILL BE LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES — |
The estimated value of the notes is only an estimate determined by reference to several factors. The original issue price of the notes will exceed the estimated value of the notes because costs associated with structuring and hedging the notes are included in the original issue price of the notes. These costs include the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. See “The Estimated Value of the Notes” in this pricing supplement.
| · | THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’ ESTIMATES — |
See “The Estimated Value of the Notes” in this pricing supplement.
| · | THE ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL FUNDING RATE — |
The internal funding rate used in the determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. The use of an internal funding rate and any potential changes to that rate may have an adverse effect on the terms of the notes and any secondary market prices of the notes. See “The Estimated Value of the Notes” in this pricing supplement.
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PS-5 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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| · | THE VALUE OF THE NOTES AS PUBLISHED BY JPMS (AND WHICH MAY BE REFLECTED ON CUSTOMER ACCOUNT STATEMENTS) MAY BE HIGHER THAN THE THEN-CURRENT ESTIMATED VALUE OF THE NOTES FOR A LIMITED TIME PERIOD — |
We generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period. See “Secondary Market Prices of the Notes” in this pricing supplement for additional information relating to this initial period. Accordingly, the estimated value of your notes during this initial period may be lower than the value of the notes as published by JPMS (and which may be shown on your customer account statements).
| · | SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES — |
Any secondary market prices of the notes will likely be lower than the original issue price of the notes because, among other things, secondary market prices take into account our internal secondary market funding rates for structured debt issuances and, also, because secondary market prices may exclude projected hedging profits, if any, and estimated hedging costs that are included in the original issue price of the notes. As a result, the price, if any, at which JPMS will be willing to buy the notes from you in secondary market transactions, if at all, is likely to be lower than the original issue price. Any sale by you prior to the Maturity Date could result in a substantial loss to you.
| · | SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS — |
The secondary market price of the notes during their term will be impacted by a number of economic and market factors, which may either offset or magnify each other, aside from the projected hedging profits, if any, estimated hedging costs and the level of the Index. Additionally, independent pricing vendors and/or third party broker-dealers may publish a price for the notes, which may also be reflected on customer account statements. This price may be different (higher or lower) than the price of the notes, if any, at which JPMS may be willing to purchase your notes in the secondary market. See “Risk Factors — Risks Relating to the Estimated Value and Secondary Market Prices of the Notes — Secondary market prices of the notes will be impacted by many economic and market factors” in the accompanying product supplement.
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PS-6 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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The Index
The Index consists of stocks of 500 companies selected to provide a performance benchmark for the U.S. equity markets. For additional information about the Index, see “Equity Index Descriptions — The S&P U.S. Indices” in the accompanying underlying supplement.
Historical Information
The following graph sets forth the historical performance of the Index based on the weekly historical closing levels of the Index from January 4, 2013 through December 7, 2018. The closing level of the Index on December 12, 2018 was 2,651.07. We obtained the closing levels above and below from the Bloomberg Professional® service (“Bloomberg”), without independent verification.
The historical closing levels of the Index should not be taken as an indication of future performance, and no assurance can be given as to the closing level of the Index on the Pricing Date, the Observation Date or any day during the Monitoring Period. There can be no assurance that the performance of the Index will result in a payment at maturity in excess of your principal amount.
Taxed as Contingent Payment Debt Instruments
You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences,” and in particular the subsection thereof entitled “— Tax Consequences to U.S. Holders — Notes with a Term of More than One Year — Notes Treated as Contingent Payment Debt Instruments,” in the accompanying product supplement no. 3-I. Unlike a traditional debt instrument that provides for periodic payments of interest at a single fixed rate, with respect to which a cash-method investor generally recognizes income only upon receipt of stated interest, our special tax counsel, Davis Polk & Wardwell LLP, is of the opinion that the notes will be treated for U.S. federal income tax purposes as “contingent payment debt instruments.” As discussed in that subsection, you generally will be required to accrue original issue discount (“OID”) on your notes in each taxable year at the “comparable yield,” as determined by us, although we will not make any payment with respect to the notes until maturity. Upon sale or exchange (including at maturity), you will recognize taxable income or loss equal to the difference between the amount received from the sale or exchange and your adjusted basis in the note, which generally will equal the cost thereof, increased by the amount of OID you have accrued in respect of the note. You generally must treat any income as interest income and any loss as ordinary loss to the extent of previous interest inclusions, and the balance as capital loss. The deductibility of capital losses is subject to limitations. Special rules may apply if the Additional Amount is treated as becoming fixed prior to maturity. You should consult your tax adviser concerning the application of these rules. The discussions herein and in the accompanying product supplement do not address the consequences to taxpayers subject to special tax accounting rules under Section 451(b) of the Code. Purchasers who are not initial purchasers of notes at their issue price should consult their tax advisers with respect to the tax consequences of an investment in notes, including the treatment of the difference, if any, between the basis in their notes and the notes’ adjusted issue price.
Section 871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% withholding tax (unless an income tax treaty applies) on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices that include U.S. equities. Section 871(m) provides certain exceptions to this withholding regime, including for instruments linked to certain broad-based indices that meet requirements set forth in the applicable Treasury regulations (such an index, a “Qualified Index”). Additionally, a recent IRS notice excludes from the scope of Section 871(m)
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PS-7 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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instruments issued prior to January 1, 2021 that do not have a delta of one with respect to underlying securities that could pay U.S.-source dividends for U.S. federal income tax purposes (each an “Underlying Security”). Based on certain determinations made by us, we expect that Section 871(m) will not apply to the notes with regard to Non-U.S. Holders. Our determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security. If necessary, further information regarding the potential application of Section 871(m) will be provided in the pricing supplement for the notes. You should consult your tax adviser regarding the potential application of Section 871(m) to the notes.
Withholding under legislation commonly referred to as “FATCA” may apply to the payment on your notes at maturity, as well as to the gross proceeds of a sale or other disposition of a note prior to maturity. However, under a 2015 IRS notice, this regime will not apply to payments of gross proceeds (other than any amount treated as interest) of a sale or other disposition of the notes occurring before January 1, 2019. You should consult your tax adviser regarding the potential application of FATCA to the notes.
The discussions in the preceding paragraphs, when read in combination with the section entitled “Material U.S. Federal Income Tax Consequences” (and in particular the subsection thereof entitled “— Tax Consequences to U.S. Holders — Notes with a Term of More than One Year — Notes Treated as Contingent Payment Debt Instruments”) in the accompanying product supplement, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal income tax consequences of owning and disposing of notes.
Comparable Yield and Projected Payment Schedule
We will determine the comparable yield for the notes and will provide that comparable yield, and the related projected payment schedule, in the pricing supplement for the notes, which we will file with the SEC. If the notes had priced on December 12, 2018 and we had determined the comparable yield on that date, it would have been an annual rate of 3.16%, compounded semiannually. The actual comparable yield that we will determine for the notes may be higher or lower than 3.16%, and will depend upon a variety of factors, including actual market conditions and our borrowing costs for debt instruments of comparable maturities. Neither the comparable yield nor the projected payment schedule constitutes a representation by us regarding the actual Additional Amount, if any, that we will pay on the notes.
The Estimated Value of the Notes
The estimated value of the notes set forth on the cover of this pricing supplement is equal to the sum of the values of the following hypothetical components: (1) a fixed-income debt component with the same maturity as the notes, valued using the internal funding rate described below, and (2) the derivative or derivatives underlying the economic terms of the notes. The estimated value of the notes does not represent a minimum price at which JPMS would be willing to buy your notes in any secondary market (if any exists) at any time. The internal funding rate used in the determination of the estimated value of the notes is based on, among other things, our and our affiliates’ view of the funding value of the notes as well as the higher issuance, operational and ongoing liability management costs of the notes in comparison to those costs for the conventional fixed-rate debt of JPMorgan Chase & Co. For additional information, see “Selected Risk Considerations — The Estimated Value of the Notes Is Derived by Reference to an Internal Funding Rate” in this pricing supplement.
The value of the derivative or derivatives underlying the economic terms of the notes is derived from internal pricing models of our affiliates. These models are dependent on inputs such as the traded market prices of comparable derivative instruments and on various other inputs, some of which are market-observable, and which can include volatility, dividend rates, interest rates and other factors, as well as assumptions about future market events and/or environments. Accordingly, the estimated value of the notes is determined when the terms of the notes are set based on market conditions and other relevant factors and assumptions existing at that time.
The estimated value of the notes does not represent future values of the notes and may differ from others’ estimates. Different pricing models and assumptions could provide valuations for the notes that are greater than or less than the estimated value of the notes. In addition, market conditions and other relevant factors in the future may change, and any assumptions may prove to be incorrect. On future dates, the value of the notes could change significantly based on, among other things, changes in market conditions, our or JPMorgan Chase & Co.’s creditworthiness, interest rate movements and other relevant factors, which may impact the price, if any, at which JPMS would be willing to buy notes from you in secondary market transactions.
The estimated value of the notes will be lower than the original issue price of the notes because costs associated with structuring and hedging the notes are included in the original issue price of the notes. These costs include the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may result in a profit that is more or less than expected, or it may result in a loss. A portion of the profits, if any, realized in
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PS-8 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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hedging our obligations under the notes may be allowed to other affiliated or unaffiliated dealers, and we or one or more of our affiliates will retain any remaining hedging profits. See “Selected Risk Considerations — The Estimated Value of the Notes Will Be Lower Than the Original Issue Price (Price to Public) of the Notes” in this pricing supplement.
Secondary Market Prices of the Notes
For information about factors that will impact any secondary market prices of the notes, see “Risk Factors — Risks Relating to the Estimated Value and Secondary Market Prices of the Notes — Secondary market prices of the notes will be impacted by many economic and market factors” in the accompanying product supplement. In addition, we generally expect that some of the costs included in the original issue price of the notes will be partially paid back to you in connection with any repurchases of your notes by JPMS in an amount that will decline to zero over an initial predetermined period. These costs can include projected hedging profits, if any, and, in some circumstances, estimated hedging costs and our internal secondary market funding rates for structured debt issuances. This initial predetermined time period is intended to be the shorter of six months and one-half of the stated term of the notes. The length of any such initial period reflects the structure of the notes, whether our affiliates expect to earn a profit in connection with our hedging activities, the estimated costs of hedging the notes and when these costs are incurred, as determined by our affiliates. See “Selected Risk Considerations — The Value of the Notes as Published by JPMS (and Which May Be Reflected on Customer Account Statements) May Be Higher Than the Then-Current Estimated Value of the Notes for a Limited Time Period” in this pricing supplement.
Supplemental Use of Proceeds
The notes are offered to meet investor demand for products that reflect the risk-return profile and market exposure provided by the notes. See “Hypothetical Payout Profile” and “How the Notes Work” in this pricing supplement for an illustration of the risk-return profile of the notes and “The Index” in this pricing supplement for a description of the market exposure provided by the notes.
The original issue price of the notes is equal to the estimated value of the notes plus (minus) the projected profits (losses) that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes, plus the estimated cost of hedging our obligations under the notes.
Supplemental Plan of Distribution
We expect that delivery of the notes will be made against payment for the notes on or about the Original Issue Date set forth on the front cover of this pricing supplement, which will be the third business day following the Pricing Date of the notes (this settlement cycle being referred to as “T+3”). Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in two business days, unless the parties to that trade expressly agree otherwise. Accordingly, purchasers who wish to trade notes on any date prior to two business days before delivery will be required to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement and should consult their own advisors.
Additional Terms Specific to the Notes
You may revoke your offer to purchase the notes at any time prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes, in which case we may reject your offer to purchase.
You should read this pricing supplement together with the accompanying prospectus, as supplemented by the accompanying prospectus supplement relating to our Series A medium-term notes of which these notes are a part, and the more detailed information contained in the accompanying product supplement and the accompanying underlying supplement. This pricing supplement, together with the documents listed below, contains the terms of the notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in the “Risk Factors” sections of the accompanying product supplement and the accompanying underlying supplement, as the notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.
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PS-9 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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You may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
| · | Product supplement no. 3-I dated April 5, 2018: http://www.sec.gov/Archives/edgar/data/19617/000095010318004518/dp87527_424b2-ps3i.pdf |
| · | Underlying supplement no. 1-I dated April 5, 2018: http://www.sec.gov/Archives/edgar/data/19617/000095010318004514/crt_dp87766-424b2.pdf |
| · | Prospectus supplement and prospectus, each dated April 5, 2018: http://www.sec.gov/Archives/edgar/data/19617/000095010318004508/dp87767_424b2-ps.pdf |
Our Central Index Key, or CIK, on the SEC website is 1665650, and JPMorgan Chase & Co.’s CIK is 19617. As used in this pricing supplement, “we,” “us” and “our” refer to JPMorgan Financial.
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PS-10 | Structured Investments Dual Directional Knock-Out Notes Linked to the S&P 500® Index |
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