JP Morgan Chase 2009 Annual Report Download - page 175
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JPMorgan Chase & Co./2009 Annual Report 173
Trading assets and liabilities average balances
Average trading assets and liabilities were as follows for the periods indicated.
Year ended December 31, (in millions) 2009 2008 2007
Trading assets – debt and equity instruments $ 318,063 $ 384,102 $ 381,415
Trading assets – derivative receivables 110,457 121,417 65,439
Trading liabilities – debt and equity instruments(a) $ 60,224 $ 78,841 $ 94,737
Trading liabilities – derivative payables 77,901 93,200 65,198
(a) Primarily represent securities sold, not yet purchased.
Note 4 – Fair value option
The fair value option provides an option to elect fair value as an
alternative measurement for selected financial assets, financial
liabilities, unrecognized firm commitments, and written loan com-
mitments not previously carried at fair value.
Elections
Elections were made by the Firm to:
• mitigate income statement volatility caused by the differences in
the measurement basis of elected instruments (for example, cer-
tain instruments elected were previously accounted for on an
accrual basis) while the associated risk management arrange-
ments are accounted for on a fair value basis;
• eliminate the complexities of applying certain accounting models
(e.g., hedge accounting or bifurcation accounting for hybrid in-
struments); and
• better reflect those instruments that are managed on a fair value
basis.
Elections include:
• Securities financing arrangements with an embedded derivative
and/or a maturity of greater than one year.
• Loans purchased or originated as part of securitization ware-
housing activity, subject to bifurcation accounting, or managed
on a fair value basis.
• Structured notes issued as part of IB’s client-driven activities.
(Structured notes are financial instruments that contain embed-
ded derivatives.)
• Certain tax credits and other equity investments acquired as part
of the Washington Mutual transaction.
The cumulative effect on retained earnings of the adoption of the
fair value option on January 1, 2007, was $199 million.