JP Morgan Chase 2013 Annual Report Download - page 209

JPMorgan Chase & Co./2013 Annual Report 215
The Firm does not estimate the fair value of consumer
lending-related commitments. In many cases, the Firm can
reduce or cancel these commitments by providing the
borrower notice or, in some cases, without notice as
permitted by law. For a further discussion of the valuation
of lending-related commitments, see page 198 of this Note.
Trading assets and liabilities
Trading assets include debt and equity instruments owned
by JPMorgan Chase (“long” positions) that are held for
client market-making and client-driven activities, as well as
for certain risk management activities, certain loans
managed on a fair value basis and for which the Firm has
elected the fair value option, and physical commodities
inventories that are generally accounted for at the lower of
cost or market (market approximates fair value). Trading
liabilities include debt and equity instruments that the Firm
has sold to other parties but does not own (“short”
positions). The Firm is obligated to purchase instruments at
a future date to cover the short positions. Included in
trading assets and trading liabilities are the reported
receivables (unrealized gains) and payables (unrealized
losses) related to derivatives. Trading assets and liabilities
are carried at fair value on the Consolidated Balance Sheets.
Balances reflect the reduction of securities owned (long
positions) by the amount of identical securities sold but not
yet purchased (short positions).
Trading assets and liabilities – average balances
Average trading assets and liabilities were as follows for the periods indicated.
Year ended December 31, (in millions) 2013 2012 2011
Trading assets – debt and equity instruments $ 340,449 $ 349,337 $ 393,890
Trading assets – derivative receivables 72,629 85,744 90,003
Trading liabilities – debt and equity instruments(a) 77,706 69,001 81,916
Trading liabilities – derivative payables 64,553 76,162 71,539
(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 commitments 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, certain instruments elected
were previously accounted for on an accrual basis) while
the associated risk management arrangements 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 instruments); and/or
• Better reflect those instruments that are managed on a
fair value basis.
Elections include the following:
• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis.
• Securities financing arrangements with an embedded
derivative and/or a maturity of greater than one year.
• Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument.
• Certain investments that receive tax credits and other
equity investments acquired as part of the Washington
Mutual transaction.
• Structured notes issued as part of CIB’s client-driven
activities. (Structured notes are predominantly financial
instruments that contain embedded derivatives.)
• Long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value.