JP Morgan Chase 2013 Annual Report Download - page 318

Notes to consolidated financial statements
324 JPMorgan Chase & Co./2013 Annual Report
As clearing member, the Firm is exposed to the risk of non-
performance by its clients, but is not liable to clients for the
performance of the CCPs. Where possible, the Firm seeks to
mitigate its risk to the client through the collection of
appropriate amounts of margin at inception and throughout
the life of the transactions and can also cease provision of
clearing services if clients do not adhere to their obligations
under the clearing agreement. In the event of non-
performance by a client, the Firm would close out the
client’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
clearing member.
The Firm reflects its exposure to non-performance risk of
the client through the recognition of margin payables or
receivables to clients and CCPs, but does not reflect the
clients underlying securities or derivative contracts in its
Consolidated Financial Statements.
It is difficult to estimate the Firm’s maximum possible
exposure through its role as clearing member, as this would
require an assessment of transactions that clients may
execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 6 on pages 220–233 of this Annual
Report.
Exchange & Clearing House Memberships
Through the provision of clearing services, the Firm is a
member of several securities and derivative exchanges and
clearinghouses, both in the U.S. and other countries.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to members who dealt with the
defaulting member or to the amount (or a multiple of the
amount) of the Firm’s contribution to the guarantee fund.
Alternatively, these obligations may be a full pro-rata share
of the residual losses after applying the guarantee fund. It is
difficult to estimate the Firm’s maximum possible exposure
under these membership agreements, since this would
require an assessment of future claims that may be made
against the Firm that have not yet occurred. However, based
on historical experience, management expects the risk of
loss to be remote.
Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co.
(“Parent Company”) may provide counterparties with
guarantees of certain of the trading and other obligations of
its subsidiaries on a contract-by-contract basis, as
negotiated with the Firm’s counterparties. The obligations
of the subsidiaries are included on the Firm’s Consolidated
Balance Sheets, or are reflected as off-balance sheet
commitments; therefore, the Parent Company has not
recognized a separate liability for these guarantees. The
Firm believes that the occurrence of any event that would
trigger payments by the Parent Company under these
guarantees is remote.
The Parent Company has guaranteed certain debt of its
subsidiaries, including both long-term debt and structured
notes sold as part of the Firm’s market-making activities.
These guarantees are not included in the table on page 319
of this Note. For additional information, see Note 21 on
pages 306–308 of this Annual Report.