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, prospectus supplement and prospectus. Any representation to the contrary
is a criminal offense.
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.
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. 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” section of the accompanying
product 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.
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):
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.
The following table and examples illustrate
the hypothetical total return and the hypothetical payment at maturity on the notes. The “total return” as used in
this pricing supplement is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000
principal amount note to $1,000. Each hypothetical total return or payment at maturity set forth below assumes an Initial Share
Price of $75 and reflects the Upside Leverage Factor of 1.50, the Maximum Return of 9.525%, the Buffer Amount of 10.00% and the
Downside Leverage Factor of 1.11111. Each hypothetical total return or 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 in the examples below have been rounded for ease of analysis.
Final
Share Price
|
Fund
Return
|
Total
Return
|
|
$135.00
|
80.00%
|
9.5250%
|
|
$127.50
|
70.00%
|
9.5250%
|
|
$120.00
|
60.00%
|
9.5250%
|
|
$112.50
|
50.00%
|
9.5250%
|
|
$105.00
|
40.00%
|
9.5250%
|
|
$97.50
|
30.00%
|
9.5250%
|
|
$90.00
|
20.00%
|
9.5250%
|
|
$86.25
|
15.00%
|
9.5250%
|
|
$82.50
|
10.00%
|
9.5250%
|
|
$79.76
|
6.35%
|
9.5250%
|
|
$78.75
|
5.00%
|
7.5000%
|
|
$76.88
|
2.50%
|
3.7500%
|
|
$75.00
|
0.00%
|
0.0000%
|
|
$73.13
|
-2.50%
|
0.0000%
|
|
$71.25
|
-5.00%
|
0.0000%
|
|
$67.50
|
-10.00%
|
0.0000%
|
|
$63.75
|
-15.00%
|
-5.5556%
|
|
$60.00
|
-20.00%
|
-11.1111%
|
|
$52.50
|
-30.00%
|
-22.2222%
|
|
$45.00
|
-40.00%
|
-33.3333%
|
|
$37.50
|
-50.00%
|
-44.4444%
|
|
$30.00
|
-60.00%
|
-55.5555%
|
|
$22.50
|
-70.00%
|
-66.6666%
|
|
$15.00
|
-80.00%
|
-77.7777%
|
|
$7.50
|
-90.00%
|
-88.8888%
|
|
$0.00
|
-100.00%
|
-100.0000%
|
|
JPMorgan Structured Investments —
|
PS- 2
|
|
Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
|
|
Hypothetical Examples of
Amount Payable at Maturity
The following examples illustrate how the payment
at maturity in different hypothetical scenarios is calculated.
Example 1: The price of one share of the Fund
increases from the Initial Share Price of $75.00 to a Final Share Price of $76.88.
Because the Final Share Price of $76.88 is greater
than the Initial Share Price of $75.00 and the Fund Return of 2.50% multiplied by 1.50 does not exceed the Maximum Return of 9.525%,
the investor receives a payment at maturity of $1,037.50 per $1,000 principal amount note, calculated as follows:
$1,000 + ($1,000 ×
2.50% × 1.50) = $1,037.50
Example 2: The price of one share of the Fund
decreases from the Initial Share Price of $75.00 to a Final Share Price of $67.50.
Although the Fund Return is negative, because
the Final Share Price of $67.50 is less than the Initial Share Price of $75.00 by up to the Buffer Amount of 10.00%, the investor
receives a payment at maturity of $1,000.00 per $1,000 principal amount note.
Example 3: The price of one share of the Fund
increases from the Initial Share Price of $75.00 to a Final Share Price of $105.00.
Because the Final Share Price of $105.00 is greater
than the Initial Share Price of $75.00 and the Fund Return of 40.00% multiplied by 1.50 exceeds the Maximum Return of 9.525%, the
investor receives a payment at maturity of $1,095.25 per $1,000 principal amount note, the maximum payment at maturity.
Example 4: The price of one share of the Fund
decreases from the Initial Share Price of $75.00 to a Final Share Price of $45.00.
Because the Final Share Price of $45.00 is less
than the Initial Share Price of $75.00 by more than the Buffer Amount of 10.00% and the Fund Return is -40.00%, the investor receives
a payment at maturity of $666.67 per $1,000 principal amount note, calculated as follows:
$1,000 + [$1,000 ×
(-40.00% + 10.00%) × 1.11111] = $666.67
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 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.
|
JPMorgan Structured Investments —
|
PS- 3
|
|
Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
|
|
Selected Purchase Considerations
|
|
·
|
CAPPED APPRECIATION
POTENTIAL — The notes provide the opportunity to enhance equity returns by multiplying a positive Fund Return by 1.50,
up to the Maximum Return of 9.525%. Because the notes are our unsecured and unsubordinated obligations, the payment of which
is fully and unconditionally guaranteed by JPMorgan Chase & Co., payment of any amount on the notes is subject to our ability
to pay our obligations as they become due and JPMorgan Chase & Co.’s ability to pay its obligations as they become due.
|
|
|
·
|
LOSS OF PRINCIPAL
BEYOND BUFFER AMOUNT — We will pay you your principal back at maturity if the Final Share Price is equal to the Initial
Share Price or is less than the Initial Share Price by up to 10.00%. If the Final Share Price is less than the Initial Share Price
by more than 10.00%, for every 1% that the Final Share Price is less than the Initial Share Price by more than 10.00%, you will
lose an amount equal to 1.11111% of the principal amount of your notes. Accordingly, you may lose some or all of your principal
amount at maturity.
|
|
|
·
|
RETURN LINKED TO
THE iSHARES® ESG AWARE MSCI USA ETF — The return on the notes is linked to the iShares®
ESG Aware MSCI USA ETF. The Fund seeks to track the investment results, before fees and expenses, of the MSCI USA Extended ESG
Focus Index (the “Underlying Index”), an index composed of U.S. companies that have favorable environmental, social
and governance characteristics as identified by the Index Provider (as defined below), while exhibiting risk and return characteristics
similar to those of the MSCI USA Index (the “Parent Index”). For additional information about the Fund, see the information
set forth in Appendix A to this pricing supplement.
|
|
|
·
|
TAX TREATMENT —
You should review carefully the section entitled “Material U.S. Federal Income Tax Consequences” in the accompanying
product supplement no. 4-I. The following discussion, when read in combination with that section, constitutes the full opinion
of our special tax counsel, Latham & Watkins LLP, regarding the material U.S. federal income tax consequences of owning and
disposing of notes.
|
Based
on current market conditions, in the opinion of our special tax counsel it is reasonable to treat the notes as “open transactions”
that are not debt instruments for U.S. federal income tax purposes, as more fully described in “Material U.S. Federal Income
Tax Consequences — Tax Consequences to U.S. Holders — Notes Treated as Open Transactions That Are Not Debt Instruments”
in the accompanying product supplement. Assuming this treatment is respected, subject to the possible application of the “constructive
ownership” rules, the gain or loss on your notes should be treated as long-term capital gain or loss if you hold your notes
for more than a year, whether or not you are an initial purchaser of notes at the issue price. The notes could be treated as “constructive
ownership transactions” within the meaning of Section 1260 of the Code, in which case any gain recognized in respect of the
notes that would otherwise be long-term capital gain and that was in excess of the “net underlying long-term capital gain”
(as defined in Section 1260) would be treated as ordinary income, and a notional interest charge would apply as if that income
had accrued for tax purposes at a constant yield over your holding period for the notes. Our special tax counsel has not expressed
an opinion with respect to whether the constructive ownership rules apply to the notes. Accordingly, U.S. Holders should consult
their tax advisers regarding the potential application of the constructive ownership rules.
The
IRS or a court may not respect the treatment of the notes described above, in which case the timing and character of any income
or loss on your notes could be materially and adversely affected. In addition, in 2007 Treasury and the IRS released a notice requesting
comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice
focuses in particular on whether to require investors in these instruments to accrue income over the term of their investment.
It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any,
to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether
these instruments are or should be subject to the constructive ownership regime described above. While the notice requests comments
on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive
effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the notes, including
the potential application of the constructive ownership rules, possible alternative treatments and the issues presented by this
notice.
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) instruments issued prior to January 1, 2023 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, our special tax counsel is of the opinion that Section 871(m) should 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. You should consult your tax adviser regarding the potential application of
Section 871(m) to the notes.
|
JPMorgan Structured Investments —
|
PS- 4
|
|
Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
|
|
Withholding
under legislation commonly referred to as “FATCA” may (if the notes are recharacterized as debt instruments) apply
to amounts treated as interest paid with respect to the notes, as well as to payments of gross proceeds of a taxable disposition,
including redemption at maturity, of a note, although under recently proposed regulations (the preamble to which specifies that
taxpayers are permitted to rely on them pending finalization), no withholding will apply to payments of gross proceeds (other than
any amount treated as interest). You should consult your tax adviser regarding the potential application of FATCA to the notes.
Selected Risk Considerations
An investment in the notes involves significant
risks. Investing in the notes is not equivalent to investing directly in the Fund, the Underlying Index or any of the component
securities of the Fund or the Underlying Index. These risks are explained in more detail in the “Risk Factors” section
of the accompanying product supplement.
|
|
·
|
YOUR INVESTMENT
IN THE NOTES MAY RESULT IN A LOSS — The notes do not guarantee any return of principal. The return on the notes at maturity
is linked to the performance of the Fund and will depend on whether, and the extent to which, the Fund Return is positive or negative.
Your investment will be exposed to a loss on a leveraged basis if the Final Share Price is less than the Initial Share Price by
more than 10.00%. For every 1% that the Final Share Price is less than the Initial Share Price by more than 10.00%, you will lose
an amount equal to 1.11111% of the principal amount of your notes. Accordingly, you may lose some or all of your principal amount
at maturity.
|
|
|
·
|
YOUR MAXIMUM GAIN
ON THE NOTES IS LIMITED TO THE MAXIMUM RETURN — If
the Final Share Price is greater than the Initial Share Price, for each $1,000 principal amount note, you will receive at maturity
$1,000 plus an additional return that will not exceed the Maximum Return of 9.525%, regardless of the appreciation of the
Fund, which may be significant.
|
|
|
·
|
CREDIT RISKS OF
JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. — The
notes are subject to our and JPMorgan Chase & Co.’s credit risks, and our and JPMorgan Chase & Co.’s credit
ratings and credit spreads may adversely affect the market value of the notes. 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 issuance of the notes, including acting as calculation
agent and as an agent of the offering of the notes, hedging our obligations under the notes and making the assumptions used to
determine the pricing of the notes and the estimated value of the notes when the terms of the notes are set, which we refer to
as the estimated value of the notes. In performing these duties, our and JPMorgan Chase & Co.’s economic interests and
the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor
in the notes. In addition, our and JPMorgan Chase & Co.’s business activities, including hedging and trading activities,
could cause our and JPMorgan Chase & Co.’s economic interests to be adverse to yours and could adversely affect any payment
on the notes and the value of 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 value of the notes declines. Please refer
to “Risk Factors — Risks Relating to Conflicts of Interest” in the accompanying product supplement for additional
information about these risks.
|
|
|
·
|
THE ESTIMATED VALUE
OF THE NOTES IS 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 exceeds the estimated value
of the notes because costs associated with selling, structuring and hedging the notes are included in the original issue price
of the notes. These costs include the selling commissions, 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 — The estimated
value of the notes is determined by reference to internal pricing models of our affiliates when the terms of the notes are set.
This estimated value of the notes is based on market conditions and other relevant factors existing at that time and assumptions
about market parameters, which can include volatility, dividend rates, interest rates and other factors. Different pricing models
and assumptions could provide valuations for the notes that are greater than or less than the estimated value of
|
|
JPMorgan Structured Investments —
|
PS- 5
|
|
Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
|
|
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. 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 may differ from the market-implied funding rate for vanilla fixed income instruments of a similar
maturity issued by JPMorgan Chase & Co. or its affiliates. Any difference may be 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 income instruments of JPMorgan Chase & Co. This
internal funding rate is based on certain market inputs and assumptions, which may prove to be incorrect, and is intended to approximate
the prevailing market replacement funding rate for the notes. 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.
|
|
|
·
|
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. These costs can include selling commissions, projected hedging profits,
if any, and, in some circumstances, estimated hedging costs and our internal secondary market funding rates for structured debt
issuances. 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 selling commissions, 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 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. See the immediately following risk consideration for information about additional factors
that will impact any secondary market prices of the 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. See “—
Lack of Liquidity” below.
|
|
·
|
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 selling commissions, projected hedging profits, if any, estimated hedging costs and the price of one share of the Fund.
|
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.
|
|
·
|
NO INTEREST OR
DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the notes, you will not receive interest payments, and you will not
have voting rights or rights to receive cash dividends or other distributions or other rights that holders of shares of the Fund
or securities held by the Fund or included in the Underlying Index would have.
|
|
|
·
|
THERE ARE RISKS
ASSOCIATED WITH THE FUND — Although the shares of the Fund are listed for trading on a securities exchange and a number
of similar products have been traded on securities exchanges for varying periods of time, there is no assurance that an active
trading market will continue for the shares of the Fund or that there will be liquidity in the trading market. The Fund is subject
to management risk, which is the risk that the investment strategies of the Fund’s investment adviser, the implementation
of which is subject to a number of constraints, may not produce the intended results. These constraints could adversely affect
the market price of the shares of the Fund, and consequently, the value of the notes.
|
|
|
·
|
THE PERFORMANCE
AND MARKET VALUE OF THE FUND, PARTICULARLY DURING PERIODS OF MARKET VOLATILITY, MAY NOT CORRELATE WITH THE PERFORMANCE OF THE FUND’S
UNDERLYING INDEX AS WELL AS THE NET ASSET VALUE PER SHARE — The Fund does not fully replicate its Underlying Index and
may hold securities different from those included in its Underlying Index. In addition, the performance of the Fund will reflect
additional transaction costs and fees that are not included in the calculation of its
|
|
JPMorgan Structured Investments —
|
PS- 6
|
|
Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
|
|
Underlying Index. All of these factors
may lead to a lack of correlation between the performance of the Fund and its Underlying Index. In addition, corporate actions
with respect to the equity securities underlying the Fund (such as mergers and spin-offs) may impact the variance between the performances
of the Fund and its Underlying Index. Finally, because the shares of the Fund are traded on a securities exchange and are subject
to market supply and investor demand, the market value of one share of the Fund may differ from the net asset value per share of
the Fund.
During periods of market volatility,
securities underlying the Fund may be unavailable in the secondary market, market participants may be unable to calculate accurately
the net asset value per share of the Fund and the liquidity of the Fund may be adversely affected. This kind of market volatility
may also disrupt the ability of market participants to create and redeem shares of the Fund. Further, market volatility may adversely
affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the Fund. As a result,
under these circumstances, the market value of shares of the Fund may vary substantially from the net asset value per share of
the Fund. For all of the foregoing reasons, the performance of the Fund may not correlate with the performance of its Underlying
Index as well as the net asset value per share of the Fund, which could materially and adversely affect the value of the notes
in the secondary market and/or reduce any payment on the notes.
|
|
·
|
THERE IS NO GUARANTEE
THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE — There is no guarantee that the Fund’s investment results
will have a high degree of correlation to those of the Underlying Index or that the Fund will achieve its investment objective.
Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure
to the required levels in order to track the Underlying Index. Errors in index data, index computations or the construction of
the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected by
the Index Provider for a period of time or at all, which may have an adverse impact on the Fund and its shareholders. Unusual market
conditions may cause the Index Provider to postpone a scheduled rebalance, which could cause the Underlying Index to vary from
its normal or expected composition.
|
|
|
·
|
THERE IS NO GUARANTEE
THAT THE UNDERLYING INDEX METHODOLOGY WILL SUCCESSFULLY TARGET COMPANIES THAT EXHIBIT POSITIVE OR FAVORABLE ESG CHARACTERISTICS
— The Underlying Index methodology attempts to target U.S. companies that have positive environmental, social and
governance (ESG) ratings and to exclude companies whose products or services have negative social or environmental impacts. However,
there is no guarantee that the composition of the Underlying Index will satisfy any present or future investor expectations or
requirements regarding the ESG characteristics of the companies included in Underlying Index. In addition, the Fund’s ESG
investment strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole
or underperform other funds screened for ESG standards. We are not endorsing or validating the ESG methodology used by the Index
Provider or the Fund’s ESG investment strategy. If the ESG characteristics of the companies included in Underlying Index
is a factor in an investor’s decision to invest in notes, investors should consult with their legal or other advisers before
making an investment in the notes.
|
|
|
·
|
THE UNDERLYING
INDEX OR THE FUND MAY NOT BE SUCCESSFUL AND MAY UNDERPERFORM ALTERNATIVE STRATEGIES — There can be no assurance that
the Fund will achieve positive returns over any period. At each quarterly index review, the Index Provider selects constituents
of the Underlying Index from the constituents of the Parent Index based on a multi-step eligibility assessment and construction
process, as described below. Therefore, the determination as to which constituents of the Parent Index will be included in the
Underlying Index for each quarterly period will be made solely by the Index Provider. In general, if the constituents of the Underlying
Index appreciate over a period, the level of the Underlying Index will increase, and if they depreciate over that period, the level
of the Underlying Index will decrease, perhaps significantly. However, there is no guarantee that the Underlying Index will outperform
the Parent Index or equity markets generally, and the performance of the Underlying Index may be less favorable than alternative
strategies that could have been implemented, including strategies adopting different, rules-based criteria or without determinations
made by the Index Provider. In addition, securities and other assets in the Underlying Index or in the Fund’s portfolio may
underperform in comparison to the general financial markets, a particular financial market or other asset classes with securities
of companies that have positive or favorable ESG characteristics.
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THE UNDERLYING
INDEX FOLLOWS A PARTICULAR METHODOLOGY, WHICH MAY DIFFER SIGNIFICANTLY FROM ALTERNATIVE APPROACHES AND INVESTOR EXPECTATIONS
— The Underlying Index follows a specific methodology, with determinations made by the Index Provider as to which constituents
of the Parent Index will be selected as constituents of the Underlying Index for a given quarterly period. The methodology
of the Underlying Index was developed by the Index Provider and may differ substantially from alternative strategies with similar
objectives. Decisions to include or exclude constituents of the Underlying Index will be made solely by the Index Provider,
and such decisions will affect the performance of the Underlying Index and the Fund on an ongoing basis. Additionally, the Index
Provider will make decisions regarding the constituents of the Underlying Index at its own discretion, without regard to investor
expectations. In addition, the Underlying Index relies on various sources of information to assess the criteria of issuers
included in the Underlying Index, including information that may be based on assumptions and estimates. We cannot offer assurances
that the Underlying Index’s calculation methodology or sources of information will provide an accurate assessment of included
issuers. Neither we nor you will have any ability to impact decisions made by the Index Provider regarding the constituents of
the Underlying Index or the Fund, and the Underlying Index or the Fund may include
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Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
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constituents that differ significantly
from those of alternative strategies with similar objectives. The Underlying Index and the Fund may underperform such alternative
strategies, perhaps significantly.
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LIMITED TRADING
HISTORY —The Fund began trading on The NASDAQ Stock Market on December 1, 2016 and therefore has a limited historical
performance. Accordingly, historical information for the price of one share of the Fund is available only since that date. Past
performance should not be considered indicative of future performance.
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LACK OF LIQUIDITY
— The notes will not be listed on any securities exchange. JPMS intends to offer to purchase the notes in the secondary market
but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or
sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may
be able to trade your notes is likely to depend on the price, if any, at which JPMS is willing to buy the notes.
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THE ANTI-DILUTION
PROTECTION FOR THE FUND IS LIMITED — The calculation agent will make adjustments to the Share Adjustment Factor for certain
events affecting the shares of the Fund. However, the calculation agent will not make an adjustment in response to all events that
could affect the shares of the Fund. If an event occurs that does not require the calculation agent to make an adjustment, the
value of the notes may be materially and adversely affected.
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JPMorgan Structured Investments —
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PS- 8
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Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
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Historical Information
The following graph sets forth the historical performance
of the Fund based on the weekly historical closing prices of one share of the Fund from December 1, 2016 through October 23, 2020.
The Fund began trading on The NASDAQ Stock Market on December 1, 2016 and therefore has a limited performance history. The closing
price of one share of the Fund on October 27, 2020 was $77.24.
We obtained the closing prices above and below
from the Bloomberg Professional® service (“Bloomberg”), without independent verification. The closing
prices above and below may have been adjusted by Bloomberg for actions taken by the Fund, such as stock splits. The historical
prices of one share of the Fund should not be taken as an indication of future performance, and no assurance can be given as to
the closing price of one share of the Fund on any Ending Averaging Date. There can be no assurance that the performance of the
Fund will result in the return of any of your principal amount.
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 may differ from the market-implied funding rate for vanilla fixed
income instruments of a similar maturity issued by JPMorgan Chase & Co. or its affiliates. Any difference may be 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 income instruments
of JPMorgan Chase & Co. This internal funding rate is based on certain market inputs and assumptions, which may prove to be
incorrect, and is intended to approximate the prevailing market replacement funding rate for the notes. 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. 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. See “Selected Risk Considerations
— The Estimated Value of the Notes Does Not Represent Future Values of the Notes and May Differ from Others’ Estimates”
in this pricing supplement.
The estimated value of the notes is lower than
the original issue price of the notes because costs associated with selling, structuring and hedging the notes are included in
the original issue price of the notes. These costs include the selling commissions paid to JPMS and other affiliated or unaffiliated
dealers, 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. We or one or more of our affiliates will retain any profits realized in hedging our obligations under
the notes. See “Selected Risk Considerations — The Estimated Value of the Notes Is 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 “Selected Risk Considerations — Secondary Market Prices of the Notes Will
Be Impacted by Many Economic and Market Factors ” in this pricing supplement. In addition, we generally expect that some
of the costs included in the original issue price of the notes will be partially paid
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Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
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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 that 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.”
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 “What Is the Total Return
on the Notes at Maturity, Assuming a Range of Performances for the Fund?” and “Hypothetical Examples of Amount Payable
at Maturity” in this pricing supplement for an illustration of the risk-return profile of the notes and “Selected Purchase
Considerations — Return Linked to the iShares® ESG Aware MSCI USA ETF” 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 the selling commissions paid to JPMS and other affiliated or unaffiliated dealers, 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.
Validity of the Notes and the Guarantee
In the opinion of Latham & Watkins LLP, as special
product counsel to JPMorgan Financial and JPMorgan Chase & Co., when the notes offered by this pricing supplement have been
executed and issued by JPMorgan Financial and authenticated by the trustee pursuant to the indenture, and delivered against payment
as contemplated herein, such notes will be valid and binding obligations of JPMorgan Financial and the related guarantee will constitute
a valid and binding obligation of JPMorgan Chase & Co., enforceable in accordance with their terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of
general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided
that such special product counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar
provision of applicable law on the conclusions expressed above or (ii) any provision of the indenture that purports to avoid the
effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of JPMorgan
Chase & Co.’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the
laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company
Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery
of the indenture and its authentication of the notes and the validity, binding nature and enforceability of the indenture with
respect to the trustee, all as stated in the letter of such counsel dated February 26, 2020, which was filed as an exhibit to the
Registration Statement on Form S-3 by JPMorgan Financial and JPMorgan Chase & Co. on February 26, 2020.
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PS- 10
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Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
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Appendix A
The iShares® ESG Aware MSCI USA ETF
We have derived all information contained in this pricing
supplement regarding the Fund, including, without limitation, its make-up, method of calculation and changes in its components,
from publicly available information, without independent verification. This information reflects the policies of, and is subject
to change by, iShares® Trust and BlackRock Fund Advisors (“BFA”). BFA is currently the investment
advisor to the Fund. Information about the Fund is available at www.ishares.com. We do not make any representation that these publicly
available documents are accurate or complete. We are not incorporating by reference into this pricing supplement the website or
any material it includes.
The Fund seeks to track the investment results of the
MSCI USA Extended ESG Focus Index (the “Underlying Index”), an equity index which has been developed by MSCI
Inc. (the “Index Provider” or “MSCI”) and designed to reflect the equity performance of U.S.
companies that have favorable environmental, social and governance (“ESG”) characteristics (as determined by
the Index Provider), while exhibiting risk and return characteristics similar to those of the MSCI USA Index (the “Parent
Index”). The Fund is reported by Bloomberg L.P. under the ticker symbol “ESGU.”
Principal Investment Strategies
The Index Provider excludes from the Parent Index securities
of companies involved in the business of tobacco, companies involved with controversial weapons, producers and retailers of civilian
firearms, companies included in certain fossil fuels-related activity such as the production of thermal coal, thermal coal-based
power generation and extraction of oil sands based on revenue or percentage of revenue thresholds for certain categories (e.g.
$20 million or 5%) and categorical exclusions for others (e.g. controversial weapons). The Index Provider also excludes companies
involved in very severe business controversies (in each case as determined by the Index Provider), and then follows a quantitative
process that is designed to determine optimal weights for securities to maximize exposure to securities of companies with higher
ESG ratings, subject to maintaining risk and return characteristics similar to the Parent Index.
For each industry, the Index Provider identifies key
ESG issues that can lead to unexpected costs for companies in the medium- to long-term. The Index Provider then calculates the
size of each company’s exposure to each key issue based on the company’s business segment and geographic risk and analyzes
the extent to which companies have developed robust strategies and programs to manage ESG risks and opportunities. Using a sector-specific
key issue weighting model, companies are rated and ranked in comparison to their industry peers. The Underlying Index will include
large- and mid-capitalization companies and may change over time. As of August 31, 2019, a significant portion of the Underlying
Index is represented by securities of companies in the information technology industry or sector. The components of the Underlying
Index are likely to change over time.
BFA uses a “passive” or indexing approach
to try to achieve the Fund’s investment objective.
BFA uses a representative sampling indexing strategy
to manage the Fund. “Representative sampling” is an indexing strategy that involves investing in a representative sample
of securities that collectively has an investment profile similar to that of an applicable underlying index. The securities selected
are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry
weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of an applicable
underlying index. The Fund may or may not hold all of the securities in the Underlying Index.
The Fund generally will invest at least 90% of its
assets in the component securities of the Underlying Index and may invest up to 10% of its assets in certain futures, options and
swap contracts, cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates, as well as
in securities not included in the Underlying Index, but which BFA believes will help the Fund track the Underlying Index. The Fund
seeks to track the investment results of the Underlying Index before fees and expenses of the Fund.
The Fund may lend securities representing up to one-third
of the value of the Fund’s total assets (including the value of any collateral received).
The Underlying Index is sponsored by MSCI, which is
independent of the Fund and BFA. The Index Provider determines the composition and relative weightings of the securities in the
Underlying Index and publishes information regarding the market value of the Underlying Index.
The MSCI USA Index
MSCI USA Index (the “Parent Index”)
is a free float adjusted market capitalization index that is designed to measure large- and mid-cap U.S. equity market performance.
The MSCI USA Index is member of the MSCI Global Equity Indices and represents the U.S. equity portion of the global benchmark MSCI
ACWI Index.
Construction of the MSCI USA Index
MSCI undertakes an index construction process, which
involves: (i) defining the equity universe; (ii) determining the market investable equity universe for each market; (iii) determining
market capitalization size segments for each market; (iv) applying index continuity rules for standard indices; and (v) classifying
securities under the Global Industry Classification Standard. The MSCI USA Index is a standard index, meaning that only securities
that would qualify for inclusion in a large-cap index or a mid-cap index will be included as described below.
Defining the Equity Universe
Identifying Eligible Equity Securities: The
equity universe for the MSCI USA Index initially looks at securities classified as belonging to the United States, which is classified
as “developed markets”. All listed equity securities, including real estate
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investment trusts are eligible for inclusion in the
equity universe. Limited partnerships, limited liability companies and business trusts, which are listed in the US and are not
structured to be taxed as limited partnerships, are likewise eligible for inclusion in the equity universe. Conversely, mutual
funds, exchange traded funds, equity derivatives and most investment trusts are not eligible for inclusion in the equity universe. Preferred
shares that exhibit characteristics of equity securities are eligible.
Country Classification of Eligible Securities:
Each company and its securities (i.e., share classes) are classified in one and only one country, which allows for a distinctive
sorting of each company by its respective country.
Determining the Market Investable Equity Universes
A market investable equity universe for a market is
derived by (i) identifying eligible listings for each security in the equity universe; and (ii) applying investability screens
to individual companies and securities in the equity universe that are classified in that market. A market is generally equivalent
to a single country. The global investable equity universe is the aggregation of all market investable equity universes.
(i) Identifying Eligible Listings: A security may have
a listing in the country where it is classified (a “local listing”) and/or in a different country (a “foreign
listing”). A security may be represented by either a local listing or a foreign listing (including a depositary receipt)
in the global investable equity universe. A security may be represented by a foreign listing only if the security is classified
in a country that meets the foreign listing materiality requirement (as described below), and the security’s foreign listing
is traded on an eligible stock exchange of a developed market country if the security is classified in a developed market country
or, if the security is classified in an emerging market country, an eligible stock exchange of a developed market country or an
emerging market country.
In order for a country to meet the foreign listing
materiality requirement, the following is determined: all securities represented by a foreign listing that would be included in
the country’s MSCI Country Investable Market Index if foreign listings were eligible from that country. The aggregate free-float
adjusted market capitalization for all such securities should represent at least (i) 5% of the free float-adjusted market capitalization
of the relevant MSCI Country Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI
ACWI Investable Market Index. If a country does not meet the foreign listing materiality requirement, then securities in that country
may not be represented by a foreign listing in the global investable equity universe.
(ii) Applying Investability Screens: The investability
screens used to determine the investable equity universe in each market are:
(a) Equity Universe Minimum Size Requirement:
This investability screen is applied at the company level. In order to be included in a market investable equity universe, a company
must have the required minimum full market capitalization. The equity universe minimum size requirement applies to companies in
all markets and is derived as follows:
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First, the companies in the developed market equity universe are sorted in descending order of full market capitalization and the cumulative coverage of the free float-adjusted market capitalization of the developed market equity universe is calculated for each company. Each company’s free float-adjusted market capitalization is represented by the aggregation of the free float-adjusted market capitalization of the securities of that company in the equity universe.
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Second, when the cumulative free float-adjusted market capitalization coverage of 99% of the sorted equity universe is achieved, by adding each company’s free float-adjusted market capitalization in descending order, the full market capitalization of the company that reaches the 99% threshold defines the equity universe minimum size requirement.
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The rank of this company by descending order of full market capitalization within the developed market equity universe is noted, and will be used in determining the equity universe minimum size requirement at the next rebalance.
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As of May 2020, the equity universe minimum size requirement
was set at US$238,000,000. Companies with a full market capitalization below this level are not included in any market investable
equity universe. The equity universe minimum size requirement is reviewed and, if necessary, revised at each semi-annual index
review, as described below.
(b) Equity Universe Minimum Free Float-Adjusted
Market Capitalization Requirement: This investability screen is applied at the individual security level. To be eligible for
inclusion in a market investable equity universe, a security must have a free float-adjusted market capitalization equal to or
higher than 50% of the equity universe minimum size requirement.
(c) Minimum Liquidity Requirement: This investability
screen is applied at the individual security level. To be eligible for inclusion in a market investable equity universe, a security
must have at least one eligible listing that has adequate liquidity as measured by its 12-month and 3-month annualized traded value
ratio (“ATVR”) and 3-month frequency of trading. The ATVR attempts to mitigate the impact of extreme daily trading
volumes and takes into account the free float-adjusted market capitalization of securities. A minimum liquidity level of 20% of
the 3-month ATVR and 90% of 3-month frequency of trading over the last 4 consecutive quarters, as well as 20% of the 12-month ATVR,
are required for inclusion of a security in a market investable equity universe of a developed market. A minimum liquidity level
of 15% of the 3-month ATVR and 80% of 3-month frequency of trading over the last 4 consecutive quarters, as well as 15% of the
12-month ATVR, are required for inclusion of a security in a market investable equity universe of an emerging market.
Only one listing per security may be included in the
market investable equity universe. In instances where a security has two or more eligible listings that meet the above liquidity
requirements, then the following priority rules are used to determine which listing will be used for potential inclusion of the
security in the market investable equity universe:
(1) Local listing (if the security has two or more
local listings, then the listing with the highest 3-month ATVR will be used).
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(2) Foreign listing in the same geographical region
(MSCI classifies markets into three main geographical regions: EMEA, Asia Pacific and Americas. If the security has two or more
foreign listings in the same geographical region, then the listing with the highest 3-month ATVR will be used).
(3) Foreign listing in a different geographical region
(if the security has two or more foreign listings in a different geographical region, then the listing with the highest 3-month
ATVR will be used).
Due to liquidity concerns relating to securities trading
at very high stock prices, a security that is currently not a constituent of a MSCI Global Investable Markets Index that is trading
at a stock price above US$10,000 will fail the liquidity screening and will not be included in any market investable equity universe.
(d) Global Minimum Foreign Inclusion Factor Requirement:
This investability screen is applied at the individual security level. To determine the free float of a security, MSCI considers
the proportion of shares of such security available for purchase in the public equity markets by international investors. In practice,
limitations on the investment opportunities for international investors include: strategic stakes in a company held by private
or public shareholders whose investment objective indicates that the shares held are not likely to be available in the market;
limits on the proportion of a security’s share capital authorized for purchase by non-domestic investors; or other foreign
investment restrictions which materially limit the ability of foreign investors to freely invest in a particular equity market,
sector or security.
MSCI will then derive a “foreign inclusion factor”
for the company that reflects the proportion of shares outstanding that is available for purchase in the public equity markets
by international investors. MSCI will then “float-adjust” the weight of each constituent company in an index by the
company’s foreign inclusion factor.
Once the free float factor has been determined for
a security, the security’s total market capitalization is then adjusted by such free float factor, resulting in the free
float-adjusted market capitalization figure for the security.
(e) Minimum Length of Trading Requirement: This
investability screen is applied at the individual security level. For an initial public offering to be eligible for inclusion in
a market investable equity universe, the new issue must have started trading at least three months before the implementation of
a semi-annual index review. This requirement is applicable to small new issues in all markets. Large initial public offerings are
not subject to the minimum length of trading requirement and may be included in a market investable equity universe and a standard
index, such as the MSCI USA Index, outside of a quarterly or semi-annual index review.
(f) Minimum Foreign Room Requirement: This
investability screen is applied at the individual security level. For a security that is subject to a foreign ownership limit to
be eligible for inclusion in a market investable equity universe, the proportion of shares still available to foreign investors
relative to the maximum allowed (referred to as “foreign room”) must be at least 15%.
Determining Market Capitalization Size Segments
for Each Market
Once a market investable equity universe is defined,
it is segmented into the following size-based indices:
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Investable Market Index (Large Cap + Mid Cap + Small Cap)
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Standard Index (Large Cap + Mid Cap)
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Large Cap Index
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Mid Cap Index
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Small Cap Index
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Creating the size segment indices in each market involves
the following steps: (i) defining the market coverage target range for each size segment; (ii) determining the global minimum size
range for each size segment; (iii) determining the market size-segment cutoffs and associated segment number of companies; (iv)
assigning companies to the size segments; and (v) applying final size-segment investability requirements. For developed market
indices, the market coverage for a standard index is 85%. As of April 2020, the global minimum size range for a developed market
standard index is a full market capitalization of USD 2.8 billion to USD 6.44 billion.
Applying Index Continuity Rules for Standard
Indices
In order to achieve index continuity, as well as provide
some basic level of diversification within a market index, notwithstanding the effect of other index construction rules, a minimum
number of five constituents will be maintained for a developed market standard index and a minimum number of three constituents
will be maintained for an emerging market standard index, and involves the following steps:
If after the application of the index construction
methodology, a developed market standard index contains fewer than five securities or an emerging market standard index contains
fewer than three securities, then the largest securities by free float-adjusted market capitalization are added to the index in
order to reach the minimum number of required constituents.
At subsequent index reviews, if the minimum number
of securities described above is not met, then after the market investable equity universe is identified, the securities are ranked
by free float-adjusted market capitalization, however, in order to increase stability the free float-adjusted market capitalization
of the existing index constituents (prior to review) is multiplied by 1.50, and securities are added until the desired minimum
number of securities is reached.
Classifying Securities under the Global Industry
Classification Standard
All securities in the global investable equity universe
are assigned to the industry that best describes their business activities. The Global Industry Classification Standard classification
of each security is used by MSCI to construct additional indices.
Calculation Methodology for the MSCI USA Index
The performance
of the MSCI USA Index is a free float weighted average of the US dollar values of its component securities, subject to the daily
total return methodology (as described below).
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Prices used to
calculate the component securities are the official exchange closing prices or prices accepted as such in the relevant market.
In the case of a market closure, or if a security does not trade on a specific day or during a specific period, MSCI carries the
latest available closing price. In the event of a market outage resulting in any component security price to be unavailable, MSCI
will generally use the last reported price for such component security for the purpose of performance calculation. If MSCI determines
that another price is more appropriate based on the circumstances, an announcement would be sent to clients with the related information.
Closing prices are converted into US dollars, as applicable, using the closing spot exchange rates calculated by WM/Reuters at
4:00 P.M. London Time.
Daily Total
Return Methodology
The MSCI USA
Index is a daily total return index. A daily total return index measures the market performance, including price performance
and income from regular cash distributions. This income is reinvested in the MSCI USA Index
and thus makes up part of the total index performance. MSCI’s daily total return methodology reinvests cash dividends in
the MSCI USA Index the day the security is quoted ex-dividend, or on the ex-date (converted
to US dollars, as applicable). Certain dividends, including special/extraordinary dividends and commemorative dividends, are reinvested
in the MSCI USA Index if, a day prior to the ex-date, the dividend impact on price
is less than 5%. If the impact is 5% or more, the dividend will be reinvested in the MSCI
USA Index through a price adjustment on the ex-date. A specific price adjustment is always applied for stock dividends that
are issued at no cost to the shareholders, an extraordinary capital repayment or a dividend paid in the shares of another company.
Cash payments related to corporate events, such as mergers and acquisitions, are considered on a case-by-case basis.
Notwithstanding the ETF’s investment objective,
the return on your notes will not reflect any dividends paid on the ETF shares, on the securities purchased by the ETF or on the
securities that comprise the MSCI USA Index.
Maintenance of the MSCI USA Index
In order to maintain the representativeness of the
MSCI USA Index, structural changes may be made by adding or deleting component securities. Currently, such changes may generally
only be made on four dates throughout the year: after the close of the last business day of each February, May, August and November.
The MSCI USA Index is maintained with the objective
of reflecting, on a timely basis, the evolution of the underlying equity markets. In maintaining the MSCI USA Index, emphasis is
also placed on its continuity, continuous investability of constituents and replicability of the index and on index stability and
minimizing turnover.
MSCI classifies index maintenance in three broad categories.
The first consists of ongoing event related changes, such as mergers and acquisitions. The second category consists of quarterly
index reviews, aimed at promptly reflecting other significant market events. The third category consists of semi-annual index reviews
that systematically re-assess the various dimensions of the equity universe.
Ongoing event-related changes to the MSCI USA Index
are the result of mergers, acquisitions, spin-offs, bankruptcies, reorganizations and other similar corporate events. They can
also result from capital reorganizations in the form of rights issues, stock bonus issues, public placements and other similar
corporate actions that take place on a continuing basis. MSCI will remove from the index as soon as practicable securities of companies
that file for bankruptcy or other protection from their creditors, that are suspended and for which a return to normal business
activity and trading is unlikely in the near future; or that fail stock exchange listing requirements with a delisting announcement.
Securities may also be considered for early deletion in other significant cases, such as decreases in free float and foreign ownership
limits, or when a constituent company acquires or merges with a non-constituent company or spins-off another company. In practice,
when a constituent company is involved in a corporate event which results in a significant decrease in the company’s free
float-adjusted market capitalization or the company decreases its foreign inclusion factor to below 0.15, the securities of that
constituent company are considered for early deletion from the indices simultaneously with the event unless, in either case, it
is a standard index constituent with a minimum free float-adjusted market capitalization meeting at least two-thirds of 1.8 times
one-half of the standard index interim size segment cut-off. Share conversions may also give rise to an early deletion. Changes
in number of shares and foreign inclusion factors resulting from primary equity offerings representing at least 5% of the security’s
pre-event number of shares are implemented as of the close of the first trading day of the new shares, if all necessary information
is available at that time. Otherwise, the event is implemented as soon as practicable after the relevant information is made available.
MSCI implements pending number of shares and/or free float updates simultaneously with the event, unless the change in number of
shares is less than 1% on a post-event number of shares basis, in which case it will be implemented at a subsequent index review.
Changes in the number of shares smaller than 5% are implemented at a subsequent index review. Secondary offerings/block sales with
sizes representing at least 5% of the security’s pre-event number of shares are implemented at the time of the event. All
changes resulting from corporate events are announced prior to their implementation, provided all necessary information on the
event is available.
MSCI’s quarterly index review process is designed
to ensure that the MSCI USA Index continues to be an accurate reflection of evolving equity markets. This goal is achieved by timely
reflecting significant market driven changes that were not captured in each index at the time of their actual occurrence and that
should not wait until the semi-annual index review due to their importance. These quarterly index reviews may result in additions
and deletions of component securities from the MSCI USA Index and changes in “foreign inclusion factors” and in number
of shares. Additions and deletions to component securities may result from: the addition of large companies that did not meet the
minimum size criterion for inclusion at the time of their initial public offering or secondary offering; the replacement of companies
which are no longer suitable industry representatives; the deletion of securities whose overall free float has fallen to less than
15% and that do not meet specified criteria; the deletion of securities that have become very small or illiquid; and the addition
or deletion of securities as a result of other market events. Significant changes in free float estimates and corresponding changes
in the foreign inclusion factor
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JPMorgan Structured Investments —
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PS- 14
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Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
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for component securities may result from: corporate
events that should have been implemented at the time of such event but could not be reflected immediately due to lack of publicly
available details at the time of the event; exercise of IPO over-allotment options which result in an increase in free float; increases
in foreign ownership limits; decreases in foreign ownership limits which did not require foreign investors to immediately sell
shares in the market; re-estimates of free float figures resulting from the reclassification of shareholders from strategic to
non-strategic, and vice versa; the end of lock-up periods or expiration of loyalty incentives for non-strategic shareholders; and
conversion of a non-index constituent share class or an unlisted line of shares which has an impact on index constituents. However,
no changes in foreign inclusion factors are implemented for any of the above events if the change in free float estimate is less
than 1%, except in cases of correction. Small changes in the number of shares resulting from, for example, exercise of options
or warrants and employee stock option plans, conversion of convertible bonds or other instruments (including periodic conversion
of preferred stocks), conversion of a non-index constituent share class or an unlisted line of shares which has an impact on index
constituents, periodical conversion of a share class into another share class, exercise of over-allotment options, periodic share
buybacks, the cancellation of shares, acquisition for shares of non-listed companies or assets, or other events that could not
be implemented on or near the effective dates where no price adjustment factor is necessary, are generally updated at the quarterly
index review rather than at the time of the event. The results of the quarterly index reviews are announced at least two weeks
in advance of their effective implementation dates as of the close of the last business day of February and August. MSCI has noted
that consistency is a factor in maintaining the MSCI USA Index.
MSCI’s semi-annual index review is designed to
systematically reassess the component securities of the MSCI USA Index. During each semi-annual index review, the universe of component
securities is updated and the global minimum size range for the MSCI USA Index is recalculated, which is based on the full market
capitalization and the cumulative free float-adjusted market capitalization coverage of each security that is eligible to be included
in the MSCI USA Index. The following MSCI USA Index maintenance activities, among others, are undertaken during each semi-annual
index review: the list of countries in which securities may be represented by foreign listings is reviewed; the component securities
are updated by identifying new equity securities that were not part of the MSCI USA Index at the time of the previous quarterly
index review; the minimum size requirement for the MSCI USA Index is updated and new companies are evaluated relative to the new
minimum size requirement; existing component securities that do not meet the minimum liquidity requirements of the MSCI USA Index
may be removed (or, with respect to any such security that has other listings, a determination is made as to whether any such listing
can be used to represent the security in the market investable universe); and changes in “foreign inclusion factors”
are implemented (provided the change in free float is greater than 1%, except in cases of correction). During a semi-annual index
review, component securities may be added or deleted from the MSCI USA Index for a range of reasons, including the reasons discussed
with respect to component securities changes during quarterly index reviews as discussed above. Foreign listings may become eligible
to represent securities only from the countries that met the foreign listing materiality requirement during the previous semi-annual
index review (this requirement is applied only to countries that do not yet include foreign listed securities). Once a country
meets the foreign listing materiality requirement at a given semi-annual index review, foreign listings will remain eligible for
such country even if the foreign listing materiality requirements are not met in the future.
The results of the semi-annual index reviews are announced
at least two weeks in advance of their effective implementation date as of the close of the last business day of May and November.
MSCI USA Index maintenance also includes monitoring
and completing adjustments for share changes, stock splits, stock dividends, and stock price adjustments due to company restructurings
or spin-offs.
These guidelines and the policies implementing the
guidelines are the responsibility of, and, ultimately, subject to adjustment by, MSCI.
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JPMorgan Structured Investments —
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PS- 15
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Capped Buffered Return Enhanced Notes Linked to the iShares® ESG Aware MSCI USA ETF
|
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