Note 4: Trading Activities

We engage in trading activities to accommodate the investment and risk management activities of our customers. These activities predominantly occur in our Wholesale Banking businesses and to a lesser extent other divisions of the Company. Assets and liabilities associated with our trading activities include debt and equity securities, derivatives, loans and short sales. Our trading assets and liabilities are carried on the balance sheet at fair value with changes in fair value recognized in net gains from trading activities and interest income and interest expense recognized in net interest income.

Table 4.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.

Table 4.1: Trading Assets and Liabilities



	Sep 30,			Dec 31,
(in millions)	2018			2017
Trading assets:
Debt securities	$	65,188		57,624
Equity securities	26,138			30,004
Loans held for sale	1,266			1,023
Gross trading derivative assets	30,302			31,340
Netting (1)	(19,188		)	(19,629	)
Total trading derivative assets	11,114			11,711
Total trading assets	103,706			100,362
Trading liabilities:
Short sale	23,992			18,472
Gross trading derivative liabilities	29,268			31,386
Netting (1)	(21,842		)	(23,062	)
Total trading derivative liabilities	7,426			8,324
Total trading liabilities	$	31,418		26,796


(1)	Represents balance sheet netting for trading derivative asset and liability balances, and trading portfolio level counterparty valuation adjustments.

Table 4.2 provides a summary of the net interest income earned from trading securities, and net gains and losses due to the realized and unrealized gains and losses from trading activities.

Table 4.2: Net Interest Income and Net Gains (Losses) on Trading Activities



	Quarter ended September 30,					Nine months ended September 30,
(in millions)	2018			2017		2018		2017
Interest income (1):
Debt securities	$	723		607		2,043		1,678
Equity securities	178			125		447		370
Loans held for sale	20			11		43		29
Total interest income	921			743		2,533		2,077
Less: Interest expense (2)	157			107		429		305
Net interest income	764			636		2,104		1,772

Net gains (losses) from trading activities:
Debt securities	(369		)	52		(1,008	)	348
Equity securities	1,129			717		25		2,143
Loans held for sale	3			6		18		42
Derivatives (3)	(605		)	(655	)	1,557		(1,990	)
Total net gains from trading activities (4)	158			120		592		543
Total trading-related net interest and noninterest income	$	922		756		2,696		2,315


(1)	Represents interest and dividend income earned on trading securities.


(2)	Represents interest and dividend expense incurred on trading securities we have sold but have not yet purchased.


(3)	Excludes economic hedging of mortgage banking and asset/liability management activities, for which hedge results (realized and unrealized) are reported with the respective hedged activities.


(4)	Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions, attributable to the type of asset or liability.

Customer accommodation trading activities include our actions as an intermediary to buy and sell financial instruments and market-making activities. We also take positions to manage our exposure to customer accommodation activities. We hold financial instruments for trading in long positions (assets), as well as short positions where we sold financial instruments we have not yet purchased (liabilities), to facilitate our trading activities. As an intermediary we interact with market buyers and sellers to facilitate the purchase and sale of financial instruments to meet the anticipated or current needs of our customers. For example, we may purchase or sell a derivative to a customer who wants to manage interest rate risk exposure. We typically enter into an offsetting derivative or security position to manage our exposure to the customer transaction. We earn income based on the transaction price difference between the customer transaction and the offsetting position, which is reflected in the fair value changes of the positions recorded in the net gains from trading activities.

Our market-making activities include taking long and short trading positions to facilitate customer order flow. These activities are typically executed on a short term basis. As a market-maker we earn income due to: (1) difference between the price paid or received for the purchase and sale of the security (bid-ask spread), (2) the net interest income of the positions, and (3) the changes in fair value of the trading positions held on our balance sheet. Additionally, we may enter into separate derivative or security positions to manage our exposure related to our long and short trading positions taken in our market-making activities. Income earned on these market-making activities are reflected in the fair value changes of these positions recorded in net gains from trading activities.