January 19, 2022
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Registration Statement Nos. 333-236659 and 333-236659-01; Rule 424(b)(2)
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JPMorgan Chase Financial Company LLC
Structured Investments
$739,000
Review Notes Linked to the VanEck®
Semiconductor ETF due January 24, 2025
Fully and Unconditionally Guaranteed by JPMorgan
Chase & Co.
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The notes are designed for investors who seek early exit prior to maturity at a premium if, on any Review Date, the closing price
of one share of the VanEck® Semiconductor ETF is at or above the Call Value.
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The earliest date on which an automatic call may be initiated is July 19, 2022.
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Investors should be willing to forgo interest and dividend payments and be willing to accept the risk of losing some or all of their
principal amount at maturity.
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The notes are unsecured and unsubordinated obligations of JPMorgan Chase Financial Company LLC, which we refer to as JPMorgan Financial,
the payment on which is fully and unconditionally guaranteed by JPMorgan Chase & Co. Any payment on the notes is subject to the
credit risk of JPMorgan Financial, as issuer of the notes, and the credit risk of JPMorgan Chase & Co., as guarantor of the notes.
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Minimum denominations of $1,000 and integral multiples thereof
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The notes priced on January 19, 2022 and are expected to settle on or about January 24, 2022.
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Investing in the notes involves a number of risks. See “Risk Factors”
beginning on page S-2 of the accompanying prospectus supplement, “Risk Factors” beginning on page PS-12 of the accompanying
product supplement, “Risk Factors” beginning on page US-3 of the accompanying underlying supplement and “Selected Risk
Considerations” beginning on page PS-4 of this pricing supplement.
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, underlying supplement, prospectus supplement and prospectus. Any representation to
the contrary is a criminal offense.
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Price to Public (1)
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Fees and Commissions (2)
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Proceeds to Issuer
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Per note
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$1,000
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$29.50
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$970.50
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Total
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$739,000
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$21,800.50
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$717,199.50
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(1) See “Supplemental Use of Proceeds” in
this pricing supplement for information about the components of the price to public of the notes.
(2) J.P. Morgan Securities LLC, which we refer to as
JPMS, acting as agent for JPMorgan Financial, will pay all of the selling commissions of $29.50 per $1,000 principal amount note it receives
from us to other affiliated or unaffiliated dealers. See “Plan of Distribution (Conflicts of Interest)” in the accompanying
product supplement.
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The estimated value of the notes, when the terms of the notes
were set, was $947.00 per $1,000 principal amount note. See “The Estimated Value of the Notes” in this pricing supplement
for additional information.
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.
Pricing supplement to product supplement no. 4-II dated
November 4, 2020, underlying supplement no. 1-II dated November 4, 2020
and the prospectus and prospectus supplement, each dated April 8, 2020
Key Terms
Issuer: JPMorgan
Chase Financial Company LLC, an indirect, wholly owned finance subsidiary of JPMorgan Chase & Co.
Guarantor: JPMorgan
Chase & Co.
Fund: The
VanEck® Semiconductor ETF (Bloomberg ticker: SMH)
Call Premium Amount:
The Call Premium Amount with respect to each Review Date is set forth below:
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first Review Date:
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5.20% × $1,000
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second Review Date:
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10.40% × $1,000
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third Review Date:
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15.60% × $1,000
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fourth Review Date:
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20.80% × $1,000
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fifth Review Date:
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26.00% × $1,000
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final Review Date:
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31.20% × $1,000
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Call Value: 100.00%
of the Initial Value
Barrier Amount: 70.00%
of the Initial Value, which is $199.556
Pricing
Date: January 19, 2022
Original Issue Date
(Settlement Date): On or about January 24, 2022
Review Dates*:
July 19, 2022, January 19, 2023, July 19, 2023, January 19, 2024, July 19, 2024 and
January 21, 2025 (final Review Date)
Call Settlement Dates*:
July 22, 2022, January 24, 2023, July 24, 2023, January 24, 2024, July 24, 2024 and
the Maturity Date
Maturity Date*:
January 24, 2025
* Subject to postponement in the event of a market disruption event
and as described under “General Terms of Notes — Postponement of a Determination Date — Notes Linked to a Single Underlying
— Notes Linked to a Single Underlying (Other Than a Commodity Index) ” and “General Terms of Notes — Postponement
of a Payment Date” in the accompanying product supplement
Automatic Call:
If the closing price of one share of the Fund on any Review Date is greater
than or equal to the Call Value, the notes will be automatically called for a cash payment, for each $1,000 principal amount note, equal
to (a) $1,000 plus (b) the Call Premium Amount applicable to that Review Date, payable on the applicable Call Settlement Date.
No further payments will be made on the notes.
Payment at Maturity:
If the notes have not been automatically called and the Final Value
is greater than or equal to the Barrier Amount, you will receive the principal amount of your notes at maturity.
If the notes have not been automatically called and the Final Value
is less than the Barrier Amount, your payment at maturity per $1,000 principal amount note will be calculated as follows:
$1,000 + ($1,000 × Fund Return)
If the notes have not been automatically
called and the Final Value is less than the Barrier Amount, you will lose more than 30.00% of your principal amount at maturity and could
lose all of your principal amount at maturity.
Fund Return:
(Final Value – Initial Value)
Initial Value
Initial Value: The
closing price of one share of the Fund on the Pricing Date, which was $285.08
Final Value: The
closing price of one share of the Fund on the final Review Date
Share Adjustment Factor:
The Share Adjustment Factor is referenced in determining the closing price of one share of the Fund and
is set equal to 1.0 on the Pricing Date. The Share Adjustment Factor is subject to adjustment upon the occurrence of certain events affecting
the Fund. See “The Underlyings — Funds — Anti-Dilution Adjustments” in the accompanying product supplement for
further information.
PS-1
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
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How the
Notes Work
Payment upon an Automatic Call
Payment at Maturity If the Notes Have Not Been
Automatically Called
PS-2
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
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Call Premium Amount
The table below illustrates the Call Premium Amount per
$1,000 principal amount note for each Review Date based on the Call Premium Amounts set forth under “Key Terms — Call Premium
Amount” above.
Review Date
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Call Premium Amount
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First
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$52.00
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Second
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$104.00
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Third
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$156.00
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Fourth
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$208.00
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Fifth
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$260.00
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Final
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$312.00
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Hypothetical
Payout Examples
The following examples illustrate payments on the notes
linked to a hypothetical Fund, assuming a range of performances for the Fund on the Review Dates.
In addition, the hypothetical payments set forth below
assume the following:
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an Initial Value of $100.00;
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a Call Value of $100.00 (equal to 100.00% of the hypothetical Initial Value);
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a Barrier Amount of $70.00 (equal to 70.00% of the hypothetical Initial Value); and
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the Call Premium Amounts set forth under “Key Terms — Call Premium Amount” above.
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The hypothetical Initial Value of $100.00 has been chosen
for illustrative purposes only and does not represent the actual Initial Value. The actual Initial Value is the closing price of one share
of the Fund on the Pricing Date and is specified under “Key Terms — Initial Value” in this pricing supplement. For historical
data regarding the actual closing prices of one share of the Fund, please see the historical information set forth under “The Fund”
in this pricing supplement.
Each hypothetical payment set forth below is for illustrative
purposes only and may not be the actual payment applicable to a purchaser of the notes. The numbers appearing in the following examples
have been rounded for ease of analysis.
Example 1 — Notes are automatically called
on the first Review Date.
Date
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Closing Price
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First Review Date
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$110.00
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Notes are automatically called
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Total Payment
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$1,052.00 (5.20% return)
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Because the closing price of one share of the Fund on
the first Review Date is greater than or equal to the Call Value, the notes will be automatically called for a cash payment, for each
$1,000 principal amount note, of $1,052.00 (or $1,000 plus the Call Premium Amount applicable to the first Review Date), payable
on the applicable Call Settlement Date. No further payments will be made on the notes.
Example 2 — Notes are automatically called
on the final Review Date.
Date
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Closing Price
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First Review Date
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$90.00
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Notes NOT automatically called
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Second Review Date
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$75.00
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Notes NOT automatically called
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Third through Fifth Review Dates
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Less than Call Value
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Notes NOT automatically called
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Final Review Date
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$150.00
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Notes are automatically called
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Total Payment
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$1,312.00 (31.20% return)
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Because the closing price of one share of the Fund on
the final Review Date is greater than or equal to the Call Value, the notes will be automatically called for a cash payment, for each
$1,000 principal amount note, of $1,312.00 (or $1,000 plus the Call Premium Amount applicable to the final Review Date), payable
on the applicable Call Settlement Date, which is the Maturity Date.
PS-3
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
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Example 3 — Notes have NOT been automatically
called and the Final Value is greater than or equal to the Barrier Amount.
Date
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Closing Price
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First Review Date
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$90.00
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Notes NOT automatically called
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Second Review Date
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$85.00
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Notes NOT automatically called
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Third through Fifth Review Dates
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Less than Call Value
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Notes NOT automatically called
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Final Review Date
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$75.00
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Notes NOT automatically called; Final Value is greater than or equal to Barrier Amount
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Total Payment
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$1,000.00 (0.00% return)
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Because the notes have not been automatically called
and the Final Value is greater than or equal to the Barrier Amount, the payment at maturity, for each $1,000 principal amount note, will
be $1,000.00.
Example 4 — Notes have NOT been automatically
called and the Final Value is less than the Barrier Amount.
Date
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Closing Price
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First Review Date
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$80.00
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Notes NOT automatically called
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Second Review Date
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$70.00
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Notes NOT automatically called
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Third through Fifth Review Dates
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Less than Call Value
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Notes NOT automatically called
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Final Review Date
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$50.00
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Notes NOT automatically called; Final Value is less than Barrier Amount
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Total Payment
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$500.00 (-50.00% return)
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Because the notes have not been automatically called,
the Final Value is less than the Barrier Amount and the Fund Return is -50.00%, the payment at maturity will be $500.00 per $1,000 principal
amount note, calculated as follows:
$1,000 + [$1,000 × (-50.00%)] = $500.00
The hypothetical returns and hypothetical payments on
the notes shown above apply only if you hold the notes for their entire term or until automatically called. These hypotheticals
do not reflect the 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.
Selected
Risk Considerations
An investment in the notes involves significant risks.
These risks are explained in more detail in the “Risk Factors” sections of the accompanying prospectus supplement, product
supplement and underlying supplement.
Risks Relating to the Notes Generally
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YOUR INVESTMENT IN THE NOTES MAY RESULT IN A LOSS —
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The notes do not guarantee any return of principal.
If the notes have not been automatically called and the Final Value is less than the Barrier Amount, you will lose 1% of the principal
amount of your notes for every 1% that the Final Value is less than the Initial Value. Accordingly, under these circumstances, you will
lose more than 30.00% of your principal amount at maturity and could lose all of your principal amount at maturity.
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CREDIT RISKS OF JPMORGAN FINANCIAL AND JPMORGAN CHASE & CO. —
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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.
PS-4
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
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AS A FINANCE SUBSIDIARY, JPMORGAN FINANCIAL HAS NO INDEPENDENT OPERATIONS AND HAS LIMITED ASSETS —
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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.
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THE APPRECIATION POTENTIAL OF THE NOTES IS LIMITED TO ANY CALL PREMIUM AMOUNT PAID ON THE NOTES IF THE
NOTES ARE AUTOMATICALLY CALLED,
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regardless of any appreciation of the Fund,
which may be significant. You will not participate in any appreciation of the Fund.
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THE BENEFIT PROVIDED BY THE BARRIER AMOUNT MAY TERMINATE ON THE FINAL REVIEW DATE —
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If the Final Value is less than the Barrier
Amount and the notes have not been automatically called, the benefit provided by the Barrier Amount will terminate and you will be fully
exposed to any depreciation of the Fund.
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THE AUTOMATIC CALL FEATURE MAY FORCE A POTENTIAL EARLY EXIT —
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If your notes are automatically called, the
term of the notes may be reduced to as short as approximately sixth months. There is no guarantee that you would be able to reinvest the
proceeds from an investment in the notes at a comparable return for a similar level of risk. Even in cases where the notes are called
before maturity, you are not entitled to any fees and commissions described on the front cover of this pricing supplement.
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THE NOTES DO NOT PAY INTEREST.
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YOU WILL NOT RECEIVE DIVIDENDS ON THE FUND OR THE SECURITIES HELD BY THE FUND OR HAVE ANY RIGHTS WITH
RESPECT TO THE FUND OR THOSE SECURITIES.
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THE RISK OF THE CLOSING PRICE OF ONE SHARE OF THE FUND FALLING BELOW THE BARRIER AMOUNT IS GREATER
IF THE PRICE OF ONE SHARE OF THE FUND IS VOLATILE.
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The notes will not be listed on any securities
exchange. Accordingly, 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. You may not be able to sell your 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.
Risks Relating to Conflicts of Interest
We and our affiliates play a variety of roles
in connection with the notes. In performing these duties, our and JPMorgan Chase & Co.’s economic interests are potentially
adverse to your interests as an investor in 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.
Risks Relating to the Estimated Value and Secondary
Market Prices of the Notes
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THE ESTIMATED VALUE OF THE NOTES IS LOWER THAN THE ORIGINAL ISSUE PRICE (PRICE TO PUBLIC) OF THE NOTES
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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.
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THE ESTIMATED VALUE OF THE NOTES DOES NOT REPRESENT FUTURE VALUES OF THE NOTES AND MAY DIFFER FROM OTHERS’
ESTIMATES —
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See “The Estimated Value of the Notes”
in this pricing supplement.
PS-5
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
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THE ESTIMATED VALUE OF THE NOTES IS DERIVED BY REFERENCE TO AN INTERNAL FUNDING RATE —
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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.
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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 —
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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. 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).
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SECONDARY MARKET PRICES OF THE NOTES WILL LIKELY BE LOWER THAN THE ORIGINAL ISSUE PRICE OF THE NOTES
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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 the 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.
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SECONDARY MARKET PRICES OF THE NOTES WILL BE IMPACTED BY MANY ECONOMIC AND MARKET FACTORS —
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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.
Risks Relating to the Fund
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THERE ARE RISKS ASSOCIATED WITH THE FUND —
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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.
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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 —
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The Fund does not fully replicate its Underlying
Index (as defined under “The Fund” below) 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 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.
PS-6
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
|
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.
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RISKS ASSOCIATED WITH THE SEMICONDUCTOR INDUSTRY —
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All or substantially all of the equity securities
held by the Fund are issued by companies whose primary line of business is directly associated with the semiconductor industry. As a result,
the value of the notes may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory
occurrence affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers. Competitive
pressures may have a significant effect on the financial condition of companies in the semiconductor industry. As product cycles shorten
and manufacturing capacity increases, these companies may become increasingly subject to aggressive pricing, which hampers profitability.
Semiconductor companies are vulnerable to wide fluctuations in securities prices due to rapid product obsolescence. Many semiconductor
companies may not successfully introduce new products, develop and maintain a loyal customer base or achieve general market acceptance
for their products, and failure to do so could have a material adverse effect on their business, results of operations and financial condition.
Reduced demand for end-user products, underutilization of manufacturing capacity, and other factors could adversely impact the operating
results of companies in the semiconductor industry. Semiconductor companies typically face high capital costs and these companies may
need additional financing, which may be difficult to obtain. They also may be subject to risks relating to research and development costs
and the availability and price of components. Moreover, they may be heavily dependent on intellectual property rights and may be adversely
affected by loss or impairment of those rights. Some of the companies involved in the semiconductor sector are also engaged in other lines
of business unrelated to the semiconductor business, and they may experience problems with these lines of business, which could adversely
affect their operating results. The international operations of many semiconductor companies expose them to risks associated with instability
and changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, tariffs and trade disputes,
competition from subsidized foreign competitors with lower production costs and other risks inherent to international business. The semiconductor
industry is highly cyclical, which may cause the operating results of many semiconductor companies to vary significantly. Companies in
the semiconductor industry also may be subject to competition from new market entrants. The stock prices of companies in the semiconductor
industry have been and will likely continue to be extremely volatile compared to the overall market. These factors could affect the semiconductor
industry and could affect the value of the equity securities held by the Fund and the price of the Fund during the term of the notes,
which may adversely affect the value of your notes.
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NON-U.S. SECURITIES RISK —
|
Some of the equity securities held by the Fund
have been issued by non-U.S. companies. Investments in securities linked to the value of such non-U.S. equity securities involve risks
associated with the home countries of the issuers of those non-U.S. equity securities.
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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.
PS-7
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
|
The Fund
The Fund is an exchange-traded fund of VanEck®
ETF Trust, a registered investment company, that seeks to replicate as closely as possible, before fees and expenses, the price and yield
performance of the MVIS® US Listed Semiconductor 25 Index, which we refer to as the Underlying Index with respect to the
Fund. The MVIS® U.S. Listed Semiconductor 25 Index is designed to track the performance of the largest and most liquid
U.S. exchange-listed companies that derive at least 50% (25% for current components) of their revenues from semiconductors. For additional
information about the Fund, see Annex A in this pricing supplement.
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 January 6, 2017 through January 14, 2022. The
closing price of one share of the Fund on January 19, 2022 was $285.08. 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 closing 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 Review Date. There can be no assurance that the performance of the Fund will result in the return of any of your principal
amount.
Tax Treatment
You should review carefully the section entitled
“Material U.S. Federal Income Tax Consequences” in the accompanying product supplement no. 4-II. The following discussion,
when read in combination with that section, constitutes the full opinion of our special tax counsel, Davis Polk & Wardwell 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, the gain or loss on your notes should be treated as short-term capital gain or loss unless you hold
your notes for more than a year, in which case the gain or loss should be long-term capital gain or loss, whether or not you are an initial
purchaser of notes at the issue price. However, the IRS or a court may not respect this treatment, in which case the timing and character
of any income or loss on the 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, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose a notional interest charge. While
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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 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. 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.
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 —
Risks Relating to the Estimated Value and Secondary Market Prices of the Notes — 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.
The estimated value of the notes does not represent
future values of the notes and may differ from others’ estimates. Different pricing models and assumptions could provide valuations
for the notes that are greater than or less than the estimated value of 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.
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. A portion
of the profits, if any, realized in hedging our obligations under the notes may be allowed to other affiliated or unaffiliated dealers,
and we or one or more of our affiliates will retain any remaining hedging profits. See “Selected Risk Considerations — Risks
Relating to the Estimated Value and Secondary Market Prices of the Notes — The Estimated Value of the Notes Is Lower Than the Original
Issue Price (Price to Public) of the Notes” in this pricing supplement.
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Secondary
Market Prices of the Notes
For information about factors that will impact any secondary
market prices of the notes, 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.
In addition, 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. This initial predetermined time period 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 — Risks Relating to
the Estimated Value and Secondary Market Prices of the Notes — 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” in this
pricing supplement.
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 “How the Notes Work” and “Hypothetical
Payout Examples” in this pricing supplement for an illustration of the risk-return profile of the notes and “The Fund”
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 Davis Polk & Wardwell LLP, as special products 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 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.
Additional
Terms Specific to the Notes
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 and the accompanying underlying
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
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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”
sections of the accompanying prospectus supplement, the accompanying product supplement and the accompanying underlying 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.
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Annex A
The VanEck® Semiconductor ETF
All information contained in this pricing supplement
regarding the VanEck® Semiconductor ETF (the “Semiconductor Fund”) has been derived from publicly available
information, without independent verification. This information reflects the policies of, and is subject to change by, VanEck®
ETF Trust (the “VanEck® Trust”) and Van Eck Associates Corporation (“Van Eck”). Van Eck is currently
the investment adviser to the Semiconductor Fund. The Semiconductor Fund is an exchange-traded fund that trades on The NASDAQ Stock Market
under the ticker symbol “SMH.”
The Semiconductor Fund seeks to replicate as closely
as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index (the
“Semiconductor Index”). For more information about the Semiconductor Index, please see “The MVIS® US
Listed Semiconductor 25 Index” below.
The Semiconductor Fund uses a “passive”
or indexing investment approach to attempt to approximate the investment performance of the Semiconductor Index by investing in a portfolio
of securities that generally replicates the Semiconductor Index.
The Semiconductor Fund’s return may not match
the return of the Semiconductor Index for a number of reasons. For example, the Semiconductor Fund incurs a number of operating expenses,
including taxes, not applicable to the Semiconductor Index and incurs costs associated with buying and selling securities, especially
when rebalancing the Semiconductor Fund’s securities holdings to reflect changes in the composition of the Semiconductor Index,
which are not factored into the return of the Semiconductor Index. Transaction costs, including brokerage costs, will decrease the Semiconductor
Fund’s net asset value to the extent not offset by the transaction fee payable by an authorized participant of the Semiconductor
Fund. Market disruptions and regulatory restrictions could have an adverse effect on the Semiconductor Fund’s ability to adjust
its exposure to the required levels in order to track the Semiconductor Index. Errors in the Semiconductor Index data, the Semiconductor
Index computations and/or the construction of the Semiconductor Index in accordance with its methodology may occur from time to time and
may not be identified and corrected by the Semiconductor Index provider for a period of time or at all, which may have an adverse impact
on the Semiconductor Fund and its shareholders. Any gains from the Semiconductor Index provider's errors will be kept by the Semiconductor
Fund and its shareholders and any losses or costs resulting from the Semiconductor Index provider's errors will be borne by the Semiconductor
Fund and its shareholders. When the Semiconductor Index is rebalanced and the Semiconductor Fund in turn rebalances its portfolio to attempt
to increase the correlation between the Semiconductor Fund’s portfolio and the Semiconductor Index, any transaction costs and market
exposure arising from such portfolio rebalancing will be borne directly by the Semiconductor Fund and its shareholders. Apart from scheduled
rebalances, the Semiconductor Index provider or its agents may carry out additional ad hoc rebalances to the Semiconductor Index. Therefore,
errors and additional ad hoc rebalances carried out by the Semiconductor Index provider or its agents to the Semiconductor Index may increase
the costs to and the tracking error risk of the Semiconductor Fund. In addition, the Semiconductor Fund may not invest in certain securities
included in the Semiconductor Index, or invest in them in the exact proportions in which they are represented in the Semiconductor Index.
The Semiconductor Fund’s performance may also deviate from the return of the Semiconductor Index due to legal restrictions or limitations
imposed by the governments of certain countries, certain listing standards of the Semiconductor Fund’s listing exchange, a lack
of liquidity on stock exchanges in which these securities trade, potential adverse tax consequences or other regulatory reasons (such
as diversification requirements). The Semiconductor Fund may value certain of its investments, underlying currencies and/or other assets
based on fair value prices. To the extent the Semiconductor Fund calculates its net asset value based on fair value prices and the value
of the Semiconductor Index is based on securities’ closing prices (i.e., the value of the Semiconductor Index is not based on fair
value prices), the Semiconductor Fund’s ability to track the Semiconductor Index may be adversely affected. In addition, any issues
the Semiconductor Fund encounters with regard to currency convertibility (including the cost of borrowing funds, if any) and repatriation
may also increase the index tracking risk. When markets are volatile, the ability to sell securities at fair value prices may be adversely
impacted and may result in additional trading costs and/or increase the index tracking risk. For tax efficiency purposes, the Semiconductor
Fund may sell certain securities, and this sale may cause the Semiconductor Fund to realize a loss and deviate from the performance of
the Semiconductor Index. In light of the factors discussed above, the Semiconductor Fund’s return may deviate significantly from
the return of the Semiconductor Index. Changes to the composition of the Semiconductor Index in connection with a rebalancing or reconstitution
of the Semiconductor Index may cause the Semiconductor Fund to experience increased volatility, during which time the Semiconductor Fund’s
index tracking risk may be heightened.
The VanEck® Trust is a registered investment
company that consists of numerous separate investment portfolios, including the Semiconductor Fund. Information provided to or filed with
the SEC by the VanEck® Trust pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, can be located by reference to SEC file numbers 333-123257 and 811-10325, respectively, through the SEC’s website at
http://www.sec.gov.
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The MVIS® US Listed Semiconductor
25 Index
All information contained in this pricing supplement
regarding the Semiconductor Index, 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, MV Index Solutions GmbH (“MVIS”). The Semiconductor Index was developed by MVIS and is maintained and published by MVIS.
The Semiconductor Index is calculated by Solactive AG. MVIS has no obligation to continue to publish, and may discontinue the publication
of, the Semiconductor Index.
The Semiconductor Index is reported by Bloomberg
L.P. under the ticker symbol “MVSMH.”
The Semiconductor Index is designed to track the performance
of the largest and most liquid U.S.-listed companies that derive at least 50% (25% for current components) of their revenues from semiconductors.
This includes companies engaged primarily in the production of semiconductors and semiconductor equipment. The Semiconductor Index was
launched on August 12, 2011 with a base index value of 1,000 as of September 29, 2000.
Index Composition and Maintenance
The Index Universe
The index universe includes only common stocks and
stocks with similar characteristics from financial markets that are freely investable for foreign investors and that provide real-time
and historical component and currency pricing. Limited partnerships and cannabis/marijuana companies are excluded. Companies
from financial markets that are not freely investable for foreign investors or that do not provide real-time and historical component
and currency pricing may still be eligible if they have a listing on an eligible exchange and if they meet all the size and liquidity
requirements on that exchange.
Only stocks that have a full market capitalization
exceeding US$50 million are eligible for the index universe.
Investable Index Universe
Companies with a free-float (or shares available
to foreign investors) of less than 5% for existing index components or less than 10% for new components are ineligible for inclusion.
In addition to the above, stocks that are currently
not in the Semiconductor Index must meet the following size and liquidity requirements:
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a full market capitalization exceeding US$150 million;
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a three-month average-daily-trading volume of at least US$1 million at the current review and also at the previous two reviews; and
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at least 250,000 shares traded per month over the last six months at the current review and also at the previous two reviews.
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For stocks already in the Semiconductor Index the
following applies:
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a full market capitalization exceeding US$75 million; and
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a three-month average-daily-trading volume of at least US$0.2 million in at least two of the latest three quarters (current review
and also at previous two reviews).
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In addition, a three-month average-daily-trading volume of at least US$0.6 million at the current review or at one of the previous
two reviews; or
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at least 200,000 shares traded per month over the last six months at the current review or at one of the previous two reviews.
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In case the number of investable stocks drops below
the minimum component number for the respective index, current components remain investable.
Only one share line of each company is eligible.
In case more than one share line fulfills the above size and liquidity rules, only the largest share line by free-float market capitalization
is eligible. MVIS can, in exceptional cases (e.g., significantly higher liquidity), decide for a different share line.
In case the free-float market capitalization of a
non-component share line:
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exceeds the free-float market capitalization of a share line of the same company which is an index component by at least 25%; and
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fulfills all size and liquidity eligibility criteria for non-components,
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the current component share line will be replaced
by the larger one. MVIS can, in exceptional cases (e.g., significantly higher liquidity), decide to keep the current share line
instead.
Index Constituent Selection
The components of the Semiconductor Index are reviewed
on a semi-annual basis in March and September.
The target coverage of the Semiconductor Index is
25 companies from the investable universe. Semiconductor Index constituents are selected using the following procedure:
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(1)
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The largest 50 stocks (by full market capitalization) from the investable universe qualify.
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(2)
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The 50 stocks are ranked in two different ways — by free-float market capitalization in descending order (the largest company
receives rank “1”) and then by three-month average-daily-trading volume in descending order (the most liquid company receives
rank “1”). These two ranks are added up.
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(3)
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The 50 stocks are then ranked by the sum of their two ranks in Step 2 in ascending order. If two companies have the same sum of ranks,
the larger company is placed on top.
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a.
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Initially, the highest ranked 25 companies made up the Semiconductor Index.
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b.
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On-going, a 10-40 buffer is applied: the highest ranked 10 companies qualify. The remaining 15 companies are selected from the highest
ranked remaining current Semiconductor Index components ranked between 11 and 40. If the number of selected companies is still below 25,
then the highest ranked remaining stocks are selected until 25 companies have been selected.
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Review Schedule
The reviews for the Semiconductor Index are based
on the closing data on the last business day in February, May, August and November. If a company does not trade on the last business day
in February, May, August or November, the last available price for this company will be used.
The underlying index data (e.g., new number
of shares, new free-float factors and new weighting cap factors) is announced on the second Friday in March, June, September and December.
The weighting cap factors are based on closing data of the Wednesday prior to the second Friday in March, June, September and December.
Changes to the Semiconductor Index are implemented and based on the closing prices of the third Friday in March, June, September and December.
If the third Friday is not a business day, then the review will take place on the last business day before the third Friday. If a constituent
of the Semiconductor Index does not trade on the third Friday in March or September, then the last available price for that index constituent
will be used. Changes become effective on the next business day. The component changes to the Semiconductor Index are announced on the
second Friday in March, June, September and December.
For purposes of this annex, “business day”
means any day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in Frankfurt.
Ongoing Maintenance
In addition to the periodic reviews, the Semiconductor
Index is continually reviewed for corporate events (e.g., mergers, takeovers, spin-offs, delistings and bankruptcies) that affect
the Semiconductor Index components.
Replacements. For all corporate events that
result in a stock deletion from the Semiconductor Index, the deleted stock will be replaced with the highest ranked non-component on the
most recent replacement list. The replacement stock will be added at the same weight as the deleted stock.
Only in case of a merger of two or more index components, the replacement stock will be added with its free-float market capitalization,
weighted with the capping factor of the uncapped components in the small-weight group of the weighting scheme.
Changes to Free-Float Factor and Number of Shares.
Changes to the number of shares or the free-float factors due to corporate actions like stock dividends, splits, rights issues, etc.
are implemented immediately and will be effective the next trading day (i.e., the ex-date). Simple share/float changes are implemented
after a 3-day notice period.
Initial Public Offerings (IPOs) and Spin-Offs.
An IPO stock is eligible for fast-track addition to the index universe for the Semiconductor Index once; either at the next semi-annual
review if it has been trading since at least the last trading day of the month prior to the review snapshot dates (i.e., the last
trading day in February, May, August or November) or else at the then-following quarterly/semi-annual review. In order to be added to
the Semiconductor Index the IPO stock has to meet the size and liquidity requirements:
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the IPO must have a full market capitalization exceeding US$150 million;
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the IPO must have a free-float factor of at least 10%;
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the IPO must have an average-daily-trading volume of at least US$1 million; and
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the IPO must have traded at least 250,000 shares per month (or per 22 days).
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This rule is applicable for newly spun-off companies
and post-merger/acquisition special purpose acquisition companies (SPACs) as well.
Changes due to Mergers
& Takeovers. A merger or takeover is deemed successful
if it has been declared wholly unconditional and has received approval of all regulatory agencies with jurisdiction over the transaction.
The result of a merger or takeover is typically one surviving stock and one or more non-surviving stocks that may not necessarily be de-listed
from the respective trading system(s).
If a Semiconductor Index component merges with or
takes over another Semiconductor Index component: The surviving stock remains in the Semiconductor Index and the other stock is deleted
immediately from the Semiconductor Index. Its shares and float are adjusted according to the terms of the merger/takeover. The index market
capitalization of the merged company corresponds to the market capitalization of the two separate companies.
If a Semiconductor Index component merges with or
takes over a non-Semiconductor Index component: If the surviving stock meets the Semiconductor Index requirements, then it remains in
the Semiconductor Index and its shares (if the share change is greater than 10%) and float are adjusted according to the terms of the
merger/takeover. If the surviving stock does not meet the Semiconductor Index requirements, then it is deleted immediately from the Semiconductor
Index.
If a non-Semiconductor Index component merges with
or takes over a Semiconductor Index component: If the surviving stock meets the Semiconductor Index requirements, then it will be added
to the Semiconductor Index (shares (if the share change is greater than 10%) and float adjusted according to the terms of the merger/takeover)
and will replace the current Semiconductor Index component. If the surviving stock does not meet the Semiconductor Index requirements,
then it will not be added to the Semiconductor Index and the current Semiconductor Index component is deleted immediately from the Semiconductor
Index.
Changes due to Spin-Offs. Each spin-off stock
is immediately added to the Semiconductor Index for at least two trading days. If a spin-off company does not qualify for the Semiconductor
Index, it will be deleted based on its closing price. Shares and floats of the surviving companies are adjusted according to the terms
of the spin-off.
In case the number of Semiconductor Index components
drops below the minimum component number and no non-component stock is eligible as a replacement, the determination of the addition is
subject to MVIS’s decision.
Index Calculation
The value of the Semiconductor Index is calculated
using the Laspeyres’ formula, rounded to two decimal places, with stock prices converted to U.S. dollars:
where (for all stocks (i) in the Semiconductor Index):
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pi = stock price (rounded to four decimal places);
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ffi = free-float factor (rounded to two decimal places);
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fxi = exchange rate (local currency to U.S. Dollar) (rounded to 12 decimal places);
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cfi = sector-weighting cap factor (if applicable, otherwise set to 1) (rounded to 16 decimal places);
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M = free-float market capitalization of the Semiconductor Index; and
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D = divisor (rounded to six decimal places).
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The Semiconductor Index is free-float adjusted —
that is, the number of shares outstanding is reduced to exclude closely held shares (amount larger than 5% of the company’s full
market capitalization) from the index calculation. At times, other adjustments are made to the share count to reflect foreign ownership
limits. These are combined with the block-ownership adjustments into a single factor. To avoid unwanted double counting, either the block-ownership
adjustment or the restricted stocks adjustment is applied, whichever produces the higher result. Free-float factors are reviewed quarterly.
Company-Weighting Cap
Factors
Companies in the Semiconductor Index are weighted
according to their free-float market capitalization, as modified by the company-weighting cap factors. The
Semiconductor Index used the company-weighting cap factors to ensure diversification to avoid overweighting. The company-weighting cap
factors are reviewed quarterly and applied, if necessary. The following weighting scheme applies to the Semiconductor Index:
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(1)
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All Semiconductor Index components are weighted by their free-float market capitalization.
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(2)
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All companies exceeding 4.5% but at least the largest five companies and at most the largest ten companies are grouped together (so
called “Large-Weights”) and all other companies are grouped together as well (so called “Small-Weights“).
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(3)
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The aggregated weighting of the Large-Weights is capped at 50%:
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a.
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Large-Weights: If the aggregated weighting of all companies in Large-Weight exceeds 50%, then a capping factor is calculated to bring
the weighting down to 50%; at the same time, a second capping factor for the Small-Weights is calculated to increase the aggregated weight
to 50%. These two factors are then applied to all companies in the Large-Weights or the Small-Weights respectively.
|
|
b.
|
Large-Weights: The maximum weight for any single stock is 20% and the minimum weighting is 5%. If a stock is above the maximum or
below the minimum weight, then the weight will be reduced to the maximum weight or increased to the minimum weight and the excess weight
will be re-distributed proportionally across all other remaining Semiconductor Index constituents in the Large-Weights.
|
|
c.
|
Small-Weights: The maximum weight for any single stock is 4.5%. If a stock is above the maximum weight, then the weight will be reduced
to the maximum weight and the excess weight will be re-distributed proportionally across all other remaining Semiconductor Index constituents
in the Small-Weights.
|
Divisor Adjustments
Index maintenance (reflecting changes in, e.g.,
shares outstanding, capital actions, addition or deletion of stocks to the Semiconductor Index) should not change the level of the Semiconductor
Index. This is accomplished with an adjustment to the divisor. Any change to the stocks in the Semiconductor Index that alters the total
market value of the Semiconductor Index while holding stock prices constant will require a divisor adjustment.
where ΔMC is the difference between closing
market capitalization and adjusted closing market capitalization of the Semiconductor Index.
Data Correction
Incorrect or missing input data will be corrected
immediately.
Corporate Action Related
Adjustments
Corporate actions range widely from routine share
issuances or buy backs to unusual events like spin-offs or mergers. These are listed on the table below with notes about the necessary
changes and whether the divisor will be adjusted. Implementation takes place on the ex-date.
Special cash dividend
pi, adjusted
= pi – (Dividend x (1 – Withholding Tax))
|
Divisor change: Yes
|
PS-16
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
|
Split
Shareholders
receive “B” new shares for every “A” share held.
|
Divisor change: No
|
Rights offering
Shareholders receive
“B” new shares for every “A” share held.
If the subscription-price is either not available
or not smaller than the closing price, then no adjustment will be done.
|
Divisor change: Yes
|
Stock dividend
Shareholders receive “B”
new shares for every “A” share held.
|
Divisor change: No
|
Stock dividend from treasury
Stock dividends from treasury are adjusted
as ordinary cash dividends. Shareholders receive ‘B’ new shares for every ‘A’ share held.
|
Divisor change: Yes
|
Stock dividend of a different
company security
Shareholders receive “B” shares
of a different company for every “A” share held.
|
Divisor change: Yes
|
Spin-offs
Shareholders receive “B” new
shares for every “A” share held.
|
Divisor change: Yes
|
PS-17
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
|
|
|
Addition/deletion of
a company
Net change in market value determines the divisor
adjustment.
|
Divisor change: Yes
|
Changes in shares outstanding/free-float
Any secondary issuance, share repurchase,
buy back, tender offer, Dutch auction, exchange offer, bought deal equity offering or prospectus offering will be updated at the semi-annual
review if the change is smaller than 10%. Changes larger than 10% will be pre-announced (3 trading days’ notice) and implemented
on a best efforts basis. If necessary and information is available, resulting float changes are taken into consideration. Share changes
will not be implemented in the week between review announcement and implementation.
|
Divisor change: Yes
|
Changes due to a merger/takeover/spin-off
Net change in free-float market value determines
the divisor adjustment. In case of no change, the divisor change is 0.
|
Divisor change: Yes
|
With corporate actions where cash dividends or other
corporate assets are distributed to shareholders, the price of the stock will drop on the ex-dividend day (the first day when a new shareholder
is eligible to receive the distribution). The effect of the divisor adjustment is to prevent this price drop from causing a corresponding
drop in the Semiconductor Index.
Corporate actions are announced at least four days
prior to implementation.
PS-18
| Structured Investments
Review Notes Linked to the VanEck® Semiconductor
ETF
|
|
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