Jump Financial LLC

The CreditWatch with negative implications placement reflects the possibility that we could lower our ratings on Jump in the coming months if the company is unable to demonstrate a path to maintain its RAC ratio closer to 10%. We expect to reassess our view of Jump's capital after we gain additional data to assess the firm's VaR and consider its trajectory, after incorporating management plans to mitigate trading risk and build out capital. We could resolve the CreditWatch with no rating changes if we think that the company will be able to demonstrate a viable path toward a RAC ratio near 10%. The 'bbb-' anchor starting point for our ratings on securities firms in the U.S. reflects both risks shared

...Jump Financial LLC has a profitable market-making and principal trading business, with strong market shares in large futures exchanges across several major asset classes. However, its business relies on higher-risk and less stable principal trading revenue that depends on market volume and volatility. We believe that the firm's good geographic and asset class diversification only partly offsets this weakness. The trajectory of Jump's risk-adjusted capital (RAC) ratio is uncertain. Jump's expansion into slightly longer-duration strategies, which includes holding more positions overnight, has increased its exposure to trading risk, in our view. Jump is rolling out an enhanced Value at Risk (VaR) framework, which we believe better captures trading risk on slightly longer duration strategies but results in a lower RAC ratio than what we currently factor into our rating assessment. This could potentially lead to a one-notch downgrade, in the absence of countervailing measures....

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