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CNBC EXCLUSIVE: CNBC TRANSCRIPT: SENIOR COMMODITIES CORRESPONDENT SHARON EPPERSON SPEAKS ONE-ON-ONE WITH BLYTHE MASTERS, J.P. MORGAN HEAD OF GLOBAL COMMODITIES, TODAY ON CNBC’S “POWER LUNCH”

WHEN: Today, Thursday, April 5, 2012

WHERE: CNBC’s “Power Lunch

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with J.P. Morgan's Head of Global Commodities, Blythe Masters, today on CNBC’s “Power Lunch” (M-F, 1-2PM ET). All references must be sourced to CNBC.

Video: JPMorgan's Masters One-on-One

SHARON EPPERSON

: HI, SUE. YOU KNOW, IT'S BEEN A VOLATILE WEEK IN COMMODITIES AND THIS SECTOR IS OFTEN EXTREMELY VOLATILE. IT REALLY UNDERSCORES THE ESSENTIAL NEED TO BETTER EDUCATE STUDENTS ABOUT ALL FACETS OF THIS SECTOR AND I'M JOINED NOW BY BLYTHE MASTERS, WHO IS THE HEAD OF GLOBAL COMMODITIES AT JPMORGAN. JPMORGAN TODAY JUST MADE A $5.5 MILLION GIFT TO CREATE THIS COMPREHENSIVE CENTER FOR COMMODITIES HERE AT THE UNIVERSITY OF COLORADO, DENVER. IT'S THE LARGEST GIFT THAT THE SCHOOL HAS EVER RECEIVED. AND BLYTHE, WHY IS JPMORGAN MAKING SUCH AN IMPORTANT INVESTMENT AT THIS TIME?

BLYTHE MASTERS: THANKS, SHARON. THE ANSWER IS THAT COMMODITIES ARE INCREASINGLY AT THE CENTER OF THE PUBLIC EYE. THEIR INFLUENCE ON GROWTH, ON ECONOMIES, ON DISPOSABLE INCOME IS SOMETHING WE ALL INDIVIDUALLY FEEL EVERY DAY. AND OF COURSE CORPORATIONS AND GOVERNMENTS FEEL IT TOO. AND THE CHALLENGE IS TO ENSURE THAT WE HAVE THE RIGHT TALENT IN THIS PARTICULAR AREA SO THAT PUBLIC UNDERSTANDING AND POLICY DECISIONS AS WELL AS THE OPERATIONS OF COMPANIES CAN BE SUCCESSFUL. SO THE DECISION TO FUND THE COMMODITIES CENTER HERE AT CU DENVER WAS REALLY DRIVEN BY THE BELIEF THAT WE NEED TO INCREASE AND EXPAND TALENT IN THE COMMODITY MARKETS BECAUSE COMMODITIES PLAY SUCH AN IMPORTANT ROLE IN ECONOMIC GROWTH.

EPPERSON: AND JPMORGAN HAS BEEN INVESTING HEAVILY IN COMMODITIES FOR SOME TIME DEFINITELY UNDER YOUR LEADERSHIP. WE'VE SEEN AS SUE MENTIONED A TRIPLING OF YOUR REVENUES IN 2011 TOPPING $2.8 BILLION. TREMENDOUS GROWTH MANY SEE IT AS PART OF YOUR VISION, YOUR STRATEGY FOR THE REASON THAT THAT HAS HAPPENED. IS THAT REALLY SUSTAINABLE?

MASTERS: WELL, WE'VE BEEN INVESTING IN THE COMMODITIES BUSINESS. AND IT'S IMPORTANT TO REALIZE THAT OUR COMMODITIES BUSINESS IS NOT ABOUT BETTING ON COMMODITY PRICES. IT'S ABOUT ASSISTING CLIENTS IN EXECUTING, MANAGING THEIR RISKS. ENSURING ACCESS TO CAPITAL SO THAT THEY CAN MAKE THE KIND OF LARGE LONG-TERM INVESTMENTS THAT ARE NEEDED IN THE LONG RUN TO EXPAND THE SUPPLY OF COMMODITIES. AND THAT IS AN AREA WHICH WE ANTICIPATE WILL CONTINUE TO GROW VERY, VERY RAPIDLY OVER THE NEXT COUPLE OF DECADES IN FACT. SO, YES, WE ARE VERY EXCITED ABOUT THE PROSPECTS FOR GROWTH IN THIS PARTICULAR AREA.

EPPERSON: AND YOU'RE LOOKING AT GROWTH NOT ONLY IN AGRICULTURE AND METALS AND IN OIL, BUT ACROSS THE BOARD IN ALL FACETS. THAT'S WHAT YOU'RE INVESTING IN. A LOT OF CONCERN HAS BEEN PLACED THOUGH ABOUT JPMORGAN PARTICULARLY ITS POSITIONS IN THE METALS SPACE AND LOOKING AT YOUR POSITIONS IN SILVER WE TALKED EARLIER ABOUT THE VOLATILITY IN THE SILVER MARKET, CAN YOU TALK ABOUT JPMORGAN'S POSITIONS AND PRICE VOLATILITY AND HOW ARE THEY RELATED?

MASTERS: YEAH. THAT'S A GREAT QUESTION. AND YOU'RE RIGHT, THAT THERE'S BEEN A TREMENDOUS AMOUNT OF SPECULATION PARTICULARLY IN THE BLOGOSPHERE ABOUT THIS TOPIC. I THINK THE CHALLENGE IS THAT THE SPECULATION REPRESENTS A MISUNDERSTANDING AS THE NATURE OF OUR BUSINESS. AS I MENTIONED EARLIER, OUR BUSINESS IS A CLIENT-DRIVEN BUSINESS WHERE WE EXECUTE ON BEHALF OF CLIENTS TO ACHIEVE THEIR FINANCIAL AND RISK MANAGEMENT OBJECTIVES. THE CHALLENGE IS THAT COMMENTATORS DON'T SEE ALL OF THAT ACTIVITY SIMULTANEOUSLY. SO JUST TO GIVE YOU A SIMPLE EXAMPLE, WE STORE SIGNIFICANT AMOUNTS OF COMMODITIES, FOR EXAMPLE, SILVER, ON BEHALF OF CUSTOMERS WE OPERATE VAULTS IN NEW YORK CITY, IN SINGAPORE AND IN LONDON. AND OFTEN WHEN CUSTOMERS HAVE THAT METAL STORED IN OUR FACILITIES, THEY HEDGE IT ON A FORWARD BASIS THROUGH JPMORGAN WHO IN TURN HEDGES ITSELF IN THE COMMODITY MARKETS. IF YOU SEE ONLY THE HEDGES AND OUR ACTIVITY IN THE FUTURES MARKET, BUT YOU AREN'T AWARE OF THE UNDERLYING CLIENT POSITION THAT WE'RE HEDGING, THEN IT WOULD SUGGEST INACCURATELY THAT WE'RE RUNNING A LARGE DIRECTIONAL POSITION. IN FACT THAT'S NOT THE CASE AT ALL. WE HAVE OFFSETTING POSITIONS. WE HAVE NO STAKE IN WHETHER PRICES RISE OR DECLINE. RATHER WE'RE RUNNING A FLAT OR RELATIVELY MATCH BOOK.

EPPERSON: WHAT IS COMMONLY OUT THERE IS THAT JPMORGAN IS MANIPULATING THE METALS MARKET. FROM WHAT YOU'RE OUTLINING THAT IS NOT POSSIBLE BECAUSE OF THE DIFFERENT SIDE OF THE BUSINESS THAT YOU'RE IN PART OF.

MASTERS: THAT'S RIGHT. IT'S NOT PART OF OUR BUSINESS MODEL. IT WOULD BE WRONG AND WE DON'T DO IT.

EPPERSON: YOU'VE HAD SUCH A LONG HISTORY AT JPMORGAN IN THE DERIVATIVES MARKET NOW HEADING COMMODITIES. ONE OF THE OTHER THINGS THAT IS REALLY STRUGGLING FOR MANY TRADERS IS TRYING TO FIGURE OUT WHAT REGULATION IS GOING TO LOOK LIKE AND HOW THAT'S GOING TO IMPACT THEIR BUSINESS. WHAT IS YOUR VIEW? AND HOW CONCERNED ARE YOU ABOUT REGULATIONS THAT ARE COMING DOWN FOR THE OTC DERIVATIVES MARKET AND FOR COMMODITIES?

MASTERS: AGAIN, ANOTHER GREAT QUESTION. I THINK I WANT TO SAY FIRST THAT JPMORGAN STRONGLY SUPPORTS THE NEED FOR IMPROVED REGULATION IN FINANCIAL MARKETS AND FINANCIAL INSTITUTIONS BROADLY. THE KEY IS TO ENSURE THAT THAT REGULATION IS GOOD REGULATION. AND WITH THIS TYPE OF TOPIC, THE DEVIL IS ALMOST ALWAYS IN THE DETAILS. SO IN THE INTEREST OF GREATER TRANSPARENCY, LESS SYSTEMIC RISK IN THE SYSTEM, LESS CONNECTIVITY BETWEEN MAJOR PLAYERS, ALL OF THOSE THINGS WE FEEL GREAT STRIDES HAVE BEEN MADE IN ADVANCING REGULATION TO PROMOTE THOSE OBJECTIVES. HAVING SAID THAT, WE HAVE TO BE AWARE OF UNINTENDED CONSEQUENCES. AND THERE'S A REAL RISK OF THOSE UNINTENDED CONSEQUENCES. FOR EXAMPLE, IF YOU MAKE IT DIFFICULT FOR INSTITUTIONS TO TRANSACT IN COMMODITY MARKETS BY EXCESSIVELY EXPOSING THEIR ACTIONS TO THE PUBLIC DOMAIN TOO QUICKLY, THAT WOULD DRAIN LIQUIDITY AND MAKE IT HARDER FOR END USERS TO HEDGE.

EPPERSON: THERE IS A CONCERN ABOUT LIQUIDITY LONGER TERM?

MASTERS: YES.

EPPERSON: I WANT TO THANK YOU SO MUCH FOR JOINING US. BLYTHE MASTERS, HERE JOINGING US AT THE UNIVERSITY OF COLORADO, DENVER SCHOOL OF BUSINESS. AND WHERE THEY HAVE MADE THIS TREMENDOUS GIFT. THANK YOU FOR YOUR PERSPECTIVE ON THE COMMODITIES SECTOR.

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