SEC extends review period on JPM's copper ETF plan
NEW YORK |
NEW YORK (Reuters) - The U.S. Securities and Exchange Commission has extended the consultation period on JP Morgan Chase & Co's controversial plan for an exchanged-traded fund (ETF) physically backed by copper amid mounting opposition from U.S. consumers of the metal.
In a notice issued late on Thursday, the regulator asked for more feedback from the U.S. bank that has pushed to launch the fund for almost two years and from copper fabricators and Red Kite, a major hedge fund and physical trader, who have opposed the product, claiming it would disrupt supply and inflate prices.
Opponents to the JPM XF Physical Copper Trust have 30 days after publication in the Federal Register -- the official publication for SEC rulings -- to respond to a string of issues raised by the regulator. The ruling is expected to be published officially next week.
Anyone wishing to file a rebuttal to those submissions then has 15 days to respond, it said, taking the next deadline to mid-September. Until now, NYSE Arca, the exchange on which shares in the fund would be listed, has responded to complaints about the fund, saying it would be too small to have a major impact on the global market.
The lawyer representing a consortium of U.S. copper fabricators and Red Kite who have launched a strenuous attack on the plan, welcomed the move.
"We are pleased the agency seems to have taken our concerns seriously," Robert Bernstein, attorney with law firm Vandenberg & Feliu LLC, told Reuters following the ruling.
The SEC did not say when it would make its next ruling, but its final decision is likely to stand as a benchmark for other funds in the works. BlackRock Inc has filed plans for a similar, larger fund that has also drawn the ire of end users.
A spokesperson for JPMorgan declined to comment on the ruling.
The SEC's decision to prolong its review comes after opposition to the fund escalated in the week ahead of Thursday's deadline for a ruling.
U.S. Senator Carl Levin, a Michigan Democrat, weighed into the debate earlier this week, claiming the fund would cause a boost-and-bust cycle in the copper market.
Thursday's ruling is the latest development in a long-running saga that has split traditional industrial consumers who use copper in everything from air conditioning units to cars and banks who want to attract retail customers seeking exposure to the potentially lucrative copper market.
By allowing investors buying shares in a fund that is backed by physical metal as collateral, the ETF is aimed at making copper, often considered complicated and risky commodity, accessible to smaller players, JPM said in its first filing for the fund in October 2010.
Investors in turn get exposure to copper prices, which have more than doubled in value in the past seven years. The rally has been largely driven by China's emergence as the world's largest metals consumer, attracting a new breed of investor in the speculative and hedge fund community.
Opposition to the funds has focused on the impact on the traditional end user in North America.
Most of the 180,000 metric tons (198,416 tons) of copper that would be used as security against shares in the two funds would likely be bought in the United States, where the metal is cheapest.
JPMorgan's fund would store LME brand-approved copper valued at up to $499,761,150 -- equivalent to about 62,000 metric tons based on a copper price of $8,000 per metric ton, while BlackRock's iShares Copper Trust would use up to 121,200 metric tons of copper as guarantee against shares in its fund.
Those tonnages combined are insignificant in a 20 million metric tons global market, but they have worried U.S. fabricators because it accounts for the majority of the metal available in U.S.-based exchange-bonded warehouses.
The NYSE Arca has defended JPMorgan's plans, saying concerns that it will cause a market bubble are "speculative and misplaced", noting the small size of the funds.
JPMorgan is expected to launch its fund with an initial value of $75 million, representing a little more than 10,000 metric tons, and will only build up stock if there is demand for the product, NYSE Arca has said in response to objections.
(Editing by Gary Hill, Himani Sarkar and Chris Lewis)
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