Regulator delays ruling again on JPMorgan copper ETF

NEW YORK Tue Oct 23, 2012 3:29pm EDT

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission has delayed for a second time a ruling on JPMorgan Chase & Co's controversial plan to launch an exchange-traded fund (ETF) physically backed by copper.

The regulator set a new deadline of December 14 to rule on one of two planned ETFs. It said it needed more time to consider the issues surrounding the fund, which has ignited fears among U.S. copper fabricators about its potential impact on metal flow and prices.

"The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed (fund)," it said in a release. The SEC had been due to issue a decision last Wednesday.

JPMorgan has tried for two years to get approval for its fund, which would effectively allow U.S. retail investors to trade physical copper easily for the first time.

U.S. copper fabricators have fought to have the fund blocked, saying it would disrupt supply and inflate prices by removing a large chunk of metal from the market.

In July, the SEC postponed making a decision on JPM's XF Physical Copper Trust until October 17 and asked the U.S. bank for more details on the potential impact of its plan.

The SEC is due to rule on another fund, the iShares Copper Trust proposed by BlackRock Inc, by December 24, but that can be extended for another 60 days.

The SEC declined to comment beyond the statement. JPM did not immediately respond to requests for comment. BlackRock declined to comment.

END-USER OPPOSITION

A consortium of U.S. copper fabricators - SouthWire Co, Encore Wire Corp, Luvata and AmRod - as well as Red Kite, a large hedge fund and physical trader, has opposed the JPMorgan and BlackRock funds in a series of filings and meetings with the SEC since May.

They say the removal of up to 180,000 metric tons (198416 tons) of copper, which would be used as collateral against shares in the funds, would have a "devastating" effect on the market.

While that is only a tiny part of a 20-million-tonne global market, fabricators worry that it accounts for the majority of the metal available in exchange-bonded warehouses.

They argue there is not enough metal available outside the exchange networks for immediate delivery to prevent a squeeze in supply because it is tied up in long-term contracts.

The long-running dispute has divided traditional industrial consumers, which use copper in everything from air-conditioning units to cars, from banks looking to attract investors seeking exposure to the potentially lucrative copper market.

In July, U.S. Senator Carl Levin, a Michigan Democrat, said the funds would cause a boom-and-bust cycle in the copper market.

JPMorgan and BlackRock say such fears are unfounded because the funds would be miniscule compared with the global market. Emphasis on exchange stocks as a measure of spot metal availability has been overdone, they say.

The ETF would sell investors shares in a fund backed by physical metal as collateral. JPMorgan and BlackRock have said this would make it easier for smaller investors to get exposure to copper prices, which have more than doubled in seven years.

JPMorgan's fund would store LME brand-approved copper valued at up to $499,761,150 - equivalent to about 62,000 tonnes based on a copper price of $8,000 per tonne. BlackRock's iShares Copper Trust would use up to 121,200 tonnes of copper as guarantee against shares in its fund.

(Reporting by Josephine Mason; Editing by Dale Hudson)

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