* SEC ruling 'arbitrary and capricious' - filing
* Takes fabricators step closer to legal challenge
* SEC's ruling on BlackRock due Feb. 22
Jan 10 U.S. copper users criticized U.S.
regulators as "arbitrary and capricious" and requested they
reverse their ruling in favor of JPMorgan Chase & Co's
controversial plan for a copper exchange-traded fund.
The letter filed with the U.S Securities and Exchange
Commission by a group representing half the U.S. demand for
copper, could delay the ETF launch further and be the last step
before a court challenge of the SEC's ruling.
The fabricators in their Jan. 9 letter said the SEC had not
presented enough evidence to show the fund would not distort
supply and prices of the metal used widely in plumbing and
"It appears the commission categorically rejected all of the
substantial evidence presented as to the catastrophic damage
that the proposed (fund) could have for industrial users of
copper," Robert Bernstein, an attorney with the law firm Eaton &
Van Winkle LLP, who is representing the consortium of
fabricators, said in the letter.
While the SEC is not obligated to respond to the
consortium's latest filing, the issues are the same as those to
be considered by the SEC in its ruling on BlackRock Inc's
similar fund due on Feb. 22.
If the commission doesn't reconsider, Bernstein has until
Feb. 18 - 60 days after the ruling's publication in the Federal
Register on Dec. 20 - to take his case to federal appeals court.
"We haven't made up our mind yet, but we certainly laid the
groundwork to do that," Bernstein said in an interview on
Legal action could further frustrate JPMorgan's efforts to
launch the fund, more than two years after it first filed for
The filing came on the deadline set by the SEC for
interested parties to respond to its Dec. 14 ruling giving the
go-ahead for the JPM XF Physical Copper Trust.
The consortium - SouthWire Co, Encore Wire Corp,
Luvata and AmRod - as well as Red Kite, a large hedge fund and
physical trader, have fought hard to get the SEC to block the
JPMorgan and BlackRock funds.
Industrial users fear it would have a "devastating" affect
on the market by disrupting supplies and inflating prices since
it will use physical copper cathode as collateral against shares
of the fund, effectively removing a chunk of metal from the
In its defense, JPMorgan and BlackRock say such fears are
unfounded because the funds, which would effectively allow U.S.
retail investors to trade physical copper easily for the first
time, would be miniscule compared with the 20-million-tonne
global market. Up to 183,000 tonnes of copper would be taken off
the market, according to filings by both companies.
The BlackRock' iShares Copper Trust and JPMorgan products
are very similar, although BlackRock's is twice as large.
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 trust would
use up to 121,200 tonnes of copper as guarantee against shares
in its fund.