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JP Morgan Copper ETF Hits New Roadblock

Cinthia Murphy

The JP Morgan XF Physical Copper Trust, a fund that has been in the regulatory pipeline for two years awaiting approval, will have to wait at least through mid-December before it has a chance of getting rubber-stamped by regulators.

Originally scheduled to rule on the matter on Oct. 17, the Securities and Exchange Commission said instead it would again postpone a decision to December on whether to approve the proposed fund in order to have “sufficient time” to consider all the facts that have arisen in various comment letters it’s received.

Indeed, this isn’t the first time JP Morgan’s plans to launch a physical copper ETF have been roadblocked.

Earlier this year, the approval process was mired, among other things, by a complaint a New York law firm filed on behalf of copper merchants and fabricators arguing that the proposed trust would remove as much as 30 percent of the copper available for immediate delivery worldwide, creating an artificial squeeze.

Many who oppose the trust have suggested that a physically backed copper ETF would require the ETF trust to hold onto supplies that they say are crucial to the global industry today. The tighter supplies should also cause prices to rise.

J.P. Morgan’s copper trust is looking to register 6.18 million shares, or 61,800 metric tons, of copper.

But others see the arguments as mere scare tactics to prevent a transparent investment vehicle to shed light on what, thus far, has been a rather murky copper market.

“I think the people complaining about having a transparent physical player are people who do not want transparency brought to the physical copper market,” United States Commodity Funds CIO John Hyland told IndexUniverse. “Who wants some transparent new kid on the block messing up their game?”

USCF is the only ETF provider to have a copper fund on the market today. The U.S. Copper Index Fund (CPER) is a futures-based copper portfolio launched about a year ago.

J.P. Morgan first filed a registration statement for the copper trust in October 2010, and the New York Stock Exchange, where the fund would be listed, filed its petition to add the ETF as one of its listings in April of this year.

“The notion that a physical copper ETF is going to hoard copper is absolute nonsense,” Hyland said. “As long as you can redeem your shares in the copper ETF for the underlying physical copper on a daily basis—in some sort of batch like 50,000 shares—that means the ETF is in fact the only physical holder of copper who cannot hoard it.”

But the SEC is caught between a rock and a hard place, and the upcoming presidential election certainly adds another constraint to this problem, Hyland said.

“I am not surprised that the SEC elects to defer the decision until after the election,” he said. “No matter how they finally rule it is going to make somebody angry.”

Hyland spoke to IndexUniverse about the issue back in May in an extensive interview.


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