SEC authorizes JPMorgan to use ETF to rig copper market too
SEC Approves JPMorgan Copper ETF
By Emiko Terazono
Financial Times, London
Monday, December 17, 2012
A JPMorgan-backed investment vehicle that aims to track the price of copper has won the approval of US regulators in spite of strong opposition from users of the metal and senior politicians.
The Securities and Exchange Commission on Monday approved the exchange traded fund, which is backed by physical buying of copper, opening the door to easy investment in the metal. The regulator's approval comes despite opposition from Carl Levin, chairman of the powerful Senate subcommittee on investigations, on the grounds that the proposed products "would allow speculators to create a squeeze on the market."
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Senator Levin said that the SEC's approval of the ETF was "a blow to American businesses and consumers" and that it would "increase copper prices and volatility, and undermine market efforts to produce prices in response to supply and demand by copper users."
The SEC said it did not see the products disrupting the supply of copper available for immediate delivery and gave the go-ahead to NYSE Arca, the exchange, to list the JPMorgan ETF. NYSE has a separate request to list a rival BlackRock iShares copper ETF, which is now likely to go ahead too.
Leading US copper users have argued that the ETF would even "wreak havoc" on the global economy, given the metal's use in electrical wiring, which makes it essential to the manufacturing industry.
Companies such as Southwire, Encore Wire, Luvata, and AmRod as well as trading house Red Kite said the launch of the products would result in a "substantial artificially induced rise in near-term copper prices."
JPMorgan said it could not comment until the launch of the copper ETF, but in a previous submission to the SEC the bank had countered that the product would not consume metal but would merely hold it.
If and when the metal is needed by real consumers, the investors can sell their shares in the ETF and the copper will be available to the market within days.
Its regulatory filings suggest JPMorgan's ETF could hold 61,800 tonnes -- the equivalent to 27 per cent of the copper held in the London Metal Exchange's global network of warehouses.
The regulator said it believed the physical copper ETF would "provide another way for market participants and investors to trade in copper" and could enhance competition among exchanges.
The SEC added that the new copper ETFs would "provide investors another investment alternative, which could enhance a well-diversified portfolio" and "could increase competition among financial products and the efficiency of financial investment."
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