SEC Holds Off On Physically Backed Copper ETFs

Includes: CPER, CUPM, JJC
by: Tom Lydon

J.P. Morgan's (NYSE:JPM) bid to launch the first physically backed copper exchange traded fund has been met with heated opposition. Now, the Securities and Exchange Commission has delayed its judgement on the investment product's viability, again.

The SEC pushed back the deadline ruling on J.P. Morgan's planned copper ETF to Dec. 14, citing more time needed to go over the consequences of a physically-backed copper fund on metal flow and prices, reports Josephine Mason for Reuters. The regulator is also weighing on the fate of the iShares Copper Trust, which is scheduled for a Dec. 24 ruling.

"The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed (NASDAQ:FUND)," SEC said in a statement.

Over the past two years, J.P. Morgan has tried unsuccessfully to get approval for the JPM XF Physical Copper Trust that would allow investors to easily trade physical copper like other precious metals, such as gold, silver and platinum.

U.S. copper fabricators contend that the proposed ETF would disrupt supply and inflate prices since the copper ETF would require up to 180,000 metric tons of copper as collateral - the global market trades with around 20 million tons. Naysayers fear that there would not be enough metal available for immediate delivery to prevent a short-term squeeze.

In July, U.S. Senator Carl Levin also argued that a copper ETF would fuel speculative trades in the physical markets.

J.P. Morgan and BlackRock, on the other hand, believe that the funds would be miniscule in size compared to the global market and that the investments would be used for smaller investors to gain exposure.

In the meantime, the average retail investor can gain access to copper price movements through fund products that hold copper futures contracts, such as the iPath Dow Jones UBS Copper Subindex Total Return ETN (NYSEARCA:JJC), iPath Pure Beta Copper (CUPM) and United States Copper Index (NYSEARCA:CPER).

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.