SEC, In A Twist, Delays iShares Copper ETF

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December 26, 2012
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SEC delays iShares copper fund a week after green-lighting a similar ETF from J.P. Morgan.

The iShares Copper Trust, a physically backed exchange-traded fund that has been in the regulatory pipeline for over two years awaiting approval, will have to wait a bit longer before its primary listing on the New York Stock Exchange becomes a reality.

Originally scheduled to rule on the matter on Dec. 24, the Securities and Exchange Commission said instead that it would postpone a decision to February on whether to allow the fund to proceed or not in order to have “sufficient time” to consider public comment and data it’s received. The reasons for the delay weren’t immediately clear.

The roadblock iShares is facing with its proposed copper trust is similar to the hoops J.P. Morgan just jumped through as the Wall Street investment bank, too, petitioned to launch a physically backed copper ETF. Indeed, J.P. Morgan won the right from the SEC last week to proceed with its fund.

At the heart of the matter is the issue of whether a copper trust would artificially squeeze supplies out of the market—as the ETFs will own physical copper that will be stored in warehouses to back up ETF shares. The concern is that tying up supplies of such an important industrial commodity will ultimately affect prices.

In J.P. Morgan’s case, the battle to get the J.P. Morgan XF Physical Copper Trust through the regulatory pipeline took more than two years, and the fund was just rubber stamped earlier this month.

It’s unclear why the SEC would prolong iShares’ regulatory approval now that it has allowed JP Morgan to proceed with a very similar product.

On the surface, the main difference in the strategies is that iShares’ petition to launch the physically backed trust requests permission to register 12.12 million shares, or roughly twice as many as the JP Morgan trust, although the number of shares registered is in no way a reflection of how big the fund may or may not become one day.

Regulators, in a prepared statement released Dec. 17 regarding the competing J.P. Morgan Copper Trust, the market’s first physically backed copper ETF, said they lacked evidence that a copper trust would indeed drive, rather than track, copper prices as many have suggested.

“The Sponsor believes that the trust would move copper from one type of liquid stock to another type of liquid stock, rather than removing inventory from the market, and would track, rather than drive, copper prices,” the SEC statement read.

The price of iShares Copper Trust shares will be based on settlement prices of the London Metal Exchange, the company said in its original filing submitted in October 2010.

The copper will be stored in warehouses at locations in the United States or in other places if it has approval from the trustee and the sponsor, the paperwork said.

 

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