LONDON A group of copper
consumers has warned that JPMorgan & Chase Co.s
physical copper exchange-traded fund (ETF) could create a
market squeeze similar to that caused by a rogue trader at
Japans Sumitomo Corp. in the 1990s.
In a letter to the U.S.
Securities and Exchange Commission (SEC), a lawyer representing
the consumers called for the U.S. regulator to reconsider its
decision to approve the ETF on the grounds that, as drafted, it
is legally insupportable.
The letter signed by Robert
Bernstein, a partner at New York law firm Eaton & Van
Winkle LLP, listed several reasons why the consumer group
believes the approval order is "flawed."
Bernstein said the removal of
copper from the market for the ETF will create "catastrophic
damage" for industrial users of the metal, and noted that the
SEC had "ignored evidence of the history of past corners and
squeezes of the copper market," including the Sumitomo copper
scandal in the 1990s.
"Just as was the case in
Sumitomo, the listing and trading of the shares will almost
certainly result in the removal of substantial quantities of
warranted copper from LME and Comex warehouses in the United
States," Bernstein said, and the SEC was ignoring current
warnings that the ETF would lead to "fraud and
In June 1996, Sumitomo reported
a loss of $1.8 billion in unauthorized copper trades on the
London Metal Exchange. Sumitomo later admitted higher losses of
$2.6 billion, currently the sixth-highest trading loss in
"The commission should
reconsider its order and, upon further review, based on
substantial evidence on the record, it should reverse its
decision and deny approval of the proposed rule change,"
The consortium includes
Southwire Co., Encore Wire Corp., Luvata UK Ltd. and AmRod
Corp., along with metals-focused hedge fund RK Capital
Management LLC. The four copper companies represent about 50
percent of the United States copper fabricating industry,
converting copper cathode into copper pipe, rod, wire and
The SEC approved JPMorgans
physical copper ETF in December (
amm.com, Dec. 17), but has delayed a decision on a
similar product by BlackRock Inc. until February (
amm.com, Dec. 27).