LONDON The likelihood of JPMorgan Chase & Co. or BlackRock Inc. launching controversial copper exchange-traded funds (ETFs) is fading rapidly amid intense scrutiny of bank activity in physical commodities markets.
JPMorgan has said it is exploring "strategic alternatives" for its physical commodities assets, which includes a warehousing business that will be critical to the performance of the ETF (amm.com, July 26).
Around the same time, Goldman Sachs Group Inc. confirmed that its warehousing company, Metro International Trade Services LLC, wont act as a custodian servicing BlackRocks iShares ETF, potentially derailing the asset managers plans to launch its own physical copper fund.
The U.S. Securities and Exchange Commission approved the funds late last year despite opposition from physical copper consumers, who charged the products would inflate prices and crimp availability in the physical market.
However, the Federal Reserve, the Department of Justice, the Commodities Futures Trading Commission and the U.S. Senate all launched probes recently into banks roles in commodity markets through their ownership of physical assets, such as warehouses and power plants.
A JPMorgan subsidiary late last month paid $410 million to the Federal Energy Regulatory Commission to settle allegations that it rigged prices for electricity supplied by power plants in California and the U.S. Midwest from September 2010 to November 2012 (amm.com, July 30).
Aside from the political scrutiny the vehicles might attract, the potential difficulty in finding another warehouse custodian to help lower rental costs, combined with weak market conditions, could make the copper ETFs a tough sell, making it probable that BlackRock and JPMorgan will delay or scrap the products, sources said.
"Given all the hoops theyve already had to jump through, it wouldnt be all that surprising (if the ETF was shelved)," one observer said.
JPMorgan and BlackRock declined to comment.
A spokesperson for Goldman Sachs confirmed that the investment company has withdrawn support for its iShares vehicle, but declined to elaborate.
A version of this article was first published in AMM sister publication Metal Bulletin.