JP Morgan Gets a Big Holiday Gift From the SEC

Lina Khan

December 31, 2012 | 12:00 am

n 1996, the world learned a Japanese firm had cornered the copper market. The company, Sumitomo, was fined $125 million for squeezing copper supplies and artificially inflating prices--at that point the largest penalty ever levied by a U.S. government agency. The Commodities Futures Trading Commission called the scheme “one of the most serious worldwide manipulations” of a commodity in decades. Last Monday, the Securities and Exchange Commission posted a decision that could effectively lead to a repeat of the Sumitomo corner, with one key difference: hoarding copper will now be legal.

Until now, the main people buying physical copper have been the people who use it, like manufacturers that produce basic industrial goods such as pipes and electrical wires. Speculators have been limited to trading in futures, which are forms of bets that link only indirectly with physical supply of copper. Two weeks ago, however, the SEC blessed a controversial fund designed by J.P. Morgan Chase that, for the first time, will let investors buy shares backed by physical, warehoused copper, to use as a form of investment.