The Commodity Futures Trading Commission is studying whether
the Chicago Climate Exchange’s Carbon Financial
Instrument (CFI) contracts perform a "significant price
discovery function" and has issued a request for public comment
that closes at the start of September.
The US regulator said that if it determines the contracts
play a substantial role in the price formation of carbon
credits, they could then be subject to regulatory oversight by
The US futures regulator launched its investigation on
August 17 when it released a public comment request. The study
focuses specifically on CCX’s spot CFI contract,
which operates as an exempt commercial market. Each CFI
represents 100 tonnes of CO2 or the equivalent.
Should the CFTC conclude that the contract plays an
important role, it could impose "position limit and emergency
authorities and large trader reporting requirements."
CCX’s chairman and founder, Richard Sandor,
said the exchange welcomed the CFTC study. It was launched as
the US readies itself for the implementation of
"As an exchange we welcome sound regulation and transparency
in the carbon market and look forward to working with CFTC as
they work to prepare for national and global management of
greenhouse gases," a CCX spokesperson said.
The review follows a similar investigation by the CFTC in
June into the Henry Financial LD1 fixed price contract
— a natural gas contract traded on the
The CFTC determined that the natural gas contract met the
requirements of performing significant price discovery and
subsequently imposed reporting requirments, which must be
submitted to the US regulator, and position limits —
in line with the limits imposed on the natural gas contract
traded at the CME Group’s Nymex exchange.
This was the first time the CFTC had exercised its rights to
regulate previously exempt contracts, like the CFI contract,
since the US Congress passed the 2008 Farm Bill.
Gary Gensler, CFTC chairman, said regulating the natural gas
contract, and possibly the CFI contract, represented the
watchdog’s commitment to prevent market
"The CFTC’s significant price discovery
function authority helps to promote transparency and guard
against fraud, manipulation and other abuses," Gensler said.
"This is the second use of our new authority, and we will
continue using it to promote market integrity."
CCX operates the only US voluntary carbon trading system to
reduce greenhouse gas emissions. Its CFI contract reflects
allowances from members who go beyond emissions reduction
targets. Those who don’t meet their targets
purchase carbon contracts. CCX also operates a futures
exchange, the Chicago Climate Futures Exchange.
Unlike the CCX, the futures exchange has been a
CFTC-regulated designated contract market since it was launched
CCFE offers more than 20 contracts for trade including three
carbon-related futures contracts, CFI futures and options,
Regional Greenhouse Gas Initiative derivatives and contracts
linked to the California Climate Action Registry scheme.The
exchange said volumes for all CCFE-traded products were up 70%
so far in 2009 from all of last year.
A mandatory carbon trading scheme seems increasingly more
likely to be implemented in the US after the Waxman-Markey
Clean Energy bill was passed by Congress in June. The bill
stills requires the support of the US Senate but President
Obama has committed his administration to pursuing a
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