CFTC to examine CCE's carbon instrument

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Aug. 18 -- The US Commodity Futures Trading Commission will examine whether a carbon financial instrument that trades on the Chicago Climate Exchange (CCE) performs a significant price discovery function, CFTC said Aug. 17.

This will be the second time the commission uses authority it received on Apr. 22 to determine if a specific transaction, contract, or agreement traded on an exempt commercial market (ECM) performs a significant price discovery function, CFTC Chairman Gary G. Gensler said. If its investigation finds that a financial instrument fits that description, the ECM must comply with position limits, reporting requirements and other rules under the Commodity Exchange Act with respect to the transaction, contract, or agreement.

It ruled on July 24 that the InterContinental Exchange’s Henry Hub natural gas contract performed a significant price discovery function based on its its high average daily trading volume, its reliance on the New York Mercantile Exchange’s physically-delivered gas futures contract, and trader usage of the ICE contract’s prices. ICE declared itself a registered CFTC entity 3 days later and announced that it would begin submitting enhanced market statistics for its cash-settled Henry Hub gas swap market to the commission immediately.

CCE operates North America’s only cap-and-trade system for six greenhouse gases, according to information at its web site at www.chicagoclimatex.com. Members voluntarily agree to meet annual greenhouse gas reduction targets. Those who come in below those targets can sell or bank surplus allowances, while those who come in above the targets can buy CCE carbon financial instrument contracts, it said.

CFTC said it is conducting the review after initially evaluating information that CCE provided indicating that the carbon financial instrument several statutory criteria for a significant price discovery determination. It will accept public comments for 15 days following its Aug. 14 publication in the Federal Register of a notice of intent about the examination.

Contact Nick Snow at nicks@pennwell.com.

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