Financial Regulatory Forum

U.S. CFTC seeks to increase regulation of carbon trading

August 17, 2009

Tom Doggett

WASHINGTON, Aug 17 (Reuters) – The U.S. Commodity Futures Trading Commission proposed on Monday¬† increasing federal oversight of the Chicago Climate Exchange’s carbon spot contract. The CFTC is using new authority provided by Congress that gives the agency more oversight over contracts listed on exempt commercial markets that play an important role in setting the price for a commodity.

The Chicago Climate Exchange’s carbon contract could become the second contract subject to the CFTC’s new authority. The agency boosted oversight of the IntercontinentalExchange’s natural gas contract last month after it determined that contract played a significant role in price discovery.

The CFTC said it was seeking similar authority over the CCX’s carbon contract “to promote transparency and guard against fraud, manipulation and other abuses.”

The agency will seek public comment on the carbon contract proposal for 15 days before making a final decision.

CCX officials could not be reached for comment.

The exchange’s carbon contract is based on the value of 100 metric tons of carbon dioxide emissions.

CCX is North America’s only active voluntary, legally binding trading system to reduce greenhouse gas emissions with offsetting projects.

The exchange has over 350 members, including companies from the automotive, chemical, coal, electronic and financial services sectors.

Separately, CFTC Chairman Gary Gensler told Reuters in an interview that the agency expects to determine that even more contracts on exempt commercial markets should be subject to agency oversight because they play a big role in setting prices for the underlying commodities.

“This is not a small number,” Gensler said. “We’re going to have a series of these that we’re going to try to put out in the next couple of months.”

Gensler declined to provide details, but said they could include energy, metal, agricultural and financial contracts.

(Editing by Marguerita Choy)

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