In the day after Green Exchange’s subtle move back into the carbon market with an announced three-month fee waiver, we took a look at volume on day one – September 2.
The exchange posted volumes of 257 In Delivery Month EUA contracts on September 2 and five RGGI contracts. No volume on SOx and NOx contracts.
Meanwhile, Chicago Climate Exchange posted volumes of 23,000 CFI contracts and Chicago Climate Futures Exchange posted volumes of
14,210 RGGI contracts, 1,518 SFI contracts, 200 NFI-A contracts, 5 CCAR-CRT contracts and 40 NFI-OS contracts.
This isn’t about pointing a finger at puny volumes by CME Group and its partners. It is about marking where the listed carbon market in the US was when Green Exchange unofficially reentered after months of retooling. Whispers are that an official launch will be coming soon. But a check of the CFTC website showed nothing in terms of an application filing for exchange status, also known as Designated Contract Market (DCM). That doesn’t mean that CME isn’t working to do so. Nor does it mean that CME and its partners won’t push to revive the Green Exchange under the CME exchange license. After all, whether it operates as an independent DCM, or under the CME, it will run on the Globex electronic platform and old Nymex trading floor, with clearing running through ClearPort and the CME Clearinghouse.
CCX is running its exchange on the ICE Platform with clearing by ICE Clear, formerly The Clearing Corporation.
Some would argue that the fee waiver is much ado about not much. There still is no US legislation that creates a mandatory carbon cap-and-trade market. But if CME and its partners didn’t care about attracting volume to their exchange, why would they announce a fee waiver now? The fact is, CME and its partners, just like CCX and a host of other exchanges from NYSE Euronext to Nasdaq Commodities to Eurex, all see tremendous potential for the US carbon market. As such, its not too early to try and gain a foothold on this space. First mover advantage in the futures industry has been proven to be critical and at times, inpenetrable. CME knows this better than anyone.
So while it is never too early to get in, some wonder if Green Exchange is too late. Sure Green Exchange entered the market in 2008 but let’s face it – the Nymex team at the time badly bungled it. In fact, they not only fumbled on the US market but with great synergies with its global energy products, Nymex arguably could have grabbed some of the European marketshare as well.
Has CCX and CCFE effectively grabbed enough marketshare now to dominate a newly formed market once we see passage of US legislation? They’ve done much of the heavy lifting but CME and its partners pose a significant competitor that is loathe to put money in the pocket of a competitor. And even if we see the US Senate pass a new climate bill this fall, (which is looking less likely now), the market is still going to take a couple years to develop. And that window, which is open a crack now, is the opportunity Green Exchange is trying to take advantage of.
And if the estimates are correct, that the US carbon market could be a $1 trillion to $3 trillion, there may be room for more than one marketplace for carbon in the same way there is room for two or more gold markets, two or more crude oil markets and multiple grains markets. Markets have a way of supporting more than one exchange. September 2 may be the date that created the second major US carbon market.