The Commodity Futures Trading Commission approved final guidance regarding the listing for trading of voluntary carbon credit derivative contracts. The guidance applies to designated contract markets (DCMs), which are CFTC-regulated derivatives exchanges, and outlines factors for DCMs to consider when addressing certain Core Principle requirements in the Commodity Exchange Act (CEA) and CFTC regulations that are relevant to the listing for trading of voluntary carbon credit derivative contracts. The guidance also outlines factors for consideration when addressing certain requirements under the CFTC’s Part 40 Regulations that relate to the submission of new derivative contracts, and contract amendments to the CFTC.

“The Commission’s final guidance is the product of a strong public-private partnership that I have strived to achieve with both the CFTC’s traditional stakeholders as well as a variety of voluntary carbon market stakeholders to support transparency, liquidity, and market integrity in the VCC derivatives markets as well as ultimately drive standardization and efficient capital allocation to scale the underlying cash market for high integrity VCCs,” said CFTC Chairman Rostin Behnam. “The CFTC’s unique mission focused on risk mitigation and price discovery puts us on the front lines of the now global nexus between financial markets and decarbonization efforts. Leveraging the CFTC’s personnel and expertise demonstrates our commitment to taking a thoughtful and deliberate step toward building a financial system that provides effective tools in achieving emission reductions.”

The CFTC’s guidance recognizes that outlining factors for a DCM to consider in connection with the contract design and listing process may help to advance the standardization of voluntary carbon credit derivative contracts in a manner that fosters transparency and liquidity. The guidance reflects insight the CFTC gained from public comment on the proposed guidance and marks the culmination of over five years of collaboration with a diverse group of market participants. These include agricultural stakeholders, ranchers, foresters, landowners, commercial end users, energy market stakeholders, emission-trading focused entities, CFTC-registered exchanges and clearinghouses, carbon-credit rating agencies, crediting programs, public interest groups, academics, and others key stakeholders in the voluntary carbon market.

Source: CFTC