CME Goes Green

Terry Flanagan

Derivatives exchange operator CME Group will further bolster its emissions trading business by acquiring environmental commodities exchange GreenX.

“Since its launch in 2008, GreenX has increased its market share and has positioned itself as an industry leader, providing innovative futures and options contracts for environmental markets,” said Bryan Durkin, chief operating officer and managing director of products and services at CME Group.

“By becoming part of CME Group’s suite of energy products—where they will continue to be traded on Globex and cleared through CME ClearPort—GreenX’s global product slate will be more closely integrated with our energy complex, and customers will benefit from the valuable clearing and margin offsets that we offer.”

CME, which operates the Chicago Mercantile Exchange and the Chicago Board of Trade, said acquiring the 60% equity interest that it did not own in the parent company of Green Exchange LLC would benefit customers by integrating the energy products of the companies and also provide access to CME’s clearing and margin offsets.

Prior to the acquisition, GreenX was owned by a consortium of organizations including CME, Constellation Energy, Credit Suisse, Evolution Markets, Goldman Sachs, ICAP Energy, J.P. Ventures Energy Corporation, Morgan Stanley, RNK Capital, Spectron, TFS Energy, Tudor Investment Corporation and Vitol SA.

GreenX had established itself as one of the largest carbon exchanges in the world. Volumes across all contracts on GreenX grew 332% in 2011 with more than 450,000 contracts traded — equivalent to 450 million tons of CO2. For the benchmark EU Allowance (EUA) futures, the most liquid carbon futures contract, volume grew 688% from 2010 to 2011. Open interest in GreenX products has also grown significantly and currently sits close to 100,000 contracts.

The exchange continues to grow, trading 36.5 million tonnes of carbon dioxide in February, an increase of 22% year-over-year. European Union Allowance, or EUA, contracts, constituted 90% of trading volume while the remainder were Certified Emission Reduction, or CER, contracts.

This is the latest move by CME to diversify its operations as full-on exchange mergers have died down. It announced in February that it had entered into a memorandum of understanding with the Bank of China to explore and potentially collaborate in a long-term business relationship in a move to expand both companies’ respective businesses.

That came on the heels of new connectivity that CME established with outside entities. Transaction Network Services expanded its global exchange network by adding CME’s market data feeds. Fellow designated contract market Eris Exchange established a connection which allowed CME to be a channel to distribute Eris Exchange market data.

Other exchanges have also been keeping active. The London Stock Exchange is currently in the process of acquiring clearing house LCH.Clearnet. The takeover received support from more than 99.9% of LSE shareholders and 94.3% of LCH.Clearnet shareholders, according to reports. The deal now only requires regulatory and competition authority approval for it to go through, and is expected to be completed by the end of the year.

The London Metal Exchange is currently being eyed up by a host of potential acquirers, with CME Group, NYSE Euronext, IntercontinentalExchange and Hong Kong Exchanges and Clearing on the shortlist, according to reports. All four suitors are in the process of conducting due diligence leading up to the May 7 deadline to make offers in a second round of bidding. Industry analysts have estimated the deal could be worth as much as $1.6 billion.

The LME deal was announced amid a lull in new exchange consolidation deals. The space has been quiet for several months following the failures of two high-profile hookups between the Australian Securities Exchange and Singapore Exchange deal as well as the unsuccessful TMX Group and London Stock Exchange Group tie-up. Although Chi-X Europe’s acquisition by Bats Global Markets went through, it was followed by the high-profile failure of the Deutsche Börse and NYSE Euronext merger.

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