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Montréal Exchange Inc. (MX) (TSX: MXX) and the Chicago Climate Exchange (CCX) announced yesterday a plan to launch a Montréal Climate Exchange carbon futures contract by the end of 2007.
"MX and CCX, the partners in the Montréal Climate Exchange (MCeX), have decided to launch trading in futures products based on underlying Canadian credits for emissions of greenhouse gases," said Luc Bertrand, President and CEO of MX, and Chairman of MCeX. “Our decision is based on a careful assessment of the federal government’s air emissions policy and consultations with potential market participants, including large industrial emitters. We anticipate growth in demand for environmental derivatives. These products will enable industrial participants to manage their emissions risks at the lowest cost while also creating continuous incentives for technological innovation. We are pleased to announce the launch of the first publicly traded carbon futures contract in Canada.”
4th Quarter Launch
The MCeX carbon futures contract will be launched during the fourth quarter of 2007, subject to regulatory approval. The launch target reflects a timetable of consultations involving the federal government, financial market regulators and market participants concerning design aspects of the Emissions Trading System, product standards and market rules.
“The MCeX team assessed the federal government’s air emissions regulatory framework and concluded that it meets the minimum conditions for the creation of a futures market,” Mr. Bertrand said. “The proposed federal government regulatory framework is currently under consultative review. We will work closely with the government to ensure continued progress in establishing the proper environment for the launch of trading. In particular, we are confident that Ottawa will provide industry with a higher degree of policy certainty regarding emissions reduction targets and the definition of a single standard for tradable credits.”
“We are also working closely with Canadian market participants to understand and respond to their specific needs – they are the ones who will ultimately trade MCeX products,” Mr. Bertrand added.
“I believe that the minimum conditions are in place to support a publicly traded carbon futures contract in Canada and the development of other products that will attract a critical mass of trading activity,” said Richard Sandor, Chairman and Founder of the Chicago Climate Exchange. “Based on several years of practical experience in Europe and the US, we can assume that adjustments will be required and that all market stakeholders will gradually move up the learning curve. Now is the time for Canadians to get started.”
The new MCeX futures contract is expected to generate the price signal required by large greenhouse gas emitters to manage the risk associated with the so-called “price of a tonne of carbon”.
The MX will facilitate trading in the MCeX contract using its market infrastructure. MX will also settle and guarantee contracts through its clearing house, the Canadian Derivatives Clearing Corporation, which is AA rated by Standard and Poor's. This arrangement will reduce trading, settlement and counterparty risk for market participants.
Furthermore, MCeX urges the government to rapidly establish a national registry to track the quality of carbon credits. MCeX has already expressed an interest in managing such a service.
