The Commodity Futures Trading Commission (CFTC) approved final guidance on the trading of voluntary carbon credit derivative contracts.
The guidance outlines factors for designated contract markets (DCMs) to consider when listing for the 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 announced today 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,” CFTC Chairman Rostin Behnam said. “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 may help to advance the standardization of voluntary carbon credit derivative contracts and foster transparency and liquidity.
The guidance reflects insight the CFTC gained from public comment on the proposed guidance and is the culmination of over five years of collaboration with a diverse group of stakeholders. The stakeholders 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 in the voluntary carbon market.