CFTC approves guidance for listing carbon credit derivatives contracts

The Commodity Futures Trading Commission (CFRC) approved guidance on the listing for trading of voluntary carbon credit derivative contracts.

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The proposed guidance outlines certain factors a CFTC-regulated exchange, or designated contract market, should consider when addressing requirements and regulations that are relevant to the contract design and listing process.

“Today’s action by the CFTC is the culmination of a two-year examination of carbon markets, and many more years of in-depth work regarding the impacts of climate on financial markets. The Voluntary Carbon Market Proposed Guidance is a clear statement that the CFTC will do its part to elevate the standard setting efforts already underway,” CFTC Chairman Rostin Behnam said on Monday. “Our goal all along has been to help shape standards in support of integrity, which will lead to transparency, liquidity, and ultimately price discovery – all established hallmarks of CFTC regulated markets. I am incredibly proud of our agency for taking such intentional and impactful action today.”

The proposed guidance recognizes that outlining factors for an exchange to consider in connection with contract design and listing may help to advance the standardization of voluntary carbon credit derivative contracts. It would do this in a way that fosters transparency and liquidity, accurate pricing, and market integrity.

Further, the proposed guidance outlines factors that an exchange should consider in connection with the specification and monitoring of contract terms and conditions. Lastly, the proposed guidance addresses certain requirements under the CFTC’s Part 40 Regulations relating to the submission of new derivative contracts, and contract amendments, to the CFTC.

The CFTC also approved a request for public comment. The comment period for the proposed guidance will be open for 75 days and will end on Feb. 16, 2024.