The Guangdong carbon exchange on Wednesday announced fresh rules for so-called ‘repo’ trading in a bid to regulate market activity as trading volumes rise rapidly.
The new regulations address bilateral repurchase agreements, where one company sells allowances to another and agrees to buy them back at a set date in the future.
Guangdong’s repo rules are the latest sign that China’s pilot markets are working hard to get greater participation by financial institutions.
Shanghai was the first Chinese ETS to officially allow repo trading, publishing rules in June that allow traders to borrow allowances from compliance companies to use for speculative trading.
However, the country’s first publicly-announced CO2 repo trade was transacted on the Beijing ETS in July – a 13.3 million yuan ($2.1 million) deal between CITIC Securities and Beijing Huayuan Yitong Heating Power Technology – despite that market not having official regulations.
THE SMALL PRINT
Guangdong’s repo deals will only be allowed for volumes of a minimum of 100,000 allowances, and the buyback price must be within 30% of the trading price on the day the contract was agreed, the exchange said.
Traders can enter into repo deals privately or via a broker, but they must be reported to the exchange, which will scrutinise each transaction.
Both parties must be members of the exchange.
If a compliance company is involved, the contract must expire within the current trading year. If not, then it must end before the Guangdong pilot ETS is phased out, probably in early 2017.
Guangdong is the biggest of China’s pilot markets in terms of tonnes of CO2 covered, but its liquidity has been dwarfed by the Hubei ETS.
However, Guangdong’s traded volumes have soared in recent weeks.
Since July 1, more than 4.1 million allowances have traded in the secondary market, compared to only 3.2 million in the scheme’s first 20 months. A large share of the volume increase has come from OTC deals.
By Stian Reklev – email@example.com