A letter from Hugh Simpson was published in the Financial Times on 28 January, commenting on the significance of the current problems.

As always, the headline was not written by the author and does not accurately reflect the contents of the letter!

It is a recurring theme in this commentary that the success of a trading market depends on having robust and reliable post-trade processes. It is hard to imagine a clearer illustration of this principle than the crisis currently affecting the European carbon market.

Following a series of attempted and successful frauds on carbon registries across Europe (see list below), the European Commission announced yesterday that all carbon registries across Europe would be closed for at least a week, until 26 January, thus blocking all transfers of emission units. With settlement impossible, the two main spot markets have suspended trading (see the circular from ICE).

Thus, the spot market in carbon is stopped for a week because of security deficiencies at a small number of registries. We wrote in our report last July, “Any perception of irregularity in the operation of the market is widely reported and could bolster the arguments of those who believe that the use of market mechanisms to address climate change has no merit.” Sadly, this risk is increasing with the passage of time. more >>

The European Commission yesterday published a consultation paper on harmonising Central Securities Depositories (CSDs) and other aspects of securities settlement across Europe.

These proposals were expected, since – together with the proposals for central counterparties (CCPs) and for securities law – they complete the process of putting in place a European framework for the key parts of the European market infrastructure. As is the case with CCPs, CSDs currently exist in many different forms across Europe, in some cases banks, in some cases special institutions defined by law. The proposed regulation will bring them all under a common heading and apply common standards. In practice, the new minimum standards are unlikely to imply much, if any, change for those CSDs that already operate to best international practice.

Some aspects of the proposals deserve comment, however. more >>