Bayerische Börse, operator of CO2 carbon certificates trading platform greenmarket, has partnered with SIX x-clear for its post-trade processes. The clearing house of the Swiss SIX Group, SIX x-clear will act as a central counterparty with responsibility for all clearing and settlement on the greenmarket exchange with effect from the 4Q10. Under the new partnership, carbon certificate trading will be faster and more secure.
“By introducing the function of a central counterparty [CCP], we are further enhancing the quality of our services in spot trading in European Union Allowances [EUAs] and Certified Emission Reductions [CERs]. We are also establishing an internationally recognised financial market architecture in preparation for the launch of futures trading in carbon credits at the end of the year,” said Dr Christine Bortenlänger, member of the management board of Bayerische Börse.
The CCP acts as a partner for both trading parties in the clearing and settlement of a transaction. During the clearing process, the CCP divides the purchase or sale of carbon credits on greenmarket into two separate and independent transactions. If one of the two parties to a transaction defaults, the CCP intervenes to prevent the other party from incurring damage. In return, the CCP requires market members to furnish security deposits (margins) aligned to the current day’s risk estimates for the transaction in question. The clearing process takes place after conclusion of the transaction (matching), but before its clearing and settlement.
Under SIX x-clear’s CCP function, trading, clearing and settlement services are fully automated, enabling trading strategies to be implemented in real time. Together with the narrow spreads between bid and asked prices on greenmarket, this real-time settlement represents a cash-effective financial benefit for market members, enabling them to manage cash and certificate portfolios directly and with rapid turnover.
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