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Corrected: New registry timeline sparks apprehension on the market

04 May 2012 18:03:00 | edcm

The ICIS story headlined "New registry timeline sparks fears in market", dated 4 May 2012, erroneously stated in paragraphs three, 17 and 18 that Germany, the UK and Poland will not be part of the single EU registry, when in fact they will be. ICIS apologies for any inconvenience caused by this error. A corrected story follows.

Carbon traders are apprehensive about the possible negative consequences on the market of the transition to the new shared registry next month and some have said trading has already suffered.

After some delays, the European Commission on Thursday published its timetable for the launch of the shared registry, which showed that it will suspend trading for about a fortnight (see EDCM 3 May 2012).

The suspension starts on 3 June and the registry will be activated with all accounts in national registries on that date being transferred on 20 June of this year.

While it had been widely anticipated that national registries would shut for a fortnight during the transition of their accounts to the common EU registry (see EDCM 18 July 2011), market participants reacted to the news nervously on Thursday.

More secure, but slower

"The security of the registries has become a priority as a result of the fraud with emission allowances in 2010 and 2011," an EU document on the new registry rules reads.

"In early 2011, the Commission took immediate action by temporarily suspending all national registries until they fulfilled minimum security requirements."

The registries were closed for different periods until their security had sufficiently been restored. Traders said this background made them uneasy about the transition.

One said: "What scares people right now is that, if it [fraud] happened again, and, if the registry gets stuck, what would happen if it didn't open for a couple of weeks?"

The delays in introducing the new registry are feeding into the apprehension.

"Now is not the same situation [as when registries were suspended because of fraud], but we all agree that, if the Commission says two weeks, it may be four months; you never know," the trader said.

This worry has already impacted on trading, according to some.

"At the moment, we're not moving at all," a second source said, referring to the reported lack of spot trading on Thursday. "It's a bit of a scary situation on the market. We've not even taken a position today.

Bureaucratic burden

While part of the recent reduction in trading is linked to a lack of trust in the timetable, the added layer of bureaucracy is worrying market participants. One source cited clients asking why the same documents must be sent separately to single and national registries.

But the 26-hour delay on spot transactions could be detrimental for smaller participants. In such cases, the allowance transfers between registry accounts will be held, giving sellers the first 24 hours to cancel suspected fraudulent transactions and registry administrators another two hours after that to carry out the cancellation.

Some said that, given the economic climate and low carbon prices, smaller players could lack a buffer against such delays.

"Most of them don't work on futures but on spot, particularly the smaller ones, and these delays will cause problems closing spot deals on the market," a source said. Those not trading futures will probably close, the source said, which could reduce liquidity. MLDB

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