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Traders call for stricter rules on carbon price-moving information

09 Apr 2013 18:16:49 | edcm

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EU politicians and institutions should be subject to stricter rules when communicating news and rumours that have market-moving potential, traders said on Tuesday.

The call came on a day when traders identified Twitter comments by a member of the European Parliament (MEP), concerning the back-loading proposal, as a trigger for panic selling that crashed carbon prices.

In the morning, Eija-Riitta Korhola, the European People's Party (EPP) lead figure for the back-loading, tweeted: "Backloading debate and vote again in the group today. EPP will stay firm on the rejection. Vast majority behind me, thank you colleagues." She also added that 52 voted for rejecting and 7 in favour of the proposal, with some abstentions.

Although traders agreed that the information disclosed was not new, the market reacted with a panic sell-off. The 2013 benchmark EU allowance (EUA) contract crashed by over 6% in 20 minutes to a low of €4.66/tonnes of CO2 equivalent (tCO2e).

The comments also failed to provide more insight into which way an upcoming vote on the proposal could go, said Philipp Ruf, analyst at German consultancy Tschach Solutions. "It has always been clear that the majority of EPP will oppose the back-loading measure," he added.

Stricter rules

The reaction underlines how tense the market is ahead of the vote on the back-loading scheduled for next week at the European Parliament.

"The market reacts currently very nervous on all news concerning back-loading," Ruf said.

With the EU emission trading system (ETS) largely oversupplied, the proposal to back-load some 900m EU allowances (EUAs) is considered the only way to temporarily support prices.

Given this context, market participants criticised the way the the latest EPP vote outcome was announced. Several market sources polled by ICIS on Tuesday underlined the need for a "communication code" to be adopted in the wake of the day's developments.

"Central banks only communicate formally... Imagine if Draghi tweeted his thoughts on an ad hoc basis? It would be chaos," a source said, referring to Mario Draghi, the president of the European Central Bank.

"I think information leakage should be monitored in some way, especially as we get closer to such important dates," said another trader.

"MEPs such as [Korhola] should know the impact of their words," said Henrik Hasselknippe, director of energy products at CME Group, also on Twitter.

"The insensitivity of politicians is ruining the functionality of this market," added Matthew Gray, carbon analyst at Bache.

Commission's reply

The European Commission responded by saying that it was not answerable for comments made directly by a MEP.

"The Commission is the official market regulator and communicates through the established official channels. Comments made on Twitter come from a MEP. Market must know this. MEPs communicate under their responsibility," the Commission replied on Twitter, when asked wether it has ever considered the adoption of such rules.

Traders seemed to reject entirely the idea that the carbon market could benefit from individuals involved in the ETS communicating via social or other media ad hoc to share information or increase transparency.

Asked by ICIS to comment on the impact of her tweets, Korhola said: "The market may panic but we don't. Why not trust the ETS, create a level playing field for the carbon market. No to subsidies."

The European Parliament did not respond to ICIS' request for comment at the time of going to press. Silvia Molteni

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