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Carbon Trading Market Creating Opportunities

Continued growth in the global carbon trading market and the anticipated adoption of a U.S. climate control bill is creating plenty of new opportunities for investment banks, nascent exchanges, technology vendors and asset servicing agents in the trading and post-trade arenas.

The carbon emissions market, which grew 75 percent to reach $116 billion in 2008 from the prior year, could expand to $2 trillion by 2020 should more markets adopt a version of Europe’s “cap and trade” model for reducing greenhouse gas emissions, according to research firm Celent.

Based on the 1997 Kyoto Protocol, an international treaty, the European Emissions Trading Scheme allows for members of the European Union to create tradable European Emissions Allowances (EUAs) and Certified Emission Reduction Credits (CERs)–otherwise known as offsets. Other countries such as Australia, New Zealand, Canada and Japan are also pursuing their own versions of carbon cap and trade models as is the United States.

“The potential for carbon trading is great, as is the opportunity cost of ignoring the market,” said Stephen Bruel, research director for TowerGroup. Even more lucrative than trading will be advisory services to help energy firms comply with divergent regulations to reduce carbon emissions, he believes. Harmonization between regulatory regimes to create a unified global market, while ideal, is a long way off.

“It is costly for global firms to comply with the patchwork emission schemes and investment banks can help carbon emitter clients navigate this minefield with offset strategies,” said Bruel, citing BNP Paribas, Goldman Sachs and Credit Suisse as examples of firms with specialized carbon risk desks. Hedge funds, he predicted, will also want to capitalize on the arbitrage opportunities between regulatory regimes and will use algorithms to take advantage of the correlations between the price of coal or weather patterns and the price of carbon.

Although much of the trading activity and innovation in the carbon emissions market remains in Europe, where the European Climate Exchange and Bluenext are the largest exchanges, the potential passage of U.S. legislation later this year or in 2010 could easily make the U.S. the largest regulated carbon market.

Under the proposed American Clean Energy and Security Act, the ceiling on greenhouse gas emissions would be divided into billions of permits, each conferring the right to emit one metric ton of carbon dioxide. Fewer permits would be issued to utilities, manufacturers and refiners each year until emissions are 83 percent by 2050 over 2005 levels.

It is unclear what effect the legislation, if passed, would have on several voluntary regional and state projects which have already cropped up, creating emission offset contracts traded over-the-counter, largely through interdealer brokers and web-based mechanisms.

“Trading volumes will continue to expand in the over-the-counter market but U.S. legislation will likely favor exchange-traded contracts and several more exchanges could emerge,” said Jubin Pejman, vice president in the Americas for Trayport, an electronic trading software firm purchased by interdealer broker GFI last year. Exchange-traded contracts are typically standardized and cleared through a centralized facility, which reduces counterparty risk–a key mantra of the new Obama administration for the over-the-counter market.

Three fledgling U.S. emissions exchanges–the Chicago Climate Exchange, its sister company Chicago Climate Futures Exchange and rival Green Exchange, stand to benefit the most from any federal mandate. The CCX, launched in 2003 as a voluntary market with binding targets, offers participants a way to buy and sell “carbon financial instruments” (CFIs) that represent a certain level of emissions reductions; the CCX overtook the over-the-counter market for the first time last year.

The rival Green Exchange created in December 2007, by a consortium of trading firms and the New York Mercantile Exchange (Nymex), is awaiting approval from the Commodity Futures Trading Commission as a designated contract market. Its contracts are already listed for trading and clearing on Nymex.

Pejman said that Trayport’s GlobalVision Broker Trading System, a screen-based network, is scaleable enough for broker dealers to expand their message traffic on bid and offers in the over-the-counter market for carbon emission allowances and credits in the U.S.The firm’s GlobalVision Trading Gateway, which enables traders to trade on multiple liquidity pools through a single user interface, will also link to the Green Exchange, should the market win CFTC approval.

Software vendors with cross-asset capabilities are also finding fertile territory in adding functionality for carbon emission contracts. SunGard has enhanced its GL Clearvision middle office and GL Ubix back-office products–inherited through the 2008 acquisition of GL Trade–for trades executed on Bluenext, a Paris-headquartered exchange majority-owned by NYSE Euronext.

Mark Stugart, product manager of commodities for Calypso Technology, a trading and risk management softwar firm, said that his firm will upgrade its platform to incorporate trade capture, pricing and P&L calculations for EUAs and CERs on the ECX and BlueNext by year end.

Last month, Bank of New York Mellon launched a centralized custody and trade settlement platform called GEM to give customers a single view of their entire carbon portfolio–for regulated and voluntary markets–and perform all transactions including trading, cancellation and retirement of contracts in one place.

Original Article

Source:Securities Industry News, 22.06.2009 by Chris Kentouris

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Filed under: Asia, Australia, Energy & Environment, Exchanges, Korea, News, Trading Technology, , , , , , , , , , , , , , ,

Guotai Junan Securities Chinese broker opts for Sungard OMS

Guotai Junan Securities, a Chinese securities firm, has selected Sungard’s GL Stream order management system to help manage its order flow from onshore clients and target new overseas buy-side clients.

Sungard’s GL Stream will be able to facilitate trading, including direct market access, from Chinese and international investors who want to invest on the Securities Exchange of Hong Kong (SEHK) and help Guotai manage its own orders sent to the SEHK. The solution will also help Guotai receive FIX orders and create new trading strategies.

“With GL Stream, SunGard offers us a functionally-rich trading platform dedicated to trading in Hong Kong,” said Eric Lee, executive director of Guotai Junan Securities. “It helps us to monitor all our trading activity and allows us to provide advanced execution services to our clients.”

“China’s buy-side firms are investing more and more in Hong Kong and foreign markets. Hong Kong brokers therefore have an increased need for order management systems,” added Franck Peltier, managing director of SunGard’s global trading business in Asia.

Source: The Trade News, 11.05.2009

Filed under: Asia, China, Exchanges, FIX Connectivity, Hong Kong, News, Trading Technology, , , , , , , , , ,

SunGard opens Kuala Lumper GL Net hub

SunGard has opened a new hub of its GL Net low-latency market data and order routing network in Kuala Lumpur, Malaysia.

The hub, which is the eighth to be opened in the Asia Pacific region, will provide international investors with access to Bursa Malaysia, the Malaysian equity and derivatives exchange. Local financial institutions will also gain access to SunGard’s GL Net network of brokers, and be able to take advantage of direct market access execution services to more than 110 exchanges and liquidity pools.

Bursa Malaysia operates a fully integrated exchange offering trading, clearing, settlement and depository services. It is one of the largest bourses in Asia, with almost 1,000 listed companies. By opening this new GL Net hub, SunGard will help international investors send electronic orders cost-effectively to Malaysian brokers via GL Net, helping them trade on the Bursa Malaysia and create new investment opportunities.

Vincent Burzynski, chief product officer for SunGard’s global trading business, said: “The launch of this new hub helps us to address an increasing demand from our Asia Pacific customers for greater direct market connectivity in the region. It will also help international investors to access emerging markets in the region through the Bursa Malaysia. It is a further demonstration of our strategy to expand the GL Net network, supporting the growth of electronic trading and helping customers to find new investment opportunities.”

Source: SunGard, 23.04.2009

Filed under: Asia, Exchanges, Islamic Finance, Malaysia, Trading Technology, , , , , , , , ,

SunGard opens GL Net hub in Sao Paolo, Brazil

SunGard has opened a new hub of its GL Net low-latency market data and order routing network in Sao Paolo, Brazil.

The hub, which is the fifth to be opened in the Americas, will provide international investors with access to BM&FBOVESPA, the Brazilian securities, futures and commodities exchange. Local financial institutions will also gain access to SunGard’s GL Net network of brokers, and be able to take advantage of direct market access execution services to more than 110 exchanges and liquidity pools.

BM&FBOVESPA was created in 2008 following the merger of the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa). BM&FBOVESPA is now Latin America’s leading exchange, and one of the largest in the world in terms of market value. By opening the new GL Net hub, SunGard will help international investors send electronic orders cost-effectively to Brazilian brokers via GL Net, helping them trade on BM&FBOVESPA and create new investment opportunities.

Cícero Augusto Vieira, chief operating officer of BM&FBOVESPA, said, “We view SunGard’s investment in its Sao Paulo GL Net hub as recognition of the strength of Brazil’s capital markets, and of the potential of this and other South American cities to become international financial centers. With the additional trading activities that GL Net can help us to offer our customers, we’re confident of attracting new members and investment to the exchange.”

Vincent Burzynski, chief product officer for SunGard’s global trading business, said, “SunGard’s GL Net hub in Sao Paolo will help provide our Latin American customers access to worldwide capital markets. It will also help to meet an increasing demand from our customers for local and international connectivity. Demand for new investment opportunities and the growth of electronic trading are leading us to invest in the expansion of GL Net’s reach, with hubs opened recently in Warsaw, Tel Aviv, Mexico City and now Sao Paulo.”

Source: SunGard, 06.04.2009

Filed under: BM&FBOVESPA, Brazil, Data Vendor, Exchanges, Latin America, Mexico, Trading Technology, , , , , , , , , ,

Mexico:GL TRADE enhances connectivity to Mexican equities and derivatives markets

GL TRADE, global provider of multi-market and multi-asset solutions for international financial institutions, announces the implementation of a GL NET connectivity hub in Mexico City, its thirtieth deployment worldwide. GL NET, the international low-latency market data and order routing network, will support international investors’ access to the Bolsa Mexicana de Valores (BMV) and the Mercado Mexicano de Derivados (MexDer).

With the implementation of this hub, GL TRADE offers the ability for international investors to send electronic orders cost-effectively to Mexican brokers via GL NET, enabling them to trade on the two Mexican exchanges. Secondly, Mexican financial institutions can access the GL NET community of over 300 brokers, providing DMA execution services to more than 140 markets.

MexDer and BMV have already opened up to international traders via local brokers. Spanish banks, for instance, have shown great interest in these exchanges, and US traders are increasingly looking beyond their national boundaries for investment opportunities. GL TRADE provides direct connectivity in ASP to MexDer, and links to BMV via several order-collecting brokers.

Gerard Varjacques, CEO of GL TRADE Americas, says: “The global reach of GL TRADE will bring immense value to our Latin American clients. Mexico is our first hub in Latin America, which will be followed soon by São Paulo, Brazil, where we have set up a local office to respond to the increasing demand on both equities and derivatives. Our comprehensive suite of products provides local and international connectivity. This allows us to develop a strong business in Latin America based on partnerships with exchanges and local firms.”

Philippe Carré, Global Head of Client Connectivity, adds: “We see increasing interest in emerging markets from our clients globally, especially with the acceleration of the growth of electronic trading worldwide. Client demand for tapping into frontier markets has been driving the expansion of the GL NET reach, with the opening of new GL NET hubs in Istanbul, Warsaw, Tel Aviv, Shanghai and now Mexico over the course of 2008.”

Source: GL Trade, 20.11.2008

Filed under: BMV - Mexico, Exchanges, News, Trading Technology, , , , , , , , , , ,