Sunday, July 25, 2010

Green Derivatives...just the thing to "fuel inject" the economic engine of the US

WASHINGTON (MarketWatch) -- Green Exchange got its approval from federal futures regulators this week to launch a trading platform that will list contracts tied to credits and allowances for greenhouses gases. 
The Commodity Futures Trading Commission said Friday it had approved the exchange's application Thursday. The announcement of its approval comes just one day after U.S. Senate Democrats decided to table a climate-change bill. That bill would have helped spur a much larger derivatives market to help companies offset their carbon emissions. 
Green Exchange was introduced in 2007 under the New York Mercantile Exchange and a group of banks and brokerages. Its products have been listed at Nymex, which is now owned by CME Group (CME 286.56, +4.84, +1.72%) . The CFTC said those products will now be listed on Green Exchange, which will become a stand-alone entity. 
A spokesman for Green Exchange couldn't be immediately reached for comment.
"We think the Green Exchange has all the right elements to really compete in the marketplace, and achieving the milestone of this approval one of those elements," said Evan Ard, managing director of Evolution Markets, a founding member of the venture. "But there's still a lot of work to be done to effectively compete in the marketplace." 
The CFTC's approval of the Green Exchange now sets the stage for competition between CME and its major rival IntercontinentalExchange Inc. (ICE 108.36, +1.84, +1.73%) , which this year acquired the Climate Exchange PLC (CLE.LN) in a $597 million deal. 
ICE's acquisition will make it a dominant force in Europe's estimated EUR100 billion carbon market. The U.S. market is still quite small, although it has great potential to grow. Point Carbon, a consulting firm, expects the global carbon market to grow $170 billion this year. 
Both CME and ICE are targeting European and U.S. markets with their ventures. But Point Carbon estimated in March that 63% of the trading in the U.S. carbon market was done off-exchange. 
Without a climate-change bill, it could be challenging for both exchanges in the U.S. to build emissions-trading businesses. 
CFTC Commissioner Bart Chilton, who has been advocating for a climate-change bill that will help create a large carbon futures market, said Friday he hadn't lost hope despite the Senate's inaction. 
"There has been and will be green trading," Chilton said. "The question now is when we will get it together and do what needs to be done for our planet. The added benefit to doing the right thing environmentally is that it will fuel-inject the economic engine of our democracy--something last I checked, we sorely need."
 Well, posted this CFTC's Bart Chilton On Financial Reform, Position Limits, and Curbing 'Disruptive Practices' post. I have to tell you I gave Bart the benefit of the doubt in his statements and to make his case on the feeling was that he was pontificating horse manure. If there was one thing this Financial reform bill was not it is "Heroic". Nor is it particularly patriotic. There are some things that are certainly constructive in it, but not things that big players will not be able to bypass if they really want to - and I am sure they do and will!

However, Chilton sounded like a government lobbyist to the US public not an official protecting them. I do not discount that he may actually mean some or all of what he says...but he lost all credibility with this BS in the article above. The absolute last thing we need are super leveraged derivatives on more products that only exist in the minds of a few computers owned by Goldman and JPM and a few other inside players.

If we trade carbon offsets or derivatives based on them we are really amplifying the problem that exists in many of the commodity markets regarding physical commodity fraud. For example, Gold and Silver vehicles - ETF's and futures. The Gold and Silver backing them, either does not exist in amounts required or does not exist at all. But the elements Gold and Silver actually do exist as physically identifiable objects with which it is possible to validate collateral or discover fabrication.

Green products, however, are quite a different story.  Carbon offsets and carbon trading have NO practical accountability and do not physically exist in an easily verifiable way that is enforceable or manageable.  Therefore, they have no verifiable price. That does not make for a quality market and will further undermine the futures markets in general. Why else do you think Al Gore went to Goldman Tax with the idea? Fraud is a great business. These products are fraudulent from the outset. Is that what will really drive "...fuel injection in the US economic engine"? Why not trade Mel Gibson derivatives via ICE...ohh, I forgot, we already very nearly do that!

Chilton is just one of the crew, in my book and simply adds more evidence to the pool that usurps integrity in the, so called, "Financial Reform Bill".
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