Implications of the FRTB for Carbon Certificates

On July 23, ISDA published a new paper, Implications of the FRTB for Carbon Certificates, which explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

The FRTB would result in higher capital charges for carbon trading under the standardized approach to market risk, which could impair the ability of banks to act as intermediaries in the emissions trading system market globally, hampering a key tool for policy-makers to ensure a cost-effective transition to a carbon-neutral economy.

This paper was developed by ISDA’s ESG Risk and Capital working group and provides a detailed analysis of how the FRTB would impact on carbon certificates. The analysis, which is supported by market data, suggests the risk weight for carbon certificates should be reduced from 60% to 37% and the tenor correlation parameter should be increased from 0.99 to 0.995-0.999.

Documents (1) for Implications of the FRTB for Carbon Certificates

FRTB Impact on Correlation Trading

The capitalization of the correlation trading portfolio (CTP) under the Fundamental Review of the Trading Book will have an adverse economic impact for users of these instruments. In particular, there is a lack of clarity and consistency in the application...

A Path to Greater CFTC-SEC Alignment

Earlier this week, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) held a roundtable on regulatory harmonization – an initiative we wholeheartedly support. The US regulatory framework has evolved over time to facilitate financial markets...