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
Latest
Developing OTC Commodity Derivatives in India
The development of a robust and liquid over-the-counter (OTC) commodity derivatives market in India could support the continued growth of India’s economy given its significant reliance on commodities. A well-functioning OTC market in India would offer several advantages. First, it...
A Critical Step to Efficient Treasury Clearing
By the end of this year, the first prong of the Securities and Exchange Commission’s (SEC) Treasury clearing mandate will come into force. This is part of a regulatory effort to make the financial system more robust, but it will...
Joint Response to FCA and HMT Consultations
On January 16, ISDA and UK Finance responded to both the consultation on streamlining the UK European Market Infrastructure Regulation (UK EMIR) intragroup regime by the Financial Conduct Authority’s (FCA) and the draft statutory instrument from His Majesty’s Treasury (HMT)....
Key Trends in OTC Derivatives Market H1 2025
The latest data from the Bank for International Settlements (BIS) over-the-counter (OTC) derivatives statistics shows an increase in notional outstanding of OTC derivatives during the first half of 2025 compared to the first half of 2024. Notional outstanding rose across...