Two European financial-industry groups are warning against measures that could reduce intermediary participation in carbon-allowance trading. In a submission to the European Commission on the EU Emissions Trading System review, ISDA and the Association for Financial Markets in Europe argue that companies required to surrender emissions allowances need liquid markets to manage future carbon-price risk. The joint statement was submitted on 2 November and described publicly on 3 November. It is an industry response to a policy consultation, not a Commission proposal already adopted into law.[1]
The underlying market question concerns matching companies that naturally need to buy allowances at different dates with institutions willing to price or warehouse exposure. A manufacturer exposed to rising emissions prices may want to lock in the cost of future compliance. A bank or market maker can quote derivative prices and absorb temporary order imbalances, although it also charges a spread and controls its own risk. Restricting such intermediaries might reduce speculation in one sense while also reducing the number of counterparties available when hedgers need to transact. That is the economic tension highlighted by the submission.[1]
What changes for brokers and counterparties
The two associations also call for a predictable, market-based framework and an early timetable for linking the EU and UK emissions-trading systems. Cross-border linking could affect hedging instruments, currency conversion and basis relationships, but their statement does not establish that an EU–UK link has been agreed or that a single fungible allowance has been created. Contract specifications, compliance recognition and clearing arrangements would still need to be settled. Brokers should distinguish the traded allowance, cash-settled derivatives and any UK-linked instrument before comparing liquidity.[1]
The submission deserves scrutiny because ISDA and AFME represent participants with a direct interest in market access. Their arguments describe plausible liquidity mechanisms but are not, by themselves, a measured causal finding that a particular regulatory change would widen spreads by a specified amount. The immediate news is the position communicated to policymakers. A useful follow-up for brokerage and commodity readers would compare Commission proposals, venue volumes, bid-offer spreads and clearing requirements after an official reform text appears, rather than turning an advocacy submission into a prediction of future law.[1]
Evidence, scope and operating implications
| Measure | Verified scope |
|---|---|
| Submission | ISDA and AFME joint position on the EU ETS review |
| Submitted | 2 November 2026; public ISDA notice 3 November |
| Stated priority | Preserve liquid hedging markets and intermediary participation |
| Cross-border idea | Early EU–UK ETS linkage timetable requested, not agreed |
| Legal status | Industry comments; no enacted regulatory change |
| Research limit | Spread/liquidity impact not independently quantified by the notice |
Sources & further reading
- ISDA and AFME respond to EC's call for feedback on ETS review International Swaps and Derivatives Association · 3 Nov 2026 · Accessed 6 Nov 2026