TECH TUESDAY is a weekly content series covering all aspects of capital markets technology. TECH TUESDAY is produced in collaboration with Nasdaq.
Earlier this month, Climate Impact X’s launch of CIX Exchange, powered by Nasdaq’s trading technology, is the latest sign that carbon and other non-traditional markets will need their functionality to be on par with most modern stock exchanges. Underpinned by Nasdaq’s Marketplace Services Platform, CIX Exchange can offer market participants a customized experience for platform stability, governance and performance.
Trading carbon as a way to offset emissions dates as far back as 1989, with an agroforest in Guatemala. The Kyoto Protocol of 1997 and the Paris Agreement in 2015 were important steps toward institutionalization, but carbon traders remain challenged by illiquidity, market fragmentation, and limited efficiencies and price discovery as compared with traditional markets.
“Our strategy is to provide the pillars needed for well-functioning markets: integrity, transparency, liquidity, and technology,” Virginie Barbot, Head of Southeast Asia and Pacific Marketplace Technology at Nasdaq, told Traders Magazine. “It doesn’t matter what underlying asset is traded; it just matters to have those pillars in place. Stock exchanges often serve as guidelines for other asset classes.”
Virginie noted the ongoing global push for guidelines and frameworks to build trust in carbon markets, which is serving as a tailwind for modernization of carbon trading venues. “There is a great need to enhance transparency around the transactions, the prices, the type of credits, and the criteria around the credits,” Virginie told Traders Magazine.
In a bid to boost transparency and price certainty, Climate Impact X (CIX) has introduced the first daily on-exchange liquidity window in the voluntary carbon market, pooling liquidity in a 30-minute daily trading session, with firm bids and offers from across Europe, Asia and the Middle East. Nasdaq’s Marketplace Services Platform enables CIX to uniquely cater to all major user requirements with the ability to match order across multiple parameters.
Data infrastructure is key for the future of the carbon market. “A common data system is needed to collect and structure all openly accessible data on the lifecycle of carbon credits to enhance transparency, trust, and integrity,” the World Bank noted in a March 2023 blog post. “Such a system could enable the scale-up of carbon markets and act as an aggregating force in the overall ecosystem, bringing together real-time, comparable, and auditable emissions reductions data from disparate registry systems across the world.”
“Data sets related to carbon emissions are very complex, so sophisticated data management systems are very important for carbon trading,” Virginie said. “They need to be capable of processing and storing large amounts of data.”
Virginie said that the partnership with Singapore-based CIX is representative of the regional push toward growth. “In Asia, conversations are all about expansion and upgrading legacy systems,” she said. “With our clients we are seeing a strong need to invest in technology infrastructure and reap the benefits of cloud.”
“The main agenda item for market operators is to ensure and maintain the transparency and ease of market access for local participants, while attracting more international investors,” she added. “With CIX, it’s about bringing an institutional grade trading platform that can support the standardization and the key pricing signals that will help the carbon market grow.”
Creating tomorrow’s markets today. Find out more about Nasdaq’s offerings to drive your business forward here.
