While bilateral carbon offset transactions through the registries that also supply the US futures contracts with their credits may be exempt from most CFTC and exchange rules (as opposed to the futures contracts themselves), firms need to recognize that the CFTC may claim jurisdiction over the transactions relying on those registries for purposes of fraud and market manipulation cases.This is an aggressive regulatory regime with specialized rules that apply to all participants All exchange-based trading activity is subject to CFTC regulations and US exchange rules.Nor are market participants always attuned to the specific risks associated with CFTC oversight of these physical markets.Ĭompanies that are trading carbon futures contracts such as GEO and N-GEO or that are performing bi-lateral carbon offset transactions through the registries underlying the US exchange-based carbon futures should consider that: We have observed that market participants are not always aware of the wide spectrum of legal exposure generated by the physical transaction marketplaces underlying the futures markets that the CFTC oversees. The CFTCĬFTC jurisdiction and regulations apply to both carbon credit futures transactions and the markets underlying the pricing of carbon credits traded on US exchanges. Moreover, many companies might benefit from having candid evaluations and deliberations regarding their ESG processes and controls in the context of seeking legal advice within the scope of the attorney-client privilege. ![]() As the standards develop, they may create potential risks associated with prior public statements of corporate sustainability and carbon reduction initiatives as well as mandate greater conformity in controls and reporting systems.Īlthough the foregoing considerations implicate accounting and other specialized skills, the development of strategies and the documentation of discretionary conclusions-and the basis for these conclusions-should be grounded on sound securities law advice given the potential liabilities under existing and potential legislation and regulations.
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