Good Derivatives: A Story of Financial and Environmental Innovation

Chapter 21

The Chicago Climate Futures Exchange

Expanding the Brand

Everyone lives by selling something.

—Robert Louis Stevenson

It had always been my vision to create markets that covered the entire gamut of environmental products. With the launch of CCX, we had established the very first platform for spot trading carbon. Environmental markets for sulfur dioxide and nitrous oxide allowances, however, were primarily still transacted over the counter as spot and forward contacts through brokerage houses. When brokers entertain lavishly, they must be making lavish profits. In other words, the markets were inefficient. While brokers played an important role in the evolution of markets, their transactions were opaque, and lacked efficient price discovery and clearing. As an entrepreneur and innovator, I was amazed that nearly a decade after launching the Acid Rain Program, existing futures exchanges had yet to launch a futures market for SO₂ and NO_x allowances. My earlier involvement in the Acid Rain Program and conducting SO₂ auctions at the CBOT gave me confidence that a futures market for SO₂ would be well received. In 2004, we began the process of establishing the Chicago Climate Futures Exchange (CCFE).

Setting Up Shop

The CCX model served as a successful blueprint. CCFE outsourced most operational functions to focus on product innovation, marketing, and sales.

Given our solid partnership, the Intercontinental Exchange (ICE) agreed to provide the electronic platform for futures ...