Italian bourse GME to close carbon market after 3-year suspension

March 12 Wed Mar 12, 2014 12:48pm EDT

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March 12 (Reuters) - Italian state-owned energy exchange Gestore Mercati Energetici (GME) will close its carbon emissions market on March 22, more than three years after it temporarily suspended trade due to what it called "presumed unlawful" activity.

The Rome-based bourse's board of directors made the decision on March 5, GME said in a statement dated March 6 on its website.

A GME official said the exchange was unable to comment further on the matter.

After observing "abnormal" activity in its spot market for EU Allowances (EUAs), GME in December 2010 said it suspended trade due to "perceived irregular or unlawful behaviours" and promptly reported it to Italian tax officials and authorities.

Spokespeople from Italy's ministry of economy and finance and ministry of economic development did not respond to requests sent on Wednesday seeking information on any investigations into the matter.

GME is owned by Gestore dei Servici Energetici, a wholly-owned subsidiary of the Italian ministry of economy and finance.

The bourse's weekly EUA trading volumes ballooned to over 3 million units in late 2010 from around 10,000 units several months earlier, with the sizeable transactions being done at substantial discounts to market rates elsewhere in Europe.

The number of participants in GME's carbon market nearly tripled to over 150 in 2010, according to exchange data, with many of the new member firms sharing the same business address.

A similar rise in trading volumes and members on rival spot exchange BlueNext in 2009 was linked by authorities to value-added tax (VAT) fraud, leading to several arrests.

The Paris-based exchange eventually agreed to pay French tax authorities a 32 million euro ($44 million) settlement, which led to BlueNext's eventual closure.

The surge in GME's trading activity has never been attributed to VAT fraud by the exchange or authorities.

The EU Emissions Trading System (ETS) between 2008 and 2010 was hit by VAT fraud, which European police agency Europol estimates to have cost governments more than 5 billion euros ($6.93 billion) in lost revenue.

The permanent closure of GME's carbon trading platform is not expected to affect the wider EU ETS, as Italian plant operators and businesses can trade via brokers or directly on emissions exchanges in other countries.

($1 = 0.7212 Euros) (Reporting by Michael Szabo in London; Editing by Anthony Barker)

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