LCH.Clearnet to clear OTC emissions spot trading

LONDON, June 24 (Reuters) - Clearing house LCH.Clearnet will on July 3 launch an over-the-counter (OTC) clearing service for the UK-based spot market for carbon emissions trading, the company said on Wednesday.

The service will cover European Union emissions permits (EUAs) as well as Certified Emissions Reductions (CERs), the project-based offset credits issued by the United Nations under the Kyoto Protocol climate change agreement.

"Cleared transactions will now automatically flow directly from (electronic platform) Trayport ... to LCH.Clearnet's systems, greatly improving market efficiency and processing," LCH.Clearnet said in a statement.

One emissions broker told Reuters he expected trading fees through the LCH.Clearnet to be less than those charged by the London-based European Climate Exchange (ECX), the world's largest greenhouse gas emissions marketplace (CLIE.L).

The ECX dropped LCH.Clearnet's clearing services in 2007 after partner IntercontinentalExchange (ICE.N) launched a rival service.

The European spot market for carbon trading has come under scrutiny recently after the French government made permit trading exempt from value added tax (VAT) in a move to prevent a potential tax scam involving French emissions exchange BlueNext. [ID:nLB612295]

Brokers said the LCH.Clearnet service and Britain's spot market as a whole were not vulnerable to VAT fraud, also known as carousel fraud, because of strict KYC (Know Your Customer) regulations for brokers introduced by the UK's Financial Services Authority.

"The only access to the LCH.Clearnet service is through a broker, and brokers and LCH.Clearnet operate under stricter regulations than most of the rest of Europe," said James Emanuel, commercial director at broker CantorCO2e. (Reporting by Michael Szabo; Editing by James Jukwey)