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Carbon Market Demand Surges

Demand for carbon markets has exploded since COP 26 as shown by Nasdaq and Climate Impact X launching a strategic technology partnership.

In June this year CIX said it will use Nasdaq’s matching technology to power its spot trading platform for quality carbon credits which is slated to launch in early 2023 for financial institutions and institutional investors.

 Roland Chai, Nasdaq

Roland Chai, head of market platforms at Nasdaq, told Markets Media: “Carbon market demand has exploded in the last six to eight months since COP 26. We see tremendous growth in the carbon space as well as in the post-trade space for clearing systems and central securities depositories or registry systems for digital assets.”

Market platforms at Nasdaq provides purpose-built products to meet the technology needs of marketplace infrastructure clients. CIX said Nasdaq’s marketplace services platform will enable resilient and dynamically scalable trading in a cloud-based software-as-a-service (SaaS) environment and bring exchange-grade trading functionalities to the voluntary carbon market. The new exchange is a joint venture between DBS Bank, Singapore Exchange, Standard Chartered and Temasek.

Mikkel Larsen, chief executive of CIX, said in a statement: “Enabling a trade matching process that is as seamless as possible will help to simplify the buyer’s journey and improve price transparency in the voluntary carbon market. Nasdaq brings unparalleled expertise in matching technology.”

The technology agreement between CIX is the latest step in Nasdaq’s efforts to use technology to transform carbon markets.

In March this year Nasdaq announced the launch of new commodity reference price indexes , which it said are the first in the world to track the price of removing carbon dioxide from the atmosphere, and will follow the price of Carbon Removal Certificates (CORCs) issued by Puro.earth, a Nasdaq subsidiary. By providing access to reference prices for carbon removal, Nasdaq aims to create the transparency needed to encourage investment and support project financing decisions.

“Carbon is a great example of more types of products being traded on exchanges and a good resilient trading system will work irrespective of the asset class,” added Chai. “A matching engine with a central limit order book or request-for-quote functionality can be brought to new asset classes to drive transparency and price discovery through aggregating liquidity.”

Cloud deployments

Chai continued that Nasdaq has also been successful in selling trading systems to the new crypto and digital assets market.

“They can develop their own technology but have selected us because they know it is a tried and tested trading engine in both the US and Europe that enables price discovery, liquidity aggregation and transparency,” he added.

For example Xtage, a digital asset trading platform created by Brazilian broker XP using technology from Nasdaq,  launched this month.

In addition to providing infrastructure for new asset classes, Nasdaq also provides technology to a number of banks and brokers and maintains their alternative trading systems (ATSs), which Chai said involves supplying a rich suite of software to allow them to manage volatility, particularly in equities and commodities.

“Many trading desks need SaaS cloud-based risk tools to process and manage their  exposure, which is  where we’ve had quite a bit of success,” he added. “Cloud deployments are maturing and we can provide expertise in working with our own regulator, our data centres, and through our partnership with AWS.”

 Adena Friedman, Nasdaq

Adena Friedman, chief executive of Nasdaq, said on the firm’s second quarter results call that the migration of its first market to AWS is on track and that new clients of its market technology business are increasingly deploying SaaS solutions, rather than on-site installations.

In November last year Nasdaq announced a multi-year partnership with AWS to migrate its North American markets to the cloud provider in a phased approach, starting with US options market Nasdaq MRX. AWS has committed to create a private local zone within Nasdaq’s primary Carteret data centre in New Jersey and Nasdaq MRX is due to migrate to the cloud in the fourth quarter of this year.

Friedman continued that the overall sentiment from clients at Nasdaq’s recent annual Technology of the Future conference was that they saw the advantages of cloud deployments as they contemplate shifts in their operating models and look for new ways to differentiate their offerings.

Chai said: “The benefits are really a play on two things – capacity resiliency and data analytics.”

He continued that a major focus for clients is upgrading their legacy technology stack so it has capacity and can fulfil demand in their local market.

“In some areas there is aggressive expansion and we need to partner with our customers to build infrastructure and scale,” Chai added.