CME launches more SO2 contracts

London, 2 July: CME Group is to launch a new series of futures and options contracts based on sulphur dioxide (SO2) allowances in mid July.

The futures will start trading on 12 July on the electronic CME ClearPort system. The options on the futures will trade on the Nymex trading floor, beginning on 13 July. Both contracts are listed by Nymex, a member of the CME Group, which is the largest futures and options exchange, and are subject to Nymex rules and regulations.

For each of the contracts, the underlying asset is 25 allowances, representing 25 tons of SO2. This is in line with the contract size on the Chicago Climate Futures Exchange, which currently dominates exchange trading of SO2. The existing Nymex SO2 contracts each represent 100 allowances and these have been “pretty quiet” recently said Randy Warsanger, director of green products at Nymex. It is hoped the contracts will help increase liquidity in the market as 25 tons is a popular size, he added.

The maturities vary according to the underlying allowance vintage. Those with a specified vintage year (2010-2020) will be listed for two front months, the first of which will be August, and the next two Decembers. Contracts with no specified vintage year, such as those for the current vintage and earlier, will be listed for 36 consecutive months.

It is intended that the new contracts will be listed on the Green Exchange – a joint venture between CME and brokerage Evolution Markets, among other financial institutions – when regulatory approval has been granted.

The SO2 market was established in response to amendments to the Clean Air Act, which enshrined a goal of reducing annual SO2 emissions in the US.