London, 27 March: Investment banks Merrill Lynch and Société Générale (SocGen) have both announced the launch of carbon indexes, following similar moves by Barclays Capital and UBS.
Both indexes will track prices for EU allowances (EUAs) and certified emission reductions (CERs), with a weighting of 71:29 in the Merrill Lynch Global CO2 emissions index and an even 50:50 split for SocGen’s. Merrill Lynch is also offering a separate EUA index and CER index.
The US investment bank will source EUA prices from the London-based European Climate Exchange (ECX), while the CER index will be an average of closing prices from three brokerages, which the bank will call every day. The three brokerages are yet to be decided upon, said Francisco Blanch, head of global commodities research for Merrill Lynch.
“We try to move towards exchange-traded markets when we can,” he told Environmental Finance, as it is more transparent and “better for the client if he can see closing prices on an exchange”.
The indexes will roll in February every year, to the following year’s vintage, said Blanch – meaning that the indexes right now are based on December 2009 prices.
Meanwhile, SocGen has teamed up with Paris-based emissions trading company Orbeo, which the bank owns jointly with French chemicals firm Rhodia, to launch its SGI-Orbeo Carbon Credit Index. This index will track the “first nearby” vintage in both the EUA and CER futures contracts, starting with the December 2008 contracts on the ECX, said Emmanuel Fages, analyst and business developer for Orbeo, with both contracts holding an equal weight in the index.
“It is very simple,” said Fages of the index. "It will track one maturity," with the most liquidity – which tends to be the front December, he said.
The bank will target “traditional fund managers” for investment in the index, such as pension funds and hedge funds, said Fages.
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