SEC to include carbon credits in multi-asset derivatives exchange plan

By Nishel Fernando

Sri Lanka’s Securities and Exchange Commission (SEC) is set to include carbon credits as an underlying asset class in the proposed multi-asset class derivatives exchange in Colombo’s Port City, the regulator said.

The SEC had initially begun developing a regulatory framework specifically for a carbon credit exchange.

“Upon further review, it was found that the new SEC Act, alongside its rules and regulations, allows for the licensing of a derivatives exchange, regardless of the underlying asset class, as well as the associated depository and clearing house. This prompted the decision to establish a multi-asset class derivatives exchange where carbon credits could be traded,” the SEC explained.

Earlier this year, the SEC issued an Expressions of Interest (EOI) request, inviting eligible entities to participate in the establishment and operation of the exchange. In response to market requests, the SEC has extended the timeline for proposal submissions to provide more time for interested parties.

The SEC emphasised that this initiative is not only designed to stimulate growth in the capital market but also contribute to the country’s economic recovery and sustainable development. By enabling carbon credits as a tradable derivative, the SEC aims to create sustainable business opportunities while broadening the scope of Sri Lanka’s capital markets.

“This initiative will offer a price discovery mechanism for carbon credits, allowing companies to trade their carbon credit units. It is also expected to enhance access to carbon financing, supporting investment and conservation efforts across multiple industries,” the SEC added.

Additionally, the inclusion of carbon credits is anticipated to attract both local and foreign investors, bringing in much-needed foreign inflows.

To ensure the initiative aligns with international standards, the SEC has conducted a cross-jurisdictional analysis, considering various regulatory and market factors. This analysis provides strategic direction for the development of a carbon credit exchange, addressing potential risks and ensuring compliance with global best practices, according to the SEC.