What’s the next big thing? Knight Capital Group is placing its bets on the global carbon markets. The global capital markets firm is building a carbon trading business and has hired Dan Braun as managing director, head of carbon trading to lead the effort. Prior to joining Knight, Braun served as an advisor on carbon credit development and trading issues. His experience includes being a portfolio manager and director of global environmental finance at hedge fund Start Investments and senior energy trader at Florida Power & Light.
“This is a fascinating role that virtually brings together every aspect of my professional background,” Braun said in an interview with Advanced Trading.
Knight is one of the few brokerage firms to launch a carbon trading business. “TJ (Thomas Joyce, Chairman and CEO of Knight] has been talking about expanding asset classes for some time,” said a Knight spokeswoman. Braun adds, “Knight is a very progressive company. They move aggressively into new markets.”
Braun notes that carbon is an emerging asset class, and adds that in various places it is more mature, such as Europe, than in markets like the U.S. and Australia, where it is still more developmental.
Thus the reason Braun’s first step is to head out to London, hire traders and salespeople and build a business around the European carbon emissions (or cap and trade) market. “Europe is the first market to open up, and we’ll be leveraging Knight’s technology to trade there.” He said specifics on the trading platform the new group would use had not been finalized. In Europe carbon credits are traded both electronically and over the phone---the split is about 50-50, Braun said.
In London he planed to begin recruiting a team of 3-5 traders and sales people in the coming year. This team would start by trading two standardized products; the EUA (European Union Allowance), which is a plain vanilla carbon contract, and the CER (Certified Emissions Reductions), which is a standardized tradable contract. As the market becomes more developed, Braun says his vision is to trade more esoteric contracts.
What type of person fits the bill to trade carbon for Knight? Braun says this is a new asset class, so he can’t look for people who have 15-20 years of experience in this market. But what he is looking for is someone who is very comfortable on a trading desk but also very comfortable talking to people in both political and corporate circles. “This is an area where capital markets and the DC market are intermingled,” he says.
The development of the market in the U.S. is very dependent on an energy package that is currently facing Congress. And Braun notes, “The volume traded in the U.S. will depend on the timing of the passing of this legislation.” The legislation, which has already passed the Senate, would create a federally mandated program for trading carbon credits. (The concept of carbon trading is that there is a cap put on the carbon units that each country, region, state can emit. These areas can trade their allotted units it.) The passage of the piece of legislation is tentatively set for early Spring. The Bill has already passed the Senate. However, Braun notes, that with the health care reform getting most of the attention in Washington, it is optimistic to think it will be passed this Spring.
Even if a cap and trade program is not federally mandated, there will still be a market for carbon trading in the U.S., Braun notes. There is a regional greenhouse gas initiative, in which 22 regions can trade carbon credits. These contracts are traded on the Chicago Climate Futures Exchange. And the Environmental Protection Agency is working on a program as well, Braun adds.
The U.S. volume its going to be a huge function of when the legislation passes, Braun says, and Knight plans to be prepared once this market takes off.