Improved transaction reporting would require manually reporting the additional three fields when completing an NZU transaction over the counter. This will involve completing three additional fields when completing a transaction report via the NZETR.
Alternatively, trading NZUs through the optional centralised exchange would automatically report the NZUs or value of the transaction, volume and unit type on behalf of the buyers and sellers.
The rationale for collecting more transaction information is as follows:
- Recording and tracking the price of NZUs via the NZETR helps create a reliable price signal, if published. This price signal helps inform buying and selling decisions, while minimising the cost impact of the carbon price. Given all transactions are recorded and tracked via the NZETR anyway, including an additional field to collect price and/or value information is among the most cost-effective and low-burden methods to improve transaction reporting.
- With the collection of price information, it is also important to be able to distinguish what is a market transaction with a market price, or a transfer of units between own accounts. In the former case, the price and volume information continue to be a reflection of trading activity in the market.
- Some stakeholder submissions to the 2021 market governance consultation suggested it would be useful to record transaction by stakeholder type (ie, whether the buyer or seller was a forester, financial intermediary, or a participant with surrender obligations under the CCRA). The rationale for this was that there are now more different types of people trading NZUs in the NZU market than at its inception, and some of those traders do not have surrender obligations under the CCRA.
Bridging the information gap by publishing more information
To support efficient markets, relevant and useful market information must be available to help NZU market users understand overall supply and demand conditions in the market.
We consider a method to improve market efficiency further is to support the EPA in publishing (anonymised and in aggregate) some of the useful market information collected.
Markets are efficient when they achieve allocative efficiency and efficient price discovery.
- Allocative efficiency means that the market channels resources, such as NZUs, to their highest value uses, and where emissions are reduced by those best placed to abate, at the best time.
- Efficient price discovery, whether explicit or inferred, means the price of NZUs needs to reflect all available information – including the price at which other buyers and sellers are selling NZUs.
The EPA already publishes a range of NZU market data, such as transaction trends, transactions by volume, emissions units transferred, and privately held units.* We propose that the EPA could also be empowered to publish additional reports, including:
- an end-of-day price for all NZU transactions in the NZETR
- the number of transactions, and the volume bought and sold, between accounts (identified using the ‘with someone else’ field), as distinguishing between the two types of trades helps inform reliable price and volume signals
- the types of NZU market users – which would help identify market sentiment and provide supply and demand indicators relevant to sale and purchase decisions.
In doing so, we would be mindful of privacy and confidentially obligations, so as to not expose the buying and selling activities of NZU traders. Publishing this data would help reduce information asymmetry in the NZU market.
The EPA would continue to oversee NZ ETS reporting, including new information on price, who the trade is between, and the type of stakeholders involved in the transaction. Collecting this additional information supports the EPA in their role of monitoring and providing oversight of trades. This provides additional oversight to guard against the risks of manipulation of the price, insider trading and anti-competitive conduct.