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permit. Under the provisions of Polish law, this meansa licence to perform brokerage activities issued by thePolish Financial Supervision Authority (KNF). TheKNF issues the licences to enterprises that fulfil therequirements which are clearly outlined in thedirective, mainly those pertaining to organisation andthe quality of the provision of services. The procedureof getting a licence is very long and complicated. TheEuropean Commission is trying to create a "window"within which entities would not need a licence for thepurpose of trading in the carbon market. No licencewould be required in case of entities for whom suchtrade constitutes only ancillary activity in relation totheir main activity. Moreover, such entities cannot be apart of a financial group. However, this does not change the situation in thederivatives sector where the underlying instrument is emission allowance. Here, both in case ofpurchasing and selling, on one's own behalf and onbehalf of someone else, possessing an appropriatelicence is mandatory. What is a financial instrument and why is it soimportant to regulate the financial instrumentsmarket? Financial instruments such as derivativeshave been known for years, and are particularly likedand most often used by speculators. Derivatives havemany a time revealed their somewhat unpredictablenature, leading to the first huge crisis in the 17thcentury. The Netherlands, a country known for tulips,experienced the results of the overvaluation of tulipbulbs for more than 100 years. Some people madetheir fortunes during this period, others lost more thanthey had. Looking at the present times, however, an inappropriate use of options and offering zero-cost strategies by banks in the currency marketCOMMODITY 074AND EMISSIONS TRAININGhave led many Polish companies to the brink of ruin. As we can see, the practice of regulating andsupervising financial markets began a long time ago,but subsequent years bring new crises. Does this allowus to claim that superior control and better supervisionwill protect companies from an inappropriate use ofoptions, for instance? This would seem to be the case,however taking into consideration the eventssurrounding currency options this is not such anobvious answer. More precise means of supervision,regulation and control should protect the world fromthe risk associated with financial market activity. It would seem that another risk factor is constituted bythe significant cost of the energy sector, i.e. protectiontools combined with limiting trade with financialinstitutions. Exclusive rights of banks and brokeragefirms to trade in allowances might turn out disastrousin a turbulent macroeconomic environment. It is to behoped that combining the economically significantenergy sector, which constitutes an important elementof state security, with the banking sector, will not be areason of another crisis and will not be, as it was in2008, an excuse to support and rescue the strictlyregulated and supervised banking sector. To sum up, the new market structure underlines theneed for a quick and relevant training of staff inbrokerage firms and banks as well as obtainingappropriate permits by professional entities that haveso far dealt with the EU ETS market. There are only afew banks and brokerages that are members ofEuropean commodity exchanges. Emission allowancesare traded mainly on the Paris BlueNext, London ECX,and German EEX exchanges. Allowances can also be purchased on the Climex andNordpool exchanges. The classification of allowancesas financial instruments forces financial institutions tobecome members of the aforementioned exchanges. Itis important that the European Union Allowance (EUA)does not become just another acronym used on theinterbank market. It is worth reminding that the primeaim of the greenhouse gas emission allowance tradingsystem is to be a mechanism that in an economicallyoptimal way limits greenhouse gas emissions, thuspreventing the so-called greenhouse effect. nABOUT THE AUTHORPawel Jankowski joined Consus in 2007 as a weatherderivatives specialist. He later went on to become atrader specialising in the commodity market - inparticular in the EU ETS and the Kyoto Protocoltrading mechanisms.By profession a stock exchange and commodityexchange broker, Mr Jankowski is a graduate of theNicolaus Copernicus University in Torun, Poland. Photo: © European Union 2011

COMMODITY AND EMISSIONS TRAINING075