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BY ELECTRONIC TRANSMISSION

Submission No. 20-50

June 5, 2020

Mr. Christopher J. Kirkpatrick

Secretary of the Commission

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

Re: Amendments to Rules 18.D.048 and 18.D.049 (California Carbon Allowance Auction 

Contracts) -- Submission Pursuant to Section 5c(c)(1) of the Act and Regulation 40.6(a) 

Dear Mr. Kirkpatrick:

Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended (the “Act”) and 

Commodity Futures Trading Commission (“Commission”) Regulation 40.6(a), ICE Futures U.S., Inc. 

(“IFUS” or “Exchange”) hereby self-certifies the amendments to Rules 18.D. 048 and 049 set forth in 

Exhibit A. As discussed below, the amendments clarify certain aspects of two of the Exchange’s emissions 

contracts --the California Carbon Allowance Current Auction Clearing Price Contract (“ACP”) and the 

Carbon Allowance Advance Auction Clearing Price Contract (“ACA”) to provide clarity on how the 

Exchange would determine the last trading day and the price for final settlement in the event that the 

underlying reference auction is cancelled or significantly delayed. 

BACKGROUND ON EXCHANGE CARBON EMISSION AUCTION CONTRACTS

The Exchange’s ACP and ACA contracts (the “Auction Contracts”) are based on a carbon emission 

allowance auction that is sponsored by the California Air Resources Board (“CARB”) and the Quebec 

MELCC (the “Joint Auction”). There are four Joint Auctions held in February, May, August and November 

and an auction clearing price is published following each auction pursuant to a published calendar of the 

auction operators. The procedures governing the Joint Auction include the establishment of an annual 

auction reserve price which serves as a floor below which the published auction clearing price cannot be 

set during the calendar year to which that reserve price is applicable (the “Reserve Price”). The Exchange 

lists Auction Contracts in the same contract months and, at expiration, each Auction Contract is settled 

through physical delivery of an Exchange futures contract that is based on the same underlying carbon 

emission allowances as auctioned in the Joint Auction. For example, the holders of long/short positions in

the May 20 ACP received a long/short futures positions in the next listed delivery month of the Exchange’s 

California Carbon Allowance Futures Contract (“CCA”), which was the June 20 futures contract. 

Participants trade the Auction Contracts at a +/- differential to the relevant Joint Auction 

publication price--which is not yet known at the time of trading. When an Auction Contract expires, the

long/short position in the corresponding CCA will be delivered at the published, Joint Auction clearing 
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price, and the value of the traded differential will be paid or received by the position holder through the 

clearing organization. In this manner, the Auction Contracts allow participants to buy and sell the relevant 

Exchange CCA at the Joint Auction clearing price. This structure provides an efficient mechanism for 

carbon emissions producers/users in the California/Quebec regime to hedge their exposure to Joint Auction

pricing, which is the primary cash market utilized to trade allowances in that region. 

PROPOSED AMENDMENTS

RESERVE PRICE AND FINAL SETTLEMENT PRICE

During the peak of the COVID pandemic there was market concern that the May20 auction might 

be cancelled and speculation about how the Exchange would settle the Auction Contracts if that occurred.

The pertinent Exchange Rule currently provides that if an auction is cancelled and no auction price is 

published, the Exchange will set an alternate settlement price, but the Rule does not provide further specifics 

and does not reference the Reserve Price. The Exchange issued a notice on March 25th stating that if the

May auction was cancelled and no auction prices published, the Exchange would settle the May20 Auction 

Contracts using the Exchange’s daily settlement price for the CCA futures contract that was the deliverable 

instrument against each Auction Contract on the scheduled Joint Auction Report publication day.

https://www.theice.com/publicdocs/futures_us/exchange_notices/ICE_Futures_US_Settlement_of_K20_

ACP_and_ACA_2020325.pdf The Exchange believed, at the time, that the price of the relevant underlying 

CCA futures contract provided the best available benchmark for settlement of the May20 Auction Contracts

if the auction was not held. 1. 

Based on further discussions with market participants and observations of the +/- premiums in 

relation to the May 20 Auction Contracts through their normal expiration, the Exchange believes that 

market participants enter into the Auction Contracts with the expectation that the minimum price at expiry 

will be the Reserve Price, whether or not the auction is held. The Exchange therefore is amending both 

Auction Contracts to provide that if no auction price is published due to cancellation or failure of the 

auction, or a delay beyond last trading day of the deliverable CCA contract, the price used for final 

settlement of the Auction Contract will be the greater of the Reserve Price and the price of the relevant 

CCA futures contract on the last trading day of the Auction Contract. This preserves the Reserve Price as a 

floor while allowing a higher price to be recognized where the deliverable futures contract is trading above 

the floor

LAST TRADING DAY

 

The Exchange is also amending the last trading day provisions in both Auction Contract rules to 

give the Exchange the flexibility to extend the last trading day for an expiring Auction Contract in the event 

that the auction, or publication of the Joint Auction clearing price, is temporarily delayed. The amendment 

allows the Exchange to extend trading in an expiring Auction Contract through the last trading day for the 

relevant CCA futures contract that is deliverable at expiration. For example, had the auction operators 

announced that the Joint Auction Report that was scheduled for publication on May 28th was delayed to a 

specific date in June that was prior to the last trading day of the June 20 CCA futures contract, the Exchange 

could extend the last trading day of the May 20 Auction Contract to the delayed June date. If the Joint 

Auction Report date was extended to a date beyond the last trading day for the June CCA contract, final 

settlement of the May20 Auction Contract would be determined as if the Joint Auction had been cancelled 

or had failed to produce a published price.

1 The May auction was in fact conducted and the Auction Contracts were settled using the prices reported by the auction 

operators on May 28th.
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In addition, the amendment providesthe method for determining the last trading day for the Auction 

Contract if the Joint Auction price is not published due to cancellation of the auction, or is delayed beyond 

the last trading day of the CCA futures contract month. The last trading day will depend on the timing of 

any notice issued by the auction operators advising that the auction will not proceed as originally scheduled. 

If that notice is issued at any time through the 15th of a calendar month, the last trading day for the Auction 

Contract will be the last Business Day of that calendar month; if the auction notice is issued after the 15th

day of a month, the last trading day for the Auction Contract will be the 10th Business Day of the next 

calendar month. This will allow market participants sufficient time to adjust their positions in light of the 

announcement.

The amendments were discussed in principle with various market participants who supported the 

Exchange providing clarity to these aspects of the Rules. One participant did not believe the Rules should 

be amended because the participant viewed the May20 Notice as indicative of the manner in which the 

Exchange would handle a cancelled auction involving other contract months and had taken market positions 

based on that assumption. The Exchange certifies that the amendments comply with the requirements of 

the Act and the regulations promulgated thereunder, in particular Core Principles 3, 4 and 7 and related 

regulations. As discussed above, the amendments will benefit market participants by providing clarity to 

the Exchange rules governing last trading day and final settlement prices in the unlikely event that an 

auction is cancelled or significantly delayed. In addition, the amendments give the Exchange the most 

flexibility to extend the last trading day so that it coincides with the publication date of the Joint Auction 

Report. This allows the Auction Contract to be settled using the intended reference price. The Exchange 

certifies that, concurrent with this filing, a copy of this submission was posted on the Exchange’s website 

at https://www.theice.com/futures-us/regulation#rule-filings. 

If you have any questions or need further information, please contact me at 212-748-4083 or at 

audrey.hirschfeld@theice.com. 

Sincerely,

Audrey R. Hirschfeld

SVP and General Counsel

Enc.
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EXHIBIT A

18.D.048 California Carbon Allowance Current Auction Clearing Price

Contract Description: The California Carbon Allowance Current Auction Clearing Price contract is a 

cleared market for California Carbon Allowance (CCA) futures contracts at a premium or discount to the 

Current Auction Settlement Price as published by the California Air Resources Board.

Contract Symbol: ACP 

Settlement Method: 1 ACP contract expires into an eligible California Carbon Allowances futures 

contract

Contract Size: 1 California Carbon Allowances futures contract

Currency: USD

Minimum Price Fluctuation: The price quotation convention shall be One cent ($0.01) per California 

Carbon Allowance; Price may be positive or negative; minimum price fluctuation may vary by trade type. 

Please see Table in Resolution 1 to this Chapter 18.

Listing Cycle: The Exchange may list contracts for trade on the standard listing cycle of February, May, 

August and November out two years. The Exchange may list any other calendar month contract sets off 

the standard-cycle listing schedule. 

Last Trading Day: Trading shall cease at 3:00 p.m. (EPT) on the day on which the Joint Auction 

Summary Results Report (“Report”) for the specified auction is scheduled to be released. Trading may be 

extended until 3:00 p.m. of the day that is the Last Trading Day for the eligible CCA futures contract 

(defined below) if the release of the Report is delayed for any reason. In the event that no [Joint Auction 

Summary Results] Report is [scheduled to be] released due to cancellation of the auction, or release of the 

Report is delayed beyond the extension of trading permitted by the preceding sentence of this paragraph, 

the Last Trading Day will be determined by the Exchange as follows: (a) if notice of the auction 

cancellation or delay is issued by the California Air Resources Board on or prior to the 15th day of a 

calendar month, then trading shall cease at 3:00 p.m. (EPT) on the last Business Day of such month and 

(b) if such notice is given by the California Air Resources Board after the 15th calendar day of a month, 

then trading shall cease at 3:00 p.m. (EPT) on the tenth (10th) Business Day of the next calendar month.

determined by the Exchange in accordance with its Rules.

Deliverable Instruments: All parties with open positions at expiry will establish equivalent long or short 

futures positions in the eligible CCA futures contract on the Final Settlement Day. The eligible CCA 

futures contract is the futures contract with a vintage equal to the current calendar year and an expiry 

month following the month the auction is held. 

Open positions in the eligible CCA futures contract shall be priced at the respective Current Auction 

Settlement Price as published by the California Air Resources Board in the [Joint Auction Summary 

Results] Report. In the [instance] event that an auction is cancelled, or the release of the Report is 

delayed beyond the extension of trading permitted by this Rule, or no Current Auction Settlement Price is 

published in the Report, an alternative settlement price that is equal to the higher of the applicable 

Auction Reserve Price published by the California Air Resources Board, and the settlement price of the 

eligible CCA futures contract on the Final Settlement Day, shall be determined by the Exchange. 
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Final Settlement Day: Final Settlement Day will be equal to is the day which is the Last Trading Day. 

18.D.049 California Carbon Allowance Advance Auction Clearing Price

Contract Description: The California Carbon Allowance Advance Auction Clearing Price contract is a 

cleared market for California Carbon Allowance (CCA) futures contracts at a premium or discount to the 

Advance Auction Settlement Price as published by the California Air Resources Board.

Contract Symbol: ACA 

Settlement Method: 1 ACA contract expires into an eligible California Carbon Allowances futures 

contract

Contract Size: 1 California Carbon Allowances futures contract

Currency: USD

Minimum Price Fluctuation: The price quotation convention shall be One cent ($0.01) per California 

Carbon Allowance; Price may be positive or negative; minimum price fluctuation may vary by trade type. 

Please see Table in Resolution 1 to this Chapter 18.

Listing Cycle: The Exchange may list contracts for trade on the standard listing cycle of February, May, 

August and November out two years. The Exchange may list any other calendar month contract sets off 

the standard-cycle listing schedule.

Last Trading Day: Trading shall cease at 3:00 p.m. (EPT) on the day on which the Joint Auction 

Summary Results Report (“Report”) for the specified auction is scheduled to be released. Trading may be 

extended until 3:00 p.m. of the day that is the Last Trading Day for the eligible CCA futures contract 

(defined below) if the release of the Report is delayed for any reason. In the event that no [Joint Auction 

Summary Results] Report is [scheduled to be] released due to cancellation of the auction, or release of the 

Report is delayed beyond the extension of trading permitted by the preceding sentence of this paragraph, 

the Last Trading Day will be determined by the Exchange as follows: (a) if notice of the auction 

cancellation or delay is issued by the California Air Resources Board on or prior to the 15th day of a 

calendar month, then trading shall cease at 3:00 p.m. (EPT) on the last Business Day of such month and 

(b) if such notice is given by the California Air Resources Board after the 15th calendar day of a month, 

then trading shall cease at 3:00 p.m. (EPT) on the tenth (10th) Business Day of the next calendar month.

determined by the Exchange in accordance with its Rules.

Deliverable Instruments: All parties with open positions at expiry will establish equivalent long or short 

futures positions in the eligible CCA futures contract on the Final Settlement Day. The eligible CCA 

futures contract is the futures contract with a vintage three years advanced from the current calendar year 

and an expiry month following the month the auction is held.

Open positions in the eligible CCA futures contract shall be priced at the respective Current Auction 

Settlement Price as published by the California Air Resources Board in the [Joint Auction Summary 

Results] Report. In the [instance] event that an auction is cancelled, or the release of the Report is 

delayed beyond the extension of trading permitted by this Rule, or no Current Auction Settlement Price is 

published in the Report, an alternative settlement price that is equal to the higher of the applicable 

Auction Reserve Price published by the California Air Resources Board, and the settlement price of the 

eligible CCA futures contract on the Final Settlement Day, shall be determined by the Exchange. 
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Final Settlement Day: Final Settlement Day will be equal to the day which is the Last Trading Day.