Tokyo Stock Exchange Unveils OTC Settlement Service for Carbon Credits to Streamline Bilateral Trading
The Tokyo Stock Exchange (TSE) will introduce a new clearing and settlement service designed specifically for over-the-counter (OTC) carbon credit transactions. The initiative aims to reduce the administrative burden of bilateral trading and support Japan’s Green Transformation (GX) strategy by enhancing market convenience.
The service, titled the "Carbon Credit OTC Transaction Settlement Service," is scheduled to launch on March 18, 2026.
Addressing Market Fragmentation
Currently, the TSE’s Carbon Credit Market utilizes a standardized trading method categorized by project methodology (e.g., renewable energy, forestry) rather than by individual projects. This design was intended to concentrate liquidity and establish clear pricing benchmarks.
However, participants have increasingly sought to trade specific credits—particularly in the forestry sector—to support particular regional projects or corporate branding initiatives. Until now, these specific transactions had to be conducted bilaterally outside the market (OTC), resulting in complex contracting procedures and inefficient settlement logistics.
Key Features of the New Service
The new service allows market participants to negotiate deals bilaterally while using the TSE’s infrastructure to handle trade matching, fund settlement, and credit transfer.
- Scope: Initially, the service will be limited to "Forestry" J-Credits, where the demand for project-specific selection is highest. Other categories may be considered later based on market needs.
- Fees: To encourage adoption, the TSE will waive both matching and settlement fees for the time being.
- Settlement Cycle: Settlements will occur on a T+6 basis (six days after the trade is matched).
- Transparency: While the TSE will publish the total volume of daily matched trades to aid market analysis, specific transaction prices will not be disclosed to the public.
Operational Mechanics and Risk Management
The system acts effectively as a central clearing mechanism to mitigate counterparty risk:
- Trade Matching: Both the buyer and seller submit trade details (credit ID, quantity, price, and counterparty code) to the TSE system. Upon a successful match, the trade is confirmed.
- Asset Transfer:
- Sellers must transfer the credits to a TSE holding account by 11:00 AM on the day prior to the settlement date.
- Buyers must remit payment to the TSE by 11:00 AM on the settlement day.
- Delivery: Once funds are received, the TSE transfers the credits to the buyer and the funds to the seller on the same day.
The TSE has established strict protocols for default. If a seller fails to transfer credits or a buyer fails to pay by the deadline, the trade will be unwound, and assets returned to the original owners.
Regulatory Compliance
The exchange also confirmed that it would handle the issuance of "Qualified Invoices" under Japan’s consumption tax laws, utilizing the intermediary delivery exception to streamline tax reporting for users.
Norbert Gehrke
