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3 years ago

Market power players widen spreads, reducing liquidity; more participants needed.

Improving Liquidity in Emission Trading Schemes
Jihun Kim, Kwangwoo Park

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The article discusses how having a few powerful traders in an Emission Trading Scheme market can reduce liquidity by widening bid-ask spreads to maximize profits. By adding more participants, like derivatives traders, this liquidity issue can be improved. The European Union's ETS saw increased market liquidity by attracting more participants through liquidity-provision policies during its transition from Phase 1 to Phase 2.