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| ''[[Suspension - Emissions Annex Provision|Someone]]'' has got a mind infested by nefarious phantoms, readers: either the {{icds}} does, collectively, or the JC does. We are totally not ruling out the JC, to be clear. But this is too weird.
| | {{M summ EUA Annex (d)(i)(5)(D)}} |
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| You may never thank us for producing this diagram of how the various Suspension Events and Disruption Events do, or don’t interact with each other: it is probably wrong and we will never get that two hours back. But here it is for whatever small crumb of enlightenment it may bring.
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| {{image|Disruption Venn|JPG|I know, I know. Shoot me.}}
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| A {{euaprov|Suspension Event}} happens when the official infrastructure falls over so that the parties can’t transfer Allowances to settle a {{euaprov|Transaction}}. It is the fault of neither party — therefore to be distinguished from a {{euaprov|Failure to Deliver}}, which generally will be. {{Suspension v Settlement Disruption}}
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| A curiosity to which the [[JC]] has not yet found a plausible answer is why there is a [[Cost of Carry Amount - Emissions Annex Provision|Cost of Carry]] adjustment for {{euaprov|Suspension Event}}s that run over the scheduled {{euaprov|Delivery Date}}, but not for other, ordinary {{euaprov|Settlement Disruption Event}}s (or for that matter, [[Failure to Deliver - Emissions Annex Provision|Failures to Deliver]]).
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| ===Concept===
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| Concept is this: I sold {{euaprov|Allowances}} to you, due to settle on date T. On that date, we are due to [[DVP]]: you give me cash; I give you {{euaprov|Allowances}}.
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| ''But'' on that date, I am “[[Suspension - Emissions Annex Provision|suspended]]” and, through no fault of my own, I can’t settle the {{euaprov|Allowances}} to you. The system is on the Fritz. The EU has gone down. Something like that. Something that is nothing to do with me.
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| You could, of course, pay me the cash no problem and I’ll punt you the Allowances as soon as the suspension lifts — but who does that, in these credit-straitened times? So we suspend, and wait for the disruption to clear. This usually takes a few days (we are given to understand there has been one meaningful suspension in the market in five years, and it lasted a couple of weeks. Don’t quote me on this).
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| So far, so hoopy. But the question arises: How should we adjust our payment obligations? I was expecting cash from you on T, and now I’m not getting it. But I no longer want or need the {{euaprov|Allowances}}, so the fact that I still ''have'' them is beside the point for me: they are clogging up my garage, stopping me putting anything else in it: in the vernacular, I am having to fund these things, even though I thought I sold them to you. I am obliged to continue to ''carry'' them. This costs me. (You ever met my Treasury guys? They aren’t fun). So this settlement disruption is ''your'' problem.
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| ===Definition of {{euaprov|Suspension Event}}===
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| Comprises {{euaprov|Administrator Event}}s and a lack of {{euaprov|Registry Operation}}: These are not the sorts of things that can affect “some but not all” of the {{euaprov|Allowances}} in an account, so unless you are the sort of groover who warehouses your {{euaprov|Allowance}}s in [[Registry - Emissions Annex Provision|Registries]] all around the EU, there being an event of this kind will put your whole {{euaprov|Transaction}} into {{euaprov|Suspension}}, not just part of it.
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| ===Notification===
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| Notification of the {{euaprov|Suspension Event}}: fair enough. But what use is a “non-binding” estimate of how long the suspension will last? Being, [[Q.E.D.]], an event entirely outside the control of either party, how is one expected to know, and in what way is the sum total of human knowledge advanced by one having a guess? And it if is non-binding, what is the sanction for failing to do it?
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| ===Effect of Suspension Event===
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| Terminology confusion risk here: talk of {{euaprov|Transaction}}s “''affected''” by the {{euaprov|Suspension Event}} sounds a bit like “{{isdaprov|Affected Transaction}}”, but that is of course quite a different thing in ISDA lore. Had it been me — and I do regularly thank those who watch over us that it wasn’t — I might have used a word like “''disrupted''” or “''suspended''” (and I might have been tempted to treat disruptions and suspensions the same way).
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| ===Delayed Performance===
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| So, if the {{euaprov|Suspension Event}} lifts, we agree you should pay me a {{euaprov|Cost of Carry Amount}} to compensate me for my continuing funding cost for holding these {{euaprov|Allowances}}. There is an inexplicable 10 {{euaprov|Delivery Business Day}} [[grace period]] — unless you are backs-to-wall on an {{euaprov|End of Phase Reconciliation Deadline}} beyond which your EUAs are worthless, but that’s quite the outlier, not due to happen until 2031 — to deliver late EUAs once the {{euaprov|Suspension Event}} does lift, by the way. I mean, why wait ten days? Things are back to normal. Settle up already. If we assume that the {{euaprov|Suspension Event}} came about thanks to some cataclysmic event or another, and markets are choppy, risk officers running around with their hair on fire etc etc., no one will want to indulge a counterparty for ''two working weeks'' just to deliver some carbon credits.
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| ==={{euaprov|Cost of Carry Delay}}===
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| So there is cost of carry compensation, of course, to incentivise delivering parties to get on with it. But that 10 days still offers up a fair bit of unnecessary optionality, if the market is pogoing around and the cost of carry is manageable.
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| But it is calculated in a pretty weird way. We think the {{icds}} is over-thinking it, or under-thinking it, or cross-thinking it. For you only seem to pay the cost of carry on the Allowances you can deliver at (or before) the {{euaprov|Delayed Delivery Date}} — even if you delivered some of then before the date, you pay the {{euaprov|Cost of Carry Rate}} on the whole size for the whole period. And If the {{euaprov|Suspension Event}} doesn’t lift by the {{euaprov|Long-Stop Date}} then we don’t know what happens about the {{euaprov|Cost of Carry}}.
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