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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions Jolly Contrarian owner’s manual™Resources and navigation
Section Settlement Disruption in a Nutshell™
Use at your own risk, campers!
Settlement Disruption Event : Something beyond the affected party’s control that, having used
all reasonable efforts , it cannot overcome and which makes it impossible to perform its obligations to deliver or to accept
Allowances under an
EU Emissions Allowance Transaction . The following will not count as
Settlement Disruption Events if they cause an inability to deliver
Allowances in the affected party’s
Specified Holding Account :
(a) the low or non-allocation of Allowances by any state;
(b) a Member State or Central Administrator not replacing Third Compliance Period Allowances with Fourth Compliance Period Allowances ; or
(c) any party’s failure of a party to procure sufficient Allowances to meet its delivery obligations. Something which otherwise would be a Settlement Disruption Event and a Suspension Event , will count as a Suspension Event and not a Settlement Disruption Event .
(d)(i)(4) Settlement Disruption Event
(A) Notification : Either party may notify the other party in writing of a Settlement Disruption Event and the impacted Transactions . If it is the affected party, it must also give details of the Settlement Disruption Event and a non-binding estimate of the extent and likely duration of the disruption on its obligations.
(B) Effect : Upon a Settlement Disruption Event both parties’ obligations will be suspended, subject to Continuing Settlement Disruption Event below, until the Settlement Disruption Event no longer prevents settlement. During the Settlement Disruption Event , the affected party must use all reasonable endeavours to settle.
(C) Delayed Performance : Subject to Continuing Settlement Disruption Event below, once the Settlement Disruption Event no longer prevents settlement, both parties must, promptly and within two Delivery Business Days , resume their obligations under the Transactions .
(D) Continuing Settlement Disruption Event Settlement Disruption Event continues:
(I) for 9 Delivery Business Days after the originally scheduled Delivery Date ; or, if shorter:
(II) until a Reconciliation Deadline falling on or after the original Delivery Date ; or, if shorter:
(III) until the day 3 Delivery Business Days before the End of Phase Reconciliation Deadline falling on or after the original Delivery Date :
then at that time there will be an Illegality where the affected Transaction is the sole Affected Transaction , both parties are Affected Parties , there is no Waiting Period and, if an Early Termination Date results, when determining the Early Termination Amount the suspended obligations will resume on the Early Termination Date , if “Payment on Termination for Settlement Disruption Settlement Disruption Event other than for Unpaid Amounts and provided that (other than in respect of already-delivered Allowances )
(i) Delivering Party must promptly refund any amount Receiving Party it was paid under a Allowance Forward Transaction or Call ; and
(ii) Receiving Party must promptly refund any amount Delivering Party it was paid under a Put
together with interest from the payment date until the termination date of the Transaction at the overnight deposit rate for the relevant currency.
Full text of Section Settlement Disruption
Settlement Disruption Event : Means
an event or circumstance beyond the control of the party affected that cannot, after the use of
all reasonable efforts , be overcome and which makes it impossible for that party to perform its obligations either to deliver or to accept
Allowances in accordance with the terms of an
EU Emissions Allowance Transaction .
For the avoidance of doubt , the inability of a party to deliver Allowances as a result of insufficient Allowances in the relevant Specified Holding Account , whether caused by the low or non-allocation of Allowances by a Member State or any other state, the delay or failure of a Member State or Central Administrator to replace Allowances of the Third Compliance Period with Allowances for the Fourth Compliance Period , or the failure of a party to procure sufficient Allowances to meet its delivery obligations, shall not constitute a Settlement Disruption Event . This is not an exhaustive list of events which will not constitute a Settlement Disruption Event and is provided for the avoidance of doubt only.
If an event or circumstance which would otherwise constitute or give rise to a Settlement Disruption Event also constitutes a Suspension Event , it will be treated as a Suspension Event and will not constitute a Settlement Disruption Event .
(d)(i)(4) Settlement Disruption Event
(A) Notification of Settlement Disruption Event : Upon the occurrence of a Settlement Disruption Event , either party may notify the other party in writing of the commencement of the Settlement Disruption Event and the EU Emissions Allowance Transaction (s) affected by that Settlement Disruption Event . Where the notification is from the party affected by the Settlement Disruption Event , to the extent available to such party, it shall also provide details of the Settlement Disruption Event and a non-binding estimate of the extent and the expected duration of its inability to perform its obligations due to the Settlement Disruption Event .
(B) Effect of Settlement Disruption Event : If a Settlement Disruption Event occurs, the obligations of both parties which would otherwise be required to be performed with respect to the EU Emissions Allowance Transaction (s) affected by the Settlement Disruption Event will be suspended for the duration of the Settlement Disruption Event and, subject to (d)(i)(4)(D) (Continuing Settlement Disruption Event) below, will not be required to be performed until the Settlement Disruption Event is overcome or ceases to exist. During the continuation of the Settlement Disruption Event , the party affected by the Settlement Disruption Event shall continue to use all reasonable endeavours to overcome the Settlement Disruption Event .
(C) Settlement Disruption Event Delayed PerformanceContinuing Settlement Disruption Event Settlement Disruption Event being overcome or ceasing to subsist, both parties will be required, as soon as reasonably practicable but not later than the second Delivery Business Day following the date upon which the Settlement Disruption Event has been overcome or ceases to exist, to resume full performance of their obligations under this Agreement in respect of the relevant EU Emissions Allowance Transaction (s) (including, for the avoidance of doubt, any suspended obligations).
(D) Continuing Settlement Disruption Event : In respect of an EU Emissions Allowance Transaction affected by a Settlement Disruption Event , where the Settlement Disruption Event continues:
(I) during the period ending 9 Delivery Business Days after the original date that, but for the Settlement Disruption Event , would have been the Delivery Date for an EU Emissions Allowance Transaction ; or
(II) if such 9 Delivery Business Day period would end after the Reconciliation Deadline on or immediately following the original date that, but for the Settlement Disruption Event , would have been the Delivery Date for an EU Emissions Allowance Transaction , during the period ending on that Reconciliation Deadline ; or
(III) if such 9 Delivery Business Day period would end after the day that is 3 Delivery Business Days preceding the End of Phase Reconciliation Deadline on or immediately following the original date that, but for the Settlement Disruption Event , would have been the Delivery Date for an EU Emissions Allowance Transaction , during the period ending on the day that is 3 Delivery Business Days preceding that End of Phase Reconciliation Deadline ,
then on that 9th Delivery Business Day , Reconciliation Deadline or day that is 3 Delivery Business Days preceding the End of Phase Reconciliation Deadline (as the case may be), an [Additional Termination Event][Illegality][1] EU Emissions Allowance Transaction is the sole Affected Transaction, both parties are Affected Parties[, no Waiting Period will apply] and, if an Early Termination Date results from that Termination Event , then, for purposes of determining any amount payable under Section 6(e) in respect of that Early Termination Date :
(i) if “Payment on Termination for Settlement Disruption EU Emissions Allowance Transaction , it will be deemed that the requirement to perform the suspended obligations resumed on the Early Termination Date ; or
(ii) if “Payment on Termination for Settlement Disruption EU Emissions Allowance Transaction , it will be deemed that the parties had no further delivery or payment obligations in respect of the EU Emissions Allowance Transaction after the occurrence of the Settlement Disruption Event (other than in respect of any payment due by one party in connection with delivery obligations already performed by the other party); provided, however, that
(i) Delivering Party shall promptly refund to Receiving Party any amount that may have been paid by Receiving Party in respect of the EU Emissions Allowance Transaction that is an Allowance Forward Transaction or a Call and
(ii) Receiving Party shall promptly refund to Delivering Party any amount that may have been paid by Delivering Party in respect of an EU Emissions Allowance Transaction that is a Put (in each case, other than in respect of delivered Allowances ) together with interest on that amount in the same currency as that amount for the period from (and including) the date that amount was paid to (but excluding) the date of termination of such EU Emissions Allowance Transaction , at the rate certified by the party required to refund the amount to be a rate offered to such party by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be selected in good faith by that party for purposes of obtaining a representative rate that will reasonably reflect conditions prevailing at the time in the relevant market.
Comparison
Content and comparisons The same broad concept is dealt with as follows:
Functionally, the definitions of “Force Majeure ” under Clause 7.1 the EFET Annex and Clause 13 of the IETA , and the definition of “Settlement Disruption Event ” under (d)(i)(4) of the ISDA Emissions Annex are the same — here is a comparison between IETA and EFET, and here is a comparison between EFET and ISDA — so you do wonder whose idea it was to call it something different.
Let us speculate: the IETA was written first, is independent of the ISDA universe, and for reasons best known to IETA’s crack drafting squad ™, they decided to call this a “Force Majeure”. Being an event beyond the reasonable control of the affected party there is some logic to this.
ISDA ’s crack drafting squad ™ was, as usual, late to the “novel asset class” party and, as it couldn’t find a spot, decided to park its tanks on IETA’s lawn, borrowing much of the technology wholesale but unable to call this event a Force Majeure because the ISDA Master Agreement already has a Force Majeure Event , this is quite different — for whatever reason, the timings are a lot longer — and that would confuse people even beyond ISDA’s tolerance for confusing people.[2]
So ISDA ’s crack drafting squad ™ went with its product specific “stuff happens” label, “Settlement Disruption Event ”. In any case, to make your lives easier, “Force Majeure - Emissions Annex Provision ” redirects to Settlement Disruption Event . The JC’s nice like that.
The differences are to account for the architecture and nomenclature of the different master agreements, though the IETA has a conflict clause favouring Suspension Event over Force Majeure/Settlement Disruption Event, which the EFET does not.
Summary Settlement Disruption and Suspension beg for comparison, so here is one: compare them. See also our laborious, but probably wasted effort, of a table parsing when, and when not, to apply them:
47% Traumnovelle It is interesting to compare, across all three of the emissions trading documentation suites, the differences and similarities when it comes to resolving an unquenchable Settlement Disruption Event .
Notification : All are the same: either party can notify a Settlement Disruption Event . If the affected party is the one who calls it — but, curiously, not if it isn’t, which sets up some odd incentives, but hey — it must use reasonable endeavours to overcome a situation that is, by definition, beyond its control.Longstop date : all have variations of a longstop of no later than 9 Delivery Business Days after the scheduled Delivery Date , or earlier should a Reconciliation Deadline intervene. ISDA and EFET also throw in an End of Phase Reconciliation Deadline . Which is nice.Consequences of hitting the longstop : All of the agreements opt for the “then I woke up and it was all a dream ” method of closeout — Payment on Termination for Settlement Disruption , at least as an option. They allow the alternative option for a Payment on Termination: ISDA goes for an Early Termination Date as if an Illegality Termination Event , with no Waiting Period , had occurred. EFET and IETA both try to reconstruct something like the termination methodology of a 1992 ISDA , descending into all that ugliness of “Market Quotation” and “Loss”.See also References 