Template:M summ EUA Annex Suspension

Someone has got a mind infested by nefarious phantoms, readers: either the ISDA’s crack drafting squad™ does, collectively, or the JC does. We are totally not ruling out the JC, to be clear. But this is too weird.

A Suspension Event happens when the official infrastructure falls over so that the parties can’t transfer Allowances to settle a Transaction. It is the fault of neither party — therefore to be distinguished from a Failure to Deliver, which generally will be. While there is overlap between Settlement Disruption Events and Suspension Events (in that both are things beyond the parties’ control) Suspension Event, being narrower and related to the failure of official infrastructure, trumps Settlement Disruption Event where they both apply to the same event. Generalia specialibus non derogant, I suppose.

Note the Long-Stop Date concept, which references 1 June in a year following a set of seemingly arbitrary two-year spells in the Fourth Compliance Period and relates only to Suspension Events, not Settlement Disruption Events, and also appears to bear no relation at all to the Reconciliation Deadline at the end of April in each year.

We have compared Settlement Disruption Events and Suspension Events here.

A curiosity to which the JC has not yet found a plausible answer is why there is a Cost of Carry adjustment for Suspension Events that run over the scheduled Delivery Date, but not for other, ordinary Settlement Disruption Events (or for that matter, Failures to Deliver).

There is no at-market termination provision at a Long-Stop

Also, the “then I woke up and it was all a dream” method of resolving irreconcilable suspensions. Unlike for Settlement Disruption Event, ISDA’s Carbon Squad did not provide for “Payment on Termination for Suspension Event”. We are baffled by this, as we have mentioned elsewhere: it defaults the position to one where the person who thought they had sold forward a risk finds, for reasons entirely beyond their control, that not only was that risk transfer ineffective, but the risk has come about and the asset is, effectively worth zero. If you consider the position of someone who was, for example, financing someone else’s Allowance allocation — hardly out of the question, since that is basically the point of a Forward Purchase Transaction this is transparently the wrong outcome, since the Seller — the person who is borrowing against its Allowances — gets to keep the money. Madness.