Template:M summ EUA Annex (d)(i)(4)(D)

Continuing Settlement Disruption Event

Some rather magical (in the sense of quite impenetrable) thinking from ISDA’s crack drafting squad™ here, in the name of seeking a long-stop to a Settlement Disruption Event. Since there is this Reconciliation Deadline concept — 30 April each year — by which time certain EUAs have to be surrendered, an ongoing settlement disruption can be a rather fraught thing. Emissions Allowances can suddenly, by government fiat, become worthless in a way that most other financial instruments cannot.

What happens? Well, after 9 delivery Business Days (or such shorter period as may be dictated by Reconciliation Deadlines) the disruption is deemed to be an Illegality — I know, I know: it isn’t even close to being an Illegality — and depending on whether Payment on Termination for Settlement Disruption applies, the parties either have to perform their obligations after all — odd, since the Settlement Disruption Event is ongoing, and Q.E.D. they can’t — or the transaction is basically voided ab initio and both parties walk away, refunding any put or call premiums they may previously have received.