Template:M summ IETA Suspension Event and 13

IETA Master Agreement versus ISDA Emissions Annex

The odd thing is that while the Suspension Events are virtually identical between the IETA Master Agreement and ISDA EU Emissions Annex, their Settlement Disruption Event regimes could hardly be more different — in that the ISDA annex has one, and the IETA doesn’t.

Process

Governed by Clause 13.4:
(a) Affected party gives notice.
(b) Obligations are suspended until the relevant piece of infrastructure is functioning again, after which there is a 10 Delivery Banking Days grace period — which seems rather long, truth be known, but is truncated to 3 business days before any intervening End of Validity Period Reconciliation Deadline — to resume
(c) There is a Cost of Carry Amount adjustment reflecting the delay to the scheduled delivery date. (d) If you are suspended past the Long Stop Date — as for the ISDA EU Emissions Annex, and arbitrary set of dates two or more years after the originally scheduled delivery dates — you put a line through whatever obligations are left of the trade, but don’t have to return amounts or deliveries already made (to say nothing of collateral — though possibly the return of collateral is implied by the revaluation of the net exposure under the IETA Master Agreement. Or might have been, were there a collateral annex to the IETA Master Agreement.

And then I woke up ... ?

And it was all a dream, yes. See the premium section.

Clause

Definition of Force Majeure

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.

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.