Subject of Agreement - IETA Provision
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IETA Emissions Trading Master Agreement A Jolly Contrarian owner’s manual™ 1 in all its glory
Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs
Resources and Navigation
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Overview
The IETA Master Agreement gets off to a flier with this, the single agreement clause. You will start to notice some similarities with the 1992 ISDA. So many, in fact, that you may start to wonder why they didn’t just use a 1992 ISDA, and make this into a specific definitions booklet. Perhaps the pioneering emissions traders weren’t ISDA ninjas, didn’t want to pay ISDA membership fees, something like that? Hard to know.
If you are an ISDA ninja, you won’t need me to tell you that this is a single agreement, or what it is for.
Summary
The “single agreement” concept
Here several pieces of magic come together to create the capital foundation of the modern master trading agreement. The challenge, originally solved by the First Men, was to create an architecture that allowed discrete, unitary, complete Transactions, such that creating a new one or terminating an old one didn’t upset the economic or legal integrity of other Transactions that were currently on foot — no untoward tax consequences, that is to say — while at the same time creating an umbrella framework so that, should something regrettable happen to either party, all Transactions can be quickly rounded up, evaluated, stopped and then collapsed down — “netted” — to a single payment, payable by one party to the other.
This involved some canny financial engineering. The general rules of set-off require not just a mutuality of parties to the off-setting debts, but also amounts falling due on the same day and in the same currency — neither of which was necessarily true of the independent Transactions executed under a multi-currency, cross-border ISDA Master Agreement.
Their solution was this concept of the “Single Agreement”: the over-arching agreement that, however independent and self-contained Transactions are for any other purpose, when it comes to their early termination, they transmogrify into the single host agreement, in the process reduced to mere calculation inputs to the final amount which one party must pay the other. Thereby the process is not one of “set-off” at all, but of calculating a single net amount, the payment of which would sort out all matters outstanding under the relationship.
The JC once had the idea of doing a “boring talk” about the history of the ISDA Master, and actually pitched it to the BBC for their podcast series. It was rejected, on account of being too boring. True story.
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- The JC’s famous Nutshell™ summary of this clause
See also
- Single agreement concept and close-out netting