EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions
A Jolly Contrarian owner’s manual™
Suspension in a Nutshell™
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Suspension in all its glory
Suspension Event: Means any date a party to the Agreement is unable to perform its delivery or acceptance obligations under and in accordance with an EU Emissions Allowance Transaction and the Scheme through a Relevant Registry as a result of the occurrence of any of the following events:
[(I)][1] a Suspension Event continues to exist on the Long-Stop Date, then an [Additional Termination Event]/[Illegality] shall be deemed to have occurred in respect of which the relevant EU Emissions Allowance Transaction is the sole Affected Transaction [,]/[and] both parties are Affected Parties [and no Waiting Period will apply]. The parties agree that the Long-Stop Date will be the Early Termination Date for the purposes of the relevant EU Emissions Allowance Transaction. For purposes of determining any amount payable under Section 6(e) in respect of that Early Termination Date, 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 Suspension 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.
The definition of Suspension Event is more or less the same in all three emissions trading documentation regimes. Compare:
ISDA: Suspension Event
IETA: Suspension Event
EFET: Suspension Event As an extra treat, here are some deltaviews:
IETA vs EFET: comparison
ISDA vs IETA: comparison
You will notice similarities between the way a Suspension Event and a Settlement Disruption Event. One can, and we do, bellyache about the way ISDA’s crack drafting squad™ goes about the task of rendering its fantastical ideas in the language of Shakespeare and Milton, but you can’t really fault them for consistency.
This a limited thing — some would say, arbitrarily limited — where regulatory/government fiat at the heart of the European Union stops the system functioning as it should, but not permanently. So, taking the Union Registry offline, an Administrator Event — but not some other regulatory driven externalities. It doesn’t include Abandonment of Scheme or an “executive decision” (however unlikely) that Phase 3Allowances are no longer elibigle for surrender in Phase 4.
Interrelation
You may never thank us for producing this diagram of how the various Suspension Events and Disruption Events do, or don’t interact with each other: it is probably wrong and we will never get that two hours back. But here it is for whatever small crumb of enlightenment it may bring.
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.
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.
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↑We think this number is superfluous, in that there is not a (II).
↑Since ISDA’s crack drafting squad™ elected to express a mathematical proposition on its own tortured prose, it is not entirely clear what is meant to be divided by 360: the stray comma suggests maybe it is meant to be a denominator for the whole sum, but we think it makes more sense to divide only the Cost of Carry Delay by 360, as that gets you an annualised day count fraction that the rest of the sum can be multiplied by. If you ignored the ambiguous comma, that is the most consistent with the paragraph layout.
