ISDA publishes OTC emissions confirmation

The International Swaps and Derivatives Association (ISDA) published a confirmation for use in physically settled, over the counter transactions in EU emissions allowances on 7th July 2004, created to ease EU allowance trading under the EU Emissions Trading Scheme (EU ETS) and to integrate EU allowance trading into the ISDA documentation architecture. It allows firms to use their ISDA Master Agreements and, later in 2004, the 2004 ISDA Commodity Definitions to trade EU allowances allowing greater participation by financial institutions in emerging emissions allowance trading activity.

The confirmation was created in consultation with the IETA on the emission-specific conditions that apply in the EU ETS, which resulted in IETA's Single Trade Agreement, which provides more incentives to improve individual EU allowance transactions between companies with limited trading capabilities. The communication between ISDA and IETA is a considerable advantage in that the two new confirmations extend the scope of participants able to access the EU emissions market benefit, contributes towards building marketplace liquidity and reduces any potential legal basis risk between the documents available.

Under the terms of the EU Emissions Trading Directive 2003/87/EC (the legal basis of the EU ETS), EU member states had to publish by May 2004 their national allocation plans to establish the amount of EU allowances allocated to different industries within their jurisdictions. In turn, businesses have to register their trading accounts in a member state registry before they start transferring EU allowances. Trading is due to commence from 1st January 2005. The first compliance period will run from this date till the 31st December 2008.

For further information please click on:

http://www.isda.org/press/press070704.html

Should you require further details or advice please contact Jason Harding on +44(0) 207 367 3138 or at [email protected], Stephen Hewett on +44(0) 207 367 2970 or at [email protected], Amanda Seaton on +44(0) 207 367 3454 or at [email protected], Claire Reid on +(0) 207 367 3378 or at [email protected] or Ben Watford on +(0) 207 367 2931 or at [email protected]