Buying allowances in the auctions versus on the secondary market - pros and cons
- Category: Auctions of CO2 allowances
Default of the bidder
As opposite to the maximally safe position of the auction platform and the auctioneer, the consequences of late or non-payment for the allowances by the bidder in the auction are quite severe – as in the mere contract concluded on an OTC market.
In the first place delivery versus payment arrangements are applied – which per se is the most advantageous for the seller option. Pursuant to the Article 45 of the Regulation a successful bidder shall only be delivered allowances, if the entire sum due is paid to the auctioneer.
A successful bidder that fails to meet its obligations in full by the due date shall be in default of payment and may be, furhermore, charged either or both of the following:
(a) interest for each day beginning with the date on which payment was due and ending on the date on which payment is made at an interest rate set out in the contract appointing the auction platform concerned, calculated on a daily basis;
(b) a penalty, which shall accrue to the auctioneer less any costs deducted by the clearing system or settlement system.
Without prejudice to the above where a successful bidder is in default of payment one of the following shall occur:
(a) the central counterparty shall interpose to take delivery of the allowances and effect payment of the sum due to the auctioneer;
(b) the settlement agent shall apply collateral taken from the bidder to effect payment of the sum due to the auctioneer.
In the event of a failure of settlement, the allowances shall be auctioned at the next two auctions scheduled on the auction platform concerned.
As follows from the recitals to the Regulation, the above-described arrangements for the delivery and payments for allowances in the auctions are the reflection of the a priori adopted legislative assumption not to design auctioning system as a competitor to the secondary market. Allowances sold in the auctions should only complement pre-existing market structures. The above-described provisions of the Regulation prove that this intention was consequently implemented.