Europe’s Energy Regulators Tackle Market Abuse and Insider Trading

In an attempt to increase investor protection and promote market integrity, a number of European energy regulators have joined together to tackle market abuse and insider trading in the European wholesale energy market.

In the final quarter of 2018 and the first half of 2019, the European wholesale energy market has seen an increase in the number of fines and sanctions being imposed for abusive behaviour and insider trading.

In 2011, the European Parliament and Council published REMIT – the EU Regulation on wholesale Energy Market Integrity and Transparency. REMIT’s primary focus was to protect against abusive and fraudulent behaviours in the European wholesale energy market. Like many other European financial regulations, it also aimed to increase market transparency.

REMIT is a fairly thorough piece of legislation. It contains 22 articles which cover a wide spectrum of potentially abuse behaviours. However, two areas in particular which receive the most significant amount of attention in REMIT are Insider Trading and Market Abuse.

REMIT’s Market Abuse and Insider Trading Rules

Article 3 of REMIT relates to the ‘Prohibition of Insider Trading’:

1. Persons who possess inside information in relation to a wholesale energy product shall be prohibited from:

(a) using that information by acquiring or disposing of, or by trying to acquire or dispose of, for their own account or for the account of a third party, either directly or indirectly, wholesale energy products to which that information relates;

(b) disclosing that information to any other person unless such disclosure is made in the normal course of the exercise of their employment, profession or duties;

(c) recommending or inducing another person, on the basis of inside information, to acquire or dispose of wholesale energy products to which that information relates.

Article 2 of REMIT provides a thorough definition of market manipulation. In particular, it states that ‘any transaction […] which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products’ should be regarded as manipulative. Similarly, REMIT also claims that the dissemination of energy information which provides misleading information should also be regarded as market manipulation.

REMIT then goes on to state in Article 5, very plainly, that ‘Any engagement in, or attempt to engage in, market manipulation on wholesale energy markets shall be prohibited.’

For ACER’s overview of REMIT’s market abuse and insider trading rules, see this link.

Has REMIT Worked?

While REMIT is explicit in its prohibition of market abuse and insider trading, it has not enacted much tangible change. That is, until recently.

The final quarter of 2018 into 2019 has seen a sharp increase in the number of fines and sanctions being imposed for reasons relating to market manipulation and insider trading. While REMIT has been in place for close to a decade, very few proceedings took place in the first seven years of its existence. This changed towards the end of 2018.

Writing for JDSUPRA, Dr. Gabriele Haas writes that in this time period, ‘we have seen fines imposed and sanctions for allegedly abusive behavior on the European wholesale energy market, and a dawn raid in a potential case of insider trading’. This fact marks a change of attitude from European energy regulators in relation to market abuse and insider trading.

Why Have Attitudes Changed?

The reason is for this sudden uptake in fines and sanctions is not immediately obvious. It could be in response to the wider push against market abuse and insider trading in European markets. The fairly recent implementation MiFID II and MAR have made it clear that European regulators are cracking down on all forms of market manipulation, and it could be the case that energy regulators are simply following this trend.

However, perhaps more likely than this is the new availability of relevant data. National regulators and competent authorities as well as ACER – the European Agency for the Cooperation of Energy Regulators – have a far greater quantity of data than when they did when REMIT was put in place in 2011. Market Manipulation detection services like eflow’s are becoming far more sophisticated. This means that ACER and European NCAs have more information to go on when routing out possible instances of market abuse.

What Responsibility Do Firms Have?

In response to this new swathe of enquiries, fines and sanctions, ACER have released a 4th edition of their REMIT Guidance. This outlines in details the steps which must be taken by firms dealing in the wholesale energy market if they wish to remain cimpliant with the regulations put forward in REMIT.

A simple solution for most firms is to implement a market abuse and insider trading solution. eflow’s TZ Trade Surveillance System has been designed specifically to adhere to European financial regulations. It is frequently updated to adhere to the newest rules and provides firms with a flexible, scalable solution to market abuse compliance. Fill out the contact form at the bottom of this page for more details.


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