In less than one month, energy trading across all European countries will be subject to stricter trading rules, as the Market Abuse Regulation (MAR) and the directive on criminal sanctions for market abuse come into force.
From 3 July, the two pieces of legislation will strengthen the current anti-abuse framework and widen its scope.
The rules aim to prohibit insider dealing and market manipulation, and to prevent and identify these types of behaviour. MAR is intended to update the Market Abuse Directive (MAD), which dates back to 2003. These rules have become outdated as new trading platforms, over-the-counter trading and new trading technology spread.
There have always been enforcement issues with MAD, which is a directive and only outlines general rules that national governments should decide how to implement domestically. By contrast, MAR is a new regulation, which means it is a binding legislative act applicable in all EU countries.
Here are some of the key changes:
– MAD applies to financial instruments admitted to trade on regulated markets, including when they are dealt on different venues, but it does not cover instruments that are not admitted to trade on a regulated market. MAR will have a wider scope as it will also cover financial instruments that trade on a multi-lateral trading facility or organised trading facility, as well as any other instrument that can influence these products.
– This means that market manipulation between derivatives and the underlying spot market will also be covered, which was not previously the case.
– Attempted market manipulation will be considered an offence, whereas MAD only classifies the actual manipulation of markets as an offence.
The new rules will kick in just months after the second trade reporting phase of the Regulation on Energy Market Integrity and Transparency started, which brought in the obligation to report more deal types. This means there is going to be a wider volume of information available to regulators to analyse.
Data reporting under a separate piece of legislation, the European Market Infrastructure Regulation, is also set to be reorganised.
Due to the interconnection between different pieces of financial regulation, some provisions under MAR will not immediately apply. MAR relies on the updated Markets in Financial Instruments Directive (MiFID II) for several definitions, such as those of financial instruments and organised trading facilities.
These definitions have always been intended to refer to MiFID I until the original foreseen entry into force of MiFID II, which was 3 January 2017. As MiFID is now set to be delayed by one year, this provision will be also be extended.