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EU regulator to help industry with REMIT guidelines

24 Nov 2011 15:55:08 | edem esgm

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The first stage of the new Regulation on Energy Market Integrity and Transparency (REMIT) is set to be published in the EU's official journal, but concern is growing over what trading counterparties must do to meet its requirements.

However, European energy regulator ACER (Agency for the Cooperation of Energy Regulators) is expected to issue non-binding guidance next month, ICIS Heren understands.

The European Council adopted the regulation to identify and prosecute insider trading and market manipulation in Europe's gas and electricity markets on 10 October (see EDEM 10 October 2011). But companies have just 20 days to comply with the first stage of the regulation from the date of publication in the journal, and questions remain.

For example, one uncertainty that market participants face is the requirement that in the event of an unplanned outage of a natural gas or electricity facility likely to have a "significant" effect on prices, a company should not trade until that information has been published to the market. Any failure to do this would be classed as insider trading.

ACER is expected to provide some help on the initial focus of REMIT - what constitutes insider trading, what precisely is price-significant and the preferred method of making price-sensitive information available to the market.

However, some market participants have characterised transparency as offsetting the risk of non-compliance. "The more you publish, the less chance you have of being non-compliant - it's a judgement call for each company," said one.

Defining terms

ACER is holding a seminar at its base in Ljubljana, Slovenia, on 28 November, and representatives confirmed that the agency intends to issue non-binding guidance on definitions within REMIT in early December to market participants for consultation, with the final version available towards the end of the month.

These notes will not have the status of official guidance, as that could only come from the European Commission, but ACER aims to share its understanding of the regulation in terms of implementation, a source close to the regulator told ICIS Heren.

"If you start reading the REMIT regulations, it has many definitions: they even define what a person is - I was slightly amused by this," Bundesnetzagentur vice president Johannes Kindler told delegates at the Emart energy conference in Lyon, France, on Wednesday.

Definitions of insider trading were contentious during the drafting process, previous drafts of the regulation show (see EDEM 10 June 2011).

Gradual implementation

In the initial phase of REMIT's implementation in December, market participants are required to comply with insider trading and market manipulation rules, with an obligation to publish inside information and to notify the regulator in cases of suspected abuse.

The next phase, scheduled for summer 2012, is for ACER to determine and publish the format for market participants to submit data to the regulator. ACER is expected to begin data collection and monitoring by summer 2013, while national regulators' competencies under REMIT should then begin to be implemented into member states' law (see EDEM/ESGM 5 October 2011).

"Insider information is prohibited from the beginning, but this is prohibited in many member states so it's not really new," Kindler said. "If the energy exchange suspects that a transaction may breach the guidelines of insider trading or market manipulation, [it is] obliged to notify the national regulators and supply undertakings of all transactional data of the last 12 years, and the national regulators can request the data in suspicious cases.

"If the regulators don't yet have the sanctioning powers, they cannot sanction it, so this is a first contradiction we have to cope with and find an interim solution," he said.

European Commission energy policy officer András Hujber confirmed that the Commission expects 15 additional staff for ACER to fulfil its new monitoring tasks. However, recruitment has not yet begun, according to an ACER spokeswoman.

Registration issues

Under the new rules, traders will have to register before they can undertake transactions. Kindler said that while this was a good step, European regulators would have preferred the so-called trading passport, registering market participants but also requiring a "fit and proper" test, to prove that the trader has the necessary equipment to trade and especially to fulfil the reporting obligations. However, this proposal was rejected.

"Under current circumstances, Bernie Madoff could come to Europe and open a new trading business - he doesn't have to show he has been punished for trading infringements," Kindler said, referring to the US stockbroker jailed for fraud. "This is not satisfactory and we will see if we can fix the problem regarding the registration procedure or decide on a system which is a bit more efficient," Kindler said. ZD/TH

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