Surveilling European Energy Markets Implementation of REMIT. W. Süßenbacher, C. Wagner-Bruschek, A. Maedel, G. Boon, J. Mayer

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1 Surveilling European Energy Markets Implementation of REMIT W. Süßenbacher, C. Wagner-Bruschek, A. Maedel, G. Boon, J. Mayer,

2 Agenda Background Legal framework of REMIT Implementation of REMIT in Austria Conclusions and outlook 2

3 Background REMIT = Regulation on Wholesale Energy Market Integrity and Transparency Wholesale Energy Market (power and gas) Energy exchanges (EXAA, EPEX Spot, EEX, CEGH, etc.) Energy broker platforms (ICAP, GFI, Tullet Prebon, etc.) Other organised market places (PRISMA, etc.) OTC markets Integrity Confidence that wholesale prices reflect market fundamentals No profits gained through market abuse (insider trading, market manipulation) Transparency Making relevant market & fundamental data publically available Allowing stakeholders to have a clear picture of the market situation Aim: Foster open and fair competition in wholesale energy markets to the benefit of final consumers 3

4 Legal framework of REMIT Overview R E M I T Market Abuse Definitions And Prohibition Market Monitoring Investigation And Enforcement Implementing Acts of EC & ACER Guidelines 4

5 Legal framework of REMIT Market Abuse Definitions And Prohibition (i/ii) Inside information means in short a precise information not made public relates, directly or indirectly, to one or more wholesale energy products would likely significantly affect the price those products if made public Practical example: Non-published information on the unavailability of a 400 MW CCGT on 15/02/2017 between 20:00 and 22:00 Prohibition of insider trading means in short that persons who possess inside information shall be prohibited from using that information to buy or sell wholesale energy products disclosing that information to any other person recommending or inducing another person to buy or sell wholesale energy products Practical example: Prohibition to buy H21 products on the EPEX intraday market before inside information on power plant unavailability mentioned above is published 5

6 Legal framework of REMIT Market Abuse Definitions And Prohibition (ii/ii) Market manipulation means in short entering transactions or issuing orders which give false or misleading signals regarding supply, demand or price secure prices at an artificial level employs a deception which gives false or misleading signals regarding supply, demand or price disseminating information through the media, including the internet, or by any other means, which gives false or misleading signals regarding supply, demand or price Practical example: Place orders to buy and sell for a product at the same time at the some artificially high price level (wash trade) Trader A sells to trader B Trader A places a sell order A and buys it from itself A B and buys it back at the same price 6

7 Legal framework of REMIT Market Monitoring Market participants have to report wholesale energy market transactions to ACER ACER and NRAs shall monitor the trading activities Who is a market participant? Art. 2(7) REMIT: [ ] any person, including transmission system operators, who enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets; Energy trading companies Producers of electricity or natural gas Shippers of natural gas Balance responsible entities Wholesale customers Final customers ( 600 GWh/a) TSOs, Storage SOs, LNG SOs Investment firms What to do they have to report? Reportable contracts are defined in the REMIT implementing acts Intraday or within-day contracts Day-ahead contracts Two-days-ahead contracts Week-end contracts After-day contracts Contracts with delivery period >2 days Contracts w. consumption units 600 GWh/a Options, futures, swaps & other derivatives Transportation contracts Fundamental data (Nominations / Capacity and usage of energy infrastructure) 7

8 Legal framework of REMIT Investigation and Enforcement Investigation Enforcement Member States have to ensure that NRAs have sufficient investigatory powers Transposition into national law necessary Investigatory powers defined in REMIT: Access to relevant documents Demand information from any relevant person Carry out on-site inspections Require existing telephone and existing data traffic records Require the cessation of any practice that contradicts REMIT request a court to freeze or sequester assets request a temporary prohibition of professional activity Member States have to define and implement sanctions in the national law Type of REMIT breach Market manipulation and attempted market manipulation Insider trading of persons according to Art. 3(2)(e) REMIT without intent Insider trading of persons according to Art. 3(2)(e) REMIT with intent Insider trading of persons according to Art. 3(2)(a) to (d) REMIT without intent Penalty EUR 150,000 EUR 50,000 EUR 150,000 6 months imprisonment or 360 daily rates Insider trading of persons according to Art. 3(2)(a) to (d) REMIT with intent 3 years imprisonment Non or incorrect disclosure of REMIT inside information EUR 50,000 Not informing E-Control about a disclosure of REMIT inside information EUR 10,000 Not complying with REMIT reporting obligations EUR 50,000 Not complying with EGHD-VO reporting obligations EUR 10,000 Not cooperating with E-Control EUR 10,000 Not registering as market participant and not updating registration data EUR 50,000 8

9 Implementation of REMIT in Austria Legal: Amendments in national legislation E-Control Act: Investigatory powers for REMIT, national ordinance Electricity Act, Natural Gas Act: Enforcement and sanctions for REMIT breaches Ordinance on Energy Wholesale Data Collection IT: National data collection and analysis Non-Standardised Contract Reporting Tool (NSCR) National Registration System (NRS) for REMIT Data collection and market surveillance software Organisational: Market monitoring processes and procedures E-Control internal monitoring processes Cooperation at national level Cooperation at regional and European level 9

Implementation of REMIT in Austria Data collection & market surveillance software (I) Trading and fundamental data is essential source of information for market monitoring Due to mass of data

10 Implementation of REMIT in Austria Data collection & market surveillance software (I) Trading and fundamental data is essential source of information for market monitoring Due to mass of data a highly-efficient and wellstructured data analysis is necessary E-Control has procured the market surveillance software Scila (NY Stock Exchange, Deutsche Börse, etc.) Source: (ACER, 2016) 10

11 Implementation of REMIT in Austria Data collection & market surveillance software (II) Market participants / Third parties Trade reporting / matching systems Exchanges Brokers Trade repositories Financial Market Authorities TSOs / ENTSOs Reporting of trade data, including orders to trade and fundamental data through Registered Reporting Mechanisms (RRMs) ACER data base National Registration System (NRS) Registration data Nomination data, balancing data TSOs Non-standardised contract reporting tool (NSCR) Trading data Inside information E-Control market surveillance system Nomination data Market data Balance group coordinator / market area manager Inside information platforms / company websites Other data provider Alerts, Reports 11

12 Implementation of REMIT in Austria Data collection & market surveillance software (III) Example for an identified suspicious transactions Unusually high buy order for a wholesale energy product Alert triggers further investigations 12

13 Implementation of REMIT in Austria E-Control s Market Monitoring Procedure Internal Market Monitoring Procedure Sources ACER 1st Level Decision 2nd Level Decision Decision Investigation Decision Market Surveillance Software E-Control Departments Continuous wholesale energy market surveillance Detection of suspicious behaviour Forward to 2nd Level? What is the concrete allegation? Forward to case handler Pre-investigation Searching for facts confirming the allegation Forward to Executive Board? Examine if reasonable ground substantiate Examine if a formal investigation can be initiated Forward to ACER? Initiation of a formal investigation (case) Assign case name and inform ACER / NRAs / authorities Prepare investigation report Conduct further investigations Whistle-blower Platform Forward to state prosecutor / district court? Case is supported by sufficient evidence Exchanges, Brokers, etc. 13

14 Conclusions and outlook REMIT is tailor-made monitoring framework for the European wholesale energy market Aim: Foster open and fair competition in wholesale energy markets Significant effects on all stakeholders (MPs, PPATs, ENTSOs, ACER, NRAs) Implementation of REMIT required adaptations in several areas & is not a one off-task Appropriate legal framework Flexible and highly efficient data collection and analysis tools Well-defined and structured monitoring and cooperation processes ACER & NRAs will need to continue to invest great efforts to ensure transparency and fair competition in the wholesale energy market Focus of E-Control in the next few months Strengthening cooperation at regional level (NRAs, PPATs) Streamline monitoring processes with cooperation partners National implementation of REMIT (continuous improvement of processes, alters, etc.) 14

15 Contact Wilhelm Süßenbacher wilhelm.suessenbacher@e-control.at

17 Reasons for a European Regulation Wholesale energy markets in Europe are increasingly interlinked Market abuse in one Member State / market place / product likely also effects other Member States / market places / products Ensuring transparency and integrity requires a strong cross-border market monitoring framework covering all relevant market places and products Before REMIT such a framework did not exist for the wholesale energy market Monitoring nationally oriented Multiple jurisdictions and different monitoring authorities Lack of clarity regarding responsibilities Relevant energy markets (spot market, physical OTC markets) not covered by European financial regulation Market abusive behaviour not clearly prohibited on most important energy markets Gaps in European legislation are closed by REMIT 17

18 Impact of REMIT on Stakeholders Market Participants Register with the NRA Market participants receive an ACER Code Used for data reporting Allows for an effective retracing to suspicious trading behavior through ACER & NRAs Keep the registration data up to date Report transaction data to ACER Publish inside information in an effective and timely manner ENTSO-E & ENTSO-G Report fundamental data to ACER PPATs (e.g. Exchanges, Brokers) Notify NRAs about suspicious transactions ACER & NRAs Collect transaction and fundamental data Monitor compliance with REMIT in the wholesale energy markets Investigate (& enforce sanctions) Consequences of REMIT obligations Organisational changes (compliance regimes, changes in organisational & IT processes, etc.) Implementation costs (Staff, IT systems, etc.) More Transparency Trustworthy Wholesale Energy Markets Deeper Market Insight 18

19 Costs of market monitoring are minor compared to damage of market manipulation REMIT case of Iberdrola (Spain) In 2013 Iberdrola applied a withholding strategy to artificially increase the wholesale electricity price in the day-ahead market over a period of three weeks Breach of Art. 5 REMIT (prohibition of market manipulation) Estimated profit of Iberbrola around 21,5 Mio. Total damage for end consumers around 105 Mio. due to increased market prices Regulatory Assistance Project estimates the costs for an effective EU-wide market monitoring regime at around 20 Mio. per annum* Costs are minor compared to damage of just one single event of market manipulation *Source: RAP, Can We Trust Electricity Prices?,

20 Implementation of REMIT in Austria Further aspects: Optimisation of the market design In the past Possible focus: General behaviour and development of the market With REMIT + Possible focus: General behaviour and development of the market & of single market participants 20

Understanding REMIT. Challenges and Opportunities for Players

Montel Alpine Energy Days 21 March 2014 in Kitzbühel Understanding REMIT. Challenges and Opportunities for Players European Federation of Energy Traders Secretary-General, EFET Deutschland b.lempp@efet.org