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08.12.2010 15:57
EC proposes rules to prevent market abuse in wholesale energy markets
Market monitoring to uncover possible cases of abuse will be the responsibility of the European Agency for the Cooperation of Energy Regulators (ACER)

  • Günther Oettinger, Member of the EC in charge of Energy
    © European Commission

The European Commission has today proposed rules on wholesale energy markets to prevent market manipulation and insider trading. The Regulation seeks to ensure market transparency by obliging energy traders to respect clear market rules. Wholesale markets, where gas and electricity is traded between companies producing energy and traders, are key to the prices consumers finally pay, a message from the EC says.

EU Energy Commissioner Günther Oettinger said: "Our energy markets are interdependent. Market abuse that takes place in one Member State often affects the prices in another Member State. It is crucial to ensure EU level comprehensive rules which guarantee that citizens can be confident that prices are formed fairly and they can fully benefit from the internal energy market." The new rules aim at ensuring that traders cannot use inside information to benefit from their transactions or manipulate the market by artificially causing prices to be higher than would be justified by the availability, production cost or capacity to store or transport energy.

In particular, the rules prohibit the following:

  • Use of inside information when selling or buying at wholesale energy markets. Exclusive and price sensitive information should be disclosed before trades can take place
  • Transactions that give false or misleading signals about the supply, demand or on prices of wholesale energy market products
  • Distributing false news or rumours that give misleading signals on these products.

Market monitoring to uncover possible cases of abuse will be the responsibility of the European Agency for the Cooperation of Energy Regulators (ACER). The Agency must have timely access to the complete information on the transactions taking place at wholesale energy markets. This includes information on the price, the quantity sold and the counterparties involved. The data will also be shared with national regulators who will also be responsible for detailed investigation of suspected abuse. In complex cross-border cases the ACER will coordinate investigations. Penalties will be enforced by national regulatory authorities in Member States.

The specific legislation is necessary to ensure that one body can monitor the entire wholesale market for energy, whether it concerns the deritivative market or the spot market. The Directive on Insider Dealing and Market Manipulation (MAD) and the Directive on Markets in Financial Instruments (MiFID) which relate to financial instruments cover only derivative markets and transactions.

Europe’s wholesale energy markets are increasingly cross-border in nature. Price setting is not tied to single countries. It occurs through the interaction of supply and demand across national boundaries. Beyond energy producing companies, a wide range of actors including large energy users, traders, investment banks and funds sell and buy gas and electricity. Energy suppliers will then sell it to end-users. The overall majority of energy in the EU is traded over-the-counter (OTC). In 2009, 75 percent of electricity was traded OTC, only 25 percent via power exchanges. Prices established on wholesale markets serve as a benchmark for retail prices for household consumers and industrial users. It is for this reason that the regulation aims to have market transparency and to prevent insider trading and market abuse which can lead to higher prices.

The measures will apply to wholesale electricity and gas contracts including contracts for the transportation of these commodities. They will not apply to supplies to final customers. The Regulation should enter into force by 2012 after its adoption by the Council and European Parliament.

TAGS: European Commission | Gunther Oettinger | ACER | wholesale | energy | electricity | power | exchange | OTC | over-the-counter 

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