ENERGY BUSINESS LAW
ENERGY BUSINESS LAW
Insights for the Global Energy Industry
ENERGY BUSINESS LAW
Insights for the Global Energy Industry
REMIT
Subscribe to REMIT's Posts

Agreement Reached on Revised European Rules for Markets in Financial Instruments

by | Jan 31, 2014 |

by Prajakt Samant and Simone Goligorsky

The European Commission announced on 14 January 2014 that the European Parliament and Council had reached an agreement in principle on revised rules for markets in financial instruments (MiFID II). Under the revised regime, limits will be placed on taking financial positions in commodity derivatives, with a view to preventing market abuse and helping to restore investor confidence following the financial crisis.

Background

The current Markets in Financial Instruments Directive (MiFID) governs the provision of investment services in financial instruments and the operation of stock exchanges and multilateral trading facilities (MTFs). MiFID has long been regarded as not being fit for purpose—both in light of the fallout from the financial crisis and the evolution of international financial markets—hence the Commission’s proposals to revise the regime.

In the wake of major changes in financial markets through new trading products and practices, coupled with issues relating to the price volatility of commodity derivatives, it was decided that a revision was required in order to, according to the Commission, increase the efficiency, resilience and transparency of protection for investors.

Agreed Revised Rules

The Commission has identified the following as the key elements of the agreed text of MiFID II:

  1. The introduction of a market structure framework to close existing loopholes, in order to ensure trading is undertaken on regulated platforms and to increase equality between Regulated Markets and MTFs. Under the revised regime, it is proposed that, inter alia, shares should be subjected to a trading obligation, certain investment firms should be authorised as MTFs, and an organised trading facility (OTF) should be created as a venue for trading non-equity instruments, such as derivatives and bonds.
  2. The creation of position limits for commodity derivatives by national competent authorities on the basis of calculation methodologies/technical standards set by the European Securities and Markets Authority (ESMA), in order to strengthen supervisory regulation and prevent market abuse. There will be a hedging exemption for positions held by, or on behalf of, a non-financial entity, that are objectively measurable as reducing risks directly related to the commercial activity of the non-financial entity.
  3. The establishment of transparency for non-equity markets and increased equity market transparency. Under MiFID II, the use of reference and negotiated price waivers for equities will be capped and the transparency regime will be broadened to include non-equities. New rules will also require trading venues to make pre- and post-trade data available on a commercial basis.
  4. Increased competition for the trading and clearing of financial instruments. The revised rules will facilitate access to trading venues and central counterparties (CCPs) and include the introduction of transition periods for smaller trading venues and new CCPs.
  5. The introduction of rules and controls relating to algorithms used in relation to high frequency trading. Under the new rules, algorithmic traders will be required to be regulated and subject to liquidity controls.
  6. Increased investor protection through client asset protection, product governance, other organisation requirements and conduct rules. The agreed text of MiFID [...]

    Continue Reading


read more

REMIT Set to be Enforced in the UK

by | Jun 17, 2013 | ,

by Prajakt Samant and Simone Goligorsky

If the UK Government meets the implementation deadline of 28 June 2013, then the United Kingdom will be one of the first EU Member States to implement the EU regulation on wholesale market integrity and transparency (REMIT). Market participants should ensure that all compliance procedures and trading functions are kept fully up to date with the stricter market abuse regime.

To read the full article, click here.



read more

ACER Publishes Second Edition of Guidance on REMIT

by | Oct 4, 2012 | , ,

 by Prajakt Samant, Thomas Morgan and Simone Goligorsky

On September 28, 2012, the Agency for the Cooperation of Energy Regulators (ACER) issued the second of two pieces of non-binding guidance on the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).  REMIT imposes requirements aimed at preventing and detecting market abuse, and more specifically, market manipulation and insider trading in the wholesale energy market.

The guidance considers, inter alia,:

  • The scope of REMIT;
  • The application of the definitions of wholesale energy products, wholesale energy market and market participants; inside information;and market manipulation; and
  • The application of the obligation to publish inside information; the prohibitions of market abuse and on possible signals of suspected insider dealing and market manipulation; and the implementation of prohibitions of market abuse.

Considering the scope of REMIT, it should be noted that the guidance stipulates that intra-group transactions, i.e. over-the-counter contracts entered into by counterparties which are part of the same group of companies, would come within the scope of REMIT, given that the definition of wholesale energy products specifies that REMIT will apply to contracts irrespective of how and where they are traded. 

Regarding penalties that will be imposed in the event that a market participant is found to be in breach of REMIT, the guidance states that the national regulatory authorities (NRAs), i.e. the bodies from each member state working with ACER to monitor market participants, should penalize not only breaches of the market abuse prohibition, but also:

  • Any breaches of the obligation to notify ACER of any delayed disclosure of inside information;
  • Any breach of the obligation to provide ACER with a record of wholesale energy market transactions; and
  • A breach of the obligation to register with the competent NRA. 

The first piece of guidance on REMIT was published by ACER in December 2011, a few days before REMIT entered into force.  The guidance focused particularly on the definition of inside information, and what activities ACER would consider to be market manipulation, or attempted market manipulation.  The guidance also gave examples of the types of activities that may indicate insider dealing and suspicious transactions.

It is expected that REMIT will be fully implemented by summer 2013.  In the interim, member states will be required to enable NRAs with the means and powers necessary to investigate suspicious cases, and the prosecute confirmed cases of insider trading and market manipulation.  By summer 2013, it is expected that both ACER and the NRAs (Ofgem in the UK) will start collecting data, and monitoring market participants that come within the scope of REMIT. 



read more

ACER and ESMA Publish Respective Consultations on REMIT and EMIR

by | Jul 5, 2012 | ,

by Prajakt Samant and Simone Goligorsky

In the last two weeks, both the Agency for the Cooperation of Energy Regulations (ACER) and the European Securities and Markets Authority (ESMA) have published consultations for market participants on the Regulation on wholesale energy market integrity and transparency (REMIT) and the European Market Infrastructure Regulation (EMIR), respectively.  This article considers some of the issues that have been raised by both consultation papers and outlines the areas where the input of markets participants has been sought.

To read the full article, click here.



read more

European Market Abuse Regulation Extended to the Commodities Sector

by | Mar 5, 2012 | ,

by Thomas Morgan

The Market Abuse Directive (MAD) was adopted by the European Parliament and the European Council in early 2003, introducing a framework to combat market abuse in the European Union (EU).  On June 2, 2010, the European Commission (EC) announced that MAD would be updated and strengthened, with one of the key objectives being to enhance the regulation of commodity and commodity derivatives markets to deal with insider dealing and market manipulation.  On October 20, 2011, the EC published its provisional drafts of the amended MAD and a new Market Abuse Regulation (MAR).  MAR sets out rules and administrative sanctions in relation to insider dealing and market manipulation (market abuse), while the amended MAD introduces criminal sanctions. The amended MAD and MAR are referred to jointly as MAD II.

In its current form MAD II broadens:

  • the application of the legislation to include financial instruments traded on organised and multilateral trading facilities and any traded over-the-counter (OTC), including spot commodity markets and emissions allowances.
  • the market abuse ban to cover attempted insider trading and attempted market manipulation.
  • the insider dealing restriction to cover amending or cancelling an order, even if this is done to avoid trading on the basis of inside information.
  • the market manipulation prohibition to cover all behaviour, not just entering into orders or transactions, and some high frequency and algorithmic trading strategies.
  • the scope of the legislation by phasing out the defence of behaviour being accepted market practice.

The MAD II package of proposals, like the complementary Markets in Financial Investments Directive proposals published on the same day, will now undergo negotiation by the EC, the European Council and the European Parliament before becoming law.  One of the main discussion points during these negotiations will be the definition of “inside information.” Market participants want the definition to align with the definition of inside information in the regulation on wholesale energy market integrity and transparency (REMIT), thereby ensuring that inside information concerning physical products that are covered by REMIT and inside information concerning commodity derivatives covered by MAD II are regulated in the same way. It is not yet known whether the current definition will be amended accordingly.      

The final form of MAD II is unlikely to enter into force before the end of 2012, but commodities businesses need to start preparing by reviewing all policies and procedures connected to their trading practices.  The implementation of procedures to detect incidents of potential market abuse, and policies for reporting and co-operating with regulators, will serve to minimise corporate and individual sanctions.



read more

EC to Regulate Market Abuse in Wholesale Power and Natural Gas Transactions

by | Jan 11, 2012 | , ,

by Thomas Morgan

European Union (EU) Regulation 1227/2011 on wholesale energy market integrity and transparency (REMIT), which came into force on December 28, regulates at an EU-level, the wholesale energy markets.  REMIT seeks to detect and prevent market abuse (or more specifically, market manipulation and insider trading) in the wholesale energy sector.  This is in contrast to the existing European market abuse legislation which applied, almost exclusively, to financial instruments admitted to trade on regulated markets.

REMIT applies to wholesale energy products (WEPs):

  • contracts for the supply of electricity or natural gas delivered in the EU;
  • contracts relating to the transport of electricity or natural gas within the EU; and
  • derivatives of those contracts;

irrespective of where or how they are traded, but does not apply if the consumption capacity of the gas or electricity is less than 600 GWh per year.

REMIT prohibits the manipulation of WEP transactions, and requires energy market participants to publish inside information relating to WEPs and submit details of energy transactions to the European energy regulatory authority, the Agency for the Cooperation of Energy Regulators (ACER).  REMIT also requires ACER, working with National Regulatory Authorities (NRA), to monitor wholesale energy markets and requires energy market participants to register with the NRAs.  Member States, in turn, are charged with ensuring that NRAs have the necessary investigatory powers, which shall be exercised in a proportionate manner.

REMIT extends securities market concepts to the energy sector by prohibiting manipulative transactions and the dissemination of misleading information, and preventing insiders from benefiting from access to information relating to power, natural gas and commodity derivatives markets.  Compliance with REMIT will require market participants to introduce or review information barriers between operational and trading activities and ensure timely public disclosure of relevant information.

Rules are to be promulgated requiring energy traders to report transactions to ACER.  ACER, in turn, will be responsible for monitoring and analysing all trades to verify that the rules are followed, and will instruct NRAs to investigate any incidents of market abuse.

Each NRA must establish a register of market participants.  This,is central to the goal of increased market transparency.  Participants will be required to register with one authority only: in the Member State in which it was established or is resident (if neither applies to the participant, then it must register in a Member State where it is active).  The European Commission will adopt implementing acts defining the scope of trade reporting and registration obligations.  Member States must establish registries of electricity and natural gas traders three months after the adoption of the implementing acts, with transaction reporting requirements coming into force three months later.



read more

BLOG EDITORS

David Birchall

Martha Groves Pugh

Jacob Hollinger

STAY CONNECTED

Subscribe

TOPICS

ARCHIVES

Ranked In Chambers USA 2022
GCR 100 global elite