Electricity and gas trading: transparency and market integrity

On 12 January 2009, the European regulators’ Group for Electricity and Gas (ERGEG) and the Committee of European Securities Regulators (CESR) published their third set of proposals to the European Commission on how to promote fair electricity and gas trading.

These proposals consider record keeping, transparency and exchange of information and aim to contribute to achieving a common European framework for such trading. These proposals are likely to be of interest to investors and other stakeholders in the EU’s electricity and gas trading markets.

Background

Yesterday’s proposals complete the mandate that the European Commission issued to ERGEG and CESR on 21 December 2007 (as amended in May 2008) in the context of the Third Energy Package proposals. The proposals also complement the Commissions’ review of the Market Abuse Directive (MAD), which is to be completed in early 2009.

EU harmonised post-trade transparency scheme

The second set of proposals (published in October 2008) called for a harmonised transparency regime for “fundamental data” and section specific legislation to prevent and detect market abuse in the electricity and gas market. In addition, the proposals encouraged the Commission to consider that integrity in related markets (e.g. emission allowances, oil and coal) affects the electricity and gas market.

In the proposals published yesterday, ERGEG and CESR, taking into account responses to the public consultation (October-November 2008), recommended that all EU trading platforms publish harmonised post-trade information and specifically aim for:

• anonymous, trade-by-trade publication;
• a close to real-time timeframe (within 15 minutes maximum);
• a scope restricted to standardised electricity and gas supply contracts and derivatives;
• publication by platforms (i.e. regulated markets, MTFs, spot exchanges, broker platforms); and
• access on a non-discriminatory and reasonable commercial basis.

These proposals aim to improve transparency of trading and provide market participants with timely and significant price signals. Energy regulators also recommended that platforms publish aggregate data on a daily basis to enable estimates of trends and developments for the subsequent trading days.

Record keeping obligations

Market participants must keep records of the characteristics of transactions they make to assist regulators in checking compliance.

The Commissions’ Third Energy Package contains new obligations for supply undertakings (persons subject to record-keeping obligations under the Third Energy Package) to keep records related to their transactions.

To ensure effective market oversight, ERGEG and CESR propose that supply undertakings should be able to:

• provide data derived from their records;
• in an electronic format; and
• upon request from a regulator.

Although the Third Energy Package does not include any requirements on transaction reporting, ERGEG and CESR suggest considering such a scheme at a later stage.

Definition of “supply undertaking”

Under the Third Energy Package, “supply undertaking” includes:

• persons active in the sale or resale of electricity/gas, including investment firms;
• firms that physically supply electricity/gas to wholesale or final customers; and
• persons that conclude spot contracts and derivate transactions with physical settlement.

However, this does not cover persons trading exclusively cash-settled financial instruments related to electricity or gas. ERGEG and CERR recommended assessing the impact of this regulatory gap.

Next steps

Within the next few weeks, a Feedback Statement (an evaluation of comments on the responses to the consultation) will be published.

Further information

To read our law-now article entitled ‘ERGEG consults on third package implementation’, please click here.

To read our law-now article entitled ‘Council reaches new political agreement on third package proposals’, please click here.

To read our law-now article entitled ‘The Third Package - a fourth way?’, please click here.