European Commission Proposes Rules for Wholesale Energy Markets to Prevent Market Manipulation and Insider Trading

On 8 December 2010, the European Commission presented its new Proposal for a Regulation on “Energy market integrity and transparency”. With Europe’s wholesale energy markets becoming increasingly interlinked, the proposed regulation aims at ensuring market transparency and integrity by preventing market manipulation and insider trading. It also gives ACER an import role in the implementation of the new rules.

According to the Commission, between 2000 and 2009 overall volumes of traded electricity (exchanges and OTC taken together) in Europe increased from 3,500 TWh to 10,000 TWh. As prices established on wholesale markets serve as a benchmark for retail prices for household consumers and industrial users, the Commission deems it necessary to prevent market abuse, such as withholding energy capacities from the market to increase prices. Financial regulation, including the Market Abuse Directive (2003/6/EC) and the Markets in Financial Instruments Directive (MiFID), only applies to financial instruments such as energy derivatives traded at energy exchanges. For electricity, they only account for 16% of the total volumes traded. Hence, the new regulation shall close the gap.

In particular, the proposed 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 detect possible cases of abuse shall be carried out by the European Agency for the Cooperation of Energy Regulators (ACER) based in Slovenia. A team of about 15 market monitors will be given extensive powers to collect market data and act on manipulative behaviour. In close contact with energy regulators and financial supervisors, ACER shall ensure that a consistent approach is taken to suspected market abuse, alerting national regulatory authorities to potential market abuse and facilitating information exchange.

The  Commission estimates the Regulation to enter into force by 2012 after its adoption by the Council and European Parliament.

Source: European Commission (press release), European Commission (Questions & Answers)