ICE Endex Update MCM Regulation Guidance

The ICE Endex exchange has updated its Market Correction Mechanism (MCM) Regulation guidance (click here). It notes that the Exchange will not be blocking the submission of orders above the dynamic bidding limit and instead, by virtue of the Rules, will require Members to comply with the MCM Regulation e.g. submitting bids and executing transactions in accordance with the regulation.

Enforcement of Order Submissions above dynamic bidding limit. It notes that it will carry out compliance and enforcement activities, as appropriate, where it ascertains that breaches of the Rules (including guidance issued by the Exchange) may have occurred. In addition, since the Exchange's order book will remain open for business at price levels above any dynamic bidding limit under the MCM Regulation, the Exchange will be relying upon Members to only submit bids and execute transactions lawfully in accordance with the MCM Regulation and the Rules.

Settlement Price calculations. With respect to settlement prices, ICE Endex notes that whilst the MCM Regulation restrains certain orders from being submitted or accepted when the dynamic bidding limit is in operation, it does not provide for any restriction on the value of Settlement Prices. Consequently, the existing methodology and approach of the Exchange to the daily determination and publication of Settlement Prices will remain unchanged.

Trading Locational or Time-Spread markets to circumvent MCM regulation is not permitted. ICE Endex makes it very clear that the submission of an Order by a Member, or its client, in a locational or time-spread market, a TAS market or option market for TTF Derivatives or Derivatives linked to other VTPs, which intends to circumvent the MCM Regulation or where such a Member or its client knew or, ought to have known, would result in a position arising in contravention of the MCM Regulation, constitutes a violation of the Rules.

Enforcement. ICE ENDEX provides several examples of how it will approach enforcing MCM regulation, specifically for:

• Implied Orders
• OTC trades (Block, EFS, EFP) and Block Transparency Auction

In addition, it provides a direct mandate to Members advising them to ensure that they set up appropriate systems, limits and compliance processes to ensure that they do not foreseeably, recklessly or intentionally execute orders above the dynamic bidding limit using any trading strategy.

 RegTrail Insight

Gas prices since the MCM regulation was introduced have traded far lower than the EUR 180/MWh threshold thus governance over this trading process has not yet been required. That being said, exchanges and regulators expect firms to have appropriate systems, limits, and compliance processes in place to oversee trading during an MCM event. This rule change announcement effectively shifts the burden of ensuring compliance with the MCM regulation to the trading members of the exchange.

Firms should review their trading strategies with front office and ensure that there are controls and systems in place to oversee any trading that takes place during an MCM event. We recommend firms to perform simulation events with front office or, at minimum, with trading systems in a test environment to ensure appropriate governance is in place.