RegTrail Insights: European Council's Proposals Under REMIT 2

Below we review 20 specific updates including RegTrail's insights alongside the updated text from the proposal where appropriate

At 63 pages, there are a notable number of updates. The detailed track changes to the REMIT proposal can be found here.

NOTE: Updated definitions are in bold/underlined text and strikethrough text are proposed text removal).  

• [1] Market Abuse behaviour definition update – ‘any other behaviour’.
• [2] Definition of insider information – modification from inclusion of ‘financial instruments’ to ‘wholesale energy products’. 
• [3] Organised Market Places (OMPs) Reporting Obligation changes – OMPs to submit order book data to ACER. 
• [4] *NEW* Market Participant (MP) Reporting Obligation changes – reduced scope in providing order book data from OMPs. 
• [5] *NEW* ACER has the power to withdraw authorisations for existing Registered Reporting Mechanisms (RRMs) and Inside Information Platforms (IIPs). 
• [6] Provide a uniform list of administrative fines/measures to National Regulatory Authorities (NRAs) including the maximum actual fine that could be imposed in a specific market manipulation case. 
• [7] *NEW* Third country market participants are now designated as a representative of the European Union thus requiring them to adhere to REMIT regulations however no need to have a physical presence in Europe (ability to delegate reporting to local Europe representative). 
• [8] *NEW* Enhanced definitions associated with ACER’s ability to directly conduct market abuse investigations. 
• [9] ACER power to investigate will prioritise, if needed, investigating cases with the biggest cross-border impact. 
• [10] *NEW* National Regulatory Authority (NRA) has the right to object to ACER investigating a REMIT violation within three (3) months. 
• [11] *NEW* Inclusion of contracts or derivatives relating to storage of electricity or natural gas in the Union in ‘wholesale energy product’ definition.
• [12] *NEW* Inclusion of contracts for supply of electricity as a result of single day-ahead and intraday coupling.
• [13] *NEW* Updated definition of market participant to include distribution system operators, storage system operators, and LNG system operators.
• [14] *NEW* Enhanced definition of OMP to include “system or facility in which multiple third-party buying or selling interests in wholesale energy products interact in a way that may result in a transaction”.
• [15] *NEW* ‘Order Book’ definition.
• [16] *NEW* ‘Benchmark’ definition.
• [17] *NEW* Algo Trading records required to be archived for five (5) years.
• [18] *NEW* Market Participants providing Direct Electronic Access (DEA) to an OMP must keep records and archive them for five (5) years.
• [19] *NEW* Article 7d providing details on LNG Market Data Quality requirements.
• [20] *NEW* The obligations for Persons Professionally Arranging or Executing Transactions (PPAETS) has been amended to explicitly reference MAR requiring traders in Financial Instruments to also report suspicious behaviour in wholesale energy products when traded simultaneously.

Amendments added to the REMIT text are as follows:

[1] Market Abuse behaviour definition update – ‘any other behaviour’.

The definition has been enhanced specifically with *new* wording noting that market abuse behaviours should include (but not be limited to) actions such as quote stuffing, painting the tape, and momentum ignition. As a reminder, definitions for each of these market abuse behaviours can be found in this ESMA’s Final Technical Report on Market Abuse Regulation here.

“Financial instruments, including energy derivatives, traded on energy markets are of increasing importance. Due to the increasingly close interrelation between financial markets and energy wholesale markets, Regulation (EU) No 1227/2011 should be better aligned with the financial market legislation such as Regulation (EU) No 596/2014 of the European Parliament and of the Council1, including with respect to the definitions of market manipulation and inside information respectively. Therefore, More specifically the definition of market manipulation in Regulation (EU) No 1227/2011 should be slightly adjusted to align with mirror Article 12 of Regulation (EU) No 596/2014.

To that end, the definition of market manipulation under Regulation (EU) No 1227/2011 should be adjusted to capture the entering into any transaction, or issuing any order to trade, but also any other behaviour relating to wholesale energy products which: (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products; (ii) secures, or is likely to secure, by a person, or persons acting in collaboration, the price of one or several wholesale energy products at an artificial level, or (iii) employs a fictitious device or any other form of deception or contrivance which gives, or is likely to give, false or misleading signals regarding the supply of, demand for, or price of wholesale energy products. In this regard, with a view to the alignment with Regulation (EU) No 596/2014, the notion of any other behaviour should include, but should not be limited to actions such as quote stuffing, painting the tape, momentum ignition.”

[2] Definition of inside information – modification from inclusion of ‘financial instruments’ to ‘wholesale energy products’.

There is now only reference to wholesale energy products in terms of defining inside information versus including a blanket ‘financial instrument’ definition.

“The definition of inside information should also be adjusted to mirror align with Regulation (EU) 596/2014. In particular, where inside information concerns a process which occurs in stages, each stage of the process as well as the overall process could constitute inside information. An intermediate step in a protracted process may in itself constitute a set of circumstances or an event which exists or where there is a realistic prospect that they will come into existence or occur, on the basis of an overall assessment of the factors existing at the relevant time. However, that notion should not be interpreted as meaning that the magnitude of the effect of that set of circumstances or that event on the prices of the wholesale energy products financial instruments concerned must be taken into consideration. An intermediate step should be deemed to be inside information if it, by itself, meets the criteria laid down in this Regulation for inside information.”

[3] Organised Market Places (OMPs) Reporting Obligation changes – OMPs to submit order book data to ACER.

In its updated definition, it notes that OMPs should make available data related to the Order Book including , upon request, giving ACER access to the order book.

“Organised market places should be required to make available to the Agency data relating to provide the full order book or, upon request, give the Agency access to the order book. Order book providers should also be designated as persons professionally arranging transactions subject to the obligation to monitor and report suspected breaches.”

[4] *NEW* Market Participant (MP) Reporting Obligation changes – reduced scope in providing order book data from OMPs.

A new clause is now inserted noting that MPs are not obligated to report on order data from OMPs which is the sole responsibility of OMPs as noted in #3 above.

“The reporting obligations on market participants should be minimised by collecting the required information or parts thereof from existing sources, where possible. Market participants are not able to record and report organised market place data with ease, therefore organised market place data should be made available to the Agency by the relevant organised market places or by third parties acting on their behalf.”

[5] *NEW* ACER has the power to withdraw authorisations for existing Registered Reporting Mechanisms (RRMs) and Inside Information Platforms (IIPs).

There is new wording noting that ACER has the power to withdraw authorisations of RRMs and IIPs and notes that the withdrawal of an authorisation should not prevent an entity from applying for a new authorisation as RRM or IIP with ACER.

[6] Provide a uniform list of administrative fines/measures to National Regulatory Authorities (NRAs) including the maximum actual fine that could be imposed in a specific market manipulation case.

It notes that the new regulation should outline uniform fines and administrative measures to be followed including the maximum fines that can be imposed in a specific market manipulation case. It also permits NRAs the ability to provide lower fines on a case by case basis.

“A uniform and stronger framework to prevent market manipulation and other breaches of Regulation (EU) No 1227/2011 in the Member States is necessary. In order to ensure the consistent application of administrative fines across Member States for breaches of that Regulation, it should provide for a list of administrative fines and administrative measures which should be available to the national regulatory authorities as well as for a list of criteria for determining the level of those administrative fines and for levels of administrative fines. In particular, the actual amount of fines to be imposed in a specific case should be able to reach the maximum level provided for in this Regulation. However, this Regulation does not limit Member States’ ability to provide for lower fines on a case by case basis. Penalties for breaches of that Regulation should be proportionate, effective and dissuasive and reflect the type of the breaches, taking into account the ne bis in idem principle. The adoption and publication of administrative fines should respect fundamental rights as laid down in the Charter of Fundamental Rights of the European Union. Administrative measures sanctions, administrative fines penalty payments and supervisory measures are complementary parts of an effective enforcement regime. A harmonised supervision of the wholesale energy market requires a consistent approach among national regulatory authorities.”

‘Article 18 – Penalties’ is updated with new wording to outline in detail how NRAs are to determine issuance of fines or administrative measures as follows:

“3a. Member States shall ensure that when determining the type and level of administrative fines and other administrative measures, national regulatory authorities take into account all relevant circumstances, including, where appropriate: 

(a) the gravity and duration of the infringement;

(b) the degree of responsibility of the person responsible for the infringement;

(c) the financial strength of the person responsible for the infringement, as indicated, for example, by the total turnover of a legal person or the annual income of a natural person;

(d) the importance of the profits gained or losses avoided by the person responsible for the infringement, insofar as they can be determined;

(e) the level of cooperation of the person responsible for the infringement with the competent authority, without prejudice to the need to ensure disgorgement of profits gained or losses avoided by that person;

(f) previous infringements by the person responsible for the infringement; and

(g) measures taken by the person responsible for the infringement to prevent its repetition;

(h) the duplication of criminal and administrative proceedings and fines for the same breach against the responsible person.”

[7] *NEW* Third country market participants are now designated as a representative of the European Union thus requiring them to adhere to REMIT regulations however no need to have a physical presence in Europe (ability to delegate reporting to local Europe representative).

A new paragraph is inserted noting that any market participant who is not a resident or established in the Union but trading in European markets will need to comply with the REMIT regulation. This is a very important consideration for non-EU entities who currently trade or are considering to trade in Europe in wholesale energy markets.

“Where a market participant, which is not resident or established in the Union, is active within the Union, it should designate a representative in the Union. The representative should be explicitly designated by a written mandate of the market participant to be authorised to act on its behalf. It should be possible for the competent authorities to address the representative with regards to the obligations laid down in this Regulation.”

In addition, the proposed regulation notes that those third country market participants entering into transactions which are required to be reported to ACER are able to:

“designate a representative in a Member State in which they are active and register with the national regulatory authority of that Member State. The representative shall be designated by a written mandate of the market participant and authorised to act on its behalf. Competent authorities may address the authorised representative with regards to the market participants’ obligations laid down in this Regulation.”

[8] *NEW* Enhanced definitions associated with ACER’s ability to directly conduct market abuse investigations.

In an affirmation of the European Commission's proposal to grant ACER new authority to conduct its own market abuse investigations, additional new wording is included clarifying how ACER can conduct investigations. It notes that ACER can perform onsite inspections not only at the company’s business premise but also the private premise of directors, managers, and staff members involved in the investigation. It allows ACER to affix seals on business premises up to 72 hrs which could be intrusive to normal business operations and should be considered in business continuity planning should this proposal become law. 

There is a line drawn in terms of ACER’s ability to issue fines noting that only NRAs can issue fines associated with inaccurate, incorrect, or misleading information or failure to respond to information requests.

This is a notable step change from the current regime for investigating and penalising market manipulation conducted solely by NRAs. A summary of the changes is noted below.

1. Increased ACER Powers. ACER should have the authority to conduct on-site inspections and issue requests for information to individuals or businesses under investigation. This is particularly important when the suspected breaches of regulations have a cross-border dimension.
2. On-site Inspections. Officials authorized by ACER should be able to enter business premises and private premises of directors, managers, and staff members related to the investigation. However, this power should be exercised based on a reasoned decision by ACER and with prior authorization from a judicial authority.
3. Cooperation with National Regulatory Authorities. ACER should closely cooperate with relevant national regulatory authorities, who should provide necessary assistance during investigations, even in cases where a person refuses to comply with the inspection or provide requested information.
4. Fines and Penalties. ACER should not have the power to issue fines for inaccurate, incorrect, or misleading information or for failure to respond to information requests. Such powers should remain with the Member State(s) and their respective legislative frameworks.
5. Seals and Information Gathering. Officials conducting inspections should have the power to affix seals on business premises for the duration of the inspection (normally not exceeding 72 hours). They should also be able to request any relevant information related to the subject matter and purpose of the inspection.
6. Procedural Guarantees and Confidentiality. The procedural guarantees and fundamental rights of individuals subject to ACER’s investigations should be fully respected. The confidentiality of information submitted during the investigation should be safeguarded and exchanged in compliance with applicable Union data protection rules.
7. ACER required to issue Investigation Reports. At the conclusion of each investigation, ACER should issue a report that includes its findings and all evidence on which those findings are based. The report should be sent to the national regulatory authorities of the Member State(s) concerned, who are responsible for determining whether a breach has occurred and taking necessary enforcement measures.
8. Fundamental Rights and Principles. The Regulation should respect fundamental rights and principles, such as the protection of personal data, freedom to conduct business, the right to an effective remedy and a fair trial, and the principle of not being tried or punished twice for the same offense.
9. Cross-border investigations better achieved at Union Level via ACER versus Member States. ACER is better placed to lead cross-border investigations than Member States. Thus should there be a case involving three or more Member States, ACER will lead the investigation versus an individual Member State. Members States will support and contribute to the investigation but ACER will oversee and issue any related fines based on the investigation. 

Article 13a is updated to detail ACER’s rights during an on-site inspection at a company as follows:

“To the extent necessary for the inspection, the officials of and other persons authorised by the Agency to conduct an on-site inspection are empowered:

(a) to enter the premises concerned of the persons subject to an investigation decision adopted by the Agency pursuant to paragraph 6;

(b) to examine the books and other records related to the business, irrespective of the medium on which they are stored;

(c) to take or obtain in any form copies of or extracts from such books or records;

(d) to seal any business premises and books or records for the period and to the extent necessary for the inspection. Except in duly justified cases, seals shall not be affixed for more than 72 hours;

(e) to ask any representative or member of staff of the persons subject to an investigation for explanations on facts or documents relating to the subject- matter and purpose of the inspection and to record the answers.”

It also outlines when there is a justification to perform an on-site inspection at a private residence of a company employee as noted below:

“If a reasonable suspicion exists that business records related to the subject-matter of an inspection which may be relevant to prove a breach of this Regulation, are being kept in private premises of directors, managers and other members of staff of businesses concerned by an investigation, the Agency may by decision carry out an inspection in such private premises. In such cases, the decision referred to in paragraph 6 shall also state the reasons that have led the Agency to conclude that a suspicion as referred to in the first sentence of this paragraph exists.”

[9] ACER power to investigate will prioritise, if needed, investigating cases with the biggest cross-border impact.

“The investigation of breaches of this Regulation with a cross-border dimension should be carried out through a uniform process at Union level. Complexity of cross-border cases and the need to ensure sufficient resources for such cases requires involvement of the Agency, in particular in a more integrated energy market. Since the entry into force of Regulation (EU) No 1227/2011, the Agency has gained significant experience in monitoring and collecting relevant data on the wholesale energy markets in the Union to ensure their integrity and transparency. Building on this experience, the Agency should be empowered to carry out investigations to fight against the breaches of the provisions of Regulation (EU) No 1227/2011. In exercising its powers the Agency should give a priority, if needed, to the cases with the biggest cross-border impact. The Agency should carry out such investigations in cooperation with the national regulatory authorities with the purpose of supporting and complementing their enforcement activities. Equally, in the context of an investigation by the Agency, where necessary, relevant national regulatory authorities should cooperate amongst each other in assisting the Agency.”

[10] *NEW* National Regulatory Authority (NRA) has the right to object to ACER investigating a REMIT violation within three (3) months.

Should ACER initiate an investigation for potential REMIT violations it must notify the local NRAs and other concerned authorities of Member States. NRAs are able to object on the investigation if the NRA already has opened an investigation on the same facts or has already conducted an investigation on the same facts and determined no breach.

While ACER and Member States would usually work together to solve issues with the NRAs always leading, the new proposed ACER powers to investigate and NRAs ability to object may introduce new conflicts between regulatory agencies which will be interesting to observe see should the regulation pass in its current form.

“3a. In sufficient time before exercising the powers referred to in paragraph 3 within the jurisdiction of a Member State where the acts that the Agency reasonably suspects to be in breach of this Regulation are carried out, the Agency shall inform the national regulatory authority and other concerned authorities of that Member State. The Agency may exercise its powers in that jurisdiction, unless the national regulatory authority objects on the grounds that it:

a) has formally opened or is conducting an investigation on the same facts; or
b) has conducted an investigation on the same facts and determined the existence or the absence of a breach.

The national regulatory authority shall inform the Agency of its objection within three months. In such cases, the national regulatory authority shall cooperate with the Agency, including by sharing information and findings relevant for the Agency to exercise its powers under paragraph 3 in other relevant jurisdictions concerned.”

[11] *NEW* Inclusion of contracts or derivatives relating to storage of electricity or natural gas in the Union in ‘wholesale energy product’ definition.

[12] *NEW* Inclusion of contracts for supply of electricity as a result of single day-ahead and intraday coupling.

[13] *NEW* Updated definition of market participant to include distribution system operators, storage system operators, and LNG system operators.

[14] *NEW* Enhanced definition of OMP to include “system or facility in which multiple third-party buying or selling interests in wholesale energy products interact in a way that may result in a transaction”.

[15] *NEW* ‘Order Book’ definition

“(20a) ‘order book’ means all details of wholesale energy products executed at organised market places including matched and unmatched orders as well as system-generated orders and life cycle events.”

[16] *NEW* ‘Benchmark’ definition.

“(20b)‘benchmark’ means any rate, index or figure, made available to the public or published that is periodically or regularly determined by the application of a formula to, or on the basis of the value of one or more underlying wholesale energy products, including estimated prices, or surveys, and by reference to which the amount payable under a wholesale energy product or the value of a wholesale energy product is determined.”

[17] *NEW* Algo Trading records required to be archived for five (5) years.

In a clear statement concerning the importance of governance over Algo Trading, there were no changes to the Algo Trading requirements proposed under REMIT 2. The only change is that all records associated with Algo Trading requirements should be archived for five years (similar to MiFID II requirements). 

“The market participant shall arrange for records to be kept for 5 years in relation to the points referred to in this paragraph and shall ensure that those records are sufficient to enable its national regulatory authority to monitor compliance with this Regulation.”

[18] *NEW* Market Participants providing Direct Electronic Access (DEA) to an OMP must keep records and archive them for five (5) years.

[19] *NEW* Article 7d providing details on LNG Market Data Quality requirements.

As noted below, there is now a detailed set of data requirements for submitting LNG market data. Of the data requirements, most are usually found in trading systems however several stand out which may require additional data mapping and data reporting enhancements to be addressed as follows:

Market data reporting requirements

(f) the arrival window for the LNG cargo;

(g) the terms of delivery;

(h) the delivery points;

(i) the timestamp information on all of the following:

- (i) the date and time of placing the bid or offer;

- (ii) the transaction date and time;

- (iii) the date and time of reporting of the bid, offer or transaction;

- (iv) the receipt of LNG market data by the Agency.

Currency and units reporting requirements

(e) if relevant, the price formula in the long-term contract from which the price is derived shall be reported in its integrity. [RegTrail note: It is not clear if 'integrity' is a misplaced word which might otherwise read "entirety".]

Compliance teams who are required to submit LNG data should review the below with their respective IT teams to identify any gaps in data reporting. The updated new text is noted below.

“LNG market data shall include:

(a) the parties to the contract, including buy/sell indicator;

(b) the reporting party;

(c) the transaction price;

(d) the contract quantities;

(e) the value of the contract;

(f) the arrival window for the LNG cargo;

(g) the terms of delivery;

(h) the delivery points;

(i) the timestamp information on all of the following:

- (i) the date and time of placing the bid or offer;

- (ii) the transaction date and time;

- (iii) the date and time of reporting of the bid, offer or transaction;

- (iv) the receipt of LNG market data by the Agency.”

“LNG market participants shall provide the Agency with LNG market data in the following units and currencies:

(a) transaction, bid and offer unit prices shall be reported in the currency specified in the contract and in EUR/MWh and shall include applied conversion and exchange rates if applicable;

(b) contract quantities shall be reported in the units specified in the contracts and in MWh;

(c) arrival windows shall be reported in terms of delivery dates expressed in UTC format;

(d) delivery point shall indicate a valid identifier listed by the Agency such as referred to in the list of LNG facilities subject to reporting pursuant to Regulation (EU) No 1227/2011 and Implementing Regulation (EU) No 1348/2014; the timestamp information shall be reported in UTC format; (to be replaced with cross-references as appropriate)

(e) if relevant, the price formula in the long-term contract from which the price is

derived shall be reported in its integrity.”

[20] *NEW* The obligations for Persons Professionally Arranging or Executing Transactions (PPAETS) has been amended to explicitly reference MAR requiring traders in Financial Instruments to also report suspicious behaviour in wholesale energy products when traded simultaneously.

Emphasizing the increasing relationship between physical and financial energy contracts and the potential for cross-product/market manipulation, the new obligation placed on PPAETs will require them to report suspicious behaviour involving instruments which are not in scope of REMIT creating a firm dependency between MAR and REMIT. Market participants will need to ensure that they have implemented trade surveillance capabilities capable of detecting such cross-product/market behaviour, a challenging task for many vendor-developed systems in the market.

In addition, the EC also removed the contentious "or executing" part of the PPAET definition as it applies under Article 15, paragraph 1 thereby removing the obligation for all market participants to report suspicious activity. Many interpreted this as a requirement for any firm trading in wholesale energy products, regardless of size or trading obejctive, to have some type of surveillance capability. Feedback from a number of parties, including EFET, expressed concern at the original provision and recommended its removal.This might come as a relief to many smaller organisations assuming the proposal makes it through the legislative process.