Spanish Regulator Issues EUR 1 million REMIT Fine for Gas Market Manipulation

CNMC, the Spanish national energy regulator, has fined the energy supplier Enérgya VM Gestión de Energía (Enérgya) for manipulating Mibgas, the Spanish gas market, in breach of Article 5 of REMIT by securing prices at an artificial level. Click here for the announcement from CNMC.

The activity involved abnormal trading patterns at the market close in the Mibgas D + 1 market between September and December 2022. The 34-page Resolution may be found here – the document is in Spanish. The Resolution, which is partly redacted, makes repeated reference to two augmenting reports, one issued by Mibgas and the other by CNMC's Derivatives Markets Sub-Directorate ("SMD Report"). Unfortunately, these reports, which appear to contain a substantial amount of detail, are not publicly available. The facts of the case according to the Resolution are briefly summarised as follows:

• In the period between 1 September and 31 December 2022, Enérgya was deemed to have manipulated the continuous gas market over a total of 32 sessions by continuously altering the final price of the D+1 Mibgas product;
• Enérgya achieved this through the insertion of purchase bids for small volumes seconds before the close of the trading session, with no intention to execute but which were aimed at establishing a certain closing price signal;
• The illicit bids were made at high prices in the last seconds of trading (between 0 and 7 seconds before the close) which CNMC believe had the intention of reducing the bid-ask spread at the close;
• This resulted in the market price reference known as "last daily price" being higher in the 32 trading sessions than it would have otherwise been if those purchase bids had not been introduced in the last seconds of trading;
• According to CNMC, the last purchase bids inserted by Enérgya in the last seconds of the 32 trading sessions were not introduced with the intention of being matched, but rather to give a certain price signal to the market;
• They were entered a few seconds before the close of trading to minimise the probability of being executed by another market participant;
• According to CNMC, these last purchase bids were not modifications of bids previously inserted by Enérgya which deviates, in their view, from legitimate market practice where there is a genuine intention to buy energy – in such cases the market participant would typically modify their bids to get them matched;
• In addition, Enérgya did not attempt to “undercut” the most competitive sale bid available at the time of order entry but rather they were entered at a slightly lower price than the most competitive sale bid in order to avoid being executed - this price differential with the most competitive sale bid was as low as EUR 0.02;
• CNMC also claim that the bids were introduced for volumes far removed from the volumes offered by Enérgya on the purchase side in the same market which, they claim, had the objective of reducing the economic impact of these high-price bids should they have been hit by another market participant;
• They also claim that the buy offers were introduced at a non-economic price as the price was higher than the last transaction executed by Enérgya as the selling counterparty;
• Further, in nine of the 32 trading sessions under investigation, the buy bid inserted shortly before the market close was the only purchase bid placed by Enérgya on the Mibgas market on that day and for that product, both in the auction and continuous markets;
• Enérgya’s goal was to bid in a way to reduce the bid-ask closing spread so that it would not exceed EUR 0.50/MWh so that Mibgas would apply a preferred methodology for calculating the last daily price (the so called “condition 2” method) – this according to CNMC caused deviations from observed price trends for the session;
• Enérgya put forward several arguments in their defence:

• Lack of criminality – Enérgya has never fixed, attempted to fix, or intended to fix the price, much less at an artificial level and should such conduct be considered to have been present, it was legitimate and in accordance with normal market practice;
• Enérgya claim to operate in the market for the D+1 product during most of the trading session and they tend to enter bids and offers to buy and sell during all trading sessions - the bids are very diverse from a volume and buy/sell perspective with some bids matching and others not;
• It is “usual and common market practice” for some of the bids to be placed in the last minutes of the session as the continuous market shows peaks of liquidity both at the opening and at the close of the trading session;
• During the relevant period, Enérgya made 57 bids in the last minute of the session, with successful matching on 14 occasions, and with no matching on 43 occasions – they claim that only 35 of these were analysed in the Mibgas report;
• They contend that given 14 of the bids were matched in that last minute demonstrates that there is activity in those last seconds before the close which “invalidates” any assumption of an attempt to manipulate the index;
• 31 of Enérgya’s bids were made within the daily maximum price ranges and the prices of the last closed transaction for the product in the session which follows the “logic of the market” and hence these could have been matched;
• Regarding the four remaining bids, which were made at prices higher than the daily maximum price, and above the price of the last transaction of the product, it should be noted that the difference between the daily maximum price of the corresponding session with respect to the bid made was small, and in their view irrelevant, for two of the sessions;
• In respect of the other two days, one deviation was higher at 7.09%, which they claim was due to a “clear bullish market signal” at the end of that day. The difference on the final bid of 3.57% was in line, in their view, with the market and its divergence from the prices traded on the following day should be considered “accidental”;
• Lack of culpability - Enérgya contend that they cannot be held liable for the conduct in the absence of wilful misconduct and/or fault – they claim the purchase offers made were made with the intention of being matched and in line with the market price;
• Proportionality of the sanction imposed – Enérgya ask that should the conduct be considered an administrative infringement, the sanction should be moderated through applying the principle of proportionality;
• Enérgya also argued that Mibgas never warned them that their conduct could constitute market manipulation.

• CNMC rejected the above arguments, mostly out of hand. The premise that some of the bidding behaviour was “accidental” was derided by CNMC saying:

"It is simply not possible for such an 'accident' to happen no more and no less than 32 times in four months…"

• CNMC found that Enérgya had breach Article 2.2.a.ii of Article 5 of REMIT by artificially setting the price. They were also found to have breached the provisions of the local statute – specifically Article 110 (u) of Law 34/1998, of 7 October 1998 (applicable to the Hydrocarbons Sector) for market manipulation;
• Enérgya was fined EUR 1 million.

 RegTrail Insights

The Resolution provides a more detailed breakdown of the arguments and counterarguments behind this action and is well worth a full read for those interested. Note that the activity in question occurred under the REMIT 1 regime and contains elements of Spanish law which is fairly typical of such enforcement actions in this jurisdiction.