Apr 17, 2015

In order to prevent market abuse in wholesale energy markets, the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) requires market participants to report details of wholesale energy products to the Agency for Cooperation of Energy Regulators (ACER). With an October 2015 deadline, firms will need to adapt existing, or develop new, reporting infrastructures.

1. What is REMIT?

REMIT introduces, for the first time, a consistent pan European Union (EU) framework across the wholesale energy markets to:

  1. Define market abuse, in the form of market manipulation, attempted market manipulation and insider trading;
  2. Introduce the explicit prohibition of market manipulation, attempted market manipulation and insider trading;
  3. Establish a framework to monitor, detect and deter market manipulation and insider trading; and
  4. Provide enforcement mechanisms for the above prohibitions and sanctions for breaches of market abuse at national level.

Trade reporting is a central tenet of the new regulatory regime.

2. When do I need to report?

Thought Leadership Chart

3. What do I need to report?

Transactions in the following wholesale energy products:

  1. Contracts for the supply of electricity or natural gas where delivery is in the EU;
  2. Derivatives relating to electricity or natural gas produced, traded or delivered in the EU;
  3. Contracts relating to the transportation of electricity or natural gas in the EU; and
  4. Derivatives relating to the transportation of electricity or natural gas in the EU.

Contracts for the supply and distribution of electricity or natural gas for the use of final customers are not wholesale energy products. However, Contracts for the supply and distribution of electricity or natural gas to final customers with a consumption capacity of greater than the threshold shall be treated as wholesale energy products.

The threshold will be deemed to have been exceeded if consumption at an individual plant under the control of a single economic entity exceeds 600 GWh.

4. Who should report?

The type of wholesale energy product and how it was traded determines the reporting party:

  1. Wholesale energy products concluded at an organised market place should be reported through the organised market place or through trade matching and trade reporting systems
  2. Transportation contracts should be reported by Transport System Operators (TSOs), LNG (Liquefied Natural Gas) System Operators (LSOs) or third parties acting on their behalf
  3. Wholesale energy products reported in accordance with EMIR or other EU financial market legislations including trade repositories, approved reporting mechanisms, competent authorities and ESMA
  4. Information relating to capacity and use of facilities for storage and the use of LNG facilities should be reported by Storage System Operators (SSOs) and LSOs
  5. Wholesale energy products concluded outside an organised market place should be reported by market participants or third parties acting on their behalf

 

5. How should I prepare?

Market participants will need to decide whether to 1) develop their own internal IT infrastructure, organisation and controls to facilitate trade reporting; or 2) outsource reporting responsibility to a third party. The latter will still require active engagement to ensure completeness and accuracy of reporting, as the counterparty will retain responsibility for this.

Firms should look to develop a project framework that addresses (a) interpretation of the rules; (b) inventory of reporting obligations; (c) target operating model; (d) gap analysis; (e) business requirements and implementation plans; (f) post go live control framework.

One thing is certain, energy market participants should look to leverage the EMIR and Dodd-Frank trade reporting experience, applying the lessons learned and reusing where possible.