EU Adopts New Measures Against Market Manipulation on the Wholesale Energy Market

July 1, 2024

On May 7, 2024, the Regulation improving the Union’s protection against market manipulation on the wholesale energy market (“REMIT II”)[1] entered into force.

REMIT II amends both the 2011 Regulation on wholesale energy market integrity and transparency (“REMIT I”)[2] and the 2019 Regulation establishing a European Union Agency for the Cooperation of Energy Regulators (“ACER”) (“ACER Regulation”).[3]  This new framework imposes a series of new obligations on market participants, and empowers ACER with new prerogatives.  The amendments impact all companies supplying the electricity, gas, and LNG wholesale markets.

The Commission had proposed to amend the previous regulatory framework in 2023, in a context of increased enforcement against alleged cases of market manipulation on the wholesale energy market.[4]  Against this background, REMIT II aims at:

  • Increasing transparency among energy actors and monitoring their capacities, to contribute to the stabilization of energy prices and protect consumers, and;
  • Ensuring more effective investigation and enforcement of cases of potential cross-border market abuse.

To achieve its objectives, REMIT II introduces new obligations on market participants.  It also give unprecedented powers to ACER – without however centralizing at the EU level the enforcement architecture.

1. New Obligations for Market Participants

    The new obligations for market participants are far-reaching and substantially amend the REMIT I framework.  The main changes include amended definitions and provisions on so-called inside information platforms (“IIPs”), registered reporting mechanisms (“RRMs”), and persons professionally arranging or executing transactions (“PPAETs”).  REMIT II also introduces new rules on algorithmic trading and imposes new obligations on third-country market participants.

    New definitions expanding report obligations.  The revised REMIT amends the definitions of market manipulation and inside information to align them with existing EU legislation on market abuse.[5]  In essence, the definition of market manipulation now includes not only transactions and orders but also any behavior related to wholesale energy products likely to secure artificial prices or use deception to mislead the market.   Moreover, each part of a multi-stage process can be considered inside information on its own if it meets the necessary criteria, without considering the overall impact on prices.

    The definition of wholesale energy product is also expanded to encompass contracts and derivatives relating to (i) the supply of LNG, (ii) the supply of electricity or gas which may result in delivery in the Union as a result of single day-ahead and intraday coupling, and (iii) the storage of electricity or natural gas of the Union.  The inclusion of LNG comes with important new reporting obligations as “any natural or legal person, irrespective of [its] place of incorporation or domicile, who engages in LNG trading” needs to report in near real-time LNG market data (including transaction prices, bids and offers) in order for ACER to establish a daily LNG price assessment and benchmark.[6]

    Disclosure of inside information through IIPs.The new framework regulates the channels through which market participants shall publicly disclose inside information under Article 4 of REMIT.  In particular, it makes it mandatory for market participants to disclose inside information through IIPs. IIPs can only operate after receiving an authorization from ACER.  They are required to make the information public “in a manner which enables prompt access to that information, including through a website or a clear application programming interface.”[7]  Additionally, they must ensure “a complete, correct and timely assessment of that information by the public.”[8]  Market participants can however continue using other channels, such as their websites, in addition to IIPs.

    A new role for RRMs.  In addition to IIPs, registered reporting mechanisms play an important role in the new framework.  After REMIT II, market participants are obliged to provide ACER with a record of wholesale energy market transactions, including orders to trade, through RRMs.[9]  Similarly to IIPs, RRMs need to be authorized by ACER on the basis of the criteria laid down by REMIT II.[10] 

    New obligations for PPAETs.  Under REMIT II, persons professionally arranging or executing transactions are required to alert ACER and the relevant NRAs if they reasonably suspect that certain orders or transactions infringe REMIT’s provisions relating to the prohibitions of insider trading and market manipulation, as well as the obligation to publish inside information.[11]  PPAETs will also need to establish mechanisms to (i) identify potential breaches of the latter prohibitions, (ii) guarantee that their employees act in an independent manner and are preserved by conflicts of interests, and (iii) detect and report suspicious orders and transactions. 

    New obligations for market participants using algorithmic trading.  All market participants will also need to report their use of algorithm trading, and potentially – if asked by NRAs – their algorithmic trading strategies and trading parameters.[12]  Importantly, market participants that engage in algorithmic trading will have to put in place effective mechanisms and risk controls to ensure the resiliency, capacity, proper functioning of their algorithmic trading systems as well as compliance with existing rules.

    New obligations for third country market participants.  Market participants not established or resident in the EU need to designate by November 8, 2024 a representative in a Member State in which they are active on the wholesale energy markets.  These market participants will also be required to register with the NRA of that Member State.  The representative must be authorized through a written mandate to act on behalf of the third-country participant and be provided with the necessary power to ensure compliance with the regulatory decisions and information requests of the authorities.[13]

    2. New ACER Prerogatives

    Under the amended regulation, ACER has new powers to intervene in case of potential breaches.  The amended framework provides ACER with investigatory powers for REMIT breaches with a cross-border dimension.[14]  These include the following new prerogatives.

    On-site inspections and RFIs. ACER can now conduct on-site inspections and enter business premises.  This includes the power to enter private premises of directors, managers or other members of staff concerned by an investigation, subject to the prior authorization of a national judicial authority.[15]  ACER can also issue requests for information.  When ACER finds that a person does not comply with a request for information, the NRA of the Member States concerned is required to assist ACER, including by imposing fines under national law.[16]  ACER can, additionally, interview and take statements from any person who consents to being interviewed to collect information relating to the subject matter of an investigation.[17]

    Penalties.  ACER can impose periodic penalty payments to persons subject to an investigation for procedural non-compliance during the course of the investigation procedure.[18]  Periodic penalty payments are subject to the judicial review of the Court of Justice.[19] ACER’s prerogatives remain however residual, when compared to the powers of NRAs.  NRAs remain REMIT’s main enforcers, and ACER does not have the power to adopt infringement decisions and impose sanctions.[20]

    Conclusion

    Market participants should assess the implications of the revised framework and ensure compliance with the numerous obligations introduced by REMIT II.  They should be prepared to cooperate with ACER in the context of cross-border investigations.  NRAs remain, however, the main enforcers under the revised framework, and the only agencies empowered to adopt decisions and impose fines. 

    Importantly, the entities subject to the revised REMIT framework should design their compliance solutions also in light of existing competition law rules.  Competition law provisions continue to apply to conduct regulated by the revised REMIT framework.  For instance, according to ACER’s guidance, in certain situations a behavior qualifying as market manipulation under REMIT might also qualify as a breach of Articles 101 and 102 of the Treaty on the Functioning of the EU.[21]

    ***

    Co-authored by Giacomo Chiti and Léa Settepani.

    [1]             Regulation (EU) 2024/1106 of the European Parliament and of the Council of 11 April 2024 amending Regulations No 1227/2011 and 2019/942 as regards improving the Union’s protection against market manipulation on the wholesale energy market (available, here).

    [2]             Regulation (EU) 1227/2011 of the European Parliament and of the Council of October 25, 2011 on wholesale energy market integrity and transparency, (OJ L 326, 8.12.2011, p. 1-16).

    [3]             Regulation (EU) 2019/942 of the European Parliament and of the Council of June 5, 2019 establishing a European Union Agency for the Cooperation of Energy Regulators, (OJ L 158, 14.6.2019, p. 22-53).

    [4]           European Commission Proposal for a Regulation of the European Parliament and of the council amending Regulations (EU) No 1227/2011 and (EU) 2019/942 to improve the Union’s protection against market manipulation in the wholesale energy market, COM/2023/147, March 14, 2024.

    [5]           Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC, (OJ L 173, 12.6.2014, p. 1–61).  The REMIT as amended, Article 2 and Article 6, paragraph 1, letter a.

    [6]             Articles 7a to 7e.

    [7]             Article 4a.

    [8]             Article 4, paragraph 1.

    [9]             Article 8, paragraph 1.

    [10]            Article 9a.

    [11]          Article 15.

    [12]            Article 5a.

    [13]            Article 9, paragraph 1.

    [14]            Article 13, paragraph 5.

    [15]            Articles 13a and d.

    [16]            Article 13b and e.

    [17]            Article 13c.

    [18]            Article 13g.

    [19]            Article 13h to j.

    [20]            Article 18.

    [21]            See ACER Guidance on the application of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency, 6th edition, available here, p. 94.