Requirements for transparency, market monitoring and establishing market indicators. Karina Knaus

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2 Requirements for transparency, market monitoring and establishing market indicators Karina Knaus

3 Disclaimer Views presented here are those of the presenter and do not necessarily reflect those of E-Control. Presented at the 5th Energy Community Statistics Workshop on the 9th of November

4 Agenda Introduction/Motivation Market Monitoring Current legal background in the EU Market Monitoring Future legal backround in the EU REMIT and Co Monitoring and Reporting ACER: benchmarking and assessement report NRA Future wholesale market monitoring: REMIT Pilot project 4

5 Introduction and Motivation

6 Market Monitoring: Motivation MM is a system to promote current information that allows the state of the system to be accurately described Markets Balancing markets Wholesale markets Capacity markets Output Public reports Internal reports Policy recommendations Indicators CR2, HHI Consumer groups Monthly data Natural Gas Heat Sectors 6

7 BIG CHANGES: Trading venues for energy in 2003 Energy brokers mainly London-based International Petroleum Exchange Nord Pool ASA Nord Pool Spot AS APX B.V. ENDEX N.V. European Energy Exchange AG Towarowa Gielda Energii SA Operátor trhu s elektrinou a.s. Powernext SA EXAA Energy Exchange Austria Operador de Mercado Ibérico de Energia (Pólo Português) S.A. Operatorul Pietei de Energie Electrica OPCOM SA Operador del Mercado Ibérico de Energía (Polo Español) S.A. Source: European Energy Exchange Gestore della Rete di Trasmissione Nazionale S.p.A Borzen, organizator trga z elektricno energijo, d.o.o. 7

8 2011: Exchanges and other trading venues for energy and related products in Europe Energy brokers mainly London-based Intercontinental Exchange N2EX APX-ENDEX ENDEX N.V. Imarex Group NasdaqOMX Nord Pool ASA Nord Pool Spot AS European Market Coupling Company (EMCC) GmbH BaltPool UAB European Energy Exchange AG Towarowa Gielda Energii SA Climex Münchener Börse (CO2-Handel) Belpex SA Operátor trhu s elektrinou a.s. Auction office CASC-CWE EPEX Spot SE Energetická Burza Praha EXAA Energy Exchange Austria Powernext SA Operador de Mercado Ibérico de Energia (Pólo Português) S.A. Operador del Mercado Ibérico de Energía (Polo Español) S.A. Source: European Energy Exchange Bolsas y Mercados Españoles (CO 2 spot trading) BlueNext Borsa italiana Gestore del mercato elettrico S.p.a. Central European Gas Hub (CEGH) Operatorul Pietei de Energie Electrica OPCOM SA Hungarian Power Exchange Borzen, organizator trga z elektricno energijo, d.o.o. 8

9 Current EU legislation does not adequately address important issues. Need for legislation w.r.t. electricity/gas trading GOAL facilitating the creation of a single, competitive, efficient and sustainable internal market for gas and electricity in Europe COMMON EUROPEAN FRAMEWORK EPEX Spot as MTF in Paris EEX Derivatives and Saxon Ministry for Economic Affairs CENTRAL DATA COLLECTION Reporting data to 27 NRAs, financial and competition authorities separately would not be viable FILL IMPORTANT GAPS Up until now no data on OTC trading (but volume wise it surpases PX trading by far Definition of market abuse 9

10 Current legal background

11 Current legal background, ACER Regulation (EC) 713/2009, Article 11: 1. The Agency, in close cooperation with the Commission, the Member States and the relevant national authorities including the national regulatory authorities and without prejudice to the competences of competition authorities, shall monitor the internal markets in electricity and natural gas, in particular the retail prices of electricity and natural gas, access to the network including access of electricity produced from renewable energy sources, and compliance with the consumer rights laid down in Directive 2009/72/EC and Directive 2009/73/EC. 11

12 and 11(2) The Agency shall make public an annual report on the results of the monitoring provided for in paragraph (1) In that report, it shall identify any barriers to the completion of the internal markets in electricity and natural gas. 12

13 Implied Deliverables for ACER Annual report on the results of monitoring of the internal electricity and natural gas markets in particular Retail prices Network access Generation from renewable energy sources Consumer rights 13

14 Duties and Powers of NRAs Article 37 sets out a variety of duties and powers of the NRAs Most relevant w.r.t market monitoring probably 1(i) and (j): (i): monitoring the level of transparency, including of wholesale prices, and ensuring compliance of electricity undertakings with transparency obligations; (j): monitoring the level and effectiveness of market opening and competition at wholesale and retail levels, including on electricity exchanges, prices for household customers including prepayment systems, switching rates, disconnection rates,charges for and the execution of maintenance services, and complaints by household customers, as well as any distortion or restriction of competition, including providing any relevant information, and bringing any relevant cases to the relevant competition authorities; 14

15 Existing Transparency Requirements Transparency for fundemental data: Entso-E Entos-G But also (pan)national initiatives, e.g. Transparency platform EEX (Germany, Austria) NordPool Spot (NOR, SWE, DK, FIN) RTE (France) ( 15

16 Future legal background

17 Proposed future legal background REMIT: Regulation on Energy Market Integrity and Transparency Commission proposal in 2010, passed European parliament in autumn 2011 and comes in to force in December 2011 Basic idea Fill important gaps in regulation of wholesale trading, e.g. no definition of insider trading in spot markets Give ACER a central role in collecting and analysing trading data 17

18 The new energy market supervisory architecture after REMIT R E M I T Market Abuse Rules Market Monitoring Enforcement Detailed specification of REMIT definitions and provisions in Guidelines 18

19 Difficult interaction of REMIT and EU financial market legislation Derivatives markets Spot markets Topics: -Insider dealing -Market manipulation Coverage: -Regulated market in financial instruments -All market players Topics: -Insider dealing -Market manipulation Coverage: -Regulated markets in spot instruments -All market participants in spot markets M A D R E M I T Future Energy Wholesale Market Integrity Legislation Financial market legislation R E M I T Topics: - Licensing (exemptions for energy trading firms) - Reporting obligation for products admitted to trading on a regulated market - Regulation of MTFs and regulated markets Coverage: - Products: Financial instruments - Addressees: Investment firms Topics: -Licensing of energy trading firms -Reporting obligation for products admittet to trading on a regulated market -Regulation of MTFs and regulated markets (spot) Coverage: -Products: Spot markets -Addressees: all market participants in spot markets M I F I D R E M I T R E M I T Topics: -Clearing and reporting obligation for financial counterparties to trade repositories -information and clearing thresholds for nonfinancial counterparties Coverage: -OTC derivatives -financial counterparties -non-financial players if above thresholds Topics: -Reporting obligation to ACER for financial and non-financial counterparties not covered and / or not exempt from EMIR Coverage: -OTC spot and OTC derivatives -Non-financial counterparties (if not EMIR) in derivatives -All market participants in spot markets E M I R R E M I T R E M I T Delegated Acts 19 Financial market legislation (DG MARKT) REMIT (DG ENER)

20 Network of European Energy Regulators will be crucial for an efficient oversight system 20

21 Central data collection by ACER Energy wholesale market participant All trades in Energy wholesale products ACER with governance for Energy Trade database Access rights National Regulatory Authority Competition Authority Financial Market Authority 21

22 Monitoring and Reporting

23 Assessement by ACER Currently focus in legislation on consumers, renewables and network access Exact methodology for monitoring/assemssment not yet in place Work programme shows that ACER is planning to rely on input from NRAs and other sources such as Eurostat Not clear yet how far data reporting/analysis will go Statistics vs. personalised data 23

24 Statistics and Regulatory Oversight Statistics deals with general information not attributable to individual companies or persons Average prices in a region Average quality of network services Distribution of prices Regulatory data typically contains personal information Network cost Energy cost of suppliers Individual quality of network, etc. Reporting to the EU is until now mainly a statistical exercise, only few regulators provide information which is commercially sensitive Time Lags 24

25 Reporting vs Continuous Monitoring? Long-term: Security of Supply Market Design Liberalisation effects Daily/Weekly: High level of Standardisation; Prices, Quantities etc. Data availability (Human + IT resources Filtering Annual: In-depth, demand -driven Analysis, Cover all markets/areas Monthly/Quarterly: Some standardisation, Also ad-hoc analysis (e.g. German nucelar Shutdowns) 25

26 Filtering and Results Over time massive amounts of data can build up (result-driven!) IT often better equipped to keep up with this than humans! (2 eyes, 24 hours) Market Monitoring Data Collection Analyses Aims/Results Internal Data (prices, quantities, etc.) Weekly e.g. GH Spotlight Information Information and data providers Monthly: By market segment Highlight potential problems Studies, papers, consulations Ad hoc Analysis Developing Recommendations Press Annual: e.g. National Report) 26

27 Wholesale Market Monitoring and Supervision: Pilot-project

28 Motivation Enhanced framework for the supervision of traded energy markets is needed Need to further develop market transparency Current (national) wholesale energy market monitoring initiatives are not harmonized and comprehensive - Patchwork of reporting schemes may not support effective surveillance Further increase in electricity and gas trading activities due to advances in European energy market integration Pilot project for energy trade data reporting 28

29 Project organization Steering Committee (European Commission; ERGEG / CEER; EFET; EEX, EXAA, EPEX Spot; Spectron; RWE; FORMAET) ERGEG / CEER Financial Services Working Group E-Control Project Management & Support Cooperation with EFETnet (exrp) Project partner: FORMAET Services Cooperation with Energy market venues 29

30 Historical Exchange Data and Fundemental Data Three energy exchanges active in international trading in three EU Member States: EXAA, EPEX Spot and EEX Two providers of fundamental data: EEX and Genscape 30

31 Monitoring Concept Fundamental Data i.e. Load Generation Transmission Policy Impact Energy Trade Database Regulatory Impact Market Risk assessment Company behavior analysis Additional data i.e. Fuel prices Political decisions Regulatory measures 31

32 Scila Market Surveillance Screen for market surveillance teams (including orders) 32

33 Data analysis The examples for surveillance routines for market abuse analysis with Scila were based on a case-by-case scenario. The sector-specific surveillance routines developed based on historic cases in the EU (e.g. Nord Pool) and the U.S., inter alia for the following case scenarios: Insider dealing in spot markets before the publication of price sensitive power plant outages Market manipulation through false or misleading information, abusive squeeze / cornering, ramping and circular trading 33

34 Recommendations from Pilot

35 Monitoring Market knowledge is crucial for a meaningful monitoring of wholesale energy markets Useful interpretation of energy trading requires market knowledge. At EU level, there would be a cross-border oversight in addition, useful interpretation of energy trading requires profound national market knowledge Need for close cooperation between ACER and national regulatory authorities amongst national regulatory authorities national regulatory authorities and market surveillances from trading venues each energy trading venue should have its own market surveillance team REMIT foresees a monitoring system with a close EU level cooperation between ACER and NRAs. 35

36 Data collection at EU level Preference for a central data reporting system at EU level as opposed to national schemes A central data reporting system at EU level would benefit the regulatory oversight of the market and eliminate possible coordination problems amongst regulators There is a preference among market players for a single European reporting system rather than various national ones Would eliminate multiple reporting of cross border trades and ensure a harmonized set of data (trade and fundamental) across Europe REMIT foresees a central data collection at EU level by ACER 36

37 Trade data Standardised and non-standardized contracts, matched and unmatched trades are equally necessary Avoid loopholes or incentive against standardised products Standardised exchange-traded, brokered or bilateral trades may easily be electronically reported within 24 hours Non-standardised trades could e.g. be reported in a monthly position reporting of their total trading volume in non-standardized trades Unmatched orders could initially be stored at the trading venues, be assessed by their market surveillance teams who could signal suspicious cases to the competent supervisory authority 37

38 Fundamental data Fundamental data is crucial for a meaningful monitoring of the energy wholesale market Trading in Energy is strongly linked to fundamentals (i.e. supply, demand, infrastructure availability). Currently data is not sufficient for market monitoring purposes Regulators have to rely on fundamental data present to them. It is envisaged that transparency guidelines will help to resolve this shortcomings. Standards need to be defined at European level and easy data access for regulators to identify the identity of the publisher at platforms like ETSOvista and/or exchange transparency platforms needs to be ensured for an effective oversight. REMIT foresees the provision of fundamental data to ACER and NRAs Certain existing or forthcoming sources (transparency platforms, TSOs etc.) may be used to collect such data 38

39 Data access Trade Data access authorization and framework for public information European Level National Level Public Level ACER ESMA. National Regulatory Authorities National Financial Supervision Authorities National Competition Authorities.. General Public Academia Other interested parties 39

40 The project showed that Feasibility of electronic trade data reporting via a trade confirmation system (EFETnet (exrp)) tested and proven Sample of historic trade data from three energy exchanges, OTC trades and fundamental data collected and imported to pilot project database (over reported transactions in electricity and over reported fundamental data), i.e. a significant coverage of the EU wholesale electricity market Data analysis and statistical reporting successfully implemented through Scila Surveillance software as a sample for the monitoring of market abuse in the EU energy wholesale markets and development of surveillance routines Prototype of a central energy trade data reporting and monitoring scheme successfully developed and implemented within 6 months 40

41 Conclusions

42 Conclusion ACER is required to monitor the functioning of the internal market in electricity and natural gas The work from ERGEG will be continued and expanded Input from NRAs (statistics or more?) Work programme 2012 foresees development of methodology for assessment report In addition, new obligations have been proposed specific to energy wholesale markets: REMIT Pilot project showed feasiblity and can deliver input for development of monitoring regimes Effective monitoring will require cooperation between NRAs and ACER, among NRAs and with financial and competition authorities 42

43 Contact Karina KNAUS karina.knaus@e-control.at 43