ERGEG, the European Regulators’ Group for Electricity and Gas, and CESR, the Committee of European Securities Regulators, published today their final advice to the European Commission on market abuse issues related to energy trading. In their joint advice to the Commission, ERGEG and CESR advocate to develop a tailor-made EU market abuse framework within the electricity and gas sector. To better prevent market abuse in energy trading, the regulators also call for legally binding disclosure obligations in energy sector’s regulation including sanction mechanisms. The advice published today follows a public consultation held from July to August 2008, receiving 36 responses from market participants.
The existing EU securities legislation (i.e. the Market Abuse Directive – MAD) applies almost exclusively to financial instruments admitted to trading on regulated markets and therefore does not adequately address market integrity issues in energy markets. The scope of the market abuse regulations (which establishes measures to prohibit insider trading and market manipulation) and the disclosure obligations of the MAD do not apply to physical markets for electricity and gas, such as spot contracts, and it only partly covers the derivates markets for energy (i.e. those products admitted to trading on regulated markets).
As such, ERGEG and CESR advocate the creation of an EU market abuse framework for electricity and gas products not covered by MAD. In addition, there are substantial interdependencies between electricity and gas markets and other markets, such as emission allowances, coal and oil markets. The products in these markets are to a large extent traded by the same market participants and there are linkages in the price formation of processes of these markets. The Commission should take this into account when taking further decisions.
ERGEG Chair, Lord Mogg said: “The current MAD only covers the energy markets in part given that it is designed for financial markets. A more appropriate framework is needed to prohibit market abuse in energy markets. Market abuse can take many forms such as market manipulation or insider trading and regulators and market participants are hampered by the lack of transparency. We call on the Commission to commit to address this.”
CESR Chair Eddy Wymeersch stated: “To ensure that we are on the front-foot in preventing market abuse in energy markets, a tailor-made EU framework for energy products, not covered by MAD, is needed. Ensuring integrity in financial markets is a key objective of securities regulators and we are therefore willing to take pre-emptive action to address this gap and wholeheartedly advise the Commission to develop such a framework. Thanks to the responses received following our consultation, it is clear that market participants also support a tailor-made EU framework and this should greatly help ensure that such a regulatory regime is all the more effective.”
The final advice published today follows a mandate from the Commission in the context of the Third Energy Package. ERGEG and CESR will consult in October on the remaining mandate issues; record keeping, transparency and information exchange, and will deliver their final advice on these issues to the Commission by year end.