Insider Trading and Market Manipulation in Energy Markets Under Pressure
ACER - the EU’s Agency for the Co-operation of Energy Regulators – is charged with policing Europe’s wholesale electricity and gas markets in accordance with the 2011 EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).1 Market monitoring is key in the current crisis and ACER was recently instructed by the European Commission (EC) to monitor the impact of current gas crisis and related electricity pricing issues and to ensure the strict enforcement of REMIT. ACER has recently recommended the introduction of more transparent market surveillance.
In the same Communication2, and in order to examine wider patterns of trading behaviour, the EC asked the EU financial regulator ESMA – the European Securities and Market Authorities – for an assessment of European carbon markets and the trading of emission allowances (EUA). That Agency’s March 2022 report3 has recommended the introduction of position limits on carbon derivatives and centralised market monitoring of the carbon market at EU level, in line with the ACER-style monitoring for gas and power.
ACER’s main task is to monitor wholesale energy markets. It is not an enforcer. If suspicious trades are detected these are reported to national energy regulatory authorities (NRAs) for follow up and eventual sanctions. Europe’s energy regulators are proving highly vigilant as well as extremely strict in dealing with market manipulation and insider trading.4 In the last weeks four significant decisions condemning insider trading and market manipulation have been adopted.
The level of fines imposed by the Spanish NRA (CNMC) - €6 million on GASELA GMBH and €6 million on SOLSTAR Limited (SOLSTAR) - for manipulating the Spanish wholesale gas market in breach of Article 5 REMIT are the highest permissible.5 The two companies were found to have carried out pre-arranged transactions on the Spanish wholesale gas market (MIBGAS) aimed at keeping prices at an artificially higher level than what would have resulted from the oversupply caused by GASELA during Easter week in 2019 (which is typically characterized by lower demand and liquidity). Additionally, the two companies colluded to prevent other market participants from benefiting from the abnormally high prices.6 SOLSTAR has in fact defrauded the market for an estimated Euro 43 million.7
Two days later - on 25 June 2022 - the French NRA (CRE) imposed a fine of €80,000 on Engie SA (Engie), for a breach of the prohibition of insider trading under Article 3 REMIT in the context of the unavailability of two of Engie’s gas fired power plants in 2017. The CRE adopted a narrow interpretation of the exemption provided for in Article 3(4)b) REMIT to allow traders to honour their contractual obligations.8
Two days later - on 25 June 2022 - the French NRA (CRE) imposed a fine of €80,000 on Engie SA (Engie), for what appeared to be a rather trivial breach of the prohibition of insider trading under Article 3 REMIT in the context of the unavailability of two of Engie’s gas fired power plants in 2017. A member of Engie’s Dispatch team communicated to a member of its Trading Team inside information on the extension of unavailability of a power plant before disclosure of the inside information to the market. The Trading team used that information to enter into five transactions on EPEX SPOT’s French intraday market. The CRE noted the weakness of Engie’s internal procedures at the time of the event.9 Furthermore it adopted a very narrow interpretation of the exemption provided for in Article 3(4)b) REMIT to honour their contractual obligations.10
Finally in its April 25, 2022 decisions concerning EDF and EDFT the CRE found that, in October 2016, in a context of high electricity prices and stressed markets (due to the unavailability of several EDF nuclear reactors), EDF failed to publicly disclose inside information in an effective and timely manner. The information related to the request from the French Nuclear Safety Agency for additional controls over five nuclear reactors, which would lead to their temporary unavailability. EDF used this inside information to acquire two related wholesale energy products via its trading subsidiary EDFT, in breach of the prohibition of insider trading. CRE further assessed an operational mistake that EDFT had acknowledged, which led to excessive purchases on the French day-ahead electricity market and contributed to the price spikes observed on 7 and 8 November 2016. EDFT’s erroneous orders likely gave false or misleading signals as to the supply and demand on the spot electricity market.11 The CRE dismissed two further claims that the two companies had breached Article 3 REMIT, as the information in question related to internal business strategies12 and did not have to be disclosed.13 A fine of EUR 500,000 was imposed on EDF for breaching the obligation to disclose inside information under Article 4 REMIT and the prohibition of insider trading under Article 3 and a fine of EUR 50,000 on EDFT for manipulating the French wholesale electricity market in breach of Article 5 REMIT.
1. ACER provides guidance for national implementation of the REMIT regulation. In 2021, ACER updated its Guidance on REMIT (6th Edition) on market manipulation such as sending false/misleading signals and setting prices at an artificial level and to provide new examples of collusive behaviour between market participants and on pre-arranged trades.
2. Communication on Energy Prices “Tackling rising energy prices: a toolbox for action and support”, published on 13 October 2021.
3. The Final Report on the European Union Carbon Market presents an in-depth analysis of the trading of emission allowances (EUA) and emission allowance derivatives.
4. Note that all four decisions can be subject to an appeal.
5. By sending misleading signals on the supply, demand, and price of the gas wholesale products and setting the prices of such gas wholesale products at an artificial level.
6. Access CNMC’s decisions (in Spanish).
7. Solstar did not meet its gas delivery commitments to the Spanish gas system, incurring accumulated imbalances of 2,544 GWh in the month of April 2019. In addition, Solstar did not pay the penalties for imbalance, leaving a debit balance with the Spanish TSO - ENAGAS-GTS- of 43.7 million euros.
8. Market participants may act without violating the prohibition of insider trading by relying on this exemption only in the event that these participants are physically unable, given their portfolio and the physical means still available, to honor their contractual obligations, if they do not purchase volume immediately. Otherwise, they must wait for the information to be made public before acting.
9. The communication of the extension of the shutdown of the Combigolfe production unit by the Dispatch team to the Trading team before its publication on the Engie transparency site constituted a breach of the provisions of Article 3(1)(b) REMIT and Engie's behavior on the intraday market on January 23, 2017, and in particular the execution of five transactions for balancing purposes on EPEX SPOT for H11 and H12 products between 06:01:08 and 06:01:17, constitutes a breach of the provisions of Article 3(1)(a) REMIT. These transactions occurred before 6:01:24 a.m - the time of publication of the privileged information. These transactions represented a volume of 100 MWh for a total amount of 16,205 €.
10. Market participants may act without violating the prohibition of insider trading by relying on this exemption only in the event that these participants are physically unable, given their portfolio and the physical means still available, to honor their contractual obligations, if they do not purchase volume immediately. Otherwise, they must wait for the information to be made public before acting.
11. Access CoRDiS’ decisions (in French).
12. the obligation to disclose "inside information" within the meaning of Article 4 of the REMIT Regulation does not extend to information relating to commercial plans or strategies that any normally informed market participant is likely to develop on his own and for himself in light of the information available to other market participants.
13. The CRE noted that the obligation of a market participant who is also an operator of generation facilities to disclose information relating to the capacity or use of those facilities should not prevent that market participant from continuing to develop its own business plans and strategies, at least insofar as it does not use, directly or indirectly, "inside information" in doing so.
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