The revised Regulation on Energy Market Integrity and Transparency (REMIT II) enters into force on 7 May 2024, with varying application dates for certain provisions¹. These amendments are part of a broader Electricity Market Design package of reforms. These reforms will impact all electricity and gas companies supplying into the European wholesale markets irrespective of their place of business.

 

Highlights

 

This note singles out several amendments in REMIT II which will impact energy market players in the European Union, as well as those who are not yet registered in the European Union but who supply into the European market . These are, in brief:

 

The obligation for third-country market participants to designate a representative

 

Wholesale gas and electricity market participants, who are not resident or established in the EU, must designate a representative in the EU and register in a Member State in which they are active. They will have until 8 November 2024 to designate a representative authorized to act on behalf of the market participant.

 

The expansion of the definition of wholesale energy product

 

The definition of natural gas now includes LNG. Contracts for the supply of electricity which may result in delivery in the EU are also covered, as are contracts relating to the storage of electricity or natural gas in the EU, and derivatives relating to the storage of electricity or natural gas in the EU. Derivatives relating to electricity which may result in delivery in the EU as a result of a single day-ahead and intraday coupling are also covered.

 

The amendments to the scope of reporting obligations

 

REMIT II extends the data reporting obligations for market participants to include storage contracts, contracts for balancing markets, allocated transmission capabilities and for many such products that have potential delivery in the EU.

 

The rules on LNG market data reporting

 

REMIT II integrates as permanent the LNG market data reporting obligations first introduced as emergency measures during the energy crisis.

 

The alignment of market manipulation and inside information definitions

 

REMIT II reflects the definitions in EU financial market regulation with Regulation (EU) 596/2014 on market abuse (MAR). The REMIT II definition of market manipulation captures entering into any transaction, or issuing, modifying or withdrawing any order to trade, and any other behavior relating to wholesale energy products which  for example, gives, or is likely to give, false or misleading signals. The new definition of inside information can also extend to a process which occurs in stages, so that each stage of the process as well as the overall process could constitute inside information.

 

The regulation of algorithmic trading in energy markets

 

REMIT II introduces a set of new rules to govern algorithmic trading in wholesale energy products.

 

Implementation and next steps

 

REMIT II represents a first level series of amendments – i.e. amendments to the original legislation of 2011 itself. Further amendments are envisaged at the second level – i.e. amendments to delegated legislation implementing REMIT II. Finally it is expected that Agency for the Cooperation of Energy Regulators (ACER) will produce further guidance for clarification purposes. This guidance is not legally binding but is intended to provide market participants with greater certainty as to how ACER will interpret the new provisions of REMIT II and how it will exercise its own newly expanded powers.

It should also be recalled that although REMIT II enters force on May 7th, some of its provisions will only enter into force at a later date.  The various deadlines are described below.

 

Third Country Market Participants

 

A third country market participant’s designated representative is intended to be a point of contact for ACER or the national regulatory authority (NRA) on all issues necessary for the receipt of, compliance with and enforcement of decisions or requests for information issued under REMIT II. Third-country market participants must mandate their designated representatives with the powers to guarantee their efficient and timely cooperation with ACER and/or the NRAs, and to comply with the decisions and the requests for information, including providing access to the requested information. Market participants will also have to notify the contact details of their designated representative. Notifications can be done via the ‘CEREMP’ platform². REMIT II also mandates ACER to issue guidelines and recommendations on the application of the designated representative requirement.

 

The deadline for third party designation is 8 November 2024.

 

Amendments to the scope of reporting obligations

 

The revised REMIT extends the reporting obligations for market participants as per the revised definition of the wholesale energy product. The amended provisions of Article 8 on data collection require market participants to report information about the intermediate beneficiaries of the transaction, as well as information about market participants’ exposures, detailed by product and including the transactions that occur over the counter.

 

The organized marketplaces (OMPs) will be required to make available to ACER data relating to the order book and, upon request, provide ACER with access to the order book. The details for the reporting records of transactions entered into, concluded, or executed on OMPs, including the specific arrangements for ensuring effective data reporting are to be set out by the Commission in an implementing act (in the form of an amendment to the REMIT Implementing Regulation).

 

The deadline for the Commission to adopt the new implementing act is 8 May 2025. The REMIT Implementing Regulation will also have to be amended to reflect the expanded scope of the reporting requirement stemming from the broader definition of a wholesale energy product. REMIT II defines OMPs as an energy exchange, an energy broker, an energy capacity platform or any other system of facility in which multiple third-party buying or selling interests in wholesale energy products interact in a manner that may result in a transaction.

 

In respect of entities that will only have to meet the revised definition of OMP (“new OMPs”), ACER has stated in its recent open letter on the implications of the revision of REMIT on data reporting aspects and notification obligations, that it does not expect such entities to commence reporting data not yet foreseen in the REMIT Implementing Regulation.

 

Authorization requirement for RRMs

 

REMIT II introduces an authorization obligation for registered reporting mechanisms (RRMs) and sets out the relevant conditions for the authorization of RRMs by ACER. This authorization requirement  will only become applicable once the delegated legislation enters into force, as of 8 May 2025. Only RRMs established in the EU will be eligible for authorization. RRMs are defined in REMIT II as a legal person authorized to report or to provide the service of reporting details of transactions, including orders to trade, and fundamental data to ACER on its own behalf or on behalf of market participants. The new legislation also seeks to align the collection of inside information with the current process for trade data reporting.

 

Those persons professionally arranging or executing transactions (PPAETs), i.e., a person professionally engaged in the reception and transmission of orders for, or in the execution of transactions in, wholesale energy products will have the obligation to report suspicious transactions in breach of REMIT requirements on insider trading and market manipulation, as well as suspicious orders and potential breaches of the obligation to publish inside information. They will have to establish and maintain effective arrangements, systems and procedures to identify potential breaches of REMIT prohibitions, guarantee that their employees carrying out surveillance activities are preserved from any conflict of interest and act in an independent manner, and detect and report suspicious orders and transactions.

 

Any person professionally executing transactions under the financial markets regulation - MAR - who also executes transactions in wholesale energy products that are not financial instruments, and who reasonably suspects that an order to trade or a transaction whether placed on or outside an OMP, could breach REMIT, must notify this to ACER and the relevant NRA. These reporting obligations will become applicable on 8 November 2024.

 

Strengthening of ACER’s role and powers

 

Currently, the supervision and enforcement of REMIT remains the exclusive responsibility of the Member States, but REMIT II now equips ACER with certain enforcement powers. An investigation of REMIT breaches with a cross-border dimension will have to be carried out though an EU-level process and must include ACER.

ACER will be able to carry out investigations in cooperation with the NRA  and the Agency will be able to conduct on-site inspections and issue requests for information. Last but not least, ACER will be able to impose periodic penalty payments to compel a person to submit to an on-site inspection and/or to supply the information requested. Powers to apply penalties for REMIT infringements will remain with the Member States.

By the end of 2024 ACER aims to revise the existing ACER Guidance on the application of REMIT to reflect the change stemming from the revised REMIT, the new Gas Regulation and the Electricity Markets Design reform. ACER also plans on issuing guidelines and recommendations as per mandates received under revised REMIT, but without commitments to any specific timeframes. Following the publication of REMIT II in the Official Journal in February 2024, ACER published an open letter which covers various aspects of implementation, including practical details such as how to notify of the use of algorithms, a change in obligation of reporting of on venue activity and the requirement to notify NRAs of suspicious activity. The letter can be found here.

 

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.