Transparency & Trading
Analysis of energy and
financial regulators
Johannes Kindler
Florence Forum – 4/5 June 2009
Analysis
Action
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Increasing Importance of
Electricity Trading in Europe
Electricity trading is of increasing importance within the European
energy market
•
•
•
•
electricity trading has evolved over time
trading provides hedging opportunities which are important
for market participants in order to ensure price predictability
trading plays an important role for the integration of
renewable energy sources
is essential for achieving the EU internal market
 Fair and orderly trading is crucial for achieving the EU internal
electricity market.
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Electricity trading in Europe
- Background To facilitate fair and orderly trading and to enhance confidence in market
integrity, adequate supervision and regulatory oversight is essential:
•
No Sarbanes-Oxley for energy trading, but what needs to be
done, must be done!
•
Cooperation between regulators is important to allow for
efficient market oversight
•
Energy regulators have in-depth knowledge of the functioning
of energy markets
To foster the development of the European internal market
•
rules for trading need to be harmonised
•
transparency requirements need to be further developed
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Traded Volumes in Europe
2008 (2007) – Electricity
Nord Pool
Spot: 298 (292) TWh
Derivatives: 1407 (1060) TWh
Increasing volumes in electricity
trading.
Trading volume (esp. derivatives
trading) exceeds total electricity
consumption.
Example Germany:
Endex
Exchange: 41 (30) TWh
OTC Clearing: 78 (52) TWh
Powernext
Spot: 51 (44) TWh
Derivatives: 91 (79) TWh
• 1165 TWh derivatives traded via
exchange (incl. OTC clearing)
• 541 TWh electricity consumption
(2007)
EEX
Exchange Spot: 154 (123) TWh
Derivatives: 1165 (1150) TWh
Source: EEX, Nord Pool, Powernext, APXGroup,
Montel Power News (4/2008)
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Analysis
Action
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The joint mandate to
CESR / ERGEG
• European Commission issued a joint mandate to CESR and
ERGEG on 21 December 2007
• Scope: technical recommendation under the 3rd Package
proposals (Article 39 Electricity-Directive)
• Main questions:
- Is financial market regulation sufficient
to secure integrity of energy markets?
- What extent of transparency does financial
and physical energy trading need?
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The milestones of the
joint mandate
• Report on the current
situation in the individual
Member States (“Fact Finding”)
Recommendation
to COM: Sept 08
• Market Abuse
• Trading Transparency
• Record Keeping
Recommendation
to COM: Dec 08
• Exchange of Information
CESR/ERGEG received very positive feedback from the COM!
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Market Abuse:
Tailor-made arrangements
• Current financial markets supervision arrangements are not
sufficient to secure adequate integrity in the energy markets.
 Only a small part of energy trading falls under MAD
 There is insufficient protection against market abuse in the
energy market.
• For all electricity and gas products that do not fall under MAD
(Market Abuse Directive), ERGEG and CESR propose tailormade arrangements in the legislation for the energy sector to
combat market abuse.
• Other interdependent markets (e.g. oil, coal or CO2 emission
rights) must be taken into account
 Reason: Prices on these markets have a direct and indirect effect
on the price of electricity and/or gas.
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Transparency
- Status quo • In general, trading on the exchange has a high degree of
transparency
• BUT: most transactions take place in bilateral trading
(over the counter – “OTC“):
- there is less/or even no transparency in OTCtransactions
- some OTC-trades are transparent only for traders on broker
platforms
- purely bilateral transactions are transparent only for the
contractual parties
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Transparency
- Recommendation • Traders need European-wide harmonised information
that can be processed easily
• Different stages of transparency:
- Pre-trading transparency (e.g. fundamental data)
- Post-trading transparency
- anonymous publication of transactions close to real-time (within 15
minutes) and
- aggregate market data at the end of each day
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Record Keeping
- Recommendation • Transparent description of all transaction details
(e.g. buyer/seller, volume, price)
• Flexible approach, but minimum content needed
• Flexibility regarding the format, but electronic forwarding must be
possible
• Extent of record keeping:
- Non-investment firms: all supply contracts and derivatives
- Investment firms: only supply contracts that do not fall under the
Markets in Financial Instruments Directive (“MiFID”)

they are subject to an obligation to keep records under
the MiFID
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Exchange of Information
- Status quo Main feedback of public consultation:
•
Investment firms must keep records under the MiFID - additional
obligations should be avoided
•
Energy regulators do not have access to data of “MiFID firms”
on a regular basis
 Information exchange between financial and energy regulators is
necessary if market supervision should be efficient
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Exchange of Information
- Recommendations ERGEG and CESR propose:
• To begin an information exchange on an individual-case basis; and
• to establish this information exchange on a legal basis.
• However, an automatic exchange of data under the Transaction
Reporting Exchange Mechanism is not appropriate in the current
phase.
 “Transaction reporting” was not part of the mandate
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Next Steps (1)
Transparency
• Elaboration of detailed transparency requirements
• Should build up on previous work already done by ERGEG on
transparency and focus on compatibility, practicability and suitability
for electricity and gas trading
• Workshop in Summer 2009 foreseen by ERGEG to discuss the detailed
requirements with the relevant stakeholders
• CEER/ERGEG open for cooperation with CESR and
a permanent dialogue with market participants
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Next Steps (2)
Transaction Reporting vs. Record Keeping
• Mandate of the Commission was limited to record keeping and
missing evidence at this stage
• ERGEG/CESR Advice: sensible to reconsider Transaction
Reporting in connection with a potential EU regime for market
abuse
• Analysis should take account of the experiences made in the
US market
• CEER/ERGEG open to analyse this further and give
sound advice on it
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Next Steps (3)
Harmonisation and Mutual Recognition of Trading Licenses
in the EU Energy Markets
•
ERGEG will analyse the current situation in the different
Member States, and
•
ERGEG will assess the possibilities and obstacles to the
creation of a single energy trading passport.
ERGEG will elaborate best practices of supervision
of energy exchanges and gas hubs.
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Thank you for your attention!
www.energy-regulators.eu
Mark your diary for the World Forum on Energy Regulation IV
October 18-21, 2009
Athens, Greece
www.worldforumiv.info
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