|The definition of ‘inside information’ under REMIT – dubious without the EC and market input (I)|
|Thursday, 05 May 2011 11:39|
Considering the strict legal consequences following the classification of a certain data as an ‘inside information’ under the REMIT provisions, the question arises which exact categories of information available on the energy market are covered by this definition.
Pursuant to the European Commission’s proposal for a regulation of the European Parliament and of the Council on energy market integrity and transparency (so called REMIT) the purpose of the new measure is establishment of the rules prohibiting abusive practices on wholesale energy markets coherent with those applying in financial markets (Article 1 of the proposal).
Placing the regulatory regime designed for financial markets into new legal and economical environment, like physical commodity markets, raises, however, new issues and legislative challenges. The exact and exhaustive specification of concrete categories and instances falling into the scope of the definition of the “inside information” was always a trouble – even under the provisions of the MAD Directive, specifically designed for financial instruments market.
As was observed by certain market participants, on the physical commodity market it is difficult to maintain the liaison of “inside information” with data relating to the “issuer” – appropriate for financial instruments market.
The MAD Directive, however, specifically designs the definition of ‘inside information’ in relation to derivatives on commodities, which means “information of a precise nature which has not been made public, relating, directly or indirectly, to one or more such derivatives and which users of markets on which such derivatives are traded would expect to receive in accordance with accepted market practices on those markets” (Article 1 (1) of the MAD Directive). To this part of the MAD and particularly to the ‘accepted market practices’ concept seems to refer the definition of ‘inside information’ elaborated on the ground of the REMIT proposition.
Taking into account the wording of the Article 2 of the said proposition the ‘inside information’ for the purposes of the REMIT would mean:
‘precise information which has not been made public, relating directly or indirectly to one or more wholesale energy products and which, if it were made public, could significantly affect the prices of such wholesale energy products;
For the purposes of applying the first subparagraph, information a reasonable market participant would be likely to use as part of the basis of his decision to enter into a transaction relating to a wholesale energy product is information which, if it were made public, would be likely to have a significant effect on the prices of such wholesale energy products. Such information includes information related to the capacity of facilities for production, storage, consumption or transmission of electricity or natural gas, as well as information which is required to be disclosed in accordance with legal or regulatory provisions at Union or national level, market rules, and contracts or customs on the relevant wholesale energy market.
By way of example, information which is required to be made public in accordance with the provisions of Regulation (EC) No. 71 4/2009 or Regulation (EC) No. 715/2009, including guidelines and network codes adopted pursuant to those Regulations, can constitute inside information.’
(a) using that information by acquiring or disposing of, or by trying to acquire or dispose of, for their own account or for the account of a third party, either directly or indirectly, wholesale energy products to which that information relates;
(b) disclosing that information to any other person unless such disclosure is made in the normal course of the exercise of their employment, profession or duties. In this case they must make complete and efficient public disclosure of that information. Where disclosure is intentional the information shall be made available to all persons simultaneously. In the event of a non-intentional disclosure the information shall be made available to all persons as soon as possible following the non-intentional disclosure. This point shall not apply if the person receiving the information owes a duty of confidentiality, regardless of whether such duty is based on a law, on regulations, on articles of association or on a contract;
(c) recommending or inducing another person, on the basis of inside information, to acquire or dispose of wholesale energy products to which that information relates.
It is also imposed an obligation on market participants, pursuant to Article 3(4) of the REMIT to disclose inside information in respect of business or facilities which the participant concerned owns or controls or for which the participant is responsible for operational matters, either in whole or in part. Such information shall include information relevant to the capacity of facilities for production, storage, consumption or transmission of electricity or natural gas.
It follows that qualification of a certain information as ‘inside information’ entails strict legal consequences among which the prohibition on using such classified data in trading in energy casts many doubts. As a general rule the said prohibition would be correct but if we go into the particulars, especially relating to the trading strategies of the electricity producers, the importance of formulating the precise and, possibly, exhaustive list of such data is apparent.
The second part of these considerations will try to identify some items on the said list.