Insider trading prohibition under REMIT
- Category: REMIT
REMIT Regulation prohibits market participants from using inside information:
- in acquiring or disposing (or trying to acquire or dispose) wholesale energy products to which the information relates;
- disclosing such information outside the normal course of their employment or duties; or
- recommending or inducing the acquisition or disposal of wholesale energy products on the basis of inside information.
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23 April 2024
REMIT breach: French energy regulator (CRE) fines Engie €500,000 CRE’s Dispute Settlement and Sanctions Committee (CoRDiS) has imposed a €500,000 fine on Engie for insider trading on the French wholesale electricity market and for failing to publicly disclose inside information in an effective and timely manner. Between 1 January 2019 and 31 December 2020, Engie breached Articles 3 and 4 of the REMIT Regulation on several occasions:
Access the Decision and CRE’s press release (both in French).
European Parliament Report of 8 September 2023 on the proposal for a regulation of the European Parliament and of the Council amending Regulations (EU) No 1227/2011 and (EU) 2019/942 to improve the Union’s protection against market manipulation in the wholesale energy market (A9-0261/2023) expands the definition of the REMIT prohibition of insider trading to the use of inside information by the establishment of links or dependencies between orders, or any other action relating to entering into transactions or issuing orders concerning a wholesale energy product to which the information relates.
The French energy regulator (CRE) fines Engie SA €80,000 for insider trading |
Only limited exemptions are available. It is also the general rule that the REMIT framework excludes from its scope insider trading in electricity and gas derivatives, where Market Abuse Regulation (MAR) is applicable.
Personal scope of application of the prohibition of insider trading
The application of the prohibition of insider trading is limited to the following persons who possess inside information in relation to a wholesale energy products ("insider"):
1. members of the administrative, management or supervisory bodies of an undertaking;
2. persons with holdings in the capital of an undertaking;
3. persons with access to the information through the exercise of their employment, profession or duties;
4. persons who have acquired such information through criminal activity;
5. persons who know, or ought to know, that it is inside information.
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Types of behaviour constituting insider trading under REMIT 1. Insider trading – when an insider trades, or tries to trade, in wholesale energy products on the basis of inside information relating to that wholesale energy product (Article 3(1)(a) of REMIT) 2. Improper disclosure of inside information – where an insider improperly discloses inside information to another person, unless such disclosure is made in the normal course of the exercise of their employment, profession or duties (Article 3(1)(b) of REMIT) 3. Recommending on the basis of inside information – where an insider is recommending or inducing, on the basis of inside information, another person to acquire or dispose of wholesale energy products to which that information relates (Article 3(1)(c) of REMIT) |
Article 3(5) of REMIT clarifies that where the person who possesses inside information in relation to a wholesale energy product is a legal person, the prohibitions laid down in Article 3(1) of REMIT shall also apply to the natural persons who take part in the decision to carry out the transaction for the account of the legal person concerned.
The prohibition of insider dealing also contains elements of attempted behaviour. Article 3(1)(a) of REMIT not only prohibits from using inside information by acquiring or disposing of wholesale energy products to which that information relates but also prohibits from using inside information by trying to acquire or dispose of wholesale energy products to which that information relates.
Exemptions from the prohibition of insider trading
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Exemptions from insider trading prohibition pursuant to Article 3(3) and (4) of REMIT
"3. Points (a) and (c) of paragraph 1 of this Article shall not apply to transmission system operators when purchasing electricity or natural gas in order to ensure the safe and secure operation of the system in accordance with their obligations under points (d) and (e) of Article 12 of Directive 2009/72/EC or points (a) and (c) of Article 13(1) of Directive 2009/73/EC. 4. This Article shall not apply to: (a) transactions conducted in the discharge of an obligation that has become due to acquire or dispose of wholesale energy products where that obligation results from an agreement concluded, or an order to trade placed, before the person concerned came into possession of inside information; (b) transactions entered into by electricity and natural gas producers, operators of natural gas storage facilities or operators of LNG import facilities the sole purpose of which is to cover the immediate physical loss resulting from unplanned outages, where not to do so would result in the market participant not being able to meet existing contractual obligations or where such action is undertaken in agreement with the transmission system operator(s) concerned in order to ensure safe and secure operation of the system. In such a situation, the relevant information relating to the transactions shall be reported to the Agency and the national regulatory authority. This reporting obligation is without prejudice to the obligation set out in Article 4(1); (c) market participants acting under national emergency rules, where national authorities have intervened in order to secure the supply of electricity or natural gas and market mechanisms have been suspended in a Member State or parts thereof. In this case the authority competent for emergency planning shall ensure publication in accordance with Article 4." |
1. Transmission system operators purchasing electricity or natural gas in order to ensure the safe and secure operation of the system
This exemption refers to obligations of Transmission System Operators (TSOs) under points (d) and (e) of Article 12 of Directive 2009/72/EC or points (a) and (c) of Article 13(1) of Directive 2009/73/EC. The scope for this exemption, however, as opposite to the following one's, is restricted to points (a) and (c) of paragraph 1 of Article 3 of REMIT only, and does not apply to point (b) thereof.
The effect of this is that TSOs when purchasing electricity or natural gas in order to ensure the safe and secure operation of the system in accordance with their above-mentioned obligations under Directives are prohibited from 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.
2. Agreement concluded, or an order to trade placed, before the person concerned came into possession of inside information
Transactions conducted in the discharge of an obligation that has become due to acquire or dispose of wholesale energy products where that obligation results from an agreement concluded, or an order to trade placed, before the person concerned came into possession of inside information are fully exempted from the prohibition of insider trading, provided however certain hands-off approach is maintained (obligation to refrain from any subsequent amendment or selective withdrawal of the order placed).
This exemption also applies under the Market Abuse Directive and particularly applies to transactions in derivatives contracts conducted in the discharge of an obligation that has become due to acquire or dispose of wholesale energy products where that obligation results from an agreement concluded, or an order to trade placed, before the person concerned came into possession of inside information.
3. Transactions to cover the immediate physical loss resulting from unplanned outages, where not to do so would result in the market participant not being able to meet existing contractual obligations
Under Article 3(4)(b) of REMIT, the prohibition on insider trading does not apply to:
“transactions entered into by electricity and natural gas producers, operators of natural gas storage facilities or operators of LNG import facilities the sole purpose of which is to cover the immediate physical loss resulting from unplanned outages, where not to do so would result in the market participant not being able to meet existing contractual obligations or where such action is undertaken in agreement with the transmission system operator(s) concerned in order to ensure safe and secure operation of the system.”
Although the said REMIT provision covers, similarly as the exemption indicated under point 2 above, all three forms of insider trading, nevertheless it is limited in terms of personal scope to the market participants mentioned therein (given that any unplanned outage under the exemption of Article 3(4)(b) may only relate to production, storage or LNG import facilities).
The second restriction regarding the application of the above exemption is that it may be applied for unplanned events only, unplanned event defined as a circumstance which is not ex-ante known by the primary owner of the data.
Nord Pool Consulting AS document of 15 August 2017 “REMIT Best Practice, A sector review on how to comply with REMIT related to inside information and market abuse“ (p. 32) warns it “is unclear in what situations this exemption is valid and safe to use, and it is recommended to be careful when using this exemption, and to consider alternative approaches to cover the loss instead of through trading when holding inside information”.
The Agency for the Cooperation of Energy Regulators (ACER) in its guidelines underlines in that regard any physical loss needs to be caused immediately and solely through the unplanned event and that any transaction going beyond the immediate physical loss may not benefit from the exemption.
Having stressed the exemption may only be applied by the aforementioned market participants in the aforementioned circumstances, it is useful to note the two alternative sets of factual circumstances included under the exemption at issue.
Firstly, the exemption may be applied where the sole purpose of the transactions entered into is to cover the immediate physical loss resulting from unplanned outages, where not to do so would result in the market participant not being able to meet existing contractual obligations.
ACER in its guidelines highlighted the requirement that the contractual obligations referred to must exist ex-ante of the immediate physical loss resulting from unplanned outages and that the existing contractual obligations must relate to the relevant period of the unplanned event. Moreover, the ACER considers a market participant "not being able" to meet such existing contractual obligations in particular if the market participant has no other own assets available to cover the loss.
As regards the second alternative (when an action is undertaken in agreement with the TSO(s) in order to ensure safe and secure operation of the system, the ACER considers that the criterion "to ensure the safe and secure operation of the system" will mainly apply in cases of Article 3(4)(c) of REMIT - see below.
It is neccessary to stress that the general underlying requirement for the application of the exemption in question is to report to ACER and the national regulatory authority (NRA) relevant information relating to the said transactions.
The ACER’s online reporting application should be used for this purpose.
Moreover, this reporting obligation is without prejudice to the obligation of market participant to publish inside information (as set out in Article 4(1) of REMIT).
The aforementioned Nord Pool Consulting document of 15 August 2017 recommends the following REMIT best practices when using this exemption (p. 33):
(a) the following measures should be taken in advance to reduce the risk of breaching REMIT:
- analyse and list in which situations the exemption may be used,
- include in the internal guidelines, if use is possible for the relevant market participant and the relevant business units (compliance unit should be involved in these analyses);
(b) firms should have clear instructions on how and when make the necessary reports to ACER and the NRA:
- the report should be given through the notification platform provided by ACER,
- contact persons and details should be decided beforehand,
- a copy of the notification should be taken before submitting the form to ensure that the content of the report is documented,
- the receipt received from the notification platform should be kept;
(c) the grounds for claiming the exemption should be documented, it should also be documented that the requirement is fulfilled.
4. Market mechanisms' suspension as an effect of emergency rules
Insider trading prohibition does not apply with respect to market participants acting under national emergency rules, where national authorities have intervened in order to secure the supply of electricity or natural gas and market mechanisms have been suspended in a Member State or parts thereof. In this case the authority competent for emergency planning is under the obligation to ensure publication of such an information in accordance with Article 4.
This exemption in the ACER view will normally coincide with the exemption of Article 4(2) of REMIT and that in such case the authority competent for emergency planning shall ensure publication in accordance with Article 4(1) of REMIT.
5. Exemptions from the insider trading prohibition vs. obligation to publish inside information
It should be stressed that the above exemptions may only apply for the prohibition of insider trading and are without prejudice of the obligation to publish inside information according to Article 4(1) of REMIT.
In case a market participant not only aims at applying the exemptions from the prohibition of insider trading according to Article 3(3) and (4) of REMIT, but also the exemption of Article 4(2) of REMIT concerning the delayed disclosure of inside information, the Agency and the relevant NRA(s) must be notified accordingly.
According to Article 4(2) of REMIT, the market participant concerned must without delay provide that information, together with a justification for the delay of the public disclosure, to the Agency and the relevant national regulatory authority having regard to Article 8(5) of REMIT, if the conditions of Article 4(2) of REMIT are met.
The relevant electronic form - Delayed Information Notification Platform - is available via the ACER's REMIT Portal and can be used by market participants to comply with their notification obligations according to Articles 3(4)(b) and 4(2) of REMIT towards both the ACER and National Regulatory Authorities (NRAs).
In 2014, the Delayed Information Notification Platform received 354 notifications on Article 3(4)(b) of REMIT (transactions to cover the immediate physical loss resulting from unplanned outages), and 281 notifications on Article 4(2) of REMIT (ACER's annual report on its activities under REMIT in 2014, p. 48).
It is noteworthy, the timing for notification to the authorities differs in the Market Abuse Regulation (MAR) and REMIT. Under REMIT the delay and the explanation must be notified without delay (ex-ante), while under MAR the notification duty triggers once the inside information has been published following the period of delay (ex-post).
Application problems in the energy markets
Applying insider trading prohibition in the energy market by electricity producers is a complex issue.
The aforementioned Nord Pool Consulting document of 15 August 2017 on REMIT best practice observes for example (p. 30), if there is a planned maintenance at a power plant in the future, and it is unlikely that this information could be relevant for day-ahead or intraday products (not likely to significantly affect the prices of the relevant wholesale energy products), it should not be necessary to stop trading.
However, allowing for trading while holding inside information may constitute an additional risk for the market participant, and it is therefore recommended to have clear instructions and routines for how to conduct such trading to avoid any unintentional or intentional abuse.
It should be included in the internal guidelines if and when the market participant allows trading when holding inside information, including procedures (approval requirements) and documentation requirements.
The above document of 15 August 2017 recommends, moreover, markets participants to map all products and markets relevant for different types of inside information the market participant may hold.
Enforcement
ACER's annual report on its activities under REMIT in 2012 mentions the case related to both potential non effective disclosure of inside information according to Article 4(1) of REMIT and potential insider trading according to Article 3(1) of REMIT. The said case was brought to the Agency's attention through a notification from a NRA. Since the case potentially had cross-border impact, the Agency established and coordinated an investigatory group consisting of all concerned NRAs.
The competent NRA's review led to the conclusion that the relevant inside information was not disclosed in a timely manner and that the market participant therefore was in possession of inside information when carrying out trading activities at day-ahead and intraday markets.
The market participant may have applied the exemption in Article 3(4)(b) of REMIT, but since it did not comply with the reporting obligation of this exemption, the market participant was formally in breach of Article 3 of REMIT. However, in the absence of sanctioning rules at national level and since no actual price effect of the trade could be concluded, the market participant was informed on how to improve its compliance with REMIT requirements and only a statement of breach was issued.
The aforementioned ACER's annual report on its activities under REMIT in 2014 (p. 47), in turn, refers to the potential insider trading case where the market participant had planned maintenance of a power station, but the planned maintenance was requested to be postponed by the TSO because of an error in the planning of the maintenance at another power station. Therefore, the company was instructed to continue its production at the original power station. The market participant didn't disclose to the market that the planned maintenance was cancelled, traded while holding this information, and only informed the market about the absence of changes in the capacity made available to the market the next day. The market participant was interrogated by the NRA but as it did not trade unusual amounts in the market while holding this information and as the change in the capacity did not affect the market prices, it was given an oral warning for a lack of care on the market.
More recent example of insider trading enforcement action comes from the Dispute Settlement and Sanctions Committee (CoRDiS) of the French energy regulatory authority (CRE), which on 25 June 2022 published a sanction decision adopted on May 19, 2022 imposing a fine of €80,000 on Engie SA (Engie), for breaching the prohibition of insider trading under Article 3 of REMIT. CoRDiS found that on 23 January 2017, in the context of unavailability of two of Engie’s gas fired power plants:
- a member of Engie’s Dispatch team communicated to a member of the Trading Team inside information on the extension of unavailability of the Combigolfe power plant, before disclosure of the inside information to the market (breach of Article 3(1)(b) of REMIT);
- the Trading team used the inside information to enter into five transactions on two hourly products on EPEX SPOT’s French intraday market (breach of Article 3(1)(a) of REMIT).
CoRDiS also noted the weakness of Engie’s internal procedures at the time of the event, based exclusively on oral exchanges between the officials of Engie’s Dispatch and Trading teams and aiming at preventing the dissemination of inside information, which could not prevent the occurrence of the infringement.