|The notion of "market participant" under REMIT Regulation|
The definition of "market participant" applying within the REMIT Regulation compliance system has been precisely, however, broadly defined in REMIT itself (see box).
Placing an order in wholesale energy products is a self-standing leg of the definition - by placing an order the legal entity becomes a market participant even if it will not be a counterparty to the trade (ACER's Frequently Asked Questions (FAQs) on REMIT transaction reporting, 8 September 2015, Question 2.1.1).
Significance of the notion of "market participant"
Agency for the Cooperation of Energy Regulators (ACER) in its Guidance on the application of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency) recalled that the uniform understanding of the notion of market participant is crucial for following reasons:
1) the obligation to disclose inside information according to Article 4(1) of REMIT lies with the market participant;
2) according to Article 8(1) of REMIT, being a market participant entails the obligation to provide the Agency:
(i) with a record of wholesale energy market transactions, including orders to trade, by the market participant itself or through a person or authority listed in points (b) to (f) of Article 8(4) of REMIT (trade data) and
(ii) with the information described in Article 8(5) of REMIT (fundamental data);
3) pursuant to Article 9(1) of REMIT, market participants have to register with the competent national regulatory authority if entering into transactions which are required to be reported to the Agency in accordance with Article 8(1) of REMIT.
Examples of REMIT "market participants" in view of regulatory clarifications
- Energy trading companies in the meaning of 'electricity undertaking' pursuant to Article 2(35) of Directive 2009/72/EC carrying out at least one of the following functions: transportation, supply, or purchase of electricity, and in the meaning of 'natural gas undertaking' pursuant to Article 2(1) of Directive 2009/73/EC carrying out at least one of the following functions: transportation, supply or purchase of natural gas, including LNG;
- Wholesale customers in the meaning of Article 2(8) of Directive 2009/72/EC and Article 2(29) of Directive 2009/73/EC;
- Transmission System Operators (TSOs) in the meaning of Article 2(4) of Directive 2009/72/EC and Directive 2009/73/EC;
Non-EU and non-EEA entities
Firms from non-EU and non-EEA countries are not excluded from the notion of "market participant" under REMIT rules, which means that they are subject to REMIT obligations to register and to report trade and fundamental data, if they enter into transactions in one or more wholesale energy markets.
Distribution System Operators (DSOs)
The ACER also understands electricity and gas distribution networks to be consumption units with regard to electricity or gas that is consumed in order to cover grid losses.
Therefore, the Agency qualifies Distribution System Operators (DSOs) as a final customers and market participants under REMIT if the aforementioned grid losses are above the threshold of 600GWh per year (ACER's REMIT Q&A point III.3.16).
Underground gas storage owners
Owners of underground storage are counterparties of transactions related to wholesale energy products under REMIT that must be reported to the ACER.
Therefore, they will be required to register as market participants under REMIT (ACER's REMIT Q&A point II.4.31).
ACER reasoned its stance with the fact that Article 3(1)(vi) of Commission Implementing Regulation (EU) No 1348/2014, refers to other contracts for the supply of natural gas with a delivery period longer than two days where delivery is in the European Union irrespective of where and how they are traded, in particular regardless of whether they are auctioned or continuously traded.
EMIR/REMIT derivatives' reporting overlap
As REMIT uses the term market participant and EMIR uses the term counterparty to identify the reporting party, both terms are used in this context for the purpose of reporting.
Thus, for the purpose of reporting, counterparty is considered equivalent to the market participant reporting the trade when entering into a transaction on a wholesale energy market.
The other market participant is referred to as the "other counterparty".
Counterparty and the other counterparty within the EMIR reporting scheme is therefore considered equivalent of market participant and the other market participant for the purpose of reporting under REMIT.
For practical examples when for a party to a derivatives' contract is considered market participant within REMIT, and, in consequence, subject to REMIT reporting, see in the box.
Brokers' interactions with REMIT
Clearing brokers and central counterparties (CCPs) are not considered "market participants" under REMIT as they do not enter into transactions in the REMIT sense i.e. do not enter into transactions in one or more wholesale energy markets (Annex III to the Trade Reporting User Manual, version 2.0, p. 3).
In the ACER's opinion this is in line with the meaning of entering into transaction according to Article 5 of MiFID I where the meaning of entering into transaction does not include actions related to option exercise, settlement or clearing.
According to the regulators' view, executing brokers may act as principal before giving up the transaction for clearing and this seems to be the case for most of the transactions executed at regulated markets. As a consequence, executing brokers are considered as having entered orders to trade and having entered into transactions and, thus, they are REMIT market participants.
ACER also underlines (Annex III to the Trade Reporting User Manual, version 2.0, p. 2), "the meaning of entering into transactions in EMIR is different than the meaning of entering into transaction in REMIT, where the latter refers to entering into transaction in "wholesale energy markets" and not to be counterparty to a contract, as CCPs or clearing members are."
Client relationship's treatment
Annex III to the TRUM ((version 2.0, p. 6) brings an important interpretation with respect to situation of indirect participation in the trading venue. ACER clarifies this with an example:
Client (A) is NOT a member of the venue, but uses the trading systems of an Exchange Member (EM) to trade on the Central Limit Order Book (CLOB). In this particular case, the Agency believes that Client (A) is currently not considered a REMIT market participant entering into transactions which are required to be reported to the Agency in accordance with Article 8(1) of REMIT, unless it enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets (e.g. any other wholesale energy market). In this case the Exchange Member (EM) is the Market Participant and the (EM) shall report the transactions.
The above rule does not apply when Client (A) has its own membership of the exchange, but uses the trading systems of an Exchange Member (EM) to trade on the Central Limit Order Book (CLOB). In this particular case, the Agency believes that Client (A) is a market participant and has the obligation to report its transactions.
Agent's status under REMIT
If an entity acts in the pure agency capacity, it is not considered REMIT market participant, and, consequently, not burdened with REMIT reporting requirements.
ACER's TRUM (version 2.0) explains this issue as follows (p. 40):
"For example, if party B is trading on behalf of party C, then party C is the beneficiary and party B is acting on behalf of C. As party B enters into a transaction in a wholesale energy market, or places an order to trade, party B is a market participant, unless party B always acts only as an agent. If party B always acts as an agent, in this case, it would not be a market participant according to REMIT and not appear in the report. If this is the case, the ID of C should be reported in field 1 and this field shall be left blank."
More detailed examples are set out in the TRUM Annex III:
Legal status of branches under REMIT
ACER in its Questions and Answers on REMIT (Question II.4.48 - see box) underlined that within a group of companies, REMIT reporting requirement is placed on legal entities who enter into transactions (they in the first place must, obviously) register with the relevant National Regulatory Authority (NRA).
Hence, in the situation where all the following conditions are met:
- the mother energy company establishes a branch office in another EU Member States, and
- the said branch office operates in the said another EU Member State and is an interface towards the NRA and TSOs in this Member State, and
- the branch office is the same legal entity as the mother company, and
- the branch office and the mother company hold two distinct energy licences granted by the NRAs in the above two different EU Member States,
- the branch office's licence is in the name of the branch office, not in the name of the mother company, and
the decisive element for establishing which entity should register and report under REMIT is the fact that the mother company is the counterparty to all branch office's framework agreements.
Provided that the mother company is always a party to the contract used by the said branch office, only the mother company has an obligation to register with the relevant NRA pursuant to Article 9(1) of REMIT and report the respective trades.
|Last Updated on Friday, 23 September 2016 14:04|