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).

 

"Market participant" means "any person, including transmission system operators, who enters into transactions, including the placing of orders to trade, in one or more wholesale energy market (Article 2(7) of REMIT).

 

 

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 


In the light of the ACER's understanding of the notions of wholesale energy market and wholesale energy products
 at least the following persons are market participants under REMIT if entering into transactions, including orders to trade, in one or more wholesale energy markets:

 

- 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;


- Producers of electricity or natural gas in the meaning of Article 2(2) of Directive 2009/72/EC and Article 2(1) of Directive 2009/73/EC, including producers supplying their production to their in-house trading unit or energy trading company;


- Shippers of natural gas;

 

- 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;


- Storage system operators (SSOs) in the meaning of Article 2(10) of Directive 2009/73/EC;


- LNG system operators (LSOs) in the meaning of Article 2(12) of Directive 2009/73/EC, and


- Investment firms in the meaning of Article 4(1) No 1 of Directive 2004/39/EC.


The crucial criterion for the assessment of whether a company is a market participant was considered the fact of entering into transactions, including the placing of orders to trade, in wholesale energy markets. 

 

Final customers

 

More information on the REMIT treatment of final customers is available here.

 

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.

 

 

ACER's clarification

on the scope of the notion of "market participant"

with respect to derivatives contracts reporting

 

When a person only enters into transactions on derivatives traded outside the European Union that are only for financial settlement even though they are related to EU electricity or natural gas (for example a future or a swap that can only be financially settled) that person should not be considered a REMIT market participant and should not report those transactions, unless that person also enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets.

 

For example, if a person enters into a transaction on a derivative contract related to EU gas and electricity (such as a futures contract only for financial settlement that is traded on exchange located outside the EU), that person will not be considered a REMIT market participant.

 

Another example is when a person enters into a transaction on an exchange traded (or bilaterally) financial swap on two floating gas prices for two monthly contracts i.e. (1) EU Natural Gas Futures contract and (2) U.S. Henry Hub Natural Gas Futures contract of the corresponding contract month, traded outside the EU, that person will not be considered a REMIT market participant.

 

However, if that person also enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets, e.g. enters on a physical trade (or derivative) for the delivery of gas or electricity (or transportation of gas or electricity) within the EU, that person is a market participant and has to report all the transactions on wholesale energy products including those trades outside the EU that are only for financial settlement.

 

If a person trades only REMIT-related financially-settled derivative contracts traded at organised market places outside the EU, that person is not a market participant and should not report those transactions.

 

Source: ACER's Trade Reporting User Manual (TRUM)

 

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:

 

 

Case 1: The Investment Manager (IM) has investment discretion with respect to the account of Client (1) and is acting solely as agent on behalf and on the account of its Client (1). The Investment Manager (IM) places an order to trade with the Executing Broker (EB), who trades on the Venue. Client (1) holds a clearing account with Clearing Member (CM). The Executing Broker (EB) and Clearing Member (CM) are the same legal entity. The Executing Broker gives up the trade to the Clearing Member. All parties involved are FCs/NFCs for purposes of EMIR.

 

ACER believes that the Executing Broker (EB) is considered to be a "Market Participant" under REMIT.

 

The Investment Manager (IM) is considered a market participant if it is itself a member of the exchange and Client (1) is currently not considered to be Market Participant unless Client (1) enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets.

 

If Client (1) is a Market Participant and the trade is reported to a Trade Repository under EMIR, its REMIT reporting obligation will have been met.

 

 

 

Case 2: The Investment Manager (IM) has investment discretion with respect to the account of Client (1) and is acting solely as agent on behalf and on the account of its Client (1). Client (1) holds a clearing account with Clearing Member (CM).
The Executing Broker (EB) and Clearing Member (CM) are not the same legal entity.
The Executing Broker gives up the trade to Clearing Member (CM).
All parties involved are FCs/NFCs for purposes of EMIR. If Client (1) is a Market Participant and the trade is reported to a Trade Repository under EMIR, its REMIT reporting obligation will have been met.

 

Same as for Case 1 above, ACER believes that the Executing Broker (EB) is considered to be a "Market Participant" under REMIT.

 

The Investment Manager (IM) is considered a market participant if it is itself a member of the exchange and Client (1) is currently not considered to be Market Participant unless Client (1) enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets.

 

Also in this case, if Client (1) is a Market Participant and the trade is reported to a Trade Repository under EMIR, its REMIT reporting obligation will have been met.

 

 

 

Case 3: The Investment Manager (IM) has investment discretion with respect to the accounts of Client (1) and Client (2), and is acting solely as agent on behalf and on the account of its clients. Client (1) holds a clearing account with Clearing Member (CM1) and Client (2) holds a clearing account with Clearing Member (CM2). After executing the trade, the Executing Broker (EB) gives up part of the trade to Clearing Member (CM1) and the other part to Clearing Member (CM2). Each Clearing Member will establish a back-to-back trade vis-à-vis the initial trade with Client (1) and Client (2) respectively. All parties involved are FCs/NFCs for purposes of EMIR with the exception of Client (2).

 

Same as for Case 1 above, the (EB) is considered to be a "Market Participant" under REMIT.

 

The Investment Manager (IM) is considered a market participant if it is itself a member of the exchange and Client (1) and Client (2) are currently not considered to be Market Participant unless Client (1) or (2) enter into transactions, including the placing of orders to trade, in one or more wholesale energy markets. If they are market participants, then they have to report the back to back transaction with the (CB).

 

 

Legal status of branches under REMIT

 

 

Questions and Answers on REMIT (Question II.4.48)

 

Company 'A' from Member State X creates a branch office ('BO') in Member State Y. The BO obtains a licence to operate in Member State Y and Member State Z (licence is in the name of BO, not A). The BO is still the same legal entity as the mother company A, however, BO and A hold two distinct energy licences granted by the NRA. The BO operates in Member State Y and Member State Z and is an interface towards the NRAs and TSOs in these Member States. However, at the same time, A is the counterparty to all BO's framework agreements. Which entity should register as a market participant under Article 9(1) of REMIT: (i) company A, (ii) BO or (iii) both companies A and BO?

...

The obligation to register with the relevant NRA under Article 9(1) of REMIT applies to market participants (natural or legal persons) entering into transactions which are required to be reported pursuant to Article 8(1) of REMIT. Within a group of companies, all legal entities who enter into transactions that are required to be reported must register with the relevant NRA(s). In the present case, provided that the company A is always party to the contract used by the BO, only the company A has an obligation to register with the relevant NRA pursuant to Article 9(1) of 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.

 

 

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Last Updated on Friday, 23 September 2016 14:04
 

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