Requirement for "Chinese walls" under REMIT


 

It is sometimes said that the REMIT Regulation does not influence decisively on operational processes of energy market players. It may be true, provided the process for publication of inside information with those market participants which generate inside information, is properly designed, and, in particular, the appropriate segregation arrangements ("Chinese walls") are implemented.

 

This is because the production department staff in power plants, even electricity turbine maintenance services is likely to come into possession of inside information, and it must be ensured that market participant does not derive undue profits from trading on this information before it was published in accordance with REMIT.

 

The purpose of these "Chinese walls" is to abide by the REMIT prohibition on insider trading and the containment in the companies' structures in which inside information is generated, particularly in companies groupings, of the unrestricted flow, and, in effect, unauthorised disclosure of REMIT inside information.

 

The sensitive period in that regard starts with the inception of inside information (for instance the information on the unexpected outage of the own power generating unit above 200 MW) and ends with the publication of this information in accordance with REMIT rules. Within this period market participant mustn't make any trading decisions on this information or in any other way violate the insider trading prohibition.

 

It is necessary to underline, in order to build the comprehensive architecture for the REMIT compliance in such integrated companies groupings, the implementation of "Chinese walls" must follow across all companies involved in the business. 

 

Considering REMIT underlying principles it appears reasonable that some of the elements of the REMIT "Chinese walls" compliance system were designed as follows.

 

The first thing is the company's officers taking part in trading decisions with respect to electricity and the electricity-related products in the company in which inside information is generated mustn't in parallel render services for other company's departments as well as for other companies of the company groupings, in particular, for the department responsible for the publication of REMIT inside information. 

The only admissible exception to this rule represents parallel services performed by the said officers for the department of other company from the grouping, the sole activity of which is trading in electricity and electricity-related products. 

The strict adherence to this rule will to some extent contain the risk for unlawful use of inside information when taking trading decisions.

 

In order to further limit this exposure the said company's officers should occupy premisses physically separated from other company's departments. This may be effected in particular by appropriate measures for controlling access to these departments.

 

Moreover, the staff taking part in trading decisions with respect to electricity and the electricity-related products should only use the IT infrastructure which safeguards that potential inside information is not circulated to unauthorised persons before its publication pursuant to REMIT. The same applies for internal procedures for the circulation of other forms of documentation in the company.

 

Company's inside information should also be protected from premature disclosure making use of procedures and physical measures like, for instance, magnetic access cards, places of storage secured with keys available only for persons authorised, having due regard to their functions and tasks.

The officer responsible for commercial matters in the respective company should be assigned with monitoring whether these requirements are abided by the staff.

  

Officer responsible for IT matters in the company in which inside information is generated should be assigned with the responsibility to ensure IT systems in the company grant access to inside data to persons authorised due to their functions and tasks only. 

 

The practical issue that mustn't, however, be neglected are potential "small talks" in public places or in other circumstances that cause the risk of inside information be unintentionally revealed. Properly designed system for the company protection of inside information should explicitly prohibit such behavior.

 

The overarching purpose of the said REMIT compliance architecture should be, in particular, to ensure that the information on, say, the failure of electricity system relevant installation, be immediately communicated to the company's maintenance services to remove the effects as quickly as possible as well as to the company department responsible for publishing inside information. 

The said information may be available to trading departments of this company (or grouping) not earlier than the relevant public communication was made.

The eventual, detailed shape of practical instruments for safeguarding this rule will depend on each company organisational culture.

 

The the corporate documentation for Chinese walls may also be relevant in documenting that an energy exchange's member did not use inside information when a particular, suspected case has come under investigation.

 

Draft procedure for REMIT "Chinese walls" is available here.

 

 

Last Updated on Monday, 21 March 2016 23:07
 

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