EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 8.12.2010 
SEC(2010) 1511 final 
  
COMMISSION STAFF WORKING PAPER 
SUMMARY OF THE IMPACT ASSESSMENT  
 
 
Accompanying document to the 
  
Proposal for a 
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
  
on energy market integrity and transparency 
   
{COM(2010) 726 final} 
{SEC(2010) 1510 final}  
EN 2   EN Reliable prices formed on liquid wholesale mark ets send crucial short term signals for the 
optimal operation of energy production facilities and consumption units. They also give long 
term guidance where future investments in en ergy infrastructure are needed. They give 
confidence to businesses that they will be able to respond to changes in the markets. This will 
be vital, since tomorrow's low carbon economy will require long term visibility to underwrite 
high capital investments in new generation facilities. Last, but not least outcomes on 
wholesale markets serve as a reliable benchmark for retail prices for household consumers 
and industrial users, and enc ourage efficient use of energy. 
Because they are crucial to the well being of Europe's citizens, and to the competitiveness of 
Europe's businesses, it is of central impor tance that citizens, businesses and national 
authorities can have confidence in the inte grity of energy markets. Unless effectively 
addressed, the potential for unf air trading practice undermines public trust, deter investment, 
increases volatility of energy pr ices and may lead to higher ener gy prices in general. This in 
turn may also reduce competitiveness of other sectors and energy intensive industries.  
EU level financial regulation, the Market Abus e Directive (MAD), only pa rtly covers energy 
markets as it is designed for financial ma rkets. Though its measures are currently under 
review, due to its overarching nature it w ill not fully capture energy specific market 
misconducts (e.g. strategic withholding of gene ration assets). Internal energy market 
legislation does not set out standards to ensure th e integrity of such markets. Some other rules 
may exist on the level of Member States but th ey are only limited in scope, often relating only 
to a single trading platform a nd covering a single Member State. 
In summary, the rules governing energy markets are insufficient to ensure their stable and 
orderly functioning. Markets cannot be compre hensively monitored and specific misconducts, 
such as cross-border, cross-commodity and cros s-market misconducts are difficult to detect. 
This view is supported by sect oral regulators in their advi ce to the Commission, and by the 
respondents to the Commission's consultation. 
Objectives 
(1) There should be an efficient and effective framework which ensures that Europe's 
traded energy markets function properly, i. e. their outcomes ar e not distorted by 
abusive market behaviour, but  truly reflect market fundame ntals. This shall generate 
an increased level of trust of all stakehol ders, which in turn will lead to higher 
participation, more depth and liquidi ty and lower transactional costs. 
(2) The rules need to effectively capture ener gy specific market misconducts. They need 
to be consistent throughout Eu rope so as to ensure that traders are able  to apply the 
same compliance standards and are not faced  with diverging rules and requirements 
when trading in different Member States. Furt hermore, they have to be also complete 
and cover all relevant transactions. This also  means that rules have to be compatible 
with existing financial legisl ation. To this end the presen t initiative wi ll introduce the 
concepts of insider dealing and market ma nipulation, enshrined in MAD, to wholesale 
energy market. The detailed rulebook will, however, be specified in delegated acts. 
(3) In order for market misconduct to be detect ed, wholesale energy markets need to be 
regularly monitored To this end, an eff ectively functioning ma rket monitor would 
need to have timely access to complete and verified sets of transactional data. Once market misconduct is detected, compliance w ith the rules needs to be enforced. For 
EN 3   EN this purpose, competent enforcement authorities need to be defined who can 
effectively investigate and pr ove instances of market abus es on energy markets. They 
would need to have effective sanctioning pow ers to deter market participants from 
future misconduct. To tackle complex cr oss border and cross commodity market 
abuses a proper coordination mechanism be tween financial and energy regulators 
needs to be established. 
Policy options 
Apart from the 'Business As Usual' scenario we  considered seven options with the following 
features: 
Option 0: Business as usual  
Under this option no sector-specific initiative is  taken, regulatory authorities supervise only 
some parts of the traded market. There are no market conduct rules agreed at EU-level which 
could be coherently implemented in Member  States. The supervisory frameworks are 
different between each Member State, and, although national energy regulatory authorities 
will increasingly cooperate w ithin the Agency for the Cooperation of Energy Regulators 
(ACER), there is no established process of data access and exchange for market monitoring 
purposes. Therefore, market misconducts taki ng place in several markets and involving 
different but interrelated products/commoditie s are difficult if not possible to detect. 
No EU action does not mean that actions will not be taken on Member State level. Already 
national legislators have alread y started filling this gap a nd introduced national measures 
including transactional data collection, regulatory monitoring and reporting schemes. These 
schemes, though clearly increase the scope of regulatory supervision, will inevitably remain incomplete. By monitoring transactions relating to a single Member State, the cross-commodity and cross-border aspects of traded  energy markets remain uncovered and certain 
market manipulations will go undetected. 
Option 1a – Rules defined at EU level,  Member States monitor and enforce
 
This option foresees market misconduct rules de fined at EU-level. Markets are monitored on 
the Member State level based on decentralised transaction reporting to competent regulatory authorities. National Regulators w ould assume monitoring responsib ility for transactions that 
are delivered in (or related to) the Member  State in which they have jurisdiction
1. 
Transactions are reported to each Regulator sepa rately by traders or third parties. Traders 
and/or brokers would report all their wholesal e energy transactions to the Regulator where 
they are established irrespective where the delivery takes place2. Reported transaction details 
and data formats are defined on EU-level. Transac tional data are stored in different ways, in 
separate systems of the 27 natio nal regulatory authorities. Regul ators operate a decentralised 
data exchange mechanism which enables them to  monitor all transactions which are delivered 
in their jurisdiction and enforce the tailor-made market conduct rule s. In case th e transactions 
concern a number of Member States (e.g. contr acts for location price differences), appropriate 
                                                 
1 If a trader established in Country A engages in a tr ansaction with another trad er established in Country 
B concerning electricity for delivery in Country C, the Regulator of Country C would assume 
monitoring responsibility.  
2 If a trader established in Country A engaged in tr ansactions which are delivered in (or relating to) 
Country B, C and D it would have to report these tran sactions to the Regulator having jurisdiction in 
Country A. 
EN 4   EN rules and coordination mechanisms would have to be put in pla ce. Such rules and mechanisms 
would also define enforcement responsibili ties and obligations to  cooperate. Regulatory 
cooperation can be supported by an EU body (e.g. ACER).  
Option 1b – Rules defined at EU level, Member  States report, monitor and enforce, EU 
Agency process data and monitors cro ss-border and cross-commodity misconduct  
In this option, just like under Option 1a, mark et misconduct rules, reporting obligations, data 
formats and monitoring and enforcement obligati ons are defined on EU-level. However, when 
comparing with Option 1, there are two differences. 
Firstly, while competent authorities of the Memb er States continue m onitoring transactions 
for which they assume responsibility, there is an additional layer of m onitoring introduced on 
EU level. This monitoring function would concen trate on the detection of market abuses of 
cross-border and cross-commodity nature. 
Secondly, instead of operating a decentralised da ta exchange mechanism, Regulators directly 
send transactional data to the EU Agency wh ich sorts them by place of delivery. The sorted 
data sets are then sent back to the respective competent Regulator. A copy of all received data remains with the EU Agency enabling it to monitor the referred market abuses. 
Option 2 – Rules defined at EU level, shared monitoring in a unique EU Agency and Member 
States, enforcement by Member States  
Unlike in Option 1b, transactions  are reported to the EU Ag ency. No direct reporting to 
Regulators is foreseen, but national authoritie s have access to the data held by the EU body. 
In the same process as described under Option 1b, the EU Agency sorts the transactions and 
sends the dedicated data sets to the respectiv e regulators. This enables them to monitor 
transactions in their jurisdiction without collecting data themselves. 
Option 3 – Rules defined at EU level, shar ed monitoring by ACER and Member States,  
enforcement by Member States  
This option is equivalent to Option 2, however, all functions and compet ences of the EU level 
body are assumed by ACER. 
Option 4 – Rules defined at EU level, monito ring and enforcement by ACER or unique EU 
Agency in cross-border cases  
This option is equivalent to Options 2 and 3, however, in all cross-border cases of detected 
misconduct, ACER or the EU Agency would a ssume responsibility for enforcement. This 
option is however discarded for further analysis because the Commission has no reason to believe that in case misconduct is detected, Member States would not be able to enforce rules 
as efficiently as the Agency or ACER. In accordance with the subsidiarity principle where abuse is detected national authorit ies should take enforcement action.  
Option 5 – Self-regulation of the markets. 
 
This option assumes that there will be no actio n undertaken by public authorities at the EU 
level or by Member States, neither regarding defi nition of rules nor regarding monitoring. It is 
assumed that the industry itself will agree upon some market integrity rules. In case 
misconduct would become known, national Courts or public authorities on level of general 
EN 5   EN market oversight could get involved in enforcem ent of such rules. It cannot be excluded that 
in some ways the industry would agree to es tablish market misconduct rules. Monitoring and 
enforcement of such rules would be expected however, a priori  ineffective as the incentive to 
transfer data by market particip ants and have them monitored by other market participants or 
private companies without the level of independence of public authorities will be limited. Weak monitoring is likely to result in an in effective market integrity regime. For these 
reasons this option is discarded.  
Option 6 – Extension of MAD (No sector specific action) 
 
Extension of financial market legislation to cover all relevant ener gy markets would bring 
these markets within the financial regulator y framework. Notwithstanding, the close links 
between energy markets and some financial ma rkets, including physical energy markets and 
defining prohibitions of energy specific mi sconducts (e.g witholding of production assets, 
definition of inside information) within MA D is not desirable and would fragment its 
overarching character. This was recognise d by CESR/ERGEG in their advice to the 
Commission where they state "A mere extension of the scope of market  abuse regulations…in 
MAD to physical products is not reccomended… [ it] would bear the risk  of leading to an 
inappropiate application of MAD in other areas"3. It the light of this strong advice, and the 
distinct scope of MAD, this option was not considered in detail. 
Evaluation of options 
In general, options 1-3 examined  proved to be better  as the BAU scenario as they can, to 
varying degrees, detect better and deter market  misconduct and reduce rela ted costs to society. 
At the same time all of these options involve hi gher administrative costs. Policy options 1b, 2 
and 3 have the significant advant age over option 1a that  they better enable the detection of 
cross-border and cross-commodity abuses. Optio ns 2 and 3 have the advantage over option 1b 
that they have the potential to increase the efficiency of the overall monitoring exercise. 
Directly and centrally captured data would simplify and speed up ove rall data handling by 
reducing the number of data supply routes. This  would also reduce the occurrence of data 
transmission and handling errors. 
Option 3 is likely to detects and deter energy sp ecific market abuses most effectively because 
of ACER's the overall regulator y expertise and its special en ergy focus. As ACER already 
exists the administrative cost of running the mark et monitor attached to this agency will also 
be lower when compared to option 2 where a ne w Agency would need to be set up. Therefore 
option 3 matches best the identified objectives . Though the overall benefits of the proposed 
measures are difficult to quantify it appears that they clearly outweigh the cost of administrative burden they generate. 
Other Issues 
Elaboration of sector spec ific rules – legal form 
Because important venues for energy trading are already covered by MAD, definitions 
relating to market misconduct specifically cove ring the physical energy ma rkets will need to 
interact very well with MAD. To the extent pos sible and logical, the rules should be inspired 
by the concepts underlying the defini tions in MAD. However, it is essential that a tailor made 
                                                
 
3 CESR ERGEG advice to the European Commission – response to Question F.20 – Market Abuse. 
EN 6   EN regime takes account of the specific characteristic s of energy markets, in particular, their high 
level of susceptibility to signi ficant changes in price as a result of economic or physical 
withholding of capacity. 
In order to allow for flexibility and legal certai nty the rules should be el aborated in guidelines 
in consultation with market participants. Thes e could then be made binding through delegated 
acts adopted by the Commission. This suggestion wa s reflected in the majority of industry 
responses. This represents a sensible approach  for each of the options requiring EU level 
rules. It fits in with the approach taken in financial sector regulati on under the Lamfalussy 
arrangements, and would therefor e also aid interacti on between financial regulation and sector 
specific regulation. Where an EU agency is res ponsible for monitoring, a nd the elaboration of 
more detailed guidelines, the most appropriate form for the basic act would be a Regulation.  
Commodity scope 
Electricity and gas markets are interlinked with other commodity markets,  in particular with 
markets for primary energy products and for em ission allowances (EUAs) within the EU 
Emissions Trading System (EU ETS). 
Coal is an important primary fuel used in pow er generation, while oil and oil product prices 
influence electricity prices thr ough their role as refe rence in long-term gas supply contracts. 
However, these markets are globally traded w ith major participants established in third 
countries. An isolated, EU-level market mon itoring would remain incomplete and misconduct 
rules partly unenforceable. This view was also shared by the respondents to the consultation.  
This is, however, different in case of the em ission allowances. Emission trading under the EU 
ETS is by definition European in scope. With  its introduction, carbon became central to 
European electricity markets. The power generati on sector is the single largest emitting sector 
in the EU, representing around 40% of the em issions under EU ETS. The supply of emission 
allowances impacts generators' fuel choice and, with  that, the demand for different fuels; just 
like relative price developments of fuels influe nce plant dispatch and, as a result, determine 
the demand for carbon. The two markets are ther efore mutually interd ependent. Recognising 
these interlinkages and the growing importance of traded carbon markets the Commission has 
decided to initiate an in depth re view into how best to ensure the integrity of these markets. 
The results of the review are due in 2011. 
Monitoring and evaluation 
Ongoing evaluation and monitoring of the impl ementation of a tailor made regime for 
ensuring the integrity of energy markets will need to cover a number of areas including the appropriateness of market abuse rules covering  energy markets, interaction with financial 
market regulation, the impact on MS level market oversight and how coordination of 
enforcement works in practice,  the effectiveness of EU level monitoring, and the actual 
impact of transaction repor ting on market participants. 
EN 7   EN We envisage a monitoring and review  schedule along the following lines:  
After two years a report from ACER to the Commission on the impact of on new regime on 
MS level oversight, experience on the coop eration between nationa l level authorities 
including in enforcement and the impact of  new arrangements on market participants, 
particularly with re spect to transactions  reporting. Building on the ACER report, the 
Commission shall review the effec tiveness of EU level monitoring. 
After five years, a joint review by ACER and fi nancial regulators of the interaction between 
the tailor made integrity regime for energy and wider financial regul ation at an EU and 
national level.  
Based on the joint review by ACER and financ ial regulators, the Commission should then 
review the overall effectiveness of the tailor made market integrity regime.