COMMISSION STAFF WORKING DOCUMENT 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) 1511 final}
Date: 2010-12-08
Institutions: European Commission
Subjects: energy policy, energy production, energy saving, energy supply, security of supply, thermal energy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.12.2010 
SEC(2010) 1510 final 

COMMISSION STAFF WORKING DOCUMENT 

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) 1511 final} 

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Table of content 

1 

2 

3 

4 

5 

6 

7 

8 

9 

Introduction .................................................................................................................. 3 

Procedural Issues And Consultation Of Interested Parties .......................................... 4 

Problem Definition....................................................................................................... 5 

Objectives................................................................................................................... 20 

Policy options and enforcement design choices......................................................... 23 

Analysis of impacts .................................................................................................... 29 

Other Issues................................................................................................................ 42 

Conclusions – the preferred options........................................................................... 45 

Monitoring and evaluation ......................................................................................... 47 

10 

List of Annexes .......................................................................................................... 49 

DISCLAIMER:  this  does  not  prejudge  Commission  decision,  and  is  only  binding  services  involved  in  the 
preparation of the document. 

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1 

INTRODUCTION 

European  energy  policy  aims  to  give  Europe's  citizens  access  to  competitive,  secure  and 
sustainable energy supplies. The creation of a true internal market in energy is crucial to each 
of  these  elements.  Integrated  markets  bring  competitive  pressure  to  a  sector  which  has 
historically been characterised by national markets often dominated by incumbents. Integrated 
markets allow consumers to benefit from a pan-European choice of diverse energy resources. 
In  addition,  harmonised  cross-border  market  operation  together  with  strong  and  efficiently 
operated  networks  will  give  the  depth  needed  to  allow  the  integration  of  new  renewable 
energy sources at least cost.  

Experience in the liberalisation and integration of energy markets, and electricity markets in 
particular,  has  demonstrated  the  importance  of  liquid  European  wholesale  markets.  The 
development of power exchanges (or other organised markets) and broker facilitated markets 
in standardised over-the-counter (OTC) contracts has created liquidity for market participants. 
This  is  a  positive  and  beneficial  outcome  of  over  a  decade  of  successive  European  energy 
liberalization packages. Although liquidity in traded gas markets still lags behind electricity, it 
is catching up steadily.  

Beyond generators and suppliers, wholesale energy markets now attract a wide range of actors 
including  utilities,  large  energy  users,  pure  traders,  financial  institutions  and  other  trade 
facilitators. These players have an important role in the price formation process and creating 
liquidity. Important derivative markets have arisen around markets in the underlying energy 
products.  This  means  that  energy  wholesale  markets  have  become  increasingly  hybrid 
physical and financial ones.  

Prices established at the level of wholesale markets not only affect market participants, they 
also  serve  as  the  benchmark  for  retail  prices  for  household  consumers  and  industrial  users. 
Equally importantly, by showing where energy prices are high and where they are low these 
markets send important signals for future investments in energy infrastructure. For this reason 
it is crucial that citizens, business and national authorities can have confidence in the integrity 
of such markets.  This  integrity can be put in question in case  market participants engage in 
abusive  practices  and  market  misconduct.  In  energy  markets,  their  hybrid  physical  and 
financial nature give rise to important regulatory challenges when it comes to ensuring market 
integrity.   

Figure 1: Trading function located in the overall electricity value chain 

generation
Erzeugung

trading
Handel
Handel
trading

transmission

Übertragung

distribution
Verteilung

supply
Vertrieb

competitive activity

monopoly activity
regulierter Bereich

competitive activity

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2 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

The 3rd Energy Market Liberalisation Package establishes a new institutional framework for 
the  gas  and  electricity  sectors,  ensuring  non-discriminatory  access  to  networks,  enhancing 
regulators'  powers  and  independence  and  establishing  new  European  bodies  to  create 
harmonised network and market operation standards like the Agency for Cooperation of the 
Regulators  (ACER)  and  the  European  Network  of  Transmission  System  Operators  for 
Electricity and Gas (ENTSOs) 

However, it does not define specific conduct rules for wholesale energy trading. As a first step 
in  addressing  concerns  regarding  market  integrity.  It  does  define  transaction  record  keeping 
obligations  and  a  generic  regulatory  duty  to  monitor  the  level  of  competition  on  retail  and 
wholesale  levels.  After  the  publication  of  the  Commission's  Third  Package  proposals  the 
Directorate General for Energy and Transport and the Directorate General for Internal Market 
and  Services  issued  a  joint  mandate  to  the  Committee  of  European  Securities  Regulators 
(CESR)  and  the  European  Regulators'  Group  for  Electricity  and  Gas  (ERGEG),  seeking 
advice on issues concerning record keeping and transparency of transactions in electricity and 
gas supply contracts and derivatives.   

Since then, and in particular since the final report from CESR/ERGEG in January 20091 and 
the  adoption  of  the  Third  Package  in  July  2009,  DG  TREN  has  worked  closely  with 
stakeholders  with  the  aim  of  developing  a  proposal  for  an  efficient,  effective  and  coherent 
oversight  regime  specifically  designed  for  energy  markets  to  ensure  market  integrity  and 
transparency.  DG  TREN  organised  a  workshop  in  May  2009  to  collect  stakeholders'  views 
and discuss the way forward. It was agreed that the Commission will develop its initiative and 
organise dedicated workshops to take interested market participants' input on board. Seeking 
the industry's support and generating attention for the subject, the Commissioner for energy 
Mr.  Piebalgs,  invited  senior  management  of  key  energy  trading  companies,  brokerages, 
energy exchanges together with regulators in September 2009 for a Roundtable debate.  

Building on the orientation of the CESR-ERGEG work and encouraged by the consensus in 
the Roundtable debate, DG TREN organised a second workshop in October 2009 with wide 
industry  participation  and  presented  the  basic  building  blocks  of  its  planned  sector  specific  
market integrity regime, followed by comments and input from stakeholders and regulators. 
Following  this,  the  Commission  issued  a  draft  discussion  paper2  which  was  presented  and 
discussed in the December 2009 Florence Forum (for electricity) and in January 2010 in the 
Madrid Forum (for gas). Finally, the Stakeholders were asked to submit their proposals and 
views on the presented policy options by February 2010. 

In order to ensure that all interested parties are able to contribute to this important debate a 
full  public  consultation  was  organised  from  the  31  May  2010  to  23  July  2010.  The 
consultation  was  addressed  to  energy  companies,  companies  in  the  financial  sector  and 
companies  covered  by  the  Emissions  Trading  Scheme  as  well  as  consumer  organisations, 
representatives  of  small  and  medium  enterprises,  representatives  of  regional  bodies  and 
organisations affected by the development of the internal market in energy. 

1  

CESR  and  ERGEG  advice  to  the  European  Commission  in  the  context  of  the  Third Energy  Package, 
Three separate documents (Ref: CESR/08-527, CESR/08-998, CESR/08-739). 

2http://ec.europa.eu/energy/gas_electricity/doc/forum_florence_electricity/meeting_17_5_commission_non_pape

r_on_market_integrity_and_transparency.pdf 

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All  information  on  the  consultation  process,  the  documents  and  presentations  used  in  the 
stakeholder meetings have been made available on the website of DG ENER. 

 http://ec.europa.eu/energy/gas_electricity/consultations/2010_07_23_energy_markets_en.htm 

All  stakeholder  comments  have  been  assessed  in  detail  and  the  summary  of  responses  is 
attached  in  Annex.  The  Commission’s  requirements  for  stakeholder  consultation  have  been 
fully met. 

DG ENER set up an inter-service group3 that met on 18 June 2010 and on 26 July 2010. The 
services cooperated particularly closely in the preparation of the draft consultation document. 

The  draft  Impact  Assessment  was  submitted  to  the  Impact  Assessment  Board  (IAB)  on 
2 August  2010.  The  IAB  meeting  took  place  on  8  September  2010.  The  IAB  adopted  its 
opinion on the draft on 10 September 2010. The present Impact Assessment takes full account 
of the Impact Assessment Board's opinion as follows: 

•  The Assessment includes clarifications with regards to the scope of the initiative, i.e. how 

the market misconduct rules will be formulated in Chapter 5 

•  More  analysis  was  added  to  underpin  the  strong  price  linkages  between  traded  energy 
markets in form of additional correlation analyses and figures on historical trade volumes 
in addition to further evidence on the occurrence of market abuses and their Community 
dimension in Chapter 4 

•  Chapter 4 also includes additional description on current market oversight responsibilities 

in different Member States 

• 

In  the  same  chapter  further  descriptions  were  added  to  put  in  context  the  relevance  of 
increased energy costs for households, in general and for groups subject to potential social 
exclusion,  in  particular.  The  section  on  administrative  impacts  of  Option  1a  includes 
further  assumptions  on  the  content  and  volume  of  data  to  be  reported.  In  addition  the 
administrative  costs  for  all  options  are  presented  in  summary  tables  allowing  for  better 
overview 

•  Finally, the annex with the summary of the public consultation was extended 

3 

PROBLEM DEFINITION 

Liquid traded wholesale markets send crucial signals for where future investments in energy 
infrastructure are needed and are key to the transformation of the European energy landscape. 
Deep wholesale markets give confidence to businesses entering into long term contracts that 
they  will  be  able  to  respond  flexibly  to  changes  in  the  markets  –  vital  as  tomorrow's  low 
carbon economy will require long term contracts to underwrite high capital costs in nuclear 
generation  and  new  renewable  infrastructure.  Prices  established  on  wholesale  markets  serve 
as the benchmark for retail prices for household consumers and industrial users.  

3  

Participants  were  invited  from  DG  COMP,  DG  ECFIN,  DG  ENTR,  DG  MARKT,  DG  CLIMA, 
DG ENV, DG EMPL, Legal Service and the Secretariat General. 

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Because they are crucial to the well being of Europe's citizens, and to the competitiveness of 
Europe's  businesses,  as  well  as  to  the  success  of  the  EUs  energy  policy,  it  is  of  central 
importance  that  citizens,  businesses  and  national  authorities  can  have  confidence  in  the 
integrity  of  energy  markets.  Unless  effectively  addressed,  the  potential  for  unfair  trading 
practice  undermines  public  trust,  deter  investment  (particularly  outside  companies  home 
bases), increases volatility of energy prices and may lead to higher energy prices in general. 
This  in  turn  may  also  reduce  competitiveness  of  other  sectors  and  industries  e.g.  energy 
intensive industries. As made clear in their advice to the Commission, financial regulators and 
energy  regulators  cannot  effectively  address  concerns  regarding  market  abuse  because  of  a 
combination of informational failures and incomplete regulation.  

The  underlying  drivers  of  this  failure  lie  in  the  particular  nature  of  gas  and  electricity  as 
commodities which are discussed below.  

Nature of gas and electricity as commodities 

Electricity  cannot  be  stored  on  an  industrial  scale.  It  must  be  produced  in  the  moment  it  is 
consumed. This means that market prices are highly sensitive to the availability of generation 
– and the expected availability of generation. To a lesser extent, the same concerns apply to 
gas markets. As a result targeted use of generation and production can easily distort spot and 
derivatives prices. 

Gas  is  an  important  fuel,  widely  used  in  power  generation,  often  delivering  the  marginal 
electricity needed to meet demand. Any changes of gas prices will influence electricity prices 
(and vice versa). Manipulated gas (or electricity) prices will distort electricity (or gas) prices. 
The  supply  of  electricity  and  gas  is  tied  to  a  smoothly  operating  network.  Bottlenecks  or 
limitations  in  the  transport  infrastructure  will  have  a  great  impact  on  prices.  Artificially 
creating congestion at interconnectors, or making it appear that congestion exists, or is likely 
to exist, will lead to price distortions between Member States or price areas.  

Energy markets are increasingly cross border 

EU  energy  markets  increasingly  cross  national  boundaries  in  terms  of  where  trading  takes 
place and where production and consumption takes place. This is a positive development and 
reflects the dynamic benefits brought by the internal  market. As a result price setting is not 
tied to a particular market as prices are set based on supply and demand in several countries. 
If  prices  go  up  in  the  one  country  market  participants  would  buy  electricity  in  another  and 
export  it  to  a  higher-priced  area  bringing  differences  in  supply  and  demand  into  a  regional 
balance. This is supported by the high correlation between prices of neighbouring countries, 
many  of  them  relatively  well  interconnected  and  apply  fairly  similar  market  arrangements 
(market  time  frames,  gate  closures,  etc.).  As  far  as  day-ahead  prices  concern,  the  Dutch-
German price correlation increased from 0.57 (2004) and 0.67 (2005) to 0.85 and 0.91 in 2008 
and  2009,  respectively.  French-German  price  correlation  was  high  with  0.91  (2004),  0.85 
(2005)  and  have  remained  stable  at  levels  of  0.88  and  0.83  in  2008  and  2009,  respectively; 
between  Germany  and  Austrian  even  higher  price  correlations  can  be  observed.4  Figure  2 
shows how closely day-ahead power prices follow each other in Central-Europe. 

Figure 2: Day-ahead power price developments in The Netherlands, Germany, Belgium and Austria 

4  

The Electricity Wholesale Sector – Market Integration and Competition; ESMT Competition Analyses, 
Berlin; page 7. 

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70

60

50

40

h
W
M

€/

30

20

10

0

EXAA - AT

APX - NL

EEX - DE

Belpex - BE

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Source: EEX, APX, Belpex, EXAA 

Price  correlations  betwenn  forward  prices  are even  higher  and  they  are  also  strong  between 
interrelated commodities, especially electricity and gas. The PWC Study finds that "…in both 
spot and futures trading […] the relation between gas and electricity is quite strong, with the 
correlation being particularly high for futures contracts (e.g. EEX 0.978, Nordpool 0.923)."5 

DG ENERGY's own calculations, based on the data available to EMOS, the Energy Market 
Observation  System  confirm  the  above  findings.  As  Figure  3  shows,  correlation  between 
different geographical gas markets is even higher than between different electricity markets. 
This is because gas is storable (os opposed to electricity) thus events like short term system 
disturbances  or  unavailabilities  of  generation  capacities  in  certiain  areas  which  create  short 
term regional price differences are not prevalent. Correlation is also relatively high between 
gas  futures  markets  in  the  US  and  Europe.  This  is,  in  our  understanding,  generally  due  to 
Atlantic LNG arbitarage possibililies. 

The  introduction  of  market  coupling  between  power  exchanges  across  EU6,  which  is 
envisaged to be in place by 2015, will reinforce this development. Likwise the move to hub 
based trading in gas and entry/exit gas transmission tariffs, will have a similar effect.  

What  this  means  is  that  energy  bids  and  offers  in  one  country  affect  prices  in  each  of  its 
neighbours.  These  bids  and  offers  are  not  easily  visible  to  those  charged  with  market 
oversight.  Even  where  information  can  be  exchanged  between  countries,  the  process  is 
cumbersome and does not lend itself to early and efficient identification of suspicous trading 
patterns.  

5  

6 

Impact  Assessment  for  an  Initiative  on  Transparency  and  Integrity  of  traded  European  wholesale 
markets for electricity and gas, Final Report, July 9 2010, Price Waterhouse Coopers. 
Presentation  to  Florence  Forum    "Target  Model  for  Interregional  Congestion  Management",  10 
December 2009, http://ec.europa.eu/energy/gas_electricity/forum_electricity_florence_en.htm. 

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Figure 3: Covariance analysis: 1 January 2007 – 30 June 2010  

Electricity 

Gas 

Day-ahead 

Front 
month 

Day-ahead 

Front 
month 

Correlation 
APX_NL  
BPX_BE  
EPEX_DE  
EPEX_FR2  

APX_NL  
1.000000 
0.952043 
0.864549 
0.842050 

BPX_BE EPEX_DE  EPEX_FR2 

1.000000
0.838692
0.913859

1.000000
0.874453

1.000000

Correlation  GPOOL_DA  NBP_DA  TTF_DA  ZEE_DA 
GPOOL_DA
NBP_DA  
TTF_DA  
ZEE_DA  

1.000000 
0.979555 1.000000
0.994495 0.9869171.000000
0.986344 0.9925950.9930721.000000

Correlation 

NL_FM01  
BE_FM01  
DE_FM01  
FR_FM01  

NL_FM01  BE_FM01 DE_FM01 FR_FM01
1.000000
0.978225
0.988709
0.923299

1.000000
0.984077
0.968931

1.000000
0.946145

1.000000

Correlation  GPOOL_MA1  NBP_MA1 TTF_MA1  ZEE_MA1 HH_MA1 
GPOOL_MA1
NBP_MA1  
TTF_MA1  
ZEE_MA1  
HH_MA1  

1.000000
0.992454 1.000000
0.997934 0.996156 1.000000
0.994547 0.997849 0.997646 1.000000
0.803670 0.809047 0.805109 0.816194 1.000000

Cross Commodity 

Correlation 
APX_NL 
EPEX_DE 
TTF_DA 
GPOOL_DA 

Correlation 
NL_FM01 
DE_FM01 
TTF_MA1 
GPOOL_MA1 

APX_NL 
1.000000 
0.934750 
0.823945 
0.820875 

NL_FM01 
1.000000 
0.991772 
0.944266 
0.940587 

EPEX_DE 

TTF_DA  GPOOL_DA

1.000000 
0.767754 
0.767319 

1.000000 
0.994495 

1.000000 

DE_FM01 

TTF_MA1  GPOOL_MA1

1.000000 
0.924443 
0.921709 

1.000000 
0.997934 

1.000000 

Source: Platts, EMOS 
Electricity exchanges: EPEX spot DE, EPEX spot FR, APX, Belpex ; Gas hubs / exchanges : NBP, TTF, Zeebrugge, Gaspool, Henry Hub 
Note: The time series for EPEX Spot FR exclude values for two specific days as outliers (15/11/2007 and 19/10/2009)

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In one of the most well know instances of the breakdown of an Energy market, the experience 
in California in 2001, Twomey, Green, Neuhof and Newberry have commented that "market 
surveilance  concentrated  on  the  local  market  and  failed  to  monitor  developments  in  the 
interconnected Pacific Northwest. An awareness of the interdependence of related markets is 
therefore  important  for  timely  and  effective  market  survilance  and  may  well  suggest 
improvements elswhere"7 While EU markets have not replicated the experience of California, 
the level of interdependence between different markets or regions in Europe is evident  

This creates possibilities for cross-border market abuses without having the need to conclude 
a single transaction between two countries. Here a simplified demonstration of such an abuse 
using Germany and France (as example) which could be possible between any two countries 
with highly integrated and interdependent wholesale markets. 

Box: Example of abuse 

Because of a high level of price interdependence, a shortage of generation capacity in France 
will  increase  German  electricity  prices.  Depending  on  the  duration  of  this  outage,  prices  of 
short  and  longer  dated  (derivative)  contracts  will  be  affected.  This  applies  whether  the 
shortage is a result of fundamental conditions when the increase in German prices is efficient 
or market abuse when it is not. Take a market participant who creates an artificial shortage of 
generation  in  France  but  also  holds  significant  "long"  derivative  positions  on  the  German 
market 

• 
• 

In France he can credibly argue that this resulted in losses for him.  
In Germany he can credibly argue that he had taken a legitimate proprietary position – he 
did not act in any way on the German market to cause the increase in prices. 

Only  by  combining  knowledge  of  the  market  participant's  actions  on  both  the  French  and 
German markets, can the market abuse be detected. 

In reality, the transactions will be more complicated – the long position on the German market 
will  be  contracted  using  both  on  and  off-exchange  derivatives,  some  of  which  will  be 
transacted  outside  Germany.  Part  of  the  transaction  may  be  using  "spread"  contracts  on  the 
German French price differential. There may also be ways to hide the cause of the artificial 
shortage in France.   

The  Comission  has  indeed  investigated  instances  of  possible  genertion  capacy  witholding 
based on its experience gained through the Sector Inquiry8. In its preliminary assessment of 
E.ON's market practices in 2008, it raised the concern that the German power generator would 
have abused its position on the wholesale market  by the short term withdrawal of available 

7 

8  

Twomey, Green, Neuhof and Newberry A review of the Monitoring of Market Power: the Possible Role 
of TSOs in Monitoring for Market Power in Congested Transmission Systems. Centre for Energy and 
Environmental Policy Research 2005 . 
Inquiry into the functioning of gas and electricity markets of 2005, pursuant to Article 17 of Regulation 
1/2003 EC - http://ec.europa.eu/competition/sectors/energy/inquiry/index.html#final. 

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generation  capacity9.  The  case  was  settled  with  E.ON's  commitment  to  divest  its  entire 
transmission network and 4,800 MW of its generation capacity to competitiors.10 

The Commission decision closing the case also found that the reffered abusive practice has an 
important  cross-border  implication  by  stating  that  "…the  Commission  considered  that  the 
practices  in  question  could  have  an  effects  on  trade  between  Member  States  given  that  the 
consequences of this alleged behaviour do not only effect customers who need electricity as 
an  imput  for  their  industrial  activity  on  the  German  markets  but  also  customers  in  other 
European markets as higher prices on the German  market  diminish  the  scope  for  exports  to 
other  markets"11  The  existing  interconnections  between  Member  States'  energy  markets  and 
the possibility to channel energy to higher priced markets through cross-border infrastructure 
makes it evident that market abuses occuring on a specific market will not be confined to on 
Member State but will inevitably impact all interconnected markets in Europe. 

For market misconducts to occur there has to be a certain traded volume there allowing for 
positions  to  be  built  up  and  dispositions  to  be  made  with  ease.  Traded  volumes  both  in 
electricity  and  gas  have  developed  well  in  the  last  years  with  traded  volumes  reaching  a 
multiple of physically transported molecules and electrons. Figure 4 shows the development of 
the hubs except for the NBP, comparing the traded volumes to the physical volumes that are 
transported by the TSOs over these hubs 

Figure 4: Development of traded gas volumes in the EU (excluding NBP) 

Source: IEA, Natural Gas Market Review 2009 

9  

10  
11  

See:  Commission  Decision  of  28.11.2008  relating  to  cases  COMP/39.388  –  German  Electricity 
Wholesale Market and COMP/39.389 – German Electricity Balancing Market. 
Commission MEMO/08/132 of 28.2.2008. 
Page 15 of the referred Commission decision. 

EN 

10 

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Energy markets are increasingly cross platform 

Successive  European  energy  liberalization  packages  have  led  to  the  development  of  power 
exchanges  (or  other  organised  markets)  and  broker  facilitated  markets  in  over-the-counter 
(OTC) contracts which allow market participants to trade with each other. From the point of 
view of market participants these options serve the same function and are used for equivalent 
purposes.  Access  to  a  range  of  trading  venues  presents  advantages  for  market  participants. 
While the share of trade conducted via organised power exchanges has increased, OTC still 
dominates in most EU markets, and there is little prospect of this changing.  

Companies  trade  based  on  agreements  to  physically  deliver electricity  and  gas  (either 
bilaterally  or  using  power  exchanges),  and  using derivatives products based  on  prices  on  a 
power  exchange  or  a  pool.  For  market  participants  these  two  types  of  trading  are 
economically equivalent – a Contract for Difference based on a reference price on a market or 
energy pool fulfills the same function as a contract for the sale or purchase of energy. Both 
organised market places and OTC platforms are used to trade in products based on physical 
delivery  and  in  derivative  products.  As  Figure  5  below  shows  the  majority  of  trade  in  the 
main  EU  markets  is  brokered  on  the  OTC  markets  where  74%  of    total  traded  volumes  is 
traded  in  derivatives.  Because  the  underlying  contracts  are  equivalent  in  economic  terms, 
market abuses in one marketplace is  likely to immediately impact prices on all other trading 
platforms or the price level of bilateral transactions. 

Figure 5: Volumes of electricity traded in the EU's main markets in 2009 (in TWh) 12 

Brokered OTC

Exchange

Total traded

Germany

Nordic

UK

France

The Netherlands

Spain

Czech Rep

Italy

Belgium

Hungary

Poland

Romania

forward

4,109.9

1,100.0

1,020.8

500.7

205.8

168.1

82.6

72.0

71.1

38.7

31.3

6.9

Total traded volumes

Total in %

7,407.8

74.0%

spot

38.2

0.0

39.9

11.7

2.3

1.5

1.1

0.0

0.4

0.4

0.0

0.0

95.6

1.0%

futures / forwards 
derivatives

257.0

1,195.9

0.0

28.0

34.0

0.0

24.3

0.0

8.4

3.5

0.0

11.5

1,562.6

15.6%

spot

135.0

285.5

12.6

52.6

29.1

201.0

3.0

213.0

10.1

0.0

2.8

6.3

951.0

9.5%

volumes

4,540.0

2,581.4

1,073.4

593.0

271.2

370.6

111.0

285.0

90.0

42.6

34.1

24.7

10,017.0

100.0%

Source: Argus Media Limited, GME, EEX, APX, PXE, Polpx, Opcom 

The  difficulty  in  accessing  data  related  to  market  behaviour  on  neighbouring  markets  is 
exaccaberated by trading of gas an electricity, particularly brokered OTC markets, at venues 
or  through  intermediaries  located  outside  the  country  where  the  electricity  or  gas  is  to  be 
delivered. Much of this trade is currently carried out through brokers based in London13. This 
paralell  trading  using  different  trading  channels  or  platforms  located  in  different  Member 
States  means  for  example  that  electricity  for  delivery  in  Germany  can  be  traded  in  form  of 

12  

13  

According  to  market  participants  an  additional  10%  of  standard  transactions  are  conducted  purely 
bilaterally without engaging any intermediaries. 
LEBA  –  Reply  to  EU  Commission:  Public  Consultation  by  DG  Energy  on  measures  to  ensure 
transparency and integrity of wholesale markets in electricity and gas, 31 My 2010, Annex 1. 

EN 

11 

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derivatives  through  brokers  located  in  the  UK,  but  also  as  futures  via  EEX,  a  regulated 
marketplace in Germany. The same or similar contracts can also be traded bilaterally between 
market  participants  registered  anywhere  in  or  outside  the  EU  without  using  any  organised 
market place or relying on a broker's service. As Figure 5 shows, less than 6% (257 TWh) of 
all  observable  derivative  (forward  and  futures)  transactions  for  delivery  in  Germany  take 
place  through  a  marketplace  located  in  Germany  (EEX)  while  94%  (4,109.9  TWh)  of  the 
volumes are traded using intermediaries located outside the country. 

Regulatory  data  capturing  is  further  complicated  by  the  fact  that  trading  participants  who 
trade a particular energy market are usually established in different Member States. Figure 6 
shows,  as  an  example,  the  geographical  distribution  of  participants  trading  German  power 
derivatives  on  EEX.  We  can  assume  that  the  participants  trading  German  OTC  spot  and/or 
derivatives,  which  make  up  the  large  majority  of  overall  German  contracts,  are  similarly 
distributed. 

Figure 6: Geographical distribution of participants trading German power derivatives on EEX according 
to their country of establishment 

AT
6%

FR
6%

NL
5%

IT
8%

SP
3%

DK
3%

NO
2%

CZ
2%

SK
2%

Other
7%

BE
1%

PT
1%

SL
1%

LU
1%

KY
1%

US
1%

PL
1%

DE
29%

CH
9%

UK
19%

Source: EEX 

Market conduct rules applying to energy markets. 

The Market Abuse Directive14 (MAD) only partly covers energy markets as it is designed for 
the  financial  markets.  It  applies  to  financial  instruments  admitted  to  trading  on  a  regulated 

14  

Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  of  28  January  2003  on  insider 
dealing  and  market  manipulation  (market  abuse)  and  Commission  Directive  2004/72/EC  of  29  April 
2004  implementing  Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  as  regards 
accepted market practices, the definition of inside information in relation to directives on commodities, 
the  drawing  up  of  list  of  insiders,  the  notification  of  managers'  transactions  and  the  notification  of 
suspicious transactions. 

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12 

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market, whether these are traded on such a market or on multilateral trading facilities (MTFs) 
or  OTC.  Physical  energy  market  products  (e.g.  spot  market  products)  are  not  covered  and 
energy  derivatives  markets  products  are  covered  only  if  they  are  admitted  to  trading  on  a 
regulated market. Figure 5 shows that the segment (Exchange – Futures/ forward /derivatives) 
covered by MAD made up some 16% of the total volumes traded in 2009.  

Since  the  regulated  segment  only  accounts  for  a  minority  of  overall  trades  in  energy,  the 
scope  of  MAD  does  not  properly  address  market  integrity  issues  in  the  electricity  and  gas 
markets.  In  addition,  the  relevant  definition  of  inside  information  is  not  specific  and  is 
therefore difficult to apply for electricity and gas markets15.  

The  Markets  in  Financial  Instruments  Directive16  (MiFID),  regulating  investment  services, 
fair  and  orderly  trading  and  appropriate  transparency  on  regulated  markets,  applies  to 
commodity derivatives. However, there are only relatively high level transparency obligations 
with  regard  to  exchanges  listing  commodity  derivatives  as  part  of  their  basic  organizational 
requirements to ensure fair and orderly trading. Also the definition of financial instruments in 
the Directive does not cover the spot market and physically settled OTC transactions which 
are  non-standardized.  Its  basic  objective  of  ensuring  “financial  stability  and  investor 
protection”  seems  less  relevant  for  energy  since  energy  derivatives  are  typically  not 
investment products but are primarily used as hedging instruments for mitigating price risks 
of energy market participants (e.g. some utilities).17  

Some other rules may exist on the level of Member States but they are only limited in scope, 
often  relating  only  to  a  single  trading  platform  and  covering  a  single  Member  State.  This 
finding  was  also  confirmed  by  a  dedicated  study  on  which  the  present  initiative  builds.  It 
found that " In Czech Republic, the Czech National Bank is competent to oversee the Czech 
financial  market.  The  Czech  National  Bank  oversees  Energy  Derivatives  together  with  the 
ministry of finance and the ministry of industry and trade. The ministry of industry and trade 
(and  not  the  NRA  [National  Energy  Regulatory  Authority])  is  competent  for  supervising 
Commodities. 

In  Belgium,  the  NSA  [National  Securities  Authority]  is  competent  for  supervising  Energy 
Derivatives  […],  whereas  the  NRA  is  competent  for  supervising  wholesale  exchanges  of 
Commodities along with the energy ministry, having certain powers in respect of the Belgian 
PX, Belpex. In the field of EA [EU Emissions Allowance] in Belgium, beside the NRA and 
the NSA, regional authorities (three) might be competent for oversight of EA.  

[….] in Germany, PXs [Power Exchanges] /Regulated Markets are overseen by the exchange 
supervisory authorities of the Länder (“Börsenaufsichtsbehörden”). The German PX (EEX) is 
overseen by the exchange supervisory authority of Saxony. 

15  

16  

17  

CESR  and  ERGEG  advice  to  the European  Commission  in  the  context  of  the  Third Energy  Package, 
Ref: CESR/08-739. 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial  instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive 
2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC 
(OJ L 145, 30.4.2004, p. 1–44). 
See e.g. advice by the European Securities Markets Expert Group on commodity derivatives business, 
p.59ff http://ec.europa.eu/internal_market/securities/docs/esme/commodity_derivatives_en.pdf. 

EN 

13 

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Complex  competency  divisions  might  create 
lack  of 
effective/efficient  collaboration  between  competent  authorities,  as  well  as  gaps  and 
contradiction in oversight. The German NSA indicates that a clear division of competencies 
between all involved authorities is required to enhance oversight."18 

legal  uncertainties  and  a 

Internal  energy  market  legislation  (in  particular  3rd  liberalisation  package  with  Directives 
2009/72 and 2009/73) defines obligations for Member States to provide for competitive and 
non-discriminatory market arrangements, but does not set out standards to ensure the integrity 
of  such  markets.  Supply  undertakings  are  required  to  keep  records  of  their  transactions,  but 
the  Directives  do  not  define  specific  conduct  rules  for  wholesale  markets  and  their 
participants.  

Summary of the problem  

Based  on  the  above  analysis  the  rules  governing  energy  markets  are  insufficient  to  ensure 
their stable and orderly functioning. The rules only capture a fraction of relevant transactions 
and do not provide for consistent or easily applicable definitions of acceptable practice. The 
lack  of  rules  and  the  divergence  of  rules  regarding  reporting  of  data  do  not  allow  for  the 
totality  of  markets  to  be  monitored  and  specific  misconducts,  such  as  cross-border,  cross-
commodity and cross-market misconducts to be effectively detected. This view is supported 
by  sectoral  regulators  in  their  advice  to  the  Commission,  and  by  the  respondents  to  the 
Commission's  consultation.  As  the  European  Federation  of  Energy  Traders  (EFET)  states19: 
"…  based  on  the  above-mentioned  regulatory  gaps  and  shortcomings  -  a  sub-optimal 
oversight of energy wholesale markets exists, which hinders further market development. The 
current regulatory situation does, in particular, not take into account the factual situation that 
energy wholesale markets are increasingly characterized by a wide range of actors (including 
utilities,  pure  traders,  financial  institutions  and  other  wholesale  trading  market  participants 
and  platforms),  cross-border  trade,  important  derivatives  markets  around  markets  in  the 
underlying  energy  products  and  increasing  liquidity  in  energy  wholesale  trading  activities. 
Various  different  national  regimes  and  authorities  do  not  fit  to  such  an  EU-wide  wholesale 
trading market."  

Other responses to the public consultation showed widespread agreement with this analysis by 
Member States, regulators, power exchanges and market participants.  

The Amaranth case description 

In the following we develop a case study which we use further below in chapter 'Analysis of 
Impacts'  to  demonstrate  the  impact  of  market  misconduct.  For  this  purpose  we  use  the 
Amaranth case which involved the manipulation of several natural gas markets in the U.S. in 
2006 (for the essence of the case see the Box below). The Amaranth case was a particularly 
sever case of manipulation, however, it is also important to bear in mind, as ERGEG note in 
their  response  to  the  public  consultation  that  "in  many  cases  market  misconduct  would  not 
result  in  huge  impacts  on  market  prices  (e.g.  price  spikes)  but  rather  in  smaller  deviations 

18  

19  

Report  on  the  Competencies  and  Powers  of  National  Regulation  Authorities  and  National  Securities 
Authorities by Philippe & Partners & R. Feltkamp, annexed to this document. 
Response of EFET to Public Consultation by the Directorate General for Energy on measures to ensure 
transparency and integrity of wholesale markets in electricity and gas. Some Member States responses 
also highlighted actions taken at the Member States level. 

EN 

14 

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from a 'fair and orderly' price. However the impact of this behaviour on the well functioning 
and trust in the markets should not be underestimated".  

EN 

15 

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Box: The Amaranth case 

A hedge fund, Amaranth Advisors LLC, manipulated the U.S. natural gas market in 2006 on 
several  instances.  Amaranth  accumulated  massive  natural  gas  holdings  in  the  form  of 
derivative  contracts  on  NYMEX,  an  organised  marketplace  for  trading  commodities  in  the 
US,    spanning  five  years,  from  2006-2010.  Amaranth’s  2006  accumulation  of  such  large 
positions and trading of such large volumes of natural gas  had a direct effect on U.S. natural 
gas  prices  and  increased  price  volatility  on  the  whole  natural  gas  market.  The  larger  than 
usual differences between winter and summer futures prices that prevailed during the spring 
and summer of 2006 were largely the result of Amaranth’s large-scale trades rather than the 
normal market interaction of buyers and sellers. Purchasers of natural gas during the summer 
of  2006  for  delivery  in  the  following  winter  months  paid  inflated  prices  due  to  Amaranth’s 
trading practices. 

Amaranth accumulated natural gas futures positions on NYMEX with the view to sell these 
contracts in a very short period of time right before the futures contract in question expire and 
go in delivery. In fact, it sold large amounts of contracts on February 24, March 29, and April 
26,  2006,  the  days  on  which  the  respective  futures  for  March,  April  and  May  expire.    The 
transactions  were  designed  to  produce  artificially  low  “settlement  prices”.  Considered  in 
isolation,  this  trading  would  be  economically  irrational  because  by  driving  down  the 
settlement price, Amaranth made less on the sales of these contracts.  However, Amaranth had 
previously  taken  positions  several  times  larger  in  various  financial  derivatives  on  ICE,  an 
organised  marketplace  in  the  US,  and  in  the  over-the-counter  trade  the  value  of  which 
increased as a direct result of the decrease in the settlement price of the NYMEX natural gas 
futures contract.  Thus, for  every  dollar lost on its sales of the NYMEX natural gas futures 
positions,  it  would  gain  several  dollars  on  its  derivative  financial  positions.  According  to  a 
report20  of  the  Federal  Energy  Regulatory  Commission  of  the  US,  Amaranth  profited  by  a 
total of at least $59,000,000 and perhaps as much as $168,000,000 on these three settlement 
days as a direct result of the manipulation. 

Lesson learnt from the Amaranth case 

Amaranth's  abusive  conduct  not  only  caused  direct  and  indirect  economic  damages  to 
consumers  and  market  participants  but  also  highlighted  an  important  regulatory  issue. 
Amaranth's  distorting  trading  strategy  concerned  two  distinct  marketplaces,  NYMEX  and 
ICE, and also involved OTC derivative transactions21. Having regard to the inconsistencies in 
the  oversight  of  Europe's  traded  energy  markets,  it  is  doubtful  that  a  Amaranth-style 
misconduct would have been efficiently detected if it had happened in Europe. 

20  

21   

120  FERC  ¶  61,085,  UNITED  STATES  OF  AMERICA  FEDERAL  ENERGY  REGULATORY 
COMMISSION,  Order  to  show  cause  and  notice  for  proposed  penalties;  Docket  No.  IN07-26-000, 
issued July 26, 2007. 
OTC derivatives include next to different "options" so called “basis swap”. Basis swaps are derivative 
instrument  whose  value  is  based  on  the  difference  between  the  settlement  price  of  the  NYMEX  gas 
futures  contract  for  a  given  contract  month  and  nautral  gas  transactions  for  delivery  in  different 
locations. 

EN 

16 

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The  involved  marketplaces  in  the  U.S.  were  located  in  different  States  and  part  of  the 
transactions concerned derivatives relating to natural gas deliveries in different geographical 
locations  within  the  U.S..  In  the  EU,  without  rules  specified  on  EU  level,  they  would  be 
subject to different supervisory and market monitoring regimes22. Market supervisors, whose 
jurisdiction is defined by the location of the marketplace, would only be able to see fragments 
of  a  trading  strategy  making  the  detection  of  complex  cross-platform  and  cross-border 
misconducts difficult23. The detection of the market misconduct is made even more difficult if 
it  involves  OTC  transactions,  as  it  was  the  case  with  Amaranth,  which  are  not  coherently 
monitored throughout Europe. 

These  regulatory  shortcomings  suggest  that  economically  equivalent  transactions  and 
transactions that relate to deliveries in several interrelated markets should be monitored in one 
to  allow  for  a  complete  view  of  the  market,  irrespective  how  and  where  the  trades  are 
conducted. This does not detract from the obligations on those who operate organised market 
places, and those who supervise organised market places.  

Likely evolution of the problem 

In their advice to the Commission, CESR and ERGEG state that "Due to the lack of a full and 
in-depth market monitoring exercise, as well as the unavailability of the required information 
for regulators, the extent to which such [abusive] practices take place cannot be evaluated by 
CESR/ERGEG.  As  long  as  the  necessary  information  is  not  available  to  regulators,  abusive 
behaviour will remain difficult to detect. However, so long as regulators do not have the data 
they require to evaluate the possibility for market abuse to take place and to take appropriate 
action  to  prevent  it,  it  is  likely  that  the  conditions  that  currently  exist,  which  could  allow 
market  abuse  to  go  undetected  and/or  unprosecuted,  will  remain  unchanged.  As  a  result, 
CESR and ERGEG remain concerned about the potential for such abuses to take place."  

At present there are nascent attempts at the national level to implement oversight of energy 
markets.24 Given the organisation of energy markets, it will be difficult for individual member 
states to ensure they have access to the necessary range of data to ensure that market abuse is 
detected  and  deterred.  Moreover,  without  action  at  the  EU  level  these  initiaves  could 
proliferate and risk exposing market participants to conflicting and uncoordinated regimes.  

The graph below sets out a problem tree showing how the particularieties of energy markets 
and  cross-border  and  cross  platform  trading  with  energy  and  energy  derivatives  could 
undermine the EU Energy Policy if energy markest are not properly regulated at the EU level. 

22  
23  

24 

In the U.S. the case took place in Louisiana and the impact on prices took place in New York.  
An  exchange  of  transactional  data  between  competent  regulators  is  not  likely  to  fully  alleviate  these 
shortcomings. 
The French energy regulator (CRE) has broad powers to oversee wholesale markets (including spot and 
OTC  derivative  transactions)  and  began  to  request  transactional  data  relating  to  French  markets  from 
market  participant  across  Europe.  The  German  Monopolkommission  has  demanded  the  establishment 
of an independent market monitor in Germany being able to access on and off-exchange transactions.for 
delivery  in  Germany.  In  March  2009  Ofgem,  the  UK  energy  regulator  issued  a  paper  on  preventing 
market abuse. 

EN 

17 

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Figure 7: Problem tree 

EU Energy Policy of 
Secure Sustainable
and Competitive
supplies of energy is 
undermined 

Reluctance to make 
investments due to 
lack of confidence in 
market   

Misdirected
investment and 
production due to 
poor price signals 

Inefficient market 
interventions   

Lack of confidence in
market outcomes on 
part of consumers, 
investors and 
Member States 

Unclear regulatory
framework for energy
markets / markets
vulnerable to
manipulation 

Cross border nature 
of energy markets – 
i.e. market outcomes 
are interdependent  
across MS   

Hybrid nature of 
energy markets – 
physical and 
derivative trading 

Trading location 
separated from where 
energy is delivered 
and consumed   

EN 

18 

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Right of the EU to take action 

Action  aimed  to  ensure  market  integrity  clearly  and  directly  contributes  to  ensuring  the 
functioning  of  the  energy  market,  in  line  with  Article  19425.  It  also  has  a  positive  indirect 
impact on ensuing security of supply, promoting energy efficiency and the interconnection of 
energy networks by facilitating cross-border trade and encouraging the most efficient use of 
the resources.  

Action  to  ensure  market  integrity  does  not  affect  a  Member  State's  right  to  determine  the 
conditions for exploiting its energy resources, its choice between different energy sources and 
the general structure of its energy supply.  

Given the cross-border nature of the problem, it is clear that EU action has a key role to play 
in ensuring the integrity of European energy markets. Some level of EU wide coordination is 
clearly required to ensure that the benefits of the internal market in energy are not lost as a 
result  of  market  behaviour  which undermines the confidence of citizens and business in the 
price formation process, when the behaviour occurs in a different Member State to where its 
effects are felt.  

Market monitoring is not a monopoly funciton; European level monitoring does not prevent 
Member  States  reviewing  market  data.  Member  State  authorities  not  only  have  a  direct 
interest in the outcomes on their markets, they also bring an important understanding of the 
evolution  of  market  outcomes  in  their  jurisdiction.  Therefore  respecting  the  subsidarity 
principle will be key to ensuring the effectiveness of EU action in this area. 

25 

Article 194 of the Treaty on the Functioning of the European Union states: 
1.  In  the  context  of  the  establishment  and  functioning  of  the  internal  market  and  with  regard  for  the 
need  to  preserve  and  improve  the  environment,  Union  policy  on  energy  shall  aim,  in  a  spirit  of 
solidarity between Member States, to: 
(a) ensure the functioning of the energy market; 
(b) ensure security of energy supply in the Union; 
(c) promote energy efficiency and energy saving and the development of new and renewable forms of 
energy; and 
(d) promote the interconnection of energy networks.   
2. Without prejudice to the application of other provisions of the Treaties, the European Parliament and 
the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures 
necessary to achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of 
the Economic and Social Committee and the Committee of the Regions. 
Such  measures  shall  not  affect  a  Member  State's  right  to  determine  the  conditions  for  exploiting  its 
energy  resources,  its  choice  between  different  energy  sources  and  the  general  structure  of  its  energy 
supply, without prejudice to Article 192(2)(c). 

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19 

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4 

OBJECTIVES 

General objectives 
The  Green  Paper  "A  European  Strategy  for  Sustainable,  Competitive  and  Secure  Energy"26 
defines  the  EU's  overarching  energy  policy  objectives  of  safe,  sustainable  and  competitive 
energy markets. Robust and reliable wholesale markets play a central role in delivering these 
objectives. 

The  purpose  of  the  present  initiative  is  to  create  a  framework  which  ensures  that  Europe's 
traded  energy  markets  function  properly,  i.e.  their  outcomes  are  not  distorted  by  abusive 
market  behaviour,  but  truly  reflect  market  fundamentals.  This  shall  generate  an  increased 
level of trust of all stakeholders, which in turn will lead to higher participation, more depth 
and liquidity and lower transactional costs. 

Delivering deep, liquid and integrated energy markets fits into Europe's 2020 strategy to reach 
a smart, sustainable and inclusive growth in Europe. This goal requires among others "well-
connected  markets  where  competition  and  consumer  access  stimulate  growth  and 
innovation"27. The strategy document also estimates that "further progress with the integration 
of the European energy market can add an extra 0.6% to 0.8% GDP"28  

Creating  a  proper  framework  for  the  integrity  and  transparency  of  Europe's  traded  energy 
markets will foster the desired market integration and underpin overarching European policy 
objectives. 

Specific objectives 

Trust in the functioning of traded energy markets can only be created if there is a framework 
which  appropriately  governs  the  conduct  of  market  participants.  This  framework  needs  to 
define rules that are complete, consistent, adapted to the specifics of energy markets and be 
designed  to  effectively  detect  and  deter  market  misconduct.  This  is  fully  in  line  with  the 
advice of  energy and financial regulators which recommends "… that the Commission should 
consider  developing  and  evaluating  proposals  for  a  basic,  tailor-made  market  abuse 
framework in the energy sector legislation for all electricity and gas products not covered by 
MAD"29 

A.  

Consistent and complete rules 

The rules need to effectively capture energy specific market misconducts, such as: trading on 
insider  information,  withholding  of  energy  production  facilities  from  the  market  and 

26  

27  

28  

29  

COM(2006)  105  of  8  March  2006:  "A  European  Strategy  for  Sustainable,  Competitive  and  Secure 
Energy". 
COM(2010)  2020  of  3  March  2010:  "Europe  2020  –  A  strategy  for  smart,  sustainable  and  inclusive 
growth", page 19. 
COM(2010)  2020  of  3  March  2010:  "Europe  2020  –  A  strategy  for  smart,  sustainable  and  inclusive 
growth", page 13. 
CESR  and  ERGEG  advice  to  the European  Commission  in  the  context  of  the  Third Energy  Package, 
Response to Question F.20 – Market Abuse, Ref: CESR/08-739; E08-FIS-07-04, page 26. 

EN 

20 

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distortion of prices. Rules need to be consistent throughout Europe 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. 

The  rules  have  to  be  also  complete  and  cover  all  relevant  transactions,  including  spot  and 
derivatives  and  on-  and  off-exchange  transactions.  In  general,  economically  equivalent 
transactions should be subject to the same set of market conduct rules. 

B. 

Adaptable and compatible rules 

Sector specific rules need to be compatible with applicable financial regulation to which some 
of the energy market participants are also subject. At the same time financial regulation needs 
to  be  adaptable  to  the  needs  of  energy  markets.  In  addition  tailor  made  rules  need  to  be 
created to fully capture energy specific market misconducts. The overall rulebook applicable 
to  energy  trading  should  be  designed  with  a  view  that  no  overlaps  are  created  but  also  no 
regulatory gaps are left. 

More concretely: the concepts of insider trading and market manipulation have already been 
well established in MAD. The Directive is currently under review and it is considered that its 
scope could be enlarged to cover important energy derivatives markets. The present initiative 
will therefore, on the one hand, introduce these concepts for energy market segments which 
remain  outside  the  current  and  envisaged  scope  of  the  MAD  and,  on  the  other,  establish  a 
framework  within  which  an  energy  specific  meaning  of  insider  information  or  market 
manipulation  can  be  practically  established.  For  the  latter  it  is  envisaged  that  the  detailed 
'rulebook'  will  be  specified  in  a  separate  implementing  legislation  based  on  technical 
guidelines prepared by ACER. Once developed, the proposed detailed rules will be subject to 
a separate impact assessment. 

C. 

Measures for effective detection and deterrence 

In order for market misconduct to be detected, wholesale energy markets need to be regularly 
monitored30.  To  this  end,  an  effectively  functioning  market  monitor  would  need  to  have 
timely access to complete and verified sets of transactional data. The monitored data should 
have  an  appropriate  commodity  and  geographic  coverage  so  as  to  enable  the  detection  of 
cross-commodity, cross-platform and cross-border market abuses. 

Once market misconduct is detected, compliance with the rules needs to be enforced. For this 
purpose,  competent  enforcement  authorities  need  to  be  defined  who  can  effectively 
investigate and prove instances of market abuses on energy markets. They would need to have 
effective sanctioning powers to deter market participants from future misconduct. 

30 

The need for monitoring was explicitly raised as a consultation question. Almost all respondents agreed 
that monitoring was an important element in ensuring market integrity. The exception was Statoil which 
considered that "if guidance and legislation is sufficiently clear most participants will seek to operate 
within the rules as applied… Ex ante monitoring will take up a lot of resources… It may therefore be 
better to correct abusive behaviour than continually monitor markets".   

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21 

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Figure 8: Deduction of Objectives from the identified Problems 

Problem tree

EU Energy Policy of 
Secure Sustainable 
and Competitive 
supplies of energy is 
undermined 

Overarching policy objective 

Hierarchy of objectives 

EU Energy Policy of 
Secure Sustainable 
and Competitive 
supplies of energy is 
supported 

Reluctance to make 
investments due to 
lack of confidence in 
market 

Misdirected 
investments and 
production due to 
poor price signals 

Inefficient market 
interventions 

Desired market outcome 

Increased security for 
long term investments

Better short term asset 
optimisation 

Increased regulatory 
confidence in market 
based price setting 
mechanisms 

Lack of confidence in 
market outcomes on 
part of consumers, 
investors and Member 
States 

Unclear regulatory 
framework for energy 
markets / markets 
vulnerable to 
manipulation 

Output 

Regulatory objective 

Deep and liquid 
markets supporting 
efficient price 
discovery and 
creating sustained 
trust

Complete,  consistent, 
adaptable and 
compatible rules 
effectively detecting 
and deterring abuses

Cross border nature of 
energy markets – i.e. 
market outcomes are 
interdependent across 
MS  

Hybrid nature of 
energy markets – 
physical and 
derivative trading 

Trading location 
separated from where 
energy is delivered 
and consumed  

sssssss  

sss

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5 

POLICY OPTIONS AND ENFORCEMENT DESIGN CHOICES  

This  chapter  gives  an  overview  of  the  policy  options  considered  when  drafting  the  regime. 
Apart  from  the  Baseline  scenario  which  is  maintaining  the  status  quo,  the  remaining  options 
assume  sector-specific  rules  established  at  EU-level.  All  those  options,  except  option  4 
envisage enforcement of rules at the level of the Member States.  

Option 0: Business as usual 

This  option  constitutes  the  business  as  usual  scenario  (BAU);  under  this  option  no  sector-
specific initiative is taken, financial and/or energy 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  within  ACER,  there  is  no  established  process  of  data  access  and 
exchange  for  market  monitoring  purposes.  Therefore,  market  misconducts  taking  place  in 
several markets and involving different but interrelated products/commodities are difficult if 
not possible to detect. 

A scenario without EU action does not mean that no actions will be taken on Member State 
level.  In  the  absence  of  a  comprehensive  EU-level  market  integrity  and  supervisory 
framework  national  legislators  have  already  started  filling  this  gap  and  introduced  national 
measures  including  transactional  data  collection,  regulatory  monitoring  and  reporting 
schemes:  The  French  energy  regulator  (CRE)  has,  for  example,  the  power  to  monitor  all 
physical  and  derivative  electricity  and  gas  transactions  (including  OTC  derivatives)  for 
delivery  in  France.  For  this  purpose  it  collects  transactional  data  from  all  traders  and/or 
intermediaries in the EU. As another example, the German Monopolkommission called in its 
special report of 200931 for the establishment of an independent market monitor in Germany 
which  should  be  able  to  access  and  screen  on  and  off-exchange  transactions  for  delivery  in 
Germany.  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  to  be  defined  on  EU-level.  As  pointed  out  in 
'Specific Objectives' these rules should be tailored to the needs of traded energy markets and 
capture all electricity and gas products not covered by MAD.  Markets are monitored on the 
Member  State  level  based  on  decentralised  transaction  reporting  to  competent  regulatory 
authorities. National Regulators would assume monitoring responsibility for transactions that 
are  delivered  in  (or  related  to)  the  Member  State  in  which  they  have  jurisdiction32. 
Transactions are reported to each Regulator separately by traders or via brokers or other third 
parties.  Traders  and/or  brokers  would  report  all  their  wholesale  energy  transactions  to  the 

31  

32  

Strom und Gas 2009: Energiemärkte im Spannungsfeld von Politik und Wettbewerb; Sondergutachten 
der Monopolkommission gemäß § 62 Abs. 1 EnWG. 
If a trader established in Country A engages in a transaction with another trader established in Country 
B  concerning  electricity  for  delivery  in  Country  C,  the  Regulator  of  Country  C  would  assume 
monitoring responsibility. 

EN 

23 

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Regulator where they are established irrespective where the delivery takes place33. Reported 
transaction details and data formats are defined on EU-level. Transactional data are stored in 
different  ways,  in  separate  systems  of  the  27  national  regulatory  authorities.  As  we  have 
discussed under 'Problem Definition' the country of establishment of the counterparts will in 
many  cases  differ  from  the  country  where  the  traded  contract  is  delivered.  Therefore  the 
Regulators will operate a decentralised data exchange mechanism which will enable them to 
monitor all transactions which are delivered in their jurisdiction and enforce the tailor-made 
market  conduct  rules.  In  case  the  transactions  concern  a  number  of  Member  States  (e.g. 
contracts  for  location  price  differences),  appropriate  rules  and  coordination  mechanisms 
would  have  to  be  put  in  place.  Such  rules  and  mechanisms  would  also  define  enforcement 
responsibilities  and  obligations  to  cooperate.  Such  cooperation  can  be  supported  by  an  EU 
body (e.g. ACER). Main features are the following: 

•  market  misconduct  rules,  reporting  obligations  and  formats,  monitoring  and 

enforcement responsibilities defined on EU level; 

•  Market monitoring is decentralised and at MS level. Each  MS Regulator will 

be in charge of the monitoring and enforcement; 

•  Transactions  are  reported  to  each  Regulator  separately  by  traders  and/or 

brokers or a third party operators); 

•  Each  Regulator  has  its  own  systems  in  place  to  record  the  reported 

transactions; 

•  Regulators operate a decentralised data exchange mechanism  

•  For misconducts concerning more than one MS appropriate rules would need 
to  be  put  in  place,  governing  coordination  and  enforcement  between  national 
Regulators, making use of the support of an EU body (e.g. ACER)  

Figure 9 shows how the traders (Tr) in Member States (MS) and the regulatory authorities (R) 
interact with each other: 

Figure 9: Schematic picture of data flows and interactions under Option 1a 

EU Agency/Body 

R1 

R2 

R3 

R4 

R27 

Tra 
MS1 

Trb   
MS2 

Trc 
MS3 

Trd 
MS4 

Tre 
MS27 

33  

If  a  trader  established  in  Country  A  engaged  in  transactions  which  are  delivered  in  (or  relating  to) 
Country B, C and D it would have to report these transactions to the Regulator having jurisdiction in 
Country A. 

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24 

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Option  1b  –  Rules  defined  at  EU  level,  Member  States  report,  monitor  and  enforce,  EU 
Agency process data and monitors cross-border and cross-commodity misconduct   

In this option, just like under Option 1a, market misconduct rules, reporting obligations, data 
formats and monitoring and enforcement obligations are defined on EU-level. However, when 
comparing with Option 1, there are two differences. 

Firstly,  while  competent  authorities  of  the  Member  States  continue  monitoring  transactions 
for which they assume responsibility, there is an additional layer of monitoring introduced on 
EU  level.  This  monitoring  function  would  concentrate  on  the  detection  of  market  abuses  of 
cross-border and cross-commodity nature. 

Secondly, instead of operating a decentralised data exchange mechanism, Regulators directly 
send the transactional data they receive from market participants to the EU Agency. The EU 
Agency collects all the data and sorts them by place of delivery. The sorted data sets are then 
sent  back  to  the  respective  competent  Regulator  in  the  27  Member  States.  A  copy  of  all 
received data remains with the EU Agency enabling it to monitor the referred market abuses. 

If the EU Agency suspects misconduct through its regular monitoring it establishes whether 1) 
the misconduct concerns transactions delivered in (or related to) a single Member State or, 2)  
several  Member States (e.g. in case of a location spread).  

In  the  first  case  the  Agency  informs  the  concerned  Regulator  which  has  the  obligation  to 
enforce the market conduct rules. In the second case appropriate rules for the cooperation of 
the concerned Regulators have to be put in place, including the possibility for the EU Agency 
to  take  action,  if  the  concerned  Regulators  decide  to  do  so.  The  Regulator  may  also  detect 
misconduct within its boundaries on its own.   

In summary, this option implies the following: 

•  market  misconduct  rules,  reporting  obligations  and  formats,  monitoring  and 

enforcement responsibilities defined on EU level; 

•  Responsibility for market monitoring is shared between EU and MS level. MS 

Regulators will be in charge of enforcement; 

•  Transactions  are  reported  to  each  Regulator  separately  by  traders  and/or 

brokers or a third party operators; 

•  Each  Regulator  has  its  own  systems  in  place  to  record  the  reported 

transactions; 

•  Regulators  send  all  transaction  data  to  EU  Agency.  As  a  service,  the  EU 
Agency sorts the transactions according to the place of delivery and sends the 
dedicated batches back to the respective regulators 

•  For  misconducts  concerning  more  than  one  MS  appropriate  rules  need  to  be 
put  in  place,  governing  coordination  and  enforcement  between  national 
Regulators, making use of the support of an EU body (e.g. ACER)  

EN 

25 

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Figure 10: Schematic picture of data flows and interactions under Option 1b 

EU Agency/Body 

R1

R2 

R3

R4

R27 

Tra 
MS1 

Trb 
MS2 

Trc 
MS3 

Trd 
MS4 

Tre 
MS27 

Option 2 – Rules defined at EU level, shared monitoring in a unique EU Agency and Member 
States, enforcement by Member States  

In  this  option  market  misconduct  rules  are  defined  on  EU-level.  Details  of  European 
wholesale transactions are reported to the EU Agency by traders or via brokers or other third 
parties. No direct reporting to Regulators is foreseen, but national authorities 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 according to their place of delivery and sends the dedicated data 
sets  back  to  the  respective  regulators.  This  enables  them  to  monitor  transactions  falling  in 
their jurisdiction without having to collect data by themselves. 

Again,  just  like  under  Option  1b,  monitoring  responsibility  is  shared  between  MS  and  EU 
level,  with  the  EU  Agency  concentrating  on  the  detection  of  market  abuses  of  cross-border 
and cross-commodity nature. Regularity, format and details of data to be reported are defined 
on EU level. Reported data are stored in a central database.  

In  case  the  EU  Agency  identifies  an  alleged  misconduct  through  its  regular  monitoring  the 
same procedure applies as under Option 1b.  

In summary, this option implies the following: 

•  market  misconduct  rules,  reporting  obligations  and  formats,  monitoring  and 

enforcement responsibilities defined on EU level; 

•  Responsibility for market monitoring is shared between EU and MS level. MS 

Regulators are in charge of enforcement; 

•  Transactions are reported centrally to the EU Agency by traders and/or brokers 

or third party operators. No reporting on MS level foreseen 

•  EU  Agency  sorts  the  directly  reported  transactions  according  to  the  place  of 
delivery and sends the dedicated data sets back to the respective regulators 

EN 

26 

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•  For misconducts concerning more than one MS, appropriate rules need to be 
put in place, governing coordination and enforcement between national 
Regulators, making use of the support of an EU body (e.g. ACER) 

Figure 11 shows the interactions: 

Figure 11: Schematic picture of data flows and interactions under Option 2 

R1

R2 

R3

R4

R27 

EU Agency/Body 

Ta  in 
MS1 

Tb  in 
MS2 

Tc  in 
MS3 

Td  in 
MS4 

Te  in 
MS27 

Option  3  –  Rules  defined  at  EU  level,  shared  monitoring  by  ACER  and  Member  States, 
enforcement by Member States 

This option is equivalent to Option 2, however, all functions and competences of the EU level 
body are assumed by the European Agency for the Cooperation of Energy Regulators (ACER) 
which was recently established by the 3rd Internal Energy Market Package and will be located 
in  Ljubljana,  Slovenia34.  While  market  oversight  is  not  among  its  competences  its  powers 
could be expanded to cover the monitoring of traded energy markets with the view to detect 
and deter energy specific market misconducts..  

Option 4 – Rules defined at EU level, monitoring 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  assume  exclusive  responsibility  for  the 
enforcement  of  rules.  This  option  is  however  discarded  for  further  analysis  because  the 
Commission  has  no  reason  to  believe  that  in  case  a  misconduct  is  detected,  Member  States 
would  not  be  able  to  enforce  rules  as  efficiently  as  the  Agency  or  ACER.  It  is  therefore 
maintained that in case of a detected misconduct national authorities shall take enforcement 
action in accordance with the subsidiarity principle.  

34  

The basis for its establishment is Regulation 713/2009 of the European Parliament and the Council of 
13. July 2009. 

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27 

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Option 5 – Self-regulation of the markets.  

This option assumes that there will be no action undertaken  by public authorities at the EU 
level or by Member States, neither regarding definition 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 
market oversight could get involved in enforcement of such rules. It cannot be excluded that 
in some ways the industry would agree to establish market misconduct rules. Monitoring and 
enforcement of such rules would be expected however, a priori ineffective as the incentive to 
transfer data by market participants and have them monitored by other market participants or 
private  companies  without  the  level  of  independency  of  public  authorities  will  be  limited. 
Weak  monitoring  is  likely  to  result  in  an  ineffective  market  integrity  regime35.  For  these 
reasons this option is discarded.  

Option 6 – Extension of MAD and MiFID (No tailor made approach) 

Extension  of  financial  market  legislation  to  cover  all  relevant  energy  markets  would  bring 
these markets within the financial regulatory framework. This framework, in particular MAD, 
is  designed  to  establish  a  genuine  single  marekt  for  financial  services.  Notwithstanding,  the 
close links between energy markets and some financial markets, the requirements of financial 
market  supervision  differ  in  important  ways  from  energy  market  oversight.  Explicitly 
extending MAD to cover all energy markets would undermine the focus and effectiveness of 
MAD. This was recognised 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"36.  This  means,  including  physical  energy  markets  and 
defining  prohibitions  of  energy  specific  misconducts  (e.g  witholding  of  energy  production 
assets) within MAD is not desirable and would only fragment its overarching  character and 
applicability. This could have a detrimental effect on the internal market in financial services, 
and wider EU policies relating to financial stability. 

It the light of the strong advice from finacial and energy regulators, and the distinct scope of 
MAD, this option was not considered in detail.This, however, does not mean that the scope of 
the MAD could not be enlarged to cover a wide range of energy derivatives and marketplaces 
where such derivatives are traded. In fact, the Commission services are reviewing the MAD, 
with  proposals  due  in  December  2010.  Options  under  consideration  include  extending  the 
scope  of  the  Directive  to  financial  instruments  traded  only  on  MTFs  and  to  market 
manipulation through OTC derivatives which can impact the prices of instruments traded on 
regulated  markets  or  MTFs.  The  revision  of  the  definition  of  inside  information  for 
commodity  derivatives  is  also  under  consideration.  The  MAD  review  shall  ensure  that  the 
derivative side of energy markets is properly covered. However, these reviews and proposals 
will be made in the light of the goals in relation to financial markets.  

 The  tailor  made  market  integrity  measures  will  have  to  ensure  that  they  interact  well  with 
applicable financial regulation with rules which do not overlap but also do not leave any gaps. 

35  

36 

For  further  reference  on  the  inefficiency  of  self-regulation  see:  'The  Self-regulation  of  Commodity 
Exchanges: The case of Market Manipulation', S.C. Pirrong, University of Michigan, in Journal of Law 
and Economics, vol. XXXVIII (April 1995). 
CESR ERGEG advice to the European Commission – response to Question F.20 – Market Abuse. 

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6 

ANALYSIS OF IMPACTS 

The aim of this chapter is to assess positive and negative economic, social and environmental 
impacts  of  each  of  the  defined  options  set  out  above.  The  outcome  of  this  analysis  will  be 
further used when it comes to the choice of the preferred option.  

Option 0: Business as Usual (BAU) 

As already explained, under this option no EU-level sector-specific initiative is taken. Traded 
markets  remain  without  comprehensive  and  coherently  implemented  rules  with  a  risk  that 
national  initiatives  proliferate  and  risk  exposing  market  participants  to  conflicting  and 
uncoordinated regimes. As a result of fragmented rules and uncoordinated oversight structures 
the  likelihood  of  occurance  of  market  misconducts  remains  hight  and  the  probability  of 
detection stays low. 

Economic impacts 

Market  manipulations  distort  prices  and  dilute  the  essential  price  discovery  and  hedging 
function  that  traded  energy  markets  supposed  to  provide.  These  functions  depend  on  prices 
resulting  from  orderly  trading  truly  reflecting  supply  and  demand  fundamentals,  i.e.  prices 
should  not  be  perverted  by  abusive  trading  schemes  which  disconnect  them  from 
fundamentals. 

Such  distortions  have  both  short  and  long  term  economic  consequences.  Looking  at  futures 
markets  in  isolation,  the  consequences  for  investors  in  the  short  run  are  of  only 
redistributional  nature.  This  is  because  trading  in  futures  is  a  zero  sum  game,  i.e.  price 
changes result in gains of an investor on its derivatives positions which equal to losses on the 
same derivatives of other investors. However, long term, price distortions lead to suboptimal 
production  and  consumption  decisions  resulting  in  either  underemployment  of  production 
assets or waste of valuable energy resources. 

in 

increased 

Markets  exposed  to  manipulation  reduce  market  participants'  trust  in  market  outcomes  and 
makes  them  reducing  their  trading  activity.  This  leads  to  lower  levels  of  liquidity  and  less 
deeper  markets  resulting 
is  because  financial 
intermediaries,  essential  to  the  efficient  functioning  of  wholesale  markets,  when  faced  with 
less liquidity on markets are likely to increase the risk premium they charge for holding open 
positions.  This  means  that,  ceteris  paribus,  producers  will  receive  less  for  the  electricity  or 
gas  they  produce  and  consumers  including  companies  will  pay  more  for  their  energy 
consumption.  Low  levels  of  liquidity  can  itself  cause  market  participants  leaving  the 
marketplace.  This,  in  turn,  increases  the  risk  of  a  downward  liquidity  spiral  and  carries  the 
danger of a market disruption. 

transaction  costs.  This 

The direct impacts identified for the BAU scenario are developed by applying the Amaranth 
case.  It  is  reconstructed  and  transformed  to  fit  the  size  of  European  gas  markets  and  price 
levels37.  

37  

This analysis uses figures and calculations made by PriceWaterhouseCoopers (PWC Study) in support 
of the present Impact Assessment in combination with assumptions made by the Commission's services. 
The PWC Study is annexed to the Impact Assessment. 

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29 

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If  a  trader  were  to  trade  UK  Natural  Gas  contracts  on  the  Intercontinental  Exchange  (ICE-
Europe),  Europe's  most  liquid  natural  gas  exchange,  in  the  same  way  as  Amaranth  did,  the 
traded  volume  at  the  ICE-Europe  would  go  up  at  34.419  contracts  to  a  total  number  of 
contracts of 42.594. The price would be increased by 41.20%, from 0.3659 EUR/therm (1.25 
EUR  ct/kWh)  on  09  April  2010  to  0,5166  EUR/therm  (1.76  EUR  ct/kWh).  This  gives  an 
increase of 0.51 EUR ct/kWh or 5.1 EUR/MWh of the market price. If a trader had traded the 
same volume on ICE-Europe in London as Amaranth did on NYMEX in New York, the total 
volume on ICE-Europe would have increased by 321%. 

The  increase  in  the  wholesale  gas  market  price  would  subsequently  lead  to  an  increase  of 
customer  prices,  both  industrial  and  household,  as  those  prices  are  directly  or  indirectly 
derived  from  wholesale  price  quotations.  If  artificially  high  prices  would  last  for  at  least  a 
month  before  returning  to  their  normal  levels,  the  total  impact  on  UK  gas  users  would  be 
some  404  EURm/year38.  This,  however,  would  somewhat  overestimate  the  impact,  since 
prices for consumers and small businesses follow rolling average price trends, while prices of 
industrial  and  large  business  users  are  fixed  for  at  least  a  year.  Under  the  simplified 
assumptions that a) fixed priced contracts are continuously renewed during the year, b) fixed 
price  deals  make  up  50%  of  all  supply  contracts  and  c)  household  and  small  business  rates 
remain unchanged, the price impact would be some 202 EURm/year.   

However,  the  UK  gas  market  cannot  be  seen  in  isolation.  On  the  one  hand,  North-west 
European gas prices closely follow UK prices and, on the other, electricity prices are highly 
correlated  with  gas  prices,  gas  being  often  the  marginal  fuel  used  in  electricity  generation. 
This means that the impacts of manipulation on a single market place are directly felt across 
markets and commodities. It is assumed that an  Amaranth-style market  manipulation would 
inflate gas and electricity bills of European businesses and industrial users by some 1 EURbn. 
This  amount  would  further  increase  by  a  price impact  on  households'  and  small  businesses' 
bills.  While  the  increase  is  certain,  the  magnitude  is  difficult  to  quantify,  since  suppliers 
procure for this group of customers gradually, often over a number of years. 

On top of the direct impact on energy users the occurrence of a similar market manipulation 
(and the likelihood of this) would also lead to indirect impacts. An increase of risk premia that 
wholesale market intermediaries charge to other market parties effect participants through two 
paths: 

Firstly, as a result of the market manipulation prices would change abruptly leading to higher 
volatility. On a volatile market intermediaries feel less comfortable with holding buying and 
selling offers  close to each other, since they could easily lose out on their open positions if 
prices were to change suddenly. As a result they would add a premium leading to higher bid-
offer spreads39. 

Secondly,  because  of  the  possibility  of  a  manipulation  (and  the  lack  of  effective  market 
oversight regime) market participants would price in the likelihood of a renewed occurrence 
in  their  trading  decisions.  In  addition,  the  weakened  trust  in  the  proper  functioning  of  the 
marketplace could cause liquidity to drop, leading to higher risk premia charged40.  

38  
39  
40  

This assumes a flat monthly gas consumption of 79.17 TWh in the UK. 
The bid-offer spread is a difference between the best selling and buying offer on the market. 
See: 'The Cost of Transacting', The Quarterly Journal of Economics, Vol 82, No 1 (Feb., 1968), page 
41. 

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30 

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To be able to quantify the immediate effect of increased risk premia we use bid-offer spreads 
as a proxy. Assuming:  

a)  an  increased  price  volatility  for  the  duration  of  one  month  following  a  market 

manipulation,  

b)  an increased bid-offer spread by 20 EUR ct/MWh,  

c)  that  every  gas  contract  passes  through  an  intermediary  at  least  once  before  it  is 

delivered41,  

d)  that fixed priced contracts are continuously renewed during the year,  

e)  that fixed price deals make up 50% of all supply contracts and  

f) 

that household and small business rates remain unchanged,  

this  would  add  an  additional  8  EURm/year  to  customers'  energy  bills  in  a  market  similarly 
sized  to  the  UK.  For  Noth-Western  Europe,  an  area  around  the  most  actively  traded  gas 
markets in Europe, the figure would be some 25 EURm/year42. We expect that possible price 
distortions on traded electricity markets would have similar impacts but would be felt wider, 
since  traded  electricity  markets  are  more  developed  than  gas  markets.  Under  similar 
assumptions, a widening bid-offer spread by 20 EUR ct/MWh (a realistic figure for the most 
liquid German benchmark contract43) would result in a price impact on large electricity users 
of  25  EURm/year.44  This  is  a  conservative  assumption,  since  the  bid-offer  spreads  on  less 
liquid markets like France, could go up to as much as 1 EUR/MWh. 

The  above  calculations  assume  that  after  a  period  of  high  volatility  caused  by  the 
manipulations  markets  would  return  to  normality.  However,  as  we  refer  to  it  above,  in  the 
aftermath  of  market  manipulation(s)  the  marketplace  it  is  likely  to  lose  attractiveness  and 
liquidity,  resulting  in  intermediaries  charging  higher  risk  premia.  The  negative  impact  of  it 
would be felt permanently with transaction costs increasing for all market participants. While 
we are certain about the effect, it is more difficult to quantify it, since no empirical values are 
available to us. 

Instead,  Figure  12  below  shows  how  sensitive  European  electricity  consumers'  bills  are  to 
1 EUR  ct/MWh  increase  in  bid-offer  spreads  over  a  number  of  years,  giving  an  impression 
about the impact's order of magnitude45. 

41  
42  

43  

44  
45  

This is a conservative assumption. 
Assuming yearly gas consumption of 1,500 TWh for industrial and large business users in UK, France, 
Belgium, The Netherlands, Denmark, Germany. 
According to information received from traders, the most liquid German calendar contracts trades under 
normal circumstances at a bid-offer spread of 5 EUR ct/MWh while the less liquid French equivalent at 
25 EUR ct/MWh. In a stressed market the German spread could go up to 25 ct/MWh and the French 
spread to as high as 1 €/MWh. 
Assuming yearly electricity consumption of 1,500 TWh for industrial and large EU business users. 
A  similar  approach  was  also  used  by  the  UK  government  in:  'Regulatory  Impact  Assessment',  The 
Financial  Services  and  Markets  Act  2000  (Market  Abuse)  Regulations  2005,  and  the  Investment 
Recommendation (Media) Regulations 2005, HM Treasury, Feb. 2005. We calculate with a volume of 
9.000 TWh of traded electricity derivatives (forwards and futures) in Europe. 

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31 

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Figure 12: Increase in cost of trading electricity as a function of increased spreads and the duration of the 
persistence of higher risk premia (in EUR million) 

Increase in bid-
offer spread in 
EUR ct/MWh

1
2
3
4
5

Number of years with incrased bid-offer spreads

1
90
180
270
360
450

2
180
360
540
720
900

3
270
540
810
1,080
1,350

4
360
720
1,080
1,440
1,800

5
450
900
1,350
1,800
2,250

6
540
1,080
1,620
2,160
2,700

7
630
1,260
1,890
2,520
3,150

8
720
1,440
2,160
2,880
3,600

9
810
1,620
2,430
3,240
4,050

10
900
1,800
2,700
3,600
4,500

Figure  13  summarises  the  above  presented  figures  and  gives  an  overview  of  the  monetary 
impact of market abuses under different scenarios. 

Figure 13: Summary of monetary impacts of market abuses 

Amaranth's profit earned on the three 
settlement days of 24 February, 29 
March, 26 April 2006

USD 59,000,000 - USD 168,000,000

Direct impact of an Amaranth-style 
market abuse on European business and 
industrial energy users

Indirect impact of an Amaranth-style 
market abuse on North-W est European 
business and industrial gas users through 
increased risk premia

Indirect impact of an Amaranth-style 
market abuse on European business and 
industrial electricity users through 
increased risk premia

Impact of an additional 1 EUR ct/MWh 
risk premium on electricity trading 
participants' transaction costs in Europe 
due to reduced confidence over a periode 
of 2 years

~ EUR 1,000,000,000

~ EUR 25,000,000

~ EUR 25,000,000

EUR 180,000,000

It is also relevant to note, that the baseline scenario does not mean that nothing will happen in 
the legal landscape. As we already mentioned, we can legitimately assume that in the absence 
of  an  EU  level  initiative  for  a  consistent  and  coherent  supervisory  regime,  potentially 
incompatible national measures will mushroom. 

Although  national  measures  have  the  potential  to  increase  regulatory  supervision  and  with 
that the likelihood of detection of market abuses, their reach will inevitably remain limited. At 
the same time they are likely to cause increased administrative burden to both, regulators and 
market  participants.  As  regulators  step  up  their  monitoring  activates  they  will  increasingly 
rely  on  and  ask  for  timely  available  market  data.  This  means  that  in  an  extreme  scenario 
trading  participants  and/or  operators  of  trading  venues  will  be  faced  with  27  national  data 
reporting  request,  all  differently  designed  covering  different  data  items.  Especially 
internationally active market participants, often operating via a single trading vehicle, may be 

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32 

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exposed  to  a  plethora  of  diverging  regulatory  reporting  schemes  causing  high  compliance 
costs.  

Social impacts 

The  undesired  social  impacts  follow  from  the  likely  scenarios  we  developed  when  we 
accessed  the  economic  impacts.  High  occurrences  of  market  manipulation  distort  market 
outcomes leading directly and indirectly to higher costs for customers. Higher prices reduce 
consumers' disposable income and reduce businesses' competitiveness leading to lower levels 
of employment. Markets vulnerable to manipulation are likely to see less trading and liquidity 
suggesting fewer jobs also at banks and trading entities.    

Increase in energy prices may cause the deepening of "energy poverty" and social exclusion 
of most vulnerable groups. This is because housing costs (of which energy costs make up a 
significant  part46)  account  for  a  considerable  part  of  households'  disposable  income.  Any 
increase of energy prices hit poor people disproportionately since their housing expenditure, 
relative  to  their  disposable  income,  is  higher  than  in  the  average  population.  The 
Commission's  Joint  Report  on  Social  Protection  and  Social  Inclusion  2010  finds  that  "On 
average  in  the  EU  the  share  of  housing  costs  in  total  disposable  income,  net  of  housing 
allowances, is 19 % […]. The issue of affordability is particularly problematic for the at-risk-
of-poverty population: in the EU as a whole, the impact of housing costs is more than twice as 
important for the poor as for the non-poor population (33 % vs 17 %) and this ratio is over 2.5 
in  FI,  AT,  FR,  CY,  SI,  LU  and  SE,  where poor people spend three times more on housing, 
relatively to their income, than non-poor people."47 

Despite these impacts no impact on job equality or job rights are expected. 

Environmental impacts 

We believe that the BAU scenario has no direct environmental impacts, i.e. the pure lack of 
market  misconduct  rules  or  the  absence  of  regulatory  supervision  will  not  impact  the 
environment.  However,  leaving  markets  vulnerable  to  abuses  could  have  indirect  impacts. 
Persisting  price  distortions  on  traded  energy  markets  may  change  the  absolute  level  of  fuel 
prices and/or the relative price of one fuel to another. 

For example, if a gas producer were to withhold the production of gas, this would drive up the 
price  of  gas  relative  to  coal.  This,  in  turn,  would  make  power  producers  to  switch  to  more 
polluting  coal  as  the  fuel  of  their  choice,  resulting  in  higher  emissions.  If  the  price 
manipulations  were  to  last  over  a  longer  period  of  time  they  could  also  distort  market 
participants'  investment  decisions  potentially  resulting  in  more  polluting  power  generation 
facilities. 

Market  manipulations  could,  of  course,  work  in  the  way  around,  leading  to  more  gas  burnt 
than  coal.  The  size  of  the  indirect  environmental  impact  of  the  BAU  scenario  is  therefore 
difficult to assess. It will not only depend on the nature of the potential abuse but also on the 
duration of the price distortion. 

46  

47  

We estimate that on average energy costs make up some 40% of households' total housing cost in the 
EU. 
Joint  Report  on  Social  Protection  and  Social  Inclusion  2010,  European  Commission,  Directorate 
General for Employment, Social Affairs and Equal Opportunities, Units E2 and E4. 

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Option 1a:  Rules defined at EU level, Member States monitor and enforce 

This  option  envisages  a  scenario  without  direct  EU  intervention  in  monitoring  and 
enforcement. The EU, however, will lay-out specific legislation on electricity and gas market 
misconduct  rules  (market  manipulation,  insider  trading,  etc.),  leaving  to  Member  States’ 
competent Regulators to monitor markets and enforce market conduct rules.  

Economic Impacts 

A  coherent  and  complete  set  of  market  conduct  rules  defined  at  EU-level  and  their 
harmonised application by Member States would have the potential to reduce the occurrence 
of  market  abuses  and  result  in  increased  trust in  market  outcomes  when  compared  with  the 
BAU  scenario.  As  such  cases  will  less  likely  to  occur,  the  impact  on  price  fluctuations  and 
therefore the risk of negative impact on households and companies and their competitiveness 
is reduced. This is because the rules would be comprehensively covering energy markets and 
national  Regulators  would  have  a  common  rulebook  based  on  which  they  could  better  use 
their enforcement powers. 

The  introduction  of  a  new  EU  market  misconduct  framework  and  having  MSs  monitor  and 
enforce the rules trough national Regulators will generate positive impacts on both regulatory 
transparency and integrity of the markets against the BAU scenario.  

There are, however, several forms of misconduct behaviours that might remain undetected by 
national Regulators, particularly when occurring outside each single Regulator's jurisdiction. 
These possibilities are mainly regarding:  

o  Cross-commodity, cross-border and cross-platform abuses may remain undetected if 

Regulators will only monitor energy transactions in their own jurisdiction; 

o  Effectiveness in monitoring for all 27 Regulators. It is likely to assume that not all 

national regulators will perform identically due to different monitoring approaches. 
This might generate systemic issues given the interdependencies of each national 
market and each commodity. 

o  The timely preparation of complete and verified sets of transactional data sorted by the 

place of delivery might be problematic through a decentralised iterative data 
exchange mechanism 

Administrative impacts 

Because all 27 MS Regulators would need to get regular access to transactional data, the cost 
of  reporting  will  potentially  be  higher  than  in  the  BAU  scenario.  Each  market  participant 
would  have  to  install  a  data  reporting  interface  to  its  home  Regulators  and  prepare  data  for 
reporting.  We  estimate  the  order  of  magnitude  of  data  volumes  to  be  submitted  to  the 
Regulators at some 10,000 data lines per day. This includes details of all relevant wholesale 
transactions  that  go  through  broker's  trading  platforms  and  energy  exchanges.  The 
information  contained  in  a  data  line  will  at  least  include:  name  of  counterparties,  product 
name or code, beneficiary of the transaction, volume, prices, place of delivery, time stamp. 

Data  reporting  assumes  IT  investment  for  both  market  participants  and  Regulators.  As  for 
traders,  the  PWC  Study  estimates  different  software  implementation  costs  according  to  the 
size of the trading operation. They estimate installation cost of EUR 600,000 for large traders 

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34 

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and EUR 110,000 for small traders. Assuming a simplified world with a depreciation period 
of ten years and no interest rate, this would add up for the whole trading community to a total 
cost  of  21.3  EURm/year.  If  exchanges  and  brokers  were  to  report  on  traders  behalf  the 
comparable figure would be 5.4 EURm/year. However, we have to note that the two reporting 
channels would not result in exactly the same data reported, since not all energy transactions 
are channelled through brokers and exchanges. Additional IT costs for 27 Regulators related 
to  data  handling  would  amount  to  1.35  EURm/year.  In  addition  Regulators  would  need  to 
install and operate a data exchange mechanism which is able to sort the transactions which the 
27 Regulators receive individually according to the place of delivery and dispatch the sorted 
data batches to the competent Regulators in a decentralised way. The cost of the installation 
and operation of such a system could not be assessed by us.  

The PWC Study has not assessed the need for additional human resources needed to operate 
the reporting scheme and the monitoring exercise. It is difficult to come up with well founded 
estimates.  We  estimate  that  the  monitoring  of  reported  transactions  would  require  the 
equivalent of an additional 50 employees for all national regulators. This estimate takes into 
account that some regulators already carry out some market monitoring activities. The work 
and  resources  between  the  national  authorities  will  not  be  evenly  distributed,  since  some 
Member States boast very actively traded energy markets while trading is still in its infancy in 
others,  requiring  different  levels  supervisory  attention.  We  assume  that  market  participant's 
data reporting would require little extra manpower since reporting will be highly automatic. 
We calculate with an equivalent of an additional 50 employees for the industry. This results in 
a 
total  extra  manpower  of  100  employees.  Calculating  with  a  cost  of  100,000 
Euro/employee/year,  the  additional  manpower  related  cost  of  operating  the  reporting  and 
monitoring  scheme  would  amount  to  10  EURm/year.  The  following  Figure  summarises  the 
costs of the reporting scheme: 

Figure 14: Annualised costs of the initiative under option 1a 

Software  implementation  and  IT  installation  cost  for 
the trading community (annualised assuming a ten year 
depreciation period) 

Alternatively,  if  reporting  was  to be handled by  brokers  and  power 
exchanges (annualised assuming a ten year depreciation period) 

Software  implementation  and  IT  installation  cost  for 
27  Regulators  (annualised  assuming  a 
ten  year 
depreciation period) 

Data exchange mechanism between Regulators 

Cost  of  monitoring  and  data  handling  for  27 
Regulators (human resources) 

Cost of data manipulation and reporting for the trading 
community 

EURm/year 

21.3 

(5.4) 

1.35 

n.a. 

5.0 

5.0 

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35 

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The above cost estimates both for IT and human resources are conservative. This is because 
the reporting exercise is likely to benefit from already existing reporting schemes governed by 
financial regulation. MiFID companies have already been reporting details of certain energy 
derivatives  transactions  to  financial  regulators.  This  obligation  is  expected  to  be  enhanced 
soon  to  cover  most  of  the  relevant  OTC  derivatives  transactions.  Once  this  in  place, 
investments  directly  attributable  to  this  initiative  will  only  incur  to  participants  who  do  not 
fall under financial regulation and/or trade energy products only bilaterally. 

Social Impacts 

Direct social impacts are not significant. The creation of few jobs with Regulators and market 
participants  related  data  reporting  and  market  monitoring  is  not  significant.  More  important 
are the indirect impacts. Under this option the negative effects emerging in the BAU scenario 
on  job  losses  related  to  decreased  competitiveness  of  EU  industries  (e.g.  energy  intensive 
industries) resulting from increased or more volatile energy prices are less likely to occur.   

On contrary, markets which better reflect supply/demand fundamentals are likely to generate 
other indirect positive impacts on the electricity and gas consumers. A generally more stable 
market means lower probability of market shocks and price spikes. Similarly, a more trusted 
market will indirectly benefit consumers.  

No impacts on job rights, job equality or job legislation are expected.      

Environmental Impacts 

We  consider  that  Option  1a  has  no  direct  environmental  impacts,  i.e.  the  mere  existence  of 
market misconduct rules or increased regulatory supervision will not impact the environment. 
However  these  measures  are  likely  to  reduce  the  vulnerability  of  markets  to  abuses  and  the 
potential negative indirect environmental impacts, as described under the BAU scenario, are 
less likely to occur. 

Conclusion 

This option represents a clear improvement over the BAU scenario. The introduction of new 
market misconduct rules and expanding the Regulators' competences to monitor markets and 
enforce  the  rules  will  carry  significant  benefits  for  the  electricity  and  gas  markets  and  their 
participants. Overall market stability will improve and abusive operations are more likely to 
be identified and prevented in time.   

Economic impacts 
Market stability 
Impact on prices of households and firms 
Administrative costs 
Social impacts 
Jobs in the industries  
Environmental impacts 

+ 
+ 
- 

+ 
+ 

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36 

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The  option  will  nonetheless  leave  an  important  issues  unresolved.  Since  Regulators  only 
monitor transactions relating to their own jurisdiction they would not be able to fully capture 
market misconducts of cross-border and cross-commodity nature.  

Option  1b  –  Rules  defined  at  EU  level,  Member  States  report,  monitor  and  enforce,  EU 
Agency process data and monitors cross-border and cross-commodity misconduct   

This option involves the EU body stronger in the  process  of  data  collection  and  monitoring 
exercise as in Option 1a and introduces a shared responsibility of market monitoring with the 
Member  States.  The  EU  Agency  monitors  transactions  with  potential  relevance  of  cross-
border and cross-commodity misconducts and calls appropriate Regulators for action in case 
the misconduct takes place in their jurisdiction. The national Regulators are also receiving all 
data on wholesale transactions from market participants established in their jurisdiction. The 
Regulators forward collected data to the EU Agency whereas format and details of data to be 
reported are defined in an EU-level regulation.  

Economic impacts  

Similar as in option 1a a coherent and complete set of market conduct rules defined at EU-
level  would  have  the  potential  to  reduce  the  occurrence  of  market  abuses  and  result  in 
increased  trust  in  market  outcomes.  Price  fluctuations  and  the  risk  of  negative  impact  on 
households and companies and their competitiveness are reduced. 

The collection of complete sets of transactional data will allow for the EU Agency and also 
Regulators  of  the  Member  States  to  gain  a  clear  view  of  traded  energy  markets.  This  will 
enable  it  understand  and  detect  market  abuses  of  cross-border,  cross-platform  and  cross-
commodity nature and engage in preventing misconducts from happening. 

We  consider  that  the  creation  of  an  EU  Agency  implementing  regular  monitoring  across 
traded  European  energy  markets  will  not  just  improve  the  detection  of  market  misconducts 
but  also  deter  market  participants  from  attempted  market  abuses.  Thus  its  operation  will 
improve market stability (e.g. limited price fluctuations and reduced risk premium for market 
participants),  and  lead  to  increased  regulatory  transparency  and  availability  of  information 
(e.g. centrally verified and compiled set of data). 

Administrative impacts 

The administrative impacts under this option will be similar when compared with Option 1a 
with two distinctions: 

First,  due  to  the  introduction  of  an  EU  level  market  monitoring  additional  costs  will  incur 
such as ICT installation and operation costs and cost related to additional human resources in 
the  EU  Agency.  Under  the  above  assumptions,  the  PWC  Study  estimates  software 
implementation  costs  at  0.5  EURm/year.  For  the  personnel  needed  to  run  a  dedicated  new 
monitoring Agency we estimate twenty five employees with a total cost of 2.5 EURm/year. 
This will be on top of the 50 new employees we mention in option 1a, since the EU Agency 
would share the monitoring responsibility with national regulators who would continue using 
resources for monitoring transactions falling in their jurisdiction. 

Our  view  is  that  the  introduction  of  an  EU  level  data  handling  will  not  only  enable  an  EU 
level  market  monitoring  but  it  has  the  potential  to  increase  the  efficiency  of  the  work  of 

EN 

37 

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national market monitors. Matching, verifying and sorting of data in one go can be safer and 
speedier than the operation a data exchange mechanism on a decentralised manner. Under this 
option  regulators  would  only  have  to  receive  the  data  and  dispatch  it  to  the  EU  Agency 
without  additional  handling.  In  exchange  they  would  get  access  to  a  complete  set  of 
transactions  they  need  to  fulfil  their  monitoring  duty.  As  a  result  no  cost  of  installing  and 
operating  of  a  decentralised  data  exchange  mechanism  will  have  to  incur.  The  following 
Figure summarises the costs of the reporting scheme: 

Figure 15: Annualised costs of the initiative under option 1b 

Software  implementation  and  IT  installation  cost  for 
the trading community (annualised assuming a ten year 
depreciation period) 

Alternatively,  if  reporting  was  to be handled by  brokers  and  power 
exchanges (annualised assuming a ten year depreciation period) 

Software  implementation  and  IT  installation  cost  for 
27  Regulators  (annualised  assuming  a 
ten  year 
depreciation period) 

Cost  of  monitoring  and  data  handling  for  27 
Regulators (human resources) 

Cost of data manipulation and reporting for the trading 
community 

Software  implementation  and  IT  installation  cost  for 
the  EU  Agency  (annualised  assuming  a  ten  year 
depreciation period) 

Cost  of  monitoring  and  data  handling  for  the  EU 
Agency (human resources) 

EURm/year 

21.3 

(5.4) 

1.35 

5.0 

5.0 

0.5 

2.5 

Social Impacts 

We  expect  similar  kind,  though  more  positive  indirect  social  impacts  when  compared  with 
Option  1a.  This  is  because  the  probability  of  market  misconducts  would  further  decrease 
yielding benefits for energy users. 

No impacts on job rights, job equality or job legislation are expected 

Environmental Impacts 

As in option 1a, prices better reflecting fundamentals of gas and electricity may make these 
energy sources more attractive as the more polluting coal.  As already explained in Option 1a, 
increased  market  monitoring  and  more  stringent  enforcement  are  likely  to  reduce  the 
vulnerability of markets to abuses. When compared with the BAU scenario and Option 1a, the 

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measures  in  Option  1b  have  the  potential  to  further  reducing  the  possible  negative  indirect 
environmental impacts (as described under the BAU scenario). 

Conclusion 

This option proves to be a significant improvement compared to the baseline scenario. Much 
improved regulatory transparency and integrity are the results of the introduction of a new EU 
level  body  dedicated  to  active  monitoring  of  traded  electricity  and  gas  markets..  The 
probability  of  detection  and  prevention  of  misconducts  will  significantly  improve  when 
compared with the BAU scenario or Option 1a, because the regular screening and analyses of 
the  totality  of  relevant  wholesale  transactions  will  enable  to  EU  Agency  to  better  capture 
energy specific market misconducts.  

Economic impacts 
Market stability 
Impact on prices of households and firms 
Administrative costs 
Social impacts 
Jobs in the industries  
Environmental impacts 

++ 
++ 
- 

+ 
+ 

Option 2 – Rules defined at EU level, shared monitoring in a unique EU Agency and Member 
States, enforcement by Member States  

Economic impacts  

Similar as in option 2 a coherent and complete set of market conduct rules defined at EU-level 
would  have  the  potential  to  reduce  the  occurrence  of  market  abuses  and  result  in  increased 
trust in market outcomes. Price fluctuations and the risk of negative impact on households and 
companies and their competitiveness are reduced. 

Under  this  option  we  expect  similar  economic  impacts  as  in  Option  1b,  provided  the  data 
sharing is effective.  

Administrative impacts 

In  comparison  to  Option  1b,  the  overall  reporting  costs  should  be  lower  since  national 
regulators  do  not  have  to  install  extra  communication  interfaces  to  reporting  participants. 
Instead, transaction data would be captured once, directly by the EU Agency. This would also 
simplify  and  speed  up  overall  data  handling  by  reducing  the  number  of  data  supply  routes 
from  3  (Trader  (cid:198)  Regulator  (cid:198)  EU  Agency  (cid:198)  Regulator)  to  2  (Trader  (cid:198)  EU  Agency  (cid:198) 
Regulator).    This  is  also  likely  to  reduce  the  occurrence  of  data  transmission  and  handling 
errors. In this option all other cost items we included under Option 1b, including the cost for 
the  equivalent  for  50  employees  with  national  regulators  remain  valid.  This  is  because 
national  regulators  will  share  monitoring  responsibility  with  the  EU  Agency.  The  following 
Figure summarises the costs of the reporting scheme: 

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39 

   EN 

 
 
 
 
 
 
Figure 16: Annualised costs of the initiative under option 2 

Software  implementation  and  IT  installation  cost  for 
the trading community (annualised assuming a ten year 
depreciation period) 

Alternatively,  if  reporting  was  to be handled by  brokers  and  power 
exchanges (annualised assuming a ten year depreciation period) 

Software  implementation  and  IT  installation  cost  for 
ten  year 
27  Regulators  (annualised  assuming  a 
depreciation period) 

Cost  of  monitoring  and  data  handling  for  27 
Regulators (human resources) 

Cost of data manipulation and reporting for the trading 
community 

Software  implementation  and  IT  installation  cost  for 
the  EU  Agency  (annualised  assuming  a  ten  year 
depreciation period) 

Cost  of  monitoring  and  data  handling  for  the  EU 
Agency (human resources) 

EURm/year 

21.3 

(5.4) 

1.35 

5.0 

5.0 

0.5 

2.5 

Social Impacts 

Under this option we expect similar social impacts as in Option 1b.  

No impacts on job rights, job equality or job legislation are expected 

Environmental Impacts 

Under this option we expect similar social impacts as in Option 1b.  

Conclusion 

Similar  conclusions  as  for  Option  1b,  with  additional  gains  due  to  improved  operational 
efficiency 

Economic impacts 
Market stability 
Impact on prices of households and firms 
Administrative costs 
Social impacts 
Jobs in the industries  
Environmental impacts 

++ 
++ 
- 

+ 
+ 

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40 

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Option  3  –  Rules  defined  at  EU  level,  shared  monitoring  by  ACER  and  Member  States, 
enforcement by Member States 

This option is equivalent to Option 2, however, all functions and competences of the EU level 
body would be assumed by ACER.  

Economic Impacts  

A  market  monitor  located  at  ACER  will  be  able  to  detect  and  prevent  market  misconducts 
with higher effectiveness than a newly created EU Agency. This is because ACER will have 
built  its  own  energy  expertise  and  had  access  to  specialist  knowledge  of  national  energy 
regulators sitting in its Board. Such an expert knowledge is indispensable for the EU monitor 
to  understand  complex  market  outcomes.  A  higher  detection  ratio  will  also  likely  to  better 
deter  future  misconducts  which  will  have  a  beneficial  impact  on  market  stability  and  the 
credibility of market outcomes. A newly established body would have more difficulty to build 
up  the  required  expert  knowledge  and  had  presumably  less  convenient  access  to  national 
energy regulators.   

Administrative impacts 

We assume that the market monitor at ACER would not only be more effective but could also 
be  run  at  lower  cost  that  a  dedicated  new  Agency.  This  is  because  the  market  monitor  had 
access to ACER's existing facilities (ICT, office space, manpower, etc.) and share overhead 
costs with ACER's existing operation48. For this reason we mark the administrative costs with 
an (*) in the table presented under 'Conclusion'. We estimate that the market monitor located 
at  ACER  could  be  run  with  fifteen  employees  at  a  cost  of  1.5  EURm/year  which  is 
1 EURm/year less than the cost of monitoring in a newly established dedicated EU Agency. 
In  this  option  all  other  cost  items  we  used  under  Option  2,  including  the  cost  for  the 
equivalent  for  50  employees  with  national  regulators  remain  valid.  This  is  because  national 
regulators  will  share  monitoring  responsibility  with  the  EU  Agency.  The  following  Figure 
summarises the costs of the reporting scheme: 

Figure 17: Annualised costs of the initiative under option 3 

Software  implementation  and  IT  installation  cost  for 
the trading community (annualised assuming a ten year 
depreciation period) 

Alternatively,  if  reporting  was  to be handled by  brokers  and  power 
exchanges (annualised assuming a ten year depreciation period) 

Software  implementation  and  IT  installation  cost  for 
27  Regulators  (annualised  assuming  a 
ten  year 
depreciation period) 

EURm/year 

21.3 

(5.4) 

1.35 

48 

For this reason we mark the administrative costs with an (*) in the tables of impacts for this option. 

EN 

41 

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Cost  of  monitoring  and  data  handling  for  27 
Regulators (human resources) 

Cost of data manipulation and reporting for the trading 
community 

Software  implementation  and  IT  installation  cost  for 
ACER  (annualised  assuming  a  ten  year  depreciation 
period) 

Cost  of  monitoring  and  data  handling  for  ACER 
(human resources) 

5.0 

5.0 

0.5 

1.5 

Social Impacts 

Same as Option 2 

Environmental Impacts 

Same as Option 2 

Conclusion 

Option 3 would be favourable to Option 2, since It can be expected that ACER would work 
more efficiently in terms of  the overall cost of  its  monitoring  exercise  and  more  effectively 
regarding the expertise it has available, than a newly created EU Agency. 

Economic impacts 
Market stability 
Impact on prices of households and firms 
Administrative costs 
Social impacts 
Jobs in the industries  
Environmental impacts 

+++ 
++ 
-* 

+ 
+ 

7 

OTHER ISSUES 

Elaboration of sector specific rules 

Effective  oversight  requires  that  issues  such  as  insider  dealing  and  other  forms  of  market 
misconduct cover all aspects of traded wholesale markets in electricity and gas. These should 
be consistent across Europe to prevent situations from arising where the same market conduct 
would be deemed as in line with rules on the one market but would be found as infringing the 
rules in another. Because important venues for energy trading are already covered by MAD, 
definitions  relating  to  market  misconduct  specifically  covering  the  physical  energy  markets 
will need to interact very well with MAD.  

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However, it is essential that a tailor made regime take account of the specific characteristics 
of  energy  markets,  in  particular,  their  high  level  of  susceptibility  to  significant  changes  in 
price  as  a  result  of  economic  or  physical  withholding  of  capacity.  Similarly,  the  impact  of 
network congestion on prices in several national markets brings about particular issues, which 
do  not  arise  in  global  financial  securities  markets  or  indeed  in  other  global  commodity 
markets.  

Respondents  to  the  public  consultation  were  specifically  requested  their  views  on  the 
appropriateness of basing market abuse definitions applicable developed as part of an energy 
specific regime on the MAD definitions and accounting for energy markets specifics through 
guidance.  The  majority  of  respondents  warned  against  attempting  what  was  often  termed  a 
one to one take over from MAD. Nonetheless there was also widespread acceptance that the 
principles under MAD should form the basis for a definition of Market Abuse. In this context 
the  response  of  E.On  is  particularly  illuminating  –  it  specifically  raised  the  issue  not  of  the 
definitions  in  MAD,  but  of  subsequent  implementing  legislation  adopted  under  the 
Comitology  procedure.  The  European  Federation  of  Energy  Traders  proposed  a  multi  layer 
model,  in  which  the  ACER  (though  potentially  another  body)  would  consult  with  market 
participants to draw up guidelines. These could then be made binding through implementing 
legislation  adopted  by  the  Commission.  This  suggestion  was  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 regulation under the Lamfalussy arrangements, and 
would  therefore  also  aid  interaction  between  financial  regulation  and  sector  specific 
regulation. It also allows the need for flexibility to be combined with market participants calls 
for legal certainty, which were clearly expressed in the consultation responses. Where an EU 
agency  is  responsible  for  monitoring,  and  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  emission  allowances  (EUAs)  within  the  EU 
Emissions Trading System (EU ETS). 

Coal is an important primary fuel used in power generation, while oil and oil product prices 
influence electricity prices through their role as reference in long-term gas supply contracts. 
The  understanding  of  these  markets  and  the  trading  behaviour  of  their  participants  are 
therefore  essential  for  any  market  monitor  to  be  able  to  explain  changes  in  wholesale 
electricity and gas prices. However, these markets are globally traded with major participants 
established  in  third  countries.  An  isolated,  EU-level  market  monitoring  would  remain 
incomplete  and  misconduct  rules  partly  unenforceable.  This  means  that  designing  a  regime 
which encompasses oversight of such markets would require a strategy for global regulatory 
cooperation to provide real benefits to Europe. To ensure the integrity of traded oil and coal 
markets,  globally  agreed  monitoring  and  enforcement  schemes  would  be  needed  which  is 
beyond  the  scope  of  the  present  initiative.  This  approach  had  overwhelming  support  in  the 
public consultation.  

This is, however, different in case of the emission 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 generation sector is the single largest emitting sector 

EN 

43 

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in the EU, representing around 40% of the emissions 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 influence plant dispatch and, as a result, determine 
the  demand  for  carbon.  The  two  markets  are  therefore  mutually  interdependent.  They  also 
share, to a large extent, the same trading participants and trading venues. Although the aim is 
to see the EU ETS linked up with compatible emission trading systems in other parts of the 
world, notably in the USA, the EU ETS is currently limited to the European Economic Area. 
Consequently, price formation on the energy market is driven by the actions of EU ETS actors 
based in Europe. 

Recognising  these  interlinkages  and  the  growing  importance  of  traded  carbon  markets  the 
Commission has decided to initiate an in depth review into how best to ensure the integrity of 
these markets. The results of the review are due in 2011. 

Interactions with third countries 

It  has  long  been  recognised  that  the  potential  for  trading  to  migrate  can  undermine  the 
effectiveness of the oversight of markets. In principle, there is nothing to prevent the use of 
brokers, or even organised markets, located outside the EU for the trading of energy or energy 
related  products  for  delivery  inside  the  EU.  Such  transactions  could  be  relevant  for 
understanding attempts at market manipulation within the EU, just as transactions brokered in 
one EU country relating to energy delivery in another.  

In order to prevent third countries being used to make transactions which parties wish to hide 
from the authorities within the EU, the obligation to report transactions in products covered 
by the scope of the present initiative (i.e. electricity and gas markets related to delivery within 
the  EU)  should  in  the  first  instance  lie  with  the  parties  to  that  transaction.  Under  normal 
circumstances,  this  obligation  should  be  filled  by  the  broker  or  exchange  which  acted  as 
intermediary. However, in cases where third countries were used to carry out the transactions 
this would not relieve an EU based party from its reporting obligations.   

Impact on SME's  

During the public consultation some respondents raised concerns on the impact on Small and 
Medium  Enterprises.  For  example  the  Energy  Commodity  Traders  Group  pointed  out  that 
monitoring  must  not  put  burden  on  small  companies  who  do  not  have  a  strong  ability  to 
influence  market.  These  concerns  relate  to  the  possible  difficulties  for  SMEs  to  meet  data 
reporting requirements. Although we do not expected a major number of SMEs being affected 
by this regulation the legislative proposal will take account of this by proposing de-minimis 
measures and/or measures, like less frequent reporting.     

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8 

CONCLUSIONS – THE PREFERRED OPTIONS 

Analysis of policy options focused on the following areas: 

•  Market Stability; 

• 

Impact on prices 

•  Administrative costs  

•  Job Creation; 

•  Environmental Costs. 

The  table  presented  below  summarises  the  impacts  of  each  policy  options,  allowing  for  a 
quick comparison with the BAU scenario.  

Market 
Stability 

Impact on 
prices 

Administrative 
costs 

Job 
Creation 

Environmental 
Costs 

BAU 

Amaranth 
case 
scenarios 
possible 

Price 
volatility, 
prices of 
energy may 
increase 

Costs incurred 
by possible 27 
regimes in the 
EU 

Job losses 
due to 
higher 
energy 
prices 

No direct 
effects 
identifiable  

Option 1a 

Option 1b 

Option 2 

+ 

++ 

++ 

Option 3 

+++ 

+ 

++ 

++ 

++ 

- 

- 

- 

-* 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

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 related costs to society. 
At the same time all of these options involve higher administrative costs. Policy options 1b, 2 
and  3  have  the  significant  advantage  over  option  1a  that  they  better  enable  the  detection  of 
cross-border and cross-commodity abuses. Policy options 2 and 3 performed better in terms of 
economic/market  impacts  because  they  combine  the  advantages  of  an  enhanced  regulatory 
regime with lower administrative costs in comparison to options 1a and 1b. Option 3 has the 
advantage  over  option  2  that  the  energy  market  expertise  and  the  special  focus  allows  for 
ACER  to  detect  market  misconducts  more  efficiently  then  a  newly  created,  dedicated  EU 
Agency. In addition, by the time the present initiative takes effect, ACER will have already 
been  established  and  could  accommodate  the  market  monitor  more  easily  than  a  newly 
created EU Agency with less administrative costs because no additional overhead costs will 
be necessary. 

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In Figure 13 we presented different metrics to demonstrate the monetary impact of a market 
misconduct. It is, however, very difficult to compare the administrative costs incurred as the 
result of the present initiative with the concrete monetary benefits it would bring to society. 
While  we  have  argued  that  the  introduction  of  energy  specific  market  conduct  rules  and 
stringent  regulatory  monitoring  increases  the  likelihood  of  detection  of  market  abuses  and 
raises deterrence the quantification of the beneficial impacts is problematic. 

Instead, to give an impression about possible benefits, we refer to Figure 12 which shows cost 
savings  of  trading  participants  as  a  function  of  decreasing  bid-offer  spreads,  as  a  proxy  for 
reduced risk premia and increased trust in market outcomes. If average bid-offer spreads on 
traded  electricity  markets  were  to  decrease  by  a  mere  1  EUR  ct/MWh49,  which  is  a 
conservative  estimate, 
to 
90 EURm/year. This figure would increase by further spread savings on traded gas markets. 
This compares with the total cost of the integrity regime (option 3) of 34.65 EURm/year. To 
put this figure in another perspective: the "investment" in the market integrity regime pays off 
if the measures only manage to deter an Amaranth-style misconduct once in every 30 years.50  

trading  participants  would  amount 

total  saving  for  all 

As  identified  above  the  envisaged  regulatory  regime  needs  to  support  general  EU  energy 
policy objectives of competitive, secure and sustainable energy supplies. The proposed market 
conduct rules and measures need to be:  

A.  complete and consistent  

B.  adaptable and compatible rules  

C.  effectively detecting and deterring abuses  

In reference to these objectives in terms of efficiency of introducing each of the options and 
the overall balance of impacts, the options have been assessed regarding:  

•  Effectiveness in reaching the objectives 

•  Efficiency of introducing them  

•  Coherence in limiting negative impacts in comparison to BAU.   

49  
50  

See footnote 43. 
Estimating  that  an  Amaranth-style  manipulation  would  inflate  customers'  energy  bills  by  some 
1 EUR bn/year. 

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Effectiveness 

Efficiency 

Coherence 

Rank 

BAU 

Option 1a 

Option 1b 

Option 2 

Option 3 

None of the 
objectives can be 
reached 

Costs of up to 27 
separate regimes 
are likely  

No positive 
impacts 

Objectives A and 
B can be reached 
but C not 

Costs of 27 
agencies  

Objectives A, B 
and C can be 
reached 

Costs of 27 
agencies and the 
EU Agency 

Objectives A, B 
and C can be 
reached  

Objectives A, B 
and C can be 
reached but C will 
be reached more 
effectively 

Costs of a special 
EU Agency  

Costs of additional 
tasks within ACER 

Slightly positive 
impacts on market 
stability and prices 

Positive impacts 
on market stability 
and prices but 
inefficiencies in 
the process 

Positive impacts 
on market stability 
and prices  

Positive impacts 
on market and 
prices and smaller 
costs of 
administration 

5 

4 

3 

2 

1 

The above table shows that option 2 and 3 match best the identified objectives.  Option  3  is 
likely to detects and deter energy specific market abuses most effectively because of ACER's 
overall energy expertise and its special focus. As ACER already exists the administrative cost 
of running the market monitor attached to this agency will also be lower when compared to 
option 2 where a new Agency would need to be set up. Market monitoring in Option 1a is less 
effective  than  in  Option  1b,  2  and  Option  3,  because  national  market  monitors  lack  the 
comprehensive view of energy markets which they would need to effectively and efficiently 
detect and deter energy specific market abuses involving cross-border, cross-commodity and 
cross-platform transactions  

Concluding from the above, option 3 is the preferred framework in which  market misconduct 
rules are defined on EU-level,  the wholesale market monitor is located at ACER and the rules 
are enforced by the Member States.     

9 

MONITORING AND EVALUATION  

Ongoing  evaluation  and  monitoring  of  the  implementation  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 reporting on market participants. Each of these issues should be covered 

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in a dedicated review report from ACER to the Commission two years after the application of 
the measures. 

Appropriateness of market abuse rules  

The aim is to use implementing legislation or guidelines to specify in detail how market abuse 
rules  should  be  applied  in  practice.  It  will  be  important  that  this  process  is  subject  to  full 
public consultation. The need for a more or less detailed specification of how general market 
abuse  rules  should  be  applied  to  energy  markets  will  have  to  be  kept  under  regular  review. 
However,  this  does  not  mean  that  these  concerns  should  not  form  part  of  a  more  general 
review of the effectiveness of the initiative. In particular this should be reviewed in parallel 
with the interaction with financial market regulation.  

Interaction with financial market regulation 

Only after a number of years of application will it be possible to draw conclusions about how 
the implementation of a tailor made regime for energy markets interacts with financial market 
regulation.  In  the  meantime  other  commodity  markets  may  have  developed  more  detailed 
sectoral oversight which will also need to interact with financial regulation and from which 
lessons may be learned. Just as the CESR/ERGEG report was crucial to the development of 
this initiative, it will be important that financial and energy regulators together review how it 
works  in  practice.  Without  prejudice  to  the  need  for  ongoing  cooperation,  a  proper  joint 
review should take  place  after five years of the implementation  of  the  new  market  integrity 
regime.  

Impact on MS level market oversight and Coordination of enforcement  

The  public  consultation  showed  strong  support  for  an  EU  level  initiative  to  ensure  the 
integrity of energy markets, this was combined with a desire to improve the effectiveness of 
national level monitoring and the relationship between national regulators and their markets. 
Achieving this will be crucial to the effective implementation of an EU wide market integrity 
regime, as national regulators bring much expertise as well as a deep understanding of their 
national markets.  

Our expectation is that this initiative will facilitate national level oversight, by providing more 
consistent and easy access to market data. It will also facilitate cooperation with other national 
regulators. Therefore ACER should report to the Commission after two years on the impact 
on  MS  level  oversight  of  energy  markets.  This  should  be  done  following  consultation  with 
national  level  regulators.  A  follow  up  review  should  be  undertaken  in  conjunction  with  the 
review on the interaction with financial market regulation.  

Effectiveness of EU level Monitoring 

The  effectiveness  of  EU  level  monitoring  should  be  reviewed  on  the  approximately  same 
timescale as interaction with financial market regulation and the impact on MS level market 
oversight.  However,  to  be  credible,  such  a  review  should  be  external  to  ACER.  Therefore 
following the ACER report on the Impact on MS level market oversight and Coordination of 
enforcement, the Commission should prepare a report assessing the Effectiveness of EU level 
monitoring.  

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Impact of transaction reporting on market participants 

One of the concerns which this initiative addresses is the risk of a proliferation of reporting 
obligations. Effective monitoring at an EU and MS level should be delivered by clear rules on 
transaction  reporting  which  allow  them  to  understand  what  is  happening  on  the  markets. 
However, easing the access to data by oversight authorities should not create an undue burden 
on  market  participants,  if  double reporting obligations are  inadvertently created. In part this 
should be covered by a requirement to consult when defining in detail the information which 
needs to be reported and the modalities for actually reporting. Therefore the assessment of the 
impact of transaction reporting on market participants should be reviewed in interaction with 
financial market regulation and the impact on MS level market oversight.  

Conclusions on monitoring and evaluation  

We envisage a monitoring and review schedule along the following lines: 

After two years a report from ACER to the Commission on  

• 

Impact of new regime on MS level oversight 

•  Experience  on  the  cooperation  between  national  level  authorities  including  in 

enforcement 

• 

Impact of new arrangements on market participants, particularly with respect to 
transactions reporting. 

Building  on  the  ACER  report,  the  Commission  to  review  to  effectiveness  of  EU  level 
monitoring. 

After five years, a joint review by ACER and financial regulators of the interaction between 
the  tailor  made  integrity  regime  for  energy  and  wider  financial  regulation  at  an  EU  and 
national level.  

Based  on  the  joint  review  by  ACER  and  financial  regulators,  the  Commission  should  then 
review the overall effectiveness of the tailor made market integrity regime. 

10 

LIST OF ANNEXES  

I.  Summary of responses to public consultation 

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Annex I 

SUMMARY OF RESPONSES TO THE PUBLIC CONSULTATION ON   

REGULATION ON ENERGY MARKET INTEGRITY AND TRANSPARENCY  

The Public Consultation on the questionnaire attached below started on 23 of May 2010 and 
ended on the 23 of July 2010. Responses were received from a wide range of organisations 
including,  Government  ministries,  Regulators,  industry  associations,  individual  banks  and 
energy and financial trading companies (in total 51 responses).  

Need for tailor made regime for energy markets 

(European  Federation  of  Energy  Traders 

Almost  all  respondents  agreed  that  there  is  the  need  for  a  tailored  made  transparency  and 
harmonised  market  integrity  regime  for  energy  markets  set  at  the  EU-level.  This  includes 
governments  of  France,  Germany  and  the  UK,  ERGEG  and  the  main  associations  of 
industries 
(EFET),  EURELECTRIC). 
EURELECTRIC  pointed  out  that  the  increasing  complexity  of  interactions  between  energy 
markets  makes  the  current  regulatory  framework  insufficient  and  a  simple  extension  of 
existing  framework  applicable  for  financial  markets  is  not  appropriate.  As  the  EFET  states: 
"…  based  on  the  above-mentioned  regulatory  gaps  and  shortcomings  -  a  sub-optimal 
oversight of energy wholesale markets exists, which hinders further market development. The 
current  regulatory  situation  does,  in  particular,  take  into  account  the  factual  situation  that 
energy wholesale markets are increasingly characterized by a wide range of actors (including 
utilities,  pure  traders,  financial  institutions  and  other  wholesale  trading  market  participants 
and  platforms),  cross-border  trade,  important  derivatives  markets  around  markets  in  the 
underlying  energy  products  and  increasing  liquidity  in  energy  wholesale  trading  activities. 
Various  different  national  regimes  and  authorities  do  not  fit  to  such  an  EU-wide  wholesale 
trading market." 

Majority  of  the  answers  stressed  that  a  tailor  made  regime  should  be  separate  from  the 
Marked Abuse Directive (MAD) and Markets in Financial Instruments (MiFID) Directive but 
shall  be  consistent  with  these  Directives  and  not  contradict  or  overlap  with  them.  This  was 
recognised  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". This reflected also the overall consensus about inappropriateness of fragmented, 
national schemes to fulfil the task of market oversight and the need to have a one-stop-shop 
place of reporting and avoid excessive administrative burdens on market participants. 

Similarly,  almost  all  respondents  agreed  that  there  was  a  need  for  detailed  definitions  of 
market misconduct taking into account the specificity of energy markets as well as differences 

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between gas and electricity markets. It was however stresses e.g. in response of Europex, that 
the MAD definitions are a good basis to develop those specific energy market definitions.  

As regard the scope of possible misconduct it is important to bear in mind, as ERGEG note in 
their  response  to  the  public  consultation  that  "in  many  cases  market  misconduct  would  not 
result  in  huge  impacts  on  market  prices  (e.g.  price  spikes)  but  rather  in  smaller  deviations 
from a 'fair and orderly' price. However the impact of this behaviour on the well functioning 
and trust in the markets should not be underestimated".  

Several  respondents  underlined  that  the  new  regime  shall  take  into  account  the  recent 
developments of regulatory regimes on the national level (governments of Germany, France 
and Saxonia).   

Only  a  minority  of  respondents  (notably  ENI,  Exxon  Mobile,  Statoil)  felt  that  the  current 
framework  is  sufficient  or  that  the  update  of  rules  shall  take  place  within  existing  rules  of 
MAD or MiFID.  

Oversight architecture 

There are two broad approaches how the oversight architecture shall look like. One, supported 
by the French, German and the UK governments proposes to define the applicable rules and 
provide for coordination of national regulators at the EU level. EnBW state that this could be 
combined  with  a  European  body  responsible  for  the  centralised  collection  of  data  and  first 
analysis. According to this approach the national regulators play the main role in monitoring 
of the markets. The approach model supported by government of Sachsen and many industrial 
organisations  and  companies  (EFET,  EURELECTRIC,  Bundesarbeitskammer  of  Austria, 
Oesterreichs  Energie,  Nordenergi,  E.ON,  Gas  Natural  Fenosa,  Verbund,)  foresees  market 
monitoring  on  the  EU  level.  Often  the  respondents  supporting  such  solution  agreed  that 
ACER  would  be  best  placed  to  provide  for  such  monitoring.  Nordenergi  underlined  the 
importance between monitoring and enforcement. In their view enforcement will have to be 
dealt  with  by  national  regulatory  bodies,  even  in  the  case  of  EU  level  rules  for  energy 
markets.  

Energy Commodity Traders Group pointed out that monitoring must not put burden on small 
companies who do not have a strong ability to influence market. The data shall be collected 
from trading venues.  

Independent  of  the  views  regarding  market  monitoring  there  was  broad  agreement  that 
enforcement of the rules established on EU level shall take place on national level.   

Scope of commodities covered 

The  respondents  broadly  supported  the  view  that  only  gas  and  electricity  markets  shall  be 
covered  by  the  new  regime.  Coal  and  oil  which  have  different  scale  and  prices  for  these 
commodities are formed on the world markets shall be outside of the scope. E.ON pointed out 
that  in  the  future  coverage  of  oil  and  gas  market  could  be  useful  but  it  is  not  needed  now. 
Some respondent e.g. BDEW, argued that the energy specific integrity framework should be 
electricity, gas and CO2.  

EN 

51 

   EN 

 
 
 
However  several  respondents  considered  that  ACER  would  be  the  appropriate  body  to 
oversee  and  monitor  CO2  markets,  including  the  London  Energy  Brokers  Association,  Gas 
Natural Fenosa and Verbund. France and ERGEG argued that the most efficient option would 
be to entrust financial regulators to supervise the CO2 markets and leave monitoring of this 
market to the national regulators. In justification of this statement, reference has been made to 
the findings of the Prada Commission Report (April 2010).    

There  was  broad  agreement,  supported  by  EFET,  EURELECTRIC  and  many  other 
organisations,  that  the  body  overseeing  the  energy  markets  shall  have  access  to  all  data  on 
CO2 trading.  

EN 

52 

   EN