Energy Regulation - REMIT: Further clarity on what constitutes inside information

In recent months the Agency for the Cooperation of Energy Regulators (“ACER”), the EU agency which oversees the Regulation on Wholesale Energy Market Integrity and Transparency (“REMIT”), has provided updated guidance on the definition of inside information and the prohibition on insider trading under REMIT.

ACER’s Q&A on REMIT responds to enquiries from Market Participants and other stakeholders, and continues to build on the previous guidance in respect of inside information and the insider trading prohibition (ACER’s “Q&A”).[1] It follows ACER’s 5th Edition of Guidance on the application of REMIT, directed to national regulatory authorities (NRAs), provided in April 2020 (ACER’s “Guidance”).[2]

This continues a trend of developing guidance relating to REMIT’s inside information publication requirements and the inside information prohibition, which has formed the basis of disproportionately fewer enforcement actions by NRAs than the prohibition on market manipulation since REMIT came into force, for example as we previously reported on here.[3]

We set out below some of the notable developments in ACER’s guidance.

Power plant capacity as inside information

The criteria for information to qualify as inside information is that such information is of a precise nature which has not been made public, which relates, directly or indirectly, to one or more wholesale energy products and which, if it were made public, would be likely to significantly affect the prices of those wholesale energy products.[4] ACER’s Q&A clarifies that the following situations may qualify as inside information requiring disclosure pursuant to REMIT:

• Situations of ramping up / down of a power plant;
• Unavailable capacity where a power plant is prevented from producing to its technical capability by environmental issues; and
• Shut down of a power plant.

Where a Market Participant is in receipt of information like the situations set out above, where such information qualifies under the usual inside information criteria, to trade on the basis of such information before it is made public may constitute a breach of the insider trading prohibition.

This position is emphasised by ACER addressing the use of live balancing reserve activations from Transmission System Operators (TSOs) received by a Market Participant before details of those activations are made public to the market. The Q&A confirms that asset owners should abstain from using such information to trade in wholesale energy products before the information is made public, as details of the activation of balancing bids give asset owners valuable information regarding the direction of the system’s imbalance and therefore may constitute inside information.

Assessing whether information amounts to inside information

ACER’s Guidance makes clear that responsibility for making an assessment of whether material amounts to inside information rests with Market Participants. The Guidance anticipates and suggests the implementation by Market Participants of internal compliance rules and an assessment framework (including, for example: appropriate qualitative and quantitative analysis to test the likelihood of a significant price effect; and insider lists, or mechanisms to identify insiders) to enable Market Participants to identify inside information.

The Guidance has been updated to include examples to assist Market Participants judging information to be each of the components of inside information, in particular precise information and significant price effect.

Precise information

ACER states information may qualify as sufficiently precise for the purposes of qualifying as inside information on the basis that there is a “realistic prospect” the fact it relates to will occur. An example of such information may relate to strike action which affects workers relevant to the normal operation of a generation unit, where there is evidence that such strikes have an impact on reducing production. ACER states this would amount to precise information, even though the strike action may still be cancelled and its duration may be uncertain.

ACER further confirms information can be precise without it necessarily being possible to infer from the information with a certain degree of probability what the potential effect on prices will be once it is made public (i.e. the test as to whether information is precise is applied to the information itself, not its likely effect. The likelihood of a significant price effect is a separate test).

ACER’s Guidance also states intermediate steps in a long process linked to future circumstances or events may be precise information: knowledge of the steps could constitute an advantage, and failure to treat such information as inside information could undermine REMIT’s purpose to keep Market Participants on equal footing and enhance market integrity with information symmetry. The Guidance gives the example of a situation such as the commissioning of a new plant. This involves various stages (board approvals, regulatory approvals, licence granting etc) capable of impacting the realistic prospect of energy being produced from a certain point in time onwards. Facts generated by each separate step could constitute precise information.

Significant price effect

ACER’s Guidance emphasises it is information that is ‘likely’ to have a significant price effect that constitutes inside information. No actual price effect is required. The assessment is to be performed by a Market Participant on a case-by-case basis. ACER provides factors relevant to the assessment, including:

• Characteristics of the market (size, timeframe, market design, liquidity, type of participants);
• Size of event;
• Information already published on supply or demand situation;
• Availability and unavailability of transmission facilities, storage or networks constraints;
• Time of day;
• Existence of announcements on other non-regular events;
• TSO announcements related to the system;
• Other market variables likely to affect the price of related wholesale energy product in given circumstances (weather conditions, CO2, news on political and geopolitical developments).

ACER again recommends Market Participants employ a systematic framework for the assessment of whether information is likely to have a significant price effect.

ACER states that NRAs may appraise Market Participants’ judgements of the likelihood of a significant price effect by reference to information available after the event in question. However, ACER states no action should be taken by the NRA where the Market Participant drew reasonable conclusions from the circumstances at the time.

Further development

ACER’s enhanced guidance is consistent with the ambitions of REMIT to develop the quality and symmetry of information in the market.

The developments may yet have an impact on the enforcement side: published enforcement activity by NRAs to-date has centred on market manipulation. Time will tell whether these constitute ACER-led steps towards further enforcement in this area. Nevertheless, it is clear that ACER expects Market Participants to ensure they have robust and justifiable procedures in place.

[1] ACER Questions & Answers on REMIT, 23rd Edition, Updated: June 2020, 30 June 2020.

[2] ACER Guidance on the application of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency, 5th Edition, 8 April 2020.

[3] See http://www.acer.europa.eu/nl/remit/Paginas/Overview-of-the-sanction-decisions.aspx

[4] REMIT, Article 2(1).