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Promoting transparency and integrity while preserving the liquidity and depth of European wholesale energy markets


14 Dec 2010


Euro & Finance


The European Federation of Energy Traders (EFET)1 welcomes the draft proposal for a Regulation on Energy Market Integrity and Transparency (REMIT) of the European Commission. This proposal aims to put in place a new EU regime for regulatory supervision of physically traded power and gas. It is an important first step towards ensuring a comprehensive market integrity framework for wholesale transactions, regardless of where in Europe they take place.

EFET has played a key role in promoting transparency in wholesale commodity markets and has supported the European Commission as it has developed its REMIT proposals. We welcome the move to put in place a harmonised European regime, whereby regulators may receive necessary information about transactions. Their access to such information should ensure that they can effectively monitor markets.

The future regime must, however, be carefully designed, so as not to harm the market, nor hinder its development. It will be important tightly to define (in implementing measures) what constitutes insider information and what may amount to market manipulation, in a manner suitable for the physical and commercial realities of the power and gas sectors throughout Europe. It is crucial that market integrity rules recognise the market structures and underlying physical characteristics of the commodities concerned.

EFET also urges the European Commission to clarify the powers and responsibilities of competent energy and financial regulators, in order to avoid duplications of function, constrain appropriately powers of investigation, and guarantee proportionate sanctions subject to a right of appeal. Regarding delegated acts the Commission will use, we underline the need for a transparent elaboration process, in close consultation with market

REMIT implementation should be properly coordinated with financial market supervision and controls. It must not duplicate other legislation dealing with supervision of commodity markets – particularly transactions in derivatives (see section 2 below) and carbon emission allowances.

2. Consultation on MiFID review

DG Internal Market of the European Commission has in parallel just launched a consultation on proposals to reform the application of the Markets in Financial Instruments Directive (MiFID) to commodity derivative transactions. EFET believes many of the ideas put forward by DG Market will impose a disproportionate burden on corporate Europe and could seriously undermine the achievement to date of a competitive single European energy market.

According to some of these ideas, power and gas market participants beyond the financial and investment sectors would be required to obtain MiFID licences. (Among other requirements) they would then need to hold regulated reserves of capital as if they were banks (assuming, as a result, linked derogations under the Capital Requirements Directive (CRD) would be lost).

Furthermore, simple forward agreements to deliver physical power, gas and other energy commodities might be treated as if they were sophisticated financial derivatives. Consequently, many power and gas utilities and even some large energy consumers would be brought within the sphere of financial regulation for the first time.

It should be recalled that the original purpose of MiFID and associated EU legislation is to protect investors. However, most companies engaged in energy trading do not take customer deposits, do not provide financial services to private individuals, and do not pose any systemic risk in the wider financial sector.

EFET warns that any initiative significantly to extend the application of MiFID and
CRD to energy transactions will endanger the progress Europe has made towards a single market in energy. It would hugely increase business costs, in particular for smaller wholesale market participants, thereby erecting significant new barriers to entry, and in turn jeopardising the liquidity and depth of wholesale power and gas markets across Europe.

For further information, please contact Ilaria Conti,, Tel: +32 485 613 773 or

Maria Popova, , Tel: +32 (0)2 737 11 01.