1. Energy Trading & Risk management
S.No. Date Article Key facts Regulations Trends
1 26-06-15
EU power traders rail
against national
interventions
Different capacity payment schemes leading to arbitrage
problem.
EU ETS - World's 1st major carbon market. It works on 'cap' and 'trade' principle.
Cap decides the maximum limit of emission. Company can receive or buy emission
allowance within the cap on a trading platform.
Differences in country-wise capacity mechanism is leading to deferred investments
in power sector. They are urging for a pan-European scheme.
Increased RE is increasing focus towards capacity mechanism
Phase-III(2013-2020) - Key points:-
Increased RE focus is changing the trading perspective from long to mix of short and
intraday trading.
Capacity mechanism implementation:- Spain(1996),
UK(2014) & France(2016).
1. Single, EU wide cap in lieu of national caps. IT enablement is the key to handle weather data.
EU emission trading system(ETS) will incentivize RE. It leads to
common carbon system.
2. Auctioning instead of free allocation will be used.
Negative prices are guiding the hedging programs.
2 25-06-15
European utilities face
perfect storm
Marginal cost of RE = 0
The hard hitting conditions like financial crisis after effects and emergence of RE is
creating a perfect storm for utilities.
Closing/mothballing thermal plants is not leading to price rise.
16GW thermal capacity is closed so far.
Increased RE is leading to reduced electricity consumption irrespective of change in
GDP.
European gas consumption is on fall. Its gas demand was 1460
bcm in 2013 which is same as of 1999. Even gas demand by
power generator is reduced by 51 bcm.
RE is garnering attention because of its zero marginal cost but utilities are missing
out the opportunity because of their late entry and slow RE adoption rate.
4 utilities net income fell by 80% between 2009 and 2014. Europe is even lagging in leveraging the fruits of natural gas(Shale) revolution. Their
gas consumption is low.
A holistic transformation and better risk management is the only helping hand for
all the utilities at risk.
3 18-08-15
Index publishers woes
endanger market
transparency
Price index deals with physical market, future contracts and OTC
derivatives.
Regulations are tightened after 2008 financial crisis.
Price reporting agencies(PRA) which publishes price index to facilitate transparency
are facing problems like lack of standardization and limited information access.
US bodies( CFTC & FERC) has increased enforcement.
2012- Madrid based International Organization of Securities Commission(IOSCO)
published 'Principle for Oil price reporting agencies'
This decreased voluntary data submission by participants is caused by strict scrutiny
by EU which may result in undesired market manipulation.
Cornerstone Research reveals 15% fall in the volume of trades
reporting at US gas hub in 2004.
4 29-09-15
Vendors slam
'uncooperative' energy
exchanges over Remit
Reporting vendors are not getting market data access from
exchanges
ACER - Agency for the Cooperation of Energy Regulators. It is the
Slovenia-based EU agency responsible for Remit.
Remit in its undertaking to challenge market manipulation & insider trading has
released trade reporting regime. It will be done through RRMs.
EFETnet stated 4 exchanges as 'uncooperative' which are as
follows:-
OMP = Organized market places
The problem is arising because participants must verify the submitted data of
transactions done on OMPs but 'uncooperative' exchanges are not ready to share
these data. So, it is expected to create a defeat situation in the Remit's
implementation.
1. APX
Remit = Regulation on Wholesale Energy Market Integrity & Transparency
2. EPEX Spot Trade reporting phase:-
3. Ice Futures Europe Phase I - Oct 7, 2015 - Report standard trades( Transactions on OMPs)
4. Nord Pool Spot Phase II - Apr 7, 2016 - Report of non-standard trades( bilateral transactions done
outside of OMPs)
RRMs= registered Reporting Mechanisms. 27 are approved so
far.
Trade reporting is done through RRMs which help ACER.
Nord pool create IT interface for data access by RRMs
5 19-10-15
Centrica keeps watchful eye
on new regulations
Regulations are the new risk.
EMIR - Energy Market Infrastructure Requirement. It is a body
of European legislation for the regulation of over-the-counter derivatives. It was
originally adopted on 2012.
It forces reporting of derivative contracts and implementation of risk management
standards. It established common rules for central counterparties and trade
repositories.
Aftermath of 2008 crisis came in the form of strict regulations for the market
participants.
Emir asked firms to centrally clear OTC derivatives trading and post margin against
it once the portfolio reaches a threshold. So, firms are adopting more of long term
physical contracts instead of financial derivatives to avoid the limit.
Banks retrieval from commodity market has reduced the market liquidity.
6 26-10-15
Surveillance of energy
markets set to increase
All trade data will be monitored by ACER under Remit. ACER will
then notify NRA which will take the decisions regarding imposing
the sanctions.
NRA - National Regulatory Authority Surveillance activity is going to increase.
Problems against successful Remit implementation:-
Remit provisions:- 1.Prohibition of
insider trading, 2. Prohibition of market
manipulation, 3. Obligation to publish inside
information, 4.Registration of market participants,
5.Reporting obligation, and 6.Market
monitoring and enforcement.
The mandatory reporting mentioned under Remit cannot give the fruitful result
unless underlying problems like data standardization, non-harmonized Remit
interpretation and poor data quality are resolved.
1. Lack of standardization in trading data to be reported.
Remit came in force in 2011.
Some steps in the regards of standardization has been taken by TRUM but it is in its
early stage.
2. ACER inability to process all the data. TRUM - Transaction Reporting User Manual
Faint demarcation between permitted and unlawful activities along with ambiguous
definitions are creating more hurdles.
3. Distinct approach in Remit interpretation by various EU
countries.
Art-2(2) of Remit defines manipulation as:-
- false or misleading orders/transactions
- price positioning
- fictitious device or deception
- dissemination of false or misleading information
4. Data quality
7 02-11-15
Mifid II sparks frantic
lobbying push by EU energy
firms
Non financial firms are electrical utility, Oil & Gas companies,
metal traders & industrialists, etc.
ESMA- European Securities and Markets Authority.
It is an independent EU Authority that contributes to safeguarding the stability of
the European Union's financial system by enhancing the protection of investors and
promoting stable and orderly financial markets.
ESMA in its exercise to fight speculation trading is empowered by Mifid II. It
published final draft regulatory technical standard(RTS) describing 'Ancillary
exemption test'.
Mifid-II - Markets in Financial Instruments Directive . It was
adopted by EU on May 2014. It is going to apply from Jan 3, 2017. It inspires to
bring more commodity into regulatory scope. These set of rules help in improving
the functioning of financial markets making them more efficient, resilient and
transparent.
EMIR - European Market Infrastructure Regulation
This test will set a threshold crossing of which will lead to Mifid licensing of non-
financial firms which is a costly issue.
Royal Dutch Shell is expecting $30bn capital to meet licensing
requirements.
Ancillary exemption test proposed by ESMA in its final draft Regulatory Technical
Standard(RTS) consist of-
In response, firms may either retreat from commodity market or restructure their
company into 2 branches, one operating under license and other dealing with
hedging activity.
Part -I :-
Firms are raising the doubt over precision of exemption test in the backdrop of
unreliable OTC market data, lack of clarity in instruments to be counted and tight
time constraint.
Ratio = (Non-hedging activity in commodity derivative/ total activity in commodity
derivative)
Its higher value represents higher speculation and consequently a lower market
share.

2. Part- II :-
Ratio = (non-hedging activity in a particular commodity by the firm/ total activity in
that particular commodity in EU)
ESMA published a paper regarding 'Capital Employed test' in
place of 'Ancillary exemption test' which was later scrapped. A threshold is set crossing which will lead to compulsion in licensing.
Licensed firms must comply with-
1. Capital requirements directive (CRD)-IV - It imposes bank like regulations.
2. They will be considered as financial counterparties under Emir with no hedging
exception.
3. Position limits- It must be followed by any firm trading on commodity
derivatives.
8 12-11-15
Epex pushes to unite
Europe's power markets
Challenges against single energy market is lack of product
integration.
Increased intermittency due to emergence of RE and urge for price reduction is
obligating for wider level exchange mergers. EPEX Spot has few achievements in its
pocket.
Mergers and events by EPEX Spot :-
2010 - French & German Intraday markets get connected
2012 - Market coupling between Czech Power Exchange,
Slovakia OKTE & HUPX
May 2015 - Epex Spot & APX
2014 - Epex Spot - Coupling of day-ahead markets in Northwest
Europe(NWE) region
2017 - Agreements with 7 power exchanges for Europe-wide
Intraday market.
9 19-11-15
French regulators defends
MIFID-II commodity rules
Objective of 'Ancillary Exemption test' is to capture
disproportionate speculative trading.
ESMA proposal of 'Capital employed test' was criticized because of absence of
common accounting standards used in it.
Problem of this test is the consideration of total trading as proxy
for size without due diligence to the fact that major capital of
firms are invested in hard assets.
The 'Ancillary Exemption test' is considered to be misleading because of false size
parameters and poor Trade Repositories data.
OTF enjoys discretion to execution but subjected to pre-
transparency and best execution obligation.
Mifid provisioned for Organized trading facility(OTF). OTF is to take care of non-
regulated activities.
New OTF mechanism is creating debatable situation regarding products falling in
the scope of regulation.
10 08-12-15
Shell may shift trading to US
or Singapore over Mifid II
Industry is criticizing Esma's ' Ancillary business exemption test'
because of its strict regulations leading to higher cost. Mifid II set to come into force on Jan 3, 2017.(probably)
Major firms like Shell are considering restructuring as a tool in the wake of Mifid II
arrival.
Mifid II is even considered to be more burdensome than US Dodd-
Frank Act.
Shell may move its trading activities to US or Singapore. Ice futures Singapore can
provide a helping hand but it may also create a pitfall of regulatory arbitrage.
Atlanta based exchange operator Intercontinental Exchange(ICE)
is considering moving its benchmark Brent crude oil futures
contracts to New York from London.
Restructuring will help in segregating activities into Mifid licensed activities &
hedging activities.
11 14-12-15
Stricter EU collateral rules
threaten Nordic power
market
Nordic countries:- Denmark, Finland, Iceland, Norway & Sweden
New collateral rules- It is coming into
effect from Mar 2016 after 3 years of grace period (since Mar 2013). It restricts
bank guarantee to be used as collateral in derivative transactions.
New collateral rules will prove to be a costly affair especially for Nordic market
where 86% of all collateral comprises of bank guarantees and Deferred Settlement
Futures(DSF) is extensively used.
Banks collateral is considered to be safe as correlation between
energy sector and banking is low which means their chance of
defaulting on same time is negligible.
As a way out, firms are adopting following ways:-
1. Trading less
Collateral cost may account to €128 million across Europe
according to European Association of CCP Clearing Houses. 2. Moving towards bilateral market.
Collateral cost rise:- +500% in Iberian market & +1000% in
Nordic market.
3. Clearing through general clearing member (GCM).
4. Posting collaterals in the form of cash, stocks or bonds.
12 23-12-15
Ending Emir hedge
exemption conflicts with
Mifid II, forms say
Clearing Threshold = $ 3.3 bn in Gross Notional Value. It identify
whether a firm is NFC+ or not.
NFC+ = Non-financial counterparty plus. These firms must clear all trades.
Currently, only non-hedging activities are considered for calculating for the
threshold limit.
RTS = Regulatory Technical Standards
ESMA in its RTS for Mifid II provisioned for hedging exemption but now its proposal
to EC is asking to consider all hedging and non-hedging trades towards clearing
threshold. It is done to remove complexities associated with hedging exemption.
Hedging exemption removal will prove costly for the firms.
13 11-01-16
Energy firms urge EC to ease
Emir clearing rules
Energy firms are reviewing Emir which is conducted by Europe
Commission. Emir came into force in Aug 2012. In the active participation in the review, firms suggestions are as follows:-
Emir imposes trade reporting, clearing and risk mitigation obligations. 1. Exclusion of Intragroup activities-
NFC = Non financial counterparty
It is done so as to get rid of unnecessary multiplicity of transactions.
Emir rule regarding NFC+ is :- 2. Extraterritoriality -
If GNV of non-hedging activities crosses threshold, then stringent obligations like-
clearing of OTC derivative business including hedging, strict reporting and risk
management will be imposed.
Trade outside EU have to face multiple regulations from multiple territories.
Even non-Eu exchanges are considered equivalent to OTC trades and counted for
clearing threshold even though these transactions are already cleared.
3. Netting -
Netting is allowed against clearing threshold but it is grappling with the faulty
criteria for contents to be netted like all must have same type, underlying and
maturity status.
No smaller time fragmentation of hedging product i.e. cascading is allowed.
4. Emir's reliance on GNV
Calculation of all outstanding transaction towards threshold is leading the firms to
adopt shorter maturities transactions.
14 28-01-16
Mifid II one-year delay not
enough to solve problems,
energy industry says
EC asked for opinions on Emir rules.
Mifid II implementation is facing a bumpy ride as : -
Energy firms want to remain outside the onerous system of Mifid
II
TR - Trade Repositories
1. No definition of financial instruments are confirmed yet.
2. Rules of exemption test is unclear.
3. Business size is posing problem because of lack of quality data from TR and large
number of unrecorded OTC bilateral transactions.

3. Firms are in confusion over their future strategy.
15 18-02-16
New EU market abuse rules
worry energy traders
The Mar & the accompanying Directive for Criminal Sanctions on
Market Abuse will prohibit insider trading and market
manipulation in derivatives markets.
Mar (Market Abuse Regulation)- It ask for
mandatory disclosure of inside information to spot market. It will become law
across the European Union on July 3, 2016.
New stricter rules under Mar will seek insider trading and manipulation.
Market participants asking to release 'Accepted Market
Practices'.
Market Abuse Directive(Mad I), 2003 is Mar's precursor. It covers core Regulated
Market(RM) whereas Mar will cover RM, MTFs and OTFs.
It will shift the industry from voice based OTC to on-exchange and electronic
trading. Voice based will remain only for matching buyers & sellers.
Problems against its implementation:-
Esma is yet to release definition of insider information and its exceptions. Surveillance is the key against manipulation. Firms are adopting technologies like
'Smarts ' by Nasdaq.
1. Regulatory unclearity.
Mar scope derived from Mifid I which gets modified after Mifid II implementation.
Firms are forced to adopt a cautious approach.
2. Difficulty in identification & situation analysis.
3. Owner of insider information is unknown so there is a need of
clear demarcation of responsibilities.
16 24-02-16
EU capital rules for energy
traders not as bad as feared-
pwc
Portfolio risk depends upen counterparty credit risk(CCR). It is
representation of counterparty's inability to fulfil its obligations. Mifid II is expected to come on Jan 2018. pwc presents a positive picture of new capital rules like Mifid II and CRD IV. It
reports:-
Firms under Mifid II must comply with CRD IV which ask parties to set aside
regulatory capital according to size and risk-weighting of derivatives portfolio. 1. Capital charge rules may get updated resulting into 40% savings.
2. All intragroup trades merging into same netting arrangement may reduce capital
charges by 10%.
3. Collateral should be used.
4. Early bird catches the worm.
Traditonal methods to measure CCR:-
Traditional CCR measurement methods lack risk sensitivity. So, Basel committee
released 'Standardised approach to CCP'(SA-CCP)'. It will be in effect from Jan 1,
2017.
1. Current Exposure method (CEM)
2. Standardised approach(SA)
17 15-03-16
EU position limits pose
headaches for national
regulators
Position limits opposes speculative trading. Mifid II proposed position limits set by Esma. Mifid proposal of position limits is facing difficulties which are-
OTC likely to trade on Organized Trading Facility(OTFs). It is
created by Mifid II.
NCA - National Competent Authority 1. Wide variation in contracts, and
Esma's technical standard being reviewed by Europen
Commission(EC). A decision will be made in first half of 2016. 2. Tough information gathering related to OTC bilateral contracts.
Country specific NCAs are in onus with setting the limits for their country.
18 21-03-16
EC sides with big energy
companies in Mifid II spat
EC revision sent to Esma is regarding ancillary exemption test,
position limits for commodity derivatives and non-equity
transparency.
EC asked to restore 'capital employed test'. Firms are opposing exemption test as
big, capital intensive firms are misclassified as their capital is employed across
different assets and units.
It must be paid attention that entitiy employs various means to hedge like physical
and financial other than commodity derivatives.
The final decision by Esma is uncertain.
19 21-04-16
Banks push e-trading of OTC
energy derivatives
Single Dealer Platform(SDP) - It is a
software used in the capital markets to deliver trading and
associated services via the web. It integrate information from
multiple sources and provide its access via a single user
interface. So, it is an integration platform and a delivery
platform.
Mifid II pre-transparency rules:- Dealers
must broadcast prices of OTC trades to all clients.
Client interest and regulatory changes are forcing the investment banks to move
towards e-trading away from trading by voice method. This e-trading is leading to
the use of SDP. But SDP limitation lies in mono dealership which leads to absence of
bank competition.
Drivers of electronic trading:-
Energy derivatives are late in joining SDP because it used to be trade in futures and
usage of screen-based tools were in dominance.
1. Client enthusiasm
2. Regulations-
(a) US Dodd-Frank Act & EMIR - It ask for reporting OTC trades to repositories at
the earliest.
(b) Mifid II(from Jan 2018) - it states that price quoting of OTC contracts must be
declared to all clients.
Banks with their SDPs:-
Bank SDP
Goldman Sachs Marquee trader
Societe Generale SG Markets
JP Morgan JP Morgan Markets
Screen Based trading tool is the computer based punching of
prices and quantities of share.
20 14-04-16
EU energy firms 'working in
the dark' on remit reporting
Bilateral trades include OTC, structured trades, secondary
capacity tradfes and PPAs.
Bilateral power & gas trades must now be reported under Remit.
Remit in its attempt to detect market abuse and manipulation came out with RRMs
but it is grappling with issues like information complexity and lack of
standardization.
Reporting problems:-
Remit reporting II phase (from Apr 7, 2016)- It involves
reporting of bilateral trades(OTC versions).
Acer, the appointed monitor for any misconduct, has released table with proper
classification and standards but evem it is facing guidance problem with table-3 &
$.
1. Transactions complexity like multiple moving parts as in
contingent optionality clauses
Under Remit, firms must report to 'Registered reporting Mechanism'(RRMs) for
passing the information which will ultimately reach to regulators.
So, reporting is still in the dark.
2. Lack of regulatory guidance from Acer ACER - Agency for the Cooperation of Energy Regulators. It monitors for
any misconducts.
3. Lack of standardization
Acer transaction table:-
Table 1 - Standard OTC trades
Table 2 - Supply contracts
Table 3 - Primary transport contracts, capacity trades & long term transmission
rights
Table 4 - Pipeline & secondary capacity trades
Extra - Fundamental table
21 28-04-16
Transparency may be
hazardous to your wealth
Relief in post trade disclosures are applied through exemptions
provided by ESMA which are as follows:- Mifid II(Jan 2018) :-
Esma's Mifid II disclosure rules regarding transparency is uncertain. Its provision of
broadcasting quotes to all clients is pushing banks to form their own SDPs.
1. It is applicable for contracts deemed liquid as of now. 1. Bank commodity desk is imposed with transparency requirements. SDPs are in problem because of speedy algorithmic traders or HFTs.
2. Threshold is set crossing which will lead to no disclosure
obligation-
2. Banks will be considered as Systematic Internalisers(SI) in OTC market.
Even post-trade disclosures may get ill-affectred by opportunist traders. Esma has
put up some exemptions but all these go in vain as liquidity study and threshold
level is inappropriate.
(a) Large in scale(LIS) SI rules-
(b) Size-specific to the investment(SSTI) (i) They must broadcast quote(bids & offers) to all clients.
(ii) Price & size of trade must be disclosed after execution.
22 25-04-16
Mifid II transparency rules
shake up bank commodity
desks
HFT - High frequency traders. Their
execution speed is high. Mifir & Mifid II -
Pre and post trade transparency rules are affecting the banks drastically in
following ways:-
SI - System Internalisers 1. It imposed pre- and post-trade transparency rule. (a) Banks may be classified as SI.
2. SI - . (b) They will move towards e-trading and so SDPs will emerge.

4. Single Dealer Platform(SDP) - It is a web
based software used in the capital markets which integrate
information and provide its access via a single user interface.
Mifid defines it as entities that trade a given product on a "frequent, systematic &
substantial" basis, using their own capital.
Quote broadcasting rule is expected to face problems from HFTs.
(a)SI classification will be based on market share based test.
Liquidity analysis seems to be tricky in absence of quality data from repositories.
(b) SI must broadcast quotes to all clients so that no differentiated pricing for
preferred clients arises.
It all result into massive investment and system upgradation.
23 27-04-16
EU benchamrk proposal may
hit commodity index
publishers
Price reporting agencies(PRAs)- They publish
spot market indexes. The 3 major PRAs are - Platts, Argus & Icis. EU's new benchmark rules is in response to Libor Scandal.
Mifid II definition of 'Supervised Entities' is strangling the data access freedom of
PRAs as their benchmark depends upon voluntary contribution from firms.
Firms are preferring IOSCO's PRA principles published in Oct
2012.
Mifid II - It proposed for contributing firms to be termed as "Supervised entities". It
will be decided by Mifid licencing rule as done according to 'Ancillary exemption
test'.
But fear of crossing 50% threshold and involvement of more firms under Mifid II will
lead to lesser contribution from firms. It will drastically result into-
Proposed 3 tier hierarchy for financial benchamrks:- 1st and 2nd tier face stict rules:- 1. Less robust and transparent indexes.
(i) Critical - referenced by > €500 billion (a) oversight committee 2. PRAs in response may delist few benchmarks.
(ii) Significant - referenced by > €50 billion (b) Auditing
(iii) Non-significant - referenced by < €50 billion (c) Accountability unit
(d) Risk management framework
Code of conduct to specify contributor's responsibilities.
24 03-06-16
EU energy firms kept waiting
by standoff over Mifid II
Firms wanted to stay out of Mifid II. The 'Ancillary exemptiont
test' which was a deciding factor in this is in unclear state.
EC - Europen Commission
A disagreement between Esma & EC regarding the firms' size (main business) with
respect to 'Ancillary exemption test' is leading to frustration among EU energy
companies as regulatory clarification is getting delayed.
Esma refused EC amendments on Regulatory Technical
Standard(RTS).
ESMA EC
* Firm's size should depend on trading activity.
* 'Capital employed' should be a supplement only. * 'Capital employed' should be used for size aspect.
25 06-06-16
Beware the hype around
analytics
Big data analytics use is on rise because-
Analytics has transformed once-opaque markets and providing competitive edge
but it needs to be supplemented with scepticism.
(i)Data surge due to the electronification of energy trading
Benefits to energy firms:-
(ii)Increased computing power is helping in better modelling and
stimulation.
1. Saving on working capital is leading to reduction in Value at risk(VAR).
(ii) Increased profit and efficiency can be achieved by inherent
assets & contracts.
2. Better hedge portfolio management.
(iv) Increased market complexity due to intermittent renewable
energy.
Ex- Thomson Reuters Eikon, Genscape
26 07-06-16
Esma changes to position
limits as 'sensible'
Position limit - It is a part of Mifid II. It imposes caps on net position firms can take
in exchange traded commodity derivatives and OTC.
Esma gave a new hope to firms by revising the position limits in a mix way on the
demand by EC but final decision is yet to come. These are-
Position limit is covered under RTS 21. (i) Food derivatives were tightened to 2.5% limits.
Esma adjusted position limits imposed on commodity under
Mifid II
Esma's definition of deliverable supply states- substitute grades or types of a
commodity that can be delivered in settlement of a commodity derivative contract.
(ii) New & illiquid contracts are eased (50% expected).
Firms are in advantage that they can offset the 'net off venue' by
'on-venue contracts'.
EC - Europen Commission
Positon limits is set by National Competent Authoity(NCA).
27 24-06-16
EU energy firms fret over
'massive' impact of CRD IV
EBA - European Banking Authority Mifid II - It proposes CRD IV.
Mifid II in its requirement of CRD IV will impose heavy obligation for commodity
trading firms if they do not qualify for 'Ancillary Exemption test'.
EBA's report is a relief for firms owing real assets as their risk
was assumed to be less than investment firms.
CRD IV is the EU's version of Basel III bank capital rules. It took effect in Jan 2014
but commodity trading firms were exempted at that time.
Esma & EC are working with EBA for structuring capital requirements for
commodity trading firms.
Mifid II will apply to Britain's firms as Brexit departure will take at least 2 years even
if Mifid II is taking effect on Jan 2018.
28 23-06-16
European energy regulators
step up market surveillance
Remit data can identify market abuse. Remit -
Europe regulators have ramped up their effort of surveillance and data collection as
per guided by remit.
RRMs - Registered Reporting Mechanisms
1. It avoid abuse and manipulation in EU physical gas & power market.
This surveillance effort is seen by firms as a data flood burden.
Acer will be releasing Transaction Reporting User Manual(TRUM)
on reporting guidelines.
2. Data transfer flow:-
Problems against surveillance:-
1. Data quality especially of non-standard bilateral transactions.
2. Identification of worthy disclosures.
3. Reporting phase:-
* 1st - Oct 2015 - Standard trades
* 2nd - Apr 7, 2016 - Bilateral trades
29 22-06-16
Shell compliance chief
rues'perverse outcome' of
Mifid II
A way out for energy firms(smart moves):- Mifid II -
Inappropriate result of Mifid II can fragment the liquidity and cause regulatory
arbitrage.
(i) Shift away to lighter regulatory regime.
1. It imply bank-like capital requirements on commodity focussed companies which
are unable to pass exemption test.
Firms must adopt some smart moves to keep itself away from costly Mifid II regime.
(ii) Move towards physical contracts from derivatives.
2. Physically settled contract traded on OTF will not be classified as financial
instruments under Mifid II and doesn't count towards threshold.
(iii) Shift to other trading venues like EEX which is seeking OTF
status.
Organized Trading Facility (OTF)- It is any facility or system designed to bring
together buying and selling of financial instruments.
(iv) Move to non-EU countries as Switzerland.
30 30-06-16
Trade surveillance slow to
catch on at energy firms
Regulators will carry out surveillance as they are equipped with
complete market picture due to trade reporting mechanisms in
place.
Market Abuse Regulation(Mar)- It aims at
enhancing market integrity and investor protection. It provides a defense if the
transaction was legitimate and in accordance with market practices accepted by
the competent authority which are referred to as ‘Accepted Market Practices’
(AMPs).
Esma's regulation to fight market indiscipline came in the form of Mar.
Low priority- 84% out of 245 industry professionals surveyed
didn't use surveillance in 2016.
Esma :-
It is stimulating firms to adopt automated trade surveillance system. It will help
them to get informed internally on any wrongdoings though currently the adoption
pace is slow.
Firms with inadequate surveillance will be fined. It released EU Mar and Directive for Criminal Sanctions on market abuse taking
effect in EU on July 3, 2016.
But it represents a good start by the creation of internal data repository as of now.
Problems with existing monitoring by firms:- It is against market manipulation and abuse.
(i) These are product specific and not cover across commodities. Mar will apply Remit-type regime to commodity derivatives and spot markets. It
impose market surveillance to be carried out by firms.
Firms RRMs
Regulators +
Central
repository of
ACER

5. (ii) They are using in-house solutions and hence lacking in cross-
market manipulation.
31 06-07-16
No need to be negative
about negative prices
Negative price - Lessons:-
The phenomenon of negative price should not be seen with cynicism as it is only a
rare activity and it guides for a better strategy formulation to enhance efficiency.
1. It is caused due to combination of huge wind & solar influx at
the time of low demand and insufficient transmission capacity. (i) Better empower consumer to shift their demand pattern accordingly.
2. It forces the firms to pay for privilege. (ii) Flexibility is important.
3. Germany was the first country to observe it. (iii) It foster grid level storage which can act as a 'round the clock profit machine'.