There are grounds for applying certain regulatory guidance elaborated under financial instruments’ market abuse regime to wholesale energy products regulated by the REMIT Regulation. The best practice for the treatment of rumours seems to be good example.
These points might also be of relevance for emitters of greenhouse gases, considering interdependencies between electricity and carbon price curves and the future potential covering of emissions allowances by the financial instruments legislation.
REMIT Regulation is relatively new legal act and therefore currently lacking in comprehensive regulatory guidance with respect to all practical issues involved in its application. However, given the strong interlinkages between the scope for REMIT and the financial instruments’ legal environment for the market abuse prohibition (delineated by the Directive 2003/6/EC – MAD), MAD regulatory guidance can be taken into account as a makeshift help in ambiguous situations. Among these the MAD best practices on treatment of rumours seem to be suitable to be exploited by electricity generators coping with misleading pieces of information appearing in the media and regarding for instance technical capacities of the generating units or other data covered by REMIT disclosure obligations.
Guidelines on Market Abuse Directive Level 3 – Third set of CESR guidance and information on the common operation of the Directive to the market’ of 15 May 2009 (Ref.: CESR/09-219) stipulate that ‘in general, other than in exceptional circumstances or unless requested to comment by the competent regulator pursuant to Art 6(7) of MAD, issuers are under no obligation to respond to speculation or market rumours which are without substance.’ In that regard issuers are also under no obligation to respond to false rumours.
It seems that in the preceding and following remarks the references to ‘issuer’ (applying on the MAD ground) could be read as considering – transferred into the REMIT regulatory environment - the electricity generator whose generating units are the subject of the hypothetical situation of the rumour appearing on the media. Such substitution is justified by the factual and legal analogies between the market abuse regimes applying for financial instruments and for wholesale energy products covered by REMIT.
Adopting the above assumption it should be noted that according to the CESR guidance at issue ‘as a matter of principle, it is not because such a publication has been published or because there is a rumour in the market about an issuer that this issuer should, by this mere publication or the existence of that rumour, be prompted to react and respond by denying, in part or in whole, the content of the relevant publication or rumour’.
The above CESR guidance relate to publications, e.g. articles published in the press or internet postings, which are not resulting from the electricity generator’s initiative in relation to its disclosure obligations and that the electricity generator is aware of or ought reasonably to be aware of.
The CESR recalls, furthermore, that pursuant to MAD an issuer is obliged to publicly disclose as soon as possible any inside information. It can decide to delay the publication provided that it fulfils the conditions of the Directive: protection of its legitimate interests, omission not likely to mislead the public and confidentiality is ensured.
It should be noted that the same premises for the legality of the potential delay of the publication of inside information apply under Article 4(2) of the REMIT Regulation.
CESR guidance mentions, however, one important exception to the rule of no obligation to respond to false rumours. It applies ‘if and when the relevant publication or the rumour relates explicitly to a piece of information or information that is inside information within the issuer, the latter is expected to react and respond to the relevant publication or rumour as that piece of information or that information is sufficiently accurate to indicate that a leak of information has occurred and, thus, that the confidentiality of this inside information is no longer ensured. In such circumstances, which should be the exception rather than the rule and should be examined by the issuer on a case by case basis, a policy of staying silent or of “no comment” by the issuer would not be acceptable. The issuer’s reaction or response should be made publicly available in the same conditions and using the same mechanisms that those used for the communication of inside information, so that an ad hoc announcement has to be published without undue delay.’
The electricity market developments observe multiple speculations in the media dealing with issues potentially within the scope of inside information in the meaning defined by REMIT. Fluctuations in the price for electricity strongly influence also on the valuations for CO2 emissions allowances, thus the proper functioning of the market abuse regime introduced by REMIT with respect to wholesale energy products and particularly timely and appropriate publication of inside information by electricity generators has significance also for emissions trading sector.
It seems therefore that the said CESR regulatory guidance as regards rumours can be exploited by traders on both markets as well as suppliers exercising the obligation for publication of inside information, i.e. mainly electricity generators.