Reporting for non-standardised wholesale energy market contracts under REMIT Regulation will not be an easy task for market participants.
Given the non-standardised contracts are to be reported to ACER directly by market participants (and not by trading venues), the former are allowed more time for contract verification against reporting schedule. The one-month period seems to be sufficient for such an assessment even when it comes to complex and complicated contracts. Moreover, mandatory submitting to the ACER the pdf file of the entire contract enables additional examination of the contract by ACER services.
The one of the main axis of the ACER’s (Agency for the Cooperation of Energy Regulators) Public Consultation Document (PC_2012_R_10) of 21 June 2012 containing ‘Recommendations to the Commission as regards the records of wholesale energy market transactions, including orders to trade, and as regards the implementing acts according to Article 8 of Regulation (EU) No 1227/2011’ (further: ‘Recommendations’) is the proposed division between standardised contracts and the non-standardised ones.
The update reflecting the content of ACER final Recommendations as regards the records of wholesale energy market transactions, including orders to trade, according to Article 8 of Regulation (EU) No 1227/2011 of 23 October 2012, made to the European Commission can be accessed through the following link.
The said differentiation (however the precise definitions for the two of the above categories are currently lacking) has further consequences in the reporting regime proposed by the ACER.
The segregation envisioned is quite clearly delineated as Recommendations contain the two entirely separate Annexes:
- Annex II.1 - Record of Wholesale Energy Market Transactions, including Orders to Trade, in Standardised Contracts. and
- Annex II.2 - Record of Wholesale Energy Market Transactions in Non-Standardised Contracts.
Considering the issue, the reservation should be made that ACER honestly mentions the preliminary character of its analysis and asks participants about their views on the topic, however, given the ACER’s central role in the European energy market and specifically within the REMIT framework (Regulation (EU) No 1227/2011 on wholesale Energy Market Integrity and Transparency), the ACER’s views, even preliminary, shed some light on how the potential transaction reporting under REMIT could in the near future look like.
Specifities of the non-standardised wholesale energy market contracts
So, ACER poses the general thesis that the records of transactions established pursuant to the REMIT Regulation should distinguish between standardised and non-standardised contracts.
Any change in price and quantities should be reported as a new transaction.
Elaborating on the issue it observes, market participants, particularly in the gas markets, enter into complex long term transactions on a bilateral basis (so-called non-standardised contracts) where it is often not possible to identify precise quantities, nor price at the time of execution. Such mechanisms require different prices for each time period of delivery within the overall delivery time-range and are based on pre-agreed indices, the nature of which tend to be complex and highly individual.
ACER indicates that all such terms and optionalities are, however, agreed between counterparties before execution. In addition, quantities to be delivered have a high degree of optionality. Therefore, for these complex arrangements that fall outside of an organised market place’s list of tradable instruments, a reporting regime that respects these highly customised contracts is required.
Specifically as regards reporting of transactions in non-standardised contract ACER concludes that it should be made to by filling the mandatory fields and ‘as many additional fields as possible’ of the record of transactions.
Furthermore, any change in price and quantities should be reported as a new transaction.
Both reporting of transactions in standardised and non-standardised contracts should include lifecycle information of a transaction, including confirmations, amendments, cancellations and, depending on the physical or financial settlement of the transaction, information on the contractual right for physical delivery which may include the use of optionality/flexibility at the agreed point in time after execution (“scheduling/nomination”) or information whether the transaction was cleared or uncleared as post-trade information.
ACER is minded that whilst information on whether a transaction was cleared or not can be dispelled as a separate field in reporting format, information on scheduling/nominations, which is considered vital to understand physical flows between markets as well as within markets and providing an overview on overall transaction activity of market participants, should be reported by TSOs, or third parties delegated by TSOs, on behalf of market participants. TSOs are considered as being naturally in the position to deliver such aggregated data on a daily basis under REMIT.
Differences in reporting standardised and non-standardised contracts
1. RRMs use
The Agency considers that an obligation to report records of transactions in standardised contracts through organised market places, trade repositories and registered reporting mechanisms (hereafter referred to as “RRMs”) could be introduced, in a similar way as in the EU financial market legislation.
However, transactions in non-standardised contracts should be reported directly to the Agency.