Regulation No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT)
- Category: REMIT
The most prominent purposes of the Regulation No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT) are the prohibitions - in wholesale energy markets - of:
- insider trading, and
- actual or attempted market manipulation.
Nevertheless, the vast majority of market participants will at present be seriously engaged in fulfiling other, more bureaucratic parts of this legal instrument.
REMIT imposes obligations on market participants to:
Another aspect are obligations for persons professionally arranging transactions to establish and maintain effective arrangements to detect market abuse and to notify suspicious cases to national regulatory authorities. But do not forget to verify firstly whether you are in the REMIT's scope! Remember - REMIT applies only to market participants trading in wholesale energy products.
It is essential that Article 4(1) of REMIT (obligation to publish inside information) applies regardless of whether the wholesale energy product is financial instrument or not.
The second visible sign of the breadth of the REMIT reach is its application even to large consumers (having the consumption capacity of 600 GWh and more).
When it comes to jurisdiction, any wholesale trade whether physical or financial related to an EU delivery point falls within REMIT scope, regardless of the location of the counterparties - the issue which may be of particular concern for overseas players.
REMIT does not include any requirement for pre-trade or post-trade transparency to the benefit of market participants and for position reporting, it does not include either organisational requirements for trading venues (MiFID II Review report on position limits and position management, ESMA70-156-2311, 1 April 2020, p. 24).
Linkages with emissions market
The REMIT Regulation has indirect linkages with the carbon market. This is because ACER considers contracts for emission allowances (as well as green certificates) not to be wholesale energy products as they do not fulfil the requirements set out in Article 2(4) of REMIT. Hence, "in contrast to energy markets, spot markets of emission allowances do not fall under the realm of REMIT" (ESMA Preliminary report of 15 November 2021, Emission Allowances and derivatives thereof, ESMA70-445-7). ACER admits, however, that these contracts can have a significant price effect on wholesale energy markets.
According to Article 10 of REMIT, emission allowances or derivatives relating to emission allowances collected by trade repositories or competent authorities overseeing trading in emission allowances or derivatives thereof must be provided to ACER together with access to records of transactions in such allowances and derivatives.
Useful remarks on the REMIT’s application in the context of the Market Abuse Regulation (MAR) were included in the ESMA's Discussion Paper on MiFID II/MiFIR of 22 May 2014 (ESMA/2014/548). MAR became applicable 6 months before MiFID II except for those provisions which explicitly depend on MiFID II. The MAR predominantly applies to financial instruments; however, it also expressly extends the scope of the market manipulation and insider trading prohibitions to spot commodity contracts where any transaction or order in them or any behaviour in relation to them is likely to have an effect on the price or value of a financial instrument. The extension of the market manipulation and insider trading prohibitions in MAR expressly exempts "wholesale energy products" as defined in Article 2(4) of REMIT.
REMIT establishes a framework applying to wholesale energy products encompassing spot and derivative contracts in electricity and gas. While the REMIT obligation to publish inside information applies to both spot and derivative contracts in electricity and gas, the prohibitions of insider trading and market manipulation do not apply to financial instruments (i.e. derivatives in electricity and gas) where MAR prevails and financial regulators are the competent authorities.
In short, this combination of exemptions can be summarised by stating that wholesale energy products are exempted from the scope of MAR, except for the prohibitions of market manipulation and insider trading in electricity and gas derivatives where REMIT declares MAR as applicable.
REMIT compliance regime is made up, in particular, of following checks:
- determination what information in the company's potential possession meets the criteria for inside information in the wholesale energy market market participant trades in,
- precise identification of entry/exit channels for such information,
- setting up internal REMIT reporting systems,
- implementation of procedures for real time or close to real time disclosure of inside information,
- identification of employees and other persons who regularly come into contact with inside information,
- implementation of necessary firewalls,
- implementation of regular REMIT training program,
- implementation of monitoring systems and controls to detect and prevent REMIT non-compliance,
- designation of staff responsible for the constant update of the firm's REMIT compliance system,
- implementation of the REMIT compliance culture within the firm.
28 December 2011 marks the date of entry into force of the following REMIT provisions:
1) the prohibitions of:
- insider trading,
- market manipulation, and
- attempted market manipulation,
2) the obligation for market participants to publish inside information, and
3) the obligation for persons professionally arranging transactions to establish and maintain effective arrangements to detect market abuse and to notify suspicious cases to national regulatory authorities.
Other important dates for the REMIT implementation are:
- 7 January 2015 - REMIT Implementing Regulation No 1348/2014 date of entry into force;
- 8 January 2015 - the registration of Registered Reporting Mechanisms (RRMs) starts, ACER's REMIT Information System (ARIS) becomes operational, ACER publishes the REMIT Reporting User Package;
- 17 March 2015 - the European Register of Market Participants is established;
- 7 October 2015 - start of the first phase of data collection - date of entry into force of the REMIT reporting obligation for reportable wholesale energy supply and derivatives contracts executed at organised marketplaces and for ENTSO-E and ENTSOG fundamental data;
- 5 January 2016 - end date for the backloading of the first phase reportable contracts concluded and remaining outstanding before 7 October 2015;
- 7 April 2016 - start of the 2nd phase of data collection - date of entry into force of the REMIT reporting obligation for other reportable wholesale energy market contracts (OTC standard and non-standard supply and derivatives contracts, transportation contracts) and for additional fundamental data;
- 6 July 2016 - end date for the backloading of the 2nd phase reportable contracts concluded and remaining outstanding before 7 April 2016.
On 16 November 2023 the Council and the Parliament reached a provisional political agreement on the so-called REMIT II. The proposed REMIT revision aims to align the scope of the regulation with evolving market developments. Its key amendments included:
- expanded scope of data reporting, encompassing new electricity balancing markets, coupled markets, and algorithmic trading,
- extended scope of REMIT’s market abuse provisions to wholesale energy products that are also financial instruments,
- strengthened ACER oversight of Registered Reporting Mechanisms (RRMs) and Inside Information Platforms (IIPs) to improve the collection of inside information and increase market transparency,
- harmonisation of fines across National Regulatory Authorities (NRAs),
- reinforced cooperation between energy and financial regulators (ACER and the European Securities and Markets Authority (ESMA)), ensuring a robust regulatory framework for derivative wholesale energy products,
- enhanced role for ACER in complex cross-border cases with a European dimension, reinforcing market integrity,
- permanent extension of ACER’s powers related to the implementation of the Liquefied Natural Gas (LNG) price assessments and benchmarks.