REMIT Regulation: Energy Market Integrity and Transparency

The legislative review of Regulation (EU) 1227/2011, which addresses the integrity and openness of the wholesale energy market (REMIT), has reached a critical point following almost a year of discussion. The proposed revisions to REMIT were officially approved by the European Parliament in a plenary session on February 29, 2024. The Council promptly approved the adjustments on March 18, 2024. Regulation (EU) 2024/1106, the updated law that strengthens the Union's defenses against market manipulation in wholesale energy markets, was then released on April 17, 2024, in the European Union's Official Journal. The amended REMIT, which is slated to go into effect on May 7, 2024, adds a number of new clauses with different deadlines for application.

To put things in perspective, these changes were a part of a larger proposal that the European Commission (Commission) put up as part of the package known as the Electricity Market Design on March 14, 2024. This package included amendments to Directive (EU) 2019/944, also called the Electricity Directive, and Regulation (EU) 2019/943, also called the Electricity Regulation. The most major revisions to REMIT since its establishment more than ten years ago, the modifications hold great significance for stakeholders in the European wholesale energy markets.

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REMIT II: Wholesale Energy Market Regulation in the EU

REMIT amendments approach finalization: European Parliament voted on 29 Feb 2024, followed by Council approval on 18 Mar 2024. Pending Official Journal publication, certainty arises regarding upcoming changes.

GrandAlessandro Micagni

EMIR Regulation: Obligation for Third-Country Market Participants to Designate a Representative

A crucial and controversial proposal in the legislative review of Regulation (EU) 1227/2011, often known as REMIT, concerned the requirement for market participants from third countries to establish a presence within the European Union (EU). Following a protracted discussion, a solution was achieved that mandates non-EU market participants appoint a representation within the EU. In order to facilitate compliance with REMIT regulations and enforcement proceedings, this representative plays a critical role as a point of contact for regulatory agencies. The enacted amendments introduce noteworthy modifications with the objective of augmenting supervision and collaboration within the wholesale energy markets:

• Representative Designation: By November 8, 2024, non-EU market participants must name a representative inside the EU. In their capacity as a liaison with national regulatory agencies (NRAs) and regulatory bodies like the Agency for the Cooperation of Energy Regulators (ACER), this representative acts on behalf of the market participant.

• Function and Accountabilities: The appointed agent bears the responsibility of guaranteeing effective and punctual collaboration with ACER and/or NRAs. They must have the power and resources required to abide by rulings made by regulators and information requests, including giving access to pertinent data.

• Requirements for Notification: Market participants shall inform their NRA of the name, email address, mailing address, and phone number of their designated representative. The CEREMP portal is the primary means of communication for most participants; however, individuals enrolled in Italy, Romania, and Slovenia are exempt and must contact their NRA directly.

• Recommendations and Guidelines: ACER is authorized by REMIT II to provide recommendations and guidelines for the implementation of the designated representative requirement. The purpose of these recommendations is to guarantee uniform implementation throughout Member States by offering regulatory bodies and market participants alike clarity and direction.

Coordinating Definitions: Aligning REMIT and MAR for Insider Information and Market Manipulation

Regulatory authorities have taken action to harmonize REMIT with Regulation (EU) 596/2014 on market abuse (MAR) in recognition of the growing interconnection between the wholesale energy and financial markets. The REMIT amendments extend the definition of market manipulation to include a wider range of actions that may unduly affect energy prices or distort market signals. Furthermore, by stressing that information at any point in a process, including intermediate processes, may qualify as inside information, the updated REMIT harmonizes the concept of inside information with MAR. It also makes clear that REMIT functions in tandem with EU competition law and other financial rules like EMIR, MiFIR, and MiFID to provide a thorough regulatory framework for wholesale energy markets.

Broadening Horizons: Expansion of Wholesale Energy Product Definition under REMIT

Regulation (EU) 1227/2011 (REMIT) is based on a definition of wholesale energy products that determines how far it can be used in the energy markets. This definition has undergone some major changes recently, which represents a critical development in REMIT's regulatory framework. In order to ensure thorough market monitoring and reflect the changing character of the energy environment, these modifications seek to include a broader range of energy transactions and derivatives.

Key Developments:

• LNG Inclusion: Liquified natural gas (LNG) is now specifically included in the definition of wholesale energy products as part of the updated language. This extension guarantees LNG's regulatory coverage under REMIT and recognizes its increasing importance in the energy markets.

• Contracts for the Supply of Electricity: The definition now includes contracts for the supply of electricity, including those that might lead to delivery inside the EU because of single day-ahead and intraday coupling mechanisms. This modification allows for more efficient regulation and reflects how interconnected the electricity markets are.

• Coverage of Derivatives: The range of derivatives covered by REMIT has been expanded to include not only those linked to natural gas or electricity produced, traded, or delivered within the EU, but also those linked to the possibility of electricity being delivered within the EU through intraday and single day-ahead coupling.

• Novel Product Types: The term "wholesale energy products" now includes two new product categories, contracts and derivatives pertaining to natural gas or electricity storage inside the European Union. This expansion recognizes that energy storage is becoming more and more crucial to maintaining the resilience and stability of the market.

The previously mentioned modifications highlight REMIT's capacity to adjust to changing market conditions, guaranteeing that its regulatory scope stays strong and applicable in a dynamic energy environment. It's also significant that the upcoming Gas Regulation expands the definition even further to include hydrogen, demonstrating the continuous efforts to integrate new energy technologies into legal frameworks.

Reporting Obligations under Revised REMIT

The wholesale energy market integrity and transparency (REMIT) regulation has been revised, and it brings substantial new reporting requirements for market players. In line with the expanded definition of wholesale energy products, these amendments expand the scope of reporting to include a number of new elements, including storage contracts, coupled markets, and additional balancing markets. Furthermore, modifications to Article 8 require market players to disclose information about transaction intermediaries and specific product exposures, including over-the-counter transactions.

The Agency for the Cooperation of Energy Regulators (ACER) will now receive order book data from organized markets (OMPs), with the Commission to establish particular reporting guidelines. In its guidelines, ACER makes a distinction between "new OMPs" and "old OMPs," defining the requirements for data reporting. Moreover, revisions to the REMIT Implementing Regulation are required before reporting exposures, derivatives, and storage contracts can be submitted. All things considered, the goal of these changes is to improve data accuracy and transparency in the wholesale energy markets while maintaining efficient oversight and regulatory compliance.

Information Platforms and Registered Reporting Mechanisms under Revised REMIT

The authorization requirements for market infrastructure entities have undergone significant changes with the release of the revised Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). Some of these changes include requirements that Registered Reporting Mechanisms (RRMs) and Inside Information Platforms (IIPs) seek approval from the Agency for the Cooperation of Energy Regulators (ACER). The updated REMIT provisions contain these requirements, which are meant to improve the energy markets' transparency and reporting procedures.

• Authorization Requirements for IIPs:

• Delegated Act and Entry into Force: In accordance with the requirements outlined in the updated REMIT, IIPs must get authorization from ACER and reveal inside knowledge. The Commission must approve a delegated act before the authorization requirement can go into effect. The deadline is May 8, 2025, but it may be extended.

• ACER Register: To ensure accountability and transparency within the regulatory framework, ACER will create and maintain a register of authorized IIPs upon operationalization of the authorization provisions.

• Sector-Specific Electronic Access Point: By May 8, 2025, ACER must create and manage a platform that acts as a REMIT-compliant sector-specific electronic access point for insider information disclosures.

• Authorization Requirements for RRMs:

• Alignment with IIPs: RRMs are subject to an authorization obligation, with ACER establishing the conditions for authorization, just like IIPs. Similar to IIPs, the implementation of this requirement is contingent upon the Commission adopting a delegated act.

• Eligibility Requirements: To ensure compliance with EU regulatory standards, authorization is only granted to RRMs that are established within the EU.

• Definition of RRMs: RRMs are defined by the amended legislation as legal entities that are permitted to report basic information and transaction details to ACER on behalf of market participants. This is consistent with the overarching objective of standardizing data collection methods and reporting procedures within the energy markets.

In order to ensure regulatory compliance and standardize reporting methods amongst market infrastructure organizations under REMIT, these authorization criteria represent a critical first step.

Reporting Obligations, Algorithmic Trading, LNG Market Data, and ACER's Investigation Powers under REMIT

A thorough regulatory framework is introduced by the amendments to the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) with the goal of enhancing market integrity, accountability, and transparency in the energy markets. Important clauses include requiring Inside Information Platforms (IIPs) and Registered Reporting Mechanisms (RRMs) to submit reports, regulating algorithmic trading, incorporating reporting requirements for LNG market data, and giving ACER more authority to conduct investigations.

These adjustments represent a proactive strategy to deal with new issues and guarantee effective supervision in the wholesale energy markets. REMIT aims to promote equitable and competitive energy markets by adjusting regulatory frameworks to reflect changing market dynamics. This will ultimately benefit consumers, market players, and regulatory bodies alike.