1.3 Market monitoring
The primary purpose of transaction reporting under REMIT is to enable the Agency and NRAs to efficiently and effectively monitor trading activity in wholesale energy products to detect and prevent suspected market abuse (insider trading and market manipulation[1]) in order to fulfil the goal of increased integrity and transparency of wholesale energy markets[2]. This is important in order to ensure that final consumers and other market participants can have confidence in the integrity of electricity and gas markets, that prices set on wholesale energy markets reflect a fair and competitive interplay between supply and demand, and that no profits can be drawn from market abuse[3].
According to Article 7 of REMIT, the Agency shall monitor trading activity in wholesale energy products to detect and prevent market manipulation, attempted market manipulation and trading based on inside information. According to Article 16 of REMIT, NRAs shall cooperate at regional level and with the Agency in carrying out the monitoring of wholesale energy markets and ensure that the prohibitions of market manipulation, attempted market manipulation and insider trading are applied in accordance with Article 13 of REMIT.
The automated screening will form part of the Agency’s monitoring activities. Article 16(4) of REMIT also requires an initial assessment or analysis by the Agency prior to notifying a suspected breach of REMIT to the NRAs and prior to using the Agency’s powers under Article 16(4) of REMIT. The following figure illustrates the market monitoring approach envisaged by the Agency.
Figure 1: The Agency’s market monitoring approach
The Agency’s REMIT Information System (ARIS) is the Agency’s IT system for data collection, data sharing, and automatic screening and monitoring of trading activities in wholesale energy products. The high-level architecture of ARIS is illustrated below.
ARIS is based on four tiers:
- Tier 1 of ARIS supports the collection of the reported transactions and fundamental data. The scope and details for the data to be reported under Tier 1 is defined by the European Commission in the REMIT Implementing Regulation.
- Tier 2 of ARIS is the main database, where all the reported transactions and fundamental data, as well as the registration data from market participants is stored.
- Tier 3 of ARIS is the market monitoring system, which screens and analyses the data collected and processed in Tier 1 and 2, with the aim to detect and deter market abuse in forms of insider trading and market manipulation, including attempted market manipulation. The market monitoring system will also be used for supporting investigations conducted by NRAs in coordination with the Agency.
- Tier 4 of ARIS is the data sharing system. According to Article 10 of REMIT, the Agency shall establish mechanisms to share the information held in ARIS with NRAs, financial regulatory authorities, national competition authorities, the European Securities and Markets Authority (ESMA) and other relevant authorities. This tier may also be used for additional data analysis, reporting and archiving, and for the publication of certain aggregated information according to Article 12(2) of REMIT.
ARIS plays a key role in both the identification of suspicious transactions and the establishment of facts once suspected market abuse has been identified. However, the efficiency of both of these functions can be compromised by inaccurate transaction reporting and poor data quality. The Agency is required to identify any questionable transactions and establish their nature, timing and the parties involved.
Transaction reports are a key means of establishing this, enabling the Agency to discover possible instances of market abuse that call for further investigation and possible enforcement actions by NRAs. Similarly, transaction reports are very important as evidence when NRAs are bringing market abuse cases to court, as they provide an audit trail of the complete transaction.
The Agency also carries out wider market monitoring to detect any possible risks of market abuse due to market developments and new features of the markets. Transaction reports provide the Agency with useful information that can help with this kind of monitoring, e.g. statistics that show the rate of growth in the trading of certain wholesale energy products.
According to the requirements set out in Article 12 of REMIT, the Agency shall ensure the confidentiality, integrity and protection of the information collected under REMIT. Hence, ARIS must be operationally reliable.
[1] For definitions and explanations of the concept of insider trading and market manipulation, please refer to the ACER Guidance on the application of REMIT on the REMIT Documents section of the ACER website: Guidance
[2] See recital 2 of REMIT.
[3] See recital 1 of REMIT.