24 Jul ACER announces a public consultation on the definition of inside information
On July 16th, ACER published details of its public consultation on the definition of inside information, itself a critical part of the operation and enforcement of REMIT. At the same time, ACER published V4 of its Guidance of the application of REMIT, which contains additional information on how the obligation to effectively disclose inside information is to be discharged with reference to transparency platforms. Also published are revised versions of the REMIT Manual of Procedures and the FAQ in order to ensure consistency with the new Guidelines.
On 16th July, ACER released details of their public consultation on the definition of inside information (1). This subject is one of the major pillars of REMIT, and thus absolutely essential for market participants and their regulators to apply consistently. ACER state that their consultation’s purpose is to gather information on market participants’ experiences and approaches to the assessment and reporting of inside information in an effective and timely manner. The information gathered will be used to determine if there is a need for thresholds for the definition of inside information to be introduced, as part of an ongoing programme of enhancements to the Guidance. Market participants have until 16th September 2019 to respond.
The main issue behind the public consultation is that in ACER’s opinion, Article 2(1)(d) of REMIT leaves room for an assessment by individual market participants regarding which data are necessary for them to publish to the market. The freedom to make individual assessments results in the decision for disclosure occurring on a case-by-case basis. That is not a sound basis for consistency, as disclosure depends on the exact nature of the unique information pertaining to the individual case, as well as on its surrounding context. By finding out what market participants do regarding the basis for their assessment, ACER can determine what enhancement (if any) are needed for future versions of the Guidance, which may include the introduction of a threshold for disclosure.
At deltaconX, we think this is particularly important ACER initiative, as the introduction of thresholds would ensure consistency of assessment, and mean no ‘over-reporting’ of inside information, i.e. information that which would otherwise have been deemed trivial by other market participants. Properly defined thresholds should reduce the administrative burden on everyone.
To accompany their consultation, ACER has issued new versions of the main REMIT documents which contain sections on the definition and reporting of inside information. These are the Guidance on the Application of REMIT (2), the Manual of Procedures (3), and the FAQ on fundamental data and inside information reporting (4).
Annexes VII and VII of the REMIT Manual of Procedures covers the data field definitions and electronic message formats respectively for the Urgent Market Messages (UMMs) for reporting the unavailability of electricity and gas facilities, and ‘other market information’.
Chapter 7 of the Guidance covers the disclosure of inside information, clarifying what ACER means by ‘effective and timely manner’ of disclosure. Regarding the disclosure mechanism, ACER reinforces their earlier message that the best way to achieve this objective is through the use of public Inside Information Platforms (IIPs) as the default disclosure mechanism. Market participants may use their own company website, but this approach must not replace primary disclosure on an IIP. This requires market participants to ensure that there must be an integration between their in-house sources of inside information, and their chosen IIP – it is not sufficient for them to simply dump their inside information onto their company website and consider their REMIT Article 4(1) obligation discharged. The ACER REMIT Portal lists the current IIPs for electricity and gas, and there are many to choose from (5).
Chapter 8 of the Guidance expands upon the disclosure or withholding of inside information in the context of market abuse. Section 8.2.3 is particularly interesting, as it discusses the exemptions from insider trading covered under REMIT Articles 3(3) and 3(4).
We believe that one aspect market participants with physical assets need to focus on is to make sure they are in a position to claim REMIT Article 3(4)(b) exemptions from the immediate reporting of inside information in the event of unscheduled outages. The ability to replace lost capacity before publication of the outage is a real benefit in terms of avoiding unfavourable knee-jerk market price responses. However, the downside is that the process to claim the exemption is by no means simple. To execute properly requires detailed management and time-stamping of the outage data themselves, and the resulting orders and trade data intended to replace lost capacity. Market participants have to ensure that there is a comprehensive audit trail from occurrence of the outage through completion of trading to replace lost capacity, which includes the exemption messages exchanged with the relevant NRA(s) and ACER. This audit trail must also be visible to the market participant’s surveillance system, especially the relevant UMMs, because without an ‘exemption flag’ and covering UMM, the capacity replacement trades will look like insider dealing. The surveillance system also needs to ensure that the flagged trades do not exceed the volume of the capacity lost in the outage as stated in the UMMs. This may be harder to do than one would think, especially if these replacement trades are mixed up with other trades that coincidentally, happened to occur within the exemption window. By default, ACER’s own surveillance system is likely to assume a case of insider trading unless it has proof through an audit trail that it isn’t.
The main changes to the REMIT FAQ V6 pertain to questions 4.1.4 and 4.1.17.
We believe that market participants really do need to act, especially with regard to ACER’s answer to Question 4.1.17 . There, ACER states that the Guidance’s supplemental requirements regarding the disclosure mechanisms for, and data quality of, inside information, have to be fully complied with by the end of a transition period ending 1st July 2020. Thus if your business processes and/or reporting systems for inside information fall short of these new requirements, you have less than a year to fix them. Given REMIT’s operational focus on mandatory transaction reporting vis a vis the more discretionary approach allowed for reporting inside information, we can easily see why this area could have received less attention by market participants.
We recommend that all readers review ACER’s documents, and if they have any observations about how they manage the issues raised, respond to the consultation. Market participants with substantial physical energy assets vulnerable to unscheduled outages should also review both Chapter 8 of the Guidance and their own processes and systems for managing exemptions under Article 3(4)(b), and if necessary respond to the consultation.
(1) ACER REMIT Public Consultation – https://surveys.acer.europa.eu/eusurvey/runner/Public_consultation_on_definition_of_inside_information
(2) Guidance on the application of REMIT V4 – https://documents.acer-remit.eu/wp-content/uploads/20190627_4th-Edition-ACER-Guidance_4thupdate.pdf
(3) Manual of Procedures https://documents.acer-remit.eu/wp-content/uploads/ACER_REMIT_MoP-on-data-reporting_V6.pdf
(4) REMIT FAQ on fundamental data and inside information reporting V6 https://documents.acer-remit.eu/wp-content/uploads/FAQs-on-REMIT-fundamental-data-and-inside-information_V6.pdf
(5) ACER REMIT Portal https://www.acer-remit.eu/portal/list-inside-platforms
For more information on how deltaconX can advise you on the management of inside information under REMIT, please contact our Compliance Help Desk.