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Corporate Governance

Powering Up for Big Compliance

Europe's power markets developed separately over time, each with its own nuances, rules and regulatory oversight. From a surveillance perspective, exchanges and brokers monitored their own trades, and national regulators watched over their home markets. Power companies monitored their own activity for compliance with market rules. Several factors are driving change in this structure.

First, the European Union has developed a road map for common standards as part of its single market strategy. Second, since the financial crisis, all market instruments and mechanisms have come under scrutiny, driven by the perception of excessive risk taking and the potential for systemic risk. In addition, the authorities have been working to align energy and financial markets regulation because derivative instruments are common to both, and there have been several high profile cases of alleged power market manipulation and anti-competitive behavior.

Against this backdrop, the REMIT legislation on wholesale energy market integrity and transparency was passed in December 2011 to prohibit market manipulation and insider trading in EU wholesale energy markets. The Agency for the Cooperation of Energy Regulators (ACER) is tasked with pan-European power market monitoring and collecting data from market participants.

ACER recently selected the SMARTS Integrity market surveillance system to help it fulfill this role. "Previously, incidents of manipulation were hard to detect because no one had systematic, timely access to all the data," says Lorne Chambers, Global Head of Sales, SMARTS Market Surveillance at Nasdaq. "Going forward, the regulators will have more data available to them much sooner after transactions are executed. Further, the data will be centralized, providing the relevant authorities with a comprehensive view of the entire market." Electricity and gas bills are rising, so the public is very interested in how the price of power is set.

The regulators need to ensure that market participants are not engaging in abusive practices that could impact consumer pricing. REMIT will go a long way toward achieving that goal.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Risk & Compliance