The derivatives industry has called for the Agency for the Cooperation of Energy Regulators’ (Acer) to up the ante in its support for the market, amid fears that it may lack the resources required to knowledgably apply its Remit requirements to derivatives, after a relatively smooth implementation.
Under Remit, which came into force on October 7, market participants are required to report their standard power and gas trades to the regulator via a registered reporting mechanism (RRM). The reporting of more complex over-the-counter trades is set to follow six months later on April 7 2016.
Acer’s Regulation on Wholesale Energy Market Integrity – Remit – has been generally well absorbed, said Rob Barnes, manager for regulation at FIA Europe told FOW, “On the whole, implementation seems to be settling down with firms; things have gone relatively smoothly, especially when compared to Mifir EMIR. It is the RRMs that have faced support and communication issues with Acer.”
A spokesperson for Acer told FOW that implementation has been doing well. “The Agency receives currently more than one million data records of wholesale energy market transactions, including orders to trade, executed at organised market places per day reported by 37 Registered Reporting Mechanisms (RRMs). This is much more than the Agency expected. However, the Agency’s IT systems are able to handle the workload.”
However, there are murmurs of discontent. Six weeks after the rules kicked in, market participants have reported poor and sporadic communication and support from Acer, with some suggesting that the scope of the market covered by Remit may be too much for the regulator to successfully govern.
Murray Abel, Service Delivery team manager at Abide Financial said, “The major risk still associated with Remit reporting for Abide and their market participants is around responses from Acer. This coupled with a very poorly documented procedure for updating records means there is a bit of a back log in fixing some validation errors.
“We have contacted Acer to identify the correct procedures needed to amend records in different states however the response, once received, has been brief and unclear,” he added.
The Acer spokesman told FOW that the regulator has been working closely with the market to sort any issues and is, “doing its utmost to provide all reporting parties with as much support and information as possible.”
The Polish Power Exchange, TGE, is an RRM for Remit. Jan Noworyta, director of GPW/Remit department at TGE told FOW that implementation has been smooth, though has not been without technical issues.
“It should be noted, that such large-scale and innovative project, covering the whole European energy market, is associated with a number of immense challenges, concerning commitment of sufficient human resources, technology and adequate budget, granted by the European Commission,” said Noworyta.
Nathaniel Lalone, a partner at law firm Katten Muchin Rosenman, said, “The big issue remains that it is one thing to report data, but another for it to be of use; can Acer make effective use of the data submitted? This remains to be seen.”
The concerns come six weeks after Acer’s transaction reporting requirements, Regulation on Wholesale Energy Market Integrity (Remit), were implemented on October 7.
Before the rules came into effect in October, there was widespread concern that the market was not ready for the new requirements.
A London-based source who did not wish to be named told FOW, “Acer’s halting and sometimes incomplete responses to legitimate industry questions and concerns suggests that Acer may lack the resources to knowledgeably apply REMIT requirements to the derivatives markets.”
“It would appear that, as derivatives market participants began to realise that Acer was unlikely to provide meaningful, timely guidance, the choice was made to proceed with a good-faith effort to establish arrangements that were responsive to REMIT requirements, even if they were not officially blessed by Acer,” said a London-based lawyer.
On its technical support, the Acer spokesperson added, “In the first days, there were only some delays in the issuing of receipts which was already sorted out and it is now working fine… For a large pan-European IT project of this scale and taking into account the circumstances and resource constraints under which the Agency had to launch it, against all odds, there were surprisingly only little issues that some reporting parties had to deal with.”
While market participants suggest that implementation has thus far been relatively smooth, this may be down to market players themselves, rather than the energy regulator.
On the integration, a spokesperson for London-based commodities broker, Marex Spectron, said, "Integrating the full number of RRM’s that registered would have made the timeline difficult to achieve, but the market took a sensible approach and efforts were focussed on the EFET solution."
Katten’s Lalone told FOW, “Doom and gloom was expected, but on the whole, implementation has been relatively smooth to date. This is predominantly due to the fact that industry participants worked together to find pragmatic solutions where regulatory guidance was uncertain.”
Barnes from the FIA warns that it may be a little early to tell how successful Acer’s Remit implementation has been. “On the whole, implementation seems to be settling down with firms; things have gone relatively smoothly, especially when compared to EMIR. It is the RRMs that have faced support and communication issues with Acer.”
“Ultimately, Acer has to start using and drawing conclusions from the data before we can ascertain the validity of it,” he added.
As reported by FOW a month before the rules kicked in, the regulator had made waves in the lead-up to October 7, but has since been rather quiet; perhaps focusing on the rules which require far more resources than it expected.