Reporting
The Regulation on Energy Market Integrity and Transparency (REMIT)
REMIT places regulatory requirements on firms participating in the EU gas and power wholesale markets.
The transaction reporting requirements cover both physical and financial trades within the EU gas and power markets, although there is not a requirement to re-report transactions that have previously been reported under EMIR (as ACER are able to access the EMIR trade repository data themselves to gather such information).
The first wave of transaction reporting commenced in October 2015, and placed the obligation on Organised Market Places (OMPs) to report trades and orders on behalf of their clients. This effectively meant that participants were able to delegate much of the reporting activity to their brokers or exchanges, such that their primary involvement was to oversee the submissions to make sure they were timely, accurate and complete.
In April 2016, the requirements extended to the bilateral OTC trading activity – which placed the onus on participants to submit their transaction data to a Registered Reporting mechanism (RRM), who in turn validates and transmits the details to the Agency for the Cooperation of Energy Regulators (ACER) in ACERs own proprietary XML formats.
Since the UK’s withdrawal from the EU in 2020, responsibility for regulating a UK implementation of REMIT has been carried out by the Office for Gas and Electricity Markets (OFGEM).
Some Challenges for Commodity Trading Firms
REMIT posed a number of operational challenges for trading firms, a selection of which are highlighted below:
- Performing a Trade Portfolio analysis to determine what is reportable under REMIT vs. what is reportable under EMIR (where applicable).
- How to handle ‘off-system’ trades and ensure these are reported to an RRM.
- How to handle ‘approximately booked’ trades – these typically exist in order to hold a representation of a deal in a system, but technical constraints mean that the record is often a simplified representation of the true deal that was struck.
- Managing the effectiveness of delegated OMP reporting, where this may be carried out by many different exchanges or brokers – each using a separate RRM service.
- Dissemination and sharing of the Unique Transaction Identifier (UTI) with your trading counterparties.
- Understanding which contracts are reportable (e.g. LNG shipments) and what method they should be reported under such that the submission matches that of your counterparty.
- How to accurately provide the data required by the regulators, where such data is at odds with the traded contract (for example the requirement to provide secondary capacity trades in GBP where the ACER standards only allow for EUR).
- How to fit REMIT T+1 and T+30 transaction reporting processes into an existing operational control framework.
- How to ensure that sufficient operational oversight is in place in order to fulfil the obligation to ensure that submissions to the RRM are correct, timely and complete.
Timeline
- In April 2016, the requirements for transaction reporting were extended to non-OMP (OTC bilateral) trades struck between counterparties.
- 2017 again saw more change, as new technical standards were put forward to address some of the lessons learned since reporting started. These included revised data requirements (particularly around the requirements for transportation contracts) and tighter validation on allowable field values.
- In 2020, as the UK withdrew from the EU, the REMIT regulations for gas or power deliveries within the UK market, was passed to the regulator OFGEM.
Summary
REMIT provides a number of business challenges for firms who are actively participating within the EU wholesale gas and power markets.
The regulations are likely to be revised by the Agency for the Cooperation of Energy Regulators (ACER), which will involve implementation effort by firms in order to comply with the latest rule set.
Given the links between EMIR, REMIT, MiFID2 and MAR – firms are strongly advised to consider regulatory change in its entirety – rather than piece-meal.
This will prove to provide greater efficiencies of scale, greater reuse of processes and technology and consistent repeatable controls across the business functions.