Following nearly a year of debate, the legislative review of the proposed amendments to Regulation (EU) 1227/2011 on wholesale energy market integrity and transparency (REMIT) is coming to an end. On 29 February 2024, the European Parliament formally adopted in a plenary vote the amendments to REMIT, this was followed by the approval in the Council on 18 March 2024. On 17 April 2024 the revised legislation was published in the Official Journal of the European Union (Regulation (EU) 2024/1106 amending Regulations (EU) No 1227/2011 and (EU) 2019/942 as regards improving the Union’s protection against market manipulation on the wholesale energy market). It will enter into force on 7 May 2024, with varying application dates for certain provisions.

By way of background, the recently adopted amendments to REMIT were proposed by the European Commission (Commission) on 14 March 2024 as a part of a broader Electricity Market Design package of proposals that included amendments to Regulation (EU) 2019/943 (the Electricity Regulation) and Directive (EU) 2019/944 (the Electricity Directive). The adopted changes to REMIT are particularly relevant to participants in European wholesale energy markets as REMIT has not been substantially amended since its application over a decade ago.

Key changes

1.Obligation for third-country market participants to designate a representative

One of the most heavily debated provisions concerned the Commission’s proposal that third-country market participants should “declare an office” in the EU. In the end, the compromise position agreed by the co-legislator states that market participants, who are not resident or established in the EU, must designate a representative in the EU and register in a Member State in which they are active; registration and designation must be in the same Member State. The adopted amendments require that by 8 November 2024, third-country market participants will have to designate by a written mandate a representative authorised to act on behalf of the market participant. The designated representative is intended to be a point of contact for the Agency for the Cooperation of Energy Regulators (ACER) or the national regulatory authority (NRA) on all issues necessary for the receipt of, compliance with and enforcement of decisions or requests for information issued in relation to the revised REMIT. Third-country market participants will have to provide their designated representative with the necessary powers and means to guarantee their efficient and timely cooperation with ACER and/or the NRAs, and to comply with the decisions and the requests for information, including providing access to the requested information. Market participants will also have to notify the contact details of their designated representative (the name, email address, postal address and telephone number) to their NRA. Notifications can be done via the CEREMP platform, with the exception of market participants registered in Italy, Romania and Slovenia who will have to notify their NRA directly. Finally, REMIT II mandates ACER to issue guidelines and recommendations on the application of the designated representative requirement.

2. REMIT / MAR alignment of market manipulation and inside information definitions

Acknowledging the increasingly close interlinkages between the financial markets and the wholesale energy markets, the co-legislators agreed to better align REMIT with Regulation (EU) 596/2014 on market abuse (MAR). To this end, the REMIT definition of market manipulation has been amended to capture entering into any transaction, or issuing, modifying or withdrawing any order to trade, but also any other behaviour relating to wholesale energy products which (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products; (ii) secures, or is likely to secure, by a person, or persons acting in collaboration, the price of one or more wholesale energy products at an artificial level; or (iii) employs a fictitious device or any other form of deception or contrivance which gives, or is likely to give, false or misleading signals regarding the supply of, demand for, or price of wholesale energy products. Transmitting false or misleading information in relation to a benchmark could also constitute a market manipulation under the revised REMIT. In addition, the revised REMIT amends the definition of inside information to align with the one applicable under MAR. Accordingly, where inside information concerns a process which occurs in stages, each stage of the process as well as the overall process could constitute inside information. An intermediate step in a protracted process could in itself constitute a set of particular circumstances or a particular event which exists or where there is a realistic prospect that they will come into existence or occur, on the basis of an overall assessment of the factors existing at the relevant time. Information must be considered to be directly or indirectly related to the wholesale energy product if it has a possible effect on the demand, supply or prices of a wholesale energy product, or on the expectations of the demand, supply, or prices of such products. Finally, the revised REMIT clarifies that its application is without prejudice to MAR, Regulation (EU) No 648/2012 (EMIR), Regulation No 600/2014 (MiFIR) and Directive 2014/65/EU (MiFID) as regards activities involving financial instruments as well as to the application of the EU competition law.

3. Expansion of the definition of wholesale energy product

The definition of a wholesale energy product, which is a cornerstone of the REMIT application, has been extended. The current definition captures contracts for the supply of electricity and natural gas where delivery is in the EU; the revised one specifies that natural gas includes LNG, and in addition to contracts where delivery is in the EU, it also captures contracts for the supply of electricity which may result in delivery in the EU as a result of single day-ahead and intraday coupling. In respect of derivatives, in addition to derivatives relating to electricity or natural gas produced, traded or delivered in the EU, the revised definition also captures derivatives relating to electricity which may result in delivery in the EU as a result of a single day-ahead and intraday coupling. In addition, two new products will be captured as wholesale energy products under the revised REMIT, i.e. contracts relating to the storage of electricity or natural gas in the EU, and derivatives relating to the storage of electricity or natural gas in the EU. For completeness, note that the recently adopted draft Regulation on the internal markets for renewable and natural gases and for hydrogen (Gas Regulation) further amends the definition of wholesale energy product by extending it to hydrogen.

4. Amendments to the scope of reporting obligations

The revised REMIT extends the reporting obligations for market participants to cover storage contracts, coupled markets, new balancing markets, contracts for balancing markets, allocated transmission capabilities and products that have potential delivery in the EU, as per the revised definition of the wholesale energy product. In addition, the provisions of Article 8 on data collection are amended to require market participants to report  information about the intermediate beneficiaries of the transaction, as well as information about market participants’ exposures, detailed by product and including the transactions that occur over the counter.  In addition, the organised marketplaces (OMPs) will be required to make available to ACER data relating to the order book and, upon request, provide ACER with access to the order book. The details for the reporting records of transactions entered into, concluded, or executed on OMPs, including the specific arrangements for ensuring effective data reporting are to be set out by the Commission in an implementing act (which we understand to take form of an amendment to the REMIT Implementing Regulation); the deadline for the Commission to adopt the implementing act is 8 May 2025. The REMIT Implementing Regulation will also have to be amended to reflect the expanded scope of the reporting requirement and stemming from the broader definition of a wholesale energy product. For completeness, the revised REMIT defines OMPs as an energy exchange, an energy broker, an energy capacity platform or any other system of facility in which multiple third-party buying or selling interests in wholesale energy products interact in a manner that may result in a transaction.

In respect of entities that will only meet the revised definition of OMP (“new OMPs”), ACER stated in its open letter in the implications of the revision of REMIT on data reporting aspects and notification obligations, that it does not expect such entities to commence reporting data not yet foreseen in the REMIT Implementing Regulation. On the other hand, current OMPs (“old OMPs”) would be expected to report data relating to the order book(s) on the basis of current reporting standards detailed in the REMIT Implementing Regulation. In respect of reporting of storage contracts and related derivative contracts (i.e. wholesale energy products as per the revised definition), ACER advised that the relevant details must be added to the REMIT Implementing Regulation and until such time, the reporting of storage as fundamental data will continue. Finally, ACER clarified that the reporting of exposures is also dependant on the details to be included in the amended REMIT Implementing Regulation. On the other hand, in respect of Single Day-Ahead and Intraday Coupling contracts, ACER expects these contracts to be reported on the basis of the current reporting standards in line with the REMIT Implementing Regulation.

5. Authorisation requirement for IIPs and disclosure of inside information

The revised REMIT makes it mandatory for market participants to disclose inside information on the inside information platform (IIP), and for the IIPs to obtain authorisation from ACER pursuant to the conditions set out in the updated REMIT. The authorisation requirement for IIPs will become applicable once the delegated act that the Commission is required to adopt, will enter into force; the deadline for the Commission to develop the delegated act is 8 May 2025 but it is possible that the entry into force will extend beyond this date. Once the authorisation provisions are operational, ACER will maintain a register of authorised IIPs. In addition, by 8 May 2025 ACER is mandated to develop and operate a platform serving as a sector-specific electronic access point for inside information disclosed in accordance with REMIT. Finally, the Commission is mandated to adopt a delegated act establishing minimum thresholds for the identification of events, which, if they were made public would be likely to significantly affect the prices of the wholesale energy products.

6. Authorisation requirement for RRMs

In addition to the authorisation requirement for IIPs, revised REMIT introduces an authorisation obligation for registered reporting mechanisms (RRMs) and sets out the relevant conditions for the authorisation of RRMs by ACER. Akin to the IIPs, the authorisation requirement for the IIPs will become applicable once the delegated act that the Commission is required to adopt, will enter into force; the deadline for the Commission to develop the delegated act is 8 May 2025 but it is possible that the entry into force will extend beyond this date. Only RRMs established in the EU will be eligible for authorisation. The text defines RRMs as a legal person authorised to report or to provide the service of reporting details of transactions, including orders to trade, and fundamental data to ACER on its own behalf or on behalf of market participants. The amended legislation also seeks to align the collection of inside information with the current process for trade data reporting.

7. Reporting obligation by PPAETs

The revised REMIT introduces a definition of persons professionally arranging or executing transactions (PPAETs), meaning a person professionally engaged in the reception and transmission of orders for, or in the execution of transactions in, wholesale energy products. PPAETs in wholesale energy products will have the obligation to report suspicious transactions in breach of REMIT requirements on insider trading and market manipulation, as well as suspicious orders and potential breaches of the obligation to publish inside information. They will have to establish and maintain effective arrangements, systems and procedures to identify potential breaches of REMIT prohibitions, guarantee that their employees carrying out surveillance activities are preserved from any conflict of interest and act in an independent manner, detect and report suspicious orders and transactions. In addition, any person professionally executing transactions under MAR who also executes transactions in wholesale energy products that are not financial instruments, and who reasonably suspects that an order to trade or a transaction whether placed on or outside an OMP, could breach REMIT, will have to notify this to ACER and the relevant NRA. It is also clarified that the direct electronic access (DEA) providers and order book providers are considered PPAETs for the purpose of REMIT. PPAET’s reporting obligations will become applicable on 8 November 2024.

8. Regulating algorithmic trading in energy markets

The current REMIT framework does not regulate algorithmic trading in wholesale energy products. This will change upon the application of the amended text, as REMIT II introduces a set of new rules to govern algorithmic trading in wholesale energy products. For the purpose of REMIT, algorithmic trading is defined as trading, including high-frequency trading, in wholesale energy products where a computer algorithm automatically determines individual parameters of orders to trade such as whether to initiate the order, the timing, price or quantity of the order or how to manage the order after its submission, with limited human intervention or no such intervention at all, not including any system that is only used for the purpose of routing orders to one or more organised marketplaces or for the processing of orders involving no determination of any trading parameters or for the confirmation of orders or the post-trade processing of executed transactions. Market participants engaging in algorithmic trading in wholesale energy products will have to have in place effective systems and risk controls and business continuity arrangements and it will have to notify its engagement in algorithmic trading to the NRA of a Member State where it is registered. ACER confirmed that market participants engaging in algorithmic trading and/or providing DEA will have to notify their NRAs as of entry into force of the amended legislation; the notifications are to be made via CEREMP (with exception of Italy, Romania and Slovenia, where NRAs have to be notified directly). REMIT II foresees record keeping requirements for market participants engaging in algorithmic trading; additional rules will apply to market participants providing DEA to an OMP.

9. LNG price assessments, LNG benchmarks and LNG market data reporting

The amended REMIT integrates as permanent measures the relevant ACER roles and responsibilities concerning LNG price assessments and an LNG benchmark, as well as LNG market data reporting obligations for market participants as introduced via Council Regulation (EU) 2022/2576 on better coordination of gas purchases, reliable price benchmarks and exchanges of gas across borders. It sets out details of required market data on LNG transactions and market data quality. To this end, market participants active in LNG markets – meaning any person, irrespective of place of incorporation or domicile, who engages in LNG trading – must report the LNG market data to ACER “as close to real time as technically possible” after concluding the transaction or after the posting of a bid or offer to enter into a transaction. ACER is mandated to publish the LNG price assessment and LNG benchmark daily, and the objective is for the LNG price assessment and LNG benchmark to become reference rates for derivative contracts. For completeness, the LNG benchmark is defined as the determination of a spread between ACER’s daily LNG price assessment and the settlement price for the TTF Gas Futures front-month contract established by ICE Endex Markets B.B on a daily basis.  REMIT II defines LNG trading as bids, offers or transactions, including but not limited to those taking place over the counter or on an OMP, for the purchase or sale of LNG that specify delivery in the EU, that result in delivery in the EU or in which one counterparty re-gasifies the LNG at the terminal in the EU. Provisions regarding LNG price assessments, LNG benchmarks and LND market data will become applicable on 1 January 2025 (but note that these are currently applicable under Council Regulation (EU) 2022/2576, which will cease to apply on 31 December 2024).

10. Strengthening of ACER’s investigation powers

One of the most intensely debated issues in the course of the REMIT review was the proposed increase of ACER’s investigatory and enforcement powers in respect of breaches of REMIT with a cross-border element. Under the current rules, the supervision and enforcement of REMIT remains the exclusive responsibility of the Member States, but with a growing number of cross-border market abuse cases, sometimes involving market participants from third-countries, the co-legislators agreed to equip ACER with certain enforcement powers. Accordingly, the investigation of REMIT breaches with a cross-border dimension will have to be carried out though an EU-level process and involving ACER. ACER will be able to carry out investigations in cooperation with the NRAs; while carrying out the investigations ACER will be able to conduct on-site inspections and issue requests for information. Finally, ACER will be able to impose periodic penalty payments to compel a person to submit to an on-site inspection and/or to supply the information requested. Powers to apply penalties for REMIT infringements will remain with the Member States.

Next steps:

In addition to the development of amendments to the REMIT Implementing Regulation as well as delegated acts for the purpose of IIP and RRM authorisation provisions, the Commission has been mandated to develop a couple of assessment reports. This includes an assessment report, by 1 June 2027, on the application of the revised REMIT, in particular regarding its impact on market behaviour, market participants, liquidity, reporting requirements (including on LNG market data), and the level of administrative burden for market participants, including the potential barriers to entry for new market participants. The assessment report should be accompanied, where appropriate, by legislative proposals. By 1 June 2025 the Commission is mandated to assess the effectiveness of introducing criminal sanctions by Member States for intentional and serious cases of market abuse on the EU wholesale energy markets.

By the end of 2024 ACER aims to revise the existing ACER Guidance on the application of REMIT to reflect the change stemming from revised REMIT, Gas Regulation and the Electricity Markets Design Reform. ACER also plans on starting issuing guidelines and recommendations as per mandates received under revised REMIT, but without commitments to any specific timeframes.

How can we help

Our team has extensive experience in advising all types of European, UK and third-country participants in commodity derivative markets, including wholesale energy products and, unlike most other law firms, Norton Rose Fulbright offers a blend of advisory and contentious legal, compliance and government relations skills in one cohesive team. We help clients to prepare for legislative change by closely monitoring the legislative review process, advising on legal and regulatory requirements, as well as on practical aspects of their application from the perspective of operational systems and controls adaptation. We also assist clients with internal investigations and responses to potential enforcement action by the regulatory authorities.