The derivatives industry has warned that regulator Acer may lack resources to support its Remit rules
The derivatives industry has called for the Agency for theCooperation of Energy Regulators’ (Acer) to up the ante in its support for themarket, amid fears that it may lack the resources required to knowledgablyapply its Remit requirements to derivatives, after a relatively smoothimplementation.
Under Remit, which came into force on October 7, marketparticipants are required to report their standard power and gas trades to theregulator via a registered reporting mechanism (RRM). The reporting of morecomplex over-the-counter trades is set to follow six months later on April 72016.
Acer’s Regulation on Wholesale Energy Market Integrity –Remit – has been generally well absorbed, said Rob Barnes, manager for regulationat FIA Europe told FOW, “On the whole, implementation seems to be settling downwith firms; things have gone relatively smoothly, especially when compared toMifir EMIR. It is the RRMs that have faced support and communication issueswith Acer.”
A spokesperson for Acer told FOW that implementation hasbeen doing well. “The Agency receives currently more than one million datarecords of wholesale energy market transactions, including orders to trade,executed at organised market places per day reported by 37 Registered ReportingMechanisms (RRMs). This is much more than the Agency expected. However, theAgency’s IT systems are able to handle the workload.”
However, there are murmurs of discontent. Six weeks afterthe rules kicked in, market participants have reported poor and sporadiccommunication and support from Acer, with some suggesting that the scope of themarket covered by Remit may be too much for the regulator to successfullygovern.
Murray Abel, Service Delivery team manager at AbideFinancial said, “The major risk still associated with Remit reporting for Abideand their market participants is around responses from Acer. This coupled witha very poorly documented procedure for updating records means there is a bit ofa back log in fixing some validation errors.
“We have contacted Acer to identify the correct proceduresneeded 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 beenworking closely with the market to sort any issues and is, “doing its utmost toprovide all reporting parties with as much support and information as possible.”
The Polish Power Exchange, TGE, is an RRM for Remit. JanNoworyta, director of GPW/Remit department at TGE told FOW that implementationhas been smooth, though has not been without technical issues.
“It should be noted, that such large-scale and innovativeproject, covering the whole European energy market, is associated with a numberof immense challenges, concerning commitment of sufficient human resources,technology and adequate budget, granted by the European Commission,” saidNoworyta.
Nathaniel Lalone, a partner at law firm Katten MuchinRosenman, said, “The big issue remains that it is one thing to report data, butanother 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 transactionreporting requirements, Regulation on Wholesale Energy Market Integrity(Remit), were implemented on October 7.
Before the rules came into effect in October, there waswidespread 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 industryquestions and concerns suggests that Acer may lack the resources toknowledgeably apply REMIT requirements to the derivatives markets.”
“It would appear that, as derivatives market participantsbegan to realise that Acer was unlikely to provide meaningful, timely guidance,the choice was made to proceed with a good-faith effort to establisharrangements that were responsive to REMIT requirements, even if they were notofficially blessed by Acer,” said a London-based lawyer.
On its technical support, the Acer spokesperson added, “Inthe first days, there were only some delays in the issuing of receipts whichwas already sorted out and it is now working fine… For a large pan-European ITproject of this scale and taking into account the circumstances and resourceconstraints under which the Agency had to launch it, against all odds, therewere surprisingly only little issues that some reporting parties had to dealwith.”
While market participants suggest that implementation hasthus far been relatively smooth, this may be down to market players themselves,rather than the energy regulator.
On the integration, a spokesperson for London-basedcommodities broker, Marex Spectron, said, "Integrating the full number ofRRM’s that registered would have made the timeline difficult to achieve, butthe market took a sensible approach and efforts were focussed on the EFETsolution."
Katten’s Lalone told FOW, “Doom and gloom was expected, buton the whole, implementation has been relatively smooth to date. This ispredominantly due to the fact that industry participants worked together tofind pragmatic solutions where regulatory guidance was uncertain.”
Barnes from the FIA warns that it may be a little early totell how successful Acer’s Remit implementation has been. “On the whole,implementation seems to be settling down with firms; things have gonerelatively smoothly, especially when compared to EMIR. It is the RRMs that havefaced support and communication issues with Acer.”
“Ultimately, Acer has to start using and drawing conclusionsfrom the data before we can ascertain the validity of it,” he added.
As reported by FOW a month before the rules kicked in, theregulator had made waves in the lead-up to October 7, but has since been ratherquiet; perhaps focusing on the rules which require far more resources than it expected.
