Archive for the ‘Insider Trading’ Category

Preventing Insider Trading and Market Manipulation in Wholesale Energy Markets

Late last week, international law firm WilmerHale published a very thorough review of the European Commission’s (EC) recently proposed rules aimed at preventing abuse in wholesale energy markets.

Image by William Maver. Some rights reserved.

The proposal hopes to close gaps in the “existing regime” that were found upon inspection by the Committee of European Securities Regulators and the European Regulators Group for Electricity and Gas (at the request of the EC). While the EC’s  Market Abuse Directive and the Markets in Financial Instruments Directive prohibit manipulation in financial markets, these Directives fail to cover the 75% of energy transactions that occur outside of energy exchanges.

According to the EC’s press release, the new rules specifically prohibit:

  • use of inside information when selling or buying at wholesale energy markets.
  • transactions that give false or misleading signals about the supply, demand or on prices of wholesale energy market products
  • distributing false news or rumours that give misleading signals on these products.

While the EC claims to be unaware of any particular cases of price manipulation in the EU, they are quick to make an example of the US. Amaranth Advisors LLC, an American hedge fund, “accumulated massive natural gas holdings in the form of derivatives […], pushing up prices and making huge profits. It is assumed that an Amaranth-style market manipulation would inflate gas and electricity bills of European businesses and industrial users by some Euro 1 billion.”

At least we had the rules to deal with it (eventually) – 18 CFR § 1c became effective in January 2006 after the passage of the Energy Policy Act, and was made famous (well, in certain circles) by the case against Amaranth and subsequent enormous settlement in 2009. Let’s hope for the EU’s sake that their new rules have a more preventative effect.

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