ACM warns market participants regarding possible manipulation on wholesale energy market
In recent months, the Netherlands Authority for Consumers and Markets (ACM) has received indications regarding energy traders that may have been guilty of artificially raising prices on wholesale markets through ‘spoofing’. Following a warning issued by ACM, the market participants in question no longer exhibited this behavior. ACM will continue to keep a close watch on the behavior of these market participants as well as on that of all market participants that trade in electricity and natural gas, and may impose fines in the case of violations.
What is market manipulation and spoofing?
Market manipulation is a collective term for different types of illegal trading behavior. With these types of behavior, market participants are able to give a false impression of supply and demand. As a result, other traders make decisions based on false information, and the price can reach an artificially high level. The offender thus benefits unfairly. As a result, other traders, and ultimately consumers, are harmed by this behavior, since they pay a higher price.
An fictional example
The below example illustrates how market manipulation works.
This image consists of four illustrations that give a simplified example of a situation of market manipulation.
- The first illustration shows an electricity producer that wishes to sell its generated electricity on the energy wholesale exchange. The electricity producer sets a price of 10,000 euros for the generated electricity.
- The second illustration shows an energy company that delivers natural gas and electricity to households. This energy company wishes to buy electricity on the energy wholesale exchange. It offers a price of 7,000 euros.
- The third illustration shows that another, anonymous bidder places a bid of 8,000 euros on the electricity of the electricity producer. The bidder from the previous illustration raises its bid from 7,000 euros to 9,000 euros. What follows is a deal between the electricity producer (the seller) and the energy company that delivers to households (the buyer) of 9,000 euros.
- The fourth illustration shows that the anonymous bidder did not have genuine intentions to buy the offered electricity. It only offered this price to make the other interested buyers raise their biddings. This is a form of market manipulation and it is prohibited. Due to the manipulation, the buyer does not pay a price of 7,000 euros, but of 9,000 euros.
What does ACM expect from market participants?
In order to make the transition to a sustainable supply of energy a success, it is important that wholesale energy markets function well, and that prices are determined in a fair manner. The generation of sustainable energy such as wind and solar power is less well predictable than energy generated from conventional sources such as natural gas. Due to this unpredictability, producers must often buy or sell electricity on the wholesale markets in order to balance their trading positions. If energy traders artificially drive up prices, consumers and businesses pay too much for their electricity and/or natural gas. That is why ACM makes sure that traders on the wholesale markets play by the rules.
ACM expects that market participants comply with the rules regarding energy-market integrity and transparency, as laid down in the European REMIT Regulation. Market participants must put sufficient checks and systems in place so that traders and trading algorithms, which are increasingly used, comply with the rules. ACM calls on traders and trading platforms to report such trading behavior or any other suspicious trading with ACM. ACM ensures that market participants comply with this REMIT Regulation, as explained in the additional information provided by the European energy agency ACER. More information about this form of market manipulation is explained in a guidance document of ACER.
ACM also publishes an update regarding the indicators of its regulatory activities under the REMIT Regulation.