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The requirement to publish inside information immediately is essential to the fair running of both the financial and energy markets. In this case, inside information is that which relates to a financial or energy product, is non-public, precise and likely to affect the price of financial or wholesale energy products.
However, a European energy company was found to have failed to comply with this obligation, leading to situations in which it could have held an advantage over other market participants by being better able to accurately predict changes to prices in the wholesale energy market.
An investigation by the national regulatory authority in the company’s home nation found it in breach of the relevant legislation and issued a six-figure fine.
This anonymised case study highlights the importance of all market participants having access to the same information at the same time and the sanctions that can be imposed if they fail to comply.
Background
The energy company in question ran a number of power plants in an EU member state and, as such, knew when there had been interruptions in the output of these sites, as well as when they would ramp up energy production and restrict output. Any event that affects the supply of energy in the wholesale market can adjust the price in that market. By being able to predict the fluctuations due to advanced knowledge of supply changes, the company had an unfair advantage.
Towards the end of the 2010s, one of the company’s production units was restricted from generating power and the company distributed this information to the market. However, it did not announce the news that another of its units was compelled to run throughout the entirety of that period with a set minimum target for production.
The rest of the market knew only that there would be a reduction in production caused by the restriction on the first unit, and would expect this to cut supply and raise the price. However, the energy company knew that the drop-off would be counteracted by the ‘must run’ of the second unit, meaning that the price would likely be more stable than expected.
On another occasion, the company failed to announce that a production unit would only be up to full generating capacity three and a half hours after a restriction ended. Other market participants could mistakenly assume that the unit would produce more than was actually possible, but the company knew that there would be a supply shortfall which could have caused the price on the wholesale energy market to rise.
The investigation
For the EU financial markets, issuers must follow the requirements of the Market Abuse Regulation (MAR) regarding the use of inside information. In the energy markets, this is related to the Regulation on wholesale Energy Market Integrity and Transparency (REMIT). The country’s regulatory authority ruled that the company had not disclosed the inside information in a timely manner and had not disclosed the full information at all in one case.
It fined the company €150,000 for the breaches, which the company accepted, noting that it had now changed its organisational structure to improve its compliance efforts.
Conclusion
This case shows the advantage that inside information can give a company and why some parties then try to use this illegally to profit from the disparity between what they know and what the market understands. There is no evidence of insider trading in this particular case, but, by not disclosing the information when it should have, this issuer caused an uneven playing field for market participants.
In order to help companies comply with the regulations surrounding inside information, InsiderLog provides insider list templates to meet the requirements for documenting those with knowledge of inside information and automated emails to ensure that all insiders acknowledge their obligations and fill in their details. Request a demo today to see how it can help your company.
References and further reading
- How to avoid insider trading
- The Market Abuse Regulation explained
- Behaviours that qualify as market abuse
- How to enable market abuse monitoring
- Why you need a market abuse policy
