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The Importance of Understanding What is Inside Information

The Importance of Understanding What is Inside Information

A European energy company (Stakeholder A) was fined nearly €2.5 million after it unlawfully delayed the disclosure of inside information. The company had knowledge of a deal that would affect the supply of electricity to its home country’s national energy network (Stakeholder B) but did not make it public. This led to energy market participants trading under a misrepresentation of the true state of generation and potentially paying more than was necessary.  

An interesting element of this story is that the country’s regulator found the energy company had not acted in bad faith, but rather, did not consider the information significant enough to constitute inside information. The country’s regulator, however, felt the company came to the incorrect conclusion. Although it was aware of the widespread confusion over the definition of inside information, it warned other companies that future infringements of the same kind would result in even higher penalties

Background

In the mid-2000s, soon after the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) came into force in the European Union, Stakeholder A signed a non-binding agreement with Stakeholder B to allow any one of the three closed electricity generating units at one of its power stations to reconnect to the network and begin supplying electricity again.  

 At full capacity, the three units were capable of supplying 3% of the country’s electricity demand at peak times. This meant that the agreement was important to the energy market in general. Such a significant addition to the supply capability would reduce the cost per unit of energy as a result. However, Stakeholder A did not announce the news until it signed the contract with Stakeholder B more than a week later.  

The-Importance-of-Understanding-What-is-Inside-Information

The investigation

The regulator found that, as the agreement meant that the units would not close permanently, this was enough to meet the definition of inside information under REMIT. Namely, that it was of a precise nature, was not yet public, related – directly or indirectly – to one or more wholesale energy products and, if it had been made public, it was likely to significantly affect the prices of those products.  

This meant that Stakeholder A should have published the information in an effective and timely manner.  

As a result of not doing so, energy market participants traded for four working days under the impression that there was less supply than there was. This meant they paid more for their energy than was necessary.  

The outcome

The regulator found that Stakeholder A had considered whether the action constituted inside information once the initial agreement was made, but had incorrectly decided it did not. As such, the regulator took this into account, as well as Stakeholder A’s willingness to cooperate with the investigation and the fact that REMIT was relatively new at the time.  

Having initially considered a fine of €3 million, the regulator discounted the final amount to around €2.5 million. This is, of course, still a significant sum and should serve as a warning to organisations working within the scope of either REMIT or the Market Abuse Regulation (MAR), both of which place obligations on companies over the handling of inside information.  

How InsiderLog helps

InsiderLog is an online tool to collate insider lists in a compliant manner, including all of the required information and details of when and why changes were made. The platform automates the obligation to inform insiders of their inclusion in the list and enables them to enter their personal information.  

Request a demo of InsiderLog today to find out how it simplifies this process for your business.  

References and further reading


 

 

 

 

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