Although REMIT rules have been in place since the close of 2011, relatively little action was taken for the initial seven years. Read the PDF or visit us for more information at https://bit.ly/3jIpIK3

1. SHIELD
Transactions Involving
Fictitious Devices or
Deception : REMIT
In previous articles in this series, we discussed wash trades and
layering and spoofing, both fraudulent trading activities prohibited in
the European Union under REMIT (Regulation on wholesale energy
markets integrity and transparency) rules. In this article, we’ll dive into
additional types of transactions that can artificially affect the
perceived value of particular wholesale energy stocks, driving them up
so as to gain an illegal advantage for the fraudster traders who
participate.
Here’s what you need to know about them — and the best practices
when it comes to stamping them out.
https://www.shieldfc.com/

2. In some cases, market manipulation involving fictitious devices and
deception takes place through fraudulent media and internet
communication channels.
Another common form of deceptive trading that falls under this
banner is a “pump and dump” scam. This is a type of securities fraud
in which the price of an owned stock is inflated through false
information so that the stock can then be sold at a significantly higher
price than it was purchased at.
Common communication channels used by fraudsters in a pump and
dump scheme could involve anything from social media messaging to
spam email, potentially containing bad data. If the pump and dump
scheme works as planned, other market participants buy into the
misleading information and invest in the wholesale energy product,
thereby driving up its price. (Hence “pumping” up the price and then
“dumping” the stock.)
Scalping and pump-and-dump
Circular trading and pre-arranged trading
This is damaging because it artificially manipulates the market by
making it appear that certain security has liquidity, suggesting there is
market interest in a stock where they might be none. This trading can
cause more investment in a stock because others could buy into it
thinking there must be a legitimate reason for the interest and activity.
Yet another fictitious trading
technique is pre-arranged trading. In
this practice, two commodity dealers
trade with each other at pre-arranged
prices. This kind of trading can be
used to gain a tax advantage or
exclude others from the market. It can
fraudulently limit risk and be more
profitable to the dealers at the
expense of the open market.
https://www.shieldfc.com/

3. All of these types of trades in the wholesale energy market fall under the
heading of price positioning. They are banned under REMIT Article 5 rules
stating that, “Any engagement [by a participant in the market] in any
attempt to engage in, market manipulation on wholesale energy markets
shall be prohibited.”
Although REMIT rules have been in place since the close of 2011, relatively
little action was taken for the initial seven years. That is rapidly changing
now as a result of increased enforcement and reporting of suspicious
behavior by ACER, Europe’s Agency for the Cooperation of Energy
Regulators.
The most recent ACER enforcement decision took place in March 2020
when several energy companies, including the UK-based InterGen, were
fined 42.5 million euros ($50 million). This was the result of abuses
including market manipulation in which InterGen staff sent misleading
signals about power plant capabilities. The fine (termed a “strong
message”) was based on demonstrated weaknesses in InterGen’s
procedures and internal controls when it comes to REMIT compliance.
Overall enforcement decisions involving Article 5 violations are greatly
increasing. This trend is not going to reverse any time soon. In fact,
enforcement will only increase.
All banned under REMIT
Compliance is mandatory
By law, companies must comply with REMIT rules. Penalties are not only
leveled at individual traders involved with the smooth running of the
European wholesale energy markets but also the companies they work
for. They must be monitoring at all times to ensure compliance — and in
a position to provide information about regulatory compliance at a
moment’s notice.
Along with providing proper guidance to traders about how to trade
and document their trading behavior, it is essential that companies
invest in comprehensive surveillance systems. And that they do it before
any kind of potentially costly investigation has to be launched. Millions
of dollars in fines makes the cost of an effective surveillance system
look minuscule by comparison.
https://www.shieldfc.com/