ACM reprimands international company about indications of market manipulation on wholesale market for natural gas
Summary
- ACM has reprimanded an international company about possible market manipulation on the wholesale market;
- The Dutch wholesale market for natural gas (TTF) is, by far, the largest in Europe. It is important that prices there are formed in a fair manner;
- The trader in question will no longer engage in this conduct. ACM will continue to keep a close watch on the company.
The Netherlands Authority for Consumers and Markets (ACM) has reprimanded an international company on the wholesale market for natural gas in connection with possible market manipulation in the form of ‘marking the close’. This major competitor on the wholesale market has committed to not using this trading practice anymore. ACM will continue to keep a close watch on this for the foreseeable future.
The Dutch wholesale market for natural gas (TTF) is, by far, the largest in Europe. The volume of natural gas that is traded on this trading platform is three times the volume of all other European natural-gas markets combined. The trade on the Dutch TTF has considerable influence on energy prices that consumers and businesses in the Netherlands and in other European countries must pay. That is why ACM makes sure that market participants on the TTF comply with the European rules. These rules have been laid down in the European REMIT regulation. Market manipulation is a serious violation because it can lead to higher prices for consumers and businesses.
‘Marking the close’
On the TTF Day Ahead market, natural gas with delivery on the next day is traded during the entire day. At the end of each day, a reference price is determined based on the market price at that point, on the basis of which many gas contracts with delivery on the next day are settled. One often used reference price is the TTF Heren Day Ahead, which is determined every day at exactly 17:30 hrs. This price is also an important reference for the gas prices in other EU countries.
‘Marking the close’ is an illegal trading practice, where a market participant influences the reference price on an energy wholesale market by buying or selling right before the moment that the close price is determined. This may involve offering orders with a much higher asking price right before the market close or buying excessively large volumes right before the market close, as a result of which the price spikes up. The market participant makes a profit because the contracts that they signed earlier are settled at this close price. As a result, other traders as well as Dutch and other European energy consumers foot the bill.
This picture consists of two illustrations, explaining how the prohibited trading practice ‘marking the close’ works in practice.
- The first illustration shows a trader who sells large amounts of natural gas on the wholesale market. The selling price is the reference price on August 1 at 17:30 hrs, which is referred to as ‘the close’. The trader sells a total of 10,000 MW.
- The second illustration shows that trading on August takes place as usual. The price fluctuates within the normal range. Right before 17:30 hrs., a trader buys a lot of natural gas in one go. As a result, the price spikes up right before the market close. The trader makes a profit because he sold at this high price, and bought at a lower price.
Reporting suspicious energy trading
ACM is calling on market participants and other relevant stakeholders on the wholesale energy markets to share information about possible illegal trading activities. They can do so using ACER’s Notification Platform (external website) . See also ACM’s website: Reporting suspicious energy trading | ACM.nl
Update of indicators of ACM’s regulatory activities under REMIT
ACM sees to it that no insider trading or market manipulation takes place on wholesale markets, and that market participants comply with the requirement to publish inside information, to register, and to report transaction data. In these efforts, ACM collaborates with the Dutch Authority for the Financial Markets (AFM), other European regulators, and the EU Agency for the Cooperation of Energy Regulators ACER. ACM publishes twice a year an update of indicators (in Dutch) of ACM’s regulatory activities under REMIT (Regulation on wholesale Energy Market Integrity and Transparency).