Chartis

Spotlight on Trade Surveillance in Energy Trading

December 2016 • Ref RR1631
Research Report
Number of pages: 20
Single user license: Subscription Only
Number of figures and tables: 4 
 

Overview

Recent regulations designed to tackle abuse and misconduct in trading markets now require many firms to install surveillance systems to monitor their trading activity. But for most trading firms, actually achieving this is far from straightforward.

This report takes a brief look at the new regulations, the climate that produced them, and what the changes in the Energy Trading Risk Management (ETRM) space mean for those who use, and sell, trade surveillance solutions.

Two recent regulations affect firms that trade energy commodities: the Market Abuse Regulation (MAR) and the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). Both aim to improve the integrity of markets by requiring trading firms to install trade surveillance systems to tackle market abuse. Market abuse is a serious problem, and can take myriad forms – much like the systems designed to tackle it. These can vary from manual data gathering and analysis to more sophisticated analytics that detect complex patterns of behavior and generate alerts.

The regulations, however, rather than providing clear guidance and direction, have instead created much uncertainty among trading firms. Until the rules become more established, firms will have some difficult decisions to make about the level of trade surveillance to implement, and who in the business should ultimately be in charge of it. Whatever they decide, early action is essential, to ingrain new attitudes and prevent surveillance systems being seen as just another nuisance on the trading floor.