Navigating Energy Markets Surveillance .

Key Takeaways from the 2018 ETRC Summit.

Navigating Energy Markets Surveillance

By Nick Wallis / Principal Sales Director, Risk & Surveillance, Nasdaq

Surveill - energy Promo imageSince MAR came into effect in July 2017, many European energy firms have been playing catch up. It should be said that this is by no fault of their own. The energy industry has been in a constant state of flux; from cornerstone regulations such as REMIT to the ongoing coupling of spot markets. MAR has added yet another layer of surveillance requirements, bringing energy firms into line with all other firms trading financial contracts. However, energy platforms continue to be fragmented, making access to data increasingly challenging for market participants.

Nasdaq recently participated in a panel at the 2018 ETRC Summit in London to further discuss MAR/MAD and how energy firms are approaching their respective trade surveillance controls and programs.

The summit included senior compliance directors from leading energy corporates and utilities across Europe. Each in turn had a different perspective, but all were united in the ongoing challenges faced to remain compliant. Core to the discussion was the need for firms to take a structured approach to risk by identifying their requirements early on – both in terms of what risk scenarios are relevant to their business as well as how to access the appropriate data to identify them.

Data may already be in-house or, when approaching scenarios requiring contextual data, available via exchanges or third parties. It was clear that finding a centralized means of accessing this data, or help in handling disparate feeds is a consistent theme when looking at surveillance.

Experience was another theme. Firms are increasingly learning about their own front office behavior, as well as ensuring project staff and vendors have proven experience in delivering surveillance capabilities. One senior compliance manager commented that finding the right vendor partnership is essential to ensuring proactive collaboration, leveraging industry best practices and best understanding regional and global regulatory requirements and how to implement the necessary controls to comply.

In light of several recently publicized investigations, many energy firms have started to take a more proactive approach toward surveillance; however, in some cases, firms are taking a very light touch approach with a minimal viable product. While this approach may seem proportionate, regulators are well within their rights to switch their attention at any point. As such, ensuring a system has a comprehensive list of alerts and functionality to remediate them is very important. To this end, having a system that can adapt and is in line with expectations is becoming more commonplace amongst energy firms.

In addition to the above, consensus was found regarding the need for false positives as a hallmark of a well-functioning surveillance system. Too often firms look to eradicate false positives from systems in an attempt to drive down manual work, however in doing so, the sensitivities of alerts can be affected to such an extent that they are no longer accurately tracking the potentially abusive behavior in the first place.

In summary:

  • Firms need to approach surveillance methodically to understand their requirements
  • Due to market fragmentation firms should investigate centralized data sources
  • False positives should be seen as a means of accessing system health rather than totally eradicated
  • Experience is pivotal in deploying a comprehensive surveillance system
  • Firms should be wary of minimal viable products as regulators are constantly shifting their attention

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