UPDATE 2-EU plans 2012 clampdown on energy market abuse

* EU exec plans tighter rules on energy market abuse in 2012

* Targets insider trading and price manipulation

(Adds lawyer comment, U.S. comparison)

By Pete Harrison and Henning Gloystein

BRUSSELS/LONDON, Dec 6 (BestGrowthStock) – Europe’s energy chief
will this week reveal plans to clamp down on potential market
abuse by traders in gas and power markets from 2012, EU
documents show.

A team of 15 market monitors would be handed extensive
powers to collect market data and act on manipulative behaviour,
and would be based at the Agency for the Cooperation of Energy
Regulators (ACER) in Slovenia.
“The rules governing energy markets are insufficient to
ensure their stable and orderly functioning,” said a leaked
draft seen by Reuters on Monday.

“Market participants who trade wholesale energy products
shall provide the agency with a record of their transactions,
including orders to trade, the timing, form and content,” the
draft said.

The monitors’ powers would be wide-ranging, including: “the
right to have access to any document in any form whatsoever…
to demand information from any person (involved in
transactions), carry out on-site inspections, require existing
telephone and existing data traffic records, and to request
temporary prohibition of professional activity.”

“The draft gives the regulator, who some considered a bit of
a toothless tiger, more power,” said Matthias Lang, energy
specialist at German lawyers Arqis. “However, dealing with this
data may be quite a challenge.”

“The underlying concept seems to implement regulation that
is similar to other financial markets but to add some energy
specificities,” he added.

ABUSIVE BEHAVIOUR

The European Commission said that a 2008 probe of German
utility E.ON (EONGn.DE: ) had raised concerns that power
generators were capable of manipulating power prices by
temporarily withdrawing generation capacity from the market.

“The potential for unfair trading practice undermines public
trust, deters investment, increases volatility of energy prices
and may lead to higher energy prices in general,” the draft
said.

EU officials also studied a case of market abuse in the
United States in 2006 where several gas markets were manipulated
by hedge fund Amaranth, and concluded that a similar play in
Europe would cost consumers about 1 billion euros ($1.3
billion).

It said the market monitors would have to watch gas and
power markets, but should also have full access to carbon market
transactions in the EU’s Emissions Trading Scheme.

“The rules have to be also complete and cover all relevant
transactions, including spot and derivatives and on- and
off-exchange transactions,” it added.

European governments would enforce the rules and decide
sanctions for anybody breaking them.

“It’s about civil damages, fines, and in the worst case, to
imprisonment,” EU Energy Commissioner Guenther Oettinger told
German newspaper Handelsblatt in an interview last week.

The monitoring agency would be set up as a unit of ACER,
based in Ljubljana, at a cost of about 1.5 million euros a year.

The proposals will be finalised and launched on Wednesday
and will be debated by EU governments and the European
Parliament before becoming law.

The draft also indicates that the EU and U.S. are converging
on a common approach to market regulation.

In recent months, European regulators have been in contact
with the Commodity Futures Trading Commission (CFTC) in the
U.S., and some of the wording in the Commission’s draft is
similar to that of the CFTC’s Dodd-Franck Act.

“Cooperation makes sense as many players are active in both
markets,” Lang said.
(Editing by William Hardy)

UPDATE 2-EU plans 2012 clampdown on energy market abuse