A Comparison of Anti-Manipulation Rules in U.S. and EU Electricity and Natural Gas Markets: A Proposal for a Common Standard

Abstract

In this paper, we describe the development and current status of anti-manipulation rules as they apply to wholesale electricity and natural gas markets in the United States and the European Union, including the institutions that are responsible for overseeing these rules. We then compare and contrast these jurisdictions to discuss similarities, differences, and potential gaps in coverage within and across their internal markets. We note that while the behavior prohibited by the U.S. and EU statutes is remarkably similar, there is in fact no common standard for defining market manipulation. The absence of a common EU/U.S. framework for examining manipulative behavior introduces uncertainty into compliance efforts by failing to provide safe harbors and by potentially wasting scarce resources through efforts to continually detect and deter behavior that is in fact legitimate. We propose an economic framework to describe manipulation in a manner that could generally harmonize such compliance and enforcement efforts, providing a uniform approach to the detection, analysis and punishment of manipulative behavior within and across both the U.S. and EU jurisdictions.

Keywords: manipulation, abuse, framework, compliance, enforcement, monitor, FERC, CFTC, ACER, Rule 1c, Rule 10b-5, Dodd Frank, REMIT, MAD, MiFID, abuse, fraud, power, gas, electric, wholesale, penalties, disgorgement, financial, swaps, derivatives, rulebook, target, nexus

JEL Classification: D40, D42, D43, D61, D81, D84, F15, F36, G12, G13, G15, G18, K0, K2, K21, K22, K23 ,K42, L12, L4, L51