Trading in Energy Derivatives: who’s watching?

On 20 January 2023, Liebrich Hiemstra defended her PhD dissertation which shows the financial side of the energy sector: the trade in energy derivatives and how such trading is supervised by EU and national regulatory authorities. One of the main findings is that the supervision in this sector is too opaque and that the effectiveness of the legal remedies available to market players is questionable.  

Energy derivatives in practice

Energy companies’ role paramount to society is producing energy products and selling those to end consumers. Behind the scenes of this core activity, most energy companies are also active on financial markets where they trade in financial instruments with an underlying value derived from the price for energy commodities such as electricity and natural gas, widely known as energy derivatives. It appears that trading in energy derivatives (Energy Derivative Trading) is characterized by a cross-border nature and that EU agencies (ACER and ESMA)  cooperate closely with national regulatory authorities to monitor and supervise market behavior whereby data relating to trading activities of market players is exchanged based on the Regulation on Wholesale Market Integrity and Transparency (REMIT).  Simply put, market participants are obliged to disclose data on their trades in energy derivatives to supervisory authorities, even when it includes business-sensitive information.

Liebrich Hiemstra explains why energy companies get involved in Energy Derivative Trading, how it works, what legislation applies, how its supervision is organized and how the relevant supervisory authorities cooperate and share information. This research shows that market players are subjected to a regulatory and supervisory framework at the interface of the energy and financial sector. One of the consequences thereof is that supervision in this sector is too opaque.

While market participants may count on regulatory authorities’ legality – that the authorities’ actions are based on an adequate legal basis – and effectiveness – that those actions contribute to the goal of the underlying legal basis –, they also have a right to have legal remedies available to them to seek judicial protection against a breach of confidentiality and the obligation of professional secrecy of supervisory agencies when exchanging confidential information. Next to the right to have such judicial protection framework in place, the available remedies should be effective. This research puts the concepts of legality and effectiveness in light of regulatory authorities’ options to share information relating to Energy Derivative Trading.

Aim of the PhD research project

The sector’s complexity and the multitude of supervisory authorities at both the EU and national levels have raised concerns about effective supervision. Effective supervision within the context of this research is explained as the effective monitoring of Energy Derivative Trading by supervising the market participants’ reporting obligations to enable the detection of market abuse.   This research aims to contribute to the debate on the good governance principles of effectiveness and legality within a transnational context by placing information sharing between supervisory agencies in the context of these two principles. More specifically:

 1) this research sets out the regulatory paradigm that applies to Energy Derivative Trading;

2) It provides insight into the effectiveness of supervisory activities in the cross-border and cross-sectoral Energy Derivative Trading landscape from the perspective of reporting obligations applicable to energy companies and contributes to the debate about the effectiveness within a transnational context;

3) It intends to discuss information sharing in the field of Energy Derivative Trading within the context of the rule of law and to explore the judicial protection market participants have available against information sharing between supervisory authorities; and

4) It looks to investigate the consequences for energy companies active in Energy Derivative Trading of two specific judgements ruled by the Court of Justice of the European Union (CJEU).


Several conclusions have followed from this research:

  1. the research project concludes that Energy Derivative Trading has cross-border and cross-sectoral components and that the supervision and regulation of these trades emanate from the framework applicable to financial markets. Here, ACER and ESMA are the relevant EU agencies, while NRAs play an important role in national enforcement. It appears to be vital that market participants are able to trust supervisory authorities in treating their disclosed information as confidential, and that they have sufficient remedies available to enforce their rights in case supervisory authorities breach their confidentiality obligation.
  2. REMIT fills in a regulatory gap by making the prohibition of market abuse more concrete for the energy sector, which is essential to ensure the stable and orderly functioning of wholesale energy markets. The obligation to disclose data relating to Energy Derivative Trading to supervisory authorities could contribute to a properly functioning energy market, however, it seems the legislator has not sufficiently taken into account a comprehensive approach to the functioning of Energy Derivative Trading when drafting REMIT.
  3. The multitude of supervisory authorities does not contribute to effective supervision as ACER and national regulatory authorities lack the power to enforce and sanction, and other authorities lack the knowledge to do so, given the cross-border and cross-sectoral character of Energy Derivative Trading.
  4. Market participants may not even be aware that their information is shared amongst supervisory authorities. The effectiveness of available remedies is therefore questionable.
  5. As an additional conclusion, it appears that REMIT has matured over the years in terms of interpretation, functioning and enforcement cases and it appears that this trend will continue now that national courts increasingly seem to get involved.


The research provides several recommendations on: a) information sharing between supervisory agencies; b) ACER organization; and c) the available remedies.

Concerning information-sharing, supervisory agencies should inform market participants about the sharing of their data with other authorities to enable these market participants to rely on judicial remedies. Such obligation could be included in article 10 REMIT, article 2 of Regulation 2019/942 and article 14 REMIT. As a result thereof, both vertical and horizontal EU-level information sharing becomes a legal act with adequate judicial remedies available. Furthermore, market players should be able to rely on the same rules of confidentiality and professional secrecy, regardless of the nature, identity and location of the supervisory authority disclosing or receiving information to limit possible differences between Member States and to ensure the same level of protection of a market participant’s confidential information against disclosure to other supervisory authorities. Concerning ACER organization, this research identifies several recommendations to ACER, including an adequate budget, further research on possible enforcement tasks and recommendations to advise the European Commission on binding rules for the ways in which supervisory agencies cooperate and share information based on article 6 of Regulation 2019/942. Lastly, when it comes to available remedies, this research recommends opening up the National Energy Ombudsman Network to market participants instead of end consumers only.

Thoughts for Further research

This research concludes that the ineffective multitude of supervisory authorities and the consequential sharing of information would not be necessary if a one-stop-shop EU body would exist with a cross-sectoral and cross-border monitoring, supervision and enforcement mandate in the EU energy market. Further research could investigate the option to broaden the powers of ACER or explore the possibilities of placing ACER’s mandate and knowledge under the umbrella of ESMA. Such research should take several elements into account, for example, the broadened or strengthened legal mandate to supervise and enforce, the additional cost thereof, risks of regulatory capture and practical objections about how such a body should investigate on a local level.


A commercial edition of the dissertation will be published by Edward Elgar Publishing and will be available in the summer of 2023.  


Liebrich Hiemstra
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Author: Liebrich Hiemstra

Liebrich Hiemstra finalized her doctorate at Tilburg University (Tilburg Institute of Law, Technology, and Society) and is a senior legal counsel at Vattenfall where she focuses on regulation and supervision in the energy sector and M&A transactions relating to renewable energy.

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