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FAQs on transaction reporting – Question II.2.2.9

What is a trade? In order to be able to report trades it is important that there is a clear definition of a “trade”. The legislation refers to a “contract” and “both parties to the contract should report the required details of the concluded contract” which confirms our view that a “trade” is only reportable if it is accepted by all parties to be a legally binding contract for delivery of gas or power.

Example 1:  “trades” entered in error by a human – i.e. against the incorrect trader, counterparty, or at the wrong price.

Example 2; temporary “trades” entered into the system by a broker as a placeholder in the course of processing a trade such as:

(a)     a sleeve trade pending the creation of the final trades;

(b)     a spread trade where the headline spread trade is deleted and replaced by the constituent physical legs.

There is a precedent here for only reporting the legally binding and mutually agreed trades.

Our view, backed up by our lawyer, is that these are not “contracts” because it does not constitute an agreement or contract for the delivery of gas or power. In practical terms, the parties do not book placeholder “trades” in their ETRM systems and would therefore be unable to report them in any event.

Indeed, placeholder “trades” or “trades” entered into the system in error might not be able to be booked into a market participant’s systems at all for a number of reasons such as:

  • the other party to the “trade” not existing as a counterparty in the system;
  • not having available bilateral credit with the counterparty;
  • not having completed know your customer (KYC) on the counterparty; or
  • being prohibited from dealing with the counterparty due to sanctions.

Screen orders that were traded in error would be visible to the Agency indirectly – because the Agency would see an “orphaned” matched order, with no corresponding trade referencing it, so the Agency would be aware that the market had seen a “trade” which was subsequently cancelled. Details of the precise workflow would be available to the Agency upon request.

We monitor orders that were traded in error for signs of market abuse as part of our standard monitoring processes.


Answer:

With regard to matched orders that for some reasons do not become “contracts” and do not constitute an agreement or contract for the delivery of gas or electricity, only matched orders may be reported. In any transaction there are always two orders that match: the buyer’s and the seller’s one and they both have to be reported as order placed in the market first, and then as matched orders and cancellation life cycle events for both of them to indicate that those orders have not originated a contract and that the transaction was cancelled for some reasons.

If a system stores only the initiator order and the click and trade order/trade for the aggressor, than the reporting parties should report the initiator matched order, the initiator trade that would have been reported if the transaction went through, and the aggressor click and trade order/trade which matches the initiator order. Then a life cycle event of the two transactions should be reported to indicate that the trade was not finalised.

Alternatively, if a system stores only the initiator order and the click and trade order/trade for the aggressor, than the reporting parties may report the initiator matched order and the aggressor click and trade order/trade which matches the initiator order and link it to it. Then a life cycle event should be reported to indicate that the trade was not finalised.

Please see example (3.54) in the Annex II to the TRUM.

Last update: 08/09/2015   RSS_Icon Subscribe to this Page’s RSS