Fictitious Devices or Deception : Transactions : REMIT

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REMIT best practices transactions involving
fictitious devices or deception
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In this, well dive into additional types of
transactions that can artificially affect the
perceived value of particular wholesale energy
stocks, driving them up so as to gain an illegal
advantage for the fraudster traders who
participate.

• Heres what you need to know about them and the
  best practices when it comes to stamping them
  out.

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Scalping and pump-and-dump
Another common form of deceptive trading that
falls under this banner is a pump and dump
scam. This is a type of securities fraud in
which the price of an owned stock is inflated
through false information so that the stock can
then be sold at a significantly higher price
than it was purchased at. Common communication
channels used by fraudsters in a pump and dump
scheme could involve anything from social media
messaging to spam email, potentially containing
bad data. If the pump and dump scheme works as
planned, other market participants buy into the
misleading information and invest in the
wholesale energy product, thereby driving up its
price. (Hence pumping up the price and then
dumping the stock.)
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Circular trading and pre-
arranged trading

• This is damaging because it artificially
  manipulates the market by making it appear that
  certain security has liquidity, suggesting there
  is market interest in a stock where they might
  be none. This trading can cause more investment
  in a stock because others could buy into it
  thinking there must be a legitimate reason for
  the interest and activity.
• Yet another fictitious trading technique is
  pre-arranged trading. In this practice, two
  commodity dealers trade with each other at
  pre-arranged prices. This kind of trading can be
  used to gain a tax advantage or exclude others
  from the market. It can fraudulently limit risk
  and be more profitable to the dealers at the
  expense of the open market.

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All banned under REMIT
All of these types of trades in the wholesale
energy market fall under the heading of price
positioning. They have banned under REMIT
Article 5 rules stating that Any engagement by
a participant in the market in any attempt to
engage in, market manipulation on wholesale
energy markets shall be prohibited. Although
REMIT rules have been in place since the close of
2011, relatively little action was taken for the
initial seven years. That is rapidly changing
now as a result of increased enforcement and
reporting of suspicious behavior by ACER,
Europes Agency for the Cooperation of Energy
Regulators.
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Compliance is mandatory
By law, companies must comply with REMIT rules.
Penalties are not only leveled at individual
traders involved with the smooth running of the
European wholesale energy markets but also the
companies they work for. They must be monitoring
at all times to ensure compliance and in a
position to provide information about regulatory
compliance at a moments notice.
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Along with providing proper guidance to traders
about how to trade and document their trading
behavior, it is essential that companies invest
in comprehensive surveillance systems. And that
they do it before any kind of potentially costly
investigation has to be launched. Millions of
dollars in fines make the cost of an effective
surveillance system look minuscule by comparison.
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