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Ofgem statement into allegations of gas market manipulation
Ofgem and the Financial Conduct Authority have conducted a review of allegations of manipulation of the gas market in Great Britain on 28 September 2012. It has been concluded that no evidence of the alleged market manipulation could be found and therefore that the interests of consumers have not been harmed.
Ofgem and the FCA are taking the unusual step of commenting on the work they have carried out into reviewing these specific allegations because of the concerns those allegations raised among energy consumers. Since becoming aware of these allegations, a detailed analysis of all relevant information has been conducted and face to face meetings with a number of market participants were held by both the FCA and Ofgem. The nature of this work is necessarily detailed, complex and time consuming.
Ofgem and the FCA always take seriously any allegation of market abuse in energy or financial markets and will consider carefully any evidence that is brought to our attention.
1. The allegations
Specific allegations were made concerning trading on 28 September 2012 in the period leading up to 4.30pm, when price reporting agencies produce a benchmark price for the day. Such benchmark prices are often used in a range of other contracts. It was alleged that gas was sold at a price (58p/therm) that was lower than the price of the best bid to buy gas at the time, in order to manipulate the benchmark price produced by price reporting agencies.
2. The review
It was considered whether the trading in the period around 4.30pm might have been manipulative. A consolidated order book of trading on the day was developed so that the market conditions and trading positions of relevant market participants could be fully understood. This included contracts priced by reference to price reporting agencies’ closing prices.
The sellers of the six 58p/th trades have provided explanations for the transactions they entered into, supported by relevant confidential information, to demonstrate that their trading activity was not improper. These explanations are credible and no evidence was found which disputes the explanations provided.
In light of this, it is considered that no further action is required in connection with the allegations relating to 28 September 2012. Ofgem and the FCA are not releasing any further information they have gathered as it includes information subject to legal restrictions on disclosure.
3. Wider work
In parallel, Ofgem is undertaking wider work to strengthen transparency within the gas market. Ofgem is continuing to analyse stakeholder responses to our call for evidence on how they contribute to and use price benchmarks produced by price reporting agencies, and whether the current processes are fit for purpose.
4. Additional powers
In June Ofgem received additional powers to monitor, investigate and take action against organisations or individuals who carried out energy market abuse. Ofgem continues to monitor the wholesale energy markets. Given the nature of this work which is designed to ensure that nobody can profit from market abuse, the details of the monitoring approach are confidential.
In this context, Ofgem welcomes the Secretary of State’s announcement in the Annual Energy Statement that the government will consult on introducing criminal enforcement powers for the most serious cases of energy market abuse. This would strengthen the deterrent to undertake such activity and bring the law for energy markets into line with the law which for the most part already applies to financial markets.
5. Statements published by the FCA and DECC can be found below:
For further press information contact:
Chris Lock: 020 7901 7225
Howard Rhoades: 0203 263 9629
Out of hours: 07766 511470