03 Jun How is algorithmic trading on electricity intraday markets regulated?
In case you are wondering if your activities with PowerBot or other auto traders are subject to complex regulation, we have good news for you: Electricity intraday markets are considered as spot markets and are therefore not subject to MiFID II or other financial market regulations.
Companies interested in algorithmic trading often raise the question what the regulatory implications of any PowerBot activities would be. They are sometimes anxious of complex regulations, especially regarding guidelines from the financial sector or in connection with high frequency trading. Regularly, we get questions about MiFID II (Markets in Financial Instruments Directive) and if it is applicable for the services we provide.
Just in case you have never heard of MiFID II, it is a regulation for financial markets which is mostly designed for banks, so you can imagine that it is rather complex. It also includes regulations for algorithmic trading. However, MiFID is only applicable for financial markets and the good thing is that electricity intraday markets are considered as spot markets and for this reason, MiFID II is not applicable. By the way, as long as you are not renting any dedicated leased lines towards the power exchange to decrease reaction times, your activities are not considered as high frequency trading.
Nevertheless, as you know, the energy market has its own regulations. As all your other energy market activities, human or algorithm, they are subject to the REMIT directive (Regulation on wholesale Energy Market Integrity and Transparency). Further, you need to follow the Code of Conduct and Market Rules of the exchange, which e.g. forbid order spamming. To sum up, the use of PowerBot to create your own algorithms does not change the regulations that are applicable for your company.
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