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Ofgem is investigating whether traders manipulated the price of energy contracts using a technique known as ‘spoofing’, Bloomberg has reported.
The regulator is said to be examining allegations that traders in the UK pushed up the price of derivatives which track the ‘spark spread’ by posting and then cancelling orders in quick succession. The spark spread is the difference the cost of the fuel used to produce of a unit of power at a gas-fired plant and the price which it can be sold for on the wholesale market.
A probe called “Project Damson” has been launched by Ofgem to investigate the claims, according to an unnamed source who is “familiar with the situation” and documents seen by the news agency.
The documents describe how one trader targeted by the investigation placed and then cancelled multiple buy orders to inflate the price of a contract for the summer of 2014 and increase the value of his trading portfolio.
Several sets of regulation have been introduced in recent years to clamp down on manipulation in the energy market. The first tranche of the EU’s REMIT data reporting rules came into effect last October, compelling traders to report all exchange-based trades to the European Agency for the Cooperation of Energy Regulators (ACER).
Ofgem is yet to respond to a request for comment.
The second tranche was introduced in April. It extended the reporting requirements to over-the-counter – or bilateral – trades which take place outside of exchanges. Whilst ACER deals with the collection of data, Ofgem is responsible for enforcing the rules in the UK.
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