German capital market law - L EGAL CLASSIFICATION OF CAPACITY RETENTION : C APITAL MARKET LAW

B. THE NATURE OF PHYSICAL AND FINANCIAL CAPACITY RETENTION

III. L EGAL CLASSIFICATION OF CAPACITY RETENTION : C APITAL MARKET LAW

2. German capital market law

As the introductive section E.III. in chapter 1 of this work has shown⁵²⁸, German capital market law is spread between three codes – the Securities Exchange Act (BörsG), the Securities Trading Act (WpHG) and the German Banking Act (KWG). All of these codes contain sanctions for infringements of their provisions. While KWG sanctions do not cover abusive behavior in electricity trading, the provisions in the BörsG focus on allowances of exchanges and organizational duties rather than the process of trading itself.⁵²⁹

527 Ibid, 35.

528 Please refer to chapter 1, section E.III.2. of this work.

529 Oliver Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 109-110.

With regard to manipulations on the EEX spot market, however, only the WpHG was of some relevance. With the introduction of the MAR provisions in July 2016, Sec. 20a WpHG was cancelled and replaced by the immediately applicable European rules in Art. 12, 15 MAR.⁵³⁰ Since these rules are largely identical in context with the former Sec. 20a WpHG⁵³¹ that was in place during the period of examination of this work and the commentary liter-ature has not yet covered the MAR rules, this work will refer to both, the former Sec. 20a WpHG and Sec. 15 MAR in the following section.

However, one necessary differentiation has to be made: While it will be argued that Sec. 20a WpHG was directly applicable on manipulations on markets for wholesale energy products, the new rules in Sec. 12, 15 MAR are explicitly not, Art. 2(2)(a) MAR. Therefore, Sec. 20a WpHG will be presented in depth due to its applicability during the period of examination and reference to Art. 12, 15 MAR will be made to illustrate the legal situation in comparably complex capital market manipulation cases.

a) The prohibition against market manipulation in Art. 12, 15 MAR (formerly Sec. 20a WpHG)

The capital market law provisions of greatest relevance for this work are Art. 12, 15 MAR (formerly Sec. 20a WpHG): Art. 15 MAR states the prohibition of market manipula-tion, concretized by definitions and exemplary manipulation scenarios in Art. 12 MAR.

Art. 12, 15 WpHG are accompanied by penalty rules for their infringement: Sec. 39 WpHG, which is designed as an administrative offense, and Sec. 38 WpHG containing a criminal sanction.⁵³² Hence, capital market law seems to offer sanctions for manipulative behavior independently of the requirements of antitrust. The next sections will discuss whether a legal classification of capacity retention according to the requirements of the former Sec. 20a WpHG, as well as the new Art. 12, 15 MAR, are feasible and suited to deter future manipulations.

530 The rules were transposed into German law by way of the First Act Amending Financial Marekts Regulations (Erstes Finanzmarktnovellierungsgesetz, 1. FiMaNoG) from June 30, 2016. Refer to the information on the homepage of the German Federal Financial Supervisory Authority (BaFin), available online at

https://www.bafin.de/EN/Aufsicht/BoersenMaerkte/Marktmanipulation/marktmanipulation_node_en.html (last accessed October 23, 2017).

531 Krause, “Kapitalmarktrechtliche Compliance: neue Pflichten und drastisch verschärfte Sanktionen nach der EU-Marktmissbrauchsverordnung”, CCZ Vol. 7, no. 6 (2014), 258.

532 Ibid, 121.

aa) Scope of application of the former Sec. 20a WpHG

First and most importantly, the scope of application of Sec. 20a WpHG needed to cover the trade with electricity products at the EPEX spot market both materially and geographically. The material scope of application of Sec. 20a WpHG covered financial instruments according to the definition in Sec. 2(2b) WpHG⁵³³, hence excluding the prod-ucts traded at the EEX spot market.⁵³⁴ This opinion was supported by the considerations of the German Monopoly Commission in its 2007 special report, stating that the Securities Exchange Act was not applicable to spot market transactions and manipulative behavior could only be pursued with the help of antitrust rules.⁵³⁵ Also the new Art. 12, 15 MAR explicitly exclude wholesale energy spot market transactions, Art. 2(2)(a) MAR.

For the former Sec. 20a WpHG, this view overlooks the impact of Sec. 20a(4) WpHG. This paragraph extended the scope of application of Sec. 20a WpHG explicitly on commodities if traded in an organized market.⁵³⁶ With regard to electricity traded over EPEX spot, Sec. 20a WpHG hence applied: The EEX is an organized market⁵³⁷ and the power products traded fall under the definition of commodities.⁵³⁸ In particular, the norm did comprise cases where the auction price for power was influenced by withholding capacity from low-cost plants in favor of more expansive facilities.⁵³⁹

In conclusion, the material scope of application of Sec. 20a WpHG therefore included ca-pacity retention on the spot market for electricity during the period of examination.⁵⁴⁰

533 Please refer to chapter 1 of this work, section E.III.2.a) of this work.

534 Oliver Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 125 Also refer to Markus Wiesner, Der Stromgroßhandel in Deutschland: Die Anwendung des Wertpapierhandelsgesetzes auf den deutschen Stromgroßhandel zur Stärkung der Marktintegrität, Europäische Hochschulschriften (Frankfurt am Main: Peter Lang, 2010), 98.

535 Monopoly Commission, Sondergutachten 49 - Strom und Gas 2007: Wettbewerbsdefizite und zögerliche Regulierung, 2007, 61 Ref. 194. Also Matthias Jahn, "Zur Strafbarkeit von Manipulationen des Handels an der Strombörse EEX in Leipzig," ZNER Vol. 11, no. 4 (2008), 306.

536 Oliver Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 126. Also Wiesner, Der Stromgroßhandel in Deutschland:

Die Anwendung des Wertpapierhandelsgesetzes auf den deutschen Stromgroßhandel zur Stärkung der Marktintegrität, Europäische Hochschulschriften (Frankfurt am Main: Peter Lang, 2010), 133; ibid. Detailed Alexander T. Retsch, Marktmissbrauchsrechtliche Regelungen des WpHG und der REMIT-VO im

Stromspothandel (Baden-Baden: Nomos Verlagsgesellschaft, 2013), 96 et sqq.

537 Michael Cieslarczyk et al., "Verbesserung der Transparenz auf dem Stromgroßhandelsmarkt aus

ökonomischer sowie energie- und kapitalmarktrechtlicher Sicht,"(Düsseldorf/Berlin/London2006), 126, 128.

538 In depth Matthias Jahn, "Zur Strafbarkeit von Manipulationen des Handels an der Strombörse EEX in Leipzig," ZNER Vol. 11, no. 4 (2008), 306 et sqq. See also Wiesner, Der Stromgroßhandel in Deutschland: Die Anwendung des Wertpapierhandelsgesetzes auf den deutschen Stromgroßhandel zur Stärkung der

Marktintegrität, Europäische Hochschulschriften (Frankfurt am Main: Peter Lang, 2010), 202. Also Michael Cieslarczyk and Karl-Peter Horstmann, "Marktmissbrauch im Energiehandel?: Die Empfehlung von ERGEG und CESR zur Entwicklung eines spezifischen Regelwerks gegen Marktmissbrauch auf den Energiemärkten," emw Vol. 6, no. 8 (2008), 27.

539 Joachim Vogel, in Wertpapierhandelsgesetz Kommentar, ed. Heinz-Dieter Assmann and Uwe H. Schneider, 6th ed. (Köln: O. Schmidt, 2012), § 20a Ref. 43a.

540 Also Eberhard Schwark, in Kapitalmarktrechts-Kommentar, ed. Eberhard Schwark and Daniel Zimmer, 4th ed. (München: C.H. Beck, 2010), § 20a WpHG Ref. 99-100. Likewise Brunke, Die Strafbarkeit

marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter

Further questions arise with regard to the geographical scope of application of the former Sec. 20a WpHG. Effective from April 1, 2009, the EEX spot market merged with Powernext, a Paris-based spot market for energy, to form the EPEX Spot SE.⁵⁴¹ EPEX Spot has its domicile in Paris, France, which gave rise to the question of geographical applica-bility of the norm, as well as the criminal sanction in Sec. 38(2) WpHG.⁵⁴² Since the of-fenses in Sec. 20a, 38, 39 WpHG were all designed as abstract strict liability torts, requir-ing intent or negligence, but no need to actually succeed, the reference for the scope of application of Sec. 20a WpHG could only be the place of action rather than the place where the harm arose. Sec. 1(2) WpHG concretized this action-based approach, stating that the rules of the third and fourth section of the WpHG were also applicable to actions and omissions taken abroad if they referred to financial instruments traded at a domestic exchange. Hence, the norm did not require the manipulation to be carried out at a domes-tic exchange.⁵⁴³ However, it required a reference to financial instruments also traded do-mestically, and therefore excluded commodities like power from the scope of application.

Since an influence of the spot price in Germany had become practically impossible after the shutdown of spot trading at EEX Leipzig, this did not constitute a regulatory gap. The actual opportunity to influence the price of futures traded at EEX in Leipzig through spot market transactions was covered by Sec. 1(2) WpHG, since those could be subsumed under the definition of financial instruments. In summary, any action or omission at EPEX spot in Paris that fulfilled the requirements of Sec. 20a WpHG and referred to financial instruments traded at the EEX futures market in Leipzig was covered by the geographical scope of application of Sec. 20a WpHG.⁵⁴⁴ However, the applicability of Sec. 20a WpHG did not yet contain the applicability of the sanctioning provisions in Sec. 39, 38 WpHG.

Since Sec. 38 WpHG contains criminal sanctions, its geographical scope of application de-pends upon the rules of international criminal law, Sec. 3 to 7 and 9 StGB, respectively administrative rules codified in Sec. 5, 7 OWiG. According to these norms, the applicability is clear in cases of manipulations that have effects in the domestic financial market. Thus, manipulations of the EPEX spot market in Paris that have effects on the prices in the EEX futures market located in Leipzig are covered.⁵⁴⁵

Lang, 2011), 127. Also Wiesner, Der Stromgroßhandel in Deutschland: Die Anwendung des

Wertpapierhandelsgesetzes auf den deutschen Stromgroßhandel zur Stärkung der Marktintegrität, Europäische Hochschulschriften (Frankfurt am Main: Peter Lang, 2010), 200.

541 Thomas Pilgram, "Formen des Handels an der EEX," in Handbuch Energiehandel, ed. Hans-Peter Schwintowski, 2nd ed. (Berlin: Schmidt, 2010), 361 Ref. 669.

542 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 220.

543 Ibid, 221-222.

544 Ibid, 223.

545 Ibid, 224.

In conclusion, the geographical scope of application of Sec. 20a, 38, and 39 WpHG covered capacity retention at EPEX spot that had effects in the EEX Leipzig futures market and the financial instruments traded at this exchange. The following section will now turn to the examination of the manipulation offenses codified in the former Sec. 20a WpHG in order to prove the legal classification of capacity retention as capital market law offense by the time of the examination. For future cases of capital market manipulations, reference will be made to the new MAR rules.

bb) Requirements of the former Sec. 20a WpHG

Sec. 20a(1) first sentence WpHG contained three alternative manipulation offenses:

▪ Information based manipulations (Sec. 20a(1) first sentence N° 1 WpHG, now Art. 12(1)(c) MAR),

▪ Trade based manipulations (Sec. 20a(1) first sentence N° 2 WpHG, now Art. 12(1)(a)(i) MAR), and

▪ Action based manipulations (Sec. 20a(1) first sentence N° 3 WpHG, now Art. 12(1)(b) MAR).

Capacity retention at EPEX spot could be subsumed under all three alternatives of Sec. 20a WpHG during the period of examination: information based manipulations (Sec. 20a(1) first sentence N° 1 WpHG) and trade based manipulations (Sec. 20a(1) first sentence N°

2 WpHG), as well as other manipulations (Sec. 20a(1) first sentence N° 3 WpHG).⁵⁴⁶ All cases named will be examined subsequently. Under the MAR, commodity spot trades in wholesale energy products are excluded from the regulation and only the REMIT rules apply. In manipulation cases that do not address the wholesale energy market, however, the new MAR provisions named here may apply.

(1) Information based manipulations, Art. 12(1)(c) MAR (formerly Sec. 20a(1) first sentence N° 1 WpHG)

Information based manipulations according to the former Sec. 20a(1) first sentence N° 1 WpHG could be committed by action (Alt. 1) or omission (Alt. 2). The norm required false or misleading information relevant to investors and qualified to influence the auction

546 Ibid, 128 et sqq.

price. At EPEX spot, publication of false information on the EEX webpage with regard to the available quantity of power may be considered an infringement of this provision.⁵⁴⁷

Brunke proposes that the purposeful manipulation of production capacity aiming at an influence of the merit order does necessarily deceive the market about the whole of the available production capacity. He bases his argument on the fact that producers publish their available capacity on the EEX webpage daily as part of the transparency initiative.

Any visitor summing up the values to determine overall capacity would therefore not be able to calculate actual available capacity, but a lower value. The information on the EEX webpage would hence be false.⁵⁴⁸ Furthermore, Brunke considers the information to be misleading because the omission of capacity produces a false image of overall capac-ity.⁵⁴⁹

Yet, any publication on the EEX webpage happens on a voluntary basis.⁵⁵⁰ However, the existence of a duty to disclose is of no relevance to the goods protected by Sec. 20a(1) first sentence N° 1 WpHG. Also, publications on a voluntary basis need to be correct and complete.⁵⁵¹

As a final criterion, Sec. 20a(1) first sentence N° 1 WpHG required the false information to be of relevance to investors in the process of evaluating the product, e.g. power supply.⁵⁵² This relatively imprecise term was defined further in Sec. 2 Statutory Order Concretizing the Ban of Market Manipulations (Verordnung zur Kontretisierung des Verbo-tes zur Marktmanipulation, MaKonV)⁵⁵³, including a legal definition and presumptive ex-amples.⁵⁵⁴ Accordingly, the law addressed any such circumstances that a rational investor would consider when deciding about the investment.⁵⁵⁵ With regard to EEX spot trades, the information about the available production capacity was of relevance to investors mak-ing their buy and sell decisions. In case of capacity retention, investors would face price deviations to their disadvantage when spot prices rise above the average variable cost of

547 Wiesner, Der Stromgroßhandel in Deutschland: Die Anwendung des Wertpapierhandelsgesetzes auf den deutschen Stromgroßhandel zur Stärkung der Marktintegrität, Europäische Hochschulschriften (Frankfurt am Main: Peter Lang, 2010), 205.

548 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 129-130.

549 Ibid, 131.

550 Ibid. Also Cieslarczyk et al., "Verbesserung der Transparenz auf dem Stromgroßhandelsmarkt aus ökonomischer sowie energie- und kapitalmarktrechtlicher Sicht," 13.

551 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 131-132.

552 Vogel, in Wertpapierhandelsgesetz Kommentar, ed. Assmann and Schneider, 6th ed. (Köln: O. Schmidt, 2012), § 20a Ref. 68.

553 The MaKonV is based upon the power to issue statutory order in Sec. 20a(5) WpHG. See ibid, § 20a WpHG Ref. 13 et sqq.

554 Ibid, § 20a Ref. 68.

555 Ibid, § 20a Ref. 83.

production. Having known the actual availability of supply, investors would probably have refrained from investing the way they did. Hence, the disclosure of available production capacity might be considered of relevance to investors.⁵⁵⁶

However, the modalities of publication on the EEX webpage cast some doubt on this line of argument. Frist, as Brunke points out, only about two thirds of total installed capacity publish information on the EEX webpage.⁵⁵⁷ Small installations with less than 20 MW pro-duction capacity are not covered by the agreement of EEX and plant operators.⁵⁵⁸ Hence, investors would not find information on the availability of about one third of total installed capacity.

According to the amendments resulting from the implementation of the REMIT, energy producers trading in the wholesale market are obliged to publicly disclose inside infor-mation they possess including inforinfor-mation relevant to the capacity and use of facilities for production of electricity and planned or unplanned unavailability of these facilities, Art. 4(1) REMIT and Art. 2(1)(b), 2(7) REMIT.⁵⁵⁹

Yet, the data is displayed rather undifferentiated. Investors may access installed, available and actually generated power. There is however neither a differentiation between the in-dividual plants, nor between the hours of the day that are auctioned off at the spot mar-ket.⁵⁶⁰ Rather, production is cumulated for each day and only differentiated with regard to the energy source.⁵⁶¹ Hence, it appears highly questionable to deduct a relevance to in-vestors with regard to objectively fragmentary data. To a rational investor, the data must appear rather unqualified to base an investment decision upon it.⁵⁶²

Therefore, manipulations of prices at the EEX spot market did not violate Sec. 20a(1) first sentence N° 1 WpHG during the examination period, independently of the suitability of false information disclosure to influence the market price.⁵⁶³ Subsequently, the two other

556 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 134.

557 Ibid, 134-135.

558 Jahn, "Zur Strafbarkeit von Manipulationen des Handels an der Strombörse EEX in Leipzig," ZNER Vol. 11, no. 4 (2008), 304.

559 ACER, Guidance on the application of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency, 2013, 26, 40.

560 Cieslarczyk et al., "Verbesserung der Transparenz auf dem Stromgroßhandelsmarkt aus ökonomischer sowie energie- und kapitalmarktrechtlicher Sicht," 88.

561 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 135. Also refer to the information at the EEX transparency platform on www.eex-transparency.com (last accessed October 30, 2014).

562 Also ibid. The opposite opinion is hold by Jahn, "Zur Strafbarkeit von Manipulationen des Handels an der Strombörse EEX in Leipzig," ZNER Vol. 11, no. 4 (2008), 309.

563 Assuming a comprehensive duty to disclose for all producers and as a result affirming the relevance to in-vestors Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 137-138.

alternatives of Sec. 20a(1) – trade based and other manipulations – will be considered to analyze whether these cover spot market manipulations.

(2) Trade based manipulations, Art. 12(1)(a)(i) MAR (formerly Sec. 20a(1) first sentence N° 2 WpHG)

Sec. 20a(1) first sentence N° 2 WpHG addressed trade based manipulations, thus trades that were suited to send false or misleading signals with regard to supply, demand, or stock market price of financial instruments or to effect an artificial price level.⁵⁶⁴ With regard to the EEX spot market, all trade based manipulation techniques could be addressed by the norm if they produced false signals or artificial price levels without being considered an accepted market practice or justified by legitimate reasons.⁵⁶⁵

As a first criterion, trade based manipulations required the exercise of a transaction (e.g. purchase or sale of power products) or the issue of a purchase or sale order.⁵⁶⁶ The law did explicitly not refer to an execution of the order. Rather, any order that was received by the addressee – thus entered into the electronic trading system Xetra used at the EPEX spot – irrespective of a time limit or a limit with regard to the amount bid was considered an order. Even a later withdrawal of the order did not hinder the compliance with the criterion.⁵⁶⁷ Hence, any issue of a purchase or sale order at EPEX spot was in principle covered by Sec. 20a(1) first sentence N° 2 WpHG.

In order to qualify as trade based manipulation, it did further need to be suited to send false or misleading signals with regard to supply, demand or the stock price of power or establish an artificial price level.⁵⁶⁸ Hence, Sec. 20a(1) first sentence N° 2 WpHG established strict liability that did not require other market participants to be deceived.

This wide range of the norm did require a closer definition of infringing behavior with regard to the constitutional principle of legal certainty. The necessary level of legal cer-tainty was met with the help of the complementary provisions in Sec. 3 MaKonV.⁵⁶⁹

564 Vogel, in Wertpapierhandelsgesetz Kommentar, ed. Assmann and Schneider, 6th ed. (Köln: O. Schmidt, 2012), Vor § 20a Ref. 35.

565 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 139-140.

566 Vogel, in Wertpapierhandelsgesetz Kommentar, ed. Assmann and Schneider, 6th ed. (Köln: O. Schmidt, 2012), § 20a Ref. 144.

567 Brunke, Die Strafbarkeit marktmissbräuchlichen Verhaltens am Spotmarkt der European Energy Exchange (Frankfurt am Main: Peter Lang, 2011), 141. With reference to Vogel, in Wertpapierhandelsgesetz Kommentar, ed. Assmann and Schneider, 6th ed. (Köln: O. Schmidt, 2012), § 20a Ref. 148.

568 Vogel in Wertpapierhandelsgesetz Kommentar, ed. Assmann and Schneider, 6th ed. (Köln: O. Schmidt, 2012), § 20a Ref. 149.

569 Ibid, § 20a Ref. 153 et sqq.

(a) Former Sec. 3(1) N° 1e MaKonV

According to Sec. 3(1) N° 1e MaKonV, orders taken at or around a specific time when reference prices are calculated that lead to price changes which have an effect on such prices indicated manipulative behavior.⁵⁷⁰ With regard to the EEX, the following con-stellation might be addressed by the rule: Derivatives traded at the EEX futures market (and hence financial instruments) are based upon underlyings from EPEX spot, e.g. power contracts. Through purchases and sales of those underlyings, prices of call or put options may be influenced significantly.⁵⁷¹ Also, capacity retention aiming at a change of the merit order and – correspondingly – the price level in the reference market EPEX spot – is well

Im Dokument The preventive effect and its behavioral impact on market manipulations at the European Energy Exchange (EEX) (Seite 122-137)