Understanding Regulatory Compliance Monitoring in the Energy Industry

By Nic Jansson - June 22, 2018

History has taught capital markets, including utilities and energy companies, painful lessons in the 21st century. Lack of appropriate trading surveillance and oversight has precipitated multi-billion dollar losses in some of the world‘s largest institutions. Since 2005, JP Morgan, UBS, Amaranth, Societe Generale and Morgan Stanley saw instances where the compliance monitoring systems failed, leading to massive capital losses and the decline of the business.

Not only do companies risk monetary losses due to such trading activities but also face the potential of receiving fines and restrictions imposed by governing bodies (i.e. FERC, SEC, ISOs, etc.). In 2016, a Delta airlines executive was fined $300,000 and banned from trading at the CME group for alleged front-running company orders that were part of Delta‘s fuel hedge strategy.

Regulatory Compliance In The ETRM Space

The energy futures and derivatives market have been responsible for a healthy percentage of instances where losses exceed $2.0B in a single event. The regulatory environment has become more complex, and reporting requirements have consistently increased. Company trading surveillance and regulatory monitoring has been ineffective or non-existent, lacking critical investments in overseeing activity such as wash trading, spoofing, and limits monitoring. Meanwhile, without an automated process for reporting, disparate sources and aggregate data volume required to maintain regulatory compliance is beyond the scope and capabilities of most industry participants.

Trade Surveillance

Trade surveillance is the direct monitoring of all financial and physical transactions either in the context of exchange based transactions or over-the-counter deals. These include bids, offers, standing orders and executed trades. Violations include, among other things, wash trading, prearranged trading, non-competitive purchases or sales (accommodation), customer fraud, fictitious sales, price distortion/manipulation, trading ahead or against and front-running.


For utilities and energy companies, there has been an increased focus by regulators on a company‘s market share at a given location. A company may be accused of manipulating the price of the physical commodity using financial instruments by taking a sizable losing position in the futures market, for example, to influence the settlement location and be proactive in detecting this behavior. Such monitoring requires consolidation in the physical. Companies must be aware of their physical market share and analyze a massive amount of market data which is impossible to do without an automated solution.

A Proactive Approach to Compliance

It’s essential for organizations to continually examine their trade surveillance practices in light of increased regulations and the inherent risk of trading. The automation of alerts, documenting the history/audit trail of the alert and the ability to run reports at will requires a system to be in place for companies to remain compliant and proactive.

Regulators are becoming more aggressive and vigilant, putting companies at risk of receiving substantial fines, loss of trading privileges or worse, face substantial trading losses due to traders operating under the radar. However, the number of data sources that need to be consolidated and analyzed has expanded making it difficult, time-consuming and inefficient to manage using a manual process. Automating the compliance process with a technology solution is more efficient, controlled, and provides businesses flexibility to adapt alongside changing needs or demands.

To assist energy businesses with regulatory compliance, data tracking, productivity, HOC has developed the RPM platform. RPM by HOC is an automated reporting and monitoring platform designed to take on the specific challenges facing the energy industry. It helps busy compliance teams save time, create more accurate reporting, and stay compliant with complex industry

requirements and SEC regulations such as trade surveillance, trade monitoring, and reporting.

Built by a team of industry and IT experts dedicated solely to the success of its customers, its configurable framework of rules-based applications easily adapts to future changes in regulation, data structures, and reporting, creating a scalable interface for companies to use in their core business functions.


Download the RPM Platform Overview

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