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Internal trading in Elbas:

Nord Pool Spot has received a number of questions regarding the handling of internal trades in Elbas.

Many companies have a need to make internal trades intraday across areas, as the only way to

access the capacity between areas in the intraday market is to trade in Elbas. An important factor is

also that liquidity is very low in some areas making it hard to cover imbalances by trading with other

members. Nord Pool Spot has previously given some advice to members regarding how to handle

internal trades in Elbas. However, the feedbacks we have received indicate that it is still uncertainty

regarding how to handle internal trades in Elbas.

The Market Conduct Rules

There is no prohibition of internal trading in Elbas. It is legitimate that there is a need to transfer

electricity from one area to another. Especially when liquidity is low, this may entail a need to

execute internal trades in Elbas.

The most relevant rules relating to internal trades in Elbas is the prohibition of market manipulation

set out in the Market Conduct Rules, Enclosure 1, section 1.1.a, which states:

1.1 Market manipulation" shall mean

a) Transactions or Orders to trade:

(i) which give, or are likely to give, false or misleading signals as to the supply of, demand

for or price of a Listed Product; or

(ii) which secure, by a person, or persons acting in collaboration, the price of one or several

Products at an abnormal or artificial level;

unless the person who entered into the transactions or issued the orders to trade

establishes that his reasons for so doing are legitimate and that these transactions or

orders to trade conform to accepted market practices as specified in section 3 below; or

When making internal trades it is typically the volume traded that is important, while the price is of

less importance. Therefore, there is a risk that such trades give a false or misleading signal as to the

supply, demand or price of a listed product. It is also a risk that the trades made will secure the price

at an abnormal or artificial level.

In order for members to avoid breaching the regulation on market manipulation it is of importance

that all trades are made at prices were the company would also be willing to make trades with other

companies at the same price. In addition to that, it is a great advantage to be able to document that

this is the case. This may be difficult, but some measures may be taken, such as:

Ensuring that the prices can be justified, for example that sales orders reflect marginalproduction cost of the relevant unit.

Ensuring that relevant routines are in place instructing employees on how to handle internaltrades in Elbas

Avoiding placing purchase and sales orders simultaneously as this hinders other membersfrom reacting to the orders being placed.

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Failing to take such measures does not mean that the trades are market manipulation, but it may

decrease the risk of breaching the prohibition of market manipulation.

Further actions

One possible way of limiting the problems described above is to allow internal trades to be markedso that all members can see that the trades are in fact internal trades. The problem of sending false

and misleading signals, or fixing the price at an abnormal or artificial level, would then be limited

considerably. Nord Pool Spot will investigate this option further.