The Netherlands Authority for Consumers and Markets (ACM) is conducting a review of the risk management measures employed by participants in the energy wholesale markets who utilize algorithmic trading. This initiative aims to determine whether these traders have effective systems and risk controls in place to mitigate potential market risks.

Algorithmic trading has become increasingly significant in the natural gas and electricity markets, as highlighted by a previous ACM market study. With the revised REMIT regulation set to take effect in May 2024, market participants will be required to implement suitable systems and risk controls to prevent undesirable market practices associated with algorithmic trading.

ACM is gathering information from selected market participants regarding their pre-trade controls, governance structures, and the procedures they follow to test the effectiveness of these controls. Additionally, ACM is seeking insights into the key market risks associated with algorithmic trading and any questions surrounding compliance with REMIT obligations.

The integrity of markets is crucial for ensuring fair prices for consumers. While algorithmic trading can enhance market efficiency, it also introduces risks such as algorithmic collusion and market manipulation, which can exacerbate price volatility. Therefore, it is essential for traders to ensure their algorithms comply with existing trading regulations.

With the tightening of European rules on market integrity and transparency effective from May 7, 2024, ACM has the authority to request information on algorithmic trading practices to monitor compliance. The authority is also collaborating with the Dutch Authority for the Financial Markets (AFM) to oversee the integrity of financial instruments, including energy derivatives.