1. Code of Conduct for Electricity Trading: Improving confidence and liquidity in electricity markets EURELECTRIC WG Trading Athens Forum, 3-4 June 2004

2. STARTING POINT: Importance of liquid wholesale markets is paramount Well-functioning wholesale markets are at the core of liberalisation –Reduced economic efficiency of markets in general, if poor price discovery on wholesale level –Direct impact on companies’ risk management Efficient wholesale level trading contributes to better prices for end-customers The number of active players on wholesale level has a direct impact on market liquidity It is desirable for the electricity industry to attract the maximum number of players into the markets

3. In order to boost wholesale markets, industry work should aim at: Increasing overall confidence in trading as a core part of liberalised markets Improving liquidity in all European national and regional markets –2002-2003 saw significant decreases in liquidity, due to withdrawal from the markets of several players Reducing concerns by economy and society of “energy trading as risky business” Shaping the markets and market conduct by voluntary and proactive action, to accommodate for reliable players

4. Essence of a code of conduct: A voluntary set of norms for fair conduct in the markets, developed by the industry itself, though legally non-binding, but accepted and enforced by companies. A set of norms developed by the markets (e.g. power exchanges), as part of their rules, de facto legally binding in the sense that market participants have to comply In addition, a code can also be:

5. Possible issues covered in industry rules: Market conduct and relations with counterparties Commitment to disclosure of transparent and timely market information Risk management principles Good accounting practices and audit procedures Training and education of trading personnel Overall values and general conduct of company personnel Considerations on adherence to the rules NOTE: Laws and local practices are as a matter of course always obeyed, irrespective of complementary industry rules!

6. Market conduct and relations with counterparties Commercial principles and accepted rules in given markets must be respected No spreading of misleading information about the company or competitors No market abuse, nor arranging of prices Disclosure of transparent and timely market information (asset performance etc.), as required by the markets, is critical No corruption, bribery, excessive gifts etc.

7. Risk management principles Effective segregation of duties to allow appropriate controls against abuse: –Back office –Middle office –Front office Market participants should have a risk management policy in place –Market risk exposure –Risk evaluation & measurement –Risk limits etc. Approval and control of risk policy on appropriate level (management board, compliance officers, risk management committee etc.)

8. Company personnel Training and education of trading personnel –Traders and related personnel should receive appropriate training and be in possession of required qualifications –Technical and business expertise; ethical guidance Overall values and general conduct of company personnel –Compliance with laws, regulation and rules –Respect of established business practices –Equal treatment of personnel and counterparties

9. An industry Code of Conduct is effective! Starting point: industry code is not legally binding But it can have a positive impact, if companies adhere to it: code develops into market practice “Name and shame” can be used to bring a non- compliant player in line with others: fear of losing reputation in the eyes of other market participants Adherence to a code should be explicit and by the highest possible level (management board?) If industry code develops into an accepted market practice, it can become de facto binding A simple, straightforward and fair code will ensure critical mass and achievement of objectives

10. Thank you! For more information, please contact: 1)Your country member in EURELECTRIC WG Trading 2)EURELECTRIC secretariat at +32 2 515 10 14 / jlipponen@eurelectric.org