Guidance for market-making requirements revised

The Electricity Authority Te Mana Hiko has revised the guidance on its enforcement approach to market-making settings that were introduced last week.

The original guidance took effect on Monday, 12 August 2024 as an urgent measure in response to conditions in the forward market traded on the ASX. It allowed for widening of spreads and halving of lot sizes before the Authority would exercise its discretion to take enforcement action.

From Wednesday, 21 August 2024 the conditions outlined in guidance will change to allow market makers to apply spreads up to 8% and offer minimum total lots of 18.

As previously indicated, the guidance will be removed completely after trading on Friday, 23 August 2024 and the Authority will no longer exercise its enforcement discretion under the guidance.

From Monday, 26 August 2024 market-making requirements will revert to spreads of up to 3% of minimum total lots of 24.

“The market conditions that prompted the extent of the interim measure are now no longer present. The position of all market makers has improved and the risk of them failing to meet their obligations and contractual requirements has decreased,” said Airihi Mahuika, General Manager Legal, Monitoring and Compliance.

“The Authority believes it is now appropriate to remove the guidance via a staged approach to assist an orderly return to previous market-making settings.

“The decision to issue the guidance was not taken lightly and neither was the decision to revert back to original settings via a staged approach.

“The change had the desired short-term effect of ensuring market making would continue during this period of volatility. As a regulator we will act when we need to based on evidence even if that action is not popular with all parties. We will be monitoring closely behaviour within the market that we identified as a cause for concern.

“We appreciate the input we have received from a range of parties during this process.

“We have a commitment to a liquid and vibrant market and are progressing with an enduring solution.”

The Authority is developing an urgent Code amendment to give regulatory certainty for market makers and traders which is intended to be implemented by the end of August.

Any urgent Code amendment expires after nine months and we will consult fully on a permanent Code amendment for enduring market-making settings later this year.