Energy exchanges play an important role in the liberalised energy market, as they offer open and transparent trading platforms where market parties can trade anonymously. Via its clearing services, APX provides adequate counterparty risk management, enhancing the integrity of the market and ensuring the anonymity of counterparties. The barriers to enter the trading market are lowered, making trading more accessible for all parties active on the wholesale market for energy, regardless of the size or the main activity of the trading party (utilities, large end users, financial institutions), thereby facilitating the access of new entrants, acting as a catalyst for liquidity and improving the price transparency by publishing benchmark price indices on a daily basis.
APX operates its markets in highly regulated environment. In order to support the achievement of its strategic objectives APX is actively involved in legislative and regulatory developments on national and European level. It maintains relationships with important stakeholders such as policymakers, politicians, regulators and industry representative organisations. It is an active member of Energie-Nederland, the Dutch energy industry representative organisation and Europex, the European association of energy exchanges.
Regulatory Framework – The Netherlands
Based on the Dutch Electricity Act 1998, APX operates its Dutch electricity markets under an official designation of the Minister of Economic Affairs. The Office of Energy and Transport Regulation, part of the National Competition Authority (NMa), regulates the energy industry and wholesale energy trading market.
APX involvement in the Central Western European Market Coupling (CWE) and Cross Border Intraday trading is stipulated in the Dutch Grid Code, providing the framework in which APX operates the market coupling together with TenneT in the Netherlands.
Regulatory Framework – United Kingdom
In the UK, APX Commodities Ltd is regulated by the Financial Conduct Authority (FCA). APX Commodities Ltd conducts its business in respect of the APX Power UK markets in the capacity of Multilateral Trading Facility (MTF) operator.
Regulatory Framework – Belgium
Belpex, a wholly owned subsidiary of APX, has been licensed as the operator of the Belgian electricity spot market by Ministerial Decree. The relationship between Belpex and its participants is governed amongst others by the Royal Decree of October 20th, 2005, on the establishment and the organization of a Belgian market for the exchange of energy blocks (the Royal Decree) and by Belpex’s Market Rules, which have been approved by the Minister in charge of Energy.
The supervision of the Belgian spot power markets is performed by the Minister, the Commission for Regulation of Electricity and Gas (CREG) and the Financial Services and Markets Authority (FSMA). The Minister has to approve the Market Rules and any amendments thereof after advice of the CREG and the FSMA and can impose amendments to these Market Rules. It can withdraw the license of the market operator or request it to (partially) suspend the market activities, and must be informed of any irregularities of which the market operator would become aware. The CREG is competent to supervise compliance with the Royal Decree and must be informed in circumstances related to the market or the relation between the market operator and its participants. The FSMA has more limited competences in the context of the Market Rules approval.
Regulatory Framework – Europe
The European Commission introduced a sector specific market integrity regime, the Regulation on Energy Market Integrity and Transparency (“REMIT”), which prohibits market abuse in wholesale energy trading markets. Entering into force per 28th December 2011, the integrity and transparency of the wholesale energy market is regulated by REMIT, where energy regulators supervise the compliance to the Regulation. APX has an important role from market surveillance perspective, responsible for adequate market monitoring and surveillance over its spot markets.
APX is led by a Management Team, consisting of two statutory directors and six directors; The Management Board consists of a Chief Executive Officer (CEO) and Chief Operating Officer (COO). The Management Board is responsible for the general policy and the strategy of APX. To enable the Management Board to perform its duties, the Management Board has installed a Daily Management Team and a Strategy Board. The tasks, duties and appointment procedure for statutory directors are set out in the Articles of Association of APX Holding B.V. Full information on the Management Board can be found here.
The Supervisory Board supervises the general policy and strategy of APX and provides advice to the Management Board. The Supervisory Board performs its duties in the interest of the company and the enterprise connected therewith.
The Supervisory Board has selected amongst its members an Audit Committee. Rules have been set to govern the way the Committee operates and are published here (add pdf file). The Committee assists the Supervisory Board in decision making and reports its findings to the Supervisory Board. The Audit Committee is charged with monitoring the company’s financial reporting, its financial reporting policy and procedures, its internal control framework, the independent external audit of the financial statements and the performance and valuation of the external auditor.
PricewaterhouseCoopers (PwC) has been appointed as external auditor and is required to provide an Auditor’s report for each of APX companies. PwC provides a Management Letter for entire APX. The external auditor also attends Audit Committee meetings and the Supervisory Board meeting in which the Annual Report is discussed. The General Meeting of Shareholders has the right to question the external auditor on the reporting including the auditor’s report stating that the financial statements give a true and fair view of the financial position. All other services provided by PwC comply with independent auditor requirements. The guidelines of the Royal Netherlands Institute of Chartered Accountants (NIVRA) require a switch to a different external auditor once every seven years in the interest of independence. This requirement is also in line with the Dutch Corporate Governance Code. In 2006 such a switch to a different audit partner has been made.
APX Clearing B.V.
The management board of APX Clearing B.V. makes formal decisions concerning all aspects of the central-counterparty clearing business ofAPX Clearing BV, such as counterparty risk management methods, margin parameters, membership criteria, credit policies and control procedures designed to mitigate counterparty risk. Furthermore the management board of APX Clearing B.V. maintains the relationships with external central counterparty clearers.
Internal control framework
The Management Board is responsible for developing the company strategy and achieving business objectives, operating within relevant rules and regulations, and managing the business risks. The Management Board is accountable to the Supervisory Board and the General meeting of Shareholders. Once every three months, APX reports on results and status of business activities to the Supervisory Board and the Shareholders.
APX has set a framework for policies regarding internal control processes. The Management Board is responsible for managing processes within this framework for APX Holding B.V. and its subsidiaries. All companies within APX are required to prepare annual plans including operating budgets, investment plans and financing requirements. According to the Articles of Association, the Supervisory Board and the General meeting of Shareholders then approve the consolidated business plan. New business activities and investments that are outside the scope of the approved business plan require specific approval by the Supervisory Board and the Shareholders. The Audit Committee monitors the quality of the financial reporting and internal controls.
Certain best practice provisions within the Corporate Governance Code relate to internal risk management and control. APX further enhances its internal control process on an ongoing basis. The exercise has included the development of an internal control framework, drawing upon the widely-used COSO integrated framework for internal control. Features of the framework include periodic analysis of risks to the business objectives of APX, and an integrated system of risk and control monitoring and reporting.
The Corporate Governance Code recommends that a set of Whistleblower Regulations should be in place for all listed companies, so as to make it possible for employees to report alleged irregularities of a general, operational and/or financial nature within the company without their legal status being jeopardised. The whistleblower regulations can be found here.