ASIC and the secondary electricity market

The deregulation of Australia's electricity grid led to the development and growth of derivative financial products used to offset risk. These derivatives have formed a market of their own: the secondary electricity market. To date, there has been no investigation of the regulation of the secondary electricity market. This paper presents an empirical investigation of the Australian Securities and Investment Commission's ('ASIC') regulation of the secondary electricity market. Using a modified version of the regulatory conversations model, regulatory effectiveness is examined from the perspective of the subjects of regulation. The findings reveal dissatisfaction with ASIC's regulatory approach. Viewing the results through the lens of historical institutionalism further reveals that the cause of this dissatisfaction has become ingrained in ASIC as a result of ASIC's historical development. From the perspective of the subjects of regulation in the secondary electricity market, three critical junctures in ASIC's historical development prevent ASIC from properly regulating these derivatives: 1. The formation of ASIC as a 'pro-industry' body. 2. The switch from ASC to ASIC, which promoted an anti-regulatory ideology. 3. The growth in derivatives in the 90s, which forced ASIC to adopt ineffective, pragmatic regulation. Both the existence and justifiability of these perceptions pose challenges for ASIC. This paper suggests that ASIC's historical development has left it unable to achieve its own measures of effectiveness in regulating electricity related derivatives. It further suggests that, given ASIC's funding and regulatory load, that it would be undesirable for ASIC to attempt to address the specific needs of the secondary electricity market.