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Business Standard
3 days ago
- Business
- Business Standard
Are we ready to handle market manipulations in electricity derivatives?
With the imminent launch of electricity derivatives in India, regulatory preparedness has become a matter of urgency. The recent Securities and Exchange Board of India (Sebi) order against Jane Street Group (JSG) offers a cautionary tale of strategic exploitation in derivative markets — one that India's electricity sector cannot afford to ignore. The Jane Street case: A wake-up call The JSG case exposed classic intraday manipulation. The group purchased large volumes of BANKNIFTY index and constituent stocks early in the trading day, driving prices upward. Concurrently, it took reverse positions in the options market. Later, they offloaded their holdings, pulling down prices and reaping disproportionate profits in the derivative segment, while absorbing manageable losses in the cash market. This trading pattern, which came to light through a US court case in April 2024, evaded Sebi and exchange surveillance for over 15 months until interim orders were finally issued on July 3, 2025. Notably, the detection did not stem from domestic oversight but through disclosures in litigation abroad. Sebi's timeline illustrates the vulnerability of surveillance systems, even when both cash and derivative markets are governed by the same regulator (Sebi) and the exchange ecosystem is tightly knit (NSE). The strategy deployed by JSG hinged on exploiting illiquidity in the cash segment and leveraging high liquidity in derivatives—particularly BANKNIFTY options around expiry periods. Electricity spot markets: The challenge of dual regulation The electricity market, structured differently, introduces additional layers of complexity. Three power exchanges—Indian Energy Exchange (IEX), Power Exchange India Limited (PXIL), and Hindustan Power Exchange (HPX) — serve primarily the Day Ahead Market (DAM) and Real-Time Market (RTM). IEX dominates both, handling roughly 3.9 per cent and 2.47 per cent of national generation respectively, amounting to just 7 GW and 4.8 GW in traded capacity. These figures do not reflect a truly liquid market. Further complicating matters, derivative contracts will be settled at prices derived from IEX and PXIL — despite PXIL's minimal volumes. In contrast to equities, where Sebi governs both segments, electricity markets have split jurisdiction: the Central Electricity Regulatory Commission (Cerc) oversees spot contracts, while Sebi regulates derivatives. Some of the large power generators individually control substantial capacity. As such, their ability to influence prices in illiquid markets is undeniable, especially since comprehensive trade disclosures aren't mandated under current protocols. Launch of electricity derivatives: Regulatory coordination is key With derivative contracts having debuted on MCX (July 10, 2025) and set to debut on NSE (July 14, 2025), regulatory silos present risks. While volume caps have been prescribed to prevent distortions, these are not fail-proof. Coordination between Sebi and Cerc must be seamless. Miscommunication or lag in action could have ripple effects — raising costs for electricity consumers and undermining market integrity. The JSG episode underscores the need for real-time surveillance, rapid response frameworks, and clear inter-regulatory protocols. If Sebi's mechanisms struggled with manipulations in tightly monitored equity markets, can the electricity sector — divided between two regulators — claim immunity? Time to ringfence and reform India's electricity derivative market is at a formative stage. This moment demands a forward-looking approach. Regulators must not only anticipate the nature of manipulative strategies but act decisively to prevent their execution. Surveillance infrastructure must be upgraded, communication lines clarified, and cross-market behaviour monitored in tandem. Regulatory failures in one segment must not cascade into others. It is imperative for Sebi and Cerc to insulate their constituencies, proactively guard consumer interests, and evolve with the market. While early action may have been missed, the JSG case offers a chance to set the ball rolling before it's too late.
Mint
25-05-2025
- Business
- Mint
Unseasonal rains, surplus supply send real-time power prices crashing on IEX
New Delhi: Power prices in the Real-Time Market (RTM) on the Indian Energy Exchange (IEX) hit record lows on Sunday, driven by a combination of unseasonal rains, thunderstorms that reduced demand, and a surge in electricity supply. On Sunday, RTM prices hovered around zero following overnight showers and thunderstorms in and around the Delhi-NCR region. On Thursday, the price for a single RTM block had dropped to an all-time low of 2 paise per unit before recovering. On a year-on-year basis, average RTM power prices have declined 22% to ₹3.69 per unit due to lower electricity consumption. Read this | Imported coal based power plants told to operate at full capacity till June 30 'Unseasonal rains and thunderstorms in May kept temperatures low, resulting in a 2% year-on-year decline in electricity consumption during May 1–21, 2025. At the same time, increased hydro, wind, and thermal generation created surplus availability, bringing down Real-Time Market prices to an average of ₹3.69/unit—a 22% YoY drop," said Rohit Bajaj, joint managing director, Indian Energy Exchange. The RTM allows power discoms and other entities to buy and sell electricity for immediate requirements, with physical delivery taking place one hour after market closure. It accounts for nearly 30% of the total electricity traded on the exchange. Lower temperatures have reduced the use of cooling appliances such as air conditioners. Peak power demand across the country fell to 215 GW on Saturday, 24 May, compared to 220 GW or more recorded earlier in the month. While the RTM is not large enough to directly impact household electricity bills immediately, sustained low prices may influence tariffs in the next fiscal year. 'Distribution companies (discoms) are required to inform the electricity regulator about their projected expenditure on power purchases from electricity exchanges. If they end up spending less than budgeted, the underspending is reflected in annual filings. This could prompt the regulator to revise tariffs downward in the next tariff order, potentially passing on the benefit to consumers," said an executive at a discom. However, he added, the RTM remains relatively small in scale, so its impact on overall power costs and tariffs is still limited. Read this | King Coal keeps its crown, with 100 GW more of thermal projects on way Power generators, meanwhile, are often compelled to supply electricity even when market prices are low. Withholding supply could mean missing opportunities to sell in upcoming time blocks when prices may be higher. Moreover, failing to deliver power after submitting bids can attract penalties under market regulations. Thermal power plants also face technical constraints in ramping generation up or down. Frequent output fluctuations can reduce efficiency and wear out equipment. To avoid such risks, generators often continue supplying power at a loss to maintain stable operations. The recent rains have also boosted hydropower generation, putting additional downward pressure on prices. Bajaj noted that RTM participants are using the low-price environment to their advantage by substituting costlier thermal generation with RTM purchases during solar hours, helping optimize costs and boosting market volumes. 'These trends underscore the growing importance of the RTM in giving discoms, open access consumers, and commercial and industrial (C&I) users the flexibility to procure power in near real-time and manage costs amid dynamic supply-demand conditions," he said. Also read | India eyes cheap oil to refill strategic reserves amid geopolitical turmoil In the near term, prices are expected to remain subdued due to forecasts of continued rainfall and thunderstorms in Delhi-NCR and other regions. The India Meteorological Department (IMD) has also projected an above-normal monsoon this year.
