Month ahead IEX, PXI power deals violate Act, says FMC

Written by Sanjay Jog | Mumbai | Updated: Oct 2 2009, 04:58am hrs
The watchdog of forwards and futures markets in India, Forward Markets Commission (FMC), has taken a strong objection to the introduction of term ahead contracts by the Indian Energy Exchange (IEX) and Power Exchange India (PXI).

FMC in its recent missive to the Central Electricity Regulatory Commission (CERC) has asserted that the month ahead electricity contracts traded on IEX and PXI are in violation of the provisions of the Forward Contracts (Regulation) Act and subject the penal provisions contained in the said Act. CERC sources told FE The letter is being examined. Similarly, IEX and PXI sources said that they would soon seek legal view on this issue.

The forward market regulator observed that According to section 14 A of the FC (R) Act, 1952, no association concerned with the regulation and control of business relating to forward contracts shall, after the commencement of the FC(R) Amendment Act, 1960 (62 of 1960) carry on such business except under, and in accordance with the conditions of a certificate of registration granted under this Act by FMC.

Further, FMC said that both the power exchanges have not been registered with the FMC as required under section 14 (A) of the FC (R) Act, 1952. FMC reiterated that the month ahead electricity contracts, which are non-transferable specific delivery contracts, traded in these two exchanges are in violation of the Act and can attract penal action. FMC has called upon CERC to take necessary action to ensure that IEX and PXI do not violate the provisions of the FC(R) Act, 1952.

IEX and PXI based on the CERCs order introduced from September 15 term ahead electricity contracts. IEX offers day-ahead contingency, intra-day, daily and weekly contracts while PXI carries out transaction in weekly and day ahead contingency contracts. IEX till date has clocked a turnover of around Rs 5 crore in term ahead contracts while PXIs turnover is at Rs 54 lakh.

IEX carries out trading in such contracts through Closed Auction session only (closed auction means that the members can not see the other bids/offers submitted). Both buyers and sellers enter anonymous orders for contracts. Members can input several orders each with limit price and quantity. Orders from buyers and sellers are processed and matched. Members are allowed to enter, modify or delete bids during call period but not during auction freeze state.

On the other hand, PXI has devised Differential Pricing Mechanism for matching of trades. It provides the members complete flexibility in pricing their power procurement and sales based upon their organisations pricing preferences, rather than being an outcome of uniform price mechanism, which, in a shallow market, often reflect other participants compulsions.