NSE receives in-principle approval from Sebi for electricity derivatives

The exchange has received in-principle approval from Sebi to launch electricity derivatives, with discussions on contract structure and tenure still underway

The National Stock Exchange (NSE) has received in-principle approval from the Securities and Exchange Board of India (Sebi) to launch electricity derivatives, the company’s management stated during an analyst call on Wednesday following the fourth-quarter earnings announcement.

 

However, the plan remains at a nascent stage, with the structure of the contracts yet to be finalised.

 

“We have just about started the process. We have the in-principle approval, and the terms of the contract are still being discussed with the regulators. There is a lot of capacity building required before launching this product,” said a member of the company’s management during the call.

 

NSE added that Indian regulators favour introducing shorter tenures—such as half-yearly or monthly contracts—while in several other countries, yearly contracts are common. The details remain under discussion with the regulators.

 

While Sebi will regulate the derivatives market, the spot market does not fall under its purview.

 

“We believe NSE has an advantage in this market due to its advanced technology compared to many other players,” the official added. 

NSE management added further that the exchange may not see any further loss of market share in the derivatives segment to the rival BSE. The  impact on the market share followed regulatory changes  by the Sebi which limited weekly expiries to one benchmark per exchange. 

 

"The market share loss part has run its course now, given the fact that everything that had to happen has happened, hopefully. And so, unless the new other measures come that specifically target only NSE, we seem to believe that this is pretty much the market share," stated the NSE management. 

 

When asked about the status of the initial public offering (IPO), officials said the company had not yet heard back after responding to Sebi’s letter dated February 28. NSE has sought a no-objection certificate from the regulator to file a draft red herring prospectus (DRHP) for the IPO. The market regulator had raised certain issues, to which NSE formally responded in March.

 

On the expansion of the collocation facility, the exchange said the cost of building around 2,000 racks would range between Rs 520 crore and Rs 550 crore. The project will be executed in a phased manner.