New coal exchange rules set to regulate trading, formalise market structure

The Coal Exchange Rules establish a framework for electronic coal trading, transparent price discovery and stronger governance, marking a major shift in India's coal market

The government earlier this month notified the much-awaited Coal Exchange Rules, paving the way for establishing regulated coal exchanges in India and creating a formal market structure for electronic coal trading. The rules lay down the framework for various measures aimed at facilitating transparent price discovery and improved efficiency in coal transactions, covering registration, ownership, governance, trading, settlement and market surveillance of coal exchanges.

 

The move promises to be game-changer for the sector, particularly when viewed against its long history of state-controlled trading. To be sure, India's coal sector has witnessed a shift away from government control toward increasing private sector participation over the past decade or so. That shift, made possible by the amendment to the MMDR Act and other regulations, is reflected in how coal blocks are allocated and production is carried out. However, state-owned Coal India Ltd (CIL) still dominates the supply market and the structure of Fuel Supply Agreements (FSAs) left many thermal power generators without proper coal linkages, driving up demand for imported coal.

 

The result, say experts, is that despite enough coal supplies, distribution and trading is inefficient. While a few amendments were carried out under the Shakti scheme, the process continued to be dominated by CIL. In 2020, the sector discarded strict end-use criteria, allowing private companies to use mined coal for commercial sale and export, in addition to captive consumption. But small miners continued to lack an avenue to market their coal .

 

"This step of notifying the Coal Exchange Rules, following the MMDR Amendment in 2025, has come in at a very appropriate time for the sector. The biggest benefit is that it will lead to market driven pricing, as against the current administered pricing mechanism that deters actual price discovery," said Megha Arora, Partner, at law firm CMS INDUSLAW. "Further, wherever the exchange mechanism is prevalent along with private participation, there has to be a market regulator along with proper administration of how issues like insider trading or cartelisation are looked at. It is equally important to look at aspects related to ownership and its separation from trading," she added.

 

Under the Coal Exchange Rules, the government has imposed ownership restrictions to prevent concentration of control. According to the rules, no exchange member or client can hold more than 5 per cent equity in a coal exchange, while the combined holding of members and clients cannot exceed 49 per cent. Other investors will be subject to a 25 per cent ownership cap after five years of registration.

 

One key area requiring clarification in the new rules was the interplay and possible jurisdiction overlap between the Competition Commission of India and the Coal Controller's Organisation (CCO). "The way the rules are framed, it seems that their jurisdiction is overlapping," said Arora.

 

Under the rules, an entity seeking to establish a coal exchange must have a minimum net worth of Rs 50 crore and maintain that threshold at all times. The registration will remain valid for 25 years and can be renewed for another 25 years. Also, a key provision in the rules requires existing electronic coal trading platforms to register as coal exchanges under the new framework. Platforms that fail to secure registration within six months of the commencement of operations of the first registered coal exchange will not be allowed to continue operations.

 

India produced 1,040 million tonnes of coal last financial year, including 768 MT produced by CIL alone. Of the rest, state-owned Singareni Collieries (SCCL) produced 58 MT while captive miners contributed 214 MT. A bulk of this coal is used by power, cement, and steel plants apart from the sponge iron industry who procure coal through CIL under long terms Fuel Supply Agreements. In the spot market, coal is currently traded via Coal Junction, a business unit of m-junction, a joint venture between Tata Steel and Steel Authority of India (SAIL). Coal Junction also conducts sales on behalf of CIL which sells around 10 per cent of its annual production in the spot market at a premium.

 

With the movement towards sale and purchase of coal via electronic trading platforms picking up momentum, both Multi Commodity Exchange (MCX) and National Stock Exchange (NSE) received approval from markets regulator Securities and Exchange Board of India (Sebi) in April this year to launch their respective coal exchanges. Experts believe the rules will bring all the existing platforms for sourcing coal at a level playing field for the industry.

 

Under the rules, the market regulator will have the power to set floor and cap prices for trading, much on the lines of the Central Electricity Regulatory Commission (CERC) which sets the price band at the Indian Energy Exchange.

 

Experts also say that while the Coal Exchange Rules mark a significant transition from a predominantly allocation-driven and linkage-based coal market to a regulated exchange-driven trading ecosystem, stakeholders may face substantial compliance challenges during implementation.

 

"These include registration requirements for existing electronic trading platforms, adherence to surveillance and anti-market manipulation norms, robust audit trail maintenance, quality verification mechanisms, settlement protocols, and governance standards prescribed by the Coal Controller Organisation (CCO)," said Asha Kiran Sharma, partner at King Stubb & Kasiva, Advocates and Attorneys. "A critical area of focus will be standardisation of coal grades and quality certification, as disputes over quality can directly affect pricing and settlement outcomes. Market participants will also need to strengthen internal compliance systems to address risks relating to insider trading, cartelisation, circular trading and disclosure obligations under the new regime," she added.

 

Significantly, the introduction of exchange-based coal trading is expected to create a market-driven benchmark for coal pricing, which may gradually influence commercial negotiations under long-term FSAs and, indirectly, Power Purchase Agreements (PPAs), she said.

 

"While existing contracts will continue to be governed by their agreed terms, exchange-discovered prices could become a reference point for future amendments, renegotiations, supplemental procurement arrangements, and dispute resolution relating to fuel costs. Power generators may increasingly use exchange platforms to bridge supply gaps, potentially reducing dependence on traditional linkage mechanisms," Sharma said.

 

Over time, regulators and contracting parties may need to address how market-based coal prices interact with pass-through provisions, change-in-law clauses and tariff determination frameworks, particularly where fuel cost fluctuations materially affect project economics.

 

The new framework incorporates extensive governance and market integrity safeguards. For example, independent directors must constitute at least half of a coal exchange's board, and members or clients of an exchange will not be permitted to serve as directors. The rules also define and prohibit practices such as cartelisation, circular trading, market manipulation and insider trading. They also empower the regulator to approve new contracts, suspend trading in contracts or withdraw contracts where necessary.

 

"Overall, I think this will lead to development of market based mechanisms regarding how coal is being allocated and there will be a regulator too. This was a much needed requirement for the sector, just like we have power exchanges and commodity exchanges. With this move, coal, which is an important mineral, is actually going to be treated as a commodity," Arora said.