BSE set to launch commodity derivatives segment; enter power trading

With long-term power purchase agreements (PPAs) drying up, the new power trading platform is looking to cash in on the spot market for power.

BSE has received Sebi approval to launch commodity derivatives segment from 1 October 2018. Initial trading will be in commodity derivatives with non-agriculture commodities like metals initially, followed by agri commodities.

BSE, Asia’s oldest exchange, said the commodity derivative platform will bring efficiency in price discovery, reduce timelines, make operations cost-effective and user-friendly, besides bringing in a robust risk management system and wider market penetration.

The Securities and Exchange Board of India on 28 December 2017 announced that from October 2018, the country would have a unified exchange regime wherein stock exchanges would be allowed to offer trading in commodity derivatives.

BSE claims to provide investors with an end-to-end, integrated transaction processing, with services ranging across the spectrum - from pre-trade order management to trading, real time risk management to post-trade clearing, and settlement through a central counter party mechanism along with a nationwide depository for facilitating the securities, transaction in a dematerialised form. 

BSE, along with clearing corporation ICCL and depository CDSL, are the financial market infrastructure institutions in capital market.

BSE already provides a market for trading in equity, debt instruments, equity derivatives, currency derivatives, interest rate derivatives, mutual funds and stock lending and borrowing.

BSE also has a dedicated platform for trading in equities of small and medium enterprises (SMEs) that has been highly successful. BSE also has a dedicated MF distribution platform BSE StAR MF which is India Largest Mutual Funds Distribution Infrastructure. BSE provides a host of other services to capital market participants including risk management, clearing, settlement, market data services and education. 

Indian Clearing Corporation Limited, a wholly owned subsidiary of BSE, acts as the central counterparty to all trades executed on the BSE trading platform and provides full notation, guaranteeing the settlement of all bonafide trades executed. BSE Institute Ltd, another fully owned subsidiary of BSE runs one of the most respected capital market educational institutes in the country. Central Depository Services Ltd. (CDSL), associate company of BSE, is one of the two Depositories in India. 

Meanwhile, BSE’s power trading platform will offer a platform that will allow power transactions on a near-delivery basis instead of having long-term contracts.

The exchange plans to rope in other industry players to pick up equity stake in the power exchange. BSE, PTC and ICICI Bank will remain minority shareholders under the sector regulations and CERC guidelines.

The BSE, PTC and ICICI Bank had earlier this month filed a petition with the Central Electricity Regulatory Commission (CERC) for grant of licence to set up a power exchange.

It may be noted that the spot market for electric power continues to remain volatile with prices shooting up to Rs14 per unit on Tuesday and dropping to Rs9.50 per unit on Wednesday on the India Energy Exchange (IEX), the country’s largest power bourse.

Private equity-backed IEX and Power Exchange India Ltd (PXIL), promoted by the National Stock Exchange and the National Commodity & Derivatives Exchange Ltd (NCDEX), are the only two power exchanges operating in the country at present. Both exchanges offer the opportunity to trade in electricity contracts, Renewable Energy Certificates and ESCerts (Energy Saving Certificates).

IEX increased its daily trade volumes in the day-ahead market from 20 million units in 2008 to over 200 million units in 2018, according to company’s FY18 annual report. The company, which went public last year, reported Rs131-crore net profit in FY18.