CERC has come out with a Suo Moto order for implementation of market coupling
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Interesting, no wonder IEX has been falling. Thanks for sharing!
The document says about the pilot’s findings… "In case of DAM coupling, the overall welfare increases by ₹38 Cr (0.3%), overall volume cleared increases by 52 MU (0.2%), negligible impact on price due to skewed liquidity and welfare increases in every session in line with the objective of coupling"
What do they mean by skewed liquidity here, do you know?
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I am interpreting skewed liquidity as most of the liquidity being on IEX. Due to this coupling with other exchanges does not provide much improvement in price discovery.
Will be interesting to see whether IEX will hit LC tomorrow or whether it will get a breather now that bad news is confirmed.
IEX never really had pricing power as it’s charges (2p/unit) were determined by CERC. It had already been offering some discounts. The question is how much volume it will lose to other exchanges in DAM and RTM where it was miles ahead. It’s overall market share is 84%. Best case scenario could be for IEX to retain ~65-70%, worst case could be it’s market share going down to 35-40% if other exchanges buy market share by offering too much discount.
Disc - invested. I had thought CERC would not implement market coupling as there is no real benefit, but it seems the regulator wants to break the monopoly of one exchange. Will decide course of action based on market reaction tomorrow.
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Thanks for this.
Since IEX forms a significant part of PPFAS Fund house equity portfolio, which is deemed a reputed MF, I got curious and found the original Zerodha Daily Brief article published 14 days back (link below) that provides a more helpful and detailed context.
Found it useful especially following the new CERC ruling and therefore taking the liberty to share here.
A New Market for Electricity
Recently, regulators gave their go-ahead for a new type of contract: electricity derivatives . Trading in electricity futures will kick off on the Multi Commodity Exchange (MCX) and National Stock Exchange (NSE) midway through this month.
What does this do? Well, a futures contract lets you lock in a price today for electricity you plan to buy or sell later. So, this gives power producers, distribution companies, and even speculators a new tool: the ability to secure a future power price , on a regulated exchange — without having to create or take delivery of that power.
Most electricity in India has traditionally been traded through long-term power purchase agreements (PPAs). These are 5, 10, even 25-year contracts between generators and state distribution companies (discoms). Those cover the “baseload” demand.
But electricity demand and supply can swing on short notice — because of heatwaves, rain deficits, outages, you name it. Historically, the only way to make up for gaps was the short-term spot market. India’s power exchanges, like the Indian Energy Exchange (IEX), run day-ahead and real-time markets, where utilities can buy or sell electricity for immediate delivery.
However, those are physical trades. There, you’re actually buying or selling electricity. The new electricity futures are different: they are financial contracts . They’ll be settled in cash, based on a reference price. No physical power changes hands. These trades are a cash bet on the price of electricity for a future month.
But why isn’t IEX launching the derivatives?
Why isn’t the Indian Energy Exchange — the country’s biggest platform for physical power trading — launching these futures itself? The answer comes down to regulation and jurisdiction .
Electricity has a split regulatory structure in India. The physical trading of power falls under the authority of the Central Electricity Regulatory Commission (CERC), the power sector regulator. But derivatives like futures are financial securities. This puts them under the Securities and Exchange Board of India (SEBI). The IEX runs under the aegis of the CERC, not SEBI. So, IEX cannot offer futures — it must cede that space to a SEBI-regulated exchange.
This regulatory demarcation wasn’t always clear. In fact, this was the subject of a years-long turf war between the two regulators. It took a Supreme Court case to settle it — and that too, only after various ministries came together to hammer out an agreement.
*That paved the way for exchanges like NSE and MCX to enter the fray. Anything that involves physical electricity delivery now comes under CERC’s watch, but anything that is purely financial is SEBI’s domain.
This is also why the new electricity futures don’t involve actual power delivery. An MCX or NSE can’t suddenly start shipping megawatt-hours across the grid. They can only allow contracts that where money exchanges hands based on where an index is.
What does it mean for the electricity ecosystem?
That’s about how these contracts work. But what effect would allowing these have?
The primary motivation for introducing electricity futures could be to let people lock in electricity prices and protect themselves from future volatility. Power generators can secure a future selling price for their power, ensuring stable revenues even if spot prices crash. This is especially true for renewable projects — where the supply of energy isn’t entirely in the generators control, and one often has to go to the spot market to sell most of the electricity one makes. As we’ve written before, sometimes, prices literally drop to zero.
But let us play the devil’s advocate.
A market is only as good as its liquidity – and liquidity, in turn, comes from active participation by those who need the product. So, here’s the big question mark: will India’s public sector discoms — the largest buyers of power — and generators actively hedge using these futures?
It’s hard to say for sure. For example, public oil companies in India hedge their price exposure at only very low levels, covering just their immediate import needs. They’ve long viewed derivatives with distrust — seen as “risky gambles” rather than prudent risk-management tools.
If a similar mindset persists in the electricity sector, the futures market could struggle to attract the volume that makes it truly useful. It might end up as a shallow market, where contracts exist, but few bona fide hedgers are actually in it. And liquidity begets liquidity. If big players stay away, others might not bother showing up.
Without them, this might just become a market dominated primarily by speculators — traders looking to profit from price movements, without any physical stake. This might create a lot of churn but not the kind of stability hedgers need.
On paper, it makes complete sense to have an electricity derivatives market. But that isn’t enough to make it useful. Whether it translates into meaningful benefits to the players in the ecosystem is very hard to predict.
Texas Freeze 2021
No discussion about power markets and derivatives would be complete without revisiting the Texas Freeze of February 2021.
During an extreme winter storm, Texas’s electricity grid suffered a catastrophic failure. Supply from power plants cratered as gas pipelines froze and generators went offline. At the same time, the demand for heating skyrocketed. Electricity prices hit an astronomically high cap of $9,000 per MWh (roughly ₹6.7 lakh per MWh) for days — compared to a normal price of around $50. Millions of customers suffered blackouts at the worst possible time. Financially, it was carnage: some energy firms made windfall profits, while many others were bankrupted in the span of a week.
Now, Texas has contracts and hedges in place for such a thing. You’d think having these hedges would protect companies in such a scenario. Well, some did help — but many hedged players still got burned.
Why? Because when the physical market went haywire, the assumptions behind those hedges broke down. Some power generators, for instance, had sold electricity in advance at fixed prices, thinking they could produce and deliver as normal. When their plants shut down due to the freeze, however, they were incapable of supplying power. But they were still on the hook for those forward sales. To honor their contracts, they had to buy electricity at the $9,000/MWh spot price to cover their positions, leading to colossal losses.
On the other hand, several retail electricity providers who had promised customers fixed low rates couldn’t pass through the insane costs. Instead, they went bust, defaulting on payments. Even a large electric cooperative (Brazos Electric) famously filed for bankruptcy, unable to pay a $2 billion bill for power.
Now, India is not Texas. Our grid is centrally managed and interconnected. The market has tighter controls. A Texas-style winter freeze is a remote scenario. That said, the episode illustrates a problem we should be mindful of — there are “unknown unknowns” when financial contracts meet a commodity as mercurial as electricity. Things can go wrong in ways you cannot predict.
Once you introduce derivatives, you introduce leverage and create a new web of interdependence. A crisis in the physical market can translate into a financial crisis and vice versa. Second-order effects come into play.
The takeaway is clear: as we embrace electricity futures, robust risk management and oversight are crucial. As this exciting new market unfolds, it’s something we’ll be watching closely.
Will discoms jump in and use futures to tame their power purchase costs? Will we get enough liquidity to make prices reliable? How will the first volatility episode be handled? These are the questions on our minds. For now, India’s electricity derivatives journey has just begun.
Primary article source -
A Greek tragedy - The Daily Brief - Trading Q&A by Zerodha - All your queries on trading and markets answered ( Article also discusses other issues. So have only shared IEX relevant portion.)
Disclosure: Hold tracking position currently for the stock but invested more indirectly via mutual fund portfolios.
Looking to add more at lower levels once better clarity on business & market leadership emerges following the CERC & other govt policy level decisions
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NDTV Profit article on the CERC decision -
Key Points-
The Commission has asked the Grid Controller of India to start with pilot testing of three mechanisms: coupling the Real-Time Market (RTM) across all exchanges, coupling the RTM with Security Constrained Economic Dispatch, and coupling the Day-Ahead Market.
Day-Ahead Market coupling is scheduled to go live in January 2026, while coupling of Real Time Market and Term-Ahead Market will follow in stages.
Market coupling is a process where all buy and sell bids from participating exchanges are aggregated by a single market coupling operator i.e. the Grid Controller of India. This operator uses an algorithm to match supply and demand, setting one uniform market-clearing price.
This replaces the current system where each exchange sets its own prices.
The change is aimed at improving market efficiency, but it reduces the commercial price discovery role of exchanges like IEX in determining prices.
Since IEX earns most of its revenue from high-volume trading in the Day-Ahead Market and Real-Time Market segments, the shift could affect its position and profitability.
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How will the coupling impact cost structures? Grid India will have to recover the costs for developing software and also the operational costs once MC is live. If it has to dip into the commission that exchanges like IEX make, wouldn’t that be a direct hit on the bottom line?
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Bottom line would get impacted by two other considerations -
- Operational de-leverage - as volume shifts to other exchanges, this will kick in.
- Competitive intensity will force IEX to offer discounts (2p/unit is the maximum fixed by CERC).
Someone mentioned coupling as a regulatory risk, I think it is it not a regulatory risk. Its an evolution or let say market shift. A company has to foresee/get a hint how market shall move and prepare/mould itself. for example KODAK-FUJIFILM. As the market shifted towards digital photography, Kodak struggled to adapt . KODAK struggled, FUJIFILM continued to innovate and invest.
So the market is shifting towards Coupling, Powerstack.Regulations act as a balancing platform, regulation’s concept itself is to regulate for larger goods.
Interested investor’s should evaluate based on this and evaluate how the gas exchange business adds benefit.
D- No investment
Yes, that’s what I thought too about ‘skewed liquidity’, but wasn’t sure. Thanks for confirming. A pity they decided to enforce this. Does seem quite unfair to me. IEX built the plumbing and worked hard to get the liquidity on the platform and they have sort of thrown them under the bus here. Given it’s a regulated structure already, don’t really see why this was required. The big boys backing the other two exchanges have got their way, looks like.
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Hi fellow investors
I currently hold a ~10% position in IEX with average cost of 155
Fully aware of the risks: regulatory overhang, market coupling, new entrants, and short-term price pressure.
Yes — the stock might fall to ₹120 or lower.
That’s not ignorance. That’s acceptance.
But I didn’t enter IEX for short-term momentum.
I entered because of:
- India’s low exchange-based power trade penetration (just ~6–7% vs 50%+ in developed countries)
- Structural shift toward market-based energy pricing
- Innovation drivers like IGX (Indian Gas Exchange), carbon exchange, and new derivatives products
- A dominant operational moat built over time
And I track the regulatory evolution — including market coupling — very closely.
I won’t exit out of panic.
I’ll exit when the thesis breaks.
Until then, I’m okay sitting through cycles.
I’ve made peace with short-term pain — because I believe in the long-term opportunity.
And if someone is uncomfortable with volatility, it’s perfectly okay to trim or exit.
Risk appetite, timelines, and personal situations vary — that’s what makes investing personal.
But for me — this is informed conviction. Not blind faith.
Yes — in the future, I may pursue momentum investing.
And when that day comes, I’ll lean on charts, sentiment, and positioning.
But today?
I’m playing the long game.
A game that demands resilience, research, and rationality.
That said…
- If tomorrow I sense that the Government turns structurally hostile to energy markets…
- If IEX stops innovating and begins giving up rather than adapting…
I will exit. Even at a loss.
Because conviction ≠ ego.
Mistakes are fine. Staying blind isn’t.
Until then — I hold.
Love to know your insights and if the conviction is shaken
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For PPFAS - it is hardly 1% of overall AUM they manages, hence, any substantial surprise (-ve / +ve) may not impact PPFAS MF NAV that big.
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Hello, all can any one explain below mentioned para from regulator.
All exchanges ie 3-4 will act as a market coupler in round robin manner. So will it be like that iex will act as market coupler for 3-4 months, then another platform and so on. Also if thats the case, will volumes really divert that much?.
Views awaited.
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I also interpreted it as each exchange will become Market coupling operator facilitating price discovery in a round robin fashion. IEX could remain MCO for 3-4 months.
Issue is slightly nuanced. So far, with IEX having 99% market in DAM, best price was discovered on IEX. It was network effect working. Once MC is in place, that is gone. Therefore buyers/sellers can go to whichever exchange (they become brokers in effect) offer better deal, better interfaces, better data etc.
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Reminds me of Andrew Lo’s quote - “Government is a source of systemic risk” . Which undoubtedly is true for any highly regulated industry.
Sometimes it feels like someone at the Power Ministry does not like the folks at IEX 
, Why ? for every time the stock goes above 200 , there will be an announcement that does not make sense and brings the stock down.
90% of the power is not traded on the exchange, so its not Market coupling but an Exchange coupling.
Disc : Exited at a loss few days ago to deploy elsewhere. Will have no shame to re-enter in the future
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Yes, agreed completely, but with market couplers changing in round robin fashion, will end users keep shifting to different platforms every few months.
Also, as iex is into this business since long, users are accustomed to their platform, and I don’t know whether there is any learning curve involved in using different platforms, but if any changing platforms for end users will be bit tricky.
No doubts about volumes impact on iex, but till what extent no sure.
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Apologies in advance for the unsolicited advice. I don’t mean to offend. I have been where you are and thus would like to share some pointers which might help you in the future.
I used to take such concentrated positions as well, and without going into the concentrated vs diversified debate which is endless, We need to look at average outcomes on both side, the power law of distribution is much stronger in concentrated investing than in diversified.
I am assuming you choose to be a concentrated investor in the future, so I would humbly request you to try and add systematic technical based exit signals to your long term buy and hold picks as well. It will greatly improve the outcomes and specially control for -ve outliers in your concentrated bets. If you already have a discretionary or non-discretionary exit criterion then please ignore my message.
Ex. of a signal is a trailing SL and/or 200 DMA. This protects us from our own ignorance. Yes we will find exceptions where these levels are breached and the stocks went on to become a big multibagger, but the era of multibaggers is itself fading, and more stocks fail beyond these technical thresholds than come back.
A one liner I never forget, “Nothing good happens below 200 DMA.” Applicable for both, stocks and market indices.
All the best in your investment journey.
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Buyers/sellers don’t need to go to market coupling operator to get the best price. Bids from all exchanges are pooled and MCO will determine the price based on all the bids. Therefore it becomes immaterial whether a client places order through IEX or PXIL. The key issue is - so far they HAD to place orders on IEX to get best price. That was IEX moat. Going forward they don’t need to.
Your second point about users being accustomed to a platform is fully valid. It may cause some stickiness and IEX management talked about it in the last con call, but this stickiness may not at the same degree as the best price.
To what extent will the market share erode, only time will tell. If the market share erosion happens along with rapid increase in exchange volumes that may still help IEX increase it’s revenue at a reasonable clip. In 2021 when market coupling was initially proposed, it was along with MBED (market based economic dispatch), which would increase exchange traded volumes significantly. Of late, CERC is not talking much about MBED.
Edit - Added disclosure.
Disc - I hold IEX from much lower levels than today’s price.
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Economic Times on IEX Selling
Brokerages Split on Impact
Bernstein downgraded its target price to Rs 122 from Rs 160, maintaining a ‘Market-Perform’ rating. The brokerage noted, “Coupling… as bad as it gets,” citing risks to IEX’s transaction charges and market share. “With the moat of liquidity gone, the only way to compete is transaction charge,” it added.
UBS, however, maintained a ‘Buy’ call with a target price of Rs 285. While acknowledging the move was a negative surprise, the firm pointed out that the Grid-India report estimated only a 0.01–0.3% benefit in terms of savings or volume cleared. It also noted that RTM coupling would be considered in later phases. In FY25, DAM and RTM together contributed nearly 80% of IEX’s revenue.
Axis Capital highlighted the earnings risk, estimating that had market coupling been in place in FY25, IEX’s EPS could have been around 30% lower due to loss of market share.
Meanwhile, the regulatory update lands just ahead of IEX’s Q1FY26 results, which are expected later today. Analysts and investors will focus on management commentary around the implications of market coupling, expected volume trends, and how IEX plans to adapt ahead of the January 2026 implementation.
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