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Top Exchanges Seek SEBI Approval to Launch Electricity Derivatives in India

India’s leading stock exchanges, NSE and MCX, have approached SEBI seeking approval to launch electricity derivatives, aiming to provide risk management tools amid growing power market volatility and evolving regulations.

April 17, 2025. By EI News Network

In a major move, India’s leading stock exchanges, the National Stock Exchange (NSE) and the Multi Commodity Exchange (MCX), have formally approached the Securities and Exchange Board of India (SEBI) to seek approval for launching electricity derivative contracts.

The proposals mark a significant step in the evolution of India's energy and financial markets, offering new instruments to manage risks associated with power price volatility. The contracts, once approved, are expected to provide much-needed financial hedging tools for power distribution companies (DISCOMs) and large industrial consumers.

As per the reports, the proposed derivatives will be financial (non-physical delivery) in nature and settled in cash, initially offered with monthly tenures. These contracts are intended to help market participants manage fluctuations in electricity prices, which can heavily impact procurement costs and operational margins. Depending on early adoption trends and market feedback, the exchanges may later expand the offerings to include contracts with varied durations.

While NSE and MCX move ahead with regulatory filings, leading spot market player Indian Energy Exchange (IEX) is unlikely to enter the derivatives segment directly due to regulatory constraints. To operate in this segment, IEX would need a stock exchange license, which mandates a minimum net worth of INR 100 crore, along with extensive compliance requirements.

Instead, IEX and Power Exchange India Ltd. (PXIL) may explore data-sharing collaborations with licensed exchanges for derivative pricing, enabling indirect participation in the new segment. This development follows SEBI’s February announcement of a collaborative framework with the Central Electricity Regulatory Commission (CERC). A joint working group was established to outline the technical and regulatory groundwork for the introduction of electricity derivatives in India.

Based on its recommendations, SEBI had invited exchanges to submit updated proposals in alignment with standardised contract specifications. Industry insiders believe that while financial futures are a strong first step, the long-term goal is the introduction of Contracts for Difference (CfDs), a more complex yet powerful instrument offering long-term price certainty. However, the rollout of CfDs is expected to take more time, given the regulatory and structural nuances involved.

The submission of proposals by NSE and MCX represents a milestone in India’s efforts to deepen its power markets and provide market-based mechanisms for risk mitigation. With SEBI and CERC working in tandem, electricity derivatives could soon become a reality, offering price discovery and hedging solutions to a wide range of stakeholders.

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Electricity derivatives

India energy market