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Manually entering, modifying or cancelling bids after trading hours may distort power prices, experts say, undermining the whole purpose of power exchanges that are meant to introduce transparency and fair play in the market.
The regulator said suitable audit agencies will be appointed for the audit. Citing instances of modification and cancellation of bids after trading hours, the regulatory said there is a need to revise regulations to stop modification or cancellation of bids post trading hours.
In a directive to the three exchanges—Indian Energy Exchange (IEX), Hindustan Power Exchange (HPX) and Power Exchange India Ltd (PXIL)— the CERC stressed the need for a comprehensive review of operations at the exchanges in order to ascertain compliance with the provisions of the Power Market Regulations (PMR) 2021.
“The commission directs its staff to arrange to conduct an audit of the processes as well as software of the three power exchanges in terms of the relevant provisions of PMR 2021. For this purpose, suitable agency(ies) may be appointed. Based on the findings in the audit report, the Commission may issue further directions as deemed necessary,“ said the order.
Citing the Market Surveillance Committee (MSC) reports and Risk Assessment and Management Committee (RAMC) reports that are submitted every three and six months respectively by the exchanges, CERC said there is no uniformity in the contents of the reports and that there is a need to bring in improvements.
On preliminary scrutiny of the quarterly MSC reports, the commission observed instances of manual entry of bids, cancellation and entry of bids after the market hours, and extension of market hours among other violations.
“On perusal of the reports for the period Q1 2019-20 to Q3 2023-24, it is observed that while the instances of such assistance were few initially, there has been an increasing trend of such instances in the recent past, especially in 2022-23. Notably, some of the major buyer and seller members of these exchanges have repeatedly had their bids manually entered through their respective power exchanges,” said in the order, adding that there shall be no manual entry of bids by the exchanges on behalf of their members on or after the trading hours.
Post the directive, the power exchanges will also have to build a system with end-to-end encryption of data for the trading workstation of respective members or clients and the trading platform of the power exchange to ensure that the entire trail of the bidding session, from bid submission till the end of bidding session–is encrypted.
“Despite an intent of bring in fair play in terms of bids and pricing through the power market regulator the commission has found there have been instances of manual bids and late entries after trade hours, which compromise the integrity of the exchanges. Such actions may also impact the prices and dispatch of power. The latest order is a step towards making things more robust and bringing everything online,” said M. Arun Kumar, Partner, INDUSLAW.
In order to maintain bid anonymity and market integrity, power exchanges must ensure that the encrypted bid data of members is not made accessible to anyone till bid matching and finalization of the results, said the regulator, directing the exchanges to make the necessary changes and report on the compliance to the commission.
“While it is necessary to have some flexibility on the part of the power exchanges to deal with system exigencies and to accommodate the requests of members, the commission feels that the procedure for bid entry and timelines, which constitute the key elements of a double-sided closed auction process with uniform price discovery, should be strictly complied with to avoid any scope for market manipulation,” CERC said.
CERC in its order also directed the exchanges to arrange for regular training sessions for their members to enable smooth submission of bids. The power exchanges would also have to submit a report every six months with the details of the training sessions conducted by them for market participants and other awareness programmes conducted by them.
Rohit Bajaj, executive director, business development, strategy and regulatory Affairs at IEX said: “Power exchanges have been operating from the last 15 years as per business rules and bye laws approved by the honorable commission, and during this time the exchanges have introduced new products and improved operating practices in line with the changing dynamics of the market.”
“Over the years, CERC has worked towards bringing transparency and building strong frameworks for the exchanges and this order of the CERC issued today is another step in that direction, which will bring more transparency, further strengthen regulatory practices and lead to continuous improvement in the functioning of the exchanges,” he added.
Queries mailed to HPX and PXIL remained unanswered till press time.
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Published: 21 Feb 2024, 10:41 PM IST
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