MUMBAI: Commodity exchange Multi Commodity Exchange (MCX) has said it will be launching electricity futures contracts from July 10 in an effort to meet the rising demand for structured electricity price risk management instruments. The exchange will open trade with four futures contracts for July and three for the future months.
The Indian Energy Exchange is the market leader with more than 90% market share in electricity futures contracts and the MCX said it will be working out of their spot prices. However MCX entry comes ahead of the NSE’s which will unveiling its electricity futures contracts on July 14.
The contract will follow Sebi's daily price limits with an initial slab of 6%, extendable up to 9% on a given day, the bourse said here Tuesday. Initial margin requirement for the contract is a minimum of 10% or volatility-based margins, whichever is higher, it added.
"This contract is a step towards deepening the domestic energy markets and supporting the broader goal of sustainable, market-driven power pricing," Praveena Rai, the chief executive of the bourse said, adding the launch will address real market needs.
The contract, which got regulatory nod last month, will follow Sebi's daily price limits with an initial slab of 6%, extendable up to 9% on a given day. Initial margin requirement will be a minimum of 10% or volatility-based margins, whichever is higher, the MCX said, adding client-level position limits have been capped at 3 lakh/MWh or 5% of the market-wide open interest, whichever is higher.
There will be four electricity futures contracts for the current month and three future months, Rai said. The first day with be the first business day of the launch month, and the last day of the contract will be the day before the end of the contract, he added.
The MCX said the launch is timely as the electricity sector has been seeing significant growth along with the need to manage price stability, fluctuating demand, fuel costs, and other market developments.
"The electricity futures contract will help power generators, distribution companies, large industrial consumers, and financial participants with a transparent, liquid, and reliable hedging mechanism. It will also promote investors with a widely used commodity to add to their portfolio," the exchange said.
Rishi Nathani, the chief business development officer of the MCX, sounded very bullish on the commodity derivatives market saying the latest product will help in price discovery and is suitable for all kinds of investors.
"It is important both for volatility and also for electricity players to plan future production, so it is useful for both power producers and investors," Nathani said, adding, "this is not just about trading any contract but about developing India's power transition."