Power regulator may censure Jignesh Shah’s appointment to IEX board3 min read . Updated: 07 Mar 2014, 12:13 AM IST
CERC's proposed regulation says if any person is found not fit and proper to head an exchange by any regulatory agency, he will not be entitled to hold any position
New Delhi: India’s apex power sector regulator plans to put in place a new regulation that would result in an effective censure of the appointment of Jignesh Shah, founder of Financial Technologies (India) Ltd (FTIL), on the board of Indian Energy Exchange (IEX).
The regulation proposed by the Central Electricity Regulatory Commission (CERC) states that if any person is found not “fit and proper" to head an exchange by any regulatory agency, he or she will not be entitled to hold any position on the board of power exchanges.
An IEX spokesperson said in an emailed response, “Yes, we are aware that CERC had issued a draft regulation on the subject. Final regulations are yet to be issued."
The new development comes in the backdrop of the Forward Market Commission’s (FMC) 17 December order that declared FTIL, Shah and Joseph Massey, former CEO and managing director of group company MCX Stock Exchange Ltd, not “fit and proper" to hold any management position in any exchange in India.
“We had taken cognizance after FMC said that they were not ‘fit and proper’ to run an exchange. We will shortly take out an amendment," said a senior CERC official who didn’t wish to be identified.
Shah is a non-executive director on the 10-member power exchange’s board. FTIL holds a 30.14% stake in IEX. The exchange started operations in June 2008.
India has two operating power trading exchanges; the other is Power Exchange India Ltd.
The order by FMC came in the wake of the ₹ 5,574.35 crore payment crisis that surfaced at National Spot Exchange Ltd (NSEL), in which FTIL has a 99.99% stake. Multiple agencies are investigating the crisis.
“We took up the issue on a suo motu basis after the NSEL fiasco. A draft regulation is in the works which will state that if any person is not found ‘fit and proper’ by any regulating agency or body, she/he will not be entitled to hold any position on the board of the power exchanges. It would be out shortly," said another senior CERC official, also requesting anonymity.
This will result in the amendment of Central Electricity Regulatory Commission (Power Market) Regulations, 2010, which deal with issues such as shareholding patterns, corporate structure, net worth and risk mitigation in the case of defaults.
Power exchanges function along the lines of commodity exchanges and provide a platform for buyers, sellers and traders of electricity to enter into spot and forward contracts besides enabling trading of renewable energy certificates.
They also provide a payment security mechanism to buyers and sellers.
These exchanges primarily serve to discover the price for the day ahead, which is the electricity sector’s equivalent for a spot price.
“The other issue that they are facing is that the promoters can’t hold more than 25% in the exchange.... We want them to reduce the stake," said the first CERC official cited above.
CERC in a 25 February 2013 order ruled that FTIL’s shareholding in IEX should be reduced to 25%.
CERC on 27 February 2014 directed IEX “to file status to achieve the shareholding pattern in compliance with Regulation 19 of the Power Market Regulations by 14.3.2014". The next hearing for an IEX petition seeking extension of the time for compliance is 27 March.
An FTIL spokesperson said the matter of “fit and proper" was being heard in the Bombay high court and was sub judice.
“As regards to CERC’s proposed regulations as stated in your query we cannot comment on it since we are not privy to any such development," the spokesperson said in an emailed response.
The IEX spokesperson said the exchange had been compliant with various provisions under the power market regulations.
“As regards the requirements of the Regulations under the shareholding pattern, FTIL is required to reduce its stake to 25% from 30.14% presently. We are aware that the FTIL has been making pro-active efforts to reduce its shareholding in the Company."
The email response added, “IEX in its petition filed in January ’14 with the Regulator, has apprised the regulator of the above-mentioned efforts and have sought a year of extension to comply with provisions related to the shareholding pattern under the Regulations."
Earlier this month, the Bombay high court rejected FTIL’s plea to stay FMC’s order.