Market Coupling: A Premature Reform Hijacked by Private Interests

CERC’s order to push ahead with market coupling from Jan.2026 is not just ill-timed—it is deeply questionable. A series of recent regulatory actions suggest that private interests are steering policy away from public welfare. The proposed PMR amendments tilt the market toward opaque OTC trading by relaxing prudential norms and enabling quasi-exchange operations without equivalent oversight. More troubling, the recent SEBI’s interim order dated 15th Ocr.2025 exposing insider trading worth ₹173 crore stemming from leaks within CERC’s Economics Division to OTC platform promoters has gravely undermined confidence in regulatory integrity.

These developments are compounded by CERC’s own procedural deviations in issuing the Suo-moto coupling order without stakeholder consultation despite many submissions; not disclosing Grid-India’s shadow pilot report; and relying on a cherry-picked short duration dataset while disregarding a comprehensive long duration analysis. Most concerning is CERC’s policy reversal—after declaring that coupling offered no material benefit, it abruptly approved the same mechanism six months later without any structural market change. The timing of this reversal, coinciding with the insider-trading scandal and around 30% fall in one of the power exchange’s share prices, strongly indicates that market coupling is being driven by private gain rather than public purpose and therefore demands immediate scrutiny and accountability before implementation due to following reasons:

Substantive Issues: Weak Economic Case and Technical Fragility

1. Limited Market Depth and Negligible Welfare Gains

CERC’s own shadow pilot results make the case against rushing to implement market coupling. The data speaks for itself: Day-Ahead Market (DAM) welfare increased by just ₹38 crore (0.3%) over four months, Real-Time Market (RTM) welfare increased by a negligible ₹0.72 crore (0.01%) and Volume gains were under 0.2%. These are mainly due to shallow market depth of DAM (<4%) and RTM (<3%).

These are statistically insignificant. Rolling out a structural reform of this magnitude with such marginal benefits reflects not evidence-based policymaking but regulatory haste. Grid-India also flagged issues such as lack of algorithm harmonization, differences in bid structures, and operational complexity — issues that cannot be solved overnight. When the shadow pilot itself shows limited efficiency gains, forcing a system-wide change looks less like reform and more like agenda-driven action.

2. Technical Readiness Gap

Even setting aside weak economic justification, the January 2026 deadline for market coupling is unrealistic. The shadow pilot exposed integration delays, data inconsistencies, and operational gaps, while Grid-India itself sought extensions during testing. Rushing implementation without harmonized algorithms, secure coupling engines, and trained operators risks trading disruptions, price anomalies, and loss of confidence. The proposed round-robin MCO model further undermines reliability—by rotating control among exchanges, it breaks the principle of a single neutral operator and introduces technical inconsistency, audit challenges, and governance risk.

Europe’s Single Day Ahead Coupling (SDAC) model runs on the neutral, certified EUPHEMIA algorithm with standardized bids, real-time data flows, and strong cybersecurity — all underpinned by transparency and clear protocols. India lacks these essentials: there’s no common certified algorithm, real-time data integration, consistent bid or loss models, uniform cybersecurity, or protocol for failures and disputes. Implementing market coupling under such conditions is effectively building on a weak foundation.

II. Procedural Issues: Flawed Regulatory Process and Governance Deficit

1. Lack of Transparent Process

The regulatory process followed by CERC for approving market coupling has been opaque and exclusionary. Despite receiving many stakeholder submissions, no formal consultation process was held. The regulator relied on a cherry-picked four-month pilot while ignoring a 29-month dataset. The Grid-India shadow pilot report was not disclosed publicly. Even more concerning, CERC reversed its February 2024 position—where it had acknowledged the lack of material benefit from coupling—and approved the mechanism six months later without any structural market change. Such process lapses undermine regulatory legitimacy.

2. Round Robin Market Coupling Operator (MCO)-A Bad Idea

The proposed round-robin MCO model is inherently weak. Rotating operational control among exchanges creates fragmented governance, inconsistent results, higher costs, and unclear accountability in case of disputes. It undermines confidence in market neutrality. A single, independent MCO would provide far greater reliability, transparency, and trust. Here it is Why-

a. Fragmented control of the coupling engine: Under a rotating MCO system, control of the market-clearing engine changes hands regularly. Each exchange will inevitably implement, configure, or execute the coupling algorithm slightly differently — exposing variations in bid mapping, rounding, and timing that can cause price or volume discrepancies across sessions.

b.  Same Algorithm- Different results: Even if exchanges are given the same source code, they operate in different runtime environments — with distinct server clocks, caching logic, latency profiles, database structures, and API gateways. These differences generate micro-variations in clearing outcomes, timestamps, or rounding. In high-value electricity or financial markets, even a one-tick variance in timing or pricing can alter settlements and compliance outcomes.

c. Absence of a neutral, independent host: Unlike Europe’s EUPHEMIA model, which runs a single coupling engine on one neutral platform with all exchanges feeding in bids, India’s proposal allows each exchange to host and execute the algorithm in rotation. This means multiple copies of the same code running on disparate systems — each with different infrastructure, logs, and database configurations — producing no auditable output.

d. Lack of algorithm validation and certification: To ensure bit-for-bit identical outcomes across exchanges, there must be verified source code hashing, identical compiler and environment builds, synchronized NTP time - stamping within milliseconds, and checksum validation by an independent auditor. Without real-time algorithm certification and version control, sameness is assumed — not proven.

e. Exchange-specific pre-processing differences: Before bids even reach the coupling engine, each exchange conducts its own data preprocessing — validating bids, standardizing units, and managing block or linked orders. These routines differ across platforms. Thus, even if the coupling algorithm is identical, the input data streams are not, resulting in marginally different welfare outcomes and clearing patterns.

f. Embedded conflict of interest: Allowing exchanges — which are commercial entities with competing market shares — to host the coupling engine periodically introduces both the perception and potential for bias. A host exchange temporarily controls access to pre-coupling aggregated order data, system timestamps, and internal logs. Even without manipulation, such asymmetry undermines confidence in price neutrality.

g. Grid-India’s own pilot confirms inconsistency: Grid-India’s feedback report explicitly highlighted the need for uniformity in clearing algorithms and bid structures across exchanges before market coupling can be rolled out. Translated from regulator-speak, that means: the same algorithm did not produce consistent results under test conditions.

h. Costly, duplicative, and hard to govern: Implementing market coupling through a round-robin MCO model will almost certainly inflate costs—potentially couple of times higher than using a single neutral MCO. Each exchange would need to maintain its own licensed solver environment, high-performance hardware, cybersecurity framework, audit systems, Disaster Recovery (DR) and trained staff. Every rotation adds duplication in validation, audit, and integration effort, along with higher operational and dispute-resolution risks. What could be efficiently centralized in one neutral platform becomes a multi-site, multi-governance setup with overlapping expenses. In short, round-robin coupling multiplies cost and complexity without adding any efficiency or transparency benefit.

i. fragmented accountability: round robin MCO will make it difficult to identify responsibility for price errors, data mismatches, or settlement disputes. Each exchange can shift blame, delaying investigations and eroding trust. Unlike a single neutral MCO with clear audit trails, this model creates procedural ambiguity and exposes the system to discrepancies and regulatory disputes. With inconsistent controls, uneven preprocessing, and weak cybersecurity in some exchanges, implementing market coupling under such a setup is a high-risk experiment that jeopardizes market integrity and confidence.

j. No Clear Responsibility in Failure Scenarios: Under the current proposal, responsibility for failures or discrepancies is fragmented. If market anomalies occur, it will be unclear whether the fault lies with the hosting exchange, the backup at Grid-India, or with data inputs. Such ambiguity increases dispute resolution time, undermines confidence, and creates opportunities for buck-passing among operators.

k. Absence of Algorithm Certification and Validation: The EU model ensures identical outcomes through verified source code hashing, strict version control, synchronized timestamps, and checksum validation by independent auditors. India lacks such a framework. Without a formal algorithm certification regime, there is no guarantee of consistency or transparency in price discovery.

III. Integrity and Insider Risks: A Compromised Reform

1. Insider Trading Incident

The SEBI interim order dated 15 October 2025 revealed insider trading worth ₹173 crore linked to leaks from CERC’s Economics Division to OTC platform promoters. Information on the timing and content of the market coupling order was shared through private messaging groups before public announcement. This coincided with around 30% collapse in one exchange’s share price, strongly suggesting regulatory capture and profit-driven manipulation.

The leak wasn’t incidental — it shows a deliberate flow of regulatory information to private actors who then monetized it. When the reform design process itself is compromised by insider trading, the legitimacy of the policy collapses.

2. Conflict of Interest

Rotating the Market Coupling Operator (MCO) role among competing exchanges creates inherent conflicts of interest, as the host exchange gains privileged access to sensitive pre-coupling data, compromising neutrality and trust. Market coupling, intended for efficiency and transparency, risks being distorted into a tool for private gain amid weak technical readiness, poor governance, and regulatory capture. SEBI’s findings of insider profiteering, CERC’s rushed implementation, and PMR amendments favouring OTC trades together signal that influence — not markets — is what’s truly being coupled.

The Way Forward: Preventing a Hijacked Reform

India’s market coupling plan stands at a crossroads — and urgent course correction is essential to restore credibility and protect public interest. CERC must suspend implementation until SEBI’s investigation concludes, and the integrity of the regulatory process is independently verified. The Ministry of Power must also act to insulate policy formulation from conflicted officials and private promoters who may have influenced recent decisions.

Future market reforms must prioritize depth, transparency, and readiness over speed or private influence. This means widening participation, ensuring open consultations and full disclosures, standardizing algorithms, and completing independent readiness checks.
Regulators should focus on governance, surveillance, and system resilience instead of pushing premature market coupling or opaque OTC platforms.
At present, market coupling looks like a reform hijacked before maturity—advanced amid weak markets, poor preparedness, and insider trading concerns. India’s power market needs trust and accountability, not haste driven by private interests.

(Disclaimer: The views and opinions expressed in this document are solely those of the author and do not necessarily represent those of any affiliated organizations or institutions. The content is intended for informational purposes only. While every effort has been made to ensure accuracy, no liability is accepted for any errors, omissions, or reliance placed on the information herein.)