CCI strictures against NSE held as valid

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The competition appellate tribunal (Compat) has dismissed the National Stock Exchange (NSE) appeal and upheld the Competition Commission of India (CCI) order in respect of zero pricing by NSE in its currency derivative segment in October 2008 to August 2011.

In a 95-page order, Compat chairman Justice VS Sirpurkar and Compat member Rahul Sarin also upheld the earlier directions issued by CCI imposing a penalty of Rs 55.5 crore plus interest, and asked NSE to desist from predatory pricing and scuttling of competition.

“We do not see any merits in the appeal and dismiss the same,” the Compat order said.

In 2008, MCX-SX launched trading in the currency derivatives segment. It was unable to charge transaction fee and other fees on account of free offering by NSE.

A year later, in November 2009, MCX-SX filed a complaint with CCI against NSE for using its dominant position to engage in predatory pricing in the currency derivatives segment. After two years of investigation and inquiry, the CCI passed an order via majority finding NSE guilty of contravention of section 4 of the Competition Act, 2002 which was later challenged in Compat.

Dismissing NSE’s submission in the appeal on penalty imposed by CCI, Compat said, “The CCI ordered the penalty @ 5 per cent of the average turnover. In our considered opinion, the CCI has in fact practised restraint when it could have gone right up to 10 per cent of the average turnover.”

NSE’s other contention in the appeal that even mitigating factors wherever justifiable were not taken into consideration by CCI was also rejected by Compat, which said, “It has been held by the CCI that besides the abuse of dominant position in terms of section 4(2)(a)(ii), it has cross-subsidised from other segments of business; that it also camouflaged its intentions by not maintaining separate accounts for the CD segment; that NSE created a façade of the nascency of market for not charging any fees on account of transactions in the CD segment; it expressed that the small pockets were bound to be thrown out of the market, if they had also followed the zero transaction fee policy, which was adopted by NSE by incurring huge losses.”

A NSE spokesperson in response to the Compat order said, “NSE will appeal the order of Compat and we will do the needful after going through the detailed order. Whatever we have done was in the interest of the development of the capital markets. A suitable review of the implications will be done in due course.”

For NSE, the next step will be to approach the Supreme Court, experts said. Saurabh Sarkar, MD & CEO, MCX-SX said, “We welcome the order passed by Compat upholding the CCI Order. We believe that healthy competition is always in the interest of overall development of Indian financial markets.”

“ The Compat order reaffirms the position that dominant undertakings have a special responsibility not to distort competition in the sectors where they operate through their actions,” Sarkar said.

The Compat order clarifies the definition of 'relevant market' for the purpose of the case as the entire ‘stock exchange services market in India’ as argued by MCX-SX. NSE’s argument that relevant market is ‘stock exchange services for CD Segment in India’ has been rejected by Compat.


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