In a recent court decision the COMPAT upheld the Competition Commission of India’s (CCI) order against the National Stock Exchange (NSE) for unfair trade practices and imposed a penalty of INR 55.5 crore on the exchange for adopting unfair trade practices in currency derivatives (CD) trading. The penalty was reached after the courts interpreted what the relevant market would be in this particular case.[1] The stock exchange was also asked to cease and desist from predatory pricing and scuttling competition. The COMPAT has granted a conditional stay on payment of the penalty, on the condition that the NSE, if found guilty, will have to pay interest at the rate of 9 per cent on the amount from the date of the CCI order till the date of payment.
The two parties involved in this case were the MCX-SX and NSE. MCX-SX is an exchange platform for trades in the Currency Derivatives segment also known as the CD segment. Financial Technologies of India Ltd (FTIL) supplies MCX-SX with the software ‘ODIN’ and is used by various members of NSE, BSE and Intellectual Property Companies. NSE, the other party in this suit, has operations in areas including equity, options/futures, CD segment among various others. NSE uses the software ‘NOW’ that has been produced by Omnesys as a substitute to ‘ODIN.’ DotEx that is a 100% subsidiary of the NSE owns a stake of 26% in Omnesys. As a result a chain gets formulated through which it can be postulated that NSE controls a stake of 26% in Omnesys. After DotEx gained ownership of this stake they intentionally wrote to NSE offering them the programme ‘NOW’ for free, for an entire year. NSE went ahead and accepted this proposal. Further, they refused to share their Application Programme Interface Code (APIC) with FTIL and consequently ODIN users were unsuccessful in accessing the CD segment-trading platform through their preferred mode.
It can be inferred from the fact situation that the ‘fee waivers and low level of deposit requirements’ limited to the CD segment of the NSE can be seen as if they were solely aimed at curtailing their competition and discouraging potential entrants into the market. MCX-SX alleged that NSE had violated Sections 3 and 4 of the Competition Act and had abused their dominant power through anti-competitive behavior in the relevant market of CD.
The Director General then investigated the matter and the office set out to determine the relevant market in this particular case. The Commission relied on the Report of the Internal Working Group of Reserve Bank of India while coming to its decision on the definition of relevant markets. This report has noticeably supported a separation of the CD segment from the other segments in any and all stock exchanges.[2] The CCI then observed that as equities, options, currencies were all taken as separate and varied markets, hence a similar approach ought to be used for the assessment of CDs. They concluded that in a practical world two distinct categories of commodities like assets and derivatives would befall in independent markets of their own. For instance, a product over CD segment exchange cannot be said to be either interchangeable or substitutable by a product in segments like equity for a consumer.
Subsequently the Commission decided that stock exchange services in regard to the CD segment in India are an independent and distinct relevant market. The NSE was directed to modify its zero price policy in the relevant market and to cease and desist from ‘unfair pricing, exclusionary conduct and unfairly’ using its dominant position in other market/s to protect the relevant CD market with immediate effect. The commission also levied a penalty on NSE equivalent to 5% of their average turnover that equaled Rs.55.5 Crores ($12.23 Mn).
This order reiterates the fundamental concepts of competition law, such as relevant market, dominance, abuse of dominant position, monopoly leveraging et al. A noticeable fact that this judgment brings to the fore is that the antitrust regime in India through the CCI is trying to uphold standards of competitiveness that could be compared to developed nations like the United States of America. It is also expanding the present resource base that we have in India with respect to defining relevant markets. However in a complicated case like the present one, it can be safely proposed that the CCI could have adopted a more rigorous analysis. In this case, the Commission did not even venture into the issue of predatory pricing. Further, the issue of penalty determination remains as ambiguous as ever, grounds on which the Commission calculates penalties has not been enumerated in the present order, thence not materially altering the confusion in the market in the aforementioned regard. Therefore to conclude, we still need to work towards becoming a regime that is more transparent in its analysis of the same.
[1]Case against NSE: Appellate body upholds CCI order, The Hindu Business Line http://www.thehindubusinessline.com/markets/cat-upholds-ccis-directive-against-nse/article6283435.ece (last visited on 7th August 2014)
[2] Report of the Internal Working Group on Currency Futures, Reserve Bank Of India, http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/84213.pdf (last visited on 7th August 2014)
This post has been authored by Ishita Mishra, a second year student at the West Bengal National University of Juridical Sciences.
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