The Competition Commission of India (CCI) has imposed a penalty of Rs 55.5 crore on the National Stock Exchange (NSE) for abusing its dominant position in the currency derivative (CD) market. It has also asked the exchange to stop unfair pricing practices immediately and modify its “zero discount” policy within 60 days.
In an order passed las evening with a 4-2 majority, and dispatched on Friday, NSE has been asked to maintain separate accounts for each segment of its operation with effect from April 1, 2012. Two members of the Commission – Geeta Gouri and Anurag Goel – dissented with the majority order.
“NSE is directed 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,” said CCI’s 170-page order. The Rs 55.5 crore penalty is five percent of the average turnover of NSE (Rs 1109.66 crore) during the last three years.
NSE said in a press release that they were reviewing the 4-2 majority CCI’s order. Naval Chopra, Amarchand Mangaldas, counsel for NSE said. “We will decide our future course of action which includes approaching the Competition Appellate Tribunal. On a prima facie review of the order, it appears contrary to certain principles of competition law. In particular, as recognised by the dissident order, nowhere in the world has the number two player held to be dominant in a market.”
Chopra also asserted that the commission had stayed away from the MCX-SX’s allegation that the price is predatory and instead invoked a new concept of unfair pricing vis-a-vis competition. “This sets a precedent that established players must price their products based on the cost models of its competitor. The commission has levied a 5 per cent (of the turnover) fine on NSE without any explanation or reason. In other jurisdictions like the European Union, the competition law violations were not penalised with fine for the initial 7 - 10 years precisely because the concepts are new and complex, a fact recognised by the majority decision but did not consider it for the purpose of levying the fine,” added Chopra.
MCX-SX had lodged a complaint before CCI that NSE was cross-subsidising its CD segment from other business segments where it enjoys a dominant position. Reacting to the CCI order, Joseph Massey, MD & CEO, MCX-SX said the exchange will ‘claim compensation for the losses and damages that we have incurred till now due to predatory pricing’.
The competition watch dog also wants NSE to put in place a system that will allow NSE members to choose the market watch software of their preference to trade on the currency derivative segment of NSE. Members would have the choice to use NOW, ODIN or any other market watch software for trading on the currency derivatives segment. “If necessary, this may be done under the overall supervision of Sebi. NSE shall ensure all cooperation from DotEx or Omnesys in this regard,” said the order.
The report also noted that ‘the intention of NSE was to acquire a dominant position in the CD segment by cross subsidising this segment of business from the other segments where it enjoyed virtual monopoly. It also camouflaged its intentions by not maintaining separate accounts for the CD segments’.
Last month, the seven member CCI had ordered a 5 : 2 majority verdict against NSE, though it did not quantify the penalty that was to be imposed. The final verdict which came on June 23 was also opposed by the two members, who came out with dissident orders that had found no fault with N
NSE launched its currency derivatives segment in August 2008, followed by MCX-SX in October 2008. The United Stock Exchange (USE) is the third exchange in the arena, having launched currency derivatives in September 2010.
MCX to claim Rs 150-cr compensation
MCX Stock Exchange (MCX-SX) plans to claim at least Rs 150 crore from the National Stock Exchange (NSE) as compensation for the losses incurred in the currency derivates segment. A senior official with the exchange said, “This ballpark figure is simply the loss on our books due to the predatory activities by NSE. The actual claim could be higher.”
