A whole snarl of regulatory complications has been thrown up with the Competition Commission of India finding the National Stock Exchange guilty of unfair trade practices in currency derivatives trading, say legal experts.
The chief complication will be the repercussions of such a decision on SEBI.
“If someone is found guilty of unfair trade practices in the stock market, isn't it in order that SEBI should also take cognisance of it?” asked a regulatory expert.
“After all, NSE's actions are within the arena that SEBI oversees. And NSE itself is regulated by SEBI. Can SEBI just stand by and watch when an entity regulated by it is accused of unfair trade practices? Should it not look into the case at once?”
The Competition Commission of India (CCI) has issued a show-cause notice to the NSE on the unfair trade practices matter and may levy a penalty on it.
The Competition Commission of India can fine companies up to 10 per cent of their average profit for the last three years if proven guilty.
“Rightly, SEBI should take cognisance of it,” said the expert. “Because if an entity who is registered with SEBI is penalised by the CCI, another regulator, then the entity will cease to be a fit and proper person, in a manner of speaking.”
The CCI had found the National Stock Exchange in breach of Section 4 of the Competition Act dealing with abuse of dominant position.
It said NSE was not charging fees for currency derivatives trading and that it had indulged in predatory pricing.
It could be a possibility that the NSE has violated the Competition Act but has not violated any regulation governed by the SEBI, said another regulatory expert.
“But that creates an anomalous situation in the regulatory arena. If one entity is not compliant with one regulator but is compliant with another in respect of the same action, it is odd.”
The Competition Commission of India's enquiry was triggered when NSE's rival exchange in currency derivatives — the MCX-SX — complained to the CCI that the national bourse had misused its dominant position in the equity, equity derivatives and the wholesale debt market segment; it had used its position in these segments to its benefit in the currency derivatives segment too by trying to protect its turf and introducing predatory pricing.
Who is Guilty?
“The second aspect is that whether it is equities, F&O or currency derivatives, NSE can always say that all its schemes were approved by SEBI and that it was operating under its control. And where can its guilt lie?” asked a legal practitioner.
If SEBI had given MCX-SX permission to trade in equities, then allegations of National Stock Exchange misusing its dominant position may not have arisen in the first place, he added.
“Can SEBI just stand by and watch when an entity regulated by it is accused of unfair trade practices? Should it not look into the case at once?”