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 market by cross subsidising this segment of business from other segments where it enjoyed virtual monopoly.”
The Commission directed the NSE to pay the penalty within 30 days.
CCI delivered the order on Friday based on a complaint filed in 2009 by the MCX Stock Exchange (MCX-SX), which alleged that the NSE was indulging in unfair practices by waiving the transaction fee on currency derivatives.
Reacting to the order, the NSE said, in a statement, “We are reviewing the 4-2 majority CCI's order. We will consider our future course of action after reviewing the order and obtaining the opinion of our legal advisors.”
Mr Naval Chopra, Principal Associate, Amarchand and Mangaldas, advisors to the NSE in the case, said the exchange may consider moving the Competition Appellate Tribunal after studying the order. Besides, the penalty imposed by the CCI is among the highest ever. Interestingly, the Commission in a recent case levied a fine of Rs 1 lakh where it unanimously found existence of a cartel, he said.
CCI has charged the NSE with camouflaging its intentions by not maintaining separate accounts of the currency derivative segments and creating a façade of the ‘nascency' of market for not charging any fees on account of transaction in the currency derivative segment.
CCI has ordered the NSE to modify its zero price policy and ensure that appropriate transaction costs are levied within 60 days. Besides, it has been told to maintain separate accounts for each segment from April 1, 2012.
“The commission has not dealt with the allegation of predatory pricing. Instead it has evolved a new concept of unfair pricing vis-a-vis competitors. This implies any dominant player must look at the cost structure of its competitors when determining a fair price. This sets an alarming precedent for the industry at large,” said Mr Chopra.
The exchange has also been instructed to put in place a system that would allow NSE members free choice to select NOW, an NSE software, ODIN (developed by Financial Technologies, the promoter of the rival exchange MCX-SX) or any other market watch software for trading in currency derivative, if necessary this may be done under the overall supervision of the capital market regulator SEBI, said the Commission.
Mr Dewang Neralla, co-founder, Financial Technologies, said NSE has denied connectivity to FTIL's trading software to market participants and offered its own software free-of-cost in the market. This order vindicates our claim that there have been anti-competitive practices by this private monopoly, he said.
Mr Joseph Massey, Managing Director, MCX Stock Exchange, said “Our next course will be to claim compensation for the losses and damages that we have incurred till now due to predatory pricing.” Though Financial Technologies and MCX-SX did not reveal the quantum of damages to be claimed, sources said it could be about Rs 500 crore.