Mcx Vs Nse.docx

MCX STOCK EXCHANGE LTD. Vs. NATIONAL STOCK EXCHANGE OF INDIA LTD. & OTHERS

Forum: Competition Commission of India. Competition Appellate Tribunal. Section referred: Competition act, 2002.1 1. Section 2(r) - relevant market. 2. Section 4 - Abuse of dominance. 3. Section 19 - Inquiry into the certain agreements and dominant position of organization. 4. Section 26 (1) - Procedure for inquiry under Section 19 5. Section 27 - Orders by commission. Parties: INFOMANT: MCX Stock Exchange Ltd.2: MCX is the public limited company established on Aug 14, 2008. Securities and Exchange Board of India (SEBI) identified it as MCX-SE as the stock exchange under the Sec. 4 of Securities Contract (Regulation) Act, 1956. It has the permission to be operated as the exchange platform for the trade in the Currency Derivatives aka CD segment. The supports of this firm are Multi Commodity Stock Exchange of India Ltd. (MCX) and Financial Technologies of India Ltd. (FTIL). FTIL is in business of producing and supplying software for financial and securities market. The main software product of FTIL is ODIN which is used by many associates of BSE, NSE, IP Company. Opposite party: National Stock Exchange of India Ltd. & Others3: NSE was established in Nov 1992 and identified as a stock exchange in April, 1993 under e Securities Contract (Regulation) Act, 1956. NSE works in various portions which includes Equity, WDM, Options/Futures on separate Securities and the CD segment. The software producer for the financial and the security market is Omnesys. Through DotEx NSE has 26% of the stake in it which is the 100% subordinate of NSE. NOW is new software which was 1

Hereinafter referred to as Competition Act. Hereinafter referred to as MCX-SX. 3 Hereinafter referred to as NSE. 2

introduced by DotEx/Omnesys to the alternative to the software called ODIN developed by the FTIL. After obtaining the stakes in Omnesys, DotEx with intention wrote separately to NSE members offering them NOW absolutely free of cost for next year. At the same time, NSE has declined to share its CD segment Application Programme Interface Code (APIC) with FTIL, thus disabling the ODIN users from connecting to the NSE CD segment trading platform through their favoured mode. Allegation on NSE: The informant alleged the violation of sec. 3 and 4 of the competition act, 2002 on the interpretation of non-competitive behaviour and abuse of the dominance. According to the informant, various fee renunciation and low level of deposit requirements only with the respect to the Currency Derivatives (CD segment) of NSE were considered to be complete at the divergence with its conduct in other portions and were aimed at the elimination of competition and discouraging new potential entries. This included the transaction fee renunciation on currency future trade executed on NSE, no acceptance for the membership in its CD segment of NSE, no yearly subscription charges, no fees for providing the data feed with respect to its CD segment of NSE, refusal on share of its CD segment Application Programme Interface Code (APIC) with Financial Technologies of India Ltd. (FTIL), thus resulting in disabling the ODIN users from attaching to NSE CD segment. Issues which was investigated by DG and their report: 1. 2. 3. 4.

Description of the relevant market. Evaluation of dominance. Abuse of dominance. Connection of sec 4(2) (e) of competition act.

Issues for establishment of the case: (a) What will the relevant market, in the circumstances of sec. 4 read with sec. 2 (r) and sec. 19 (5) of Competition Act, 2002? To identify the relevant market in this case, the CCI focused on report of Internal Working Group of RBI, which had uphold the clear separation of CD segment from the other segments in any of the stock exchange. CCI noticed that as underlying assets, equity and the currencies are entirely different; consequently associated derivatives are also different. Trading principles of stock exchanges for two categories of the products (either assets or derivatives) are, consequently, also in different market from any of the practical point of view, the product over the CD segment exchange can`t be said to be either replaceable or substitutable by the product in segments like equities and F&O for purchaser.

Hence CCI said that the stock exchange services with the respect to the CD segment in India is clearly a self-dependent and distinct relevant market. (b) Is there any of the opposite party`s dominance in the determined relevant market, in context of sec. 4 read with sec. 19(4) of Competition Act? CCI evaluated the market share of the NSE and its operations in other portions and established that it has high level of vertical integration from index services, trading principle, front-end information technology etc. Hence, CCI said that NSE enjoys a dominance in relevant market in the context of Sec. 4 read with Sec. 19 (4) of competition act. (c) Is there any kind abuse of its dominance in relevant market by the opposite party? CCI through the previous NSE circulars established that the informant had been facing the restraint of zero fees from the very beginning. This pattern of behaviour of the NSE suffered from inconstancy and CCI concluded that nothing could be reliably derived from the behaviour patterns that would rationally lead to conclusion that they had consistently followed the doctrine of fee waivers in the nascent market. However, CCI concluded that zero price policy of the NSE in the derived relevant market is unfair and can be defined as predatory pricing. On Monopoly grip: CCI said that NSE by not charging the transaction fee is subsidising the activity in the CD segment which is open to competition and hence using its monopoly profits to grasp its position. CCI also concluded that NSE is also creating blockage for users of ODIN software by not providing Application Programme Interface Code (APIC) to its recognized software ‘NOW’. It was held by CCI that it is using its position of strength in non CD segment to defend its position in CD segment. Order of CCI: CCI ordered to NSE to redefine its zero price policy in the given relevant market and to cease and refrain from unfair pricing, exclusionary conduct and unfairly using its dominance in other market to protect the relevant CD market with the instant effect. CCI imposed a penalty on NSE equivalent to the 5 percentage of their average turnover amounting to the total of INR 55.5 Crores. The present case later went to the Competition Appellate Tribunal which had granted the conditional stay on paying the penalty, and the condition was if NSE found guilty, it will have to pay the interest at the rate of 9% on amount from the date of CCI order till the date of the payment. Order of Competition Appellate Tribunal:

After analysing the case COMPAT came to the conclusion and said that, it disagreed with CCI on defined relevant market and stated that the stock exchange services is the relevant market and NSE has dominance in that market. The tribunal didn't considered the 'fairness of price' issue, and considered only the allegation of predatory pricing. it also held that NSE's zero price in the currency derivatives trading is below cost. The tribunal lastly stated that NSE had the intention to indulge in the predatory pricing and eliminate the competition.