NSE zero-pricing model neither unfair nor predatory: Dissent note   

The National Stock Exchange's initial zero-pricing model in currency derivatives segment cannot be called unfair or predatory, but could be considered as sound business strategy, the two Competition Commission of India (CCI) members have said.

Ms Geeta Gouri, an economist, and Mr Anurag Goel, former MCA Secretary made this comment in their dissent note, which formed part of the much talked about CCI order on NSE issued in the last week of May.

The dissenting members have concluded that the NSE does not enjoy a dominant position in the currency derivatives segment, which according to them is the “relevant market” for this case.

The dissent note could strengthen the case for NSE despite the CCI majority order not being in its favour, sources said.

With the two CCI members' dissent note passed on to the NSE on Friday, the CCI's complete order including the dissent note has been served on the country's largest bourse. This would mean that the NSE has time till Friday to file its response to the CCI's show-cause notice of April 29.

In a recent majority ruling, the CCI had concluded that the NSE had resorted to an “unfair” practice in adopting a zero-pricing model in its currency derivative segment.

The CCI majority order also found that the bourse had abused its dominant position. However, the dissent note, which is about 65 pages, does not find the NSE to have violated any provision of the Competition Act.

Both the dissenting members gave a common dissent note, which held that NSE has not indulged in unfair or predatory pricing in sale of services.

The dissenting members have taken to a reasoning that in a network industry like stock exchange, pricing below cost to establish a large installed base of users to increase demand, or initially charging a low price to facilitate minimum liquidity before shifting to a higher price later are part of a legitimate business model.

The dissent order finds that as minimal liquidity is essential for network industry to operate, stock exchanges aim to increase liquidity even if they have to charge very low prices as a trade-off with the increase in value of their network.

It has also been noted that players who entered the currency derivatives market after NSE's entry were very well aware that the prevailing price was zero. It would be naïve to argue that their business models did not factor in this consideration, the dissenting members are understood to have reasoned.

On the issue of relevant market, the dissent note stand that the currency derivatives (CD) segment is the “relevant market” is in sharp contrast to the Director General's findings. The DG had concluded that stock exchange as a whole is the relevant market. The CCI majority order and NSE had taken a stance that currency derivative should be the relevant market and not entire stock exchange.

As NSE is neither dominant in the relevant market (currency derivatives) nor has it adopted unfair pricing, NSE has not violated Section 4 (2)(a)(ii) of the Competition Act, according to the dissenting members.