Co-location services: CCI sees no abuse of dominance by NSE

The Competition Commission of India (CCI) has rejected allegations that the National Stock Exchange (NSE) has abused its dominant position while rendering its co-location services, which had allegedly benefited a few members and thereby placed others at a disadvantage, leading to likely violation of the Competition law.

In its 28-page order, the competition watchdog has ruled that “no prima facie” case exists against NSE and the request for interim relief of stalling the co-location facility of NSE stands “rejected”.

To assess the complaint under the lens of competition law, the CCI had considered the “Market for providing co-location services for Algo trading in securities to the trading members in the territory of India” as the relevant market.

Co-location is the practice of renting space for servers and other computing hardware at a third party provider’s data centre facility. Co-location helps in faster movement of data.

As regards allegations by the complainant (an individual) that co-location facility in itself is anti-competitive and that the facility should be stalled, the CCI noted in its order that it cannot be oblivious to the strides being taken by technology in all walks of life, leave alone the financial field. A robust exchange acts as the backbone of the financial system and the provision of co-location facility by exchanges helps increase volumes of trades manifold and provides liquidity to investors, the CCI has said. This augurs well for the market, companies and economy, it added.

“Any intervention by the Commission to stop the co-location facility which has been in place since 2009 and is on offer not just by NSE, but by BSE as well, will be retrograde, so to speak. This is in the face of evidence that co-location is offered by several major exchanges of the world. Moreover, the exchanges in India are not just accessed by domestic investors but by foreign investors alike for making investments and reaping rewards and the economy is benefited by such transactions which allow inbound capital,” the CCI order has said.

The competition watchdog also highlighted that SEBI has not stopped the co-location facility in any manner since its introduction and has both implicitly and explicitly recognised such service.

Kunal Mehra, Partner, L&L Partners Law Offices, said, “The CCI, while dismissing all allegations, noted that co-location facilities supported by digital-age technologies have become commonplace in most large financial exchanges around the world. CCI recognised the significant contribution of co-location facilities towards a robust financial exchange, which in turn leads to a robust economy.”

“The CCI’s order represents a continuation of its approach of minimal intervention in technology-based markets. In that respect, this order of the CCI shall be relevant for other sectors as well,” Mehra said.

Sonam Chandwani, Managing Partner at KS Legal & Associates, said that NSE is the backbone of the financial system, however recent allegations of co-location facility in itself being anti-competitive has attracted the CCI’s attention. It goes without saying that the watchdog cannot be oblivious to the strides being taken by technology in all walks of life, leave alone the financial field. As a result, Section 4 which pertains to abuse of dominant position came into play with CCI concluding that there was no violation of the Competition Act by NSE. “Stringent implementation of laws is the need of the hour as a robust exchange not only boosts market volume and liquidity, but also passes down benefits to companies and ultimately the economy,” she added.

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