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The Competition Commission of India has found the National Stock Exchange of India guilty of misusing its dominant position and indulging in unfair trade practices in the currency derivatives segment.
A CCI source confirmed that the Commission had found the NSE in breach of Section 4 of the Competition Act dealing with abuse of dominant position. “The penalty will be imposed after they (NSE) reply to our show-cause notice… We have given them a week's time to respond to the show cause,” the source said.
The source further said NSE was not charging fees on currency derivatives trading. “It is predatory pricing…It is aimed at ensuring that customers do not go to rivals,” the source said. Companies can be fined by CCI up to 10 per cent of their average profit for the last three years, if proven guilty.
An NSE official declined to comment saying the matter was sub judice . The exchange had moved the Delhi High Court in response to an earlier show cause notice from the CCI on the same matter a couple of weeks ago. NSE was issued a second show-cause notice on the same.
NSE's rival exchange in currency derivatives, MCX-SX, in a representation to the CCI in November 2009 had complained that NSE had misused its dominant position in the equity, equity derivatives and the wholesale debt market segment to its benefit in the currency derivatives segment by trying to protect its turf and introducing predatory pricing. The investigations department of the CCI found NSE guilty of this in December 2010 and deemed it fit to initiate penal action against the exchange.
Section 4 of the Competition Act 2002 states that abuse of dominant position by an enterprise occurs when, directly or indirectly, an unfair or discriminatory condition is imposed in purchase or sale of goods and services or the price charged on purchase or sale itself is unfair or discriminatory. Acts that result in denial of market access, and using one's dominant position in one market to enter into or protect other relevant markets also amount to misuse.
Dominant position is determined by assaying market share, size and resources of the company, size and importance of competition, consumer dependence on the company, monopoly or dominance if obtained by government statute or by virtue of being a government company or PSU.
In calendar 2010, NSE's turnover in the currency derivatives segment was Rs 34 lakh crore while MCX-SX's was close to Rs 42 lakh crore.
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