CCI issues show cause order to NSE

The competition watchdog, CCI™s order last week confirming National Stock Exchange™s long-spell of predatory pricing in the currency futures segment, dissected and refuted the market institution™s argument that its intent was not to kill competition but to develop a nascent market.

Opposing NSE™s arguments, the Competition Commission of India (CCI) asserted that NSE did not have any sound justification for its zero-price policy in the burgeoning currency derivatives (CD) market. Clearly, NSE has used its position of strength across verticals to protect its position in the CD segment, the CCI ruled.

In the CD segment, NSE has had to face stiff competition from MCX-SX, which entered the segment two months after NSE had commenced trading in August 2008. To disadvantage MCX-SX in the CD segment, NSE waived transaction fees for traders on its CD platform and DotEx, the exchange™s 100% subsidiary and marketer of software NOW, waived data-feed fees.

MCX-SX, it is reckoned, could be a potential competition to NSE in larger and more entrenched market segments like equity and equity derivatives (futures and options) once it gets the requisite regulatory clearances. With Sebi™s refusal to allow MCX-SX to operate in these segments, the matter is now sub judice.

To drive home its point, the Commission also drew parallels between NSE™s practice and the Microsoft case. The situation (in the case in point) is similar to the US vs Microsoft case where the allegation was that Microsoft had manipulated its application interface code to put third party browsers at a disadvantage for users who were working on Microsoft™s Windows operating system, the CCI said.

The CCI order said … the commission concludes that the conduct of NSE/DotEx in denying APIC to ODIN and putting FTIL on the watch list is an exclusionary conduct both in the aftermarket for software for trading on NSE as well as in the relevant market delineated in this case. It added: The commission finds no merit in the justifications given by (NSE) regarding waivers of transaction fees, admission fees or data feed fee waiver. Therefore, the zero price policy of NSE in the relevant market is unfair. It can, in fact, be termed as annihilating or destructive pricing. This is contravention of (the relevant section of the Competition Act).

CCI issued a show cause notice to NSE giving it one week to respond. If the commission finds NSE™s behaviour objectionable, it will have many options. It can not only direct the firm to desist from its anti-competitive behaviour forthwith but can also impose a 10% fine on its turnover and even force a division of the enterprise or issue any other order it deems fit.