The Competition Appellate Tribunal today upheld an order passed against National Stock Exchange by fair trade regulator CCI, which had found the bourse guilty of abusing its dominant market position in currency derivatives segment and had fined it Rs 55.5 crore.
"We do not see any merits in the Appeal and dismiss the same," the Tribunal said in its 95-page order, while dismissing NSE's plea filed nearly three years ago against the Competition Commission of India (CCI) order.
Reacting to the order, NSE said that it would appeal against the decision and "whatever it has done was in the interest of the development of the capital markets".
In May 2011, the competition watchdog had found NSE guilty of abusing its dominant market position and adopting unfair trade practices in currency derivatives trading.
A month later, CCI also imposed a fine of Rs 55.5 crore on the country's leading bourse for abusing its dominant market position, and asked it to stop unfair trade practices. At that time, it was the CCI's first major penalty against anti- competition practices.
Subsequently, NSE challenged CCI order before the Competition Appellate Tribunal (Compat), which had granted a stay in September 2011. The CCI had begun its probe against NSE following a complaint by rival stock exchange MCX-SX.
Welcoming the Compat order, MCX Stock Exchange CEO Saurabh Sarkar said that dominant entities have a special responsibility not to distort competition.
Earlier after CCI order in 2011, MCX-SX had said it would seek compensation to the tune of Rs 500 crore for lost business opportunity in the wake of NSE's unfair practices.
NSE on its part said that "it will appeal the order of Compat and do the needful after going through the detailed order. A suitable review of the implications will be done in due course."
While the exchange did not specify further details on its next course of action, a Compat order can be challenged only in the Supreme Court.
In its order, Compat said, "It has been held by the CCI that besides the abuse of dominant position, it (NSE) has cross subsidised from other segments of business. It also camouflaged its intentions by not maintaining separate accounts for the CD (currency derivative) segment.
"NSE created a facade of the nascency of market for not charging any fees on account of transactions in the CD segment, it expressed that the small pockets were bound to be thrown out of the market, if they had also followed the zero transaction fee policy, which was adopted by NSE by incurring huge losses."
The Tribunal further said, "NSE was making tons of profits from the relevant market on account of its services in the other segments. Therefore, there can be no justification for taking any lenient view."
The Tribunal, however, said there was no necessity of putting all the other segments in one group as relevant market.
"The logic of the CCI on this question is flawed and we reject the same. Merely because at the relevant time period, the services of the stock exchange of MCX-SX were limited to CD segment, it does not mean that the relevant market had to be held as a CD segment market," the Compat order said.
Citing provision in the Competition Act, the Tribunal said it suggests there have to be two markets, one in which the enterprise has a dominant position and the other in which it intends to enter or protect.
"However, both the markets must be relevant markets distinct from each other. In the wake of our finding, as also the finding by the Director General (DG) that the relevant market in this case is the services by the stock exchange, there is no question of two markets," it added.
Pronouncing NSE guilty of abusing its dominant market position, the Competition Commission had also asked the country's largest stock exchange to immediately stop subsidising its services.
MCX Stock Exchange (MCX-SX) had accused NSE of abusing its dominant market position to corner business in the CD segment.
CCI in its order had also directed the NSE to "cease and desist from unfair pricing, exclusionary conduct and unfairly using its dominant position in other markets to protect the relevant CD (currency derivative) market with immediate effect."
The final order from CCI followed a majority order passed by the Commission on May 25, 2011, along with which it had issued a notice to the bourse before quantifying the penalty.
The first order was passed with a majority vote of five members of the seven-member commission, while the final order was also been passed with 4-2 majority.