NSE penalty upheld for predatory pricing in currency derivatives through waived transaction fees

The Competition Appellate Tribunal upheld CCI's penalty against NSE for abusing its dominant position by introducing predatory pricing through waiving transaction fees in the Currency Derivatives Segment. The Tribunal rejected NSE's argument that penalty should be calculated only on relevant segment turnover, holding that NSE's entire turnover should be considered as the relevant market encompasses all stock exchange segments. The 5% penalty on average turnover was maintained. However, the Tribunal deleted CCI's direction requiring NSE to maintain segment-wise accounts, finding it unnecessary given the broad relevant market definition. The appeal was dismissed with no merits found.

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Issues Involved:
1. Dominance of National Stock Exchange of India Ltd. (NSE) in the relevant market.
2. Abuse of dominance by NSE.
3. Definition of the relevant market.
4. Predatory pricing by NSE.
5. Imposition of penalties on NSE.

Issue-wise Detailed Analysis:

1. Dominance of National Stock Exchange of India Ltd. (NSE) in the Relevant Market:
The judgment discusses whether NSE held a dominant position in the relevant market, which was initially defined as the stock exchange services market. The Director General (DG) concluded that NSE was a dominant player based on its high market share in various segments, extensive resources, and infrastructure. The majority order of the Competition Commission of India (CCI) agreed with this, citing NSE's significant market share in equity, F&O, WDM, and CD segments, its financial strength, and its extensive network. The minority order, however, disagreed, stating that NSE's market share in the CD segment had decreased over time, indicating it could not operate independently of competitive forces.

2. Abuse of Dominance by NSE:
The CCI's majority order found that NSE abused its dominant position by engaging in predatory pricing, waiving transaction fees, admission fees, and data feed fees in the CD segment, thereby harming competition. The DG's investigation revealed that NSE's zero pricing policy was not justified by the nascency of the market but was a strategy to eliminate competition, particularly MCX-SX, which only operated in the CD segment. The majority order concluded that NSE's conduct was exclusionary and aimed at foreclosing competition, thus violating Section 4(2)(a)(ii) of the Competition Act.

3. Definition of the Relevant Market:
The DG defined the relevant market as the stock exchange services market, including equity, F&O, WDM, and CD segments. The majority order of the CCI, however, defined the relevant market more narrowly as the CD segment alone, based on the distinct characteristics and participants of this segment. The minority order agreed with the DG's broader definition, arguing that the services provided by stock exchanges should be considered as a whole, not limited to specific segments.

4. Predatory Pricing by NSE:
The DG and the CCI's majority order found that NSE engaged in predatory pricing by waiving transaction fees in the CD segment, which was below the average variable cost. This conduct was aimed at eliminating competition from MCX-SX, which could not sustain such losses. The minority order, however, argued that NSE's pricing strategy was aimed at developing the nascent market and increasing liquidity, and that there was no intent to eliminate competition.

5. Imposition of Penalties on NSE:
The CCI imposed a penalty of 5% of NSE's average turnover, amounting to Rs. 55.50 crores, for abusing its dominant position. The majority order justified the penalty based on NSE's deliberate exclusionary conduct and the harm caused to competition. The minority order, however, argued that the penalty was disproportionate and that NSE's conduct was aimed at meeting competition and developing the market. The Tribunal upheld the penalty, rejecting NSE's arguments of novelty, uncertainty in the application of law, and lack of intent.

Conclusion:
The Tribunal dismissed NSE's appeal, upholding the CCI's majority order that found NSE guilty of abusing its dominant position through predatory pricing in the CD segment. The Tribunal confirmed the penalty imposed by the CCI but deleted the direction to maintain segment-wise accounts, as the relevant market was defined as the services of stock exchanges in all segments.

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