Stock Exchange Fined for Unfair Pricing in Currency Trading; Must Change Policies and Keep Separate Accounts.

The Commission ordered the National Stock Exchange (NSE) to cease and desist from unfair pricing and exclusionary conduct in the currency derivatives (CD) segment, mandating the maintenance of separate accounts for each segment and modification of its zero price policy. A penalty of Rs. 55.5 crores was imposed on NSE, representing 5% of its average turnover over the last three years, for abusing its dominant position. This decision underscores the importance of fair competition and the protection of consumer interests in the stock exchange services market.

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Issues Involved:

1. Relevant Market Definition
2. Dominant Position of NSE
3. Abuse of Dominant Position by NSE
4. Leveraging Dominance
5. Exclusionary Conduct

Issue-wise Detailed Analysis:

1. Relevant Market Definition:

The Commission determined the relevant market as the stock exchange services for the currency derivatives (CD) segment in India. It was established that the CD segment is distinct from other segments like equity, F&O, and WDM, as well as from the OTC market. The CD segment was introduced as a new and distinct market by policymakers, and the services provided in this segment are functionally and statutorily segregated from other stock exchange services. The Commission rejected the applicability of the SSNIP test due to the lack of historical price data and the unique nature of the CD segment.

2. Dominant Position of NSE:

The Commission found NSE to be in a dominant position in the relevant market, defined as the stock exchange services for the CD segment in India. This conclusion was based on NSE's significant market share in various segments, its financial strength, extensive network, and vertical integration. NSE's ability to sustain a zero pricing policy and its substantial financial resources compared to competitors like MCX-SX and USE further reinforced its dominant position.

3. Abuse of Dominant Position by NSE:

The Commission identified several abusive practices by NSE, including the waiver of transaction fees, admission fees, and data feed fees, as well as the denial of APIC to ODIN software. These practices were deemed unfair and exclusionary, aimed at eliminating competition and harming competitors like MCX-SX. The zero pricing policy was considered annihilating or destructive pricing, contravening section 4(2)(a)(ii) of the Competition Act.

4. Leveraging Dominance:

NSE was found to have leveraged its dominant position in the non-CD segment to protect its position in the CD segment, violating section 4(2)(e) of the Act. The Commission concluded that NSE used its strengths from other segments to unfairly maintain its dominance in the CD segment, which was evident from its cross-subsidization practices and exclusionary conduct.

5. Exclusionary Conduct:

The Commission determined that NSE's conduct in denying APIC to ODIN and placing FTIL on a watch list was exclusionary, affecting both the aftermarket for trading software and the main relevant market. This conduct was aimed at foreclosing competition and imposing supplementary obligations on clients, contravening sections 4(2)(b)(i) and (ii), 4(2)(c), and 4(2)(d) of the Act.

Conclusion:

The Commission ordered NSE to cease and desist from unfair pricing and exclusionary conduct, maintain separate accounts for each segment, and modify its zero price policy. A penalty of Rs. 55.5 crores was imposed on NSE for its contraventions, reflecting 5% of its average turnover over the last three years. The decision emphasized the need for fair competition and the protection of consumer interests in the stock exchange services market.

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