TaxTMI 
TaxTMI 
2011 (6) TMI 1043
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....divided into a primary market and secondary market. 1.3. Primary market is that part of the capital markets that deals with the issuance of new securities. It is where the initially listed shares are traded first time, changing hands from the listed company to the investors. It refers to the process through which the companies acquire capital through the sale of new stock or bond issue to investors. This is typically done through a syndicate of securities dealers. 1.4. The secondary market is an ongoing market, which is equipped and organized with its own infrastructure and other resources required for trading securities subsequent to their initial offering. It refers to a specific place where securities transaction among several and unspecified persons is carried out through the medium of the securities firms such as licensed brokers or specialized trading organizations in accordance with the rules and regulations established by the exchanges and the extant laws and regulations laid down by the regulators. Such an institution is called a stock exchange. 1.5. Stock exchanges are enmeshed in the economy of a nation and are the most important mechanism of transforming savings into....
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....t event in the history of the stock market in India was the formation of the Native Share and Stock Brokers Association at Bombay in 1875, the precursor of the present day Bombay Stock Exchange. During that time trading in stock market was just a nascent concept and was limited to merely 12-15 brokers. The 'stock market' was situated under a banyan tree in front of the Town hall in Bombay (now Mumbai). This was followed by the formation of associations/exchanges in Ahmedabad (1894), Kolkata (1908), and Chennai (1937). In addition, a large number of short-lived exchanges emerged mainly in buoyant periods to fade into oblivion during subsequent economic downswings. After 5 decades of existence, the Bombay Stock Exchange was recognized in May 1927 under the Bombay Security Contracts Control Act, 1925. 1.10. Recognizing the growing importance of stock exchanges and the consequent need to regulate their affairs, the Government of India passed the Securities Contract Act in 1956. With the start of the era of economic reforms and liberalization in the '90s, the Government revoked the outdated Capital Issue Act of 1947 and established The Securities and Exchange Board of India....
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....ies Contract (Regulation) Act, 1956 ('SCRA'). The initial recognition has been extended from time to time by SEBI vide gazette notifications. It is now understood that the renewal of recognition has further been extended for one more year. Further, as per the" information, MCX-SX has regulatory approvals to operate an exchange platform for trades in currency derivatives (CD segment). The initial approval permitted only 'currency futures' in USD-INR of different tenures up to 12 months for trading on MCX-SX exchange platform. However, IP has now been granted approvals for trading in GPB-INR, EUR-INR and JPY-INR pairs. MCX-SX has also got the necessary authorization from Reserve Bank of India ('RBI') under section 10 of Foreign Exchange Management Act, 1999 ('FEMA') to undertake above activities. MCS-SX has also applied to SEBI for permission to operate in the equity/cash ('equity') and equity derivatives--futures and options ('F&O') segments. MCX-SX has also communicated its willingness to SEBI to commence the SME (small and medium enterprises) segment and also applied for permission to introduce interest rate futures. (ii) The ....
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....ng agreement with Standard & Poor's (S&P)--the world's leading provider of investible equity indices, for co-branding equity indices. IISL provides a broad range of services, products and professional index services. It maintains over 80 equity indices comprising broad-based benchmark indices, sectoral indices and customized indices. Many investment and risk management products based on IISL indices have been developed in the recent past, within India and abroad. These include index-based derivatives traded on NSE and Singapore Exchange and a number of index funds. NSE owns 50.99% equity in IISL. (c) National Securities Clearing Corporation Limited ('NSCCL') is a wholly owned subsidiary of NSE which was incorporated in August 1995. It was set up to bring and sustain confidence in clearing and settlement of securities; to promote and maintain, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. NSCCL commenced clearing operations in April 1996. NSCCL carries out the clearing and settlement of the trades executed in the equities and derivatives segments and operates subsidiary general ledge....
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....the relevant market for stock exchange services, and (iii) achieving foreclosure of all competition in the market for stock exchange services. 2.2. The informant submitted that the informant and NSE are providing currency futures exchange services. The NSE through its circular dated 26.8.2008 announced a transaction fee waiver in respect of all currency future trades executed on its platform. NSE has continued to extend its waiver programme from time to time despite the fact that the currency derivatives (CD) segment is now mature and trading the CD segment has become high volume and potentially profitable. 2.3. It is alleged that due to transaction fee waiver by the NSE, the MCX was forced to also waive the transaction fee for the transactions on its platform for CD segment from the date of its entry into the stock exchange business which results into losses to the MCX. 2.4. It is also alleged that NSE is charging no admission fee for membership in its CD segment as compared to charging of membership fee in the equity, F&O and debt segments. NSE also does not collect the annual subscription charges and an advance minimum transaction charges in respect of CD segment. The cash de....
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....ty to cross-finance the losses from the profits made in other segments and has the financial strength to fund its predatory practices based on massive reserves built through accumulation of 'monopoly profits over the years. In contrast, informant is dependent solely on the revenues from the CD segment and its losses are mounting in view of its transaction fee waiver, the continuation of which is compelled by the NSE's decision to continue with the fee waiver. 2.10. It is also alleged that the continuation of NSE's fee waiver would not only eliminate the business of the informant in CD segment but also eliminate potential and efficient competitors from the entire stock exchange services. Informant has alleged that the fee waiver and other concessions in CD segment have been adopted by the NSE as an exclusionary device to kill competition and competitors, and to eliminate the informant from the market as a supplier of stock exchange services. NSE has, therefore, used its dominant position in the relevant market to eliminate competition and its competitors. Informant has also alleged that the NSE along with DotEx and Omnesys violated provisions of section 4 of the Act by ....
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....d that, prima facie, a case exists for referring the matter to the Office of Director General for conducting an investigation into the matter under section 26(1) of the Act. The Commission, therefore, directed the office of Director General, vide Order No. F. No. 1(20)2009-Sectt., dated 30.03.2010, to investigate the matter and submit the report to the Commission. 4. Application for interim relief 4.1. The informant also filed an application for interim relief under section 33 on 6.7.2010. In its application, the informant stated that the opposite party continues to offer its services in the CD segment free of cost despite a significant increase in turn over. Consequently, the Informant claimed to have suffered a combined loss of around Rs. 100 crores (1 billion). 4.2. The informant also submitted that the Commission had already formed a prima-facie opinion in this case and ordered investigation under section 26(1) of the Competition Act, 2002. The predatory conduct of the opposite party had continued despite initiation of investigation. If the informant is forced to exit market, it would result in irreparable injury. Therefore, the informant pleaded that the balance of convenie....
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....ange services cannot be a relevant market in this case. Each segment of the capital market and the debt market is a distinct market with separate trade at stock exchanges. The derivative market is of recent origin and not interchangeable or substitutable from the demand side. Further, the CD segment is essentially for the importers and exporters who desire to hedge the currency fluctuation risk which is not the case in equities/debts/F&O segments. Without prejudice to this contention, NSE argued that if at all the question of interchangeability or substitutability arises the CD market may be seen as a substitute of the OTC segment. 5.4. The DG has considered the following segments for arriving at a relevant product market: (i) Equity segment; (ii) Equity F&O segment; (iii) Debt segment; (iv) CD segment; and (v) OTC market for trades in foreign currency. 5.5. The DG report observes that MCX-SX, NSE and BSE are all recognised exchanges under the Securities Contracts (Regulation) Act, 1956 (SCRA). After the issue of regulatory framework, both BSE and NSE could commence trading in CD segment immediately. This fact indicates that CD segment is part of the stock exchange mark....
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....ncluded that the CD market and OTC market cannot be considered as substitutable or interchangeable products based on the characteristics of its products and intended use. 5.10. The DG report further observes that the 'end to end operation and control mechanism for all the segments of stock exchanges is identical and indicates towards product substitutability'. Thus, the DG report takes the position that similarity of operations of stock exchange services in relation to different segments traded in exchanges indicates that the products and indeed the segments are substitutable. 5.11. The DG report has also examined the membership patterns of MCX-SX and NSE and concluded that 'a very high commonality of members at NSE as well as IP (MCX SX) with the membership of other segments clearly establish that the existing members of other segments are primary traders in the CD segment........This further implies that actual hedgers of foreign exchange do not see any substitutability or interchangeability in the CD market as against OTC market'. 5.12. During the course of the discussion on delineation of the relevant market, the DG report has examined the efficacy of using t....
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....hare of 28.55% of BSE. In the F&O segment, NSE commenced trading in June, 2000, and has risen to over 99% market share since then. In the WDM segment, NSE commenced trading in June, 1984, while BSE started in June, 2001. However, since 2001-02, NSE has consistently maintained market share of over 90% with a slight dip to 88.91% during 2009-10. As per the information available at the time of investigation, NSE had a market share of 47-48% in the CD segment as against 52-53% of MCXSX. The combined market share of NSE for equity, F&O, WDM and CD segment rose to 92.53% in 2008-09 as compared to 5.01% in 1993-94. In view of this statistics, NSE is a dominant player. (ii) Size and resources of the enterprise: Financial statements of NSE were examined for the financial years 2008-09 and 2009-10. As at 31.3.2009, equity capital of NSE stood at Rs. 45 crores (450 million); reserves and surplus of Rs. 1,864 crores (18.64 million) and deposits from trading members of Rs. 917 crores (9.17 billion). During the year, NSE earned a total income of Rs. 1042 crores (10.24 billion) with profit before tax of Rs. 689 crores (6.89 billion). These figures indicate a very sound financial position an....
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....rvices. The NSE group companies include NSE-IT, NSE Infotech Services Ltd., DoT-Ex International Limited, India Index Services and Products Ltd., Power Exchange India Limited and Omnesys Technologies (P) Ltd. (26% equity). These carry out a gamut of stock exchange related activities such as IT solutions for investors and brokers, rating and indexing services, trading platforms, market watch, etc. In contrast neither BSE nor MCX-SX have themselves or through group companies such wide array of activities related to stock exchange services. MCX SX is in about 450 centres only and operates merely in the CD segment. BSE is largely concentrated in Maharashtra and Gujarat and that too is limited to the equity segment. (vi) Dependence of consumers: Due to its resources, market share, economic power, integrated operations, NSE dominates the consumers of stock exchange services in India. Stock exchanges work on the basis of network effect or network externalities. With a far greater number of buyers and sellers using NSE, it enjoys the benefits of network effects resulting from higher liquidity and lower transaction costs. These positive network effects attract even more buyers and selle....
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....ued that NSE's board of directors had constituted a pricing committee to guide and decide all pricing matters. The transaction fee waiver was the decision of that committee. 5.19. The DG examined the transaction charges levied by NSE in various segments. For the capital market equity segment, it was observed that NSE has charged transaction fees ranging from Rs. 9 to Rs. 12.50 per lakh (1,00,000) in the past. In F&O segment, where both NSE and BSE commenced trading in June, 2000, NSE levied Rs. 2 per lakh of trading value (0.002% each side) or Rs. 1.00 lakh annually, whichever is higher. After two months, NSE waived transaction charges in this segment through a circular dated 31 July 2000. Soon, this strategy brought results as NSE turnover outstripped that of BSE by mid-2001. By March, 2002, NSE turnover was Rs. 1078 crores (10.78 billion) whereas BSE turnover was meagre Rs. 2.52 crores (20.52 million). NSE did not extend the waiver. The waiver in options in sub-sections of F&O continued till 2005. 5.20. In WDM segment, NSE commenced trading in June, 1994, and till June, 1995, levied transaction charges of Re. 1 per Rs. 1 lakh (Rs. 1,00,000) of order value of trades. This cl....
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....commenced business as against NSE requirement of Rs. 10 lakhs. This forced NSE to reduce its own deposit fee. According to NSE, there was no justification for such move by MCX-ST when it was supposedly suffering losses. 5.27. However, from examination of documents, the DG report observes that NSE reduced deposit structure w.e.f. 28 November, 2008 which was subsequently followed by MCS-SX from 13 January, 2009. Thus, as per DG report, even here it was NSE that took the first step. Data Feed Fee waiver: 5.28. The Informant had alleged that NSE is not charging any fee in respect of its CD segment right from the beginning. Consequently, MCX-SX has also not been in a position to charge the fee. Data feed refers to providing prevailing market prices and data for the segment by the stock exchange for significant consideration. The vendors display this information on their subscribers' terminals. The data fee is a significant source of income for the stock exchanges. 5.29. In its response, NSE stated that the reasons for not charging data fee were the same as those for not charging transaction fee for the CD segment. NSE informed that DotEx (a 100% subsidiary) provides the data fee....
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....ts have been forced to establish a separate terminal for trading on CD segment of NSE using the newly developed NOW. 5.34. DotEx offered NOW to all NSE members free of cost for 3 years and placed ODIN on watch list across all its segments. However, while the essential facility of APIC is still available to ODIN for other segments, the same has not been given for the CD segment. 5.35. In its reply, NSE submitted before the DG that it had placed ODIN on watch list due to complaints of its members and their constituent clients. Ini support, NSE submitted 10 complaints against ODIN, the first such instance being dated 10.4.2006. 5.36. Upon examination of correspondence made available by NSE, the informant and FTIL, the DG concluded that complaints against ODIN had been few and far between. On the whole, end users of ODIN appear to be generally satisfied, which is reflected in the fact that a vast majority of NSE members are still using ODIN for all other segments. ODIN is also being used by several other exchanges in the country. The DG also examined several representations of members of NSE and recorded their statements. Questions regarding the performance of ODIN and NOW were pose....
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....was with a view to promote and expand the segment and are in the nature of 'introductory' or 'penetration pricing'. Further, it is argued that, 'the objective of predatory pricing is to oust or reduce competition, whereas the objective of introductory/penetration pricing is to open up newer market segments. There is no intention on part of NSE to oust or eliminate or reduce competition therefore the concept of predatory pricing is not applicable'. 5.43. The DG report contends that even in introductory/penetration pricing, there has to be an element of pricing. According to the DG, in the submissions of NSE, 'the benchmark for assessing the cost has been taken on the premise that costs are fixed if they would not change, were output to double from current levels'. In other words, NSE has argued that if prices do not change even if output is doubled, then it indicates that the cost structure of the product is wholly fixed in nature and, therefore, variable cost can be considered to be approximately zero. NSE contended that for assessing predation, the correct benchmark is average variable cost and since, in this case, that cost is approximately zero t....
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....iance is placed on average avoidable cost (AAC) which represents losses that could have been avoided by not producing that output which was charged lower during the referred period. 5.48. As yet, there is no complete unanimity in international jurisdictions over what may be the best cost measure to evaluation predation claims. The limitations of AVC and AAC forced an inclination towards long run average incremental cost (LAIC or LRAIC) as an appropriate cost measure for assessing predation. Unlike AVC, LAIC includes all products specific fixed costs whether recoverable or sunk. It also includes costs incurred before predation period. 5.49. The DG report further states that the Indian stock exchange services, which is the relevant product market in this case, works on the basis of high level of network externalities. Such network effect industries work on very high sunk costs. 5.50. The DG report refers to the Wanadoo Interactive SA (WIN) case of the European Commission [France Telecom SA v. Commission of the European Communities (C-202/07) (2009) ECR I-2369: (2009) 4 CMLR 25] where the concept of average total cost (ATC) was applied. The court in first instance rejected the appe....
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....tage based pro rata system. The total cost for CD segment estimated for 2009-10 is to the tune of Rs. 37.07 crores (370.7 million) whereas for 2008-09, it is estimated at Rs. 4.42 crores (44.2 million). Based on pro rata assumption, about 72% of the total cost is allocable to F&O segment, 17% to equity segment, 2% to WDM segment and about 1% to corporate debt segment and 7% to CD segment for 2009-2010. 5.56. The DG report makes a reference to European Commission notice-98/C 39/02 wherein it is stated,-- "The operators (of postal services) should not use the income from such reserved areas to cross-subsidise activities in areas open to competition...... the price of competitive services offered.......should, because of the difficulty of allocating common cost, in principle be at least equal to the average total cost of provision. This means covering the direct costs plus the appropriate proportion of the common and overhead cost of the operator......" 5.57. The DG report, therefore, makes a strong argument for appropriating proportions of common costs for the CD segment of NSE. Further] the DG has relied on Kelco Disposal I & C v. Browing-Ferris Indus of Vt. Inc. 845.2....
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.... 2005-06, as volumes of transaction for F&O and equity segments increased, the clearing and settlement charges were determined along a downward trend. This was justified by the NSE board on factors such as compulsory D-mat settlement, strengthening of risk containment mechanism, volumes increase, automation etc. 5.61. The DG report observes that despite there being no adverse change in any of these factors, the NSE board passed a resolution in June, 2010, to enhance clearing and settlement charges in the F&O segment. This was clearly a strategy for loading settlement charges for the CD segment on to the F&O segment. 5.62. The DG report considered the nature of clearing and settlement services involved in CD segment as being identical to that involved in F&O segment, and, therefore, presumes that, as an independent entity, NSCCL would notionaily be incurring expenses in relation to CD segment, such as computer stationery, manpower, computer time, power, etc. Accordingly, DG has applied a notional clearing and settlement charge for the CD segment at 15% of transaction charge and has notionaily taken transaction charge at Rs. 400 per crore (10 million) of turnover which is prevailin....
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....ther relevant market'. 5.69. The investigation report of the DG states that NSE holds 100%, 75% and 90% of the business in F&O, the equity and WDM segment respectively. In these segments, NSE is earning monopoly profits and NSE is using this profit to leverage this position in the CD segment where the informant, MCX-SX, is competing with it. By not charging transaction fee, data feed fee, etc., NSE is subsidising activities in CD segment which is open to competition. 5.70. The report of the DG refers to Tetrapak II Case and Deutsche Post AG (DPAG)/United Parcel Service (UPS) case where the strategy of cross-subsidies from other business activities was found to be anti-competitive by the European Commission. 5.71. According to the DG report, in the instant case, NSE is charging zero fees in the CD segment but is having substantial earnings from other segments. These aspects have been discussed in detail in the foregoing paras. NSE is also creating barriers for users of ODIN software by not providing APIC to its own software NOW. 5.72. According to the DG report, these conducts of NSE are aimed at leveraging its near monopolistic dominance in F&O, equity and WDM segment for p....
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....ugh letters dated 16.11.2010, 23.10.3020, 29.11.2010, 30.11.2010, 8.3.2011 and 9.3.2011. The informant filed their preliminary submissions to the DG report vide their letter dated 1.11.2010. This was followed by letters and submissions. The most important amongst which are letters, dated 16.11.2010, 23.11.2010, 26.11.2010 (two letters), 29.11.2010, 14.12.2010, 22/2/2011, 10.3.2011, 14.3.2011 and 24.3.2011. The informant filed a rebuttal on 21.2.2011 and further submissions on 22.2.2011, 10.3.2011 and 24.3.2011. 6.3. The informant filed further written submissions on 22.2.2011, 10.3.2011, 14.3.2011 and 24.3.2011. The opposite parties 1 and 2 filed additional written submissions on 9.3.2011. Omnesys Technologies (P) Ltd. filed written submissions on 28.2.2011. 6.4. In their submissions and arguments, the opposite parties prominently relied on reports submitted by their economic consultants, Genesis Economics Consulting (P) Ltd. (Genesis) and Prof. Richard Whish, Professor of Law at King's College, London. Similarly, the informant also relied upon reports of their economic consultants, LECG Ltd. (LECG). All the major aspects of the opinions of the above consultants formed an int....
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....and economic analysis, and the recent entry of USE, NSE was and continues to be justified in adopting its pricing policy; and (ix) The DG's Report has characterized cross-subsidization as amounting to an abusive act in and of itself, which is wrong in law. 7.4. The above objections were elaborately discussed in the submissions and arguments of the OPs. Major elements of these discussions are dealt with in the following paragraphs: Applicability of SSNIP Test 7.5. The DG report has erred in rejecting applicability of the SSNIP test for determining relevant market in this case. It is averred that-- "SSNIP test can often is used conceptually, in other words, it is a structured approach for identifying products and producers that provide a competitive constraint. This is often done without quantitative analysis. Further, it was contended 'that not the current price, but a non-zero estimate of the competitive price is to be used. Further, an absolute increase in monitory terms can be used to carry out the analysis...........the hypothetical monopolist test is in fact designed for assessing the competitive interaction between differentiated products......" 7.6. ....
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....was imperative. 7.12. The DG rejected evidence submitted by NSE in the form of agendas and minutes of the NSE Pricing Committee and the NSE board as well as other relevant documents. These documents clearly reveal that the only desire of NSE was to grow in a market that had just been introduced in India. Failing to find any evidence from predatory intent in the CD segment, the DG has wrongly analysed conduct of NSE in other segment. 7.13. When NSE commenced trading in capital market segment (CMS) in November, 1994, there were about 20 other exchanges already in existence in India. The equity segment products were being traded in these exchanges and the investing public was fully familiar with it. Therefore, initially, no waiver was made by NSE in this segment. The transaction charges imposed by NSE in the equity segment initially were higher than those imposed by other exchanges. Therefore, it cannot be said that NSE uses transaction charges with exclusionary intent. 7.14. NSE commenced trading in the F&O segment in June 2000 and imposed a transaction charge of Rs. 2 per lakh of trading value or Rs. 1.00 lakh annually whichever was higher. But soon thereafter, in order to encour....
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....rrect and baseless. The agenda and minutes of NSE Pricing Committee clearly give the rationale for the transaction fee waiver, viz., to encourage participation in CD trading. It is also noteworthy that the informant itself as well as United Stock Exchange (USE) has also waived transaction fees for the same reason. The DG is, therefore, not justified in ignoring documents related to the NSE Pricing Committee and imputing reasons other than encouraging wider participation for the waiver. Admission fee and deposit level waiver 7.21. It is contended that NSE reduced deposit level as a reaction to reduction in the same by MCS-SX. Further, there was an objective of market development also involved in its decision. 7.22. MCX-SX waived deposit and admission fees at least up to 6.9.2008. No single waiver was granted by NSE at that time. Data fee waiver: 7.23. The decision regarding the timing of imposing data feed fee in the CD segment was left to the director-in-charge who decided to act on the basis of feedback received from their leading vendors. The decision of the DotEx board as reflected in the minutes was not intended to be immediately followed by imposition of data fee but was ....
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....in particular. In fact, the informant itself has indicated that ODIN has around 85% market share. 7.32. The conclusion of DG that denial of APIC facility for the CD segment in respect of ODIN has been done with an ulterior motive is not correct. It is submitted that the OPs have conducted themselves with integrity, in the best interest of their members and the public at large. It is to be also noted that NSE did not suspend or cancel FTIL's empanelment in other sectors. The only reason for NSE for denying APIC for CD segment to the FTIL software ODIN was the complaints received in relation to the functioning of ODIN. Legal and economic objections: 7.33. The DG has wrongly concluded that the 'relevant product market' is the 'stock exchange services market'. It is reiterated that the CM (equity) segment, F&O, WDM and CD segments fall into different markets. Also over-the-counter (OTC) market exercise meaningful constraint on the CD segment and the two could be considered as part of the same market. The OPs have emphatically submitted that: (i) Supply side substitutability is not a factor when defining the relevant market. (ii) The rejection of the SSNIP tes....
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....gested by the DG are not insurmountable since USE was able to enter and attract market share with ease. 7.39. The USE is backed by 37 banks and FIs (including BSE) and had obtained more than 500 members within a few days. 7.40. The OPs vehemently oppose the conclusion of the DG report that the overwhelming supremacy of NSE in the F&O, CN and WDM segment seen with around 45% share in the CD segment makes NSE dominant even in the CD segment. It is strongly contended that market shares do not support NSE's dominance in the CD segment. Further, DG has erred in concluding that network affects, economies of scale, and leverage from the broader exchange market creates dominance of NSE in the CD segment. The additional resources available to NSE by virtue of its larger size do not result in any additional advantages nor does the higher degree of vertical integration confer any market power. Abuse of dominance: 7.41. Without prejudice to the contention that NSE is not dominant in the CD segment, the OPs have submitted that- (a) NSE has not provided service at a price which is below cost; (b) NSE's intention to follow a zero pricing policy was not with a view to reduce compet....
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.... (i) Fee waivers are justified in terms of market expanding efficiencies defence. (ii) The test for examining objective efficiencies as per EC guidelines on exclusionary conduct has been met. The guidelines seek to assess whether any efficiencies are realised by the conduct; whether the conduct is indispensable for realising those efficiencies; whether the efficiencies outweigh any likely negative effects on competition and consumer welfare; and whether the conduct does not eliminate effective competition. 7.50. The conclusion of exclusionary abuses by NSE arrived at in the DG report is incorrect. This conclusion is proved wrong due to facts such as consistent growth of MCX-SX; fee waivers by MCX-SX and USE; indication that USE will continue with fee waivers and potential entry of a new exchange of Standard Chartered in the CD segment. These facts clearly reveal that no anti-competitive effect/result has flowed from zero pricing approach. 7.51. The OPs have also argued that any conduct has to be examined so as to demonstrate actual exclusionary foreclosure or a strong likelihood of it. This approach is gaining increasing recognition in the European Commission. The successful en....
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....volumes have been used. This is a deliberate ploy to delineate the relevant market wrongly. 8.4. In the context of applicability of SNIPP test to determine the CD segment as a separate market, MCX-SX contended that the test can only be applied if sufficient data is available regarding prices over a period of time. The informant also contended that the test is only applied in merger cases. It is further contended that SNIPP test cannot be applied because the products in different segments are not homogenous. Finally, it was argued that since transaction fees are only a small part of the cost incurred by traders, a small change in the fees would not influence the decision of participants to switch and hence the test would be useless in the instant case. 8.5. The informant also submitted extensive analysis reports by professional consultants and opinions of experts in support of their contentions. Findings of fact in the DC's investigation report 8.6. The informant asserted that the DG has correctly determined all disputed facts first before going on to comprehensive competition law and economic analysis. The informant strongly supported these findings of fact and objected to ....
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....#39;s investigation. Further, they have failed to explain why zero pricing is justified even two years later and after the end of global recession. The DG has extensively examined and relied upon documents such as minutes and circulars of NSE to comment on the pricing history of NSE. The report then concludes, 'transaction charges have been imposed whenever competition was absent and waived/reduced in any new segment at the first site of competition'. The contention of NSE that the DG has not taken its minutes, agenda papers, circulars, etc., on face value is not acceptable. The DG has drawn his conclusions based on historical trends and incontrovertible facts. 8.13. The DG has compared NSE's pricing history in equity segment and clearly stated that no waiver of transaction fee was done because NSE was meeting competition rather than beating the competition. Similarly, in F&O segments, the DG logically establishes how NSE succeeded over BSE on account of zero pricing and, after vanquishing BSE, it proceeded to impose transaction charges. NSE's argument that it waived transaction fee in F&O segment only after BSE reduced their fee from Rs. 2.65 to Re. 0.56 is nothin....
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..... 8.20. The informant disagrees with the contention of OPs that the terms 'substitutable' and 'interchangeable' are one and the same. It is argued that the average speculative consumer is a person, who shifts between different securities or currency contracts on stock exchange to seek out opportunity for gain. For him, all securities/products offered by the stock exchange in the relevant market are interchangeable. The DG has shown a high degree of commonality of participants in different segments and this is not disputed by NSE. Therefore, it is argued that the market definition given by the DG is the correct delineation. 8.21. The informant also argued that exchange-traded currency derivatives and OTC currency contracts form different markets. The RBI Internal Working Group Report on Exchange Traded Currency Derivatives, which is the basis for introduction of CD segment, has itself differentiated the OTC market. Further, OTC products market itself is not homogenous and is segmented; into the merchant bank market and the interbank market. The CD segment: involves standardised contracts for small lot size (USD 1000) bought and sold by hedgers, speculators, arbitra....
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....cts as discussed by the DG. It was claimed that stock exchange is a network industry where liquidity plays a prominent role. Due to the acknowledged network externalities, the stock exchange services market has considerable barriers to enter. This renders the dominance of NSE even more unshakable. Abuse of dominant position 8.27. In the first instance, the informant submits that NSE has not cooperated with DG in sharing its costs towards the CD segment further, NSE attempted to mislead the investigation by providing false financial analysis on the costs. These facts are borne out by the DG report 8.28. It is vehemently argued that there is no need to enter any complicated exercise for determining appropriate cost pricing because in the present case, the OP is charging zero-price. Thus, little would turn on whether AVC, ATC, LRAIC, AAC or any other cost measure is used for establishing guilt. 8.29. It is argued that a particular feature of network markets is consumer lock-in and ex-post hold-ups. In such, markets, once competition is substantially reduced or eliminated, the incumbent player starts charging super normal profits. 8.30. The second limb of definition of predatory p....
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....ong lasting. 8.36. The informant has pleaded imposition of appropriate penalties, awarding of costs and any other remedies as the Commission deems fit in the circumstances of the case and nature of the violation. 9. Rebuttals and counter arguments 9.1. The OPs made detailed submissions rebutting all arguments of the Informant. The main thrust of all these arguments was that: (a) The 'relevant market' should be defined as the CD segment and OTC market in India. (b) NSE is not in a dominant position in the relevant market. (c) Consequently, no claims, under section 4(2)(a), (d), of. the Act will exist; and (d) Without prejudice to the above, there can be no contravention of section 4(2) (e) since the markets are not closely associated and no special circumstances exist which would justify a leverage claim. 10. Issues 10.1. The Commission has given due consideration to facts given in the information, the investigation report of the DG, the detailed written and oral submissions made by the concerned parties along with opinions and analysis of experts relied upon by the informant and the OPs. The relevant material available on record and the facts and circumstances ....
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....e counter party risk in a future contract is further eliminated by the presence of Clearing Corporation. Further, in an exchange traded scenario where the market lot is fixed at a much lesser size than the OTC market, equitable opportunity is provided to all classes of investors whether large or small to. participate in the futures market.........." 10.5. The same report in its para 5.2 of Chapter 5 advocated a clear separation of CD segment from other segments in any recognized stock exchange where other securities are also been traded. It stipulated that the trading and the order driven platform of the CD segment must be separate; membership of the segment must also be separate and the CD segment must have a separate governing council. The demarcation was so rigid as to stipulate that no trading/clearing member should be allowed simultaneously to be on the governing council of the CD segment and the cash/equity derivatives segment. 10.6. Chapter 7 of the report dealing with regulatory and legal aspects stipulates that before the start of the CD segment, the exchange shall obtain prior approval of SEBI. Para 7.4 also stated, 'To begin with, FIIs and NRIs would not be pe....
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....et of exchange traded currency forwards as a distinct, distinguishable and separate market from other markets such as equity, F&O, WDM or even OTC forwards. The stock exchange services provided in the CD segment is, therefore, a separate platform, i.e., both functionally and statutorily segregated and distinct from stock exchange services provided for other segments. 10.13. In terms of the products traded in the exchanges, there is a clear differentiation from the equity, F&O and WDM segments in terms of underlying assets. This observation is further elaborated below: (i) Equity market 10.13.1 The equity market in the context of the information is the secondary market which allows trading in the equities of various companies at the stock exchanges. The underlying asset in this market is equity. Typically, the stock brokers/traders trading on this market follow trends in the shares of various companies and seek, to gain from movement in share prices. Largely, investment in the stock of companies performing well is a major consideration for picking up equity in that company. (ii) F&O market 10.13.2 Futures and options of the derivative market is the F&O contracts have equities....
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....speculators who seek to gain from price movements of equities. In contrast, OTC segment is basically for importers and exporters having contractual exposures and who try to hedge their risks emanating from fluctuations of exchange rates. The CD segment is primarily for speculators of currency values and short term hedgers who want to cover their economic exposure but require greater liquidity. 10.15. Most importantly, OTC products are not traded on exchanges and only specified entities can participate in this market. Since we are looking at a case where the informant and OPs are both providing stock exchange services, a product that neither is trading in cannot be said to be part of any market the two are operating in. 10.16. This Commission finds it rather unnecessary to dive into technical tests such as SSNIP, particularly in the absence of historic data of prices. The SSNIP test is a tool of econometric analysis to evaluate competitive constraints between two products. It is used for assessing competitive interaction between different or differentiated products. Ideally, time-series price data or trend should be examined to see whether a small but significant non-transitional ....
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....ed fact that as underlying assets, equities and currencies are entirely different; consequently, related derivatives are also different. Trading platforms of stock exchanges for the two categories of products (assets or derivatives) are, therefore, also in different market. From any practical point of view, a product over CD segment exchange cannot be said to be either interchangeable or substitutable by a product in segments like equity and F&O for the purchaser. 10.20. While it may be possible for any existing stock exchange to start operations in any or all segments of capital markets, the fact remains that regulations require a complete segregation of and separate approval for the CD segment The technical, infrastructural or financial capability of any stock exchange operating in some segment, to start operating in another, has no relation to determination of supply substitutability between the segments. As an analogy, the capability of a grain mandi (wholesale market) to also start a wholesale spice mandi does not mean that grain and spices are interchangeable and substitutable nor does it mean that the platforms of the two mandis is interchangeable or substitutable. 10.21. ....
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....ion Act, 2002. The same is reproduced below for ready reference. "[Explanation--For the purposes of this section, the expression--] (a) 'Dominant position' means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to-- (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect......or consumers or the relevant market in its favour." 10.27. In the context of the Indian law, dominant position is a 'position of strength'; such strength should enable it to operate independently of competitive forces; or to affect its competitors or consumers or the relevant market itself in its favour. 10.28. Unlike in some international jurisdictions, the evaluation of this 'strength' is to be done not merely on the basis of the market share of the enterprise but on the basis of a host of stipulated factors such as size and importance of competitors, economic power of the enterprise, entry barriers, etc., as mentioned in section 19(4) of the Act. This wide spectrum of factors provided in the section indicates that the Commission is required to take a very holistic and pra....
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....s disappeared and BSE was soon reduced to a distant second position. As new sections of capital market were opened by the regulator, NSE consolidated its position and acquired near monopolistic position in those markets. 10.32. The explosive rate of growth of the Indian economy in the new millennium and the dramatic improvements in the variety of products and technology encouraged some new players to start stock exchanges in limited segments. Despite the presence of an undisputed giant like NSE in the exchange services sector, optimism about the Indian economy and overall size of the growing pie led to MCX-SX and later USE venturing into the arena. The CD segment market was the latest market opened by the regulators and every one hoped to get a fair piece of this pie. By then, NSE had acquired an overall position of strength in the capital markets and substantial financial might, arguably due to better planning, strategy and management. Every new player would have been aware of this position of strength of NSE but would have hoped that this strength would not be misused to throttle competition. 10.33. The facts and conduct of NSE has to be viewed in the perspective of the picture....
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....ext of the Competition Act, what has to be ascertained is whether an enterprise has 'strength' and whether it has the ability to use that strength in its favour. Explanation (a) to section 4 raises many possible ways in which such strength could be used. These possibilities can be examined individually or in a combined manner, depending upon the facts of a case. In the instant case, we can first ascertain whether NSE has a position of strength which enables it to affect MCX-SX as a competitor in its favour. The question is not whether NSE is doing so but whether all the indicative facts point out that it has the ability to do so. This assessment can be done by posing a few questions. 10.39. Firstly, can NSE sustain zero pricing policy in the relevant market long enough to outlive effective competition? 10.40. To answer this, it must be kept in mind that the rationale for doing any business is to earn some profit out of it. Although there could be slightly diverse strategies such as output optimisation, turnover maximisation, profit maximisation, positioning, etc., the fact remains that earning of zero profit or accumulating losses for indeterminate period would never be t....
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.... sooner or later, it would be possible to start generating profits from the business, once the competition is sufficiently reduced. 10.45. Thirdly, in absence of the above strengths, would NSE be able to or want to continue with zero pricing indefinitely? 10.46. It is a historical fact that post independence several stock exchanges have gone out of business. Had NSE not got the undeniable advantages arising out of its operations in other markets, it would not have been able to or wanted to charge nothing for providing stock exchange services for the cash derivative forwards market. In this regard, MCX-SX, or indeed any other current or future competitor that does not have similar advantages, is clearly in a weaker position. 10.47. The above discussion leads to the only rational conclusion possible that NSE enjoys a position of strength in the relevant market which enables it to affect its competitors in its favour. To conclude otherwise would not only be turning a blind eye to the facts available but also to the provisions of the Competition Act and to the intent and spirit of this economic legislation. 10.48. In arriving at this conclusion, the Commission has taken into accoun....
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....r market of stock exchange services. (ii) The various fee waivers were done to develop the nascent market and were examples of competition-neutral penetrative pricing. (iii) NSE had historical philosophy of waiving fee in nascent market. (iv) Data feed fee were not charged because DotEx did not charge for it and because clients requested postponement of the fee. (v) Interface Code (APIC) was denied to ODIN for the CD segment because user complaints against ODIN. (vi) There was no element of predatory pricing because there was no variable cost. (vii) The charge of leveraging would not apply because NSE is not dominant in any market. Moreover, the DG has not identified two relevant markets and there is not enough associational link between the CD segment and remaining segments. 10.54. The Commission has considered every aspect of the investigation report; arguments and contentions made by the informant as well as the OPs and has applied its mind to the facts, circumstances and nuances of the arguments. Many of these have been already detailed in their respective place earlier in this order and it is not necessary to repeat them here. 10.55. While discussing the issue of....
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.... understandable for a period of a few months or even a year. To continue such pricing well into the third year of existence of a market can only be seen as an instance of astute strategy for market capture or extreme commercial self-interest. Nothing in the history of the dramatic rise and success of NSE indicates strategic naivety or commercial altruism. On the contrary, timing of fee waivers or fee impositions in the past as well as in this case indicates a level of strategic management that can only be termed as far from naive. Further, as demonstrated in the previous section, sacrifice of all earnings from a new business for several years at a stretch can only be possible for an enterprise of redoubtable strength and deep pockets. 10.58. In context of the defence of nascent market development, the Commission has taken cognisance of certain incontrovertible investigative findings of the DG which have a strong bearing on the acceptability of the defence. Some of these main findings are mentioned below: (i) NSE issued a circular dated 26.8.2008 waiving transaction charges in the CD segment 'in order to encourage active participation in the currency derivation segment' t....
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.... would reasonably lead to the conclusion that they have consistently followed a philosophy of fee waivers in nascent market. The investigation report of the DG has commented upon these behaviour patterns in great detail and nothing substantive has been offered, by the OPs that would make this Commission disagree with the DG report. 10.60. This Commission duly notes that DotEx is a wholly-owned subsidiary of NSE. The fact that DotEx has 26% stake in Omnesys which had developed the NOW software has also been noted, 10.61. Section 2(h) of the Act defines enterprise as '... a person... engaged in any activity... either directly or through one or more of its units or divisions or subsidiaries./Section 4 applies to 'enterprise or group' and Explanation (c) gives a definition for 'group'. Reading both together, non-charging of data feed fee is a conduct that is attributable to NSE and DotEx jointly. The defence of nascent market development and historical philosophy by DotEx is not tenable on this count for the same reasons as discussed above. 10.62. As regards waiver of data feed fee on the basis of customer requests, this Commission notes that the same magnanimity....
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....ent ones) only are competing, denial of APIC for CD segment not forecloses competition in the aftermarket of electronic trading platform for the CD segment for NSE traded derivatives but is also tantamount to exclusionary conduct in the main relevant market. In a way, this is imposing supplementary obligation on anyone wanting to trade on the CD segment of the NSE exchange to use only NOW, in complete exclusion of ODIN or any other software. 10.66. NSE has denied charges of predatory pricing. The basic ground taken was that no fixed costs were incurred on CD segment. The findings of the DG as well as arguments of the OPs in respect of whether AVC, ATC, LAIC or AAC is the best benchmark for evaluating predation; estimated costing based on allocation of various costs, etc., have been mentioned in earlier portions of this order. However, it has been elsewhere noted in this order that since NSE does not follow segment accounting and since it has not given any segment figures to the DG, any exercise to arrive at a costing benchmark would be an exercise in futility in this case. 10.67. A very important finding of the investigation of the DG is that from 1 October, 2008, to 31 October, ....
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....nsidered as a subset of 'unfair price'. 10.71. The term 'unfair' in relation to pricing in the context of the Indian Competition Act has not been dealt with in any case so far. Had NSE been charging some price for its services in the CD segment, there would perhaps have been a need to examine that price as 'predatory price' or otherwise and, consequently, to arrive at the appropriate benchmark for predation for this particular case. Explanation (b) to section 4 specifically defines predatory price as a 'price which is below the cost... of production ......with a view to reduce competition or eliminate the competitors'. However, 'unfair' price has not been defined anywhere. This unfairness has to be determined on the basis of facts of a case. 10.72. It has been amply demonstrated in the DG report that there are manpower, hardware, infrastructure and other resources dedicated to CD segment operations by NSE. Several of these heads of expenditure are variable in nature. The operation of CD segment cannot be run without employing those resources and none of those resources including manpower and electricity etc. come for free. Even though it ma....
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....fairness would not have been so blatant and impossible to ignore, but, in this case, the sense of the two being equal or even almost equal does not exist. Therefore, this Commission concludes that the zero price policy of NSE in the relevant market is unfair. 10.77. In this case, the conduct of zerc pricing by the NSE is beyond the parameters of promotional or penetrative pricing. It can, in fact, be termed as annihilating or destructive pricing. 10.78. It is to be noted that the Commission has already delineated the relevant market in this case as the market of stock exchange services for exchange traded currency derivatives in India. It has been argued that for a charge of leveraging to be established, there is a requirement of identifying two distinct 'relevant markets', as per the provisions of section 4(2)(e) of the Act and for these two relevant markets to have associational link. 10.79. Coming now to the issue of leveraging in this case, it is pertinent to observe that there is a subtle difference in the concept of 'leveraging' as applied in some international jurisdictions (particularly the European Commission) and the wordings of the related provision in....
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....e terms, 'one relevant market' and 'other relevant market'. The section recognizes the fact that an enterprise may be multi-product and may be operating in two (or more) markets. It may be possible for such enterprise to use its position of strength derived in one market to leverage its position and gain unfair advantage in the other market. While its conduct in the second market has to be separately examined for abuse if and after it acquires a dominant position there, the fact that it has used the strengths from the first market to Wrongfully enter into or to protect the second market is independently considered harmful to competition under the Act. The 'relevant market' of the Explanation (a) applies equally in intent for sections 4(1) and (2) but the relevant market in respect, of clauses (a) to "(d) of section 4(2) can be different than the relevant market for the purpose of clause (e). 10.84. In-the instant case, the relevant market in respect of clauses (a) to (d) of section 4(2) has been taken as stock exchange services for currency derivatives in India. It must be emphasized that this Commission has considered NSE as being in dominant position....
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....verage based on strengths in other markets. It is this strength that would render an enterprise dominant in the relevant market itself and would expose its conduct therein to evaluation of any other abuse of dominance separately. At the same time, the wrongful exercise of that strength by itself is also held as abusive conduct in its own right, under section 4(2)(e). 10.87. To further clarify, if an enterprise merely uses its dominant position in any 'relevant market' to enter or protect some other 'relevant market' wrongfully, it can only be held guilty of contravening section 4(2)(e). But if the enterprise, after entering the other relevant market through such leveraging and acquiring dominant position there, commits further acts of abuse (such as unfair pricing) in that relevant market, then there would be a separate violation of section 4(2)(a). 10.88. In the previous paras, the conduct of NSE has been examined within the relevant market delineated for this case (X market). However, the cumulative impact of those conducts also translates into the act of protecting its position in the X market by the dint of its strengths in the Y market where also NSE is domin....
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....d MCX-SX can be competitors in those segments. Indeed, MCX-SX is desirous to compete with NSE in other segments. Therefore, all the above four questions can be answered in the positive. Consequently, it can be said that the two relevant markets have associational links. Therefore, it is concluded that NSE has used its position of strength in the non CD segment to protect its position in the CD segment 10.92. In the instant case, the acts of NSE such as fee waivers, denial of APIC for ODIN and distribution of NOW for free are clear acts of protecting its position in the CD segment and are possible due to its position of strength in the non CD segment. 10.93. The Commission has earlier touched upon aftermarket of software for trading on stock exchanges. The client desirous of trading on stock exchange would first choose some exchange. After that, for trading, he has to rely upon trading software such as data feed, market watch, etc., ODIN and NOW are both such software. In a technical sense, they are competing products. Also, the trading software is an essential facility without which trading cannot be done today. 10.94. NSE has placed FTIL, the developer of ODIN (and one of the p....
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....estructive pricing. This is contravention of section 4(2)(a)(ii). 11.5. The conduct of NSE/DotEx in denying APIC to ODIN and putting FTIL on 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. This is contravention of sections 4(2)(b)(i) and (ii); 4(2)(c) and 4(2)(d). 11.6. Lastly, NSE has used its position of strength in the non CD segment to protect its position in the CD segment. This is contravention of section 4(2)(e). 12. Order under section 27 12.1. Consequent to finding NSE and DotEx in contravention of the provisions of the section 4 of the Act, the Commission issued a show cause notice on 29.4.2011 to NSE for imposition of penalty under section 27 of the Act: The Commission also issued a reasoned order dated 25.5.2011 wherein the contraventions were elaborately dealt with. Copies of the order were conveyed to NSE and DotEx granting time for submission of replies and an opportunity to appear before the Commission. Copy of the minority order dated 3.6.2011 was also sent to parties. Accordingly, NSE filed a detailed reply to the aforementioned show cause notice on 10.6.2....
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....gligently infringe competition law'. It was further argued that NSE did not act 'with the intent to restrict competition.......' It was averred that when NSE commenced trading in the CD segment on 29.8.2008, the Competition Act had not yet come into force. NSE did not levy any charge when it commenced trading in the CD segment even when there were no competitors. It was argued that 'given that there were no competitors, NSE could have entered the market with a charge and thereafter could have reduced the charge to zero when MCX-SX entered, if it was NSE's intent to ward off competition, which is not the case'. Accordingly, in the absence of intent or negligence on the part of NSE, no penalties should be levied or remedies be ordered. (e) No foreclosure 14.5. NSE contended that the main reason for prohibiting an abuse of dominance is to prevent competitive foreclosure. It was argued that since there has been no foreclosure in the CD segment, there cannot be any abuse of dominance. It was further contended that the Commission's mandate is 'to protect competition and not competitors'. Further, it was stated that 'the losses incurred by MCS SX ....
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....ommission in its order has 'nowhere stated that consumers have been harmed by the pricing policy adopted by NSE.....' It was further submitted that any assessment of conduct can only begin from when section 4 of the Act came into force, i.e., 20.5.2009. NSE also pleaded that 'penalty imposed must be commensurate with the gravity of misconduct'. (l) Order contrary to foreign precedents: 14.12. It was contended that the Commission's findings on aspects such as SSNIP, dominance, unfair pricing, leveraging, etc., 'are contrary to foreign precedents and established principles of competition law'. In view of this, no penalty or remedies may be prescribed. (m) No intent to deny FTIL the API for the CD segment 14.13. It was submitted that the issue concerning ODIN is currently the subject matter of litigation before the Bombay High Court. Further, ODIN was put on a watch list for justifiable reasons. It was stated that when NSE sought to conduct an audit of ODIN, it resulted in a dispute with FTIL and the audit is still pending. It was suggested that this issue should be referred to SEBI. It was further submitted that there are instances of major exchanges n....
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....here exists an effective behavioral remedy, then, no structural remedy be ordered. NSE relied on European Union Council Regulation 1/2003 United Shoe case, Microsoft case and OECD document preferred supra. 15.5. In respect of the behavioral remedy, it was contended that 'competition authorities should not regulate prices as they are ill suited to carry out price controls'. It was submitted that NSE should not be ordered to charge a price similar to those charged by it in other segments. However, it was submitted that Commission has not provided any guidance on what would be a fair price and stated 'that the predation benchmarks would present a safe harbor for NSE in working to comply with the majority orders as long as NSE prices above the predation benchmark, it can be considered to be pricing fairly'. 15.6. NSE further contended that the cost estimates provided by the DG are flawed and cannot be relied upon and, therefore, the DG's estimates should be ignored in arriving at a fair price. 15.7. It was prayed that if at all a cease and desist order is passed by the Commission NSE should be allowed to decide the fair price. Further, NSE should also be allowed ....
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....benchmark set by the Commission. 16.6. As far as profit is concerned, it was contended that the figure is only relevant when there is a contravention of section 3 with specific infringement by a cartel. 17. Prayer 17.1. In conclusion, it was prayed that no penalties or remedies be imposed on NSE under section 27 or section 28 of the Act except cease and desist order only limited to the finding in relation to section 4(2) (a) (ii) of the Act. Further, this should be subject to the condition that NSE would be allowed to decide the fair price and it would be permitted to take any action to meet competition as available under explanation to section 4(a) of the Act. 18. Decision under section 27 of the Competition Act, 2002: 18.1. The Commission has taken into consideration the written submissions and oral arguments made by NSE as a consequence of show cause notice issued by the Commission on 29.4.2011. 18.2. Some of the contentions of NSE pertain to aspects of the substantive issues and facts which have already been elaborately discussed and determined in the Commission's order dated 25.5.2011 which clearly establishes contravention of section 4 of the Competition Act, 2002. ....
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....decided upon for the first time. As mentioned by NSE itself, in the past, this Commission has passed orders invoking provisions of section 27 in cases where some concepts mentioned in section 3 have been discussed at length for the first time. Those orders have duly considered relevant facts and circumstances peculiar to those cases and given remedies and imposed monetary penalty deemed appropriate to meet the ends of justice. 20.5. It would be an abdication of the duty placed upon the Commission under section 18 of the Act if it refrains from using tools provided by law under sections 27 and 28 to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India--merely on the ground that a concept was being decided for the first time in a particular case. Furthermore, it is settled law that an authority charged with imposing a penalty within a prescribed discretionary parameter is entitled to do so after considering all the facts and circumstances in a logical and fair manner. 21. Uncertainty on application of law 21.1. NSE had argued th....
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....As per the scheme of the Act, there exists an area between the inclusive and exhaustive where the pricing may not necessarily be 'below' cost or may be with a view to harm the consumer or the market in addition to reducing competition or eliminating competitors. The Commission must acknowledge this legislative intent built into the provisions of section 4. 22. Lack of cogent or convincing evidence 22.1. The Commission does not agree that 'no evidence has been produced nor any exists to suggest that NSE's pricing policies were intended to reduce competition or eliminate competitors'. The Commission has categorically held in the order dated 25.5.2011 that circumstantial evidence shows that zero pricing was done with a view to eliminate competition. Hence, there is no need to revisit this issue. 23. Lack of intention or negligence 23.1. It has been argued that 'fines should only be imposed where the defendant has either intentionally or negligently infringed competition law'. This Commission is of the firm view that section 27 of the Act imposes no additional burden to establish intentionality or negligence. To offer such shield to an enterprise held in....
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....evaluating harm to competitors or its consequential impact on consumers. The harm cannot be assessed as an independent, conceptual construct that is devoid of any association with a competing enterprise. But this position does not translate to adopting an adversarial approach. It is' worth re-emphasizing here that the order of the Commission shows how competition has been harmed and competitive environment has been adversely affected by NSE. 24.5. NSE has made another assertion that 'the losses incurred by MCS-SX as a result of the zero pricing policy of NSE are small relative to MCS-SX's excess capital and MCS-SX is not harmed that it will be able to survive in the immediate future. Accordingly, no serious anti-competitive harm has been caused ....'This Commission fails to understand the thrust of this argument. How big a loss do competitors have to suffer for a conduct to be considered anti-competitive? Further, how are the provisions of the Act equipped to distinguish 'serious' anticompetitive harm from the less serious? Would the harm be cognizable only when the competitor's 'excess capital' is wiped out? Can that harm be ignored if it does ....
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.... order dated 25.05.2011 '...the proportion of transaction value that a broker/trader pays as transaction fees and other fees is so small and insignificant that it would have practically no bearing../The market for CD Segment is not a function of transaction fee or other fee but the market of stock exchange services for CD Segment only pivots around these fees as that is the 'price' in relation to the services provided. Rather than the pricing policy of NSE, the CD Segment trading has grown due to factors such as the rapid growth of the Indian economy and the government's progressive and liberal economic policies. 27. Contribution of NSE toward economic development through innovations made in the operation of stock exchanges 27.1. This Commission finds no reason to disagree with this averment of NSE and it is given due consideration, while prescribing remedies or imposing monetary penalty in this case. 28. Meeting the competition 28.1. The argument that zero fee policy was a result of meeting the competition because the competitors have imposed zero-fee would amount to turning the facts of the case on its head. It is not MCX-SX or any other competitor in the rele....
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.... leeway for the Commission to interpret that turnover means turnover in the context of only the relevant product or geographic market. 31.3. In fact, the Commission is of the firm belief that such an interpretation would not be in consonance with the underlying intent of the provisions of the Act, particularly in instances of contravention of section 4(e) where the market entered or protected may have a very small turnover but the market from where the market power was transposed has a much larger turnover. The imposition of monetary penalty under section 27(b) of the Act must serve the dual purpose of deterrence as well as punishment. In the Indian context, if an enterprise or group is held in contravention of the Act, the law does not stipulate or allow the Commission to restrict the monetary penalty by artificially truncating the turnover of the enterprise or group and confining it to relevant market. As long as the entity that is guilty of contravention is a single entity, its entire turnover is the relevant turnover for the purpose of section 27(b). The only fetter which has been placed by section 27(b) of the Act on the power of the Commission to impose penalty in cases of i....