TaxTMI 
TaxTMI 
2011 (6) TMI 1043
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....a commodity. Securities market can further be 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 m....
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....lity and generated investor interest in corporate securities. 1.9. An important 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 C....
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....ized by the Securities and Exchange Board of India ('SEBI') under section 4 of the Securities 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 enterpr....
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....rmation Services of India Limited) which was set up in May 1998 to provide a variety of indices and indices related services and products for the Indian capital markets. It has a consulting and licensing 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 containmen....
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....(DotEx) and Omnesys Technologies (P) Ltd. (Omnesys). The information relates to anti-competitive behaviour and abuse of dominant position by NSE aimed at (i) eliminating competition from the CD segment, (ii) discouraging potential entrants from entering 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 admis....
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.... segment as well as dominant player advantage in stock exchange business. 2.9. It is further alleged that the loss suffered by informant in the CD segment is much higher than the loss suffered by the NSE because the NSE enjoys the economies of scale and has the ability 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....
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....ion in the relevant market; and (f) To pass such other order as the Commission may deem fit to ensure free and fair competition in stock exchange services market. 3. Reference to the Office of the Director General (DG) 3.1. The Commission in its meeting held on 30.03.2010 considered the information and opined 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 opini....
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.... there is an obvious co-relation between the segments which are limited in number. Further, from the demand side, majority of stock brokers are members of all the segments and the users are also common. Each product is used with a common objective of profiteering of investment and trading. 5.3. On the other hand, NSE argued that stock exchange 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; an....
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....asis'. 5.8. In context of users/participants, the DG report observes that F&O market and CD market are used by similar type of participant, viz., speculators and hedgers. 5.9. The DG report also compares the CD segment with the OTC market. After considering relevant provisions of SCRA, RBI Internal Working Group Report, RBI, SEBI report on CD Market, FEMA, etc., the DG has concluded 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....
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....wever, it is one of the most important factors in determining dominance of an enterprise. Placing reliance on the Handbook of Statistics on the Indian Securities Market, 2009, it can be seen that when NSE commenced trading in November, 1994, there were 21 stock exchanges in India with BSE commanding a market share of 41.5% in the equity segment. By 2008-09, NSE had acquired 71.43% of the equity segment as against the vastly reduced share 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....
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....CX-SX. The argument that CD segment is commercially lucrative for existing as well as future exchanges is also not acceptable considering that the newly formed United Stock Exchange (USE) has not been able to operationalise its CD segment despite seeking approval of SEBI in January, 2009. (v) Vertical integration of enterprises or sale or service net work of such enterprises: NSE has a high degree of vertical integration and has presence in all segments of stock exchanges related services. 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....
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....has been forced to continue zero transaction fee structure. According to the informant, transaction fee is the source of funding for the existing exchanges on the total volume of trade done by the brokers/trader. 5.18. In response, NSE argued that the waiver was done in the CD segment to encourage larger participation as the currency futures were at a nascent stage. It was argued that this policy was influenced by report of the High Powered Study Group on Establishment of New Stock Exchanges which envisaged greater opportunities to investors from across the country. Lastly, it was argued 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. Afte....
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....gards subscription charges, NSE argued that the same are levied only in the equity segment. As far as the debt segment is concerned, it has waived only subscription charges from time to time. 5.25. As regards deposit level waivers, NSE argued that the requirement for deposit levels is made keeping in line the nature of the segment in terms of the risk associated and other factors. Though deposit requirement for CD segment were set lower, they cannot be said to be unjustifiably low. 5.26. Further, NSE stated that Informant had set a very low interest-free security deposit of only Rs. 2 lakhs when it 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 resp....
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....substitute software called 'ODIN' developed by FTIL. NSE simultaneously refused to share its CD segment Application Programme Interface Code (APIC) with FTIL thus disabling the users of ODIN (who include about 85% of NSE's own members) from connecting to the market watch of NSE's CD segment trade. APIC is an essential facility to connect front end application of NOW with any other application such as ODIN, which constitutes the electronic trading platform of the stock exchanges. This has allegedly caused difficulties, as clients had been using ODIN for all other segments in the past. As a result, FTIL clients 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 com....
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.... incurring any 'variable cost' for running the CD segment and, therefore, it is not indulging in predatory pricing within the meaning of the section 4 of the Act. The report of the DG observed that there is no price being charged for any services offered by NSE to its members for the CD segment. The charges are zero from NSE perspective as well as the perspective of the users. The DG report posed the question whether in a hypothetical situation of NSE. not having any other segment to support its income could it survive? The answer, according to the investigation report, is definitely no. 5.42. NSE argued that pricing in CD segment 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 pric....
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....te variable costs cannot be accepted. 5.47. The DG report has also examined the views taken by international jurisdictions such as US Department of Justice and DG Competition of European Union in respect of appropriate cost to be considered while determining predatory pricing. Based on documents such as the 2008 report of US Department of Justice on Single Firm Conduct under section 2 of the Sherman Act and Review of Article 82 EC and the publication by DG Competition (European Commission) of 2005 Discussion Paper on EC Exclusionary Abuses, the DG report observes that average variable cost (AVC) is not taken as a reliable method of costing. More reliance 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 sp....
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....llion), during 2008-09, it was Rs. 93.475 crores (937.45 million) and during 2009-10, it was Rs. 90.1 crores (901 million). 5.55. Although NSE expressed inability to provide segmented costs, the DG report has looked at the details of overall capital costs, expenses, segment-wise long run incremental cost (LAIC), etc., to construct an estimated but reliable indicator of effect on costs subsequent to start of CD segment. It is observed that the total cost for 2008-09 works out to Rs. 4.42 crores (44.2 million) and for 2009-10, which is the first full year of operation, Rs. 37.07 crores (380.7 million). The report has estimated total cost for CD segment on a percentage 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 o....
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....e DG. Clearing and settlement charges vary in direct proportion to transaction charges and the DG has observed that in percentage terms, clearing and settlement charge has been gradually declining from about 24% in 2005-06 down to about 10.69% in 2008-09. This indicates that as transaction volumes increase the related clearing and settlement charges increase but do not increase at the same pace. However, it can clearly be seen that transaction charges are a variable cost linked to the volume of transaction. 5.60. DG also examined copies of resolution passed by the board of NSE in 2006-2010 in context of settlement charges to be paid to NSCCL. It was observed that since 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 seg....
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....acts and the circumstances surrounding those facts, the report of the DG concludes that waiver of transaction charges, data feed charges and admission fees and reduction of deposit levels by NSE in the CD segment are actions which violate section 4(2)(a)(ii) of the Competition Act, 2002. Applicability of section 4(2)(e) of the Act 5.68. In addition to the violations mentioned in the foregoing paras, the DG report has also held that NSE has used its dominant position for leveraging. Section 4(2)(e) of the Competition Act, 2002, says, 'there shall be abuse of dominant position if the enterprise uses its dominant position in one of the relevant markets to enter into or to protect, other 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 ....
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....n submissions before the Commission. The parties were represented by their Advocates. Shri A.N. Haksar, Senior Advocate, alongwith Shri Anand Pathak, Advocate, for the informant, Dr. Abhishek Manu Singhvi, Senior Advocate, alongwith Ms. Pallavi S. Shroff and Shri M.M. Sharma for the opposite party No. 1 and 2 and Shri Siddhartha Jha, Advocate, for Omnesys Technologies (P) Ltd. appeared before the Commission from time to time and made oral submissions followed by written submissions. The opposite parties Nos. 1 and 2 filed their main reply subsequent to the 1st DG report oh November, 2010, along with annexures. Subsequently, several letters and submissions were filed by the opposite party Nos. 1 and 2 through 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.....
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....ncluding that the SSNIP test should not be considered on the facts of this particular case; (v) The relevant market, based on a legal and economic analysis, is the 'CD Segment and OTC currency forwards'; (vi) The findings of dominance--whether on the wide market of exchange trading services or the narrow one of the CD Segment--are flawed; (vii) The DG has adopted an incorrect approach to the appropriate cost standard in a case such as this. Further, the DG has failed to provide objective basis for determining that NSE's conduct was with a view to reduce competition or eliminate competitors; (viii) The DG has failed to analyze whether the CD segment is at a nascent stage and whether NSE was objectively justified in waiving fees in the CD segment. Based on legal 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 elem....
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.... Distortion of facts 7.10. It was argued that the DG report has attempted to first malign and discredit NSE so that any assessment of competition law principles that followed becomes prejudiced against NSE. It was contended that NSE is a reputable Company with higher standards, ethics and compliance and has made significant contributions to the development of capital markets of the country. Transaction fee waiver: 7.11. The conclusion of the DG that waiver of transaction fee was an exclusionary device only to grab the market share is incorrect and baseless. The DG had found no evidence that the waiver was with a view to reduce competition or to eliminate competitors. The DG has ignored the fact that in autumn of 2008 global economy was on a down turn and, therefore, transaction fee waiver in the new introduced CD segment 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 int....
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....nded that NSE has made sufficient positive contributions towards development of capital markets in the country. Its trading terminals are available in more than 1600 towns and it does not charge transaction fee on trades emanating from terminals in rural and semi urban areas. About 70% of its investors who have traded on NSE are from Tier II and III towns. Out of about 3.3 crores (33 million) income-tax payers in India almost 1.2 crores (12 million) are registered as members of NSE. The average trade size has also grown. All these are indicators that NSE has made significant contributions to development of stock exchange markets in India. Decisions of NSE pricing committee with respect to the CD segment: 7.20. The findings of the DG Report that the Pricing Committee never discussed issues relating to waiver of transaction fee for CD segment is incorrect 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, therefo....
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....asons since there were several problems with the software. NSE has the right to monitor performance of products that it empanels or uses. 7.29. DG has concluded that users were satisfied with ODIN on the basis of some depositions by trading members during the course of investigation. Just because these trading members did not have a problem with ODIN, it cannot be concluded that there were no problems with the software. The DG has wrongly ignored the details of complaints submitted by the OPs. 7.30. The DG has done no analysis which can be said to make technical comparison of ODIN with other software. 7.31. The DG's observations that providing NOW free of charge places NSE's conduct under suspicion has no basis in law. It is submitted that NOW was introduced in 2008 but even till now it is not a dominant user interface for trading in stock exchange in general or NSE 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 ....
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.... the relevant market as stock exchange services market is incorrect, its conclusion on dominance is consequently flawed. 7.37. The DG has stated that there are various entry barriers in the market of stock exchange services in India. This is taken as an important factor for determining dominance of NSE. This assessment of DG is incorrect and flawed. The OPs have drawn attention to the recent entry of USE in the CD segment and the proposal by Standard Chartered Bank (Mauritius) to set up a stock exchange in India. Looking at data between 20.9.10 and 29.10.10, USE was the market leader for 14 out of 29 days NSE occupied the third spot for 17 days and 2nd spot for the balance 12 days. Thus, after commencement of trading by USE, it emerged as the market leader in the CD segment in its first month of operation. 7.38. The above facts indicate that NSE is not dominant in the CD segment in terms of market share and the entry barriers suggested 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 vehementl....
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....is argued that CD segment is in its nascent phase. The monthly average growth has remained around 30% which is an indicator of developing markets. Again, compared to the OTC market, hedging in the CD segment is only 2.7% of that in the OTC market. These facts establish that the CD segment is a miniscule fraction of the total currency market and is, therefore, in its infancy. 7.47. The rationale for fee waivers by NSE is to attract hedgers from OTC to the CD segments. It is further argued that below cost market pricing is penetration pricing which is generally accepted in a new market 7.48. It is also argued that there is no imminent sign of exit of MCX-SX, that USE which has entered the CD segment recently has done well and that Standard Chartered Bank may be starting a new exchange. These facts all indicate a healthy market. 7.49. It has been strongly contended that applying competition law test to the facts of this case would lead to the following conclusions: (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 g....
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....ort: 8.1. The Informant made extensive submissions before the Commission as well as oral arguments to support the findings of the DG report and to counter the arguments and submissions of the OPs. Essential elements of the submission of the informant are briefly dealt with in this section. Preliminary submissions 8.2. The informant contended that submissions of NSE are riddled with contradictions, biased opinions and misleading analysis. Further, any legal opinion of foreign lawyers or experts relied upon by the OPs should be completely ignored in accordance with the Advocates Act, 1961, and Indian Evidence Act, 1872. 8.3. In its submissions before the Commission, the OP has given misleading econometric analysis. While examining whether there is switching between the CD market and the equity/equity derivatives market on NSE, it uses volumes in the analysis. However, while examining whether CD and OTC forward contracts are in the same market, data relating to price movements of contract rather than 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 a....
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...., NSE had justified claims by stating that it had considerable sum of money on account of interest-free (refundable) deposits and margin money from participating members in the CD segment to cover costs. When the informant pointed out that these amounts were lying with an independent entity, viz., NSE's Clearing Corporation and that the remaining amount available would never be sufficient to run the CD segment, then, NSE gave up its argument. Instead, if shifted its stand to argue variable costs involved are zero and, therefore, not charging fees is justifiable. 8.11. NSE had earlier argued that CD segment is meant for hedgers who would shift to OTC sector if transaction fees were imposed. However, the informant has submitted SEBI documents that indicate that at least 85% of participants in CD segment were proprietary stock brokers. 8.12. NSE has argued that CD segment was introduced in India in autumn of 2008 during global down turn which justified fee waivers. This explanation was never given by NSE during or before DG'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 D....
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....requests were produced by NSE/DotEx. The explanations of NSE are vague and unsubstantiated. Exclusionary denials of integrated market watch facility 8.17. The informant contended that the conduct of NSE against FTIL (Informant's promoter) is a blatant example of retributive actions and harmful intent of NSE. 8.18. It is submitted that the free distribution of NOW is clearly predatory and aimed at foreclosing the preferred product--ODIN of FTIL. Further, free distribution of NOW is also a variable cost element that NSE incurs for the running of CD segment. It shows that in no case can the cost be zero. Market definition 8.19. The informant has refuted NSE's contention that services offered by stock exchanges on equity-and other segments are not to be included within the relevant market. It is argued that from a market definition perspective if every product offered on a stock exchange is different then the relevant market would become so fragmented that it would be impossible to determine actual economic power enjoyed by any player. 8.20. The informant disagrees with the contention of OPs that the terms 'substitutable' and 'interchangeable' ....
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....through NSE. The-informant refers to AKZO [AKZO v. Commission of the European Communities (C-62/86) (1991) ECR I-3359 (1993) 5 CMLR 215] and BBI/Boosey [BBI Boosey Hawkes: Interim measures (1987) OJ L 286/36] cases of EC where self-admission was taken as evidence of dominant position 8.24. The potential argument of NSE that MCX-SX has bigger market share in the CD segment (based on volumes and not value) would have little substance. It is .contended that MCX SX has only managed to retain the current market position after being forced to match NSE's zero pricing. This will not be viable for the long run whereas NSE will be able to sustain zero pricing due to its police to cross subsidise. There is no such capability with the Informant. 8.25. The informant submitted, arguments that examined the various factors given in section 19(4) of the Act, to determine dominance. By and large, these resonate the analysis of dominance made by the DG in his report and, therefore, are not repeated in detail at this place. 8.26. The informant further emphasised network effects as discussed by the DG. It was claimed that stock exchange is a network industry where liquidity plays a promin....
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.... laws. The standards of relationship advocated by NSE between markets are such that section 4(2)(e) of the Act can never be applied. 8.33. The informant argued that the DG has. never concluded that cross-subsidization is. an abuse in itself as interpreted by NSE. The actual issue examined by DG is whether zero price charge by NSE for stock exchange services in the CD segment is predatory. This conduct is further vitiated by the fact that NSE has special advantages by virtue of its strong presence in other segments which enables it to sustain losses in the CD segment. Had the NSE been operating only in CD segment, it would have suffered considerable losses similar to that of the informant and the USE and would not have continued with zero pricing for long duration. 8.34. The informant has reiterated arguments dismissing the nascent market defence, economies and learning effects and indispensability of waivers arguments extended by NSE. 8.35. The informant has pleaded the Commission to provide structural remedies since it contends that behavioural remedies may not be effective or long lasting. 8.36. The informant has pleaded imposition of appropriate penalties, awarding o....
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....ct not only gives a formula definition of 'relevant market' but also specifies factors which have to be considered while determining that market. There is little scope for any arbitrariness or discretion under the Indian Act. Before we go into in-depth evaluation of all the facts pertinent to delineation of the relevant market in this case, it is useful to look at a few facts that in themselves may not be determinative but are strongly indicative. 10.4. The first of these indicators is the RBI-SEBI Standing Technical Committee Exchange Trade Currency Futures Report (RBI-SEBI report) of 2008. This was one of the most important documents on which the policy decision was taken to start a new segment of capital market in India, viz., exchange traded currency derivatives segment. The report pinpoints the origin of the policy considerations on the Report of the Internal Working Group of RBI submitted in April, 2008, recommending the introduction of exchange traded currency futures. Further RBI-SEBI report states,-- "Exchange traded futures as compared to OTC forwards serve the same economic purpose, yet differ in. fundamental ways..........The counter party risk in a ....
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.... Third, competition concerns, if any, have to be examined in the segregated and new market where the informant is operating. 10.10. The above indicators seem to firmly point out that the exchange traded CD market is fundamentally distinct from other segments of the capital market. In fact, it did not exist prior to August, 2008. A market that earlier did not exist and which was consciously created by the policy makers as a new and distinct market cannot be said to be part of a market that existed. 10.11. Moving on from indicators to evaluation of facts, it is essential to look at the specific framework for delineation of 'relevant market' given under the Act. According to section 2(t), 'relevant product market' means a market comprising of those products or services which are regarded as interchangeable or substitutable by the consumers, by reason of characteristics of the production or services, their prices and intended use. 10.12. This Commission notes that the information in this case has been filed due to competition concerns perceived by MCX-SX which is operating only in the CD segment. As noted above, the RBI/SEBI report holds the market of exchange ....
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....t of trades is done by participants directly on delivery verses on payment basis. The responsibility of settlement lies with the participants in the settlement and is granted by the clearing Corporation. The participation is highly restricted by the RBI and earning of mid-to long-term interest on specified debt instruments is the major consideration of the participants. (iv) CD market and OTC market 10.13.4 The CD market is a futures derivative market where underlying securities are currencies: OTC market, on the other hand, includes various products such as forwards, swaps and options for hedging the currency risks. Functionally, the products may be considered, as similar but they are quite different in terms of characteristics as well as participants. There is a differentiation from the OTC segment in terms of settlement on maturity, settlement period, counter party risk, size of market lot and participation, amongst other things. It is also noteworthy that the CD segment products have maximum maturity of only 12 months whereas OTC forwards can be for much longer durations. 10.14. In terms of participation, equity and equity derivative segments or WDM segment....
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.... 351 US 377 (1956), notorious in the competition lexicon as the 'Cellophane Fallacy' case where the SNIPP test exaggerated the breadth of the market by the inclusion of the false substitutes. 10.17. Moreover, 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 on substitutability effect. Therefore, SSNIP would be irrelevant in such a case. 10.18. Similarly, there is little point in going into any extended debate to distinguish the words 'interchangeable' from 'substitutable', given the facts of the case and different aspects of capital market in India. Such an exercise in the instant case may be of some intellectual value within rarefied groves of academe but are neither necessary nor useful for a competition authority mandated to bear the responsibility of enforcing the law keeping in view the economic development of the country and to prevent practices having adverse effect on competition, to promote and sustain competitions in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participant....
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....ndaries of relevant market freeze the moment the products cease being practically interchangeable or substitutable. In the instant case, the stock exchange services provided for CD segment may be similar to those provided for other segments, but they cannot be said to be 'interchangeable or substitutable'. 10.24. The DG has found a fairly high degree of commonality amongst members of the Informant and those of the OP I. In itself, this fact has no bearing on interchangeability or substitutability between various segments of stock exchange services. Simply because many wholesale traders of grains also do wholesale trading of vegetables does not imply that grains and vegetables are substitutable or that grains and vegetable mandis are interchangeable. 10.25. In view of the foregoing discussions in this case, the stock exchange services in respect of CD segment in India is clearly an independent and distinct relevant market. Issue No. 2 10.26. Having delineated the relevant market in consideration for the instant case, it is now possible to examine facts to determine whether OP I, NSE has 'dominant position' in the relevant market. 'Dominant position....
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..... 18.64 million, deposits at Rs. 9.17 billion and profit before tax at Rs. 6.89 billion. (h) In comparison, BSE had a net profit of Rs. 2.6 billion only and MCX-SX carried forward net loss of Rs. 298.7 million for the period ending 31.3.2009. (i) NSE has presence in 1486 cities and towns across India. BSE has presence mainly in Maharashtra and Gujarat and is now reduced to mostly operating in equity segment. MCX-SX has only about 450 centres and operates only in CD segment. (j) NSE has high degree of vertical integration ranging from trading platform, front-end information technology, data information products, index services, etc (k) Stock exchange services in India are highly regulated and require approvals of SEBI to start a new exchange. 10.30. The above facts are not disputed on any substantive ground. Triangulation of the: above facts creates a hologram picture of the players in the capital market in general and in the relevant market of exchange traded currency derivatives forwards in particular 10.31. It can be seen that the first half century of independent India had BSE as the sole-stock exchange, way ahead of all regional stock e....
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....d at the moment) but from several other factors mentioned in section 19(4) referred to above. 10.36. In terms of Explanation (a) of section 4 of the Competition Act, 'the position of strength' is not some objective attribute that can be measured along a prescribed mathematical index or equation. Rather, it has to be a rational consideration of relevant facts, holistic interpretation of (at times) seemingly unconnected statistics or information and application of several aspects of the Indian economy. What has to be seen is whether a particular player in a relevant market has clear comparative advantages in terms of financial resources, technical capabilities, brand value, historical legacy, etc., to be able to do things which would affect its competitors who, in turn, would be unable to do or would find it extremely difficult to do so on a sustained basis. The reason is that such an enterprise can force its competitors into taking a certain position in the market which would make the market and consumers respond or react in a certain manner which is beneficial to the dominant enterprise but detrimental to the competitors. 10.37. From the few facts enumerated above, it....
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....gies treat each and every segment, of business, particularly in multi product enterprise, as independent cost centres. This enables the enterprise to monitor every activity in terms of cost overruns and take timely, corrective measures to keep the bottom lines intact. This philosophy is also reflected in Accounting Standard 17 (AS17), which stipulates segment reporting. 10.43. In the instant case, not only has NSE not followed AS17 but appears to have a rather cavalier approach towards any costs it may be incurring to operate in the relevant market. The facile explanation, that this detachment from profit motive is with the desire to develop the CD segment for the larger good of the capital market in India, is unpalatable, looking at the aggressive competitiveness of NSE in the past. 10.44. This Commission has not found any acceptable justification for why a professionally managed enterprise like NSE would not want to keep any track of the commercial viability of its operations or does not have any concerns about the desire of its shareholders to earn higher dividends. It is unthinkable that a professionally managed modern enterprise can afford such financial complacency in t....
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.... of the Indian law, this indicator does not have to be pegged at any point but has to be considered in conjunction with numerous factors given in section 19(4) of the Act. 10.49. In view of the discussion above, the Commission is of the firm opinion that NSE has a position of strength and, therefore, enjoys dominant position in the relevant market in context of section 4 read with section 19(4) of the Act Issue No. 3 10.50. Having delineated the relevant market and established that NSE is in a dominant position in the relevant market, it is only left to be determined whether NSE has abused its dominant position in context of section 4 of the Competition Act, 2002. 10.51. The informant, MCX-SX, had made allegations of abusive conduct of NSE in respect of the following four conducts: A. Transaction fee waiver; B. Admission and deposit level waivers; C. Data feed fee waiver; and D. Exclusionary denials of integrated market watch facility. 10.52. The DG has done in-depth analysis and investigation in respect of these allegations as detailed earlier in this order. The fact that the above conducts took. place is not in dispute. 10.53.....
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....ting dominance. It is undisputed that since commencement of operations in August, 2008 till the time of passing this order in half way down 2011, NSE has continued with fee waivers. Nascence must be differentiated from immaturity or even infancy and it cannot be anyone's case that until a particular market has matured, it should continue to be treated as nascent. The word 'nascence' denotes the state of existence at the time of or immediately after birth. Infancy denotes a state after the nascent stage. Immaturity is the remaining time before maturity. For any market, the first few months can be said to be nascent stage, where players are faced with day-to-day developments and discovering period of infancy, where almost all market situations have played out but the players are facing teething troubles. This may last even another year. After that would come the process of maturity, when the market cannot be said to be fully developed but it also cannot be taken as 'nascent' anymore. The extraordinary measures required to keep the new-born market alive are no longer necessary in this stage. Excuses for 'promotional' or 'penetrative' pricing will lo....
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.... (920 million) as against BSE turnover of Rs. 1.76 crores (17 million). Having consolidated its position, NSE re-imposed transaction charges w.e.f. 27.9.2001. All other kinds of waivers for F&O segment were completely removed after March, 2002, by which time BSE had been completely marginalised. (iv) In WDM segment, NSE commenced trading on 30.6.1994. It levied transaction charges for a full year till June, 1995. This conduct again contradicts the claim of consistent policy of fee waivers to develop nascent markets. (v) The DG examined relevant agenda items and minutes of meetings of DotEx in this matter. Despite deliberations on the fee structure and in principle acceptance of imposition of fees, no data fee was implemented which indicates that DotEx had waived the fee with the purpose of capturing the market. 10.58.1 Therefore, the defence of development of nascent market is not tenable. 10.59. As regards the shield of benign historical philosophy towards charging of fee is concerned, the Commission has noted the pattern of behaviour of NSE in respect of F&O segment and WDM segment. It has also been observed that fees were not waived in the equity segment.....
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....ce code (APIC) for ODIN supposedly done due to programme vulnerabilities and client complaints, this Commission notes that the denial has only been with respect to data feed for CD segment trading on NSE. No denial of APIC has been done in respect of data feed for any other segment. It is also noted that ODIN is software developed by FTIL, which is one of the promoters of MCX-SX. Vulnerability or defects, if any, in ODIN would be a matter of concern for other segments also. Normally, APIC should have been denied for all segments but this was not the case. Moreover, the investigation has revealed that even NOW, which is the application being used by NSE, had generated many complaints. At the same time, sundry users of ODIN that were examined did not express any grave concerns. 10.64. All these facts put together take the wind out of the sails of the justification given by the OPs for denial of APIC for CD segment operations or for putting FTIL on its watch list. This conduct of NSE/DotEx smacks of dubious anti-competitive intent when all the facts are viewed together. 10.65. In today's world, trading on stock exchanges is being done extensively on internet through electron....
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....ock exchange. These cannot be zero as claimed by NSE. It is also noteworthy that NSE has not been able to provide any figures of segment account to substantiate their claim. 10.69. The DG report makes an attempt to work out an estimation of costs that should have been incurred by the NSE. It indicated that the total cost for 2008-09 works out to Rs. 4.42 crores (44.2 million) and for 2009-10, which is the first full year of operation, Rs. 37.07 crores (380.7 million). The report has estimated total cost for CD segment on a percentage based pro rata system. The total cost for CD segment estimated for 2009-10 is to the time 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. Admittedly, this may be just estimation, and like all estimations, open to debate, but the exercise indicates logically that the costs of operations for NSE for the CD segment cannot be absolute zero. 10.70. More importantly, it is worth pointing out th....
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....pricing (as distinct from the concept of the predatory pricing) cannot be determined by selecting ATC, AVC, LRAIC, AAC or any other costing calculation used in accounting. It has to be seen whether, in this case, zero pricing by NSE can be perceived as unfair as far as MCX-SX is concerned. 10.74. As discussed above, NSE has a position of strength which has enabled it to resort to zero pricing since August, 2008. MCX-SX does not have such strength or deep pockets. There is practically no justifiable reason for NSE to continue offering its services free of charge for such a long duration when it is paying for manpower and other resources for running the business. It is also a fact that no enterprise would have the intention to engage in a profit-less venture for eternity. 10.75. MCS-SX, which operates only in the CD segment, has no other source of income. This is a major constraint In these circumstances, the zero price policy of NSE cannot be termed as anything but unfair. If this Commission were to treat it as fair, it would go against the grain of the Competition Act and betray the economic philosophy behind it. If even zero pricing by dominant player cannot be interpreted a....
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....dered for this sub section. This is so because competition concerns are much higher in India than in more mature jurisdictions because of the historical lack of competition laws. In India, if an enterprise dominant in the market of audiovisual (AV) equipment enters into the market of say, computers, it is possible for it to use its strength in terms of finances, technological expertise, sales network, etc., in the AV market, to muscle its way into and protect its position in the computer market, even though the two markets are not at all connected. That is why the Act does not indicate any requirement of associational link. 10.81. At this stage, the Commission would like to clarify the intent as well as the import of section 4(2) (e) of the Competition Act, 2002. It is incorrect to argue that the whole of section 4 pivots around determination of only one 'relevant market' or that determination of a second 'relevant market' is not possible or that having treated a particular market as the 'relevant market' for the purpose of Explanation (a) to section 4, that market cannot be treated as the 'other market' for the purpose of section 4(2)(e) as per t....
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....lexity in this case arises from the fact that NSE has been considered as dominant in the X market due to its strengths in the Y market (amongst other things). A question can then be posed as to how, once determined as dominant in the X market, can the charge of leveraging the position in the X market to enter or protect the same X market itself be made? But this question is assuming that once X has been taken as the 'relevant market' then wherever the word 'relevant market' occurs in clause? (a) to (e), it should automatically refer to X market. 10.85. This; is distortion of the provisions. As explained earlier, the 'relevant markets for clause (e) can be different from the 'relevant market' for clause (a) to (d) but the aspects of dominance given in Explanation (a) would apply equally to both. In fact, the scheme of the section, particularly when read with section 19(4), is such that it is possible to take one market as the 'relevant market' for subsections (a) to (d) of section 4(2) and the same market as the 'other market' for section 4(2)(e). 10.86. In the Indian Competition Act, under section 19(4), the ability to leverage, in ....
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....ervices in non-CD segment is to be examined under section 4(2)(e). 10.90. Having clarified the existence of two market necessary for examining section 4(2)(e) and without prejudice to our view on the requirement of associational links under the Indian law, we now examine if the two markets have associational link. This can be done by considering the following questions: (a) Whether NSE holds a position of strength on the CD segment market comparable to its position in the CD and non-CD segment markets as a whole? (b) Whether the NSE enjoys advantages in the CD segment market by virtue of its dominance in the non CD segment market? (c) Whether the NSE customers in one market are potential customers in the other? (d) Whether the NSE and its competitors can become competitors in both markets? 10.91. As evident from our discussion in the section on dominance, the NSE possesses almost the same strengths in the CD segment as it does in the combined stock exchange market. This fact gives it definitive advantages in the CD segment. There is high commonality of brokers and traders in other segments and CD segment. As indicated in the introductory se....
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....ation interface code to put third party browsers at a disadvantage for users who were working on Microsoft's Windows operating system. There are also similarities with the European Commission's case against Microsoft where there was allegation that Windows Media Player was bundled with the operating system and third party players had difficulties in running on it. 10.96. In view of the discussion above, this Commission concludes that 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.- 11. Conclusion 11.1. In the previous section, the Commission framed three issues for determination and has discussed them in great detail. The findings of the Commission, based on the above discussions are summarized as below. 11.2. The stock exchange services in respect of CD segment in India is clearly an independent and distinct relevant market. In this delineated relevant market, NSE has a position of strength and, therefore, enjoys dominant position in the relevant market in context of section 4 of the Act. ....
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....he following paragraphs. 13.2. In its written submissions, NSE summarized the findings of the order of this Commission dated 25.5.2011 as also of the dissenting order of the dissenting Members of this Commission dated 3.6.2011. 14. Submissions against imposition of penalty: (a) Novelty 14.1. It was submitted that 'given that the alleged violations are based on novel concepts and principles, they are incapable of having been anticipated for the purpose of compliance. Further, it is the established practice of other competition law regulators that where a concept is novel, no penalties are levied or remedies be ordered'. (b) Uncertainty on application of law: 14.2. It was contended that in the absence of guidance papers or a case law from the Commission dealing with concepts like dominance, unfair pricing, etc., there is a large element of uncertainty in the application of the Act and regulations framed there under. It was argued that, in such circumstances, no penalties should be levied or remedies be ordered. (c) Lack of cogent or convincing evidence: 14.3. It was argued that there is no evidence to suggest that NSE's pricing policies were intend....
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....ng policy and in fact 'competition has increased' and 'the competitors of NSE have benefited'. It was argued that no penalty or remedy may be imposed on this ground. (g) Expansion of the market: 14.7. It was submitted that NSE's pricing policy have assisted in expanding the market and, consequently, the turnover or business in CD segment on all exchanges has increased from Rs. 291 crores (2.91 billion) in August, 2008, to Rs. 41,982 crores (419 billion) in May, 2011. It was submitted that such circumstances demand that no penalties be levied or remedies be ordered. (h) Contribution to economic development. 14.8. It was contended that NSE had contributed to economic development through innovations made in the operation of the stock exchanges, over the years, since its inception. (i) Meeting the competition 14.9. It was argued that since inception of the CD segment, the competitors of NSE have imposed charges identical to that of NSE. Therefore, NSE was left with no option but to continue charging zero fees to meet the competition. Charging fees 'will cause serious damage to NSE's market position in the CD segment'. Therefore, no pena....
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.... European Commission such as Italian Flat Glass Case, National Grid plc v. Gas and Electricity Markets Authority etc. (2009) CAT 14, to support its contention that penalties should not be imposed when there is a novel concept involved. Reference was also made to Federal Trade Commission (FTC) policy statement on monitoring equitable remedies in competition cases wherein monetary penalties are to be levied if the violation is clear, there is reasonable basis for calculating the amount and after considering impact of other remedies including private actions and criminal proceedings. 15.2. NSE has also referred to OECD document titled 'Remedies and Sanctions in Abuse of Dominance cases' where it is recommended that using lighter measures does not appear to be controversial when a conduct has never been dealt with by the jurisdiction's court before and there could have been reasonable doubt ex-ante about whether the conduct would be found unlawful. 15.3. It has been further argued that section 53N of the Act enables MCX-SX to seek compensation from the Competition Appellate Tribunal (CAT). Therefore, 'the harm caused, if any, to MCX-SX can be remedied and the requ....
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....itted that if two enterprises were found in contravention of section 3 of the Act and if one of the enterprises also happens to be trading in some other products, it should not mean that that enterprise pays a higher penalty. Such an outcome would penalize diversified enterprises. NSE placed reliance on EU guidelines on the method of setting fines (Regulation No. 1/2003). It also referred to UK OFT's guidance on penalty (December, 2004) wherein the relevant turnover is taken as the turnover in the relevant product market and relevant geographic market affected by the infringement. 16.3. It was submitted that section 27 (b) read with section 2 (y) creates an ambiguity in respect of 'turnover'. It was stated that 'it is unclear whether the definition of turnover includes the value of items that are non-operational and do not form part of normal trading activities of the enterprise'. Further, it was argued that the term turnover usually connotes principal revenue generating activities of an enterprise and cannot include receipt which are not relatable to business but may be regarded as income from other sources. Similarly, income from turnover of other segments ....
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.... and gave the respective decisions of the Commission and that of the Hon'ble dissenting members. Therefore, it is not necessary to comment on this part of the submissions of NSE. 20. Novelty 20.1. The Commission has considered the submissions of NSE in this regard. It is a matter of record that section 4 of the Competition Act, 2002, came into force on 20 May 2009. However, it is equally true that this Act had received the assent of the Hon'ble President of India on 13 January 2003. 20.2. It is noteworthy that the Commission has undertaken extensive advocacy exercise over a period of nearly half a decade to spread awareness about the new legislation particularly in the spheres of business, commerce and legal profession in India. 20.3. The conduct of NSE examined in the Commission's Order dated 25.5.2011 can be said to have started on 26.8.2008 with a circular waiving transaction fee for the CD segment of its stock exchange services. This was after many years of formal existence of the Competition Act as a law of the land. Under the circumstances/this Commission is of the view that neither the embedded concepts behind provisions of the Act nor the provisions ....
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....2. While it may not be possible for any competition authority to clarify each and every concept that has been or could be adjudicated upon, this Commission has made considerable efforts to propagate the broader concepts pertaining to competition law in India. Though such efforts are desirable on part of any authority charged with administering a law, it is expected that all entities governed by that law would do their best to comply with the provisions or take corrective measures when required, regardless of any outreach by the authority. In fact after 20 May, 2009, when the enforcement of section 3 and 4 was notified/NSE could have changed its policy of zero pricing. Further, such corrective measures could have been taken at least after initiation of these proceedings. 21.3. In the context of dilemma over 'predatory price' being hard to distinguish from vigorous competition, it is pertinent to emphasize that this Commission, in its order, has elaborately discussed how the Indian Competition Act intrinsically distinguishes the narrower concept of predatory price from the broader concept of unfair price that is intended to harm competition either through adversely affecti....
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....cts MCX-SX adversely but would also impact other existing or future competitors and competition. The Commission has also elaborately examined and rejected the 'nascent market' defense taken. It has also shown the anti-competitive aspects of the conduct of NSE with regard to market watch facility of NOW. These issues do not require a relook at this stage. The mala fide intent is clearly manifested in the abusive conduct found to have been established by the Commission. 24. No foreclosure 24.1. It is rather presumptuous for NSE to contend that 'the principle reason for prohibiting an abuse of dominance is to prevent anti-competitive foreclosure' and to argue that since there has been no foreclosure in the CD segment, there is nothing anti-competitive in its conduct. 24.2. Even international jurisdictions do not limit evaluation of abuse of dominance to foreclosure effect. There is a larger picture of competitive environment that has to be considered in every case, which is a philosophy that this Commission completely endorses. 24.3. NSE has also contended that the mandate of the Commission is to protect competition and not competitors. While this may be an....
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....uire it to be established. The section first and foremost requires that it be established that an enterprise or group is in dominant position in the relevant market. Thereafter, it is required to establish that it has engaged in a conduct as specified in clauses (a) to (e) of the section. Once both are established, there is no statutory requirement to examine any other additional impact on competitors or consumers or the market. The Commission, in its order has amply established the aforementioned two questions. Section 4 of the Act, unlike section 3 does not require evaluation of appreciable adverse effect on competition (AAEC) or evaluation of the factors mentioned in section 19(3), which include 'accrual of benefits to consumers'. 25.2. If an enterprise or group in a dominant position indulges in conducts enumerated in clauses (a) to (e) of section 4, it is resultantly bound to cause harm to the consumer by destroying competition. That is why the section does not require consumer benefit to be evaluated separately. It will not be out of context to mention that even under MRTP Act the monopolistic trade practice was deemed per se violation of public interest except in ....
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....ion of the European Communities (C-62/86) (1991) ECR I-3359; (1993) 5 CMLR 215; and France Telecom SA v. Commission of the European Communities (C-202/07 P) (2009) ECR I-2369; (2009) 4 CMLR 25, it was held that in order to assess whether the pricing practices of a dominant undertaking were likely to eliminate a competitor contrary to article 82 EC, it was necessary to adopt a test based on the costs and the strategy of the dominant undertaking itself. In that regard, a dominant undertaking was not permitted to drive from the market undertakings that were perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, were incapable of withstanding the competition waged against them. 29. Principle of proportionality 29.1. NSE has pleaded that 'penalty imposed must be commensurate with the gravity of misconduct'. The Commission has kept this valid plea in mind while framing this order. 30. No intent to deny FTIL the API for CD segment 30.1. The question of intent is already covered by our observations supra. As regards the matter pending in Bombay High Court concerning ODIN, the dispute pertains to audit of ODIN. The matte....
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....penalties under section 27. 33. Orders by the Commission after inquiry into the abuse of dominance position 33.1. The Commission has duly considered the contentions and arguments made by NSE in the matter. Mitigating factors wherever justifiable have been acknowledged at the appropriate place. Aggravating factors have been similarly pointed out, both with the reference to the Indian case laws as well as those of other jurisdiction, wherever applicable. To sum up, NSE has abused its dominant position in terms of section 4(2)(a)(ii) and 4(2)(e) of the Competition Act. The discussion made above shows that the intention of NSE was to acquire a dominant position in the CD segment by cross-subsidizing this segment of business from the other segments where it enjoyed virtual monopoly: It also camouflaged its intentions by not maintaining separate accounts for the CD segments. NSE created a facade of the nascence of market for not charging any fees on account of transactions in the CD segment. The competitors with small pockets would be thrown out of the market as they follow the zero transaction cost method adopted by the NSE and therefore in the long run they will incur huge losses....