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CCI: NSE abused dominance like Microsoft but softens DG market definitions

Stock exchanges: You win some, you lose some
Stock exchanges: You win some, you lose some
Exclusive: P&A Associates and client MCX-SX won an order from the Competition Commission of India (CCI) finding that the National Stock Exchange (NSE), which was represented by Amarchand Mangaldas and Vaish Associates, had abused its dominant position.

The case will head to the CCI on 2 June to allow NSE to respond on the question of penalty, but the decision significantly reduced the director general’s (DG) earlier definition of the “relevant market” in a partial victory for NSE, according to a CCI draft order that Legally India has seen.

The commission determined in its majority order dated 25 May 2011 that NSE did enjoy a dominant position only in the currency derivatives (CD) sector, which it found was clearly an independent and distinct relevant market. although the CCI did rule that NSE had used its position of strength in the non-CD sectors to protect its position in the CD segment.

This went against the DG’s finding in December 2010 that NSE was dominant in the entire stock exchange market service as a “single relevant product”, because there was “supply-side substitutability” between the segments and any exchange could easily start new operations in any capital markets segments to try and compete.

The CCI’s smaller definition of relevant market as just applying to CDs is a boon for NSE because otherwise its behaviour across the market would have come under potential scrutiny to establish predatory pricing or other abuse under section 4 of the Competition Act 2002.

The CCI found the NSE to have abused its dominance and position of strength in the CD segment because:

  • it supplied certain trading software products to customers for free, in contravention of section 4(2)(a)(ii); and
  • NSE disabled inter-operability between its trading software system ODIN and MCX’s parent-company’s competing NOW system, in contravention of 4(2)(b)(i) and (ii) and 4(2)(c) and (d); and
  • it used its position of strength in the non CD segment to protect its position in the CD segment, contravening 4(2)(e).

The CCI likened the situation to the US v Microsoft case and a Microsoft case in the European Union (EU), where the software company was alleged to have changed the Windows operating system’s application programming interface (API) to make it harder for third party vendors to create competing software. The EU fined Microsoft a record $1.3bn at the time for its anti-trust breach.


The CCI has not specified any penalties payable by NSE, which could amount to 10 per cent of the stock exchanges annual turnover.

It is understood that the NSE now has time to reply as to why it should not pay a penalty by 2 June. The CCI would reach a decision on the quantum of the fine within around 15 days, one competition lawyer told Legally India.

It was very likely that the CCI would issue a cease and desist order against NSE, said the lawyer, but whether penalties would be imposed was not certain at present.

Another competition lawyer commented that it was unlikely the CCI would impose any or a significant penalty, judging by the decision in the Bollywood producer’s cartel case where the offenders were fined only Rs 1 lakh each, as reported by Legally India earlier today. However, another competition lawyer speculated that if a fine was imposed it would at least be one or more crore rupees.

Under section 28 the CCI also has the power to divide enterprises in contravention of the Act, said another lawyer, while acknowledging that the regulator was unlikely to take such drastic steps that could alienate industry.

According to competition lawyers observing the case it is very likely that NSE would appeal the CCI’s decision to the Competition Appellate Tribunal (CAT) if it is not satisfied with the penalty.

On 18 May NSE secured a Delhi High Court order directing the CCI to supply a copy of its decision that NSE was guilty of abusing its position so that the exchange could prepare a reply, reported the Hindu.

The CCI then circulated its draft order but it is understood that the minority opinion in the CCI draft order has not yet been communicated.

All lawyers involved in the case declined to comment.

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