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Indian Case Summary

Mcx Stock Exchange Ltd. & Ors vs National Stock Exchange Of India … on 23 June, 2011 – Case Summary

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In the case of MCX Stock Exchange Ltd. & Ors vs National Stock Exchange Of India on 23 June 2011, the Competition Commission of India (CCI) was tasked with examining allegations of abuse of dominant position in the market for stock exchange services in India under Section 4 of the Competition Act, 2002. The case was initiated based on information filed by MCX Stock Exchange Ltd. (MCX-SX) on 16 November 2009.

Facts of the Case

MCX-SX, a public limited company and a recognized stock exchange for trading in Currency Derivatives (CD) segment, filed a complaint against the National Stock Exchange India Ltd. (NSE), DotEx International Ltd. (DotEx), and Omnesys Technologies Pvt. Ltd. (Omnesys). MCX-SX alleged that NSE had waived off transaction fees, a principal source of revenue for stock exchanges, in its Currency Derivatives segment. Furthermore, NSE was accused of keeping membership deposits unjustifiably low and waiving the admission fee entirely. MCX-SX also claimed that NSE had taken vindictive action against Financial Technologies India Ltd. (FTIL), a main provider of brokerage solution software, including denial of its currency derivatives segment application program interface code (APIC), putting FTIL’s ODIN software on a watch list, and developing and offering a competitive product called NOW free of cost through Omnesys.

Issues

The CCI had to determine whether NSE was charging unfair or discriminatory pricing in purchase or sale of goods, including predatory pricing of services by abusing the dominant position in the relevant market. Additionally, the CCI had to decide whether the behavior of NSE falls within the ambit of section 4(2)(e) where the abuse of dominant position is considered if an enterprise or a group uses its dominant position in one relevant market to enter into, or to protect, other relevant market.

Court’s Observations

The CCI noted that the stock exchange industry, including the CD segment, displays the characteristics of a network industry. Liquidity is an important confidence-building consideration for an investor/trader. Larger the liquidity in a stock exchange, greater is the volume of trading and vice versa. The CCI also observed that the demand curve in a network industry is upward sloping on account of network effects resulting in positive externalities up to a point of market expansion, thereafter it behaves like a normal downward sloping demand curve and looks more like an inverted ‘U’.

The CCI rejected NSE’s position that equities, equity derivatives, debt, and CD segment fall into different segments and OTC market and CD segment form part of the same market. The CCI endorsed MCX-SX’s position that the relevant market in the present case is the market of stock exchange services. The CCI concluded that NSE holds a dominant position in the relevant market of stock exchange services and even if the CD segment is assessed in isolation of other segments.

The CCI found that the waiver of transaction charges, data feed charges, admission fees, and also reduction in deposit levels by NSE in the CD segment are evidence of predatory pricing and have been resorted to by NSE with a view to lessen and/or eliminate competition. The CCI concluded that NSE has abused its dominant position in the equity, F&O and WDM markets to protect its monopoly in the CD market. Thus, NSE was found to have violated the provisions of section 4(2)(a)(ii) and section 4(2)(e) read with section 4(1) of the Act.

Conclusion

The case of MCX Stock Exchange Ltd. & Ors vs National Stock Exchange Of India on 23 June 2011

serves as a significant precedent in the realm of competition law in India. It highlights the importance of maintaining fair competition in the market and the role of the Competition Commission of India in ensuring that dominant entities do not abuse their position to the detriment of other players in the market. The case also underscores the complexities involved in defining the relevant market and determining dominance within that market. The decision of the CCI in this case sends a clear message that predatory pricing and other anti-competitive practices will not be tolerated in the Indian market.