NSE fined 5% of average annual turnover of 3 yrs

Competition watchdog penalises bourse for abusing dominant position.

In an order that is likely to set a precedent,the Competition Commission of India (CCI) today levied a penalty on the National Stock Exchange (NSE) for abusing its dominant market position in currency derivatives trading.

The NSE has been asked to pay 5 per cent of the average annual turnover of the last three years and has been asked to cease acting in an unfair manner,sources told The Indian Express.

This is the first time ever since CCI became operational that the watchdog has passed an order involving such quantum of penalty. When contacted,NSE refused to comment on the matter and said that it has not received the order yet. The one option NSE may like to exercise is moving to the Competition Appellate Tribunal. However,NSE did not confirm the same.

Story continues below this ad

Todays order has also asked the exchange to cease subsidising its currency derivatives operations. An earlier order,passed last month with a majority vote of five members of the seven-member commission,was dissented by members Anurag Goel and Geeta Gouri on the grounds that NSE is not dominant in the currency derivatives market and zero price set by it cannot be said to be unfair or predatory as it did not set zero prices with the intention of reducing competition or eliminate competitors. When the CCI,earlier,had issued a show cause notice to the NSE asking why the amount of penalty should be reduced,the stock exchange had urged the commission to be lenient as this has happened for the first time and also that they have not gained anything from this (the zero pricing strategy).

The CCI order came after a year-long probe,which began after MCX-SX filed a complaint in November 2009,alleging that the NSE was abusing its dominant position in currency derivatives trading. NSE had entered currency derivatives segment in August 2008,while MCX-SX in October 2008.

The competition watchdog had sought a detailed probe into the matter by its Director General (DG),which submitted its report in September 2010. The DG had found NSE guilty of indulging in anti-competitive practices. A show cause notice was then issued to the NSE based on the investigation in April and the CCI passed an order on May 25. The matter reached Delhi High Court after the NSE approached the court with a plea that it could reply to the notice only after reviewing the complete order.

The court asked the CCI to provide NSE with a complete order by June 3. The CCI had then sent another show cause notice along with a copy of the order to the bourse and gave it one week to respond. The notice was sent to decide on the quantum of the penalty and provide the exchange a chance to cite reasons for mitigating the penalty.