Case Study: MCX & Ors v.

NSE of India

CASE STUDY

MCX STOCK EXCHANGE LTD. & ORS v. NATIONAL STOCK

EXCHANGE OF INDIA: CASE No_13/2009

SUBMITTED BY:

AUTHOR: VIKASH KUMAR

GALGOTIAS UNIVERSITY, LL.M: TRIMESTER II

SPECIALISATION: CORPORATE LAW

THE COMPETITION ACT, 2002 1

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 Case Study: MCX & Ors v. NSE of India

MCX STOCK EXCHANGE LTD. & ORS v. NATIONAL STOCK

EXCHANGE OF INDIA: CASE No_13/2009

ABSTRACT

The case of MCX & Ors v. NSE of India is one of the first cases on abuse of dominant position.
The Competition Act, 2002 was enacted to ensure that any type of anti-competitive agreement is
not allowed in the market. The anti-competitive agreement causes appreciable adverse effect on
competition in the market. The Competition act ensures that there is no such agreement take
place and some companies done this appropriate action to be taken against them. The act ensures
that the fair competition maintained in the market. The objective of the act is clear that it intends
to promote competition in the market. The Competition act protects the interest of the consumers
by ensuring free and healthy trading and competition in the market. Even the protection of
consumer is not directly mentioned in the objective of the act but the act works on the welfare of
consumers by inserting such provisions which does not allow any unfair trade practices in the
market.

Since the Competition Act, 2002 enacted various important decisions were given by CCI. Many
CCI decisions are pending before the Supreme Court for final adjudication. The National Stock
Exchange case is one of the important cases filed in CCI. The CCI and COMPAT both found
NSE guilty of violating the act and using the dominant position. The abuse of dominant position
was examined in detail in this case. The NSE appeal is pending before the Supreme Court for
final adjudication. In this case analysis the decision CCI and COMPAT is dealt in detail.

Keywords: Relevant market, abuse of dominant position, predatory pricing, anti-

competitive agreement, investigation.

THE COMPETITION ACT, 2002 2

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 Case Study: MCX & Ors v. NSE of India

MCX STOCK EXCHANGE LTD. & ORS v. NATIONAL STOCK

EXCHANGE OF INDIA: CASE No_13/2009

INTRODUCTION:

The economy has changed worldwide after globalization. Many new opportunities bloomed and
with that brought new challenges. It became need of the time to have some legislation to have
control over the market. So, that the businessman and the consumers are saved and secured from
unwanted and illegal activities. The erstwhile MRTP (Monopolies and Restrictive Trade
Practices Act) enacted to address those emerging issues of the market. But it was found that the
act was not sufficient to control the market. Then the Competition Act, 2002 was enacted. The
objective of the act was to ensure fair competition in the market. The three main things which
this act regulates are:

1. Preventing anti-competitive agreements;

2. Prohibiting abuse of dominant position in the market through unfair or discriminatory
prices and conditions;
3. Regulation of combinations and mergers.

The above mentioned points are important aspects which Competition Act prohibits. The
protection of consumer’s welfare, ensuring freedom of trade in markets of India and promoting
competition are some other things which this act aims to do.

If any company is having dominant position the act is having no problem with that. The problem
starts when the company starts abusing its dominant position. The act provides various factors
which helps DG or CCI to find out that the company is using its dominant position in the market.
CCI is having full authority to take suo moto action or if someone complains to it about use of
dominant position to investigate into the matter. All the activities of the companies are under the
scrutiny of CCI (Competition Commission of India). If the company is not found to following
the provisions of competition act then they have to face the CCI and present their case.

THE COMPETITION ACT, 2002 3

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 Case Study: MCX & Ors v. NSE of India

The case of MCX v. NSE of India is important because CCI dealt in detail regaling relevant
market and abuse of dominant position provisions.1

The CCI in this case analyzes whether NSE is in dominant position in the market. The NSE has
abused is dominant position to eliminate the competitors from the market. The concept of
relevant market also discussed in detail in this case. CCI after dealing with all the issues raised in
this case comes to conclusion that NSE has used its dominant position in stock exchange market.
The CCI imposes a penalty of INR 55.5 crores to NSE. In this paper the rational in adjudging the
issue related to abuse of dominant position is disused. The reasons which mentioned by CCI in
its judgment which depicts that NSE is abusing its dominant position is analyzed.

ACT & SECTIONS REFFERED IN THIS CASE:

The Competition Act, 2002

Section 2(r) “relevant market: means the market which may be determined by the Commission
with reference to the relevant product market or the relevant geographic market or with reference
to both the markets;2

Section 4 “Abuse of dominant position”: Abuse of dominant position is prohibited under

Competition Act, 2002 under section 4. If the firm or the group of firm which is in dominant
position uses it to eliminate competition from the market then it is abuse of dominant position by
them. And this leads to less or prevent competition in the market.3

Section 19 “Inquiry into certain agreements and dominant position of enterprise”. 4

Section 26 (1) “Procedure for inquiry under Section 19”. 5

Section 27 “Orders by commission after inquiry on to agreements or abuse of dominant

position”.6

1
Payel Chatterjee & Simone Reis, “Dominance and its Abuse in the Stock Exchange Scenario”, Nishith Desai
Associates, September 25, 2011.
2
The Competition Act, 2002; accessed from https://indiankanoon.org/doc/1591314/
3
The Competition Act, 2002; accessed from https://indiankanoon.org/doc/1780194/.
4
The Competition Act, 2002; accessed from https://indiankanoon.org/doc/702674/
5
The Competition Act, 2002; accessed from https://indiankanoon.org/doc/27675/.
6
The Competition Act, 2002; accessed from https://indiankanoon.org/doc/585688/.
THE COMPETITION ACT, 2002 4

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 Case Study: MCX & Ors v. NSE of India

PARTIES IN THIS CASE:

MCX Stock Exchange Ltd: (The Informant): MCX-SX is recognized by the Securities
Exchange Board of India (SEBI). The SEBI has recognized MCX-SX under the provision of
section 4 of the Securities Contract (Regulation) Act, 1956. The MCX Company started in year
2008, August 14. It is public listed company. The Financial Technologies of India Ltd (FTIL) is
one of the promoters of the company. The other one is Multi Commodity Stock Exchange of
India Ltd (MCX). The company got permission to operate exchange platform for traders in
Currency Derivatives (CD Segment). The software of securities and financial market is supplied
by FTIL. The software helps in developing the business. The brand name ODIN is given to
software product marketed by FTIL. The ODIN is used by BSE, NSE and IP companies.

National Stock Exchange of India Ltd & Ors: (The Opposite Party): In the year 1992 NSE was
incorporated in the month of November. It was recognized as per the provisions of SCR Act,
1956 in the month of April, 1993. NSE is running its business in various different segments.
Some of them are CD segment, Futures/Options on Individual Securities, Equity and WDM.

One of the software called Omnesys which is used for some important purposes. The most
important thing which this software producer for security market and financial market. NSE has
taken 26% stake in that software through DotEx. DotEx is 100% subsidiary of NSE. New
software ‘NOW’ was introduced by DotEx and Omnesys. The new software ‘NOW’ is more
advanced then the ODIN software. The intention to introduce NOW is to substitute the software
produced by FTIL. The software ‘NOW’ is offered free for one year in the market. The NSE also
refused to share CD segment Application Programme Interface Code (APIC) with FTIL. 7

7
Nidhi Singh, “Competition Issues; Case study 05”, CUTS Institute for Regulation and Competition, accessed from
https://circ.in/competition-issues/case-study-05/.
THE COMPETITION ACT, 2002 5

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 Case Study: MCX & Ors v. NSE of India

ALLEGATION AGAINST NSE:

The MCX alleged that NSE is violating section 3 and 4 of Competition Act, 2002. MCX
informed CCI that NSE is involved in anti-competitive agreement. And NSE is also abusing its
dominant position in the market to eliminate the competitors. The fee waiver for one year is
against the act. The requirement of low level of deposit in CD segment was all aimed to
eliminate competition. The NSE refused to share APIC of CD segment with FTIL. And this leads
ODIN users disabling them from connecting to NSE CD segment. The NSE had no admission
fees for membership in CD segment.8

DG (Directorate General) INVISTAGETED THE MATTER ON THE FOLLOWING

POINTS:

a) Assessment of dominant position;

b) Abuse of dominant position;
c) Delineation of Relevant Market;
d) Application of Section 4 (2) (e) of the act.

ISSUES FOR DETERMINATION IN THIS CASE:

1. What is the relevant market, in the context of Section 4 read with section 2 (r ) and
section 19 (5) of the Competition Act, 2002?

The Competition Commission of India (CCI) relied on the report given by Internal Working
Group of RBI to determine relevant market in this matter. The report mentioned that the CD
segment is having no similarity with other segment. After analyzing the report CCI found
that CD segment is different in equities and currencies are also entirely different. It is also
different in underling assets; consequently related derivatives are different too. A product of
CD segment cannot be interchangeable or substituted by a product in segments like equity
and F & O for the purchase.

Finding: After analysis the CCI came to conclusion that CD segment service in stock
exchange is clearly an Independent and distinct relevant market.

8
Nidhi Singh, “Competition Issues; Case study 05”, CUTS Institute for Regulation and Competition, accessed from
https://circ.in/competition-issues/case-study-05/.
THE COMPETITION ACT, 2002 6

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 Case Study: MCX & Ors v. NSE of India

2. Is any of the OPs dominant in the above relevant market, in the context of section 4
read with section 19 (4) of the Competition Act?

The CCI first examined market share of NSE and found that NSE is having 48% share in CD
segment in market. The CCI also found that NSE is having high degree of vertical integration
from trading platform, front-end information technology, index services etc.

Finding: The Commission came to conclusion that NSE is in dominant position in the
market. The NSE enjoys dominant position in the relevant market in the context of Section 4
read with Section 19 (4) of the Act. NSE has reserve surplus of INR 18.4 million.

3. Is there any abuse of its dominant position in the relevant market by the above
party?

As per the information received by MCX it was found by CCI that NSE is using its dominant
position in the market. Because NSE waived of the NOW software fee for one year. The MCX
has been facing restraint of zero fees since the begging. The Commission came to conclusion that
zero pricing policy of NSE in the relevant market is unfair and can be termed as destructive
pricing. Monopoly leveraging: the CCI found that the zero transaction fees in subsiding activities
in CD segment are abuse of position. It was also found that NSE is using its monopoly rots to
leverage its position. NSE is also creating barriers for users of ODIN software by not providing
APIC to its own software ‘NOW’.9

Finding: After final analysis CCI came to conclusion that NSE is abusing its dominant position.
CCI held that NSE is suing its position of strength in the non CD segment to protect its position
in the CD segment.

9
Nidhi Singh, “Competition Issues; Case study 05”, CUTS Institute for Regulation and Competition, accessed from
https://circ.in/competition-issues/case-study-05/.
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 Case Study: MCX & Ors v. NSE of India

ORDER OF COMMISSION (CCI):

1. The relevant market here is stock exchange services in respect of only CD segment in
India;
2. NSE has abused its dominant position in the currency derivates of CD segment which is
violation of section 4 of competition act;
3. NSE to pay a penalty of Rs 55.5 crore (5% of the average annual turnover of the last
three years);
4. NSE to cease and desist from unfair pricing;
5. NSE modify its zero price policy in the CD segment.

APPEEAL TO COMPAT:

NSE filed an appeal to COMPAT (Competition Appellate Tribunal) against the order of CCI.
The COMPAT has found National Stock Exchange of India (NSE) guilty of abusing its dominant
position. The NSE has abused its position in currency derivatives segment. The COMPAT has
upheld the order passed by CCI in June 2011. The COMPAT in its 95 page order dismissed the
NSE’s appeal against CCI ruling.

APPEAL TO SUPREME COURT:

NSE then moved to Supreme Court for relief which is still pending. On 23rd September, 2014 the
Supreme Court stayed the penalty order imposed on NSE. CCI has imposed a fine of INR 55.5
core and this decision of CCI was upheld by the COMPAT.

The Supreme Court stayed the penalty order imposed by COMPAT. The NSE was fined for
allegedly following unfair pricing policies with regard to currency derivatives. A bench of
Justice J. Chelameswar and A.K. Sikri also asked CCI to respond to NSE appeal against
COMPAT.

THE COMPETITION ACT, 2002 8

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 Case Study: MCX & Ors v. NSE of India

ENHANCED COMPENSANTION CLAIM BY MCX (MSEI):

In the year 2015 MCX (now MSEI) filed in COMPAT for enhanced compensation. The MSEI
wants to file compensation of INR 856 crore against NSE. The appeal of NSE is still pending
before the Supreme Court for final adjudication. Now since COMPAT ceased to exist form 26
May, 2017 all the matters transferred to NCLAT. The MSEI says it is filing for Rs. 856 crore on
the report given by independent CA because company has suffered huge loss. As the case filed in
COMPAT, the authorities were looking into matter and report given by independent CA. The
report of CA was again to be evaluated by the experts of COMPAT. 10

Incidentally, the penalty amount of 55.5 crore (if MSEI wins the case at SC). Hence the
aggrieved party has filed a fresh claim of compensation before the COMPAT. As NSE were not
charging any transaction fees. The MSEI were also forced to adopt the zero policy transaction.
This caused them huge loss. And the financial position of MSEI impacted after that.

10
Shreeja Sen, “Supreme Court Stays CCI Penalty on NSE”, mint, September 23, 2014, accessed from
https://www.livemint.com/Money/XqWdY5uXtmF9mf0eyLaAkM/Supreme-court-stays-CCI-penalty-on-NSE.html.
THE COMPETITION ACT, 2002 9

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 Case Study: MCX & Ors v. NSE of India

CONCLUSION:

The NSE case is important in competition law. This is one of the first cases related to abuse of
dominant position. In this paper the detail analysis was done on the reasoning behind the
judgment of CCI. The provision of the act helps to find out which entities are abusing its
dominant position. The provision of appeal is mentioned in the act. If any party is not satisfied
by the decision of CCI they can file an appeal to Competition Appellant Tribunal (COMPAT).
The aggrieved party must appeal to COMPAT within 60 days from the decision of CCI. And if
any party not satisfied with decision of COMPAT they can file an appeal to Supreme Court. The
COMPAT ceased to be effective from 26th May, 2017 the aggrieved party can file an appeal to
NCLAT. In this case the CCI deducted abuse of dominant position from two different
perspectives. The first is from legal angel and the second from the economic angel. But the
narrow view was adopted by CCI to interpret the provision of section 4 of the act. This leads to
ambiguity for big players with more market share. The concept of relevant market has to be clear
then only fair decision can be given. The clear concept of relevant market will help to adjudging
the correct position of market players. The interpretation may differ from case to case. But the
ultimate aim of the act to benefit the consumers and establishes fair competition in the market.
The CCI has laid down the path which will always stop anti-competitive agreement in the
market. This is going to strengths the market to function competitively with each other.

THE COMPETITION ACT, 2002 10

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