National Stock Exchange accused by CCI of Unfair Trading in Currency Derivatives

Anti-monopoly watchdog Competition Commission of India (CCI) on 25 May 2011 held National Stock Exchange (NSE) guilty of abusing its dominant position. NSE was accused in response to a representation filed by rival exchange MCX Stock Exchange Ltd (MCX-SX). An order was issued for violation of section 4 of Competition Act 2002 by the NSE.

MCX-SX had alleged that NSE had acted in contravention of competition laws and engaged in unfair trading in currency derivatives markets. The MCX-SX in its representation to the CCI in November 2009 had alleged that NSE had substantially reduced admission and trade-related fees to eliminate competition and discourage other entities from entering the market. MCX-SX is promoted by commodity exchange MCX and Financial Technologies.

CCI had on 5 May 2011 issued a showcause notice to the NSE asking why a penalty should not be imposed for its unfair trade practices in connection with currency derivatives trading. The notice was sent before CCI decided on the fine to be imposed on NSE.

CCI had ordered a probe into alleged misuse of dominant position by NSE. In December 2010, the investigation wing of CCI recommended action against NSE for abusing its dominant position in the currency derivatives trade segment. The investigation report stated that NSE used its dominant position and original monopoly in equity, F&O (Future and Options) and WDM (Wholesale Debt Market) markets to protect its position in the currency derivative (CD) market.
NSE was given a week to respond and clarify its position on the charges made by MCX-SX.

Currency futures trading started on NSE on 29 August 2008 and at the MCX-SX on 7 October 2008. During the full year ended 31 March 2011, total number of currency derivative contracts traded on the MCX-SX was worth over 90.31 crore, while that of NSE was nearly 75 crore according to SEBI’s data. The total traded value of the currency derivative contract was about Rs 42 lakh crore on MCX-SX and Rs 34 lakh crore on NSE for 2010-11.