NSE penalised 5% of 3-year average turnover

In a land mark order that may set a precedent, the Competition Commission of India (CCI) today slapped a penalty on the National Stock Exchange (NSE) for abusing its dominant market position in currency derivatives trading.

The NSE has been ordered 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, the Indian Express reported citing unnamed sources.

This is the first instance of the CCI passing an order involving such quantum of penalty in its history since its inception. According to analysts, NSE may like to exercise the option of moving the Competition Appellate Tribunal.

Under the order, the exchange is also required to cease subsidising its currency derivatives operations.

The CCI order comes following 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. While NSE had entered currency derivatives segment in August 2008, MCX-SX did it in October 2008.

The competition watchdog had conducted a detailed probe into the matter under its Director General (DG), which submitted its report in September 2010. The DG had found NSE guilty of indulging in anti-competitive practices and a show cause notice was then issued to the NSE based on the investigation in April. The CCI passed an order on 25May 25.

The matter reached Delhi High Court after the NSE approached the court pleading that it could reply to the notice only following a review of the complete order.
The CCI was asked to provide a complete order to NSE by 3June. The CCI then sent another show cause notice along with a copy of the order to the bourse giving it a  week to respond.

The notice was sent in order to decide on the quantum of the penalty and provide the exchange an opportunity to cite reasons for mitigating the penalty.