MCX-SX plans to claim damages of nearly Rs800 crore from NSE
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Mumbai: MCX Stock Exchange Ltd (MCX-SX) plans to claim damages of nearly Rs.800 crore from National Stock Exchange of India Ltd (NSE) on account of losses suffered due to the zero-pricing strategy adopted by the latter in the currency derivatives segment.
MCX-SX has already filed an application with the Competition Appellate Tribunal (Compat) in September claiming damages of Rs.588.65 crore. Two people directly involved with the matter said that when the matter came up for hearing last month, MCX-SX said it wants to file a revised application for higher damages. The revised claim has not been filed yet.
“The matter came up for hearing last month but was adjourned as MCX-SX said it wants to make amendments in the claim amount. The plea was filed on the basis of consolidated claims and the exchange now wants to make stand-alone claims, which will be around Rs.800 crore,” said one of the people, speaking on condition of anonymity.
According to the second person, Compat will typically serve notices to NSE only after finding prima facie substance in the revised plea that will be filed in “due course”.
Both NSE and MCX-SX did not respond to emails seeking comment.
The dispute dates back to October 2008 when MCX-SX launched trading in currency futures. Since bigger rival NSE, which was already in the business, offered the facility for free, the new exchange was forced to do the same to attract business. However, MCX-SX petitioned the Competition Commission of India (CCI) in 2009 saying NSE was cross-subsidizing losses in currency trading with profits from other businesses, and argued that the zero-pricing strategy was an abuse of market dominance which was hurting the new exchange.
CCI ruled in favour of MCX-SX in June 2011, levying a Rs.55.5 crore penalty on NSE, and asking it to start charging fees. NSE started charging clients in August 2011, but moved Compat, which upheld the CCI ruling in August this year. The case is now pending in the Supreme Court, which has given NSE interim relief from penalty payment.Meanwhile, MCX-SX moved Compat demanding damages of Rs.588.65 crore, which it now wants to be raised to Rs.800 crore. According to the current petition filed by MCX-SX, the claim amount was arrived at after factoring losses related to transaction charges, membership charges, treasury income and data feed charges.
MCX-SX claims it was forced to offer free trading for three years until the CCI order, losing transaction charges to the tune of Rs.220.33 crore along with a treasury income loss of Rs.337 crore.
Mint has a copy of the petition filed by MCX-SX, which asks the tribunal to “…direct the respondent (NSE) to pay a sum of Rs.588.65 crore as compensation to the applicant (MCX-SX) along with interest pendente lite at the rate of 18% till realization of the claim (and) to pay costs of prosecuting this application.”
Pendente lite is a Latin term, meaning the period till which the litigation is pending in court.
Vaibhav Choukse, senior associate, competition law practice at J. Sagar Associates, a corporate law firm, said that while section 53N of the Competition Act facilitates the filing of a separate application for claiming compensation before the tribunal, it is difficult to comment with certainty on the amount of compensation the tribunal may award.
“The claimant carries the onus of proving loss or damage suffered as a consequence of the contravention of the provisions of the (Competition) Act. The claimant also carries the burden of showing causation for such loss or damage suffered. The probability of being awarded the amount claimed depends on the actual loss or damage suffered and the evidence adduced by the claimant,” said Choukse, adding that no applications for compensation have been decided by Compat till date.
The resolution to file an application with the tribunal to claim damages from NSE was approved by the board of MCX-SX on 19 June 2014.
“… approval of the Board…is hereby accorded to file a claim/make an application for compensation for loss/damages against the National Stock Exchange of India Ltd pursuant to the order dated 23 June 2011 passed by the Competition Appellate Tribunal,” says the resolution, a copy of which has been attached with the petition filed with Compat.
MCX-SX was promoted by Jignesh Shah, the founder of the FTIL group of companies, but following a Rs.5,574.34 crore fraud at National Spot Exchange Ltd (NSEL) in which FTIL holds 99.9% stake, it was asked to sell its stake in all exchanges, including Multi Commodity Exchange of India Ltd (MCX), Indian Energy Exchange (IEX) and MCX-SX. While FTIL has sold its stake in MCX and IEX, it still holds a little less than 5% in MCX-SX.
The share of MCX-SX has been gradually declining in the currency segment. On most days in the recent past, the daily turnover was less than Rs.2,000 crore. In August last year, MCX-SX boasted a daily average volume of Rs.11,650 crore.
Further, the exchange has less than a month to prove its clear net worth of Rs.100 crore, which was one of the conditions imposed by the Securities and Exchange Board of India (Sebi) while renewing its licence in September.
For the quarter ended 30 June, the exchange reported a net loss of Rs.11.84 crore.
“If the volume is low, then revenues would be impacted even as fixed cost expenses would continue to erode the net worth. It either has to get fresh investors or existing shareholders will have to bring in more funds,” he said.