The Competition Commission of India (CCI) seems to have erred in the first high-profile case in its short history. The competition regulator ruled late last month that the National Stock Exchange (NSE) abused its dominant position in the currency derivatives market. This was after MCX Stock Exchange (MCX-SX) complained that NSE is deliberately waiving fees in the currency derivatives segment to kill competition.
Its order didn’t reveal that two of its members had disagreed with large parts of it. The dissent note by these two members, released late last week after an instruction from the Delhi high court, absolves NSE from the charge of abusing its dominant position.
The dissent note, of course, represents a minority view and doesn’t overrule the majority order of CCI. It, however, raises some important questions, which the majority order has ignored. For instance, the majority order almost ignored the role and the position of the United Stock Exchange (USE), which is the third competitor in the currency derivatives market. USE entered the segment about two years after NSE was launched, fully aware that it would not be able to charge fees in the segment. There also doesn’t seem to have been an effort to work alongside sector-specific regulators, even though the Competition Act, 2002, provides for such cooperation. As such, the order isn’t well-reasoned and doesn’t give the impression that it was backed by rigorous analysis. This is unfortunate as the NSE case was an excellent opportunity for CCI to establish its credentials as a regulator.
But regardless of whether CCI or for that matter the Competition Appellate Tribunal comes to reasonable conclusion on the NSE case, issues related to competition in the stock exchange space must be addressed by policymakers. The management at the Bombay Stock Exchange has said in the past that market regulator Securities and Exchange Board of India should have a competition policy that will prevent practices that hold back the development of the market.
Of course, specific charges such as those brought by MCX-SX are best tackled by a competition regulator. But that shouldn’t stop policymakers from drafting comprehensive rules for the conduct of stock exchanges. Ever since the Bimal Jalan committee report came out late last year, there have been appeals for a policy framework that encourages greater competition in the exchange space, and a review of the report is under way. Of course, the half-baked CCI report would add fuel to that fire. But the review of the Jalan report shouldn’t stop at decisions such as whether stock exchanges should list or not. It’s also time for a framework that enables stock exchanges to operate in a healthy competitive environment, with sufficient rules to guard against anti-competitive behaviour.
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