|Checking abuse of power|
|Friday, 27 May 2011 00:00|
US vs Microsoft. European Commission vs Microsoft. Both are landmark cases in the global history of anti-trust battles—the first on Microsoft trying to promote Internet Explorer at the cost of other browsers and the second on bundling Windows Media Player with the computer’s operating system. So, when the Competition Commission of India (CCI) cites the two cases in its show cause notice to the National Stock Exchange (NSE is India’s largest exchange), it suggests CCI has taken the allegations made by rival MCX-SX very seriously. MCX-SX had made two charges. One, it said that NSE waived charges on currency futures trades on it—it incurred a loss on this, but could sustain this loss since it made money elsewhere, and used this to squeeze the newcomer MCX-SX which could ill-afford the losses. Two, MCX-SX said that one of its promoters, Financial Technologies, had developed a trading software ODIN—NSE withheld some important codes from ODIN which ensured NSE’s clients did not use this software while making certain kinds of trades on NSE.
While NSE has been given a week to respond to the show cause, CCI’s judgment cites several instances to suggest NSE was trying to kill the competition. In 2000, CCI says, NSE’s decision to waive transaction charges in the futures and options segment ensured it beat BSE—once this was done, the waiver was withdrawn. In 2010, when BSE entered into the Gold ETF segment and got a market share of 19%, NSE decided to waive/reduce transaction fees here. There is a fine distinction between predatory pricing and marketing strategy. No newcomer, for instance, can be accused of predatory pricing even if it prices below cost—which is why the cellular phone firms’ charge of predatory pricing didn’t stick when newcomer RComm offered large discounts some years ago. Market power is critical for proving predatory pricing. NSE and its lawyers will dissect the show cause notice, argue that the derivatives market was different from the overall market and just because it was a big player in the equity market didn’t mean it had market power in currency derivatives. The last has not been heard on the case, both sides have a lot of hard work ahead, both in and out of the country’s courts. Either way, its impact will be huge and will be felt across sectors. India’s CCI has finally made its presence felt.