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Competing for the future PDF Print E-mail
Monday, 27 June 2011 00:00
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When the management of the National Stock Exchange (NSE) decided, on August 26, 2008, to waive fees on currency derivatives, it probably wasn’t the most important decision given just how insignificant currency volumes were in comparison to NSE’s total turnover. Similarly, when a decision was taken to withhold some important codes from the trading software ODIN (developed by rival MCX-SX’s promoter firm Financial Technologies), it’s not clear just how focused NSE’s top management was on its implications. Sure, it would hurt wannabe rival MCX-SX, but isn’t that what business is all about? No quarter asked for, none given. Even if someone thought of how the competition authorities in the country would view this, it didn’t really matter since the Competition Commission of India’s (CCI) powers hadn’t even been notified back then—they were notified on May 20, 2009. When the powers were notified, and push came to shove, MCX-SX took the case to CCI; the latter investigated the matter and found NSE guilty of abusing its dominant position to stifle competition. After NSE was given the requisite time to contest the ruling, CCI has now fined NSE R55.5 crore. Given NSE’s profits of R614 crore in 2009-10, the fine is a big one, even though it is true NSE’s profits have been rising at a fast clip—profits grew a fourth in 2009-10 and are roughly half of the turnover. More than the fine, it is the way it was computed that should send shivers down India Inc’s collective spine—the fine has been calculated as 5% of NSE’s average turnover in the past three years. Apply the same logic to other companies, and the size of fines in the future could rise manifold. If MCX-SX successfully files for damages, based on CCI’s ruling, the loss for NSE could be significantly higher—there are obvious implications in terms of what such actions could mean for India Inc.

For company managements focused only on the future, this is timely wake-up call—it’s a good idea to stick to the straight and narrow since you don’t know when the past can come back to haunt the future. It’s a thought that probably keeps coming back for all those involved in the 2G scam—even if their licences (for which they paid R1,651 crore each) aren’t cancelled, it is certain the firms will all have to pay heavy fines. With this order, which NSE will certainly contest in the courts, India’s CCI has arrived as a serious competition watchdog.

 

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