Competition Commission of India (CCI): Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) addressed the allegations against the National Stock Exchange for alleged contravention of provisions of the Competition Act.
Present matter was filed against National Stock Exchange of India Limited for alleged contravention of Section 4, particularly Sections 4(2)(b)(ii) and 4(2)(c) of the Competition Act.
What were the allegations against NSE?
- Indulged in practices of granting preferential market access to select brokers
- Creating artificial information asymmetry
- Market Manipulation in relation to co-location facilities
- Uniform fee charged from all members towards co-location services, but allegedly uniform benefits have not been accorded to all trading members who had paid for the service.
Analysis, Law and Decision
While analysing the matter, Coram noted that the co-location facility was in vogue since 2009. Further, it was added that the choice of technology, which had been alleged to have created distortions, ceased to exist as far back as in 2016 and there seems to be confidence instilled in the system, with 188 members of the exchange availing the facility and the sectoral regulator specifying guidelines for adherence by the exchange for provision of such facility. As submitted by the Informant, even the charges payable for availing such facility have been considerably reduced.
Commission observed that
Mere pendency of matters in alternate forums does not axiomatically place any embargo on the Commission to halt its mandate in discharging its statutory obligations, in the face of any alleged anti-competitive conduct which is brought or comes to its notice.
Co-location facility creates a divide between two classes of trading members
NSE stated that the said facility was made available on a first come first serve basis and essentially there is no pick and choose. Further, it added that it is not the only exchange in India providing co-location facility, even other exchange like BSE is providing the same.
Coram stated that in the present case, the consumers are the trading members who were looking for the co-locational facility for algorithmic trading.
Abuse of dominant position by NSE in provision of co-location facility?
Commission noted the submission of NSE that at the time of introducing co-location services, SEBI had not prescribed any specific technology to be used and that it had a choice between two technologies:
- TCP/IP technology, and
NSE, after studying practices of some leading international stock exchanges providing co-location services, came to a decision to have TCP technology as it provided market safety, reliability, integrity and accessibility.
Commission agreeing with the above submission that if there had been a bonafide choice of a particular technology, coupled with the fact that the sector regulator did not observe any instance of fraudulent conduct in violation of SEBI (PFUTP) Regulations, 2003 in the provision of the co-location facility which had been the mainstay of the allegations against NSE, then it ought not to be found in contravention of Section 4 of the Act.
Should the co-location facility be stalled as it is in itself anti-competitive?
A robust exchange acts as a backbone of the financial system and the provision of co-location facility by exchanges help increase volumes of trades manifold and provides liquidity to investors. This augurs well for the market, the companies and the economy.
Commission stated that to stop the co-location facility will be retrograde. Further noting that the Sectoral Regulator, SEBI did not stop the co-location facility in any manner since its introduction and had recognised the said service.
Hence, in view of the Commission, no prima facie case exists. [Manoj K Sheth v. National Stock Exchange, Case No. 35 of 2019, decided on 28-06-2021]
Advocates before the Commission:
For the Informant: Mr. Nithyaesh Natraj, Advocate Mr. Animesh Kumar, Advocate Mr. Anirudh, Advocate
For OP: Mr. Neeraj Kishan Kaul, Sr. Advocate, Mr. Somasekhar Sundaresan, Advocate, Mr. Naval Chopra, Advocate
Mr. Aman Singh Sethi, Advocate, Ms. Manika Brar, Advocate and Mr. M. Vasudev Rao, General Counsel
What are co-location facilities?
Co-location is the practice of renting space for servers and other computing hardware at a third-party provider’s data centre facility. Co-location helps in the faster movement of data. In the context of co-location services, NSE had on 31.08.2009, announced the launch of co-location services along with the guidelines/ procedure to be followed by members interested in availing co-location facility. Members availing co-location facility are allowed to take one or more leased lines to the co-location facility from different telecom service providers for the purpose of setting up or modifying parameters, trading related activities and hardware, software, network-related access, software download/upload and monitoring and data downloads.