Sucheta Dalal :SEBI: More skeletons
Sucheta Dalal

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SEBI: More skeletons  

June 21, 2011

Competition Commission finds NSE guilty of misusing its dominant position and indulging in unfair trade practices in currency derivatives, that SEBI refused to act against

Sucheta Dalal

In September 2010, I wrote that CB Bhave would leave behind an ‘extremely controversial legacy’. While this was countered by interested parties, the biggest warts of his tenure are out on public display in less than three months after he demitted office.

The first to go was SEBI board’s decision to declare two orders against the National Securities Depository Ltd (NSDL) as void (or non est). Under pressure from the Supreme Court, the SEBI board reversed its own earlier decision; it will have to inform the apex court about the action it plans to initiate against the depository. On 25th May, the Competition Commission of India (CCI) issued a 140-page order against the National Stock Exchange (NSE), finding it guilty of misusing its dominant position and indulging in unfair trade practices in currency derivatives. This was in response to a complaint filed by MCX-SX (MCX Stock Exchange) that NSE was killing competition by charging zero fees on forex derivatives, by using its near monopoly in the capital market and high fee structure to subsidise the new business. SEBI refused to act against this blatant predatory pricing by NSE, forcing MCX-SX to approach CCI.

MCX-SX, the market leader in forex derivatives, suffers huge losses every day because it is forced to maintain parity with NSE and not levy transaction fees in order to retain customers. Isn’t it ironical that SEBI, which under Mr Bhave’s watch had no issue encroaching on the insurance regulator’s turf, had no time to supervise NSE’s actions? It also failed to act when NSE suddenly found problems with Financial Technologies’ broker front-end software (which had an 85% market share) when it was promoting its own rival product. Finally, while Mr Bhave has been correctly lauded for eliminating front-end loads on mutual funds, the action drove smaller mutual fund investors out of the market. This was because there was no easy mechanism for them to pay miniscule fees to independent financial advisors (IFAs). SEBI simply ignored the issue and allowed hundreds of IFAs to go out of business.


-- Sucheta Dalal