NCLAT Refuses Probe Into NSE Co-Location Services, Upholds CCI Closure

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently refused to reopen allegations that the National Stock Exchange of India abused its dominant position through its co-location services, agreeing with the Competition Commission of India that the case did not warrant a detailed investigation at the threshold stage.

A bench of Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha said the competition regulator had examined the issue and applied its mind before closing the case.

“The CCI rightly examined the issues relating to co-location facilities and correctly concluded that no case was made out by the Appellant regarding denial of market access or grant of preferential access to select trading members,” the tribunal said.

The complaint was filed by investor Manoj K. Sheth, who questioned NSE's paid co-location facility. The service allows trading members to place their servers within the exchange premises to receive market data faster. Sheth claimed this gave certain brokers a speed advantage and early access to tick-by-tick data, allowing them to trade ahead of others and distorting the market.

NSE denied the allegations. It said co-location is a globally accepted, value-added service offered by stock exchanges worldwide. The exchange said the facility was introduced in 2009 to support direct market access and algorithmic trading, was optional, and was made available to eligible trading members at uniform charges. It denied giving any preferential access to select brokers.

The tribunal agreed with the regulator that dominance alone does not violate competition law. It noted that the material placed on record did not show, at the prima facie stage, denial of market access or appreciable harm to competition.

“Merely being a dominant player is not bad in itself, unless it has resulted into abuse of its dominant position resulting into AAEC. The abuse can occur when a dominant enterprise like NSE in the present case, exploit its position by imposing unfair or discriminatory conditions of price or limit or restrict its services or product. If such elements are not present, then obviously such dominance cannot be presumed to be abusive,” the bench observed.

On the technical aspects, the tribunal recorded that NSE later moved away from its earlier TCP/IP-based architecture and adopted multicast technology. It also noted that the securities market regulator had already examined the co-location framework in depth. While shortcomings were identified in the older system, no collusion between exchange officials and brokers was found.

Holding that the regulator had applied its mind and recorded sufficient reasons for closing the case, the tribunal said the order “warrants no interference.” The appeal was dismissed and there was no order as to costs.

For Appellants: Advocates Nityaesh Natraj, Vaibhav R Venkatesh, Udian Sharma, Akash Srinanda, Anirudh A Sriram, Harsha Sadhwani, Manav Mitra, Subhika Joshi & Sahil Saraswat

For Respondent: Senior Advocate Neeraj Malhotra with Advocates Aman Singh Sethi, Manika Brar, Parteek Yadav, Shivek Sahai Endlaw, Rohan Dembani & Nimish Gupta for NSE; Advocates Rahul Ajatshatru Aashima Gautam, with Advocate Sunaina Dutta for CCI.