ISLAMABAD (November 14 2008): In a landmark judgement, the Supreme Court of Pakistan has vacated a stay order of Sindh High Court (SHC), enabling the Competition Commission of Pakistan (CCP) to resume hearing of case against the Karachi Stock Exchange (KSE) for alleged abuse of dominating market position.
The SHC had restrained the CCP from issuing final order against the KSE. Now, the CCP is free to initiate adjudication proceedings and pass the final order against the KSE, after giving hearing opportunity to the exchange. The CCP has already heard the case, but suspended the proceedings following a stay order of the SHC.
On completion of hearing, the CCP would pass the final order under section 31 of the Competition Commission Ordinance 2007. Details revealed that the CCP had initiated an inquiry against the KSE on the alleged abuse of dominant market position, placing the small investors of the Islamabad Stock Exchange (ISE) at a disadvantageous position in buying and selling of shares.
The inquiry was initiated on a complaint lodged by the ISE and Lahore Stock Exchange (LSE) under section 30 of the Competition Commission Ordinance 2007 for contravention of provisions of section 3 of the Ordinance. The commission had sought comments of all the exchanges keeping in view the seriousness of the allegations made by the ISE.
Following completion of all legal formalities, the CCP has issued show cause notice to the KSE, providing the exchange an opportunity to explain its position. However, the KSE had filed a petition in the SHC to challenge the Competition Commission law. The SHC had given the stay order against the CCP, restraining the commission from issuance of final order against the KSE.
Against the stay order of SHC, the CCP approached the Supreme Court for vacation of the stay. The Supreme Court has vacated the stay order of the SHC, which has enabled the CCP to proceed against the KSE under the relevant provisions of law.
According to the ISE, most of the companies listed on ISE are also listed on the other exchanges and constitute 90 percent of the total trading volume of listed securities in Pakistan. Of this 90 percent, 87 percent of the trading market belongs to KSE, whereas ISE and LSE collectively account for only a meagre 13 percent of such trading and therefore unquestionably there exist a "dominant position" of KSE in the relevant market.
The ISE said that the KSE and its members, in practice, ensure that access to the "best price" for a particular security, which is mostly available at KSE only, is not available to other exchanges, including ISE, thus depriving investors of such exchanges of an equal opportunity of having a fair and non-discriminatory access to quotation displayed at KSE and thus depriving them to match offer quoted at KSE.
The bids and offers of investors who entered into trading systems of one exchange cannot be matched with those entered at another exchange, even if the security being traded is listed at both exchanges and for that reason, ISE members has to route many orders of their clients (investors) through the members of KSE, resulting in large scale trading without being regulated by either of the exchanges. Moreover, investors at ISE have to pay higher out of pocket brokerage fees.
The ISE has alleged that the KSE abuses its dominant position in the relevant market, inter alia, due to the practices carried out by KSE and its members, which has the effect of preventing and distorting competition in the relevant securities market of Pakistan. The KSE and its members have maintained the said practices which prevent, restrict and distort competition in the relevant market and thus constitute "abuse of dominant position" in terms of Section 3 of the Ordinance.
The abuse of the dominant position of KSE and its members can be curtailed by requiring KSE, along with LSE and ISE, to enter into centralisation of all buying and selling interests so that each investor would have the opportunity for the best possible execution of his order, regardless of where in the system it originates, ISE added.
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