BACKGROUND:

The Commission took suo moto notice of certain circulars/notices issued by the Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) which provided for fixing a price floor for securities. The issue was whether such floor pricing violated Section 4 of the Competition Ordinance, 2007.

In its analysis, the Commission, inter alia, held that the determinants of a competitive market are i) absence of a dominant player, ii) availability of choices, iii) perfect information as to market conditions, iv) easy entry, and v) easy exit. Moreover, it further stated that the primary objective of establishing a stock exchange is to bring a large number of buyers and sellers together to buy and sell securities, have choices, have perfect information as to price of securities and can enter and exit the market at a price of their choice.

The Commission held that where the actual intention is to set a particular price or otherwise affect the market price, the decisions are liable to be condemned per se. Further, the Commission also analyzed this decision on the touchstone of the Chicago test which provides the basis for ascertaining the legality of restraints by looking at i) the nature of the rule, ii) the scope of the rule, and iii) the effects of the rule. In doing so, the Commission held that firstly, the decision in this case set the price rather than restricting the period of price-making. Secondly, the decision was broad in operation applied to all listed securities throughout Pakistan. Thirdly, the decision had the effect of declining trade volume by more than 98%. As such, it restricted competition in several ways as it, inter alia, restricted competitive bidding in negation of the very essence of stock markets.

ORDER:

The act of placing a floor on the trading price of listed securities by KSE, LSE, and ISE was held to be in violation of Section 4(1) of the Ordinance. In view that the competition regime was new in Pakistan and recognizing that the market players needed more time to understand and align with the requirements of competition law, the parties were penalized on the lower side as follows:

i. KSE for a sum of rupees six million (Rs. 6,000,000).

ii. LSE for a sum of rupees one million (Rs. 1,000,000);

iii. ISE for a sum of rupees two hundred thousand (Rs. 200,000).

APPEAL:

KSE and LSE preferred an appeal under Section 41 of the Ordinance before the Appellate Bench of the Commission.

ORDER OF THE APPELLATE BENCH:

The Appellate Bench of the Commission after giving detailed hearings to both KSE and LSE, disposed off the appeals filed by LSE and KSE and upheld the order of the Single Member of the Commission. The Appellate Bench of the Commission was inclined to reduce the penalty by 50% (fifty percent) of KSE restricting it to a nominal sum of Rs. 500,000/- (five hundred thousand) provided:

(a) KSE admits the contravention,

(b) Provides assurance to the Commission that no such action shall be taken in future and

(c) deposits the penalty within a period of 2 (two) weeks from the date of issuance of this Order.

The appellate Bench further held that, failure to comply with the above, KSE shall lose its opportunity to avail a lenient treatment and shall be liable to pay the original penalty as imposed by the Single Member in the sum of rupees one million. Since LSE has already accepted the contravention and submitted not to contest the subject Appeal, keeping the above in view and appreciating its responsible conduct the Appellate Bench of the Commission reduced the penalty for LSE to a nominal sum of Rs. 200,000/- (two hundred thousand).

CURRENT STATUS:

Case transferred to CAT from Supreme Court