Zerodha co-founder and CEO Nithin Kamath has warned that proposed changes to Indian market closing rules could significantly affect the brokerage’s business, stating that the move may lead to a meaningful decline in the firm’s revenue. Kamath’s comments came after the Securities and Exchange Board of India (SEBI) proposed changes to the market closing session aimed at improving price discovery and aligning Indian markets with evolving trading practices. The brokerage industry is closely watching the proposals, as any reduction in trading activity during the final minutes of the trading session could affect transaction volumes and brokerage income.
According to Kamath, a substantial portion of retail trading activity occurs near the market close, making the proposed changes particularly important for discount brokers whose revenues are largely driven by trading volumes. While he acknowledged that market reforms should prioritize investor protection and market efficiency, he cautioned that the new framework could have unintended commercial consequences for brokerage firms.
SEBI’s Proposed Market Closing Changes
SEBI has proposed modifications to the market closing process to improve the integrity of closing prices used for index calculations, mutual fund valuations, derivatives settlement, and institutional transactions.
The proposals are intended to:
- Strengthen price discovery at market close.
- Reduce the possibility of price manipulation.
- Improve transparency in determining closing prices.
- Enhance market efficiency.
The regulator has invited public comments before finalizing the framework.
Proposal Snapshot
| Item | Details |
|---|---|
| Regulator | Securities and Exchange Board of India (SEBI) |
| Proposal | Changes to market closing session rules |
| Objective | Improve price discovery and market integrity |
| Status | Consultation proposal |
Nithin Kamath Warns of Revenue Impact
Commenting on the proposal, Nithin Kamath said the changes could materially affect Zerodha’s business because a large share of trading activity is concentrated around the closing session.
According to Kamath:
- A significant percentage of retail orders are placed near market close.
- Any reduction in trading opportunities during that period could lower transaction volumes.
- Lower trading volumes would directly affect brokerage revenues.
While he did not quantify the exact financial impact, Kamath indicated that the effect on discount brokers such as Zerodha could be meaningful.
Why It Matters for Brokerages
| Factor | Potential Impact |
|---|---|
| Lower closing-session trading | Reduced transaction volumes |
| Fewer executed orders | Lower brokerage income |
| Retail participation | Possible decline in end-of-day activity |
| Industry | Revenue pressure for brokers |
Why the Closing Session Is Important
The final minutes of the trading day play a critical role in India’s equity markets.
The closing price is widely used for:
- Mutual fund net asset value (NAV) calculations.
- Index computation.
- Derivatives settlement.
- Institutional portfolio valuation.
- Benchmark performance measurement.
Because of its importance, regulators periodically review the methodology to ensure that closing prices accurately reflect market demand and supply while minimizing the risk of manipulation.
Potential Impact on the Broking Industry
If implemented, the revised framework could have varying effects across the brokerage industry.
Possible outcomes include:
- Lower trading activity during the closing session.
- Reduced order execution volumes.
- Pressure on transaction-based revenue models.
- Greater focus on long-term investing products and advisory services.
For discount brokers that generate most of their revenue from trading activity, even modest declines in order volumes can affect overall earnings.
Industry Balancing Market Integrity and Business Growth
The proposed changes highlight the balance regulators seek between strengthening market integrity and supporting market participation.
While brokers have expressed concerns about the potential commercial impact, SEBI’s objective remains improving the reliability of closing prices that influence billions of rupees in daily market valuations.
The consultation process is expected to gather feedback from brokers, exchanges, institutional investors, and market participants before any final decision is taken.
Looking Ahead
SEBI’s proposed changes to the market closing session could reshape one of the busiest periods of the Indian trading day. While the regulator’s focus is on improving price discovery, transparency, and market integrity, brokerage firms such as Zerodha have highlighted the potential commercial implications of lower trading activity during the closing session. Nithin Kamath’s comments underscore the dependence of discount brokers on transaction volumes and the importance of the market close in retail trading behavior.
Looking ahead, the final shape of the regulations will depend on stakeholder feedback received during SEBI’s consultation process. If implemented, brokers may need to adapt their business models by expanding wealth management, long-term investing, and value-added financial services to offset any decline in transaction-based revenue, while investors could benefit from a more robust and transparent market-closing mechanism.
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