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Zerodha CEO warns India's new closing auction could cut brokerage revenue
The NSE and BSE plan to introduce a closing auction session on August 3 for stocks with futures and options, with Zerodha estimating brokerage income could fall by 1% to 5%.
Zerodha co-founder and CEO Nithin Kamath warned that a new market-structure change in India, due to take effect August 3, could make end-of-day trading more complex for investors and reduce brokerage revenue for firms like his.
Kamath said the NSE and BSE will introduce a Closing Auction Session for stocks with futures and options contracts, creating a dedicated auction window held at the end of the trading day. During that period, investors will place buy and sell orders that are then matched through an auction mechanism to determine a single closing price for each eligible stock.
He estimated that the change could reduce Zerodha’s brokerage income by 1% to 5%, and increase customer queries because different market segments will close at different times. Kamath also described how India’s closing price has historically been set using the volume-weighted average price of trades in the final 30 minutes.
According to Kamath, the new auction-based approach is designed to address two issues seen near the close, including the way large passive fund trades can affect prices while they are executed, and how institutional orders placed in the last minutes can disproportionately move closing prices and, in turn, benchmark indices.