Nithin Kamath warns closing auction session may hit Zerodha’s revenue from August 3

Zerodha co-founder and CEO Nithin Kamath said the broking firm may see some portion of its revenue knocked off after Closing Auction Session (CAS) takes effect, adding that things will “get a little more complicated” from August 3 onwards.

Stock exchanges BSE and NSE are introducing the system for stocks with F&O contracts. It is a structured trading window held at the end of the trading day. During this period, market participants place buy and sell orders to determine a single closing price for a security through an auction-based mechanism.

Kamath explained that this is not a new concept globally, as major exchanges including the New York Stock Exchange (NYSE) and London Stock Exchange (LSE) already use versions of a closing auction to determine closing prices. “Today, the closing price of a stock in India is based on the volume-weighted average price of trades during the last 30 minutes. Under CAS, buy and sell orders will instead be collected and matched at a single equilibrium price,” the Zerodha CEO said in a post on X.

The change is aimed at addressing two issues, according to Nithin Kamath. First, passive funds tracking indices have to execute large orders near the end of the day to match the closing price, and these orders can move prices while they are being executed, increasing tracking error. This will likely be resolved through the CAS system.

Secondly, large orders placed in the final few minutes can disproportionately influence the closing prices of stocks and, in turn, the indices they are part of, Kamath noted. Since CAS pools all orders and matches them at a single price, influencing the close becomes harder, he added.

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Different market timings for what you are trading

The Zerodha CEO highlighted that this means that the Indian stock market will now see three different market end times depending on what the investor is trading. Stocks with F&O contracts will stop continuous trading at 3:15 pm and move into CAS, while all other stocks will continue trading until 3:30 pm. Index and stock F&O contracts meanwhile will trade until 3:40 pm.
“Now that broking is listed and people are looking more closely at the business, the honest bit: this will probably knock off some revenue, perhaps around 1–5% of brokerage income,” he said, adding that the more immediate challenge however would be explaining why different parts of the market now appear to close at different times. “We’re braced for the flood of questions,” he said.