Zerodha CEO Flags 1–5% Revenue Risk from New F&O Closing Auction Session

New F&O Closing Auction Session to Dent Zerodha Revenue, Says Nithin Kamath

Zerodha co-founder and CEO Nithin Kamath has publicly cautioned that an upcoming regulatory change to Indian stock market trading mechanics could have a modest but measurable impact on the discount brokerage’s revenue. The change in question is the introduction of a Closing Auction Session specifically for futures and options (F&O) stocks, which is scheduled to take effect from August 3, 2026.

What Is the Closing Auction Session?

A Closing Auction Session (CAS) is a mechanism used in several global markets to determine end-of-day closing prices for securities through a transparent, order-matching process rather than relying on the last traded price in continuous trading. The aim is to consolidate buy and sell orders in a brief window at the close of trading, producing a more representative and stable closing price.

In India, the CAS already exists for equity shares. Its extension to F&O stocks — derivatives whose pricing is closely tied to the value of their underlying equities — is intended to improve price discovery at the close of trading sessions, reduce distortions that can affect broad market indices, and help passive investment funds such as index ETFs and mutual funds minimise tracking errors against their benchmark indices.

Revenue and Operational Impact on Zerodha

Kamath estimated that the new session could reduce Zerodha’s brokerage revenue by approximately 1% to 5%. While the range is relatively modest in percentage terms, any reduction in revenue is significant for India’s largest retail brokerage by active client count, given the competitive pressure on brokerage pricing across the industry.

Beyond the direct revenue impact, Kamath flagged that the introduction of an additional trading session would add complexity to market timings for both retail and institutional traders. Traders who currently operate with established end-of-day routines — particularly those active in F&O markets — will need to adapt their strategies and order management practices to account for the new session window.

Broader Market Implications

The Closing Auction Session is part of a broader set of market structure reforms that Indian regulators have been pursuing to align domestic markets more closely with global best practices. By reducing end-of-day price manipulation risks and improving benchmark quality, the mechanism is expected to benefit long-term investors and passive fund managers, even if it introduces short-term friction for active traders and brokerages.

For Zerodha, which derives a significant portion of its revenues from F&O trading activity given its large retail base, the change is worth monitoring. The company has been known for its transparency in communicating the potential effects of regulatory changes on its business model, and Kamath’s public disclosure is consistent with that approach.

Market participants will now watch how trading volumes in F&O stocks evolve once the Closing Auction Session goes live on August 3.

Source: Economic Times

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