Zerodha’s Nithin Kamath says Sebi’s this reform boosting retail investors

The Securities and Exchange Board of India (SEBI) has implemented a significant regulatory reform aimed at enhancing the domestic stock markets by standardising data exchange among market entities. This development, according to Zerodha's founder and CEO, Nithin Kamath, has provided substantial benefits to retail investors, surpassing the allure of visible front-end features. Kamath emphasised the underlying complexities of the brokerage business, which involves integration with multiple stock exchanges and financial entities, often resulting in technical and operational challenges invisible to clients.

Kamath noted, "One critical aspect of the brokerage business most people are unaware of is the sheer underlying complexity. At a high level, we integrate with multiple stock exchanges, depositories, RTAs, banks, and others. Each of these integrations (hundreds of APIs and file exchanges) has been non-uniform and non-standard, resulting in massive amounts of technical and operational complexity. These are completely invisible to a broker's clients." The SEBI initiative involved a multi-year exercise to establish the Unified Distilled File Formats (UDiFF), a standardised data exchange system.

This reform led to consistent data formats across market institutions, reducing the operational burden on brokerage firms. Kamath explained, "The same data that was represented inconsistently across three exchanges, for instance, was unified to be consistent in a single format, across numerous data structures. As a result of this, we ended up removing 60%+ of the code that was required to maintain these separate data formats, significantly reducing technical and operational complexity and risk." The operational efficiencies gained from this initiative are notable, with processes like nightly data imports seeing dramatic reductions in time.

"Along with it, we saw huge efficiency gains. For instance, a nightly data import process went from taking 40 minutes to 30 seconds. Ultimately, this one SEBI project has cleared technical debt accrued over decades, significantly reducing technical and operational risk systemically in Indian capital markets," Kamath added. He emphasised that such backend updates are often more beneficial to retail clients than visible features. "These boring, invisible, background updates are often far more meaningful, impactful, and directly beneficial to retail clients than most shiny frontend features," said Kamath.

Reflecting on Zerodha's approach, Kamath articulated the company's commitment to reducing technical and operational debt. "At @zerodhaonline, we take technical and operational debt very seriously. Constantly reducing its buildup and giving these invisible improvements as much importance, if not more, as frontend features, is our engineering philosophy. Our priority is to make the underlying systems robust and reliable for the next decade, rather than focusing on what can be released in the next quarter," he stated. This commitment aligns with SEBI's efforts, highlighting the broader industry impact of regulatory reforms designed for systemic enhancement of market operations. The focus remains on long-term stability and efficiency, ensuring that the benefits are sustained over time, thereby fostering a more resilient market environment for all stakeholders involved.