Zerodha Founder and CEO Nithin Kamath has explained why Indian brokerage firms cannot grow indefinitely, even amid strong investor demand. According to Kamath, regulatory limits set by the Securities and Exchange Board of India (SEBI) place a strict ceiling on how large a single broker can become, ensuring that the industry remains balanced and competitive.

At the heart of this restriction is SEBI’s 15% open interest cap in the derivatives market. Kamath noted that no single broker is permitted to hold more than 15% of total market open interest at any given time. This rule exists to prevent excessive concentration of risk within a single brokerage and to protect investors from potential systemic shocks.

Kamath emphasised that while market concentration can accelerate business growth, it ultimately carries long-term risks for consumers. By capping broker-level control, SEBI maintains a competitive environment, promoting stability and safeguarding the broader financial system. “Concentration is beneficial for business but ultimately detrimental to consumers,” he stated.

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To illustrate the principle, Kamath compared SEBI’s limit to similar restrictions in the digital payments sector, such as the 33% market share cap imposed on UPI apps by NPCI. Unlike the UPI rule, which was never fully enforced, SEBI’s open interest limit is strictly applicable and must be adhered to by all brokerage firms operating in India.

Kamath further highlighted that individual broker growth depends on the expansion of the overall market. For brokers to increase their business, other players must also perform well, creating an environment of healthy competition. For investors, these regulatory measures ensure that no single brokerage dominates the market, reducing risk and encouraging equitable participation across the sector.

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