Zerodha's Nithin Kamath On How This Boring Invisible Sebi Project Led Windfall Gains For Retail Investors

Zerodha's co-founder, Nithin Kamath, has shed light on the sheer complexity of the brokerage business, which most people are often unaware of. However, market regulator Sebi has continued to take measures to make trading better, efficient and flexible for retail investors. According to Kamath, there is one project that Sebi led to windfall gains for retail investors.

Through his X handler, Nithin said, "One critical aspect of the brokerage business most people are unaware of is the sheer underlying complexity."

He added, "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," said Nithin.

Explaining further, Nithin gave an example.

According to him, a great example of quiet, systemic backend work yielding significant impact is the multi-year exercise SEBI undertook to standardise data exchange across market entities-the Unified Distilled File Formats (UDiFF).

Generally, the data files generated by market participants in all segments are different, and there is a need for these formats to be standardised and harmonised in order to facilitate ease of doing business in the Indian Securities market. In view of the above, all the file formats are standardized across depositories. The new standardised file formats are named "Unified Distilled File Formats (UDiFF)".

He highlighted that 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, Nithin said, "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."

Along with it, he added, "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."

Thereby, Kamath said, "These boring, invisible, background updates are often far more meaningful, impactful, and directly beneficial to retail clients than most shiny frontend features."

Lastly, Nithin said, "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."