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Informist, Monday, Sept. 7, 2026

 

By Rajesh Gajra and Adhithya Aji

 

MUMBAI - The most controversial topic of the past one month for most market participants and intermediaries has been the very low trading volume in the recently launched closing auction session in the cash market for stocks that are in the futures and options trading list. Ashish Nanda, chief digital business officer at Kotak Securities Ltd., one of the large equity broking firms, has seen innumerable controversies as well as major market and regulatory developments, having been involved in various capacities at the firm for over a quarter of a century now.

 

In an interview with Informist, Nanda was forthright in his perspective on the closing auction session. There has been a lot of hue and cry on the matter, he said, but "I don't think anybody comprehended what has happened will happen." The volatility in price movements during the closing auction session will get resolved one way or another--whether participation increases or some tweaks happen, Nanda said. "I think whenever you do a change, sometimes the changes take time to get blended into the system."

 

Nanda also takes the Securities and Exchange Board of India's side with regard to retail participation in equity futures and options trading. He did not oppose the regulatory measures over the last few years, including the biggest one which was to disallow weekly expiry in all but one benchmark equity index option contract per exchange.

 

To a question on whether India was moving in the opposite direction from the rest of the global markets, particularly the US Cboe Exchange which has kept expanding the list of indices on which daily expiration contracts are permitted, amid rising retail participation, Nanda agreed that India is no different from those markets in terms of retail moving towards options trading. But in India, due to the low per capita income and the trading losses that retail options traders were making, the market regulator was right to be bothered. "Having said that, there will be some point when the regulator says we have done enough, and now we leave it to the capability of the individual investor," he said.

 

To a question on whether the recent surge in the book size of margin trading facility in the equity cash market poses systemic risks due to the leverage and funds borrowing behind the product, Nanda said the current book size of around INR 1.5 trillion is not creating a systemic risk as it is a minuscule 0.3% of India's total equity market capitalisation.

 

Talking of the foray of Kotak Securities into discount broking much early on a few years ago, Nanda said the journey has been good. "We were earlier a traditional broker so we... understand cash market really well... But I think we (have) learned the digital broking side of the game as well," he said.

 

On intense competition from the high-tech digital brokers, Nanda said his firm has done a lot in terms of offering high-tech application features, speed, resilience, and uptime. He said the market share of Kotak Securities in the past 2-3 years has risen to 10.4% from around 8-9% in the cash market segment, and over the past 7-8 years its market share in equity derivatives has risen to 15% from below 3%. Kotak Neo is the only traditional or bank broker that has provided effective competition to the larger digital brokers, he said. If the big digital brokers are asked today who is their competition, Kotak Neo's name should appear in their answer, according to Nanda.

 

On algorithmic trading products for retail clients, Nanda said Kotak Neo is one of the few brokerages which has taken the lead. Kotak Neo allows retail clients to create their own algorithmic strategies and link those to the brokerage's application programming interface pipe, he said. This way they can route their algorithmic orders directly through our console, he said.

 

CLOSING AUCTION BLUES

Barring Aug. 31, when the closing auction session turnover on the National Stock Exchange shot up to around INR 390 billion due to MSCI's indices rejig, the average daily turnover since the new system was launched Aug. 3 has been extremely low, around INR 13 billion, on the NSE. Nanda believes SEBI is engaging with brokers through the broking industry standards forum and going through social media posts highlighting the problems.

 

Nanda is confident solutions will be found. The closing auction session has been adopted by many global markets. "It is wrong to say they (SEBI) should not have tried," he said.

 

The closing auction session has also substantially impacted the equity futures and options. The closing price earlier was determined as the volume weighted average price of the last 30 minutes of the continuous trading session till 1530 IST. Now it is determined from the equilibrium price from the orders in the auction. The official closing price is also the settlement price for the equity derivatives segment.

 

No trading takes place in the F&O permitted stocks in the cash market from 1515 IST to 1530 IST. Retail F&O traders have been complaining that they cannot protect the risks to their open positions after 1515 IST by hedging at a definite price on a real-time basis and so want the settlement price to be the reference price fixed at 1515 IST when the continuous trading session ends. SEBI has taken notice and issued a press release Thursday saying it will issue a consultation paper very soon on the settlement price methodology.

 

To a question on whether the suggestion to delink the settlement price from the official closing price is one of the solutions, Nanda said he was not a subject matter expert but the experts in his team had told him it is possible.

 

F&O AND RETAIL

On SEBI's motivation to curb retail participation in equity derivatives trading, Nanda understands that an expiry day trading frenzy similar to the one seen in India happens across equity derivatives markets worldwide, particularly in the US and developed markets. Retail traders moving to options is what is seen in all these markets.

 

However, the economic structures are different, he said. In developed countries, per capita incomes are at a different level. The worst among them have a per capita income of $20,000 and upwards, while in India it is about $2,500. The way market regulators think in those economies is different from our market regulator, and rightly so, Nanda said. In a country like India with a low per capita income, if retail traders are putting money in options trading and losing money the regulator is right to be bothered, he said.

 

SEBI has taken 6-8 steps to cool down speculative and leveraged frenzy in options trading. "Whether they have come to an end in making all these changes or they will continue to do others, I think they have done a lot (and) we can clearly see the impact of those regulations," Nanda said.

 

Referring to the latest investor study on equity futures and options by SEBI, Nanda said the total number of individual traders has dropped to 8.8 million from 10.1 million, and the proportion of loss-making individuals is down to 87% from 91%. "Frankly speaking, this (drop in) number is huge," he said. It means that not just 2 million individuals stopped trading or active ones made less losses, but also that probably the percentage of profit makers has slightly increased. "So I think whatever they (SEBI) have done has worked to some extent for sure."

 

But Nanda acknowledged that equal scrutiny is needed with regard to the trading activity of foreign portfolio investors and proprietary traders. FPIs' aggregate gross profit from equity F&O dropped significantly by 55% in the financial year 2025-26 (Apr-Mar) and proprietary traders' aggregate gross profit declined 3%, even as individual traders showed an improvement since their aggregate gross loss fell 26%.

 

Nanda said the recent years' increase in capital market trading, particularly in equity derivatives by retail traders, was also because of the fact that when they got into trading in 2020 during the lockdowns the market was at the bottom. "And you saw three years of a linear bull run till 2024," he said. "So everybody made money. So when everybody makes money, then word of mouth kind of happens. And people say, get into the market."

 

Nanda, however, thinks the past 2-3 years have made individuals realise that the stock market will not keep going in one direction always. "So I'm saying, what you know by experience, you only know by experience. But I think now things have moderated," he said.

 

Asked whether it is fair to pin the blame on individual derivatives traders for indulging in leveraged trading activity, given that it is a legitimate profession, Nanda said being skilled in trading is not a problem "so long as you don't lose sight of the final aim, which is wealth creation". There are thousands, maybe millions, of formulas in the stock market to make money, and each individual has to find his, according to Nanda. "Problem comes when you make losses and continue to make losses under the garb of saying I am still learning," he said.

 

On systemic risks posed by high frequency trading by FPIs and proprietary traders in equity futures and options, Nanda says SEBI has over the past decade taken several measures across the cash and derivatives segments to bring them down. These measures have included higher margins, pledged collateral, removal of power of attorney, no intermingling of client funds with broker's, and direct uploading of client securities and funds to clearing corporations, according to Nanda.

 

To a question on the concern that proprietary trading contributes a chunk of equity derivatives trading because the broker is renting out its own account trading terminals for a charge, Nanda said if that is happening it is not right. "I am sure regulator eye would be there," he said, adding that SEBI had in the recent past tweaked the rules saying "anybody using the prop account has to be an employee of the broker... sitting out of the broker's office and trading. So that limits a lot of things."

 

LEVERAGED MARGIN TRADE

There has been a rapid rise in margin trading facility in the cash market where brokers fund leveraged positions of the client for a lending charge ranging from 9.7% to 18%. On whether the leveraged trading facility in the cash market through margin trading is wrongly luring traders, Nanda said the INR 1.5 trillion margin trading facility book size is spread across 2,000 stocks.

 

For any individual stock, "you have to actually look at the book (outstanding margin trading facility) versus the volume happening on a stock every day. You will find some very small instances of stocks where the percentage is higher vis-a-vis the volume happening in a day," he said. Nanda does not think the margin trading book size as it stands today is something that is creating a systemic risk.

 

BROKING INDUSTRY

According to Nanda, traditional brokers derive around 75% of their broking revenue from the cash market segment, and discount brokers get around 60-90% from the F&O segment. Kotak Neo, the digital business brand of Kotak Securities, might be the only broker who has a 50-50 mix, and led the firm to play a balanced game.

 

The competition has always been fierce among traditional, banker, or discount brokers, but the type of competition has changed to digital, according to Nanda. "Now you have to be up to speed on your technology app features and also website," he said. Kotak Neo charges INR 10 per intraday futures and options trade, which is competitive, according to Nanda. For a good seven years this charge was zero, he said.

 

On downtime due to technical glitches or other reasons, where investors have had several complaints of brokerages not compensating them for losses incurred because of the downtime, Nanda said, "Nobody in the broking industry owns up the way we do. I will just give you a sense. One day before Diwali last year (2025) we had a glitch. For clients affected by the glitch we made their brokerage free for the next five days as a gesture of goodwill." But Kotak Neo is 99.9% there as far as technology and systems resilience are concerned, Nanda said.

 

Asked how far Kotak Neo has scaled up in integrating artificial intelligence in its services, Nanda said the technology is being used to code faster and speed up other software-related operations. He mentioned the AI-enabled chat bot Neome that addresses customer queries about portfolio and even provides research insights on it. Kotak Neo aims to expand the presence of AI in its services, Nanda said.

 

RETAIL ALGO PRODUCT

Algorithmic tools in trading have been in the forefront for institutional players till now, but SEBI recently bringing in retail algorithmic trading regulations "changes the landscape completely as it democratises algo play", according to Nanda. Around a year ago, Kotak Neo started allowing retail clients to use the firm's application programming interface to create and trade on their own algorithmic strategies.

 

A retail trader can link the application programming interface pipes into his trading tool, whether it is Excel or coding languages such as C++ and Python, according to Nanda. Thereafter, the investor can login with his trading credentials and his orders keep flowing, he said. "So, you can create a system on your laptop saying if this is done buy it, if this is done sell it, which is an algo, and link it to us," he said.

 

But the algorithmic product represents new technology for retail traders who may be apprehensive of using it for fear of burning their fingers. According to Nanda, if you are a thorough professional in trading then it is not rocket science. "With AI coming in coding it has become easier, but definitely it is something that somebody has to learn," he said. To incentivise customers we have kept all brokerages and all fees on application programming interfaces zero, Nanda said.

 

INFLUENCER VS EDUCATOR

Nanda says retail investors are easily influenced, especially by social media influencers. Till recently, everybody was selling courses in the name of teaching operations, which led SEBI to come up with orders against four or five of them. "I think this activity on social media has come down drastically," he said. "I look at Twitter, I look at Instagram, that activity has moderated quite a bit."

 

On a question whether educating investors should be deemed illegal, Nanda said educating is not a problem. "The problem is enticing in the name of education, which is wrong," he said. In the name of education live data were used, which was later restricted by the market regulator. Using old data to understand the trade set-up is the correct way to do it, he said.

 

Nanda remembers spotting screen grabs on social media where individuals were claiming they had made huge profits, swaying retail investors. He said all this needs to be stopped. Certain influencers create a retail investor sentiment by showcasing new cars, house, or foreign trip which the former claim to have bought with their profits.

 

Nanda also pointed out that people who actually reap profits will not be sharing their insights on social media. The one who makes money has a formula and will keep it to oneself. "Broker community, intermediaries, everybody has a responsibility to make sure investors don't get enticed," he added.

 

IPO FRENZY

On whether investors' money is shifting from the secondary market to the primary market in the current frenzy of initial public offerings, Nanda concurred, saying it is the same money flowing into IPOs which otherwise would have gone into the secondary market. "As we say, too much money going out takes the market down," and vice-versa.

 

Asked whether it is wise for retail investors to get pulled into investing in initial public offerings where the companies coming up for listing have not been researched by professionals and market valuations are not available for a length of time, Nanda said retail investors must understand what they are getting into, read the prospectus, and then put in the money. This is much more required now "because the number of IPOs coming (into the market) is a crazy number", he said.

 

SECURITIES TRANSACTION TAX

In stock market trading, securities transaction tax has been the bane of investors, particularly traders who operate on thin profit margins. According to Nanda, the securities transaction tax, which coexists with the capital gains tax, comes as a cost to a trader who places an order. "When the transaction costs go up, volumes... take a hit, ...(so) a moderation in the STT (securities transaction tax) rate is the right thing to do," he said.

 

The rate can also be used to promote one market segment over others, according to Nanda. If the regulator wants to promote cash market investing, one way to incentivise it is through a reduction in securities transaction tax for cash market transactions, he said. Further, the regulator is clearly saying derivatives is not the place for retail, so a transaction tax rate cut would help propel trading volume in the cash segment, he said.  End

 

Edited by Rajeev Pai

 

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