Nithin Kamath and Nikhil Kamath
CEO and CIO, Zerodha
Age: 41, 34
Rank in the Rich List
Net Worth: $1.55 billion
The Big Challenges Faced in the Last Year: Disruptions faced when their trading software went down during market hours
The Way Forward: Working to minimize downtime with a strong technology backbone
A decade ago, high brokerage charges were a bugbear for active traders in the market. They were priced on the value of the trade. For those with heavy daily volumes, these charges added up.
Yet, if one looked at the broker end of the transaction, the work they needed to do was the same irrespective of the size of the trade. With physical order slips giving way to computers all that was needed were programs to run the trade. The size of the trade by an individual client didn’t matter and the incremental cost for the broker due to new clients was marginal. Trading costs had ceased to be linear.
And yet, for brokers, there was no reason to shake up this cosy arrangement. Clients with high volumes and good relationships would often negotiate rates with their preferred brokers that were cheaper than those advertised. Those deals were not available to everyone. They were dependent on how much commission the broker wanted to part with for a particular client.
In addition to executing trades, brokers provided other services like research, call and trade, and margin funding. The money made from brokerage was used to subsidize these divisions. In short, there was no reason for them to reduce prices on what was a steady and dependable profit center.
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