Zerodha’s Nithin Kamath Reveals Why India’s Biggest Broker Cannot Grow Beyond a Limit
India’s largest stockbroker Zerodha operates under a structural growth limit set by the market regulator, according to its founder and CEO Nithin Kamath. In a recent LinkedIn post, Kamath explained why broking is unlike most other businesses and why even market leaders cannot grow endlessly, regardless of demand.
Kamath highlighted a key but lesser-known regulatory rule imposed by the Securities and Exchange Board of India (SEBI), which caps how much any single broker can control in the derivatives market.
“Broking is a unique business because there's a hard ceiling on how much we can grow and the rate at which we can grow,” Kamath wrote.
SEBI’s 15% Open Interest Cap Explained
At the heart of Kamath’s post is SEBI’s 15% open interest (OI) cap at the broker level. Open interest refers to the total number of outstanding derivative contracts in the market.
Under current rules, no single broker is allowed to hold more than 15% of the total market open interest. The regulation is designed to prevent excessive concentration and reduce systemic risk.
“No single broker can hold more than 15% of the total market OI,” Kamath said, adding that the restriction exists “to mitigate the risk of concentration from any single broker becoming too large”.
While scale often benefits businesses, Kamath pointed out that too much concentration can hurt consumers and the market as a whole.
“Concentration is beneficial for business but ultimately detrimental to consumers,” he noted.
A Parallel with UPI Market Share Limits
Kamath compared SEBI’s rule to the market share cap introduced by the National Payments Corporation of India (NPCI) for third-party UPI apps. NPCI had proposed a 33% market share limit to avoid dominance by a few players.
However, that rule was never enforced, as it would have required leading UPI apps to stop processing transactions once they hit the cap.
“That measure was never implemented because it would've meant UPI apps stopping transactions,” Kamath explained.
In contrast, the OI cap in the broking industry is actively enforced, making growth constraints a practical reality rather than a theoretical one.
Why Zerodha’s Growth Depends on the Market
Kamath revealed that Zerodha has been close to the 15% open interest threshold for nearly five years. As a result, the firm’s growth is closely tied to the expansion of the overall market rather than just its own performance.
“For us to grow, the overall market must grow, and that means other brokers must also do well,” he said.
As India’s derivatives market has expanded in recent years, Zerodha has benefited despite operating near the regulatory ceiling.
A Reminder for the Fintech Ecosystem
Kamath’s comments offer a rare public insight into the regulatory realities behind India’s fast-growing fintech and capital markets ecosystem. While consumers often see rising user numbers and revenues, the post underscores how regulatory safeguards can limit scale in the interest of market stability.
For investors and entrepreneurs alike, the message is clear: in highly regulated sectors like broking, growth is as much about the ecosystem as it is about individual companies.
Muskaan Kapoor
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