“Our open API retail trading platform is a huge differentiator”

Zerodha’s open API retail trading platform enables the retail investor to trade from the application of his choice, thereby not forcing him to buy/sell only using Zerodha’s platform. Dr. Kailash Nadh, Head of Technology, Zerodha speaks to Abhishek Raval

Kite trading platform runs on an open API. How does it help?

“Kite Connect”, our HTTP trading API, is a part of our “Kite” trading platform. It lets technically savvy users fully personalise their investing and trading experience without having to depend on the trading frontends that we ourselves offer. The APIs liberate the data belonging to users into their own hands, which would otherwise be locked inside our software. Moreover, the APIs let startups build investment platforms over our infrastructure, a kind of a “broking as a platform” setup, which opens up a whole lot of possibilities.

To illustrate, a client of ours can use the APIs to place trades using their favorite programming language, a command line terminal, or even a spreadsheet, without ever looking at any of the trading software we ourselves offer. In addition, they can retrieve structured portfolio data in realtime and run analysis using their favorite tools.

In the US, a user can pick a trading platform of their choice and trade with a broker of their choice. In India, however, users are locked into trading platforms offered by their respective brokerages. We hope our approach will bring tech savvy investors, who would’ve otherwise stayed out, into capital markets.

How does the “broking as a platform” setup work?

Innovation in the investmentTech space in India has seen abysmal growth due to the high barrier to entry faced by small players. To illustrate, a startup that wants to offer an investment platform has to obtain broking licenses by going through lengthy processes, setup highly specialised IT infrastructure (everything from leased lines to a data centre housing order management systems), hire specialists to run the infrastructure, setup a compliance team to address various regulatory requirements, and jump through numerous other hoops. This is a highly taxing, capital-intensive process that could take many months to get going. As a brokerage, over the years, we have completed the whole exercise, and invested significant amounts of manpower, R&D, and capital in setting up a successful and sophisticated broking apparatus.

At Zerodha, “What next?” is the fundamental question that drives us every day. While we have come up with some highly innovative products, we have accepted the fact that we cannot be a one-stop-shop. To grow the capital markets, which will in turn help us grow our business, we need exponentially more innovation to happen. That’s how the “broking as a platform” idea was born, where we abstract our entire infrastructure, not just the technology, but everything from physical account opening to support, into a set of APIs, and offer to people with innovative investmentTech ideas. This essentially means anyone can use us as a platform and be their own market-ready investment company or brokerage overnight. This has the added bonus of the possibility of 1.25+ lakh clients of ours signing onto a new platform with just a single click, which otherwise, for a new player in the industry, is an impossible task.

We are excited by the possibilities this presents, and we already have a startup that will be debuting their very-unique investment platform leveraging our infrastructure, shortly.

What kind of transactions can be done on the Kite platform ?

We offer connectivity to all major stock and commodity exchanges in India. So, it’s possible to trade equities, derivatives, currencies, commodities, bonds, mutual funds etc. We have a nice cross-section of the Indian trading and investing community in our clientbase, from college students to seasoned traders. Traditionally, the experienced traders have preferred desktop based trading platforms, however, today, the majority of our trading volumes come from Kite, showing a shift in trading behaviour.

How differently do you manage your retail trading app vis-a-vis other retail brokerage houses?

With Kite, we threw out all the conventions and rules of thumb dictating how a trading frontend should look. We incorporated modern software design and UX principles and created a lightweight, minimalistic, and highly user-friendly platform for retail traders, perhaps unlike any of its counterparts. We’ve actually gone beyond the fundamentals of a trading platform and brought in user-centric enhancements such as the  availability of the frontend in a number of regional Indian languages.

In addition, we involve our client community directly in the development of almost all our trading applications by releasing versions as early as alpha to closed test groups who’ve expressed interest, and rapidly incorporate their feedback into the development cycle. What truly sets us apart though is our R&D, where we’re constantly thinking beyond traditional approaches, for instance, the aforementioned open API.

Correspondingly how was the experience in launching your homegrown retail trading app – Kite?

The first version of Kite was released to a closed group of users last year. We studied their interactions with the platform and incorporated their feedback into our main development branches. We then increased the size of our group to the point where it was available to all our clients. Thus, the launch itself was a part of natural growth rather than an isolated affair. This also had the advantage of avoiding any drastic surprises.

Today, eight months later, we have almost a lakh users who use Kite. Every month, Kite processes between 4-5 million orders, and as an app, serves more than a 100 million requests.

Client default is a major risk for brokerage houses. How do you mitigate this risk using technology ?

Stock markets are unpredictable and volatile. Often times, clients can lose more money than they have in their trading accounts, especially with leveraged trades. As a brokerage, it is our responsibility to identify  such scenarios in the best interests of our clients and the business itself.

Of our 1.25 lakh clients, at any given moment, many tens of thousands hold positions of varying degrees of risk. We have a dedicated risk team that constantly monitors these positions. However, with scale, manual monitoring, understandably, becomes challenging.

We are building an automated monitoring mechanism that’ll drastically reduce the need for continuous manual monitoring. We’re exploring possible applications of machine learning for building dynamic risk models that not only look at active positions, but take into consideration, trading habits and patterns.

The Blockchain technology is catching a lot of attention in the west and in India. Your views of the applicability of this technology in the brokerage space.

Blockchain is an extremely interesting technological innovation that will inevitably be adopted by a wide range of industries, not just finance. It’s implications are far-reaching, and, in a sense, necessary.

In the brokerage space, an immediate thought is the application of blockchains in making transactions between institutions seamless, like, bond trades that often happen over-the-counter. With blockchains, such transactions that usually involve many hands and manual paper entries, can become central, instant, and secure. Depositories and clearing houses could apply similar methods to settlements. In principle, all forms of transactions could possibly be backed by blockchains. If you think about it, the DEMAT system itself could be a blockchain implementation!

Recently, an American company won the approval to issue their shares to the public over the internet using blockchains, indicating the acceptance of the concept by American authorities. It would be a great leap forward when the Indian financial regulators start looking at the technology.