“SEBI, DEA & DIPAM are organizing events this week to celebrate 75 years of independence & it got me thinking about our capital markets. We constantly look to the west (US) for everything, but the west has to look to India when it comes to markets. Here are a few reasons why," Kamath said in a tweet.
Explaining the differences, Zerodha's Nithin Kamath explained that users in India see the price and liquidity on both exchanges, pick the best, and then place an order and a brokerage firm just enables this transaction. On the other hand, almost all platforms in the United States (US) are exchange agnostic and the brokers just show a bid, ask, and last traded price.
These small amounts add up to billions of dollars a year for market-makers & brokers which is is how firms offer trading at zero brokerages in the US. “In India, we can offer 0 brokerage for investing as we charge active day & F&O traders. Active traders subsidise investors," he added.
Another weird practice, as per Kamath, is that by default, the account opened with a broker in the US is a margin account. Stocks are held in the street name of the brokerage, exposing the users to broker risk unlike in India where it is by default held in customer's demat at the depository.
“The ability to fulfil the customer orders outside the exchange allows US brokerage firms to offer certain special order types & features. But that apart, our markets are much better even in terms of product offerings & not just because of better regulations & market infra," Kamath's tweet stated.
