India, May 1 -- Nikhil Kamath noted that opening auction markets to retail investors has significantly squeezed the profits of proprietary trading firms. Historically, these firms profited from market inefficiencies and wide spreads. However, since Zerodha enabled retail participation in 2023, even a small group of about 25,000 active retail participants has been enough to improve liquidity and narrow spreads, making the market more efficient and hitting those who relied on easy profits from specialised trading.

Mechanics of the Auction Market Auction markets are triggered by a short delivery, which happens when a seller fails to deliver shares on time. To fulfill the obligation to the buyer, the exchange conducts an auction to procure t...