Sub broker

More on Sub-brokership

A stock market, share market or an equity market is a marketplace where buyers and sellers come together to buy and sell stocks, shares or securities. A sub broker is an equal part of these stock market eco-system.

These stocks or shares represent ownership of an organization. A stock or a share of a company is listed on a public stock exchange (such as NSE, BSE etc) to be traded by the general public. An important entity that you should know about in the stock market play is sub broker.

In this article let’s read on to understand various aspects about a sub broker like who are they, what is their business model, how do they make money, are you eligible to be a sub broker, what are the regulations that you need to keep in mind, the benefits of being a sub broker and a lot other related aspects you must know of it you are considering to be one.

Sub-broker Meaning

Let’s first understand who is a sub broker.

A sub-broker is a person who is approved by a listed stock exchange for enabling investors to buy, sell and deal in securities or stock. A company can be listed in the stock exchange so that its shares and securities can be officially traded on the online portal of the stock exchange.

This is done for publicly listed companies, who raise money from the general public and not private limited companies who raise funds through networks and privately. To put it in the simplest terms, a sub broker is an intermediary between a broker and an investor.

A broker is an individual who is a regulated professional who sells and buys shares on behalf of a stock exchange. Investors are those people who have an interest in part ownership of shares of a particular publicly listed company.

Sub brokers are different from brokers as they are not trading members of the stock exchange and assist investors in dealing with these members. They are as important in the securities dealing market as much as a broker. As more people want to invest in stock markets, the role of a sub broker has become all the more important in the recent past (and it is only going to improve even more).

Sub Broker Vs Broker

The fundamental difference between the two is that a broker works on their own, while a sub broker works under a broker (which is where the term ‘sub’ comes from).

A broker is somebody who is capable of carrying out some activities or functions on behalf of their clients. Hence, a broker in the stock market context is someone, who is willing to carry out sale or purchase of shares. For carrying out these transactions, the broker charges a fee which is also known as a commission or brokerage.

A sub broker is someone who is registered and acts as a liaison between the broker and the client. The brokerage that is earned by the broker is then shared between the sub broker and the broker based on an agreement between both the parties. All the transactions that are done by a sub broker are done via the main broker code.

To be able to buy and sell shares through the online terminal of the stock exchange, the main brokers’ code is needed. Sub broker can also be known as the agent of the broker. In order to reach out to more people, a broker may reach out to the sub broker who has a good client base.

Sub brokers were required to be registered with the Securities and Exchange Board of India (SEBI). SEBI made it compulsory that no trading member can deal with a sub broker if the sub broker is not registered with SEBI. They require a Certificate of Registration from SEBI for the same. Usually, a broker can have many sub brokers working with them. There is no limit to the number of sub brokers under a stockbroker.

However, as per the latest development, the entity sub-brokers is gradually getting phased out as even SEBI has stopped new sub-broker registrations from 3rd August 2018. The reason for this is that people are preferring moving to larger brands, margins are falling and compliance costs have risen.

As per data collected from SEBI, the sub broker count fell to 2,773 from 9,606 five years ago. SEBI added that no new person will be issued a sub broker license from SEBI with effect from 3rd August 2018 and new compliances will come in place from 1st April 2019.

Moreover, all pending and existing registrations of sub brokers from SEBI will also get revoked. Hence, there will be no need for the category ‘sub broker’ as a market intermediary.

Is that shocking news for you? Wait, just read on, there is a solution to this problem as well!

So if you want to be a sub-broker or are an existing sub broker, you don’t need to worry and can take a deep breath. Because now you have to register yourself as an ‘Authorized personnel’ (AP). As per SEBI, sub-brokers need to migrate to becoming ‘Authorised personnel’, i.e. they need to be registered with the stock exchange as a trading partner instead of being registered with SEBI.

Just the term and the process have changed, however, there is no difference between the operative role of being a sub-broker and authorized personnel. SEBI gave a timeline till 31st March 2019 to all the existing sub-brokers in order to migrate to the AP role.

While the roles and responsibilities of a Sub broker and an Authorized Personnel are the same, their registration process differs. An AP registration needs to be made with stock exchanges like Bombay Stock Exchange (BSE), National Stock Exchange (NSE) etc.

Another notable distinction is that now the registration needs to be done for different segments, for eg, cash, derivative etc. while this was not the case earlier. The new process is set to make life much easier for sub brokers with fewer compliances and much needed reduced hassle.

When applying to the stock exchange you need to make a separate application for different segments. Else one application may also be sufficient if all segments are mentioned on it. In case you are already an AP in the derivative segment, you just have to submit an application for the cash segment.

Being an AP – cash segment means you purchase the stocks of the company, have part ownership of the company, have voting rights and can keep the shares as assets. And being an AP in derivative segment means that you have ownership of the stock till expiration period, after that you are bound to buy/sell the shares of that company at the expiration period.

Another thing that you need to note is that you also have an option to become a Trading member, but the eligibility criteria for that is more than being an Authorized Personnel.

To be eligible to start a sub broker/AP business, you do not need a lot of capital and the eligibility requirements are also fairly easy. Here are the criteria details:

  • You should be a resident of India
  • Should not be less than 18 years of age
  • Should have passed 10th standard from an institution recognized by the government
  • Should not be convicted in any fraud
  • Should have good character and reputation
  • Company registered under Indian Companies Act 1956
  • Have a partnership firm registered under the Indian Partnership Act, 1932
  • Limited Liability partnership (LLP) registered under Indian Limited Liability Partnership Act 2008
  • Should have the necessary infrastructure like office space, working capital and necessary manpower to discharge responsibilities on behalf of the trading member

Sub broker Registration Fees

  • For AP registration: INR 2000 (plus GST) per segment
  • For AP cancellation: INR 1000 (plus GST) per segment

Besides understanding the basic eligibility criteria for being a sub broker, it is equally relevant to understand what this profession entails. To be a sub broker, you need to have knowledge of the stock market. People would be expecting your expert guidance, so you need to have expertise over financial subjects.

You need to be the go to person for your clients. Similarly, you need to work on building a brand image for yourself in the market. If you have a good clientele, and a good reputation in the market, the sky ‘s the limit.

Being a sub broker/AP is a lucrative business and a profession if you understand what is required to be a sub broker. It is a great source of income if you have knowledge about financial markets and acumen to build relationships with people.

They make money through commission i.e a part of the money that is invested by the client towards the securities is paid to the sub broker as a brokerage. Traders often want to liaison with the sub-brokers as they have an established clientele. Making more money for a sub-broker means having more clients who trade regularly, as that is the only way the ecosystem survives.

Another advantage of being a sub-broker is that they usually get a higher percentage of the brokerage as compared to the brokers. However, a point to be noted here is that a sub broker/AP can only receive any remuneration from the stock broker and cannot charge from the clients.

Sub Broker Regulations:

There has been an amendment made by SEBI to the Securities and Exchange Board of India (Stock-brokers and Sub-brokers) Regulations, 1992. These regulations are now called the Securities and Exchange Board of India (Stock-brokers and Sub-brokers – 2nd Amendment) Regulations 2018.

They have come into effect from 1st April 2019. As per this amendment, SEBI has allowed sub brokers of stock as well as commodity exchanges to do business under one entity now. Earlier they could do this only under different companies.

As per the regulations, the sub broker shall be liable to make a misleading or false return percentage values to the stock exchange. They are obligated to duly comply to procedures and submit returns on time. More so as per the amendment the word ‘sub broker’ shall be omitted from various clauses.

Sub Broker Obligations

Here is a quick look at some of the obligations one needs to take care of while being a sub broker of any stockbroker:

  • They are required to pay the fee as specified
  • They must abide by the code of conduct
  • They must enter into an official contract with a stockbroker, specifying each of their responsibility and authority
  • They must comply with the rules and regulations of the stock exchange
  • They are required to maintain documents and books as specified

Sub Broker Functions

Then you MUST take care of these functions while running a business of being a sub broker:

  • A sub broker is responsible for giving useful tips regarding the stock exchange, which securities to invest in and all kinds of information to the client that will help them take an informed decision
  • They have to maintain great relationships with clients. They have clients so that the can do trading with clients and hence it is their role to make sure that their clients are trading. This helps them make money through brokerage
  • They play a role of game changers, a deal is made or it is broken because of them

Sub Broker Benefits

Finally, here are a few benefits you would access to if you choose to become a sub broker:

  • The process of trading is pretty cumbersome and complex, hence it is recommended for clients to make their dealings through sub brokers. Sub brokers come into play by making the transactional experience for clients a seamless opinion
  • The best way for an individual who is interested in trading to go forward is to make a triangular dealing between client – broker – and sub broker. This makes the process legally correct and a lot more transparent. Such dealings are usually made though non-judicial dealing papers between all of these parties
  • Working with a sub broker makes a complex decision-making process look fairly simple. They will make your job easier by working with them, as they can guide you with the process of buying and selling shares
  • It is a lot more helpful and safer as well to work with a sub broker as you may not have enough knowledge to be able to do it directly

One can today become a sub broker through a renowned stock broking company. They are also provided facilities by parents broking companies and are a lucrative career option. If you’re still looking for a career as a sub-broker and have knowledge about how financial markets work, you can take up jobs as a full-service broker or a discount broker.

You also have the option of making money by becoming an analyst, financial manager or a market specialist. It is also a promising option to work along with a renowned broking house.

Benefits of working with a broking house:

Sub brokers play a vital role in effective deal making.

  • They inform the clients with the most important information and knowledge to help them make the maximum profit out of their deals. A sub broker wins if a client wins.
  • Sub brokers have all that it takes to be able to provide such help to their client if they want to. Under the tutelage of a broking house, they are given training on the latest technology platforms and tools to be able to function better.
  • They are also provided with marketing collaterals. They also undergo extensive training and seminars to be able to understand the stock broking business well. They get to learn on the job and participate in various events. Sub brokers are required to go through various market research and industry reports and findings to be able to help a client make an informed decision.
  • Because they are working in such a renowned company, they are provided knowledge, emails, newsletters, reports etc. to help them stay updated about what is happening in the stock market world.

If you can think on your feet and are adaptive to changes in the financial markets, you can make a good living by being a sub broker. In a country like India where we have poor knowledge of financial markets and abysmal participation, we need more sub brokers to educate people about the benefits of investing in stocks.

Being a sub broker is like being an entrepreneur and the only way to succeed is by perseverance and continuing leapfrogging into new trends and arenas for making money and helping clients make better decisions.

Every market is classified with buyers and sellers purchasing and selling. The stock or the share market is no different. With the advent of dematerialisation of shares, buying and selling in stock markets has become a lot easier. Although, the Indian stock market is not as developed as a foreign stock market.

Therefore, a lot more work needs to be done for fair trade, transparent pricing and increase in added value. The more the procedures and processes are simplified the easier it would be for the Indian trading market to grow as much as the foreign trading market.

In case you are looking to be a sub broker yourself, let us assist you in taking the next steps ahead:

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