Sub Brokers are intermediaries in the capital market. They operate in the secondary markets as agents of Trading Members and facilitate the buying and selling of securities for clients. Sub brokers have to be registered with SEBI (Securities and Exchange Board of India).
As agents, these individuals hold a position of trust both for brokers (Trading Members) as well as for clients who invest in the stock market. The role of a sub broker holds immense importance to ensure fair trading and transactions.
Recently, SEBI came up with a regulation to shift sub brokers as intermediaries to the Authorised Person (AP) or Trading Member category. They would have to register with the stock exchanges henceforth and not with SEBI. This move is likely to improve trading processes and reduce regulatory hassle for SEBI.
Table of Contents
To become a Sub broker in India, one has the following important responsibilities in their domain:
- To abide by the rules and regulations as directed by SEBI or any other authorities as notified.
- To assist the broker/ Trading Member in all their client interaction and dealing.
- To keep a thorough record of all the details that the clients provide such as- personal details, financial information, investment portfolio, goals of investment etc.
- To maintain confidentiality with respect to any information provided by the client in the course of dealing with the broker or sub broker.
- To refrain from disclosing any material information of the client to external parties, without the express permission obtained from the client.
- To maintain KYC (Know Your Customer) files in proper order.
- To execute buy or sell orders of the client on a timely basis and prevent delays to ensure client satisfaction.
- To assist the broker in Internet-based trading and maintain confidentiality in terms of trades executed in each client’s portfolio.
Sub brokers are entrusted with the important responsibility of conducting trades with due diligence and on client and broker instructions.
They have the key role in assisting the Trading Members and ensuring a smooth flow of trading on behalf of clients. Being ethical is also one of the most significant responsibilities in the sub broking profession.
This is because a conflict of interest may arise in the course of trade execution. A sub broker derives his earnings from the fees, salary, and commission payable on each trade.
Now, it is in the interest of a sub broker to execute as many trades as possible in a client’s portfolio – to earn a higher commission. However, this may not be ethical as client investment needs are foremost before making trade calls.
The sub broker enjoys the following rights:
- To be thoroughly satisfied with the financial soundness of the client before taking up the responsibility of trades executed on their behalf.
- To demand relevant information from the client in the ‘Account Opening Form’; such as personal details, financial information, investment objective, and KYC details.
- To liquidate or close the client’s position in case he/ she defaults in margin payments or any other dues on time.
- To close the client’s position in case of his/ her death and to claim against their legal estate for any outstanding dues.
- To keep the stock exchanges informed of any material information related to the client’s dealings. This could include defaults in payment, overdue, margin payment delay etc.
- To approach the authorized arbitration authorities in case of any disputes with the client for settlement.
The secondary market has been revolutionized with the advent of computerization, Internet-based trading (IBT), dematerialization and algorithmic trading. Buying and selling of shares have moved to the virtual space from the olden days of holding physical certificates.
This shift has improved flexibility and made trading a more inclusive affair. Individuals can now hold shares based on their investment objectives and investible fund availability.
In this dynamic trading environment, brokers and sub brokers have key responsibilities to maintain fair and ethical trades on behalf of clients. They are under the regulatory purview of SEBI.
Recently sub brokers were regulated to move to the AP model. As Authorised Persons, sub brokers would now be accountable to the stock exchanges. They do not need to register separately to trade in the Cash and Derivatives segments. A single registration is enough.
Sub brokers deal with the key responsibility of assisting Trading members (brokers) in the planning and execution of trades on the market, in line with client requirement and expectations.
Sub-brokers deal on a commission basis; hence it is vital for them to also be ethical in conducting the trading activity. Buying and selling of shares must be done only on the client’s permission. C
onducting fair trade, earning the trust of the client and performing due diligence are the key responsibilities of a sub-broking professional.
Confidentiality is of prime importance as trading deals with financial information and investments of individual or corporate clients. To know more about how to become stock brokers in India, click here.