Sub broker

From CEOpedia | Management online

Sub broker "acts on behalf of a stockbroker as an agent or otherwise for assisting investrors in buying, selling or dealing in securities through such borkers"[1]. It is a person who is not a member of a stock exchange. It is required to obtain a Certificate of Registration from SEBI. To get the certificate he must pay fee, undertake appropriate actions to consider investors complaints within one month and keep informed SEBI about number, nature and other specifications of the complaints and be authorised in writing by the broker for mediation in buying, selling and dealing with securities[2].

Sub broker can work for more than one broker, but he has to be register separately with the SEBI for each broker. According to Khan "consequent to a broker having corporatised his membership, all subbrokers affiliated to him would need to apply to the SEBI for transfer for them affiliation". If any of a sub broker relative have a significant shares in the same company where sub broker has direct on indirect business, he needs to reveal the names of all sub brokers and brokers. Sub broker are committed to sign a contracts and to keep database of their clients in accordance with SEBI system. The agreement between sub broker and broker may be cancelled solely by written termination in advance at least six month by either site[3].

SEBI

Securities and Exchange Board of India(SEBI) was set up by Government of India. The main reason for creating the document was the regulation of responsibilities and actions of almost all the players in the capital market. These are instructions for the issuers to provide investor protection. "The SEBI was expected to regulate mutual funds, merchant bankers, registrars to issue, share transfer agents, portfolio managers, underwriters, investment advisors, brokers and sub brokers"[4].

Registration of a sub broker

It is necessary to a sub broker to be registered in SEBI. To get certificate of registration sub broker needs an application with following documents:

  • a recommendation from the stockbroker
  • two references(one from his banker)

Interested stock exchange has confirmed these information. Verified are also data such as a name, an age (applicant must be not less than 21 years of age), a criminality, an education (the equivalent of 12th standard examination is passed), an infrastructure (office space, equipment, menpower). SEBI should get all the documents prescribed by the stock exchange within 30 days from the date of the receipt of the application[5].

General obligation

Payment of the fee - an annual payment by the sub broker is Rs 10,000 for the first five years. After these years is less - Rs 5,000. Agreement - between sub broker and broker is an agreement based on authority, responsibilities and rules. Books of accounts - sub broker should provide the same book of accounts an documents as broker. Code of conduct - sub broker has to adhere to code of conduct[6].

Examples of Sub broker

  • Discount brokers: Discount brokers act on behalf of investors to facilitate the purchase and sale of securities. They typically charge lower fees than traditional brokers, as they do not provide any advice or research on investments. Examples of discount brokers include Charles Schwab, TD Ameritrade and E*Trade.
  • Full-service brokers: Full-service brokers act as financial advisors, providing advice and research on investments to their clients. They typically charge higher fees than discount brokers, as they provide a more comprehensive service. Examples of full-service brokers include Morgan Stanley, Merrill Lynch and UBS.
  • Franchise brokers: Franchise brokers are similar to full-service brokers, but they are affiliated with a particular financial services company. Examples of franchise brokers include Edward Jones, Ameriprise and Raymond James.
  • Online brokers: Online brokers are similar to discount brokers, but they provide their services entirely online. Examples of online brokers include Fidelity, Robinhood and Interactive Brokers.

Advantages of Sub broker

Sub brokers can offer a number of advantages to investors, including:

  • Lower cost of trading: Sub brokers typically charge lower rates than full-service brokers, meaning investors can save money when trading through them.
  • Expertise and advice: Sub brokers typically have a good understanding of the market and can provide investors with valuable advice.
  • Access to a wider range of products: Sub brokers often offer access to a wider range of products than a full-service broker.
  • More personalised service: Sub brokers typically provide a more personalised and tailored service than full-service brokers.
  • Flexibility: Sub brokers often offer investors more flexibility when it comes to trading hours and the types of services they offer.

Limitations of Sub broker

A sub broker is a person who acts on behalf of a stockbroker in assisting investors in buying, selling or dealing in securities. However, there are certain limitations to being a sub broker:

  • They do not have direct access to the stock exchange, and must use the stockbroker to execute trades on their behalf.
  • They are also not allowed to enter into contracts or agreements on behalf of the stockbroker.
  • The sub broker does not have any authority to decide the trading strategies of the investors.
  • They can only advise investors on the market conditions and the best way to invest their money.
  • Sub brokers are also not allowed to lend or borrow money from investors to buy or sell securities.
  • Lastly, they cannot give any guarantees or warranties on the performance of any security.

Other approaches related to Sub broker

A sub broker is an entity which assists investors in buying, selling or dealing in securities through a stockbroker. There are few other approaches related to sub brokers that involve:

  • Trading on behalf of the investor: Sub brokers can facilitate trading for investors by carrying out specific trading instructions such as buy or sell orders, or any other related activities.
  • Providing advisory services: Sub brokers can provide advisory services to investors on matters related to stock investing. This can include providing up-to-date market information, analysis and other professional advice.
  • Offering research services: Research services include the analysis of stocks and providing investment recommendations. Sub brokers can provide such services to their clients.

In summary, sub brokers are entities which act on behalf of stockbrokers and facilitate investors in buying, selling or dealing in securities. They provide services such as trading, advisory and research services.

Footnotes

  1. ↑ Khan (2010), p.17.9
  2. ↑ M Y Khan (2013), p.8.8
  3. ↑ Khan (2010), P.17.9
  4. ↑ Gurusamy (2009), p.124
  5. ↑ M Y Khan (2013), p.8.9
  6. ↑ M Y Khan (2013), p.8.9


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References

Author: Weronika Lisik

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