Difference Between Sub Broker and Authorized Person

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An authorised person and a sub-broker are two business models offered by a broking house that are also often confused. If you’re wondering who is an authorised person, it refers to an individual or entity appointed by a broker to act on their behalf. While both models are similar in many aspects, they are not exactly the same. The obligation and liability of both are largely similar.

Some people are confused about the difference between a sub-broker and an authorised person, especially when trying to understand who is authorised person and how the role differs in practice. Despite some very crucial differences, many potential partners looking to start a business in this industry are uncertain about which option to choose—and that’s completely understandable.

Have you ever felt unsure about the safest and most appropriate choice to make with your investments? As financial specialists, we understand your hesitancy and aim to guide you with clarity and confidence.

In this article, we discuss the difference between an authorised person and a sub-broker from various angles, while also helping you better understand who is authorised person and their role in the financial ecosystem.

What Is A Sub Broker?

Sub brokers serve as a bridge between stockbrokers and their clients, linking the two parties. As an agent of the broker, they provide services such as sourcing new clients and client management.

Sub broker receives a percentage of fees and charges collected by the stockbroker in return for these duties. Meanwhile, a stockbroker can have a broad customer base across multiple locations through an ongoing network of how to open a sub-broker franchise while still maintaining quality service to all of them.

Who is An Authorised Person?

An authorized person is the individual appointed by a stockbroker to give access to the trading terminal. The person has access to the company’s tools and technology for increased performance, high-volume work, increased responsibility, and experienced backing.

They provide an authorized presence to trade securities in one or more than one securities segment. An authorized person can work from any location, as long as they have a phone connection and permission authorization from their broker-dealer if you want to become one you can also become an authorised person in your area.

Difference Between Sub Broker And Authorised Person?

So, what is the actual difference between sub-brokers and authorized persons? The difference lies mostly in the roles each one of them needs to fulfil. Let’s take a look at how they compare.

A sub broker is any person who assists stockbrokers by acting on behalf of them or for assisting investors in buying, selling, or dealing in securities through members of the board. A sub broker basically acts on behalf of a stockbroker in exchange for a cut of the brokerage for clients he refers to.

SEBI defines an authorized person as: “an individual, partnership firm, LLP or body corporate who is appointed as such by a stockbroker (including trading member) and who provides access to a trading platform of a stock exchange as an agent of the stockbroker.”

Sub brokers and authorized persons differ in one way. Authorized persons only need to register with the exchange they are working with, while sub brokers also need to register with the Securities Exchange Board of India (SEBI).

With the introduction of a new category in 2018, all authorized persons have been unified under SEBI. Anyone acting as an agent for a client without an agreement will need to register with SEBI or stop their business.

SEBI Circular On Authorized Persons

SEBI has instructed stock exchanges not to offer any new registrations for the position of a sub broker and pending applications will be returned to the applicants.
A SEBI Circular was announced with details on migration from one authorization status to another being postponed. Previously, the auspicious date of 31 December 2017, when it would have been difficult for SEBI to issue new certificates in a time-bound manner, had been the initial due date for migration/ withdrawal.
Sub brokers can either meet the criteria of capitalization to become a Trading Member (TM) in the stock exchange they are registered with or submit their application for becoming an Authorized Person (AP).

Registration For Sub Broker And Authorized Person

Sub brokers and authorized representatives will need to register with SEBI and be affiliated to a trading member of any stock exchange, like the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).

It’s becoming increasingly difficult for authorized persons to complete registration papers. Brokers do the hard work, then simply ask an authorized person via email to register by filling a form with the main broker. All the information collected is shared with enforcement agencies.

When an AP deals in more than one product, they are required to register separately for both, but it is different if they want to deal as a sub broker.

Having said that, SEBI has now mandated that sub brokers are either to be converted into fully authorized persons or have their licenses cancelled.

Initial Deposit For Sub Broker And Authorized Person

A sub broker will deposit ₹50,000 – ₹3,00,000 security money as an initial deposit. In summary, to start your business as a sub broker you need ₹50,000 – ₹10,00,000 from an authorized person.

A sub broker requires a minimum of ₹10,000 initial deposit to start sub broker franchise. The range fluctuates depending on how much the person wants to pay for his or her authorization.

A sub broker gets a percentage of revenue generated by their clients. However, that percentage is fixed at the time of an agreement between both parties and ranges from 50%-80%.

An authorized person receives less revenue share in comparison to the sub broker. The range is 20%-50%. An authorized person spends less time on client participation compared with the average time spent by the sub broker.

Agreement For Sub Broker And Authorized Person

When there is a situation of two brokers holding deposits granted by the same person, an independent third party is needed for transparency. They essentially act as an intermediate “tri-party” in which one of the brokers is an agent hired by the other. A sub broker enters into this agreement with one company, working personally to broker trades while another broker will transact on their behalf. This makes the process more efficient and ensures transparency.

An authorized person enters into an agreement between two parties only, while a sub broker enters into an agreement between three parties.

Conclusion

It’s important to understand what type of investor you are before investing. Both authorized person and sub broker plays an important role in working with the stock market. However, they have some distinct differences that may need to be considered. Upon beginning your investment plans, always be sure you partner with a trusted and reliable financial partner.