To put simply, a stock market is a marketplace where buyers and sellers come together to buy and sell stocks. Sellers often list their stocks for trade, while buyers browse the available stocks to find the one they want.
Other than maintaining liquidity, a stock market plays an important role in the process of value creation and wealth distribution. A sub-broker performs the same role as those in the stock market ecosystem.
We already have discussed much about the stock market, stock brokers. Let’s understand the sub broker meaning now.
Who Is A Sub Broker?
A sub-broker is the person who arranges transactions for buying, selling, or trading stocks on behalf of investors. This person works for stock exchanges and enables events to be officially recorded in an online portal.
Private companies can raise funds through networks or privately, while publicly listed companies should only use the general public to have monetary success.
Simply, a sub-broker is a medium between a broker and an investor. This allows the investor to invest in an attractive opportunity without having to take risks or develop contacts.
A broker is a professional regulated individual who is authorized to trade shares on behalf of a stock exchange, and investors are people who have a vested interest in a publicly listed company.
Furthermore, sub-brokers are different from stock brokers in that they do not engage in trades on the following exchange. Rather, they assist investors in certain transactions with the exchange members.
As more people are inclined towards investing in the growing stocks, the role of a broker becomes very crucial. More recently, the role of those who create links between those interested in purchasing shares and those with shares available for sale is becoming just as important as that of a broker.
Stock Broker vs Sub-Broker
A stockbroker is a person that fulfills the function of a middleman during transactions in the stock market.
Brokers charge a commission for executing transactions through them – which can include buying, selling or even handling day-to-day transactions such as payments and transfers.
A sub-broker is a registered entity and acts as a liaison between the client and the broker. For instance, they will work with potential clients to educate them on various types of insurance products available. Essentially, these brokers act as liaisons between clients and agency partners.
A broker earns a brokerage fee by the transaction services they provide. All transactions done by a sub-broker can be processed through the main broker’s designated code. The brokerage fee is determined by the agreement made between the sub-brokers and brokers.
In order to increase the reach to a broader market, a broker may need to collaborate with the sub-brokers having a good client base. Sub-brokers have been known to represent contractors when it comes to negotiating agreements for service.
SEBI Regulations for Sub Brokers
Earlier, it was mandatory that sub-brokers must have to be registered with the Securities and Exchange Board of India (SEBI). It was made compulsory by SEBI that no deal could happen by trading members with a sub-broker until a sub-broker is registered with SEBI.
Certificate of Registration from SEBI was mandatory for them. Sub brokers and brokers were working together without any restrictions. Meaning that there was no limit to the number of sub-brokers that work under a broker.
Now, as per the latest development, SEBI has stopped allowing sub-brokers to register because people were switching to larger brands for better returns. But for SEBI, compliance costs increased & margins were falling down.
Brokers are important for executing trades by connecting traders with financial institutions. Traders depend on these brokers for brokerage services. As per the stats, the sub-broker numbers have decreased from 9,606 to 2773 in the last five years. (Source: SEBI)
SEBI was quoted saying that new sub-broker licenses will not be issued effective immediately. SEBI also confirmed that all brokers are now aware of their responsibilities starting April 1, 2019.
Moreover, the registration and certification of all sub-brokers in India will be conducted by SEBI or any authority appointed by it. Hence, the need for ‘sub broker’ category as a market intermediary is not required.
This news may be shocking for some readers. Fear not, because there is also a solution!
If you’re worried about becoming a sub-broker or if you are an existing sub-broker, then pause for a breath & register as an ‘Authorized Person.’
SEBI sets a timeline for sub-brokers to shift from being “sub-brokers” to becoming “Authorised person”.
In order to join, individuals or companies must first register with the stock exchange instead of the Securities and Exchange Board of India (SEBI).
Both sub-brokers and authorizers have the same duties. Although their registration process differs, a business must follow a set of guidelines when registering with the AP in order to legally trade their stocks.
The new process for sub-brokers is easier and much less time-intensive. Now, instead of going through compliance after compliance, a software can actually do all the work for you.
To apply to the stock exchange, you need to apply separately for the different segments. Else, an application that mentions all segments may also be sufficient enough to do well in.
Being an Authorized Person – you have the part ownership of the company, voting rights, and your shares are kept as assets. In the derivative segment, an AP would have to take responsibility for buying or selling shares until the expiration.
Benefits Of Becoming a Sub Broker
Here are some of the benefits you might enjoy if you decide to become a sub broker:
- A sub broker’s seamless transactional experience is worth the stretch into contractually complicated dealings.
- Make sure that you are making a triangular deal between client – broker – and sub broker while trading. This will put you in compliance and protect against frauds.
- Working with a sub broker to buy and sell shares simplifies the buying or holding process, as they act as middlemen between investors. They will hone in on your objectives and guide you to make you understand what’s best for you so that your experience is less complex.
- A sub broker can help you during the early stages of leasing out your land. Make sure they are qualified before selecting them to be your sub broker.
Discover how to work as a sub-broker through a stock broking company. There are two paths to being a sub-broker. First, you can have the knowledge of the financial markets and be adept at explaining them to others. Second, if you don’t know much about investing, or if you’re just starting out, you can start as one – through applying to financial institutions for the job.
Breaking into the industry can be a challenge for a newbie, but with perseverance and some entrepreneurial flair, you can find success.
You need to learn more about your sub-broker role in different aspects of business, then you’ll know what functionalities you must perform while becoming involved. Be sure to seek advice from seasoned personnel, who could teach you how to be an “above average” sub-broker.
In conclusion, learning from the people around you and following the proper steps will help ensure success. This will help you achieve success as a sub broker in the long run.