Sub Brokers are agents of Trading Members (brokers) and act on their behalf to purchase and sell shares for clients. Sub brokers have to be registered with SEBI (Securities and Exchange Board of India) as per regulation. Registration is essential for trading activity. It helps SEBI to regulate and monitor sub brokers and their trades effectively, on a micro level (per sub broker).
Recently, SEBI came up with a new regulation regarding sub brokers in August 2018. Under this new framework, sub brokers were discontinued from being a participant/ intermediary category in the capital markets. They are to be shifted as Authorised Persons (APs), or deemed to have surrendered their sub broker status. APs are regulated by the stock exchanges and perform a role very similar to that of sub brokers here. To reduce confusion regarding parties in the secondary market and streamline the investing process along with simplifying the regulatory burden on SEBI, this new regulation was formulated and passed.
Previously a lengthy procedure was followed by sub brokers to obtain their registration from SEBI. The procedure was as follows:
- Trading Member had to apply for the sub broker by attaching his/ her own registration certificate with the application. Fees also had to be paid, and details were to be provided.
- Various forms had to be submitted along with the application.
- Age proof and educational qualification details had to be provided.
- A ‘Market experience certificate’ had to be provided if the educational qualification was lower than the Higher Secondary Certificate (Standard XII).
- A copy of the agreement between broker and sub broker was also required to be submitted.
With the latest regulation issued by SEBI, the above procedure does not have to be followed. The role and work responsibility of a Sub broker is the same as that of an Authorised Person. Only the registration procedure is different.
The registration authority differs for Sub brokers and Authorised Persons-
- Sub brokers have to register with SEBI.
- Authorised Persons have to register with stock exchanges like BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
Also, APs have to register separately if they wish to deal in the Cash segment or the Derivatives segment. This was not the case with sub brokers.
Existing sub brokers have been granted a grace period till March 31, 2019, to migrate to the category of Authorised Persons, in tandem with the fresh regulation by SEBI. In case the sub broker has the eligibility, he/ she can also apply to be a Trading Member (broker). An existing sub broker who does not complete the formalities of migration to either AP or Broker category within the timeline would have to surrender the Sub broker certificate held by him/ her. After March 31, 2019, the sub broker would have to apply afresh to become an Authorised person or Trading Member.
The two stock exchanges would effectively become the regulatory authorities for the sub brokers. NSE and BSE would introduce regulations regarding migration in due course of time. In case a person has applied to become a sub broker before the August 2018 SEBI regulation, his/ her application shall be given back by SEBI. The person will have to apply afresh with either or both of the stock exchanges to become an AP (Authorised Person) or Trading Member.
Migration from Sub broker status to Authorised Person Status:
- A sub broker who is also an AP in the Derivative section will have to register to become an AP in the Cash section as well. Only an additional registration is required.
- A sub broker who is not an AP will have to apply for migration to AP status. No different applications are required for Cash and Derivatives trading sections.
- As mentioned earlier, the sub broker can apply to become a Trading Member; provided the eligibility criteria laid down by BSE and NSE are met with.
The registration procedure has become simplified for sub brokers, as they only have to migrate to the Authorised Person categorisation. Also, there is no need for separate applications to deal in the Cash and Derivatives segments. SEBI’s new regulation has shifted the compliance burden related to sub brokers to the stock exchanges. This would streamline processes and limit unnecessary hurdles to the smooth functioning of the secondary markets.
Every market is characterised by various players and buying and selling activity. The share market is no different. With the dematerialisation of shares, ownership of stock has become simpler and enabled more buyers to enter the market. The Indian stock market is still not as developed as the foreign markets. Much work still needs to be done to ensure transparent pricing, fair trade and increase in values traded. The simplification of regulation would aid the markets to grow at a faster rate; to compete with international trading levels.