The sub-broker agreement is an essential part of the registration process of the potential client as a sub-broker. It states all the rules which both the parties (sub-broker and stockbroker) need to abide by.
According to this sub-broker agreement, the sub-broker will be responsible for purchasing, selling or dealing with the securities and other financial instruments through the stockbroker.
The business starts only after the registration certificate is issued by SEBI and not on the specific date mentioned on the sub-broker agreement.
The agreement is basically a written proof signed by both the sides to make the partnership official along with a specific set of conditions that have a direct and indirect impact on how they are supposed to carry forward their business operations.
There are a few clauses as well that both sides need to take care of by avoiding some of the pitfalls of the industry.
Sub Broker Agreement Benefits to the Sub-broker:
Here are some of the benefits a sub-broker or a business partner gets through this sub-broker agreement:
- The agreement prevents the stockbroker from doing anything unfair by which the clients will get dissociated from the sub-broker.
- In case of a dispute between the two parties, they have to abide by the decision given by the officials of the exchange or else refer the matter to arbitration as per the rules of the exchange. The sub-broker and the stockbroker have to provide all the relevant documents and cooperate to ensure the expedition of the matter.
- When the stockbroker terminates the agreement, then this has to be informed to the concerned stock exchange by the stockbroker.
- Except for the amount that is agreed between both the parties, the stockbroker can’t transact a higher amount in the securities on behalf of the sub-broker.
Sub Broker Agreement Benefits to the Stock-broker:
At the same time, the stockbroker enjoys the following mentioned benefits through this official partnership with the broker:
- There is a mutual understanding between both parties regarding the sharing of the brokerage or commission. The maximum value is capped at one and one-half per cent of the transaction values that the sub-broker carries out for his clients.
- A separate record is maintained by the stockbroker regarding the security dealings on behalf of the clients. In this, the details related to each sub-broker is also shown.
- The sub-broker can’t propose any material modification in its status as well as constitution without informing the stockbroker. After this only the sub-broker can get that approved from SEBI.
- It is only on the stock broker’s behalf that the sub-broker can carry out the securities business. He has no right to do this directly or through his relatives.
- Without the stock broker’s authorization, a sub-broker can’t issue any kind of documents. This includes bills, confirmation memo, statement of funds or securities, etc.
- The bank account transactions and DP statement of all those who have been registered in the broking house has to be produced by the sub-broker whenever the stockbroker demands
- At ant time till the sub-broker agreement exists between the parties, the stockbroker has the right to internal controls in deposit, client’s identity verification, sub-broker documents scrutinization, reviewing the large volume transactions done by clients, etc.
- If investors complain about the sub-broker activities, the stockbroker can hold back the money that the sub-broker has to get until the matter gets resolved.
- In all the branches at the prominent locations, the sub-broker has to display the trading member’s display board that has the guidelines for the investors. This includes the trading member details, details related to the compliance officer, mode of payment or receipt of funds and securities.
Sub Broker Agreement Termination:
If either of the parties gives a notice in writing about terminating the agreement, then they can do it without stating any reason. In such a case, the sub broker’s clients will become the stock broker’s direct client.
The tripartite agreement that had been entered between the sub-broker, stockbroker and the client will continue to exist until and unless the clients want it to be terminated.
In this case, one month notice has to be given in writing by the client.
The cases in which the sub-broker agreement will terminate are as follows:
- The sub broker’s membership gets over, Board issued certificate gets cancelled, he dies, resigns or is expelled because of being a defaulter
- The sub-broker becomes insolvent, his registration with the Board gets cancelled or the stock exchange doesn’t recognize him
When the stockbroker terminates the agreement, he has to collect and send the sub-brokers registration certificate to SEBI through the stock exchange.
According to SEBI Regulations 1992’s Part II of Schedule III, the fees in arrears related to the sub-broker registration also needs to be sent. In carrying out all these functions, the sub-broker will have to provide his complete cooperation.
When the sub-broker registration is surrendered, the stockbroker has to inform this to the investors or public through advertisement in an English daily newspaper as well as locality through newspaper where the corporate office of the sub broker’s registered office is present.
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