SEBI asked conversion of all the sub-broker to an authorized person on 3 August 2018. There was no change in the roles and operations which an authorized person had to perform with respect to a sub-broker. But the difference between the two lies in their process of registration.
The Authorised person concept had its existence since 2009 in the stockbroking space in India. The main intention behind this model was to enable the stock exchanges’ registered stockbrokers to enable access to the clients through the authorized persons.
Read on to know the reason why the sub-broker model has been dumped by SEBI, the differences between the two as well as the steps needed for the conversion.
Sub Broker to Authorized Person Introduction Reason
There were many sub-brokers who applied for the Authorised persons in the year 2014 by surrendering their sub-broker license. The main reason why this happened is the high compliance costs and low margin. Since the functions of both were the same, people were reluctant to opt for a costlier option.
Besides this, there are other numerous benefits of the authorized person model which prompted people to opt for it. SEBI noticed a gradual fall in the number of sub-brokers in the subsequent years.
Both the sub-brokers and authorized persons are just the brokers’ agents who are not involved in any kind of intermediation work. They are not allowed to deal with the securities and funds of the clients. This was the reason for stopping any fresh registrations of sub-brokers.
Though both these models are functionally the same, there are certain differences between the two which have been explained in the following section:
Registration with SEBI is essential in case of a sub-broker model but in case authorized person, registration is needed in NSE and BSE stock exchanges.
In the case of sub-brokers, it was not mandatory to register various financial segments but in the case of an authorized person, various segments such as cash, derivative, etc. need registration.
The sub-brokers will have a hassle-free process with respect to their compliance needs as SEBI won’t be controlling them any more. Thus Authorised person is a better form in this aspect too.
The fees that SEBI used to charge for the initial block of 5 financial years was Rs. 20,000, after which an amount of Rs.10,000 is charged for the next subsequent block of 5 financial years. But in case of an authorized person, only a single time registration fee of Rs.2000 has to be paid to the stock exchange.
The sub-brokers were allowed trading in the cash market only but the authorized persons are allowed to trade in different segments such as currency, derivatives, cash, F&O.
In the case of such brokers, many compliance processes were involved such as SEBI’s regulatory supervision but in case of an authorized person, the regulatory supervision of the broker and the stock exchange only exists.
Sub Broker to Authorized Person Considerations
Following points must be kept in mind when you are about to get involved in the conversion process from a sub-broker to authorized person:
Initially, the deadline to get converted to an authorized person from sub-brokers was 31 March 2019. There is an alternative way when someone is reluctant to migrate to the Authorised person model i.e by becoming a Trading Member. This is possible only if a sub-broker qualifies the prescribed criteria.
Suppose a person fails to follow the steps of conversion, then his license will become valueless, being considered to be surrendered by him. If this happens, then the person has to freshly apply for becoming an authorized person because he doesn’t have the option for migration anymore.
Make sure that for the year FY18-19, the renewal fee has been paid, failing which you will become a defaulter. In case you have made any advance payments for the FY19-20, SEBI will give it back to you in the upcoming period.
Sub Broker to Authorized Person Conversion Process
People freshly applying for sub brokership with SEBI won’t be entertained, owing to the discontinuation of this model. Fresh registration is needed for filing an application with the stock exchange for getting registered as an Authorised person.
The steps are:
The lead form of a stockbroking firm has to be filled up after which you will be communicated regarding the same.
The migration process is quick and simple since all the stockbrokers have the authorized person business models and the related policies.
The person who is an existing authorized person in the derivatives segment needs to register in the cash segment. This is a hassle-free process because it doesn’t demand you to complete any complex or lengthy process such as submission of KYC. The best part about it is that it doesn’t hamper the business flow.
If you are not an authorized person, you will need to adopt the migration process freshly. In this case, no separate applications are required for various segments while applying for the stock exchange. For all the different segments, a single application will suffice.
If you meet the eligibility conditions, then as a sub-broker, you can opt to become a trading member
Sub Broker to Authorized Person Documentation
According to Annexure I, an application form from the lead head of the Trading member is necessary.
An undertaking is needed from the Trading member as per the Annexure-II is needed.
According to Annexure III, the application is necessary from the sub-broker to surrender the registration
As per the Annexure-IV, an undertaking has to be done from the Trading Member on the letterhead regarding the Authorized Person appointment.
The Trading member needs to submit the original SEBI registration certificate or the FIR copy with an affidavit in case it is lost. This has to be done on a notarised Rs.100 stamp paper
An undertaking has to be taken from the Trading member specifying that SEBI doesn’t have any kind of penalty against him according to the Annexure V.
The Trading member certified PAN card of the sub-broker along with a processing charge of Rs.1000 along with GST has to be paid. Electronic submission of application through ENIT can be opted for. In 7 days, the physical documents should reach the Exchange, from the date of application in ENIT.
If you yourself are looking to become an authorized person, then let us assist you in taking the next steps ahead. Just fill in some basic details in the form below to get started:
More on Sub-brokership
If you wish to learn more about sub-brokership, here are a few references for you: